<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission file number 000-28790
----------------
MEDCARE TECHNOLOGIES, INC.
(Name of small business issuer as specified in its charter)
DELAWARE 87-0429962
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 West 22nd Street, Suite 1210 60523
Oak Brook, Illinois (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (888) 479-7900
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $.001 par value, listed on the NASDAQ SmallCap Market
Indicate by check mark whether the registrant: (1) has filed all reports
required by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing for
the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]
Revenues for last fiscal year were $786,586
Aggregate market value of Common Stock, $0.001 par value, held by non-
affiliates of the registrant as of March 25, 1999: $47,965,518. Number of
shares of Common Stock, $0.001 par value, outstanding as of March 25, 1999:
7,831,105.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 1999 Annual Meeting of Shareholders (to be filed
with the Commission within 120 days after the registrant's fiscal year end) is
hereby incorporated by reference into Part III of this Form 10-KSB.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C>
Item 1.Business........................................................... 3
Item 2.Properties......................................................... 10
Item 3.Legal Proceedings.................................................. 10
Item 4.Submissions of Matters to a Vote of Security Holders............... 10
PART II
Item 5.Market for the Registrants' Common Equity and Related Stockholder
Matters.................................................................. 11
Item 6.Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 11
Item 7.Financial Statements............................................... 15
Item 8.Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. 27
PART III
Item 9.Directors and Executive Officers of the Registrant................. 27
Item 10.Executive Compensation............................................ 27
Item 11.Security Ownership of Certain Beneficial Owners and Management.... 27
Item 12.Certain Relationships and Related Transactions.................... 27
PART IV
Item 13.Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 27
</TABLE>
2
<PAGE>
PART I
Item 1. Business
Except for the historical information contained herein, the discussion in
this Annual Report on Form 10-KSB contains certain forward-looking statements
that involve risk and uncertainties, such as statements of the Company's
plans, objectives, expectations and intentions. The cautionary statements made
in this document should be read as being applicable to all related forward-
looking statements wherever they appear in this document. The Company's actual
results could differ materially from those discussed here. Factors that could
cause differences include those discussed below in "Risk Factors", as well as
those discussed elsewhere herein.
THE COMPANY
MedCare Technologies, Corporation is the operating subsidiary that is
wholly owned by Medcare Technologies, Inc. Medcare Technologies, Inc.
("MedCare" or the "Company") believes it is the leading source of conservative
incontinence treatment support services in the country. The Company believes
it has achieved this leadership position based on its relationships with over
300 physicians currently utilizing the MedCare Program (as defined below). The
Company was originally incorporated in the state of Utah in 1986. In 1996, a
migratory merger was completed changing the Company's domicile to Delaware. In
1995, the Company acquired the MedCare Program and began offering the program
to doctors in 1996. The Company did not generate any revenues until 1997 and
launched the program nationally in 1998.
DESCRIPTION OF BUSINESS
During 1998, the Company engaged in only one type of business, the offering
of the MedCare Program, as described below. On January 21, 1999, the Company
formed a new, wholly owned subsidiary of the Company, Medcareonline.com, Inc.
In January 1999, the Company, through Medcareonline.com, Inc., announced its
intention to offer a comprehensive healthcare portal offering adult gender
specific health information.
The Medcare Program
The "MedCare Program" is a discrete package of equipment, software and
services developed by MedCare to assist physicians in providing non-
pharmaceutical, non-invasive treatment to patients suffering from urinary
incontinence ("UI") and other pelvic disorders, including pelvic pain, chronic
constipation, fecal incontinence and disordered defecation. The MedCare
Program is used by physicians to support a treatment plan based primarily on
behavioral modification techniques such as electromyography ("EMG")
biofeedback, pelvic floor muscle exercise, and bladder and bowel retraining.
Utilizing the MedCare Program, physicians help patients activate and
strengthen the various sensory response mechanisms that maintain bladder and
bowel control. Therapy is provided through computerized instrumental EMG
biofeedback and is based on operant conditioning strategies whereby specific
physiological responses are progressively shaped, strengthened and
coordinated.
3
<PAGE>
UI is the involuntary loss of bladder control and represents a significant
cause of disability and dependence. Incontinence is one of the most prevalent,
yet severely unrecognized problems in health care today (1). And as society
ages, the physical, emotional and financial costs to those suffering and their
caregivers, as well as the health care system, is expected to increase
dramatically.
Despite the prevalence of incontinence, the Company believes it is widely
under diagnosed and under reported primarily because of the social stigma
attached to UI. Many individuals are either too ashamed or too embarrassed to
report the problem to their doctor or to a health care professional (2), (3).
Instead, the Company believes a large number of people prematurely turn to the
use of absorbent materials and supportive aids without having their condition
properly diagnosed and treated.
In March 1996, the US. Department of Health and Human Services published a
Clinical Practice Guideline which estimated that UI affects approximately 13
million Americans (of which 85% are women) at an annual cost of $16 billion.
Incontinence is a symptom rather than a disease. UI can be caused from a
variety of pathologic, anatomic and physiological factors including: damage to
pelvic muscles from pregnancy, spina bifida, spinal injury, bladder
infections, drug side effects, multiple sclerosis, Parkinson's disease,
stroke, diabetes, age-related changes in lower urinary tract, obesity and
surgery (hysterectomy, cesarean section or prostatectomy) that may damage the
bladder or urinary tract.
Effectiveness of EMG Biofeedback
Over the years, the value and effectiveness of neuromuscular reeducation
therapy and behavioral techniques in conjunction with developments in
technology has resulted in increased awareness of the benefits of such a
program.
In the December 16, 1998 issue of the Journal of the American Medical
Association, a study entitled "Behavioral vs. Drug Treatment for Urge Urinary
Incontinence in Older Women" was published. This study concluded that
behavioral therapy was more effective than drugs in treating UI. A group of
scientists studied 197 women between the ages of 55 to 92 over an eight week
period. Patients undergoing behavioral therapy reported an 81% reduction in
incontinence episodes, compared to a 69% decrease for those taking drug
therapy (oxybutynin), and a 39% decline for those on a placebo. Further, 76%
of patients assigned to both drug and placebo therapy wanted to change to
another treatment, versus only 14% of the patients receiving behavioral
therapy.
Utilization of the MedCare Program
The MedCare Program is used by physicians in private office, clinic or
hospital settings. The Company believes it can continue to grow by contracting
with more physician practices in the future.
As of March 18, 1999, the Company had 78 contracted MedCare program sites.
These sites are located in the following cities: Norman, OK (Dr. Michael M.
Blue), Anderson, SC (Dr. Bill Hinnat), Athens, GA (Dr. Mark Ellsion), Augusta,
GA (2) (Dr. Goldsmith and Dr. Harry Oldman), Birmingham, AL (Dr. William
Johnson), Roswell, GA (Dr. Omar Eubanks), Warner Robins, GA (Dr. F. Marshall
Parker), Savannah, GA (Dr. David Ostman), Glen Cove, NY (Dr. Eric Hochberg),
Greensburg, PA (Dr. James Mayo), Jersey City, NJ (Dr. Anthony Mangia), Mine
Hill, NJ (Dr. Marc Colton), Natick, MA (Dr. Emmanuel Friedman), New York, NY
(Dr. Robert
- --------
(1) Urinary Incontinence Guideline Panel. "Urinary Incontinence in Adults:
Clinical Practice Guidelines." AHCPR Pub-9-9-0038. Rockville, MD: Agency
for Health Care Policy & Research; PHS, HHS: March 1992.
(2) Legace, EA, et al. "Prevalence and severity of urinary incontinence in
ambulatory adults: an UPRNet study." J Fram Pract 35,610-4: 1993 June.
(3) Wallace, K. "Female pelvic floor functions, dysfunctions, and behavioral
approaches to treatment." Clinics in Urinary Incontinence.
4
<PAGE>
Gluck), Stamford, CT (Dr. Jonathan Waxberg), Yonkers, NY (Dr. Stanley Boczko),
Alexandria, VA (Dr. Roger Weiderhorn), Baltimore, MD (2) (Dr. Marcella
Ronneburg), Fayetteville, NC (Dr. Garrett Franzoni), Owings Mills, MD (2) (Dr.
Sanford Siegel), Shelby, NC (Dr. Shem Blackley), Newport News, VA (Dr. Peter
Han), Jacksonville, NC (Dr. Robert Kell), Wilmington, NC (Dr. John Cashman),
Fremont, CA (Dr. Scott Kramer), Kirkland, WA (Dr. John Paul Isabell), Los
Gatos, CA (2) (Dr. Anthony Damore and Dr. Robert Panvini), Reno, Nevada (Dr.
Angelo Kanellos), San Mateo, CA (Dr. Hessell), Concord, CA (Dr. Nigro), Walnut
Creek, CA (Dr. Nigro), San Francisco, CA (Dr. David A. Ronk), Beverly Hills,
CA (Dr. Sherman Bruckner), Fullerton, CA (Dr. Nicholas Thanos), Los Angeles,
CA (Dr. William Barba), Mission Viejo, CA (Dr. Marc Winter), Laguna Hills, CA
(Dr. Marc Winter), Orange, CA (Dr. Arthur Goldstein), Newport Beach, CA (Dr.
Arthur Goldstein), Rancho Mirage, CA (Dr. Sheldon Barroff), Oceanside, CA (Dr.
Bradley Frasier), Downey, CA (Dr. Msihal), Tarzana, CA (Dr. Richard Leff),
Palm Beach, CA (Dr. E. Jacome), San Rapeal, CA (Dr. John Hessell), Dallas, TX
(Dr. Brian Feagins), Fort Worth, TX (Dr. A.E. Thurman), Kingwood, TX (Dr.
Robert Rosen), Scottsdale, AZ (Dr. Mary Ellen Shannon), San Anthonio, TX (2)
(Dr. Tristan Castaneda and Dr. Robert Schorlemer), Oklahoma City, OK (Dr. Sam
Little), Elyria, OH (Dr. J. Patrick Spirank), Findlay, OH (Dr. Prem Agrawal),
Fridley, MN (Dr. J. Randolph Beahrs), Huntington, WV (Dr. Larry Caserta),
Indianapolis, IN (Dr. Sally Bradley), Maplewood, MN (Dr. Ingrid Wilbrand-
Cowley), Terre Haute, IN (Dr. Douglas Claybrook), Toledo, OH (Drs. Haselhuhn
and Seal), Dayton, OH (Dr. Daniel Miller), St. Paul, MN (Dr. Siegel), Batavia,
IL (Dr. John Zito, Jr.), Bloomington, IL (Dr. Vicken Chalian), Buffalo Grove,
IL (Dr. Randall Kahan), Chicago, IL (Dr. Maura Brennan), Elgin, IL (Dr. James
I. Pinto), Galesburg, IL (Dr. Jeffrey Koszczuk), Joliet, IL (Dr. Gregory
Lewis), Lake Forest, IL (Dr. David Schewitz), Kirkwood, MO (Dr. N. Saha),
Wentzville, MO (Dr. Stan Hanks), Cordova, TN (Dr. Yari Walzer), Castro Valley,
CA (Dr. N.V. Bulusa)
Marketing of the MedCare Program
MedCare's marketing and sales strategy is designed to promote general
awareness of incontinence and that an effective treatment program is readily
available. The majority of the Company's advertising consists of a combination
of brochures, print ads, direct mail, radio, TV, doctor referrals, seminars
and general public relations within a defined area.
The Program Management Agreement
Each physician or practice (a "Practice") that contracts with MedCare to
utilize the MedCare Program signs a Program Management Agreement which defines
the terms and conditions of the relationship. The Practice has exclusive
authority and responsibility for professional supervision and judgements
required in the diagnosis of patients and in the selection and performance of
procedures for the benefit of the Practice's patients. MedCare provides
various support and administrative services and assistance in operating the
Program, but is not a provider or supplier of medical or professional
services. MedCare leases the equipment and supports personnel to the Practice
and trains the support personnel to assist the Practice, operate the equipment
and educate all the patients. The Practice has the right to approve or
disapprove the support personnel provided by MedCare and must supervise all
activities of the support personnel. The Practice agrees to engage MedCare on
an exclusive basis as manager of the Practice's programs for the treatment of
the patient conditions using behavioral and biofeedback techniques. The
Practice is required to provide, at its own expense, an area of sufficient
space for the performance of the MedCare Program.
Governmental Regulation Issues Concerning the Program Management Agreement
Under the Company's Program Management Agreement, MedCare is not a provider
of health care services. MedCare merely supplies personnel, equipment and
proprietary techniques to providers of health care. The physicians or medical
groups that contract with MedCare are the providers of services to their own
patients. MedCare simply manages the incontinence treatment programs in the
physicians' offices. The Company is subject to the Federal Anti-Kickback
Statute but does not believe that an applicable government authority would
find the parties' performance of their duties and obligations under the
Program Management Agreement to violate this statute.
5
<PAGE>
Competitive Treatment Options for Incontinence
To the best of the Company's knowledge, the only direct competitors to the
MedCare Program are a number of small incontinence clinics, or ancillary
programs, offered by doctors, hospitals or therapists, scattered across North
America that use a combination of currently available non-invasive alternative
treatment options to treat UI patients. While it is believed that most of
these clinics have limited financial strength for adequate marketing and
advertising, the Company expects better financed and more sophisticated
competition to emerge in the future.
Some currently available alternatives for the treatment of urinary
incontinence include absorbent products and diapers, surgery, indwelling
catheters, implanting devices, injectable materials, electrical stimulation,
mechanical devices, and drugs.
Environmental Matters
The Company believes it conducts its business in compliance with all
environmental laws presently applicable to its facilities. To date, there have
been no expenses incurred by the Company related to environmental issues.
Intellectual Property and Other Proprietary Rights
The Company's ability to compete and expand effectively will depend, in
part, on its ability to develop and maintain certain proprietary aspects of
its treatment program for bladder and bowel incontinence and its business and
marketing models and strategies. The Company relies on an unpatented treatment
protocol, and there can be no assurances that others may not independently
develop the same or similar program or otherwise obtain access to the
Company's unpatented protocols. There can be no assurance that any
confidentiality agreements between the Company and its employees will provide
meaningful protection for the Company's trade secrets, know-how or other
information in the event of any unauthorized use or disclosure of such trade
secrets, know-how or other proprietary information. While certain proprietary
aspects of MedCare's clinical and business protocols remain an important part
of the business, the Company believes its long term success as a business will
depend primarily upon its high quality clinical outcomes and service,
continued business development and marketing skills.
Employees
At December 31, 1998, the Company employed 52 full time and no part-time
persons. To the best of the Company's knowledge, none of the Company's
officers or directors is bound by restrictive covenants from prior employers.
None of the Company's employees are represented by labor unions or other
collective bargaining groups. The Company considers its relationship with its
employees to be excellent.
Medcareonline.com
Medcareonline.com will offer wide ranging direct-to-consumer health
information, such as health travel advisory, health news, symposiums, medical
journals and publications, and extensive research and web based services for
physicians. Part of the Company's strategy is to increase site content,
features and services, including adding an online health magazine and
advertising on traditional and non-traditional media. In addition, the Company
plans to add e-commerce, which will eventually include a wide range of health
related products and services.
Medcareonline.com also plans to offer free web hosting and home page
services for physicians, specifically targeting male and female health
specialties. In addition to information on the location of their office, hours
of operation, profiles of doctors and services offered, Medcareonline.com will
also allow physicians to easily customize content on their websites, send and
retrieve e-mail, conduct e-commerce and allow patients to interact on various
health topics in "disease and condition" specific chat rooms.
As of December 31, 1998, the Company had not generated any revenues nor
incurred any expenses related to Medcareonline.com.
6
<PAGE>
Competitive Business Conditions for Medcareonline.com
The market for internet services and internet advertising is intensely
competitive. There are no substantial barriers to entry in these markets and
Medcareonline.com expects competition to intensify. The Company believes that
the number of companies relying on fees from internet based advertising has
increased substantially during the past year. The Company believes the main
competitive factors in this market are brand recognition, user base,
performance, ease of use, variety of value-added services, features and
quality of support.
Many of Medcareonline.com's existing competitors, as well as a number of
potential new competitors, have longer operating histories in the internet
market, greater name recognition, larger customer bases and significantly
greater financial, technical and marketing resources than Medcareonline.com.
Such competitors may be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
potential employees, distribution partners, advertisers and content providers.
Further, these competitors may develop internet search and retrieval services
or other online services that are equal or superior to those of
Medcareonline.com or that achieve greater market acceptance than
Medcareonline.com.
Medcareonline.com will also compete with traditional advertising media,
such as print, radio and television, for a share of advertisers' total
advertising budgets. If advertisers do not perceive internet advertising to be
as effective as traditional media, Medcareonline.com's business may be
adversely affected.
RISK FACTORS
No Market Studies
In formulating its business plan, the Company has relied on the judgment of
its officers, directors and consultants. No formal independent market studies
concerning the demand for the Company's proposed services have been conducted,
nor are any planned.
Lack of Operating History
Although the Company was organized in 1986, it did not become active until
1995 and has been continually developing its MedCare Program since that time.
Since the Company has not proven the essential elements of profitable
operations, investors bear the risk of complete loss of their investment in
the event the Company's business plan is unsuccessful. In addition, the
business model for Medcareonline.com is evolving and relies substantially upon
the sale of products and advertising on the Internet, which is a developing
industry. The Company has only limited experience in managing the clinics and
internet business and is expanding its operations, which may or may not
provide profits to the Company. The Company had no revenues in 1995 or 1996
and $91,802 in 1997. In 1998, the Company had revenues of $786,586. The
Company has also not been profitable, having an accumulated loss of $2,721,918
in 1997, which increased to an accumulated loss of $6,491,871 in 1998.
The Company's business must be considered in light of the risks, expenses
and problems frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets. The
Company may not be able to succeed in addressing such risks.
Resale of Securities May Negatively Affect Funding Attempts and Cause Dilution
Some of the Company's securities are currently being registered for resale
with the SEC on Form SB-2. In addition, there are securities, options and
warrants outstanding that are not subject to the Form SB-2 registration
statement. In total, if all the securities, options, warrants and employee
stock options, including those not subject to the current Form SB-2
registration statement, were to be exercised, it would result in 10,797,813
shares outstanding. This will have the effect of causing a dilution of the
share price of the Common Stock. The shares being registered may cause the
Company to receive funds as a result of the exercise of the options and
warrants at a price less than the current market price of the Common Stock.
This will result in downward pressure on the price of the Common Stock. If the
price of the Common Stock is reduced, some potential financiers will either
wait to see what effect the shares will have on the market or offer funding at
rates unacceptable to the Company.
7
<PAGE>
Continued Control by Existing Management
The Company's management currently owns a substantial stake in the
Company's outstanding Common Stock. Many of the shares of Common Stock will be
issued as a result of the exercise of options, warrants and other instruments
and will provide that management will obtain additional shares in the Common
Stock of the Company. Accordingly, new shareholders will lack an effective
vote with respect to the election of directors and other corporate matters.
Dividends
The Company's Board of Directors presently intends to cause the Company to
follow a policy of retaining earnings, if any, for the purpose of increasing
the net worth and reserves of the Company. Therefore, there can be no
assurance that any holder of Common Stock will receive any cash, stock or
other dividends on his shares of Common Stock. Future dividends on Common
Stock, if any, will depend on future earnings, financing requirements and
other factors. Since its inception, the Company has paid no dividends to
shareholders.
Dependence on Executive Officers
The Company is highly dependent on the services of its officers. Attracting
and retaining qualified personnel is critical to the Company's business plan.
No assurances can be given that the Company will be able to retain or attract
such qualified personnel or agents. Should the Company be unable to attract
and retain the qualified personnel necessary, the ability of the Company to
implement its business plan successfully would be limited.
Nasdaq Eligibility and Maintenance
Under the current rules for initial Nasdaq SmallCap Market listing, a
company must have at least $4,000,000 in total assets, at least $2,000,000 in
stockholders' equity, and a minimum bid price of $3.00 per share. For
continued listing, a company must maintain at least $2,000,000 in total
assets, at least $1,000,000 in stockholders' equity and a minimum bid price of
$1.00 per share. The Company's Nasdaq SmallCap Market application was accepted
on July 15, 1998 and the Company began trading on that market on July 20,
1998. If the Company should experience losses from operations, it may be
unable to maintain the standards for continued listing and the listed
securities could be subject to delisting from Nasdaq Small Cap Market Trading.
Trading in the securities would thereafter be conducted in the over-the-
counter market on an electronic bulletin board established for securities that
do not meet the listing requirements or in what are commonly referred to as
the "pink sheets." As a result, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the Company's
securities.
Risk of Low-Priced Stocks
If the Company's securities were delisted from Nasdaq Small Cap Market and
no other exclusion from the definition of a "penny stock" under applicable
Securities and Exchange Commission regulations were available, such securities
would be subject to the penny stock rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally defined
as investors with net worth in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with a spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination
for the purchase and must have received the purchaser's written consent to the
transaction prior to sale.
Adverse Effect of Shares Eligible for Future Sale
Substantially all of the 7,831,105 outstanding shares of Common Stock of
the Company are freely tradable, without restriction or registration under the
Securities Act (other than the sale volume restrictions of Rule 144 applicable
to shares held beneficially by persons who may be deemed to be affiliates of
the Company). The
8
<PAGE>
Company's directors, officers and family members of the officers and directors
are under no lockup letters or other form of restriction on the sale of their
securities. Following the registration for resale of certain of the Company's
securities, an additional 2,661,364 shares will be available for sale by the
affiliates and other persons. This is an estimate of the maximum number of
shares to be resold. Any sale of these securities could have a detrimental
effect on existing shareholders.
Reimbursement and Related Matters
In both the United States and elsewhere, sales of health care products and
services are dependent, in part, on the availability of reimbursement from
third parties, such as government and private insurance plans. In the United
States and in certain foreign countries, third-party reimbursement is
currently generally available for certain procedures, such as surgery and
biofeedback training by EMG application, and generally unavailable for patient
management products such as diapers, pads, and urethral plugs. While the
Company's treatment program is currently covered by third party payers, there
can be no assurances that such coverage will remain in effect in the future.
Regulation by Federal and State Government
The business of the Company is heavily regulated at a federal and state
level. Legislation relating to the manner in which patients receive treatment
is being enacted on a continuous basis. This legislation may have a negative
effect on the way the Company does business in ways that cannot be predicted
by the Company. This poses a serious risk to the viability of the programs of
the Company and whether or not the Company can do business in the future.
Should legislation be enacted negative to the programs of the Company it could
cause the business of the Company to terminate.
Potential Fluctuations in Quarterly Results
The Company's operating results have varied on a quarterly basis during its
limited operating history, and the Company expects to experience significant
fluctuation in future quarterly operating results. Such fluctuations have been
and may in the future be caused by numerous factors, many of which are outside
of the Company's control. The Company believes that period to period
comparisons of its results of operations will not necessarily be meaningful
and should not be relied upon as an indication of future performance. Also, it
is likely that in some future quarter or quarters, MedCare's operating results
will be below the expectations of public market analysts and investors. In
such an event, the price of MedCare's Common Stock would be materially and
adversely affected.
Medcareonline.com
Medcareonline.com will operate in a new and rapidly evolving market.
Medcareonline.com's business may be adversely affected if usage of the
internet or other online services does not continue to grow. The internet as
an advertising medium has not been available for a sufficient period of time
to gauge its effectiveness as compared with traditional advertising media.
Therefore, the internet is an unproven medium for advertising-supported
services. Accordingly, Medcareonline.com's future operating results will
depend substantially upon the increased use of the internet for information,
publication, distribution and commerce and the emergence of the internet as an
effective advertising medium. Medcareonline.com's ability to generate
significant advertising revenues will also depend on, among other things, the
development of a large base of users of Medcareonline.com's services
possessing demographic characteristics attractive to advertisers, the ability
of Medcareonline.com to accurately measure its user base and the ability of
Medcareonline.com to develop or acquire effective advertising delivery and
measurement systems. Many of Medcareonline.com's potential advertisers have
only limited experience with the internet as an advertising medium, have not
yet devoted a significant portion of their advertising expenditures to
internet based advertising, and may not find advertising to be effective for
promoting their products and services relative to traditional print and
broadcast media. The adoption of internet advertising, particularly by those
entities that have historically relied upon traditional media
9
<PAGE>
for advertising, requires the acceptance of a new way of conducting business
and exchanging information. Entities that already have invested substantial
resources in other methods of conducting business may be reluctant to adopt a
new strategy that may limit or compete with their existing efforts. The market
for internet advertising may not continue to emerge or become sustainable. If
the market fails to develop or develops more slowly than expected,
Medcareonline.com's business may be materially and adversely affected. No
standards have been widely accepted for the measurement of the effectiveness
of internet based advertising and there can be no assurance that such
standards will develop sufficiently to support the internet as an effective
advertising medium. In addition, there is intense competition in the sale of
advertising on the internet, resulting in a wide range of rates quoted and a
variety of pricing models. This makes it difficult to project future levels of
revenues and rates. As a result of these risks, Medcareonline.com may not
succeed in generating significant future advertising revenues from internet
based advertising. The failure to do so may have a material adverse affect on
the Company's business.
In addition, Medcareonline.com will be dependent on its ability to generate
a high volume of traffic to its website. Accordingly, the performance of the
website is critical to MedCare's reputation, its ability to attract
advertisers, and to achieve market acceptance of Medcareonline.com. Any system
failure that causes interruptions in the availability or that increases
response time of Medcareonline.com's services could reduce user satisfaction
and traffic to the website, and if sustained or repeated, would reduce the
attractiveness of Medcareonline.com to advertisers and consumers.
Item 2: Properties
The Company's principal office is located at 1515 West 22nd Street, Suite
1210, Oak Brook, Illinois, 60521. This office is 2400 square feet and is
subleased for $5,100 per month, plus operating expenses of approximately $400
per month, for one year, with an option to renew every year for 5 years. The
Company also leases 1,500 square feet of office space located in Vancouver,
British Columbia for $2,000 per month, plus operating expenses of
approximately $200 per month. This space has been leased for a period of one
year, with an option to renew for a second year.
The Company does not purchase or lease property on behalf of its MedCare
Program participants. Instead, the Company typically enters into a Practice
Management Agreement with a physician in order to manage the incontinence
portion of their practice, that calls for the Company to provide trained
support personnel, electromyography equipment and a comprehensive policy and
procedures manual. The physician is required to provide a dedicated examining
room, typically 10' x 10' or larger in size, at no charge and for the duration
of the agreement, usually for a five year term.
Item 3: Legal Proceedings
The Company is not involved in any pending legal proceedings other than
various claims and lawsuits arising in the normal course of business. The
Company's management does not believe that any such claims or lawsuits will
have a material adverse effect on its financial statements.
Item 4: Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the security holders in the
fourth quarter of 1998.
10
<PAGE>
PART II
Item 5: Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information
The Company's Common Stock is listed on the Nasdaq Small Cap Market under
the symbol "MCAR". The following table sets forth the high and low sale prices
for the periods indicated:
<TABLE>
<CAPTION>
High Low
-------- ------
<S> <C> <C>
First Quarter 1997....................................... $8.25 $6.75
Second Quarter 1997...................................... $8.0625 $6.25
Third Quarter 1997....................................... $9.25 $6.875
Fourth Quarter 1997...................................... $8.125 $7.625
First Quarter 1998....................................... $9.375 $7.375
Second Quarter 1998...................................... $11.25 $9.00
Third Quarter 1998....................................... $9.31 $6.00
Fourth Quarter 1998...................................... $7.4375 $4.875
</TABLE>
(b) Holders
As of March 25, 1999 there were approximately 350 stockholders of record of
the Company's Common Stock.
(c) Dividend Policy
The Company has never paid a dividend and does not anticipate paying any
dividends in the foreseeable future. It is the present policy of the Board of
Directors to retain the Company's earnings, if any, for the development of the
Company's business.
Item 6: Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the financial
statements and notes thereto included in Item 7 of this Form 10-KSB. Except
for the historical information contained herein, the discussion in this Annual
Report on Form 10-KSB contains certain forward-looking statements that involve
risk and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this document
should be read as being applicable to all related forward-looking statements
wherever they appear in this document. The Company's actual results could
differ materially from those discussed here. Factors that could cause
differences include those discussed below in "Risk Factors", as well as
discussed elsewhere herein.
Overview
The "MedCare Program" is a discrete package of equipment, software and
services developed by MedCare to assist physicians in providing non-
pharmaceutical, non-invasive treatment to patients suffering from urinary
incontinence ("UI") and other pelvic disorders, including pelvic pain, chronic
constipation, fecal incontinence and disordered defecation. The MedCare
Program is used by physicians to support a treatment plan based primarily on
behavioral modification techniques such as electromyography ("EMG")
biofeedback, pelvic floor muscle exercise, and bladder and bowel retaining.
Utilizing the MedCare Program, physicians help patients activate and
strengthen the various sensory response mechanisms that maintain bladder and
bowel control. Therapy is provided through computerized instrumental EMG
biofeedback and is based on operant conditioning strategies whereby specific
physiological responses are progressively shaped, strengthened and
coordinated.
To date, MedCare has not received significant revenues due to the early
stage nature of the Company's business and has incurred ongoing operating
losses due to costs related to research, business development, management and
staff recruitment, establishing training systems and providing ongoing
training, development of advertising and marketing programs, and other costs
associated with establishing corporate infrastructure necessary for
contracting with additional physicians for utilization of the MedCare Program
on a national basis. Although planned principal operations have commenced,
substantial revenues have yet to be realized.
11
<PAGE>
Results of Operations
Revenues. The Company had revenues of $786,586, $91,802 and $0 for the
years ended December 31, 1998, 1997 and 1996 respectively. During 1998, the
Company changed the profile of the type of physician practices it would
contract with from single physician practice offices to multi physician
practice offices. Existing offices that were not profitable and no longer met
the profile were closed. As of December 31, 1998, the Company operated at 25
sites and is expecting to begin operating at its remaining contracted sites
during the first half of 1999. To date, the Company has not relied on any
revenues for funding. During the next several years, the Company expects to
derive the majority of its potential revenues from the commencement of
operations of the MedCare Program at additional sites in the United States,
and possibly select foreign markets. In addition, during 1999, the Company
expects to begin generating revenue from the sale of advertising from its new
wholly-owned subsidiary, Medcareonline.com. As of December 31, 1998, there
have been no revenues or expenses related to Mecareonline.com.
General and Administrative Expenses. During 1998, the Company incurred
$4,689,400 in general and administrative expenses, an increase of 209% over
1997 expenses of $1,515,459. During 1996, the Company incurred expenses of
$452,037. The Company experienced a $.52 per share loss for the year ended
December 31, 1998, versus a $.21 per share loss for the year ended December
31, 1997 and a $.08 per share loss for the year ended December 31, 1996. This
increase is primarily attributable to costs associated with the development of
advertising and marketing programs, public relations, hiring and training
expenses of clinical and managerial personnel, travel, legal and accounting,
and ongoing general operating expenses.
Interest Income. Interest income was $162,109, $119,146 and $2,801 for the
years ended December 31, 1998, 1997 and 1996, respectively. Interest earned in
the future will be dependent on Company funding cycles and prevailing interest
rates.
Provision for Income Taxes. As of December 31, 1998, the Company's
accumulated deficit was $6,491,871, and as a result, there has been no
provision for income taxes to date. The Company has net operating losses that
will expire beginning with the year 2002 in the amount of $5,050,407 unless
utilized by the Company.
Liquidity and Capital Resources
At December 31, 1998, the Company had a cash balance of $2,826,086,
compared to a cash balance of $3,440,791 at December 31, 1997 and $219,775 at
December 31, 1996.
During 1998, the Company used $3,381,600 of net cash from operating
activities as compared to $1,373,592 of net cash used in 1997. The increase in
the net cash used in operating activities was due mainly to the increase in
the general and administrative expenses explained above.
Net cash used in investing activities was $315,335 for 1998, compared to
net cash used of $33,642 in 1997. The increase in the net cash used in
investing activities was due to the purchase of additional computer and
medical equipment to support the expansion of operations during 1998.
Net cash provided by financing activities was $3,082,230 for 1998, compared
to net cash provided of $4,628,250 in 1997. The Company has financed its
operations primarily through private placements of Common Shares, Preferred
Shares and the exercise of stock options as described below.
During fiscal 1998, 200,000 warrants to purchase Common Stock were
exercised at $6 per share, or $1,200,000. In addition, on November 6, 1998,
the Company issued 300,000 shares of its common stock at $5.00 per share to
Lyons Capital Corporation, a Bermuda corporation, with a warrant to purchase
an additional 300,000 shares at $5.00 per share pursuant to an offering made
under Rule 506 promulgated under the Securities of 1933, as amended ("Rule
506"). The warrant is exercisable until October 14, 2004. The proceeds were
used for working capital and expansion of operations.
12
<PAGE>
On February 1, 1997, pursuant to Rule 506, for 176,000 shares of Common
Stock were offered at a price of $6.25 per share, for a total offering of
$1,100,000. This offering was completed on February 4, 1997. The proceeds were
used for working capital and expansion of operations.
On July 7, 1997, pursuant to Rule 506, 300,000 shares of Common Stock were
offered at $6.00 per share, plus 300,000 warrants exercisable at $6.00 per
warrant until July 7, 2002, for a total offering of $1,800,000. This offering
was completed on July 30, 1997 and the proceeds used for working capital and
expansion of the MedCare Program.
On June 20, 1997, pursuant to Rule 506, the Company began offering for sale
Series A Preferred Stock of the Company and for $10,000 per share, in minimum
subscription amounts of at least ten shares ($100,000) and increments of five
shares in excess thereof. The offering closed on July 8, 1997 with the minimum
offering of $1,650,000 placed. The proceeds were used for working capital and
expansion of operations.
The Preferred Stock was accompanied by warrants to purchase a total of
258,302 shares of Common Stock of the Company at an exercise price of $7.346
per share ("conversion warrants"). In addition, the purchasers of the
preferred stock also received preferred stock warrants to purchase an equal
amount of preferred stock under the same terms as the original offering. In
conjunction with this offering, an Escrow Agreement was entered into with
Swartz Investments LLC, a Georgia limited liability company, as Placement
Agent and with First Union National Bank of Georgia as Escrow Agent.
At this time, the Company also filed a Certificate of Designation with the
State of Delaware that designated 1,000 shares of the Company's one million
shares of authorized preferred stock to be Series A Preferred Stock. This
stock has an eight percent (8%) per annum accretion rate. No dividend rights
have been granted to this stock.
The conversion terms outlined in the Certificate of Designation state that
holders of the Series A Preferred Stock can convert their stock using the
following formula per share of Series A Preferred Stock:
(.08)(N/365)(10,000) + 10,000
Conversion Price
At December 31, 1998, the Conversion Price is determined as the lesser of
$7.346 or 80% of the average closing bid price of the Company's Common Stock
for the five trading days immediately preceding the date of conversion.
The Company also has the right to redeem the Series A Preferred Stock upon
receipt of notice of conversion at various rates, depending on the length of
time since issuance.
Of the original 258,302 conversion warrants that were issued, 36,755 shares
were forfeited due to the early conversion of preferred shares. In addition,
Swartz Investments exercised all but 6,500 of its warrants utilizing the
cashless exercise option resulting in 8,990 shares being issued. The remaining
conversion warrants are still outstanding.
In June of 1998, the preferred stock investors converted 165 preferred
warrants into preferred stock. Upon conversion of the preferred warrants, the
investors and the Company deposited into an escrow account the proceeds of
$1,650,000 and the related preferred stock pending final approval of the
Company's registration statement. In addition, the Company and the investors
entered into an agreement which provided for the investors to receive three
month warrants at an exercise price of $7.346 per share and to forfeit any
rights to additional preferred warrants, nine month warrants, 12 month
warrants and 15 month warrants. Of the original four investors who
participated in the escrow agreement, three withdrew their proceeds of
$1,400,000 and forfeited the related preferred stock and warrants. The
forfeited preferred stock and related warrants were canceled. The remaining
investor, Concordia Partners, released its investment of $250,000 to the
Company and received 25 shares of new preferred stock and 11,344 warrants
exercisable three months after their issuance date at an exercise price of
$7.346 per share. In total, as of December 31, 1998, there were 50 preferred
shares outstanding, all of which are owned by Concordia Partners.
13
<PAGE>
The Company's future funding requirements will depend on numerous factors,
including the Company's ability to establish and operate profitably current
and future MedCare Program locations, recruiting and training qualified
management and clinical personnel, competing against any potential
technological advances in the treatment of UI and other afflictions of the
pelvic floor area, and the Company's ability to compete against better
capitalized corporations who offer alternative or similar treatment options
for urinary incontinence and other afflictions of the pelvic floor area.
Year 2000
The Year 2000 issue arose because many existing computer programs use only
the last two digits to refer to a year. Therefore, these computer programs do
not properly recognize a year that begins with 20 instead of 19. If not
corrected, many computer applications could fail or create erroneous results.
Management has initiated a comprehensive program to prepare the company's
systems for the year 2000. The Company is actively engaged in testing and
fixing applications to ensure they are Year 2000 ready. The Company does not
separately track the internal costs incurred for the Year 2000 project but
such costs are principally the related payroll costs for certain corporate
staff. The Company currently does not expect remediation costs to be material
nor does it expect any significant interruption to its operations because of
Year 2000 problems.
The Company is in the process of contacting all third parties with which it
has significant relationships, to determine the extent to which the Company
could be vulnerable to failure by any of them to obtain Year 2000 compliance.
Some of the Company's major suppliers and financial institutions have
confirmed that they anticipate being Year 2000 compliant on or before December
31, 1999, although many have only indicated that they have Year 2000 readiness
programs. To date, the Company is not aware of any significant third parties
with a Year 2000 issue that could materially impact the Company's operations,
liquidity or capital resources. However, the company has no means of ensuring
that third parties will be Year 2000 ready and the potential effect of third-
party non-compliance is currently not determinable.
The Company has devoted and will continue to devote the resources necessary
to ensure that all Year 2000 issues are properly addressed. However, there can
be no assurance that all Year 2000 problems are detected. Further, there can
be no assurance that the Company's assessment of its third-party relationships
will be accurate. Some of the potential scenarios that could occur include (1)
corruption of data in the Company's internal systems and (2) failure of
government and insurance companies' reimbursement programs. If any of these
situations were to occur, the Company's operations could be temporarily
interrupted. The Company intends to develop Year 2000 contingency plans for
continuing operations in the event such problems arise.
14
<PAGE>
Item 7: Financial Statements
INDEPENDENT AUDITORS REPORT
Board of Directors
MedCare Technologies, Inc. and Subsidiaries
Oak Brook, Illinois 60521
We have audited the consolidated balance sheet of MedCare Technologies,
Inc. and Subsidiaries, (the Company), as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
at December 31, 1998 and 1997, and the consolidated results of their
operations and their consolidated cash flows for the years then ended, in
conformity with generally accepted accounting principles.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
March 2, 1999
15
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ----------- -----------
<S> <C> <C>
Current Assets
Cash............................................... $ 2,826,086 $ 3,440,791
Accounts Receivable, net of Allowance for Doubtful
Accounts of $45,165 and $0........................ 271,240 67,530
Prepaid Expenses................................... 0 43,569
----------- -----------
Total Current Assets............................. 3,097,326 3,551,890
Property and Equipment, Net (Note 3)............... 283,630 33,526
Intangible Assets--the MedCare Program, net of
Accumulated Amortization of $68 and $0............ 932 1,000
----------- -----------
Total Assets..................................... $ 3,381,888 $ 3,586,416
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities..................................
Accounts Payable and Other Accrued Liabilities..... $ 469,743 $ 15,796
Notes Payable--Related Parties..................... 0 1,000
----------- -----------
Total Current Liabilities........................ 469,743 16,796
Stockholders' Equity
Preferred Stock $.25 Par Value, Authorized
1,000,000; Issued and outstanding, 50 and 165
Convertible Series A at December 31, 1998 and
1997.............................................. 12 41
Common Stock--$0.001 Par Value Authorized
100,000,000; Issued and outstanding, 7,825,105 and
6,992,185 Shares at December 31, 1998 and 1997.... 7,825 6,992
Additional Paid in Capital......................... 9,396,179 6,284,505
Retained Earnings (Deficit)........................ (6,491,871) (2,721,918)
----------- -----------
Total Stockholder' Equity........................ 2,912,145 3,569,620
----------- -----------
Total Liabilities and Equity..................... $ 3,381,888 $ 3,586,416
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Year Ended Year Ended
December December
31, 1998 31, 1997
----------- -----------
<S> <C> <C>
Revenues............................................. $ 786,586 $ 91,802
General and Administrative Expenses.................. 4,689,400 1,515,459
----------- -----------
Operating Loss....................................... (3,902,814) (1,423,657)
Other Income (Expense)
Interest Income.................................... 162,109 119,146
Loss From Discontinued Operations.................. 0 (4,489)
Gain on Sale of Subsidiary......................... 0 15,770
----------- -----------
Total Other Income (Expense)..................... 162,109 130,427
----------- -----------
Net Loss............................................. (3,740,705) (1,293,230)
Less: Preferred Deemed Dividends..................... (29,248) (247,712)
----------- -----------
New Loss Available to Common Stockholders............ $(3,769,953) $(1,540,942)
=========== ===========
Earnings Per Common Share and Common Share
Equivalents......................................... $ (0.52) $ (0.21)
Weighted Number of Common Shares Outstanding......... 7,302,387 7,270,185
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Preferred
Stock Common Stock Additional Retained
------------- ----------------- Paid In Earnings
Shares Amount Shares Amount Capital (Deficit) Total
------ ------ --------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... 0 0 6,445,185 $ 6,445 $1,372,631 $(1,169,693) $ 209,383
Recovery of Write Off of
Excess of Liabilities
over Assets on Sale of
Manon Consulting, Ltd.. (11,283) (11,283)
Issuance of Common Stock
Under 1996 Stock Option
Plan at $4.50 Per Share
Through December 31,
1997................... 17,000 17 76,483 76,500
Issuance of Common Stock
Under 1995 Stock Option
Plan at $3.00 Per Share
Through December 31,
1997................... 54,000 54 161,946 162,000
Issuance of Common Stock
Under a Private
Placement Dated March
25, 1997, at $6.25 Per
Share.................. 176,000 176 1,099,824 1,100,000
Issuance of Preferred
Stock Under a Private
Placement Dated July 8,
1997, at $10,000 Per
Share.................. 165 41 1,649,959 1,650,000
Less cost of Private
Placement.............. (123,750) (123,750)
Periodic Imputed Cost of
Preferred Stock Issued
on July 8, 1997........ 247,712 247,712
Issuance of Common Stock
Under a Private
Placement Dated July 7,
1997, at $6.00 Per
Share.................. 300,000 300 1,799,700 1,800,000
Net Loss Available to
Common Stockholders for
the Year Ended December
31, 1997............... (1,540,942) (1,540,942)
--- --- --------- ------- ---------- ----------- ----------
Balance, December 31,
1997................... 165 41 6,992,185 6,992 6,284,505 (2,721,918) 3,569,620
Issuance of Common Stock
For Prior Year
Consulting Agreement... 6,000 6 (6) 0
Issuance of Common Stock
For Prior Period Error. 1,194 1 (1) 0
Issuance of Common Stock
For Warrants Exercised
on March 31, 1998, at
$6.00 Per Share........ 200,000 200 1,199,800 1,200,000
Issuance of Common Stock
at $7.346 in an
Exercise of Cashless
Warrants............... 8,990 9 (9) 0
Placement of Preferred
Stock in Escrow at
$10,000 Per Share Per
Offering Dated June
1998................... 165 41 1,649,959 1,650,000
Issuance of Common Stock
Under 1995 Stock Option
Plan at $3.00 Per
Share.................. 0 0 34,000 34 101,966 102,000
Issuance of Common Stock
Under 1996 Stock Option
Plan at $4.50 Per
Share.................. 0 0 10,000 10 44,990 45,000
Preferred Deemed
Dividend............... 29,248 29,248
Net Loss Available to
Common Stockholders for
the Year Ended December
31, 1998............... (3,769,953) (3,769,953)
--- --- --------- ------- ---------- ----------- ----------
Balance, December 31,
1998................... 50 $12 7,825,105 $ 7,825 $9,396,179 $(6,491,871) $2,912,145
=== === ========= ======= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Year Ended Year Ended
December December
31, 1998 31, 1997
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net Loss........................................... $(3,769,953) $(1,540,942)
Adjustments to Reconcile Net Loss to Net Cash Used
In Operating Activities
Preferred Deemed Dividends....................... 29,248 247,712
Depreciation and Amortization.................... 65,300 9,546
Net Assets of Manon Consulting, Ltd.............. 0 (11,281)
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable..... (203,710) (39,935)
(Increase) Decrease in Prepaid Expenses........ 43,569 (34,697)
Increase (Decrease) in Accounts Payable and
Other Accrued Liabilities..................... 453,946 (3,995)
----------- -----------
Total Adjustments............................ 388,353 167,350
----------- -----------
Net Cash Used In Operating Activities........ (3,381,600) (1,373,592)
----------- -----------
Cash Flows From Investing Activities
Purchase of Property and Equipment................. (315,335) (33,642)
----------- -----------
Net Cash Used In Investing Activities........ (315,335) (33,642)
----------- -----------
Cash Flows From Financing Activities
Proceeds From Sale of Common Stock................. 2,847,000 3,138,500
Proceeds From the Sale of Preferred Stock.......... 250,000 1,650,000
Offering Costs..................................... (13,770) (123,750)
Advances (Repayments) Notes Payable................ (1,000) (24,000)
Advances (Repayments) To Officers.................. 0 (12,500)
----------- -----------
Net Cash Provided By Financing Activities.... 3,082,230 4,628,250
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents..... (614,705) 3,221,016
Cash and Cash Equivalents, Beginning of Year......... 3,440,791 219,775
----------- -----------
Cash and Cash Equivalents, End of Year............... $ 2,826,086 $ 3,440,791
=========== ===========
Supplemental Information:
Cash paid for:
Interest......................................... $ 0 $ 0
=========== ===========
Income taxes..................................... $ 0 $ 0
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note 1--Organization
MedCare Technologies, Inc. (the Company), a Delaware Corporation, has an
authorized capital of 101,000,000 shares of which 100,000,000 shares are
common stock with a par value of $.001 and 1,000,000 shares are preferred
stock with a par value of $.25 per share.
The Company has developed The Medcare Program, a nonsurgical, nondrug,
noninvasive and cost-effective treatment program for urinary and rectal
incontinence, and other pelvic disorders, utilizing behavioral and biofeedback
techniques such as electromyography, designed to activate and strengthen the
various sensory response mechanisms that maintain bladder and bowel control.
The Company engages in a Program Management Agreement with each Practice,
which is defined as a physician or group of physicians, involved on a regular
basis in the diagnosis, evaluation and treatment of urinary and rectal
incontinence, as well as other pelvic dysfunction. The agreements have various
expiration dates, typically run for a period of three (3) to five (5) years,
and may be terminated upon the occurrence of certain conditions as set forth
in the agreement. Each Practice also agrees to sign a Confidentiality and
Noncompetition Agreement as a condition precedent to the performance by the
Company of its obligations.
Note 2--Significant Accounting Policies
A. Method of Accounting
The Company's financial statements are prepared using the accrual method of
accounting.
B. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash and cash equivalents.
C. Concentration of Credit Risk
The Company maintains cash balances in excess of $100,000 at a local bank.
The balance is insured by the Federal Deposit Insurance Corporation up to
$100,000. The Company also maintains U.S. Dollar cash balances in Canadian
banks, that are not insured.
D. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Medcare Technologies, Corporation. All
material intercompany transactions have been eliminated in consolidation.
E. Property and Equipment
Property and equipment, stated at cost, is depreciated under the straight-
line method over their estimated useful lives ranging from three to seven
years.
20
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
F. Revenue Recognition
Revenues are recognized at time of performance of services. The Company
agrees to provide on an exclusive basis equipment, personnel and
administrative services to the Practice in connection with the Practice's
establishment and operation of the Program. Each Practice agrees to pay the
Company a management fee for each patient visit to the Practice during which a
patient receives services under the Program. The Company invoices the Practice
for the management fee each calendar month, which is due in full, within
forty-five (45) to sixty (60) days of the date of such invoice.
G. Use of Estimates
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing the financial statements.
H. Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes."
Under SFAS 109, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. See Note 10.
I. Per Share of Common Stock
Basic earnings or loss per share has been computed based on the weighted
average number of common shares and common share equivalents outstanding. All
earnings or loss per share amounts in the financial statements are basic
earnings or loss per share, as defined by SFAS No. 128, "Earnings Per Share."
Diluted earnings or loss per share does not differ materially from basic
earnings or loss per share for all periods presented. The number of shares
used in computing earnings (loss) per common share at December 31, 1998 and
1997 was 7,302,387 and 7,270,185, respectively.
J. Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Compensation cost for stock options, if any,
is measured as the excess of the quoted market price of the Company's stock at
the date of grant over the amount an employee must pay to acquire the stock.
SFAS No. 123, "Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. The Company has
elected to remain on its current method of accounting as described above, and
has adopted the disclosure requirements of SFAS No. 123, effective January
1997. See Note 6.
K. Business Segment Information
The Company implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," on January 1, 1998. The Company operates
in one industry segment, that being the treatment of urinary and rectal
incontinence, and all of the activity flows through the Company's subsidiary.
There were no material amounts of sales or transfers among geographic areas or
major customers within the United States.
21
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
L. Presentation
Certain accounts from prior years have been reclassified to conform with
the current year's presentation.
M. Pending Accounting Pronouncements
It is anticipated that current pending accounting pronouncements will not
have an adverse impact on the financial statements of the Company.
Note 3--Property and Equipment
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- ---------
<S> <C> <C>
Office Equipment...................................... $ 11,930 $ 9,541
Computer Equipment.................................... 164,931 11,528
Medical Equipment..................................... 127,315 29,799
Computer Software..................................... 48,832 0
Building Improvements................................. 11,695 0
Furniture............................................. 1,500 0
-------- ---------
Total................................................. 366,203 50,868
Less Accumulated Depreciation......................... (82,573) (17,342)
-------- ---------
Net Book Value........................................ $283,630 $ 33,526
======== =========
</TABLE>
Depreciation charged to expense during the years ended December 31, 1998
and 1997 was $65,231 and $9,546, respectively.
Note 4--Long-Lived Assets--The MedCare Program
On August 14, 1995, the Company acquired the rights to The MedCare Program,
a urinary incontinence procedure in exchange for 2,000,000 shares of its
common stock. The transaction was accounted for in accordance with the process
for valuation of intangible assets as described in Statement No. 17 of the
Accounting Principles Board. The Company intends to amortize the cost of the
system over 15 years, based on Management's estimated useful life of the
protocol, beginning with the first year in which commercial sales occur.
Management reassesses annually the estimated useful life. Such amortization
will result in charges against earnings of $68 per year for each of the years.
Amortization expense charged to operations during the years ended December 31,
1998, was $68.
Note 5--Notes Payable--Related Party
During the year ended December 31, 1997, an Officer of the Company advanced
the Company $1,000, which was due on demand and with no interest rate
currently applicable. The Company repaid this loan in March 1998.
Note 6--Stock Options
The Company has five stock option plans that provide for the granting of
stock options to officers and key employees. The objectives of these plans
include attracting and retaining the best personnel, providing for additional
performance incentives, and promoting the success of the Company by providing
employees the opportunity to acquire common stock. Options outstanding under
the Company's five stock option plans have been granted at prices which are
either equal to or above the market value of the stock on the date of grant
and expire at various dates after the grant date.
22
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
The status of the Company's stock option plans is summarized below as of
December 31:
<TABLE>
<CAPTION>
Number of Option
Shares Price
--------- -----------
<S> <C> <C>
Outstanding at December 31, 1995 ................. 500,000 $3.00
Granted Under the 1996 Stock Option Plan ......... 300,000 4.50
Exercised Under the 1995 Stock Option Plan........ (36,000) 3.00
Exercised Under the 1996 Stock Option Plan........ (3,000) 4.50
--------- -----------
Options Outstanding at December 31, 1996.......... 761,000 3.00-4.50
Granted Under the 1997 Stock Option Plan.......... 200,000 4.50
Granted Under the 1997 Stock Option Plan.......... 300,000 6.50
Exercised Under the 1995 Stock Option Plan........ (54,000) 3.00
Exercised Under the 1996 Stock Option Plan........ (17,000) 4.50
--------- -----------
Options Outstanding at December 31, 1997.......... 1,190,000 3.00-6.50
Exercised Under the 1995 Stock Option Plan........ (34,000) 3.00
Exercised Under the 1996 Stock Option Plan........ (10,000) 4.50
Granted Under the 1998 Stock Option Plan.......... 500,000 6.50-9.25
Granted Under the 1999 Stock Option Plan.......... 200,000 6.00-9.25
--------- -----------
Options Outstanding at December 31, 1998.......... 1,846,000 $3.00-$6.50
========= ===========
</TABLE>
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," under which no compensation cost for stock
options is recognized for stock options awards granted at or above fair market
value. Had compensation expense for the Company's stock-based compensation
plans been determined under SFAS No. 123, based on the fair market value at
the grant dates, the Company's pro forma net loss and pro forma net loss per
share would have been reflected as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net Loss
As reported..................................... $3,769,953 $1,540,942
Pro forma....................................... $5,145,919 $2,728,965
Net Loss Per Share
As reported..................................... $ (0.52) $ (0.21)
Pro forma....................................... $ (0.70) $ (0.38)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumption used for those options granted in 1998 and 1997, respectively:
dividend yield of 0%, expected volatility of 58% and 47%, risk-free interest
rates of 5% and 5%, and expected lives of 8 and 8 years.
Note 7--Stock Warrants
In July, 1997, the Company offered 300,000 shares of common stock at $6.00
each, along with an additional 300,000 common stock purchase warrants at $6.00
each, exercisable until July 7, 2002. In March 1998, 200,000 warrants to
purchase shares of common stock were exercised at $6.00 per share, or
$1,200,000.
In November 1998, the Company issued through a Rule 506 Regulation D
Private Placement, 300,000 shares of restricted common stock at $5.00 per
share, or $1,500,000, and granted 300,000 common stock purchase warrants
exercisable at $5.00 until October 14, 2004.
23
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
Note 8--Preferred Stock--Series A
On June 20, 1997, the Company began offering for sale a Regulation D
offering under Rule 506. This offering was for the Series A Preferred Stock of
the Company and was sold for $10,000 per share, in minimum subscription
amounts of at lease ten shares ($100,000) and in increments of five shares in
excess thereof. The total offering was for $3,000,000, with a minimum of
$1,650,000. The offering closed on July 8, 1997, with the minimum offering
placed. The preferred stock was accompanied by warrants to purchase a number
of shares of common stock of the Company equal to 33 1/3% multiplied by the
aggregate purchase price of the Subscriber's preferred stock outstanding on
each of nine, twelve and fifteen months following the closing date of the
offering, divided by the Fixed Conversion Price as herein defined.
The Series A Preferred Shareholder is entitled to convert, subject to the
Company's right of redemption, if the conversion price is less than the Fixed
Conversion Price at the time of receipt of a notice of conversion. The
conversion price is equal to the lesser of 115% of the average Closing Bid
Price for five trading days ending on June 6, 1997, which is $7.346 (The Fixed
Conversion Price) or a discount, ranging from 10% to 20% over a 12 months
period beginning July 8, 1997, of the average Closing Bid Price for five
trading days immediately preceding the Date of Conversion divided into the
original purchase price of the preferred stock, plus an 8% per annum accretion
rate equal to the period that has passed since the closing date.
During the year ended December 31, 1998, 140 shares of preferred stock were
converted to 272,736 shares of common stock at various prices per share. In
addition, 25 shares of preferred stock were issued to an investor at $10,000
per share in accordance with the terms of the original offering.
Note 9--Discontinued Operations of a Business Segment
On January 1, 1997, the Company sold Manon Consulting, LTD at book value.
No revenues or expenses are included in the consolidated financial statements
for the year ended December 31, 1997. The Company reported a gain on the
transaction of $15,770.
Note 10--Income Taxes
There is no current or deferred tax expense for the years ended December
31, 1998 and 1997, due to the Company's loss position. The benefits of timing
differences have not been previously recorded.
The deferred tax consequences of temporary differences in reporting items
for financial statement and income tax purposes are recognized, as
appropriate. Realization of the future tax benefits related to the deferred
tax assets is dependent on many factors, including the Company's ability to
generate taxable income within the net operating loss carryforward period.
Management has considered these factors in reaching its conclusion as to the
valuation allowance for financial reporting purposes. The income tax effect of
temporary differences comprising the deferred tax assets and deferred tax
liabilities on the accompanying consolidated balance sheet is a result of the
following:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Deferred Taxes
NOL Carryforwards................................. $1,767,643 $628,462
Organization Costs................................ 195,563 198,974
Accrued Expenses.................................. 93,163 0
Depreciation...................................... (3,519) 1,156
---------- --------
Total........................................... $2,052,850 $828,592
Valuation Allowance................................. (2,052,850) (828,592)
---------- --------
Net Deferred Tax Assets......................... $ 0 $ 0
========== ========
</TABLE>
24
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
A reconciliation between the statutory federal income tax rate (35%) and
the effective rate of income tax expense for each of the years during the
period ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Statutory Federal Income Tax Rate......................... (35.0)% (35.0)%
Accretion of Preferred Stock Dividend..................... 0.3% 5.6%
Other..................................................... 0.1% 0.5%
Increase in Valuation Allowance........................... 34.6% 28.9%
----- -----
Effective Income Tax Rate................................. 0.0% 0.0%
</TABLE>
The Company has available net operating loss carryforwards of $5,050,407
for tax purposes to offset future taxable income. The net operating loss
carryforwards expire as follows:
<TABLE>
<S> <C>
2002.......................... $ 316
2003.......................... 1,030
2004.......................... 21,707
2005.......................... 10,201
2011.......................... 447,758
2012.......................... 1,314,593
2013.......................... 3,254,802
----------
$5,050,407
==========
</TABLE>
Note 11--Commitments and Contingencies
Operating Leases--The company leases office space and office equipment
under various noncancelable operating lease agreements which expire through
2003. The Company has a second office located in Vancouver, Canada, which is
owned by one of the Company's directors, and is leased to the Company for
$2,000 per month. There is an option to renew for an additional year. Rental
expense charged to operations during the years ended December 31, 1998 and
1997 was approximately $90,000 and $24,000, respectively.
Future minimum payments under noncancelable operating leases are as
follows:
<TABLE>
<S> <C>
1999............................. $66,082
2000............................. $67,544
2001............................. $66,486
2002............................. $67,107
2003............................. $ 5,602
</TABLE>
Employment Agreements--The Company has employment and stock option
agreements with its President and Chief Executive Officer. The employment
agreement provides for the officer to earn a minimum of $150,000 annually.
Effective January 1, 1999, the officer shall earn a minimum of $200,000
annually through January 1, 2000. The officer is also eligible for an annual
bonus for each fiscal year of the Company during the term based on performance
standards as the Board or compensation committee designates. The officer shall
also receive monthly an automobile allowance of five hundred ($500) per month.
The stock option agreement grants the officer (a) an option to acquire five
hundred thousand (500,000) shares at an exercise price per share of $6.50,
300,000 of which have vested, and (b) an option to acquire one hundred
thousand (100,000) shares at an exercise price per share of $6.00, which have
vested. The options granted shall terminate on July 1, 2005.
25
<PAGE>
MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS--(Concluded)
Note 12--MedCare Program Sites
The following program site locations were operating as of December 31,
1998: Norman, Oklahoma; Buffalo Grove, Illinois; Raleigh, North Carolina;
Stamford, Connecticut; Kankakee, Illinois; Shelby, North Carolina; Kingwood,
Texas; Mine Hill, New Jersey; Toledo, Ohio; Natick, Massachusetts; Fremont,
California; Findlay, Ohio; Roswell, Georgia; Newport News, Virginia; Dallas,
Texas; Owings Mills, Maryland; New York, New York; Baltimore, Maryland;
Fayetteville, North Carolina; San Antonio, Texas; Alexandria, Virginia;
Augusta, Georgia; Wentzville, Maryland; Amherst, Ohio; and Scottsdale,
Arizona.
26
<PAGE>
Item 8: Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
Item 9: Directors and Executive Officers of the Registrant
The information required by this Item is included in the Company's
definitive proxy statement for its 1999 Annual Meeting of Shareholders ("Proxy
Statement") and is hereby incorporated herein by reference.
Item 10: Executive Compensation
The information required by this Item is included in the Company's Proxy
Statement and is hereby incorporated herein by reference.
Item 11: Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is included in the Company's Proxy
Statement and is hereby incorporated herein by reference.
Item 12: Certain Relationships and Related Transactions
The information required by this Item is included in the Company's Proxy
Statement and is hereby incorporated herein by reference.
PART IV
Item 13: Exhibits and Reports on Form 8-K
The exhibits listed in the accompanying index to exhibits are filed as part
of this Annual Report on Form 10KSB.
Reports on Form 8-K:
On October 7, 1998, the Company filed a Form 8-K to disclose the
resignation of Kundan S. Rayat as Secretary, Treasurer and a Director of the
Company and Valerie Boeldt- Umbright as a Director of the Company. Greg Wujek
was then elected to the Board of Directors and was named the new Secretary and
Treasurer. In addition, Harmel S. Rayat resigned as the CEO of the Company and
Jeff Aronin was elected to replace him.
On November 19, 1998, the Company filed a Form 8-K to disclose that it had
issued 300,000 shares of its common stock at $5.00 per share to Lyons Capital
Corp., a Bermuda corporation, with a warrant to purchase an additional 300,000
shares at $5.00 per share as an offering pursuant to Regulation D, Rule 506.
The warrant is exercisable until October 14, 2004.
On February 7, 1999, the Company filed a Form 8-K to disclose that it had
formed a new wholly owned subsidiary of the Company, Medcareonline.com, Inc.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized on this 25th day of
March, 1999.
MedCare Technologies, Inc.
/s/ Jeff Aronin
By___________________________________
Jeff Aronin
CEO and President
/s/ Alan Jagiello
By: _________________________________
Alan Jagiello
CFO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jeff Aronin CEO and President March 25, 1999
____________________________________
Jeff Aronin
/s/ Alan Jagiello CFO March 25, 1999
____________________________________
Alan Jagiello
</TABLE>
28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S> <C>
3a. Articles of Incorporation of Medcare Technologies, Inc. as
amended to date. (Incorporated by reference to Exhibit 1 to
Medcare Technologies Form 10-KSB for the year ended December
31, 1997)
3b. By-Laws of Medcare Technologies, Inc. (Incorporated by
reference to Exhibit 2 to Medcare Technologies Form 10-KSB for
the year ended December 31, 1997).
4a. * Certificate of Designation
4b. * Subscription Agreement
4c. * Nine-Month Warrant
4d. * Twelve-Month Warrant
4e. * Fifteen-Month Warrant
4f. * Preferred Warrants
4g. * Registration Rights
4h. * Instructions to Transfer Agent
4i. * Agreement and Amendment
4j. * Agreement and Amendment for Queensway Financial Holdings
Ltd.
4k. * Three-Month Warrant
4l. * Swartz Warrant
4m. * Escrow Agreement
4n. * Exhibit A to Escrow Agreement
10a. * 1995 Stock Option Plan
10b. * 1996 Stock Option Plan
10c. * 1997 Stock Option Plan
10d. 1998 Stock Option Plan
10e. 1999 Stock Option Plan
10f. Employment and Stock Agreement, dated as of December 9, 1998
between Medcare Technologies, Inc. and Jeffrey S. Aronin
10g. Sublease dated as of December 31, 1997 between Medcare
Technologies, Inc. and Delta Dental Plans Association
21. Subsidiaries of the Registrant
27. Financial Data Schedule
</TABLE>
*--Incorporated by reference to Medcare Technologies Form SB-2, File number
333-41611
29
<PAGE>
EXHIBITS
EXHIBIT 10d.
1998 INCENTIVE STOCK OPTION PLAN AND 1998
NONSTATUTORY STOCK OPTION PLAN
1. Names and Purposes of the Plans. This Plan document is intended to
implement and govern two separate Stock Option Plans of MedCare Technologies,
Inc., a Delaware corporation (the "Company"): the 1998 Incentive Stock Option
Plan ("Plan A") and the 1998 Nonstatutory Stock Option Plan ("Plan B")
(collectively the "Plans"). Plan A provides for the granting of options that
are intended to qualify as incentive stock options ("Incentive Stock Options")
within the meaning of Section 422(b) of the Internal Revenue Code, as amended.
Plan B provides for the granting of options that are not intended to so qualify.
Unless specified otherwise, all the provisions of this Plan document relate
equally to both Plan A and Plan B, which Plans are condensed into one Plan
document solely for purposes of administrative convenience and are not intended
to constitute tandem plans. The purposes of the Plans are (a) to attract and
retain the best available people for positions of substantial responsibility,
and (b) to provide additional incentive to the Employees of the Company (and its
future parents and subsidiaries, if any) and to promote the success of the
Company's business.
2. Definitions. For purposes of the Plans, the following terms will have the
respective meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company;
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(c) "Common Stock" shall mean the Class A common stock of the Company;
(d) "Company" shall mean MedCare Technologies, Inc., a Delaware
corporation;
(e) "Committee" shall mean the committee appointed by the Board in
accordance with Paragraph 3(a) of this Plan document, if one is appointed;
(f) "Employee" shall mean any person, including an officer or director, who
is an employee (within the meaning of Section 422 of the Code) of the Company,
any parent, any subsidiary or any successors to any of the foregoing;
(g) "Incentive Option" shall mean an incentive stock option as defined in
Section 422(b) of the Code;
(h) "Non-Statutory Option" shall mean an option which does not qualify as
an Incentive Option;
(i) "Option" shall mean a stock option granted pursuant to the Plan,
whether an Incentive Option or a Non-Statutory Option;
(j) "Option Agreement" shall mean an agreement substantially in the form
attached hereto as Exhibit A or the form attached hereto as Exhibit B, or such
other form or forms as the Board (subject to the terms and conditions of the
Plans) may from time to time approve, evidencing an Option;
(k) "Option Grant Date" shall mean the date on which an Option is granted
by the Board;
(l) "Optioned Stock" shall mean the Common Stock subject to an Option
granted pursuant to a Plan;
(m) "Optionee" shall mean an Employee or other Eligible Person who receives
an Option;
(n) "Outstanding Incentive Option" shall mean any Incentive Stock Option
which has not yet been exercised in full or has not yet expired by lapse of
time;
(o) "Parent" shall mean a "parent corporation" as defined in Section 424(e)
of the Code;
<PAGE>
(p) "Plan A" shall mean the 1998 Incentive Stock Option Plan;
(q) "Plan B" shall mean the 1998 Non-Statutory Stock Option Plan;
(r) "Predecessor Corporation" shall mean a corporation which is a party
to a transaction described in Code Section 424(a) (or which would be so
described if a substitution or assumption under such section had been effected)
with the Company, a Parent, a Subsidiary or a predecessor corporation of any
such corporations.
(s) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 13 of this Plan document;
(t) "Stock Purchase Agreement" shall mean an agreement substantially in the
form attached hereto as Exhibit D or such other form or forms as the Board
(subject to the terms and conditions of this Plan) may from time to time
approve, which is to be executed as a condition of purchasing Optioned Stock
upon exercise of an Option as provided in a Plan; and,
(u) "Subsidiary" shall mean a subsidiary corporation as defined in
Section 424(f) of the Code.
3. Administration of Plan.
(a) Procedure. The Plans shall be administered by the Board.
The Board may appoint a Committee consisting of not less than two (2)
members of the Board to administer one or both of the Plans on behalf of the
Board, subject to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board. From time to time, the Board may increase the size of the Committee and
appoint additional members thereof, remove members of the Committee, and
thereafter, directly administer the Plans. Any references herein to the Board
shall refer to the Committee, if one is appointed, to the extent of the
Committee's authority.
(b) Limitations on Members of Board. Members of the Board who are either
eligible for options or have been granted Options may vote on any matters
affecting the administration of the Plans or the grant of any Options pursuant
to the Plans; except that no such member shall act in connection with an Option
to himself or herself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to Options of such member.
(c) Powers of the Board. Subject to the provisions of the Plan the Board
shall have the authority, in its discretion, to make all determinations
necessary or advisable for the administration of the Plans, including without
limitation:
(i) to determine, upon review of relevant information, the then fair
market value per share of the Common Stock;
(ii) to determine the exercise price of the Options to be granted,
subject to the provisions of Paragraph 8 of this Plan document;
(iii) to determine the Employees to whom, and the time or times at
which, Options shall be granted, and the number of shares of Optioned Stock to
be represented by each Option;
(iv) to determine whether Options granted hereunder shall be granted
under Plan A as Incentive Options or Plan B as Non-statutory Options;
(v) to prescribe, amend and rescind rules and regulations relating to
the Plans;
(vi) to determine the terms and provisions of each Option granted under
the Plans (which need not be identical) and to modify or amend each Option (with
or without consent of the Optionee, if necessary);
(vii) to accelerate the exercise date of any Option;
(viii) to construe and interpret the Plans, the Option Agreements, Stock
Purchase Agreements and any other agreements provided for hereunder; and
<PAGE>
(ix) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Board or to take such other actions as may be necessary or advisable with
respect to the Company's rights pursuant to the Option, Stock Purchase Agreement
or other agreement approved hereunder.
(d) Effect of the Board's or Committee's Decision. All decisions,
determinations and interpretations of the Board or the Committee shall be final
and binding on all Optionees and any other proper holders of any Options granted
under the Plan.
4. Stock Subject to the Plan. Subject to the provisions of Section 13 of this
Plan document, the maximum aggregate number of shares which may be optioned
under these Plans is 500,000 shares of authorized Common Stock. This
constitutes an absolute cumulative limitation on the total number of shares that
may be optioned under Plan A and Plan B and, therefore, at any particular date
the maximum aggregate number of shares which may be optioned under Plan A is
equal to 500,000 minus the number of shares previously optioned under Plan A and
Plan B; and the maximum aggregate number of shares which may be optioned under
Plan B is equal to 500,000 minus the number of shares which have been previously
optioned under Plan A or Plan B. All shares to be optioned under either Plan A
or Plan B may be either authorized but unissued shares or shares held in the
treasury. Shares of Common Stock that (a) are repurchased by the Company after
issuance hereunder pursuant to the exercise of an Option or (b) are not
purchased by the Optionee prior to the expiration of the applicable Option
Period (as described hereinbelow) shall again become available to be covered by
Options to be issued hereunder and shall not, as of the effective date of such
repurchase or expiration, be counted as having been previously optioned for
purposes of the above-described maximum number of shares which may be optioned
hereunder.
5. Eligibility. Options under Plan A may be granted to any Employee who is
designated by the Board in its discretion. NonEmployees, including directors of
the Company or any Parent or Subsidiary, who are not regular employees of the
Company, are not eligible to receive Options under Plan A. Options under Plan B
may be granted to any Employee, any Non-Employee director of Company or any
Parent or Subsidiary, and any consultant or independent contractors who provide
valuable services to the Company (or its Parent or Subsidiary), all as
designated by the Board in its discretion. An Optionee who has been granted an
Option may, if otherwise eligible, be granted an additional Option or Options.
Options may be granted to one or more persons without being granted to other
eligible persons, as the Board may deem fit.
6. Term of the Plan. Plan A shall become effective immediately upon the
earlier to occur of its adoption by the Board or its approval by vote of a
majority of the outstanding shares of the Company entitled to vote on the
adoption of such Plan. Plan B shall become effective immediately upon its
adoption by the Board. Each Plan shall continue in effect until December 31,
2005 unless sooner terminated under Sections 15 or 18 of this Plan document. No
Option may be granted under a Plan after its expiration.
7. Option Period. Each Option granted pursuant to either Plan shall be
evidenced by an Option Agreement. Each Option shall expire and all rights
thereunder shall end at the expiration of such period (which shall in no event
be more than ten (10) years) after the Option Grant Date as shall be fixed by
the Board, subject in all cases to earlier expiration as provided in Section 11
of this Plan document. Notwithstanding the foregoing, the term of each
Incentive Option granted to an Employee who, at the time the Incentive Option is
granted, owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary
(determined as required by the Code as applied to Incentive Options) shall not
be more than five (5) years from the Option Grant Date.
8. Option Price and Consideration.
(a) Price. The per share Option price for the Shares to be issued
pursuant to an Option granted under either Plan shall be such price as is
determined by the Board in its sole discretion. Notwithstanding the foregoing,
with respect to Incentive Options granted under Plan A: (i) such price shall in
no event be less than one hundred percent (100%) of the fair market value per
Share of the Company's Common Stock on the Option Grant Date, as determined by
the Board; and (ii) in the case of an Incentive Option granted to an Employee
who, at the time the Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or any Parent, Subsidiary or Predecessor Corporation (determined as
required by the Code as applied to Incentive Options), the per share Option
price shall be at least one hundred ten percent (110%) of the fair market value
as of the Option Grant Date, as determined by the Board. The fair market value
shall be determined by the Board in its sole discretion, exercised in good
faith; provided, however, that where there is a public market for the Common
Stock, the fair market value per share shall be the mean of the reported bid and
asked price for the Common Stock on the date of the grant, or, in the event the
Common Stock is listed on a stock
<PAGE>
exchange, the fair market value per share shall be the closing price on the
exchange as of the date of grant of the Option.
(b) Form of Consideration. The form of consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Board and may consist of cash, promissory notes, or
the surrender of shares of Common Stock having a fair market value on the date
of surrender equal to the purchase price of the Shares as to which said Option
shall be exercised, a combination thereof, or such other consideration and
method of payment for the issuance of Shares as is permitted under applicable
law.
(c) Promissory Notes. If the consideration for the exercise of an Option
is a promissory note, such note shall be a full recourse promissory note
executed by the Optionee. If the option is an Incentive Option under Plan A,
such note shall bear interest at a per annum rate which is not less than the
greater of (i) the applicable "test rate" described in Treasury Regs. Section
1.4831(d) in effect on the date of exercise or (ii) a fair market interest rate,
as determined by the Board in its good faith discretion. If a promissory note is
given as consideration, the Company may retain the Shares purchased upon
exercise of the Option in escrow as security for payment of the promissory note.
(d) Surrendered Common Stock. If the consideration for the exercise of an
Option is the surrender of previously acquired and owned shares of common stock
of the Company, the Optionee will be required to make representations and
warranties satisfactory to the Company regarding the Optionee's title to the
shares used to effect the purchase, including without limitation,
representations and warranties that the Optionee has good and marketable title
to such shares free and clear of any and all liens, encumbrances, charges,
equities, claims, security interests, options or restrictions and has full power
to deliver such shares without obtaining the consent or approval of any person
or governmental authority other than those which have already given consent or
approval in a form satisfactory to the Company. The value of the shares used to
effect the purchase shall be the fair market value of those shares as determined
by the Board in its sole discretion, exercised in good faith.
9. Limit on Value of Optioned Stock Issued Under Plan A. The aggregate fair
market value (determined as of the Option Grant Date of each Option) of the
Shares with respect to which Incentive Options are exercisable for the first
time by the Optionee during any calendar year under Plan A and all other
incentive stock option plans of the Company, any Parent or Subsidiary, or any
Predecessor Corporation of any such corporation shall not exceed One Hundred
Thousand Dollars ($100,000.00), as determined pursuant to Section 422(d) of the
Code.
10. Exercise of Option.
(a) General Terms. Any Option granted hereunder shall be exercisable at
such times and under such conditions as may be determined by the Board which
conditions may include performance criteria with respect to the Company and/or
the Optionee or provisions for vesting over a period of time conditioned upon
continued employment and shall include the contemporaneous execution of a Stock
Purchase Agreement in a form approved by the Board and as shall be permissible
under the terms of the Plan. In all events, in order to exercise an Option
hereunder the Optionee shall execute a Stock Purchase Agreement in a form
approved by the Board and shall deliver the required (or permitted) exercise
consideration to the Company. As a condition to the exercise of an Option, the
Board may require the Optionee pursuant to the Option Agreement to agree to
restrictions on the sale or other transfer of ownership of the Common Stock
acquired by an Optionee or to sell such Shares to the Company upon termination
of employment.
(b) Partial Exercise. An Option may be exercised in accordance with the
provisions of either Plan as to all or any portion of the Shares then
exercisable under an Option, from time to time during the term of the Option.
An Option may not be exercised for a fraction of a Share.
(c) Time of Exercise. An Option shall be deemed to be exercised when the
Company has received at its principal business office: (i) written notice of
such exercise in accordance with the terms of the Option Agreement and given by
the person entitled to exercise the Option; (ii) full payment for the Shares
with respect to which the Option is exercised; (iii) the executed Stock Purchase
Agreement if required; and (iv) any other representations or agreements required
by the terms of this Plan or the Option Agreement. Full payment may consist of
such consideration as is authorized by the Board as provided hereunder.
(d) No Rights as Shareholder Until Exercise. Until this Option is properly
exercised hereunder and the Company receives full payment for the Shares with
respect to which the Option is exercised, no right to receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock.
No adjustment will be
<PAGE>
made for a dividend or other right for which the record date is prior to the
date the Option is properly exercised and payment in full is received, except as
provided in Section 13 of this Plan document.
(e) Issuance of Share Certificates. As soon as practicable after any
proper exercise of an Option in accordance with the provisions of this Plan
document and payment in full for the exercised Shares, the Company shall,
without transfer or issue tax to the Optionee, deliver to the Optionee at the
principal business office of the Company, or such other place as shall be
mutually acceptable, a certificate or certificates representing the Shares of
Common Stock as to which the Option has been exercised. The time of issuance and
delivery of the certificates) representing the Shares of Common Stock may be
postponed by the Company for such period as may be required for it, with
reasonable diligence, to comply with any applicable listing requirements of any
national or regional securities exchange and any law or regulation applicable to
the issuance and delivery of such Shares.
(f) Reduction of Shares Upon Exercise. Exercise of an Option in any manner
shall result in a decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised.
11. Termination of Employment.
(a) General. If an Optionee ceases to be an Employee for any reason then,
except as provided in Paragraph 11(a) or 11(b) hereof, any Option of the
Optionee, whether vested or non-vested, and if issued under Plan A or Plan B,
shall terminate as of the date of termination of employment.
(b) Death or Disability. If Optionee dies or becomes disabled (within the
meaning of Code Section 422 and the rules and regulations thereunder) then,
within the earlier of thirty (30) days (or such other period of time not
exceeding six (6) months as set forth in the Option Agreement) following the
date of such death or disability and the time the Option expires by its terms,
the Optionee or such person or persons to whm the Optionee's rights under the
Option shall pass by the Optionee's will or by the laws of descent and
distribution, may exercise the Option to the extent it was vested and
exercisable on the date of death or disability.
12. Non-transferability of Options. The Options and any rights and privileges
granted under any Option Agreement are not transferable by the Optionee, either
voluntarily or by operation of law, otherwise than by will and the laws of
descent and distribution and shall be exercisable during Optionee's lifetime
only by Optionee.
13. Adjustments Upon Changes in Capitalization.
(a) Reorganizations, Recapitalization, Etc. If the outstanding shares of
Common Stock of the Company are increased, decreased, changed into or exchanged
for a different number or kind of shares or securities of the Company through
reorganization, recapitalization, reclassification, stock dividend (but only on
Common Stock), stock split, reverse stock split or other similar transaction,
or, if any other increase or decrease occurs in the number of Shares of Common
Stock of the Company without the receipt of consideration by the Company, then
an appropriate and proportional adjustment shall be made in (i) the number and
kind of shares of stock covered by each outstanding Option, (ii) the number and
kind of shares of stock which have been authorized for issuance under the Plan
but as to which no Options have yet been granted (or which have been returned to
the Plan upon cancellation of an Option), and (iii) the exercise price per share
of stock covered by each such outstanding Option. The granting of stock options
or bonuses to Employees of the Company and the conversion of any convertible
securities of the Company shall not be deemed to have been "effected without the
receipt of consideration." Notwithstanding the foregoing, no adjustment need be
made under this paragraph if, upon the advice of counsel, the Board determines
that such adjustment may result in federal taxable income to the holders of
Options or Common Stock or other classes of the Company's securities.
(b) Dissolution, Liquidation, Etc. Upon the dissolution or liquidation of
the Company, or upon a reorganization, merger or consolidation of the Company
with one or more corporations as a result of which the Company is not the
surviving corporation, or upon a sale (or exchange through merger) of
substantially all the property or more than fifty percent (50%) of the then
outstanding stock of the Company to another corporation, the Plan shall
terminate, and any Option theretofore granted hereunder shall terminate.
Notwithstanding the foregoing, the Board may provide in writing in connection
with, or in contemplation of, such transaction for any, all or none of the
following alternatives (separately or in combination): (i) for all or a portion
of the Options theretofore granted to become immediately exercisable; (ii) for
the assumption by the successor corporation of the Options theretofore granted
or the substitution by such corporation for such Options of new options covering
the stock of the successor corporation, or a Parent or Subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and
<PAGE>
prices; or (iii) for the continuance of the Plan by such successor corporation
in which event the Plan and the Options theretofore granted shall continue in
the manner and under the terms so provided.
(c) No Fractional Shares. No fractional shares of the Common Stock shall
be issuable on account of any action under this Paragraph 13, and the aggregate
number of shares into which Shares then covered by an Option, when changed as
the result of such action, shall be reduced to the largest number of whole
Shares resulting from such action. Notwithstanding the foregoing, the Board, in
its sole discretion, may determine to issue scrip certificates, in respect to
any fractional shares, which scrip certificates, in such event, shall be in a
form and have such terms and conditions as the Board in its discretion shall
prescribe.
(d) Binding Effect of Board Determinations. All adjustments under this
Paragraph 13 shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive.
(e) No Other Adjustments. Except as expressly provided herein, no issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of Shares of Common Stock
subject to the Plan or any Options.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time and from time to
time suspend or terminate either Plan. The Board may also amend or revise
either Plan from time to time in such respects as the Board may deem advisable,
except that, without approval of the holders of the majority of the outstanding
shares of the Company's Common Stock, no such revision or amendment shall amend
Plan A or Plan B so as to:
(i) Increase the number of Shares subject to Plan A or Plan B other than
in connection with an adjustment under Section 13 of this Plan document;
(ii) Permit the granting of Incentive Options to anyone other than as
provided in Paragraph 5;
(iii) Remove the administration of Plan A or Plan B from the Board;
(iv) Extend the term of Plan A or Plan B beyond that provided in
Paragraph 6 hereof;
(v) Extend the term of any Incentive Option beyond the maximum term set
forth in Paragraph 7;
(vi) Permit the granting of Incentive Options which would not qualify as
Incentive Stock Options; or
(vii) Decrease the per share option price required with respect to
Incentive Options under Paragraph 8(a) hereof.
(b) Effect of Termination. Except as otherwise provided in Section 13,
without the written consent of the Optionee, any such termination of the Plan
shall not affect Options already granted and such Options shall remain in full
force and effect as if the Plan had not been terminated.
15. Conditions Upon Issuance of Shares. Options granted under either Plan are
conditioned upon the Company obtaining any required permit, or exemption from
the qualification or registration provisions of any applicable state securities
law and other appropriate governmental agencies, authorizing the Company to
issue such Options and Optioned Stock upon terms and conditions acceptable to
the Company. Shares shall not be issued with respect to an Option granted under
either Plan unless the exercise of such Option and the issuance and delivery of
such shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. As a condition to the
exercise of an Option, the Board may require the person exercising such Option
to execute an agreement approved by the Board, and may require the person
exercising such Option to make any representation and warranty to the Company as
may, in the judgment of counsel to the Company, be required under applicable
laws or regulations.
16. Reservation of Shares. During the term of the Plans, the Company will at
all times reserve and keep available the number of Shares as shall be sufficient
to satisfy the requirements of the Plans. During the term of the Plans, the
<PAGE>
Company will use its best efforts to seek to obtain from appropriate regulatory
agencies any requisite authorization in order to issue and sell such number of
Shares of its Common Stock as shall be sufficient to satisfy the requirements of
the Plan. The inability of the Company to obtain from any such regulatory
agency the requisite authorization(s) deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, or the
inability of the Company to confirm to its satisfaction that any issuance and
sale of any Shares hereunder will meet applicable legal requirements, shall
relieve the Company of any liability in respect to the non-issuance or sale of
such Shares as to which such requisite authority shall not have been obtained.
17. Taxes, Fees, Expenses and Withholding of Taxes.
(a) Issue and Transfer Taxes. The Company shall pay all original issue and
transfer taxes (but not income taxes, if any) with respect to the grant of
Options and the issue and transfer of Shares pursuant to the exercise of such
Options, and all other fees and expenses necessarily incurred by the Company in
connection therewith, and will use its best efforts to comply with all laws and
regulations which, in the opinion of counsel for the Company, shall be
applicable thereto.
(b) Withholding. The grant of Options hereunder and the issuance of Shares
of Common Stock pursuant to the exercise of such Options are conditioned upon
the Company's reservation of the right to withhold, in accordance with any
applicable law, from any compensation payable to the Optionee any taxes required
to be withheld by federal, state or local law as a result of the grant or
exercise of such Option or the sale of the Shares issued upon exercise of the
Option.
18. Shareholder Approval of Plan A and Plan B. Continuance of Plan A and Plan
B and the effectiveness of any Option granted under such Plan shall be subject
to approval by the holders of the outstanding voting stock of the Company in
accordance with applicable law within twelve (12) months before or after the
date Plan A and Plan B is adopted by the Board. Any Options granted under Plan
A and Plan B prior to obtaining such shareholder approval shall be granted upon
the conditions that the Options so granted: (i) shall not be exercisable prior
to such approval and (ii) shall become null and void ab initio if such
shareholder approval is not obtained.
19. Liability of Company. The Company, its Parent or any Subsidiary which is
in existence or hereafter comes into existence, will not be liable to an
Optionee granted an Incentive Option or other person if it is determined for any
reason by the Internal Revenue Service or any court having jurisdiction that any
Incentive Options granted hereunder are not Incentive Stock Options.
20. Notices. Any notice to be given to the Company pursuant to the provisions
of the Plans shall be addressed to the Company in care of its Secretary at its
principal office, and any notice to be given to an Optionee shall be delivered
personally or addressed to such Optionee at the address given beneath such
Optionee's signature on such Optionee's Stock Option Agreement, or at such other
address as such Employee (or any transferee) upon the transfer of the Optioned
Stock may hereafter designate in writing to the Company. Any such notice shall
be deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, registered or certified, and deposited, postage and
registry or certification fee prepaid, in a post office or branch post office
regularly maintained by the United States Postal Service. It shall be the
obligation of each Optionee and each transferee holding Shares purchased upon
exercise of an Option to provide the Secretary of the Company, by letter mailed
as provided hereinabove, with written notice of such person's direct mailing
address.
21. No Enlargement of Employee Rights. This Plan is purely voluntary on the
part of the Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment of any Employee. Nothing
contained in this Plan shall be deemed to give any Employee the right to be
retained in the employ of the Company, its Parent, Subsidiary or a successor
corporation, or to interfere with the right of the Company or any such
corporations to discharge or retire any Employee thereof at any time. No
Employee shall have any right to or interest in Options authorized hereunder
prior to the grant of such Option to such employee, and upon such grant he or
she shall have only such rights and interests as are expressly provided herein,
subject, however, to all applicable provisions of the Company's Certificate of
Incorporation, as the same may be amended from time to time.
22. Legends on Certificates.
(a) Federal Law. Unless an appropriate registration statement is filed
pursuant to the Federal Securities Act of 1933, as amended, with respect to the
Options and Shares issuable under the Plans, each certificate representing such
Options and Shares shall be endorsed on its face with a legend substantially as
follows:
<PAGE>
"THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) State Legend. If required by applicable state authorities each
certificate representing the Options and Shares issuable under the Plans shall
be endorsedon its face with any legends required by such authorization.
(c) Additional Legends. Each certificate representing the Options and
Shares issuable under the Plans shall also contain legends as are set forth in
any Stock Purchase Agreement or other agreement the execution of which is a
condition to the exercise of an Option under this Plan. In addition, each Option
Agreement shall be endorsed with a legend substantially as follows:
"THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAYBE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE
AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO
BE ENTERED INTO BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY AS A
CONDITION TO EXERCISE OF THIS OPTION."
23. Availability of Plan. A copy of the Plans shall be delivered to the
Secretary of the Company and shall be shown by him to any eligible person making
reasonable inquiry concerning it.
24. Invalid Provisions. In the event that any provision of the Plans is found
to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.
25. Applicable Law. These Plans shall be governed and construed in accordance
with the laws of the State of Delaware applicable to contracts executed, and to
be fully performed, in Delaware.
IN WITNESS WHEREOF, pursuant to the due authorization and adoption of these
Plans by the Board on , 199__, the Company has caused these Plans to be
duly executed by its duly authorized officers, effective as of , 199__.
MedCare Technologies, Inc.
a Delaware corporation
By:
-----------------------------------
Title: President
EXHIBIT "A"
<PAGE>
PLAN A
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO
BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS OPTION.
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made as of the __________ day of _____________, 19__, by and
between Medcare Technologies, Inc. a Delaware corporation (hereinafter called
"Company") and____________ (hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's 1998
Incentive Stock Option Plan (the "Plan") for the purpose of attracting and
retaining the services of selected key employees (including officers and
employee directors), who contribute to the financial success of the Company or
its parent or subsidiary corporations.
B. Optionee is a key member of the Company or its parent or subsidiary
corporations, and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Company's grant of a
stock option to the Optionee.
C. The granted option is intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. Subject to and upon the terms and conditions set forth
in this Agreement, there is hereby granted to Optionee, as of the date of this
Agreement (the "Grant Date"), a stock option to purchase up to ______ shares of
the Company's Common Stock (the "Optioned Shares") from time to time during the
option term at the option price of $____ per share.
2. Plan. The options granted hereunder are in all instances subject to the
terms and conditions of the Plan. In the event of any conflict between this
Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. Option Term. This option shall have a maximum term of five (5) years
measured from the Grant Date and shall accordingly expire at the close of
business on ________, 19__ (the "Expiration Date"), unless sooner terminated in
accordance with Paragraph 7, 9(a) or 20.
4. Option Nontransferable; Exception. This option shall be neither
transferable nor assignable by Optionee, either voluntarily or involuntarily,
other than by will or by the laws of descent and distribution and may be
exercised, during Optionee's lifetime, only by Optionee.
5. Condition Precedent to Exercise. This option may not be exercised in
whole or in part at any time prior to the time the Company has satisfied the
following condition precedent: __________. In the event the
<PAGE>
foregoing condition precedent has not been satisfied prior to the Expiration
Date or prior to this option's earlier termination in accordance with Paragraph
7, 9(a) or 20, then this option shall terminate and cease to be outstanding.
6. Dates of Exercise. This option may not be exercised in whole or in part
at any time prior to the time it is approved by the Company's shareholders in
accordance with Paragraph 20. Provided such shareholder approval is obtained
and the condition precedent to exercise set forth in Paragraph 5 has been
satisfied, this option shall become exercisable for 100% of the Optioned Shares
one (1) year from the Grant Date, provided that in no event may options for more
than One Hundred Thousand Dollars ($100,000) of Optioned Shares, calculated at
the exercise price, become exercisable for the first time in any calendar year.
Once exercisable, options shall remain so exercisable until the expiration or
sooner termination of the option term under Paragraph 7 or Paragraph 9(a) of
this Agreement. In no event, however, shall this option be exercisable for any
fractional shares.
7. Accelerated Termination of Option Term. The option term specified in
Paragraph 3 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraphs (ii) and (iii) below,
should Optionee cease to be an Employee of the Company for any reason at any
time during the option term, any option of the Optionee, whether vested or
non-vested, and if issued under Plan A, shall terminate as of the date of
termination of employment.
(ii) Should Optionee die while this option is outstanding, then the
executors or administrators of Optionee's estate or Optionee's heirs or
legatees (as the case may be) shall have the right to exercise this option for
the number of shares (if any) for which the option is exercisable on the date
of the optionee's death. Such right shall lapse and this option shall cease
to be exercisable upon the earlier of (i) six (6) months from the date of the
optionee's death or (ii) the Expiration Date.
(iii) Should Optionee become permanently disabled and cease by reason
thereof to be an Employee of the Company at any time during the option term,
then Optionee shall have a period of six (6) months (commencing with the date
of such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any
time after the Expiration Date. Optionee shall be deemed to be permanently
disabled if Optionee is, by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration
of not less than twelve (12) months, unable to perform his/her usual duties
for the Company or its Parent or Subsidiary corporations. Upon the expiration
of the limited period of exercisability or (if earlier) upon the Expiration
Date, this option shall terminate and cease to be outstanding.
(iv) For purposes of this Paragraph 7 and for all other purposes under
this Agreement, Optionee shall be deemed to be an Employee of the Company and
to continue in the Company's employ for so long as Optionee remains an
Employee of the Company or one or more of its parent or subsidiary
corporations as such terms are defined in the Plan.
8. Adjustment in Option Shares
(a) In the event any change is made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, combination of shares, or
other change affecting the outstanding Common Stock as a class without receipt
of consideration (as set forth in the Plan), then appropriate adjustments will
be made to (i) the total number of Optioned Shares subject to this option and
(h) the option price payable per share in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other business
combination, then this option, if outstanding under the Plan immediately after
such merger or other business combination shall be appropriately adjusted to
apply and pertain to the number and class of securities to which Optionee
immediately prior to such merger of other business combination would have been
entitled to receive in the consummation of such merger or other business
combination.
9. Special Termination of Option.
(a) In the event of one or more of the following transactions (a
"Corporate Transaction"):
<PAGE>
(i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company; or
(iii) any other corporate reorganization or business combination in
which fifty percent (50%) or more of the Company's outstanding voting stock
is transferred, or exchanged through merger, to different holders in a
single transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by
the successor corporation or parent thereof. The Company shall Corporate
Transaction. The Company can give no assurance that the options shall be
assu provide Optionee with at least thirty (30) days prior written notice of
the specified date for the med by the successor corporation or its parent
company and it may occur that some options outstanding under the Plan will be
assumed while these options are terminated.
(b) In the event of a Corporate Transaction, the Company may, at its
option, accelerate the vesting schedule contained in Section 6 hereof, but shall
have no obligation to do so. The Company shall have the right to accelerate
other options outstanding under the Plan or any other plan, even if it does not
accelerate the options of Optionee hereunder.
(c) This Agreement shall not in any way affect the right of the Company to
make changes in its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
10. Privilege of Stock Ownership. The holder of this option shall not have
any of the rights of a shareholder with respect to the Optioned Shares until
such individual shall have exercised the option and paid the option price in
accordance with this Agreement.
11. Manner of Exercising Option.
(a) In order to exercise this option with respect to all or any part of
the Optioned Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:
(i) Execute and deliver to the Secretary of the Company a stock
purchase agreement in substantially the form of Exhibit D to this Agreement
(the "Purchase Agreement");
(ii) Pay the aggregate option price for the purchased shares in cash,
unless another form of consideration is permitted as described in Exhibit
C, if any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with respect to the
number of Optioned Shares specified in the Purchase Agreement at such time as
the executed Purchase Agreement for such shares shall have been delivered to the
Company and all other conditions of this Section have been fulfilled. Payment
of the option price shall immediately become due and shall accompany the
Purchase Agreement. As soon thereafter as practical, the Company shall mail or
deliver to Optionee or to the other person or persons exercising this option a
certificate or certificates representing the shares so purchased and paid for.
12. Compliance with Laws and Regulations.
(a) The exercise of this option and the issuance of Optioned Shares upon
such exercise shall be subject to compliance by the Company and Optionee with
all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee shall execute
and deliver to the Company such representations in writing as may be requested
by the Company in order for it to comply with the applicable requirements of
federal and state securities laws.
<PAGE>
13. Successors and Assigns. Except to the extent otherwise provided in
Paragraph 4 or 9(a), the provisions of this Agreement shall insure to the
benefit of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
14. Liability of Company.
(a) If the Optioned Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without
shareholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares unless shareholder approval of an
amendment sufficiently increasing the number of shares of Common Stock
issuable under the Plan is obtained in accordance with the provisions of
Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any regulatory
body having authority deemed by the Company to be necessary to the lawful
issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to the Company in its reasonable
discretion shall relieve the Company of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. The Company, however, shall use its best efforts to
obtain all such approvals.
(c) Neither the Company nor any Parent, Subsidiary or successor
corporation will have any liability to Optionee or any other person if it is
determined for any reason that any options granted hereunder are not
Incentive Stock Options.
15. No Employment Contract. Except to the extent the terms of any written
employment contract between the Company and Optionee may expressly provide
otherwise, the Company (or any parent or subsidiary corporation of the Company
employing Optionee) shall be under no obligation to continue the employment of
Optionee for any period of specific duration and may terminate Optionee's status
as an Employee at any time, with or without cause.
16. Notices. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Company in care of its Secretary at its corporate offices. Any notice required
to be given or delivered to Optionee shall be in writing and addressed to
Optionee at the address indicated below Optionee's signature line on this
Agreement. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
17. Loans or Guarantees. The Company may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this option
by (i) authorizing the extension of a loan to Optionee from the Company, (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. Construction. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the Plan. All decisions of the Company with respect to any question
or issue arising under the Plan or this Agreement shall be conclusive and
binding on all persons having an interest in this option.
19. Governing Law. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of Delaware.
20. Shareholder Approval. The grant of this option is subject to approval
of the Plan by the Company's shareholders within twelve (12) months after the
adoption of the Plan by the Board of Directors, and this option may not be
exercised in whole or in part until such shareholder approval is obtained. In
the event that such shareholder approval is not obtained, then this option shall
thereupon terminate and Optionee shall have no further rights to acquire any
Optioned Shares hereunder.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate on its behalf by its duly authorized officer and Optionee has also
executed this Agreement in duplicate, all as of the day and year indicated
above.
MedCare Technologies, Inc.
a Delaware corporation
By:
----------------------------------
Title:
-------------------------------
- ----------------------------
, Optionee
- -------------
Address:
-------------------
-------------------
-------------
EXHIBIT B
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only
acceptable form of consideration for the exercise of the
options.]
-------------
"EXHIBIT B"
PLAN B
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION TATEMENT RELATING
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO
BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS OPTION.
NON-STATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the ____ day of __________, 199__, by and between
MedCare Technologies, Inc, a Delaware corporation (hereinafter called
"Company"), and ___________ (hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's 1998
Non-Statutory Stock Option Plan (the "Plan") for the purpose of attracting and
retaining the services of selected key employees (including officers and
employee directors) and others (collectively, "Eligible Persons"), who
contribute to the financial success of the Company or its parent or subsidiary
corporations.
B. Optionee is an Eligible Person and this Agreement is executed pursuant
to, and is intended to carry out the purposes of, the Plan in connection with
the Company's grant of a stock option to Optionee.
C. The granted option is not intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code, but is rather a non-statutory option.
NOW, THEREFORE, it is hereby agreed as follows:
<PAGE>
1. Grant of Option. Subject to and upon the terms and conditions set forth in
this Agreement, there is hereby granted to Optionee, as of the date of this
Agreement (the "Grant Date"), a stock option to purchase up to __________ shares
of the Company's Common Stock (the "Optioned Shares") from time to time during
the option term at the option price of $_______ per share.
2. Plan. The options granted hereunder are in all instances subject to the
terms and conditions of the Plan. In the event of any conflict between this
Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. Option Term. This option shall have a maximum term of years measured from
the Grant Date and shall accordingly expire at the close of business on
___________, 199__ (the "Expiration Date"), unless sooner terminated in
accordance with Paragraph 6 or 8(a).
4. Option Nontransferable; Exception. This option shall be neither transferable
nor assignable by Optionee, either voluntarily or involuntarily, other than by
will or by the laws of descent and distribution and may be exercised, during
Optionee's lifetime, only by Optionee.
5. Dates of Exercise. This option shall be exercisable as follows: ________.
Once exercisable, options shall remain so exercisable until the expiration or
sooner termination of the option term under Paragraph 6 or Paragraph 8(a) of
this Agreement. In no event, however, shall this option be exercisable for any
fractional shares.
6. Accelerated Termination of Option Term. The option term specified in
Paragraph 3 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) (i) Except as otherwise provided in subparagraphs (ii) and (iii)
below, should Optionee cease to be an Employee of the Company for any reason at
any time during the option term, any option of the Optionee, whether vested or
non-vested, and if issued under Plan B, shall terminate as of the date of
termination of employment.
(ii) Should Optionee die while this option is outstanding, then the
executors or administrators of Optionee's estate or Optionee's heirs or legatees
(as the case may be) shall have the right to exercise this option for the number
of shares (if any) for which the option is exercisable on the date of the
optionee's death. Such right shall lapse and this option shall cease to be
exercisable upon the earlier of (i) six (6) months from the date of the
optionee's death or (ii) the Expiration Date.
(iii) Should Optionee become permanently disabled and cease by reason
thereof to be an Employee of the Company at any time during the option term,
then Optionee shall have a period of six (6) months (commencing with the date of
such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any time
after the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is, by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of not
less than twelve (12) months, unable to perform his/her usual duties for the
Company or its Parent or Subsidiary corporations. Upon the expiration of the
limited period of exercisability or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iv) For purposes of this Paragraph 6 and for all other purposes under this
Agreement, if Optionee is an Employee, Optionee shall be deemed to be an
Employee of the Company and to continue in the Company's employ for so long as
Optionee remains an Employee of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan. For purposes of
this Paragraph 6 and for all other purposes under this Agreement, if Optionee is
not an Employee, but is eligible because Optionee is a director, consultant or
contractor of Company or a parent or subsidiary corporation, Optionee shall be
deemed to be an Eligible Person for so long as Optionee remains a director,
consultant or contractor of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan.
7. Adjustment in Option Shares.
(a) In the event any change is made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, combination of shares, or
other change affecting the outstanding Common Stock as a class without receipt
of consideration (as set forth in the Plan), then appropriate adjustments will
be made to (i) the
<PAGE>
total number of Optioned Shares subject to this option and (ii) the option price
payable per share in order to reflect such change and thereby preclude a
dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other business
combination, then this option, if outstanding under the Plan immediately after
such merger or other business combination shall be appropriately adjusted to
apply and pertain to the number and class of securities to which Optionee
immediately prior to such merger or other business combination would have been
entitled to receive in the consummation of such merger or other business
combination.
8. Special Termination of Option.
(a) In the event of one or more of the following transactions (a "Corporate
Transaction"):
(i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or substantially all
of the assets of the Company; or
(iii) any other corporate reorganization or business combination in which
fifty percent (50%) or more of the Company's outstanding voting stock is
transferred, or exchanged through merger, to different holders in a single
transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by the
successor corporation or parent thereof. The Company shall provide Optionee
with at least thirty (30) days prior written notice of the specified date for
the Corporate Transaction. The Company can give no assurance that the options
shall be assumed by the successor corporation or its parent company and it may
occur that some options outstanding under the Plan will be assumed while these
options are terminated.
(b) In the event of a Corporate Transaction, the Company may, at its
option, accelerate the vesting schedule contained in Section 5 hereof, but shall
have no obligation to do so. The Company shall have the right to accelerate
other options outstanding under the Plan or any other plan, even if it does not
accelerate the options of Optionee hereunder.
(c) This Agreement shall not in any way affect the right of the Company to
make changes in its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
9. Privilege of Stock Ownership. The holder of this option shall not have any
of the rights of a shareholder with respect to the Optioned Shares until such
individual shall have exercised the option and paid the option price in
accordance with this Agreement.
10. Manner of Exercising Option.
(a) In order to exercise this option with respect to all or any part of the
Optioned Shares for which this option is at the time exercisable, Optionee (or
in the case of exercise after Optionee's death, Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions:
(i) Execute and deliver to the Secretary of the Company a stock purchase
agreement in substantially the form of Exhibit "D" to this Agreement (the "Stock
Purchase Agreement");
(ii) Pay the aggregate option price for the purchased shares in cash,
unless another form of consideration is permited as described in Exhibit C,
if any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with respect to the
number of Optioned Shares specified in the Purchase Agreement at such time as
the executed Purchase Agreement for such shares shall have been delivered to the
Company and all other conditions of this Section have been fulfilled. Payment
of the option price shall immediately become due and shall accompany the
Purchase Agreement. As soon thereafter as practical, the Company shall mail or
deliver to Optionee or to the other person or persons exercising this option a
certificate or certificates representing the shares so purchased and paid for.
<PAGE>
11. Compliance With Laws and Regulations.
(a) The exercise of this option and the issuance of Optioned Shares upon
such exercise shall be subject to compliance by the Company and Optionee with
all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee shall execute
and deliver to the Company such representations in writing as may be requested
by the Company in order for it to comply with the applicable requirements of
federal and state securities laws.
12. Successors and Assigns. Except to the extent otherwise provided in
Paragraph 4 or 8(a), the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
13. Liability of Company.
(a) If the Optioned Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares unless shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any regulatory
body having authority deemed by the Company to be necessary to the lawful
issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to the Company in its reasonable
discretion shall relieve the Company of any liability with respect to the
nonissuance or sale of the Common Stock as to which such approval shall not have
been obtained. The Company, however, shall use its best efforts to obtain all
such approvals.
14. No Employment Contract. Except to the extent the terms of any written
employment contract between the Company and Optionee may expressly provide
otherwise, the Company (or any parent or subsidiary corporation of the Company
employing Optionee) shall be under no obligation to continue the employment of
Optionee for any period of specific duration and may terminate Optionee's status
as an Employee at any time, with or without cause.
15. Notices. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Company in care of its Secretary at its corporate offices. Any notice required
to be given or delivered to Optionee shall be in writing and addressed to
Optionee at the address indicated below Optionee's signature line on this
Agreement. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
16. Withholding. Optionee acknowledges that, upon any exercise of this option,
the Company shall have the right to require Optionee topay to the Company an
amount equal to the amount the Company is required to withhold as a result of
such exercise for federal and state income tax purposes.
17. Loans or Guarantees. The Company may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this option
by (i) authorizing the extension of a loan to Optionee from the Company, (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. Construction. This Agreement and the option evidenced hereby are made and
granted pursuant to the Plan and are in all respects limited by and subject to
the express terms and provisions of the Plan. All decisions of the Company with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
19. Governing Law. The interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
<PAGE>
20. REPURCHASE R1GHTS. OPTIONEE HEREBY AGREES THAT ALL OPTIONED SHARES
ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF
THE COMPANY AND ITS ASSIGNS TO REPURCHASE SUCH SHARES IN ACCORDANCE WITH THE
TERMS AND CONDITIONS SPECIFIED IN THE PURCHASE AGREEMENT,
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate on its behalf by its duly authorized officer and Optionee has also
executed this Agreement in duplicate, all as of the day and year indicated
above.
MedCare Technologies, Inc.
a Delaware corporation
By:
--------------------------------
Title: President
- -------------------------
OPTIONEE:
Address:
EXHIBIT C
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only acceptable form of
consideration for the exercise of the options.]
EXHIBIT "D"
STOCK PURCHASE AGREEMENT
This Agreement is made as of this_____ day of _____________199__, by and among
MedCare Technologies, Inc, a Delaware corporation ("Corporation"),
and_____________, the holder of a stock option under the Corporation's 1998
Stock Option Plan ("Optionee").
1. EXERCISE OF OPTION
1.1 Exercise. Optionee hereby purchases shares of Class A Common Stock of
the Corporation ("Purchased Shares") pursuant to that certain option ("Option")
granted Optionee on ________ , 199__ under the Corporation's 1998 Stock Option
Plan ("Plan") to purchase up to ___________ shares of the Corporation's Common
Stock at an option price of $ _____per share ("Option Price").
1.2 Payment. Concurrently with the delivery of this Agreement to the
Secretary of the Corporation, Optionee shall pay the Option Price for the
Purchased Shares in accordance with the provisions of the agreement between the
Corporation and Optionee evidencing the Option ("Option Agreement") and shall
deliver whatever additional documents may be required by the Option Agreement as
a condition for exercise.
2. INVESTMENT REPRESENTATIONS
2.1 Investment Intent. Optionee hereby warrants and represents that
Optionee is acquiring the Purchased Shares for Optionee's own account and not
with a view to their resale or distribution and that Optionee is prepared to
hold the Purchased Shares for an indefinite period and has no present intention
to sell, distribute or grant
<PAGE>
any participating interests in the Purchase Shares. Optionee hereby acknowledges
the fact that the Purchased Shares have not been registered under the Securities
Act of 1933, as amended (the "1933 Act"), and that the Corporation is issuing
the Purchased Shares to Optionee in reliance on the representations made by
Optionee herein.
2.2 Restricted Securities. Optionee hereby confirms that Optionee has been
informed that the Purchased Shares may not be resold or transferred unless the
Purchased Shares are first registered under the Federal securities laws or
unless an exemption from such registration is available. Accordingly, Optionee
hereby acknowledges that Optionee is prepared to hold the Purchased Shares for
an indefinite period and that Optionee is aware that Rule 144 of the Securities
and Exchange Commission issued under the 1933 Act is not presently available to
exempt the sale of the Purchased Shares from the registration requirements of
the 1933 Act. Should Rule 144 subsequently become available, Optionee is aware
that any sale of the Purchased Shares effected pursuant to the Rule may,
depending upon the status of Optionee as an ttaffiliate" or "non-affiliate"
under the Rule, be made only in limited amounts in accordance with the
provisions of the Rule, and that in no event may any Purchased Shares be sold
pursuant to the Rule until Optionee has held the Purchased Shares for the
requisite holding period following payment in cash of the Option Price for the
Purchased Shares.
2.3 Optionee Knowledge. Optionee represents and warrants that he or she
has a preexisting business or personal relationship with the officers and
directors of the Corporation, that he or she is aware of the business affairs
and financial condition of the Corporation and that he or she has such knowledge
and experience in business and financial matters with respect to companies in
business similar to the Corporation to enable him or her to evaluate the risks
of the prospective investment and to make an informed investment decision with
respect thereto. Optionee further represents and warrants that the Corporation
has made available to Optionee the opportunity to ask questions and receive
answers from the Corporation concerning the terms and conditions of the issuance
of the Purchased Shares and that he or she could be reasonably assumed to have
the capacity to protect his or her own interests in connection with such
investment.
2.4 Speculative Investment. Optionee represents and warrants that he or
she realizes that his or her purchase of the Purchased Shares will be a
speculative investment and that he or she is able, without impairing his or her
financial condition, to hold the Purchased Shares for an indefinite period of
time and to suffer a complete loss of his or her investment. Optionee
represents and warrants that he or she is aware and fully understands the
implications of the restrictions upon transfer imposed by the Plan and therefore
on the Purchased Shares.
2.5 Restrictive Legends. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO
THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREUNDER OR AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED.
3. MISCELLANEOUS PROVISIONS
3.1 Optionee Undertaking. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
3.2 Agreement Is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof.
This Agreement is made pursuant to the provisions of the Plan and shall in all
respects be construed in conformity with the express terms and provisions of the
Plan.
3.3 Governing Law. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
3.4 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
3.5 Successors and Assigns. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Corporation and its successors and
assigns and the Optionee and the Optionee's
<PAGE>
legal representatives, heirs, legatees, distributees, assigns and transfer by
operation of law, whether or not any such person shall have become a party to
this Agreement and have agreed in writing to join herein and be bound by the
terms and conditions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first indicated above.
MedCare Technologies, Inc.
a Delaware corporation
By:
-----------------------------
Title: President
- ---------------------------
OPTIONEE:
Address:
<PAGE>
EXHIBIT 10e.
1999 INCENTIVE STOCK OPTION PLAN AND 1999
NONSTATUTORY STOCK OPTION PLAN
1. Names and Purposes of the Plans. This Plan document is intended to
implement and govern two separate Stock Option Plans of MedCare Technologies,
Inc., a Delaware corporation (the "Company"): the 1999 Incentive Stock Option
Plan ("Plan A") and the 1999 Nonstatutory Stock Option Plan ("Plan B")
(collectively the "Plans"). Plan A provides for the granting of options that
are intended to qualify as incentive stock options ("Incentive Stock Options")
within the meaning of Section 422(b) of the Internal Revenue Code, as amended.
Plan B provides for the granting of options that are not intended to so qualify.
Unless specified otherwise, all the provisions of this Plan document relate
equally to both Plan A and Plan B, which Plans are condensed into one Plan
document solely for purposes of administrative convenience and are not intended
to constitute tandem plans. The purposes of the Plans are (a) to attract and
retain the best available people for positions of substantial responsibility,
and (b) to provide additional incentive to the Employees of the Company (and its
future parents and subsidiaries, if any) and to promote the success of the
Company's business.
2. Definitions. For purposes of the Plans, the following terms will have the
respective meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company;
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(c) "Common Stock" shall mean the Class A common stock of the Company;
(d) "Company" shall mean Medcare Technologies, Inc., a Delaware
corporation;
(e) "Committee" shall mean the committee appointed by the Board in
accordance with Paragraph 3(a) of this Plan document, if one is appointed;
(f) "Employee" shall mean any person, including an officer or director, who
is an employee (within the meaning of Section 422 of the Code) of the Company,
any parent, any subsidiary or any successors to any of the foregoing;
(g) "Incentive Option" shall mean an incentive stock option as defined in
Section 422(b) of the Code;
(h) "Non-Statutory Option" shall mean an option which does not qualify as
an Incentive Option;
(i) "Option" shall mean a stock option granted pursuant to the Plan,
whether an Incentive Option or a Non-Statutory Option;
(j) "Option Agreement" shall mean an agreement substantially in the form
attached hereto as Exhibit A or the form attached hereto as Exhibit B, or such
other form or forms as the Board (subject to the terms and conditions of the
Plans) may from time to time approve, evidencing an Option;
(k) "Option Grant Date" shall mean the date on which an Option is granted
by the Board;
(l) "Optioned Stock" shall mean the Common Stock subject to an Option
granted pursuant to a Plan;
(m) "Optionee" shall mean an Employee or other Eligible Person who receives
an Option;
(n) "Outstanding Incentive Option" shall mean any Incentive Stock Option
which has not yet been exercised in full or has not yet expired by lapse of
time;
(o) "Parent" shall mean a "parent corporation" as defined in Section 424(e)
of the Code;
(p) "Plan A" shall mean the 1999 Incentive Stock Option Plan;
(q) "Plan B" shall mean the 1999 Non-Statutory Stock Option Plan;
<PAGE>
(r) "Predecessor Corporation" shall mean a corporation which is a party to
a transaction described in Code Section 424(a) (or which would be so described
if a substitution or assumption under such section had been effected) with the
Company, a Parent, a Subsidiary or a predecessor corporation of any such
corporations.
(s) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 13 of this Plan document;
(t) "Stock Purchase Agreement" shall mean an agreement substantially
in the form attached hereto as Exhibit D or such other form or forms as the
Board (subject to the terms and conditions of this Plan) may from time to time
approve, which is to be executed as a condition of purchasing Optioned Stock
upon exercise of an Option as provided in a Plan; and,
(u) "Subsidiary" shall mean a subsidiary corporation as defined in Section
424(f) of the Code.
3. Administration of Plan.
(a) Procedure. The Plans shall be administered by the Board.
The Board may appoint a Committee consisting of not less than two (2)
members of the Board to administer one or both of the Plans on behalf of the
Board, subject to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board. From time to time, the Board may increase the size of the Committee and
appoint additional members thereof, remove members of the Committee, and
thereafter, directly administer the Plans. Any references herein to the Board
shall refer to the Committee, if one is appointed, to the extent of the
Committee's authority.
(b) Limitations on Members of Board. Members of the Board who are either
eligible for options or have been granted Options may vote on any matters
affecting the administration of the Plans or the grant of any Options pursuant
to the Plans; except that no such member shall act in connection with an Option
to himself or herself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which action is taken
with respect to Options of such member.
(c) Powers of the Board. Subject to the provisions of the Plan the Board
shall have the authority, in its discretion, to make all determinations
necessary or advisable for the administration of the Plans, including without
limitation:
(i) to determine, upon review of relevant information, the then fair
market value per share of the Common Stock;
(ii) to determine the exercise price of the Options to be granted,
subject to the provisions of Paragraph 8 of this Plan document;
(iii) to determine the Employees to whom, and the time or times at
which, Options shall be granted, and the number of shares of Optioned Stock to
be represented by each Option;
(iv) to determine whether Options granted hereunder shall be granted
under Plan A as Incentive Options or Plan B as Non-statutory Options;
(v) to prescribe, amend and rescind rules and regulations relating to
the Plans;
(vi) to determine the terms and provisions of each Option granted under
the Plans (which need not be identical) and to modify or amend each Option (with
or without consent of the Optionee, if necessary);
(vii) to accelerate the exercise date of any Option;
(viii) to construe and interpret the Plans, the Option Agreements, Stock
Purchase Agreements and any other agreements provided for hereunder; and
<PAGE>
(ix) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Board or to take such other actions as may be necessary or advisable with
respect to the Company's rights pursuant to the Option, Stock Purchase Agreement
or other agreement approved hereunder.
(d) Effect of the Board's or Committee's Decision. All decisions,
determinations and interpretations of the Board or the Committee shall be final
and binding on all Optionees and any other proper holders of any Options granted
under the Plan.
4. Stock Subject to the Plan. Subject to the provisions of Section 13of this
Plan document, the maximum aggregate number of shares which may be optioned
under these Plans is 200,000 shares of authorized Common Stock. This
constitutes an absolute cumulative limitation on the total number of shares that
may be optioned under Plan A and Plan B and, therefore, at any particular date
the maximum aggregate number of shares which may be optioned under Plan A is
equal to 200,000 minus the number of shares previously optioned under Plan A and
Plan B; and the maximum aggregate number of shares which may be optioned under
Plan B is equal to 200,000 minus the number of shares which have been previously
optioned under Plan A or Plan B. All shares to be optioned under either Plan A
or Plan B may be either authorized but unissued shares or shares held in the
treasury. Shares of Common Stock that (a) are repurchased by the Company after
issuance hereunder pursuant to the exercise of an Option or (b) are not
purchased by the Optionee prior to the expiration of the applicable Option
Period (as described hereinbelow) shall again become available to be covered by
Options to be issued hereunder and shall not, as of the effective date of such
repurchase or expiration, be counted as having been previously optioned for
purposes of the above-described maximum number of shares which may be optioned
hereunder.
5. Eligibility. Options under Plan A may be granted to any Employee who is
designated by the Board in its discretion. NonEmployees, including directors of
the Company or any Parent or Subsidiary, who are not regular employees of the
Company, are not eligible to receive Options under Plan A. Options under Plan B
may be granted to any Employee, any Non-Employee director of Company or any
Parent or Subsidiary, and any consultant or independent contractors who provide
valuable services to the Company (or its Parent or Subsidiary), all as
designated by the Board in its discretion. An Optionee who has been granted an
Option may, if otherwise eligible, be granted an additional Option or Options.
Options may be granted to one or more persons without being granted to other
eligible persons, as the Board may deem fit.
6. Term of the Plan. Plan A shall become effective immediately upon the earlier
to occur of its adoption by the Board or its approval by vote of a majority of
the outstanding shares of the Company entitled to vote on the adoption of such
Plan. Plan B shall become effective immediately upon its adoption by the Board.
Each Plan shall continue in effect until December 31, 2009 unless sooner
terminated under Sections 15 or 18 of this Plan document. No Option may be
granted under a Plan after its expiration.
7. Option Period. Each Option granted pursuant to either Plan shall be
evidenced by an Option Agreement. Each Option shall expire and all rights
thereunder shall end at the expiration of such period (which shall in no event
be more than ten (10) years) after the Option Grant Date as shall be fixed by
the Board, subject in all cases to earlier expiration as provided in Section 11
of this Plan document. Notwithstanding the foregoing, the term of each
Incentive Option granted to an Employee who, at the time the Incentive Option is
granted, owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary
(determined as required by the Code as applied to Incentive Options) shall not
be more than five (5) years from the Option Grant Date.
8. Option Price and Consideration.
(a) Price. The per share Option price for the Shares to be issued pursuant
to an Option granted under either Plan shall be such price as is determined by
the Board in its sole discretion. Notwithstanding the foregoing, with respect
to Incentive Options granted under Plan A: (i) such price shall in no event be
less than one hundred percent (100%) of the fair market value per Share of the
Company's Common Stock on the Option Grant Date, as determined by the Board; and
(ii) in the case of an Incentive Option granted to an Employee who, at the time
the Option is granted, owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any
Parent, Subsidiary or Predecessor Corporation (determined as required by the
Code as applied to Incentive Options), the per share Option price shall be at
least one hundred ten percent (110%) of the fair market value as of the Option
Grant Date, as determined by the Board. The fair market value shall be
determined by the Board in its sole discretion, exercised in good faith;
provided, however, that where there is a public market for the Common Stock, the
fair market value per share shall be the mean of the reported bid and asked
price for the Common Stock on the date of the grant, or, in the event the Common
Stock is listed on a stock
<PAGE>
exchange, the fair market value per share shall be the closing price on the
exchange as of the date of grant of the Option.
(b) Form of Consideration. The form of consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Board and may consist of cash, promissory notes, or
the surrender of shares of Common Stock having a fair market value on the date
of surrender equal to the purchase price of the Shares as to which said Option
shall be exercised, a combination thereof, or such other consideration and
method of payment for the issuance of Shares as is permitted under applicable
law.
(c) Promissory Notes. If the consideration for the exercise of an Option
is a promissory note, such note shall be a full recourse promissory note
executed by the Optionee. If the option is an Incentive Option under Plan A,
such note shall bear interest at a per annum rate which is not less than the
greater of (i) the applicable "test rate" described in Treasury Regs. Section
1.4831(d) in effect on the date of exercise or (ii) a fair market interest rate,
as determined by the Board in its good faith discretion. If a promissory note is
given as consideration, the Company may retain the Shares purchased upon
exercise of the Option in escrow as security for payment of the promissory note.
(d) Surrendered Common Stock. If the consideration for the exercise of an
Option is the surrender of previously acquired and owned shares of common stock
of the Company, the Optionee will be required to make representations and
warranties satisfactory to the Company regarding the Optionee's title to the
shares used to effect the purchase, including without limitation,
representations and warranties that the Optionee has good and marketable title
to such shares free and clear of any and all liens, encumbrances, charges,
equities, claims, security interests, options or restrictions and has full power
to deliver such shares without obtaining the consent or approval of any person
or governmental authority other than those which have already given consent or
approval in a form satisfactory to the Company. The value of the shares used to
effect the purchase shall be the fair market value of those shares as determined
by the Board in its sole discretion, exercised in good faith.
9. Limit on Value of Optioned Stock Issued Under Plan A. The aggregate fair
market value (determined as of the Option Grant Date of each Option) of the
Shares with respect to which Incentive Options are exercisable for the first
time by the Optionee during any calendar year under Plan A and all other
incentive stock option plans of the Company, any Parent or Subsidiary, or any
Predecessor Corporation of any such corporation shall not exceed One Hundred
Thousand Dollars ($100,000.00), as determined pursuant to Section 422(d) of the
Code.
10. Exercise of Option.
(a) General Terms. Any Option granted hereunder shall be exercisable at
such times and under such conditions as may be determined by the Board which
conditions may include performance criteria with respect to the Company and/or
the Optionee or provisions for vesting over a period of time conditioned upon
continued employment and shall include the contemporaneous execution of a Stock
Purchase Agreement in a form approved by the Board and as shall be permissible
under the terms of the Plan. In all events, in order to exercise an Option
hereunder the Optionee shall execute a Stock Purchase Agreement in a form
approved by the Board and shall deliver the required (or permitted) exercise
consideration to the Company. As a condition to the exercise of an Option, the
Board may require the Optionee pursuant to the Option Agreement to agree to
restrictions on the sale or other transfer of ownership of the Common Stock
acquired by an Optionee or to sell such Shares to the Company upon termination
of employment.
(b) Partial Exercise. An Option may be exercised in accordance with the
provisions of either Plan as to all or any portion of the Shares then
exercisable under an Option, from time to time during the term of the Option.
An Option may not be exercised for a fraction of a Share.
(c) Time of Exercise. An Option shall be deemed to be exercised when the
Company has received at its principal business office: (i) written notice of
such exercise in accordance with the terms of the Option Agreement and given by
the person entitled to exercise the Option; (ii) full payment for the Shares
with respect to which the Option is exercised; (iii) the executed Stock Purchase
Agreement if required; and (iv) any other representations or agreements required
by the terms of this Plan or the Option Agreement. Full payment may consist of
such consideration as is authorized by the Board as provided hereunder.
(d) No Rights as Shareholder Until Exercise. Until this Option is properly
exercised hereunder and the Company receives full payment for the Shares with
respect to which the Option is exercised, no right to receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock.
No adjustment will be
<PAGE>
made for a dividend or other right for which the record date is prior to the
date the Option is properly exercised and payment in full is received, except as
provided in Section 13 of this Plan document.
(e) Issuance of Share Certificates. As soon as practicable after any proper
exercise of an Option in accordance with the provisions of this Plan document
and payment in full for the exercised Shares, the Company shall, without
transfer or issue tax to the Optionee, deliver to the Optionee at the principal
business office of the Company, or such other place as shall be mutually
acceptable, a certificate or certificates representing the Shares of Common
Stock as to which the Option has been exercised. The time of issuance and
delivery of the certificates) representing the Shares of Common Stock may be
postponed by the Company for such period as may be required for it, with
reasonable diligence, to comply with any applicable listing requirements of any
national or regional securities exchange and any law or regulation applicable to
the issuance and delivery of such Shares.
(f) Reduction of Shares Upon Exercise. Exercise of an Option in any manner
shall result in a decrease in the number of Shares which thereafter may be
available, both for purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised.
11. Termination of Employment.
(a) General. If an Optionee ceases to be an Employee for any reason then,
except as provided in Paragraph 11(a) or 11(b) hereof, any Option of the
Optionee, whether vested or non-vested, and if issued under Plan A or Plan B,
shall terminate as of the date of termination of employment.
(b) Death or Disability. If Optionee dies or becomes disabled (within the
meaning of Code Section 422 and the rules and regulations thereunder) then,
within the earlier of thirty (30) days (or such other period of time not
exceeding six (6) months as set forth in the Option Agreement) following the
date of such death or disability and the time the Option expires by its terms,
the Optionee or such person or persons to whm the Optionee's rights under the
Option shall pass by the Optionee's will or by the laws of descent and
distribution, may exercise the Option to the extent it was vested and
exercisable on the date of death or disability.
12. Non-transferability of Options. The Options and any rights and privileges
granted under any Option Agreement are not transferable by the Optionee, either
voluntarily or by operation of law, otherwise than by will and the laws of
descent and distribution and shall be exercisable during Optionee's lifetime
only by Optionee.
13. Adjustments Upon Changes in Capitalization.
(a) Reorganizations, Recapitalization, Etc. If the outstanding shares of
Common Stock of the Company are increased, decreased, changed into or exchanged
for a different number or kind of shares or securities of the Company through
reorganization, recapitalization, reclassification, stock dividend (but only on
Common Stock), stock split, reverse stock split or other similar transaction,
or, if any other increase or decrease occurs in the number of Shares of Common
Stock of the Company without the receipt of consideration by the Company, then
an appropriate and proportional adjustment shall be made in (i) the number and
kind of shares of stock covered by each outstanding Option, (ii) the number and
kind of shares of stock which have been authorized for issuance under the Plan
but as to which no Options have yet been granted (or which have been returned to
the Plan upon cancellation of an Option), and (iii) the exercise price per share
of stock covered by each such outstanding Option. The granting of stock options
or bonuses to Employees of the Company and the conversion of any convertible
securities of the Company shall not be deemed to have been "effected without the
receipt of consideration." Notwithstanding the foregoing, no adjustment need be
made under this paragraph if, upon the advice of counsel, the Board determines
that such adjustment may result in federal taxable income to the holders of
Options or Common Stock or other classes of the Company's securities.
(b) Dissolution, Liquidation, Etc. Upon the dissolution or liquidation of
the Company, or upon a reorganization, merger or consolidation of the Company
with one or more corporations as a result of which the Company is not the
surviving corporation, or upon a sale (or exchange through merger) of
substantially all the property or more than fifty percent (50%) of the then
outstanding stock of the Company to another corporation, the Plan shall
terminate, and any Option theretofore granted hereunder shall terminate.
Notwithstanding the foregoing, the Board may provide in writing in connection
with, or in contemplation of, such transaction for any, all or none of the
following alternatives (separately or in combination): (i) for all or a portion
of the Options theretofore granted to become immediately exercisable; (ii) for
the assumption by the successor corporation of the Options theretofore granted
or the substitution by such corporation for such Options of new options covering
the stock of the successor corporation, or a Parent or Subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and
<PAGE>
prices; or (iii) for the continuance of the Plan by such successor corporation
in which event the Plan and the Options theretofore granted shall continue in
the manner and under the terms so provided.
(c) No Fractional Shares. No fractional shares of the Common Stock shall be
issuable on account of any action under this Paragraph 13, and the aggregate
number of shares into which Shares then covered by an Option, when changed as
the result of such action, shall be reduced to the largest number of whole
Shares resulting from such action. Notwithstanding the foregoing, the Board, in
its sole discretion, may determine to issue scrip certificates, in respect to
any fractional shares, which scrip certificates, in such event, shall be in a
form and have such terms and conditions as the Board in its discretion shall
prescribe.
(d) Binding Effect of Board Determinations. All adjustments under this
Paragraph 13 shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive.
(e) No Other Adjustments. Except as expressly provided herein, no issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of Shares of Common Stock
subject to the Plan or any Options.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time and from time to
time suspend or terminate either Plan. The Board may also amend or revise
either Plan from time to time in such respects as the Board may deem advisable,
except that, without approval of the holders of the majority of the outstanding
shares of the Company's Common Stock, no such revision or amendment shall amend
Plan A or Plan B so as to:
(i) Increase the number of Shares subject to Plan A or Plan B other than
in connection with an adjustment under Section 13 of this Plan document;
(ii) Permit the granting of Incentive Options to anyone other than as
provided in Paragraph 5;
(iii) Remove the administration of Plan A or Plan B from the Board;
(iv) Extend the term of Plan A or Plan B beyond that provided in
Paragraph 6 hereof;
(v) Extend the term of any Incentive Option beyond the maximum term set
forth in Paragraph 7;
(vi) Permit the granting of Incentive Options which would not qualify as
Incentive Stock Options; or
(vii) Decrease the per share option price required with respect to
Incentive Options under Paragraph 8(a) hereof.
(b) Effect of Termination. Except as otherwise provided in Section 13,
without the written consent of the Optionee, any such termination of the Plan
shall not affect Options already granted and such Options shall remain in full
force and effect as if the Plan had not been terminated.
15. Conditions Upon Issuance of Shares. Options granted under either Plan are
conditioned upon the Company obtaining any required permit, or exemption from
the qualification or registration provisions of any applicable state securities
law and other appropriate governmental agencies, authorizing the Company to
issue such Options and Optioned Stock upon terms and conditions acceptable to
the Company. Shares shall not be issued with respect to an Option granted under
either Plan unless the exercise of such Option and the issuance and delivery of
such shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. As a condition to the
exercise of an Option, the Board may require the person exercising such Option
to execute an agreement approved by the Board, and may require the person
exercising such Option to make any representation and warranty to the Company as
may, in the judgment of counsel to the Company, be required under applicable
laws or regulations.
16. Reservation of Shares. During the term of the Plans, the Company will
at all times reserve and keep available the number of Shares as shall be
sufficient to satisfy the requirements of the Plans. During the term of the
<PAGE>
Plans, the Company will use its best efforts to seek to obtain from appropriate
regulatory agencies any requisite authorization in order to issue and sell such
number of Shares of its Common Stock as shall be sufficient to satisfy the
requirements of the Plan. The inability of the Company to obtain from any such
regulatory agency the requisite authorization(s) deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder, or the
inability of the Company to confirm to its satisfaction that any issuance and
sale of any Shares hereunder will meet applicable legal requirements, shall
relieve the Company of any liability in respect to the non-issuance or sale of
such Shares as to which such requisite authority shall not have been obtained.
17. Taxes, Fees, Expenses and Withholding of Taxes.
(a) Issue and Transfer Taxes. The Company shall pay all original issue and
transfer taxes (but not income taxes, if any) with respect to the grant of
Options and the issue and transfer of Shares pursuant to the exercise of such
Options, and all other fees and expenses necessarily incurred by the Company in
connection therewith, and will use its best efforts to comply with all laws and
regulations which, in the opinion of counsel for the Company, shall be
applicable thereto.
(b) Withholding. The grant of Options hereunder and the issuance of Shares
of Common Stock pursuant to the exercise of such Options are conditioned upon
the Company's reservation of the right to withhold, in accordance with any
applicable law, from any compensation payable to the Optionee any taxes required
to be withheld by federal, state or local law as a result of the grant or
exercise of such Option or the sale of the Shares issued upon exercise of the
Option.
18. Shareholder Approval of Plan A and Plan B. Continuance of Plan A and
Plan B and the effectiveness of any Option granted under such Plan shall be
subject to approval by the holders of the outstanding voting stock of the
Company in accordance with applicable law within twelve (12) months before or
after the date Plan A and Plan B is adopted by the Board. Any Options granted
under Plan A and Plan B prior to obtaining such shareholder approval shall be
granted upon the conditions that the Options so granted: (i) shall not be
exercisable prior to such approval and (ii) shall become null and void ab initio
if such shareholder approval is not obtained.
19. Liability of Company. The Company, its Parent or any Subsidiary which is
in existence or hereafter comes into existence, will not be liable to an
Optionee granted an Incentive Option or other person if it is determined for any
reason by the Internal Revenue Service or any court having jurisdiction that any
Incentive Options granted hereunder are not Incentive Stock Options.
20. Notices. Any notice to be given to the Company pursuant to the provisions
of the Plans shall be addressed to the Company in care of its Secretary at its
principal office, and any notice to be given to an Optionee shall be delivered
personally or addressed to such Optionee at the address given beneath such
Optionee's signature on such Optionee's Stock Option Agreement, or at such other
address as such Employee (or any transferee) upon the transfer of the Optioned
Stock may hereafter designate in writing to the Company. Any such notice shall
be deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, registered or certified, and deposited, postage and
registry or certification fee prepaid, in a post office or branch post office
regularly maintained by the United States Postal Service. It shall be the
obligation of each Optionee and each transferee holding Shares purchased upon
exercise of an Option to provide the Secretary of the Company, by letter mailed
as provided hereinabove, with written notice of such person's direct mailing
address.
21. No Enlargement of Employee Rights. This Plan is purely voluntary on the
part of the Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Employee, or to be
consideration for or a condition of the employment of any Employee. Nothing
contained in this Plan shall be deemed to give any Employee the right to be
retained in the employ of the Company, its Parent, Subsidiary or a successor
corporation, or to interfere with the right of the Company or any such
corporations to discharge or retire any Employee thereof at any time. No
Employee shall have any right to or interest in Options authorized hereunder
prior to the grant of such Option to such employee, and upon such grant he or
she shall have only such rights and interests as are expressly provided herein,
subject, however, to all applicable provisions of the Company's Certificate of
Incorporation, as the same may be amended from time to time.
22. Legends on Certificates.
(a) Federal Law. Unless an appropriate registration statement is filed
pursuant to the Federal Securities Act of 1933, as amended, with respect to the
Options and Shares issuable under the Plans, each certificate representing such
Options and Shares shall be endorsed on its face with a legend substantially as
follows:
<PAGE>
"THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF
THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SALE,
TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) State Legend. If required by applicable state authorities each
certificate representing the Options and Shares issuable under the Plans shall
be endorsed its face with any legends required by such authorization.
(c) Additional Legends. Each certificate representing the Options and
Shares issuable under the Plans shall also contain legends as are set forth in
any Stock Purchase Agreement or other agreement the execution of which is a
condition to the exercise of an Option under this Plan. In addition, each Option
Agreement shall be endorsed with a legend substantially as follows:
"THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAYBE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE
AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO
BE ENTERED INTO BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY AS A
CONDITION TO EXERCISE OF THIS OPTION."
23. Availability of Plan. A copy of the Plans shall be delivered to the
Secretary of the Company and shall be shown by him to any eligible person making
reasonable inquiry concerning it.
24. Invalid Provisions. In the event that any provision of the Plans is found
to be invalid or otherwise unenforcable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.
25. Applicable Law. These Plans shall be governed and construed in accordance
with the laws of the State of Delaware applicable to contracts executed, and to
be fully performed, in Delaware.
IN WITNESS WHEREOF, pursuant to the due authorization and adoption of these
Plans by the Board on , 199__, the Company has caused these Plans to be
duly executed by its duly authorized officers, effective as of , 199__.
MedCare Technologies, Inc.
a Delaware corporation
By:
--------------------------------
Title: President
EXHIBIT "A"
PLAN A
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"),
<PAGE>
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO
BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS OPTION.
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made as of the __________ day of _____________, 19__, by and
between Medcare Technologies, Inc. a Delaware corporation (hereinafter called
"Company") and____________ (hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's 1999
Incentive Stock Option Plan (the "Plan") for the purpose of attracting and
retaining the services of selected key employees (including officers and
employee directors), who contribute to the financial success of the Company or
its parent or subsidiary corporations.
B. Optionee is a key member of the Company or its parent or subsidiary
corporations, and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Company's grant of a
stock option to the Optionee.
C. The granted option is intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. Subject to and upon the terms and conditions set forth
in this Agreement, there is hereby granted to Optionee, as of the date of this
Agreement (the "Grant Date"), a stock option to purchase up to ______ shares of
the Company's Common Stock (the "Optioned Shares") from time to time during the
option term at the option price of $____ per share.
2. Plan. The options granted hereunder are in all instances subject to the
terms and conditions of the Plan. In the event of any conflict between this
Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusinve and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. Option Term. This option shall have a maximum term of five (5) years
measured from the Grant Date and shall accordingly expire at the close of
business on ________, 19__ (the "Expiration Date"), unless sooner terminated in
accordance with Paragraph 7, 9(a) or 20.
4. Option Nontransferable; Exception. This option shall be neither
transferable nor assignable by Optionee, either voluntarily or involuntarily,
other than by will or by the laws of descent and distribution and may be
exercised, during Optionee's lifetime, only by Optionee.
5. Condition Precedent to Exercise. This option may not be exercised in
whole or in part at any time prior to the time the Company has satisfied the
following condition precedent: __________. In the event the foregoing condition
precedent has not been satisfied prior to the Expiration Date or prior to this
option's earlier termination in accordance with Paragraph 7, 9(a) or 20, then
this option shall terminate and cease to be outstanding.
6. Dates of Exercise. This option may not be exercised in whole or in part
at any time prior to the time it is approved by the Company's shareholders in
accordance with Paragraph 20. Provided such shareholder
<PAGE>
approval is obtained and the condition precedent to exercise set forth in
Paragraph 5 has been satisfied, this option shall become exercisable for 100% of
the Optioned Shares one (1) year from the Grant Date, provided that in no event
may options for more than One Hundred Thousand Dollars ($100,000) of Optioned
Shares, calculated at the exercise price, become exercisable for the first time
in any calendar year. Once exercisable, options shall remain so exercisable
until the expiration or sooner termination of the option term under Paragraph 7
or Paragraph 9(a) of this Agreement. In no event, however, shall this option be
exercisable for any fractional shares.
7. Accelerated Termination of Option Term. The option term specified in
Paragraph 3 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) Except as otherwise provided in subparagraphs (ii) and (iii) below,
should Optionee cease to be an Employee of the Company for any reason at any
time during the option term, any option of the Optionee, whether vested or
non-vested, and if issued under Plan A, shall terminate as of the date of
termination of employment.
(ii) Should Optionee die while this option is outstanding, then the
executors or administrators of Optionee's estate or Optionee's heirs or
legatees (as the case may be) shall have the right to exercise this option for
the number of shares (if any) for which the option is exercisable on the date
of the optionee's death. Such right shall lapse and this option shall cease
to be exercisable upon the earlier of (i) six (6) months from the date of the
optionee's death or (ii) the Expiration Date.
(iii) Should Optionee become permanently disabled and cease by reason
thereof to be an Employee of the Company at any time during the option term,
then Optionee shall have a period of six (6) months (commencing with the date
of such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any
time after the Expiration Date. Optionee shall be deemed to be permanently
disabled if Optionee is, by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration
of not less than twelve (12) months, unable to perform his/her usual duties
for the Company or its Parent or Subsidiary corporations. Upon the expiration
of the limited period of exercisability or (if earlier) upon the Expiration
Date, this option shall terminate and cease to be outstanding.
(iv) For purposes of this Paragraph 7 and for all other purposes under
this Agreement, Optionee shall be deemed to be an Employee of the Company and
to continue in the Company's employ for so long as Optionee remains an
Employee of the Company or one or more of its parent or subsidiary
corporations as such terms are defined in the Plan.
8. Adjustment in Option Shares
(a) In the event any change is made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, combination of shares, or
other change affecting the outstanding Common Stock as a class without receipt
of consideration (as set forth in the Plan), then appropriate adjustments will
be made to (i) the total number of Optioned Shares subject to this option and
(h) the option price payable per share in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other business
combination, then this option, if outstanding under the Plan immediately after
such merger or other business combination shall be appropriately adjusted to
apply and pertain to the number and class of securities to which Optionee
immediately prior to such merger of other business combination would have been
entitled to receive in the consummation of such merger or other business
combination.
9. Special Termination of Option.
(a) In the event of one or more of the following transactions (a
"Corporate Transaction"):
(i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company; or
<PAGE>
(iii) any other corporate reorganization or business combination in
which fifty percent (50%) or more of the Company's outstanding voting stock
is transferred, or exchanged through merger, to different holders in a
single transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by
the successor corporation or parent thereof. The Company shall Corporate
Transaction. The Company can give no assurance that the options shall be
assu provide Optionee with at least thirty (30) days prior written notice of
the specified date for the med by the successor corporation or its parent
company and it may occur that some options outstanding under the Plan will be
assumed while these options are terminated.
(b) In the event of a Corporate Transaction, the Company may, at its
option, accelerate the vesting schedule contained in Section 6 hereof, but shall
have no obligation to do so. The Company shall have the right to accelerate
other options outstanding under the Plan or any other plan, even if it does not
accelerate the options of Optionee hereunder.
(c) This Agreement shall not in any way affect the right of the Company to
make changes in its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
10. Privilege of Stock Ownership. The holder of this option shall not have
any of the rights of a shareholder with respect to the Optioned Shares until
such individual shall have exercised the option and paid the option price in
accordance with this Agreement.
11. Manner of Exercising Option.
(a) In order to exercise this option with respect to all or any part of
the Optioned Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:
(i) Execute and deliver to the Secretary of the Company a stock
purchase agreement in substantially the form of Exhibit D to this Agreement
(the "Purchase Agreement");
(ii) Pay the aggregate option price for the purchased shares in cash,
unless another form of consideration is permitted as described in Exhibit
C, if any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with respect to the
number of Optioned Shares specified in the Purchase Agreement at such time as
the executed Purchase Agreement for such shares shall have been delivered to the
Company and all other conditions of this Section have been fulfilled. Payment
of the option price shall immediately become due and shall accompany the
Purchase Agreement. As soon thereafter as practical, the Company shall mail or
deliver to Optionee or to the other person or persons exercising this option a
certificate or certificates representing the shares so purchased and paid for.
12. Compliance with Laws and Regulations.
(a) The exercise of this option and the issuance of Optioned Shares upon
such exercise shall be subject to compliance by the Company and Optionee with
all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee shall execute
and deliver to the Company such representations in writing as may be requested
by the Company in order for it to comply with the applicable requirements of
federal and state securities laws.
13. Successors and Assigns. Except to the extent otherwise provided in
Paragraph 4 or 9(a), the provisions of this Agreement shall insure to the
benefit of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
14. Liability of Company.
<PAGE>
(a) If the Optioned Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without
shareholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares unless shareholder approval of an
amendment sufficiently increasing the number of shares of Common Stock
issuable under the Plan is obtained in accordance with the provisions of
Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any regulatory
body having authority deemed by the Company to be necessary to the lawful
issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to the Company in its reasonable
discretion shall relieve the Company of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. The Company, however, shall use its best efforts to
obtain all such approvals.
(c) Neither the Company nor any Parent, Subsidiary or successor
corporation will have any liability to Optionee or any other person if it is
determined for any reason that any options granted hereunder are not
Incentive Stock Options.
15. No Employment Contract. Except to the extent the terms of any written
employment contract between the Company and Optionee may expressly provide
otherwise, the Company (or any parent or subsidiary corporation of the Company
employing Optionee) shall be under no obligation to continue the employment of
Optionee for any period of specific duration and may terminate Optionee's status
as an Employee at any time, with or without cause.
16. Notices. Any notice required to be given or delivered to the Company under
the terms of this Agreement shall be in writing and addressed to the Company in
care of its Secretary at its corporate offices. Any notice required to be given
or delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee's signature line on this Agreement. All
notices shall be deemed to have been given or delivered upon personal delivery
or upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
17. Loans or Guarantees. The Company may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this option
by (i) authorizing the extension of a loan to Optionee from the Company, (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. Construction. This Agreement and the option evidenced hereby are made and
granted pursuant to the Plan and are in all respects limited by and subject to
the Plan. All decisions of the Company with respect to any question or issue
arising under the Plan or this Agreement shall be conclusive and binding on all
persons having an interest in this option.
19. Governing Law. The interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
20. Shareholder Approval. The grant of this option is subject to approval of
the Plan by the Company's shareholders within twelve (12) months after the
adoption of the Plan by the Board of Directors, and this option may not be
exercised in whole or in part until such shareholder approval is obtained. In
the event that such shareholder approval is not obtained, then this option shall
thereupon terminate and Optionee shall have no further rights to acquire any
Optioned Shares hereunder.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate on its behalf by its duly authorized officer and Optionee has also
executed this Agreement in duplicate, all as of the day and year indicated
above.
Medcare Technologies, Inc.
a Delaware corporation
By:
----------------------------------
Title:
-------------------------------
<PAGE>
- ----------------------------
, Optionee
- -------------
Address:
-------------------
-------------------
<PAGE>
EXHIBIT B
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only
acceptable form of consideration for the exercise of the
options.]
-----------------
"EXHIBIT B"
PLAN B
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION TATEMENT RELATING
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO
BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS OPTION.
NON-STATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the ____ day of __________, 199__, by and between
MedCare Technologies, Inc, a Delaware corporation (hereinafter called
"Company"), and ___________ (hereinafter called "Optionee").
RECITALS
A. The Board of Directors of the Company has adopted the Company's 1999 Non-
Statutory Stock Option Plan (the "Plan") for the purpose of attracting and
retaining the services of selected key employees (including officers and
employee directors) and others (collectively, "Eligible Persons"), who
contribute to the financial success of the Company or its parent or subsidiary
corporations.
B. Optionee is an Eligible Person and this Agreement is executed pursuant
to, and is intended to carry out the purposes of, the Plan in connection with
the Company's grant of a stock option to Optionee.
C. The granted option is not intended to be an incentive stock option
("Incentive Option") within the meaning of Section 422 of the Internal Revenue
Code, but is rather a non-statutory option.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. Subject to and upon the terms and conditions set forth in
this Agreement, there is hereby granted to Optionee, as of the date of this
Agreement (the "Grant Date"), a stock option to purchase up to __________ shares
of the Company's Common Stock (the "Optioned Shares") from time to time during
the option term at the option price of $_______ per share.
2. Plan. The options granted hereunder are in all instances subject to the
terms and conditions of the Plan. In the event of any conflict between this
Agreement and the Plan, the provisions of the Plan shall control. Optionee
acknowledges receipt of a copy of the Plan and hereby accepts this option
subject to all of the terms and conditions of the Plan. Optionee agrees to
accept as binding, conclusive and final all decisions or interpretations of the
Board upon any questions arising under the Plan.
3. Option Term. This option shall have a maximum term of years measured from
the Grant Date and shall accordingly expire at the close of business on
___________, 199__ (the "Expiration Date"), unless sooner terminated in
accordance with Paragraph 6 or 8(a).
<PAGE>
4. Option Nontransferable; Exception. This option shall be neither transferable
nor assignable by Optionee, either voluntarily or involuntarily, other than by
will or by the laws of descent and distribution and may be exercised, during
Optionee's lifetime, only by Optionee.
5. Dates of Exercise. This option shall be exercisable as follows: ________.
Once exercisable, options shall remain so exercisable until the expiration or
sooner termination of the option term under Paragraph 6 or Paragraph 8(a) of
this Agreement. In no event, however, shall this option be exercisable for any
fractional shares.
6. Accelerated Termination of Option Term. The option term specified in
Paragraph 3 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should one of the following provisions become
applicable:
(i) (i) Except as otherwise provided in subparagraphs (ii) and (iii)
below, should Optionee cease to be an Employee of the Company for any reason at
any time during the option term, any option of the Optionee, whether vested or
non-vested, and if issued under Plan B, shall terminate as of the date of
termination of employment.
(ii) Should Optionee die while this option is outstanding, then the
executors or administrators of Optionee's estate or Optionee's heirs or legatees
(as the case may be) shall have the right to exercise this option for the number
of shares (if any) for which the option is exercisable on the date of the
optionee's death. Such right shall lapse and this option shall cease to be
exercisable upon the earlier of (i) six (6) months from the date of the
optionee's death or (ii) the Expiration Date.
(iii) Should Optionee become permanently disabled and cease by reason
thereof to be an Employee of the Company at any time during the option term,
then Optionee shall have a period of six (6) months (commencing with the date of
such cessation of Employee status) during which to exercise this option;
provided, however, that in no event shall this option be exercisable at any time
after the Expiration Date. Optionee shall be deemed to be permanently disabled
if Optionee is, by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of not
less than twelve (12) months, unable to perform his/her usual duties for the
Company or its Parent or Subsidiary corporations. Upon the expiration of the
limited period of exercisability or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding.
(iv) For purposes of this Paragraph 6 and for all other purposes under this
Agreement, if Optionee is an Employee, Optionee shall be deemed to be an
Employee of the Company and to continue in the Company's employ for so long as
Optionee remains an Employee of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan. For purposes of
this Paragraph 6 and for all other purposes under this Agreement, if Optionee is
not an Employee, but is eligible because Optionee is a director, consultant or
contractor of Company or a parent or subsidiary corporation, Optionee shall be
deemed to be an Eligible Person for so long as Optionee remains a director,
consultant or contractor of the Company or one or more of its parent or
subsidiary corporations as such terms are defined in the Plan.
7. Adjustment in Option Shares.
(a) In the event any change is made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, combination of shares, or
other change affecting the outstanding Common Stock as a class without receipt
of consideration (as set forth in the Plan), then appropriate adjustments will
be made to (i) the total number of Optioned Shares subject to this option and
(ii) the option price payable per share in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.
(b) If the Company is the surviving entity in any merger or other business
combination, then this option, if outstanding under the Plan immediately after
such merger or other business combination shall be appropriately adjusted to
apply and pertain to the number and class of securities to which Optionee
immediately prior to such merger or other business combination would have been
entitled to receive in the consummation of such merger or other business
combination.
8. Special Termination of Option.
(a) In the event of one or more of the following transactions (a "Corporate
Transaction"):
<PAGE>
(i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or substantially all
of the assets of the Company; or
(iii) any other corporate reorganization or business combination in which
fifty percent (50%) or more of the Company's outstanding voting stock is
transferred, or exchanged through merger, to different holders in a single
transaction or a series of related transactions;
then this option shall terminate upon the consummation of such Corporate
Transaction and cease to be exercisable, unless it is expressly assumed by the
successor corporation or parent thereof. The Company shall provide Optionee
with at least thirty (30) days prior written notice of the specified date for
the Corporate Transaction. The Company can give no assurance that the options
shall be assumed by the successor corporation or its parent company and it may
occur that some options outstanding under the Plan will be assumed while these
options are terminated.
(b) In the event of a Corporate Transaction, the Company may, at its option,
accelerate the vesting schedule contained in Section 5 hereof, but shall have no
obligation to do so. The Company shall have the right to accelerate other
options outstanding under the Plan or any other plan, even if it does not
accelerate the options of Optionee hereunder.
(c) This Agreement shall not in any way affect the right of the Company to
make changes in its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
9. Privilege of Stock Ownership. The holder of this option shall not have any
of the rights of a shareholder with respect to the Optioned Shares until such
individual shall have exercised the option and paid the option price in
accordance with this Agreement.
10. Manner of Exercising Option.
(a) In order to exercise this option with respect to all or any part of the
Optioned Shares for which this option is at the time exercisable, Optionee (or
in the case of exercise after Optionee's death, Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions:
(i) Execute and deliver to the Secretary of the Company a stock purchase
agreement in substantially the form of Exhibit "D" to this Agreement (the "Stock
Purchase Agreement");
(ii) Pay the aggregate option price for the purchased shares in cash,
unless another form of consideration is permitted as described in Exhibit
C, if any, attached hereto or by the Board at the time of exercise.
(b) This option shall be deemed to have been exercised with respect to the
number of Optioned Shares specified in the Purchase Agreement at such time as
the executed Purchase Agreement for such shares shall have been delivered to the
Company and all other conditions of this Section have been fulfilled. Payment
of the option price shall immediately become due and shall accompany the
Purchase Agreement. As soon thereafter as practical, the Company shall mail or
deliver to Optionee or to the other person or persons exercising this option a
certificate or certificates representing the shares so purchased and paid for.
11. Compliance With Laws and Regulations.
(a) The exercise of this option and the issuance of Optioned Shares upon
such exercise shall be subject to compliance by the Company and Optionee with
all applicable requirements of law relating thereto and with all applicable
regulations of any stock exchange on which shares of the Company's Common Stock
may be listed at the time of such exercise and issuance.
(b) In connection with the exercise of this option, Optionee shall execute
and deliver to the Company such representations in writing as may be requested
by the Company in order for it to comply with the applicable requirements of
federal and state securities laws.
<PAGE>
12. Successors and Assigns. Except to the extent otherwise provided in
Paragraph 4 or 8(a), the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.
13. Liability of Company.
(a) If the Optioned Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares unless shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of Section 18 of the Plan.
(b) The inability of the Company to obtain approval from any regulatory
body having authority deemed by the Company to be necessary to the lawful
issuance and sale of any Common Stock pursuant to this option without the
imposition of requirements unacceptable to the Company in its reasonable
discretion shall relieve the Company of any liability with respect to the
nonissuance or sale of the Common Stock as to which such approval shall not have
been obtained. The Company, however, shall use its best efforts to obtain all
such approvals.
14. No Employment Contract. Except to the extent the terms of any written
employment contract between the Company and Optionee may expressly provide
otherwise, the Company (or any parent or subsidiary corporation of the Company
employing Optionee) shall be under no obligation to continue the employment of
Optionee for any period of specific duration and may terminate Optionee's status
as an Employee at any time, with or without cause.
15. Notices. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Company in care of its Secretary at its corporate offices. Any notice required
to be given or delivered to Optionee shall be in writing and addressed to
Optionee at the address indicated below Optionee's signature line on this
Agreement. All notices shall be deemed to have been given or delivered upon
personal delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
16. Withholding. Optionee acknowledges that, upon any exercise of this option,
the Company shall have the right to require Optionee topay to the Company an
amount equal to the amount the Company is required to withhold as a result of
such exercise for federal and state income tax purposes.
17. Loans or Guarantees. The Company may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this option
by (i) authorizing the extension of a loan to Optionee from the Company, (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years, or (iii) authorizing a guarantee by the
Company of a third party loan to Optionee. The terms of any loan, installment
method of payment or guarantee (including the interest rate, the Collateral
requirements and terms of repayment) shall be established by the Company in its
sole discretion.
18. Construction. This Agreement and the option evidenced hereby are made and
granted pursuant to the Plan and are in all respects limited by and subject to
the express terms and provisions of the Plan. All decisions of the Company with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
19. Governing Law. The interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
20. REPURCHASE R1GHTS. OPTIONEE HEREBY AGREES THAT ALL OPTIONED SHARES
ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF
THE COMPANY AND ITS ASSIGNS TO REPURCHASE SUCH SHARES IN ACCORDANCE WITH THE
TERMS AND CONDITIONS SPECIFIED IN THE PURCHASE AGREEMENT,
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
duplicate on its behalf by its duly authorized officer and Optionee has also
executed this Agreement in duplicate, all as of the day and year indicated
above.
MedCare Technologies, Inc.
a Delaware corporation
<PAGE>
By:
-----------------------------
Title: President
- ---------------------
OPTIONEE:
Address:
<PAGE>
EXHIBIT C
Other Forms of Acceptable Consideration
[If no forms are listed hereon, cash shall be the only acceptable form of
consideration for the exercise of the options.]
<PAGE>
EXHIBIT "D"
STOCK PURCHASE AGREEMENT
This Agreement is made as of this_____ day of _____________199__, by and among
MedCare Technologies, Inc, a Delaware corporation ("Corporation"),
and_____________, the holder of a stock option under the Corporation's 199__
Stock Option Plan ("Optionee").
1. EXERCISE OF OPTION
1.1 Exercise. Optionee hereby purchases shares of Class A Common Stock of
the Corporation ("Purchased Shares") pursuant to that certain option ("Option")
granted Optionee on ________ , 1997 under the Corporation's 1999 Stock Option
Plan ("Plan") to purchase up to ___________ shares of the Corporation's Common
Stock at an option price of $ _____per share ("Option Price").
1.2 Payment. Concurrently with the delivery of this Agreement to the
Secretary of the Corporation, Optionee shall pay the Option Price for the
Purchased Shares in accordance with the provisions of the agreement between the
Corporation and Optionee evidencing the Option ("Option Agreement") and shall
deliver whatever additional documents may be required by the Option Agreement as
a condition for exercise.
2. INVESTMENT REPRESENTATIONS
2.1 Investment Intent. Optionee hereby warrants and represents that
Optionee is acquiring the Purchased Shares for Optionee's own account and not
with a view to their resale or distribution and that Optionee is prepared to
hold the Purchased Shares for an indefinite period and has no present intention
to sell, distribute or grant any participating interests in the Purchase Shares.
Optionee hereby acknowledges the fact that the Purchased Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
that the Corporation is issuing the Purchased Shares to Optionee in reliance on
the representations made by Optionee herein.
2.2 Restricted Securities. Optionee hereby confirms that Optionee has been
informed that the Purchased Shares may not be resold or transferred unless the
Purchased Shares are first registered under the Federal securities laws or
unless an exemption from such registration is available. Accordingly, Optionee
hereby acknowledges that Optionee is prepared to hold the Purchased Shares for
an indefinite period and that Optionee is aware that Rule 144 of the Securities
and Exchange Commission issued under the 1933 Act is not presently available to
exempt the sale of the Purchased Shares from the registration requirements of
the 1933 Act. Should Rule 144 subsequently become available, Optionee is aware
that any sale of the Purchased Shares effected pursuant to the Rule may,
depending upon the status of Optionee as an ttaffiliate" or "non-affiliate"
under the Rule, be made only in limited amounts in accordance with the
provisions of the Rule, and that in no event may any Purchased Shares be sold
pursuant to the Rule until Optionee has held the Purchased Shares for the
requisite holding period following payment in cash of the Option Price for the
Purchased Shares.
2.3 Optionee Knowledge. Optionee represents and warrants that he or she
has a preexisting business or personal relationship with the officers and
directors of the Corporation, that he or she is aware of the business affairs
and financial condition of the Corporation and that he or she has such knowledge
and experience in business and financial matters with respect to companies in
business similar to the Corporation to enable him or her to evaluate the risks
of the prospective investment and to make an informed investment decision with
respect thereto. Optionee further represents and warrants that the Corporation
has made available to Optionee the opportunity to ask questions and receive
answers from the Corporation concerning the terms and conditions of the issuance
of the Purchased Shares and that he or she could be reasonably assumed to have
the capacity to protect his or her own interests in connection with such
investment.
2.4 Speculative Investment. Optionee represents and warrants that he or
she realizes that his or her purchase of the Purchased Shares will be a
speculative investment and that he or she is able, without impairing his or her
financial condition, to hold the Purchased Shares for an indefinite period of
time and to suffer a complete loss of his or her investment. Optionee
represents and warrants that he or she is aware and fully understands the
implications of the restrictions upon transfer imposed by the Plan and therefore
on the Purchased Shares.
<PAGE>
2.5 Restrictive Legends. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO
THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREUNDER OR AN OPINION
OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED.
3. MISCELLANEOUS PROVISIONS
3.1 Optionee Undertaking. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.
3.2 Agreement Is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof.
This Agreement is made pursuant to the provisions of the Plan and shall in all
respects be construed in conformity with the express terms and provisions of the
Plan.
3.3 Governing Law. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
3.4 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
3.5 Successors and Assigns. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Corporation and its successors and
assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transfer by operation of law, whether or not
any such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms and conditions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first indicated above.
MedCare Technologies, Inc.
a Delaware corporation
By:
-----------------------------
Title: President
- ---------------------------
OPTIONEE:
Address:
<PAGE>
Exhibit 10f.
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of December 9,
1998, is between MedCare Technologies, Inc., a Delaware corporation (the
"Company"), and Jeffrey S. Aronin, an Illinois resident ("Executive").
RECITALS
--------
A. The Company desires to continue to employ Executive as its President
and Chief Executive Officer, on the terms set forth in this Agreement.
B. Executive desires to be so employed by Company.
AGREEMENTS
----------
In consideration of the foregoing recitals and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. EMPLOYMENT.
1.1. Term. The Company agrees to employ Executive as its President and Chief
Executive Officer, and Executive agrees to accept such employment, for the
period commencing on the date hereof and ending on the second anniversary of the
date hereof, unless earlier terminated pursuant to Section 3 (the "Term");
provided, however, that, except as otherwise provided in Section 3, the Term
shall be automatically extended for successive one-year periods commencing with
the second anniversary hereof, unless the Company or Executive delivers to the
other party written notice specifying such party's intent not to extend or re-
extend the Term for an additional one-year period, which notice shall be
delivered at least thirty (30) days prior to the expiration of the Term or any
one-year extension thereof, as applicable.
1.2. Duties. During the Term, Executive shall perform such duties and
functions as are customarily performed by the chief executive officer of a
company the size and nature of the Company, including the duties and functions
consistent with the positions of President and Chief Executive Officer as are
from time to time assigned to him by the Board of Directors of Company (the
"Board"). Executive shall have the powers necessary to perform his duties, and
shall be provided such supporting services, staff, secretarial and other
assistance, office space and accoutrements as shall be reasonably necessary and
appropriate in light of such duties.
1.3. Place of Performance. Executive shall perform his services hereunder at
the headquarters of the Company, except for travel reasonably required to
conduct Company business.
1.4. Vacations. Executive shall be entitled to such paid vacation time as the
Company customarily provides from time to time to its executives (but in no
event less than three (3) weeks per year), to be taken in accordance with its
then-current employment policy regarding such vacation time. Executive shall
also be entitled to all paid holidays given by the Company to its employees.
2. COMPENSATION.
2.1. Base Salary. As compensation for services rendered hereunder, Executive
shall receive an annual base salary ("Base Salary") of not less than One Hundred
Fifty Thousand Dollars ($150,000); provided however, that effective January 1,
1999, Executive shall receive an annual Base Salary of not less than Two Hundred
Thousand Dollars ($200,000), such Base Salary to (a) accrue on a daily basis
based on a three hundred sixty-five (365) day year, and (b) be paid in
accordance with the Company's customary payroll
<PAGE>
practices but in no event less frequently than monthly. Such Base Salary shall
be reviewed by the Board no less frequently than semi-annually, beginning as of
January 1, 2000, with a view to making such increases as the board, in its
discretion, deems appropriate. any increase in base salary granted by the Board
shall in no way limit or reduce any other obligation of the Company hereunder.
2.2. Annual Bonuses. In addition to the Base Salary payable pursuant to
Section 2.1, Executive shall be eligible for an annual bonus ("Bonus") for each
Fiscal Year of the Company ("Fiscal Year") during the Term. The annual Bonus
shall be based on such performance standards as the Board or compensation
committee designated by the Board may establish, shall accrue one-half on the
last day of the sixth month and one-half on the last day of the twelfth month of
the Company's Fiscal Year, and shall be payable to Executive in accordance with
the Company's then-current bonus program applicable with respect to its
employees (but in all events no later than the date upon which the Company is
required to file its annual report with the United States Securities and
Exchange Commission).
2.3. Welfare and Retirement Benefits. In addition to the foregoing, the
Company shall pay one hundred percent (100%) of the premiums for medical, life
and dental insurance for Executive and Executive's dependents. In addition,
Executive shall be eligible to participate in any and all benefit plans
maintained by the Company for its employees in accordance with the terms of such
plans as from time to time in effect and applicable to employees of the Company.
2.4. Other Benefits. Executive will receive payment for all business related
organizational or association memberships designated by Executive, in accordance
with the Company's then current practices.
2.5. Auto Allowance. Executive shall receive monthly an automobile allowance
of five hundred ($500) per month, which allowance shall be includible in
Executive's compensation and subject to applicable federal and state withholding
taxes.
2.6. Disability Insurance. The Company shall maintain, and pay the premiums
of, a long-term disability insurance policy for the benefit of Executive (the
"Disability Policy") which provides Executive, in the event of his disability,
an annual amount equal to at least seventy percent (70%) of this then-current
compensation (including for such purposes an amount equal to his bonus for the
immediately preceding Fiscal Year). The amount of such policy shall be reviewed
by the Board no less frequently than bi-annually, beginning on the second
anniversary hereof, with a view to making such increases in the amount of such
policy as are required to comply with this Section 2.6. The Disability Policy
shall, by its terms, permit the Company to assign to Executive (or permit
Executive otherwise to continue) such policy following the termination of his
employment with the Company for any reason. The Company shall take all actions
necessary to assign the Disability Policy to Executive upon the termination of
Executive's employment with the Company.
2.7. Expenses. The Company shall reimburse Executive promptly for all ordinary
and necessary travel and other business expenses incurred by him in connection
with his duties hereunder (including reimbursement for business use of his home
telephone, home facsimile and cellular telephone), provided that Executive
properly accounts therefor in accordance with Company policy.
3. TERMINATION.
3.1. Death. Unless Executive's employment has terminated sooner pursuant to
Section 3, Executive's employment shall terminate on the date of his death.
3.2. Termination by the Company for Cause. The Company may terminate
Executive's employment for cause. for purposes hereof, "cause" shall mean (i)
Executive's conviction of, guilty plea concerning, or written or video-taped
confession of fraud, theft, embezzlement or similar malfeasance, (ii)
Executive's commission of embezzlement of Company funds (provided that the
Company has substantial proof of such embezzlement) or (iii) a material breach
of Executive's obligations under this Agreement. Notwithstanding
<PAGE>
the foregoing, the Company's right to terminate Executive's employment for cause
is conditioned upon (a) a majority vote of the Board, after reasonable
investigation and deliberation, to terminate Executive's employment for Cause
and (b) thirty (30) days' prior written notice of the Company's intention to
terminate Executive, which notice sets forth that or those conditions
constituting Cause for termination. Executive shall have thirty (30) days
following his receipt of such notice to eliminate the basis for Cause to the
reasonable satisfaction of the Board. If Executive does not so eliminate the
basis for Cause, the Company may terminate Executive's employment hereunder upon
notice to Executive specifying the Date of Termination (as hereinafter defined),
which date shall be no earlier than three (3) days from the date of such notice.
3.3. Termination by the Company Without Cause. The Company may terminate
Executive's employment at any time without Cause by providing notice of such
intention which notice specifies the Date of Termination.
3.4. Termination by Executive for Good Reason. Executive shall be entitled to
terminate his employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any of the following circumstances (without
the prior written consent of Executive):
(a) the requirement that Executive report to any officer, consultant or
committee other than the Board, it being the intent of the parties that
Executive shall never be required to report to anyone other than the Board
or a formal committee thereof;
(b) the removal of any of Executive's titles specified in Section 1.1;
(c) a redelegation of any of Executive's material duties to other Company
officers, employees, consultants or committees;
(d) the failure of the Company to maintain and to continue Executive's
participation in its benefit plans as in effect from time to time on a
basis substantially equivalent to that level of participation applicable to
other senior employees of the Company;
(e) a material breach of the Company's obligations under this Agreement or
any written agreement to which Executive and the Company are a party;
(f) the removal of, or failure to elect or re-elect, Executive as a
director of the Company; or
(g) a Change of Control (as hereinafter defined).
For purposes of this Agreement, a "Change of Control" shall be deemed to
have occurred if, at any time after the date hereof, any of the following
occurs:
A. the Company sells or otherwise disposes of all or substantially
all of its assets, other than to Executive;
B. the Company participates in a merger or consolidation and,
immediately following the consummation of such merger or
consolidation, the Company's stockholders prior to such merger or
consolidation do not own fifty percent (50%) or more of the voting
shares of stock of the surviving or successor corporation, unless more
than fifty percent (50%) of the voting shares of stock of the
surviving or successor corporation are owned by Executive; or
C. any person or entity, including a "person" as such term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended
(but excluding Executive or other current officers or directors of
the Company) becomes the beneficial owner of fifty (50%) or more of
the combined voting power of the Company's voting securities.
<PAGE>
In connection with the termination of his employment for good reason, Executive
shall give the Company prior written notice of the occurrences or events giving
rise to such Good Reason, which written notice shall set forth a Date of
Termination not earlier than thirty (30) days subsequent to the date of such
notice; provided, that prior to the Date of Termination, the Company may
(except in the case of termination for Good Reason due to a Change of Control)
eliminate, to the reasonable satisfaction of Executive, the occurrences or
events giving rise to Executive's Good Reason. Notwithstanding the foregoing,
Executive shall have the right to terminate his employment for Good Reason (a)
in the case of a Change of Control, for the one (1) year period following such
Change of Control, and (b) in the case of Good Reason other than a Change of
Control, for the six (6) month period following the events giving rise to such
Good Reason.
3.5. Termination Upon Disability. The Company may terminate Executive's
employment by reason of disability. For purposes of this Agreement,
"Disability" shall mean Executive's inability, as determined by a physician
mutually agreed to by Executive and the Company, to perform, on a full-time
basis, the duties of the President and Chief Executive Officer due to his
physical or mental illness, accident or injury, which condition shall exist for
sixty (60) or more business days within five (5) consecutive months. If the
Company elects to terminate Executive's employment for Disability, it shall give
Executive written notice thereof setting forth that election and the date of
termination.
3.6. Notice and Date of Termination. Any termination of the Executive's
employment hereunder by the Company or Executive shall be communicated by
written notice of termination to the other party hereto in accordance with
Section 7.4 hereof. as used herein, the term "Date of Termination" shall mean
the date specified in the notice of termination (which shall be not less than
thirty (30) days from the date such notice of termination is given unless
otherwise expressly provided herein).
4. PAYMENTS UPON OR AFTER TERMINATION.
4.1. Accrued Compensation. Upon the termination of his employment with the
Company for any reason, Executive shall receive any and all compensation
remaining accrued and unpaid as of the Date of Termination, including Base
Salary and Bonus through the Date of Termination. The Company shall provide
Executive with all profit-sharing, pension, life, disability, accident, health
insurance, and other employee benefit and fringe benefit plans and programs
through the Date of Termination in accordance with the terms and provisions of
such plans and programs as are in effect as of the date that any notice of
termination is given.
4.2. Termination Upon Death. In addition to the Company's obligations under
Section 4.1 hereof, if, at the time of Executive's death, Company maintains
health insurance for members of Executive's immediate family, the Company shall
maintain such health insurance in full force and effect for a period of at least
one (1) year from the date of Executive's death (which shall not reduce the
minimum length of time that the Company is obligated to provide health insurance
to Executive's immediate family under Section 4980(b) of the Internal Revenue
Code of 1986, as amended (the "Code")).
4.3. Termination for Cause. Except with respect to the Company's obligations
under Section 4.1 hereof, if Executive's employment with the Company is
terminated for Cause, the Company shall have no further obligations to Executive
under this Agreement.
4.4. Termination by Company Without Cause, Termination at Disability or
Termination by Executive for Good Reason. In addition to the Company's
obligations under Section 4.1 hereof, in the event that either (a) Executive's
employment is terminated by the Company and such termination is not in
accordance with Section 3.2 hereof or (b) Executive's employment is terminated
by reason of Disability or for Good Reason, the Company shall pay Executive,
within thirty (30) days of the Date of Termination, an amount equal to the sum
of (i) two (2) years Base Salary at his then-current annual Base Salary plus
(ii) two (2) times the average of the two (2) most recent Bonuses paid to
Executive. In addition, for the two (2) year period following the Date of
Termination, the Company shall pay, or reimburse Executive for, (i) any and all
the premiums necessary to maintain in full force and effect health insurance for
the benefit of Executive and members of his immediate family (which payment
shall not reduce the minimum length of time that the
<PAGE>
Company is obligated to provide health insurance to Executive and Executive's
immediate family under Code Section 4980(B)) and (ii) any and all premiums
necessary to maintain in full force and effect the Disability Policy. In the
event that Executive shall terminate his employment for Good Reason based on a
Change of Control, then in addition to the Company's obligations under this
Section 4.4, the Company shall, notwithstanding any agreement or plan to the
contrary, fully vest and remove all conditional obligations to receive, all
options or other equity-based awards granted Executive by the Company. If it is
determined, in the opinion of the Company's independent accountants, in
consultation with the Company's independent counsel, that any amounts payable to
Executive by the Company under this Agreement, or any other plan or Agreement
under which Executive participates or is a party, would constitute an "Excess
Parachute Payment" within the meaning of Code Section 280G and be subject to the
excise tax imposed by Code Section 4999 (the "Excise Tax"), the Company shall,
on the Date of Termination, pay to Executive an amount equal to the amount of
such Excise Tax, all federal, state and local income or other taxes payable by
Executive thereon (the "Tax Amount"), plus an additional amount equal to the
additional federal, state and local taxes applicable as a result of the payment
of the tax amount to Executive. If at a later date, the Internal Revenue Service
assesses a deficiency against Executive for Excise Tax which is greater than
that which was determined at the time such amounts were paid, the Company shall
pay to Executive the amount of such unreimbursed Excise Tax plus any interest,
penalties and professional fees or expenses, incurred by Executive as a result
of such assessment, including all additional taxes (as determined upon a
"grossed up" basis) with respect to any such additional amount. In making the
foregoing determinations, the Company shall use the highest marginal federal and
state tax rates applicable to individuals residing in the state in which the
Company's principal place of business is located. Further, the Company shall
withhold from any amounts paid under this Agreement the amount of any Excise Tax
or other federal, state or local taxes then required to be withheld.
Computations with respect to the amounts payable under this subparagraph shall
be made by the Company's independent accountants, in consultation with the
Company's independent legal counsel. The Company shall pay all accounting and
legal counsel fees and expenses related to the determination of any such
amounts.
4.5. Other Termination by Executive. If Executive shall terminate his
employment for any reason other than Good Reason, the Company shall have no
further obligations to Executive under this Agreement (other than the Company's
obligations under Section 4.1 hereof).
4.6. Disclaimer of Mitigation Duty. Executive shall not be required to
mitigate the amount of any payment provided for or referred to in this Section 4
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for or referred to in this Section 4 be reduced by any
compensation earned by Executive as a result of employment by another employer,
by retirement benefits, or be offset against any amount claimed to be owed by
Executive to the Company or otherwise.
4.7. Other Benefits. In addition to all other amounts payable to Executive
under this Section 4, Executive shall be entitled to receive all benefits
payable to Executive under any plans or agreements relating to retirement or
other benefits in accordance with the terms and provisions thereof.
5. STOCK OPTIONS.
5.1. Stock Options. As of the date hereof, the Company has granted Executive
the following stock options (a) an option to purchase 500,000 shares at $6.50
per share, 300,000 of which options are vested as of the date hereof and (b) an
additional option to purchase 100,000 shares at $6.00, all of which options are
vested as of the date hereof.
5.2. Sale of Company Shares. So long as Executive is employed by the Company
the Executive agrees that, without the written consent of the Company (which
consent shall not be unreasonably withheld), Executive shall not sell Common
Stock of the Company which stock represents more than one and a half percent
(1.5%) of the outstanding shares (on a fully diluted basis) of Common Stock of
the Company during any fiscal quarter of the Company; provided however, to the
extent that Executive does not, during any fiscal quarter, sell one and a half
percent (1.5%) of the outstanding Common Stock of the Company, then, in addition
to any shares that Executive may otherwise sell pursuant to the foregoing,
Executive may, in subsequent fiscal quarters, sell Common Stock of the Company
representing at least that number of shares of Company Common Stock equal to
such shortfall.
<PAGE>
6. BOARD OF DIRECTORS.
(a) The Company agrees that at all times during the term, the Company shall
slate Executive for election as a member of the Board.
(b) In the event that at any time, or from time to time, during the Term,
the Board establishes an executive or similar committee of the Board, the
Company agrees that such committee will not have more than three members
and Executive will be a member of such committee.
(c) In the event that at any time, or from time to time, during the term,
the Board establishes a nominating or similar committee of the board, the
Company agrees that Executive will be a member of such committee.
7. MISCELLANEOUS.
7.1. Successors and Assigns: Binding Agreement.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform this Agreement if no such
succession had occurred.
(b) This Agreement and all rights of Executive hereunder shall inure to the
benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive shall die while any
amounts remain unpaid hereunder, including any amounts which would be
payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to Executive's spouse or if Executive does not have
a living spouse at such time, to Executive's estate.
(c) This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, personal representatives,
successors and assigns; provided, however, that the duties of Executive
hereunder are personal to Executive and may not be delegated by him.
7.2. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
7.3. Waivers. The waiver by either party hereto of any right hereunder or of
any failure to perform or other breach by the other party hereto shall not be
deemed a waiver of any other right hereunder or of any other failure or breach
by the other party hereto, whether of the same or a similar nature or otherwise.
no waiver shall be deemed to have occurred unless set forth in a writing
executed by or on behalf of the waiving party. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically so waived.
7.4. Notices. All notices and communications that are required or permitted to
be given hereunder shall be in writing and shall be deemed to have been duly
given when delivered personally, upon mailing by registered or certified mail,
postage prepaid, return receipt requested, or upon delivery to a reputable
overnight courier as follows:
<PAGE>
If to the Company, to: MedCare Technologies, Inc.
1515 22nd Avenue
Suite 1210
Oak Brook, IL 60523
Attention: Chairman
If to Executive, to: Mr. Jeffrey S. Aronin
1658 N. Bissell
Chicago, Illinois 60614
or to such other address as may be specified in a notice given by one party to
the other party hereunder.
7.5. Severability. If, for any reason, any term or provision of this
Agreement is held to be invalid or unenforceable, all other valid terms and
provisions hereof shall remain in full force and effect, and all of the terms
and provisions of this Agreement shall be deemed to be severable in nature.
7.6. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute but one and the same instrument.
7.7. Legal Fees and Expenses. It is the intent of the Company that Executive
shall not be required to incur any expenses associated with the enforcement of
his rights under this Agreement by litigation, or other legal action because the
cost and expense thereof would substantially detract from the benefits intended
to be extended to executive hereunder. Accordingly, if the Company has failed
to comply with any of its obligations under this Agreement, or in the event that
the Company or any other person takes any action to declare this agreement void
or unenforceable, in whole or in part, or institutes any litigation designed to
deny, or to recover from, Executive any benefits intended to be provided to
Executive hereunder, the Company irrevocably authorizes Executive from time to
time to retain counsel of his choice, at the expense of the Company as
hereinafter provided, to represent Executive in connection with the initiation
or defense of any litigation, arbitration or other legal action, whether by or
against the Company or any director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. The Company shall advance to
Executive within thirty (30) days after each written request therefor any and
all attorneys' and related fees and expenses actually incurred by Executive in
any such proceeding or otherwise as a result of the Company's failure to perform
this Agreement or any provision hereof or as a result of the Company or any
other person contesting the validity or reasonableness of this Agreement.
Without limiting the generality of the foregoing, if any amount is not paid by
the Company hereunder when due, including, but not limited to, any amount of
salary, bonus, fees or expenses, the amount thereof shall bear interest from the
due date thereof until paid in full at ten percent (10%) per annum. Executive
agrees that he will reimburse the Company for all attorneys' and related fees
and expenses received by Executive from the Company under the provisions of this
Section 7.7 in the event and only to the extent that it shall be ultimately
determined that the Company has not failed to comply with any of its obligations
under this Agreement, and each amount to be reimbursed hereunder shall bear
interest from the date of receipt by Executive thereof until paid to the Company
in full at ten percent (10%) per annum.
7.8. INDEMNIFICATION.
(a) The Company shall provide, at its expense, the Executive (including his
heirs, personal representatives, executors and administrators) with
coverage under a standard directors' and officers' liability insurance
policy which policy covers any and all claims against Executive arising
from or out of the period which includes the Term.
(b) In addition to the insurance coverage provided for in paragraph (a) of
this Section 7.8, the Company shall hold harmless and indemnify the
Executive (and his heirs, executors and administrators) to the fullest
extent permitted under applicable law against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action,
suit or proceeding in which he may be involved by reason of his having been
an officer of the Company (whether or not he continues to be an officer at
the time of incurring such expenses or
<PAGE>
liabilities), such expenses and liabilities to include, but not be limited
to, judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
(c) In the event that the Executive becomes a party, or is threatened to be
made a party, to any action, suit or proceeding for which the Company has
agreed to provide insurance coverage or indemnification under this Section
7.8, the Company shall, to the fullest extent permitted under applicable
law, advance all expenses (including reasonable attorneys' fees),
judgments, fines and amounts paid in settlement (collectively "expenses")
incurred by the Executive in connection with the investigation, defense,
settlement, or appeal of any threatened, pending or completed action, suit
or proceeding, subject to receipt by the Company of a written undertaking
from the Executive (i) to reimburse the Company for all expenses actually
paid by the Company to or on behalf of the Executive in the event it shall
be ultimately determined that the Executive is not entitled to
indemnification by the Company for such expenses and (ii) to assign to the
Company all rights of the Executive to indemnification, under any policy of
directors' and officers' liability insurance or otherwise, to the extent of
the amount of expenses actually paid by the Company to or on behalf of the
Executive.
7.9. Amendment: Survival. This Agreement may be amended or canceled by mutual
agreement of the parties in writing without the consent of any other person and,
so long as Executive lives, no person, other than the parties hereto, shall have
any rights under or interest in this Agreement or the subject matter hereof.
the provisions of Sections 4 and 7 survive the termination or expiration of this
Agreement.
7.10. Entire Agreement. This Agreement, constitutes the entire agreement
between the parties respecting his employment with the Company and supersedes
all prior oral or written understandings between the parties relating to
Executive's employment, including the June 26, 1997 employment agreement between
the parties; provided, however, that this Agreement shall not supersede any
prior written agreement between the parties concerning any equity-based award
made by the Company to Executive.
7.11. No Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
The parties hereto have executed this Agreement on the date and year first
above written.
MEDCARE TECHNOLOGIES, INC.,
a Delaware corporation
By:
--------------------- -----------------------
Title: Jeffrey S. Aronin
------------------
<PAGE>
EXHIBIT 10g
SUBLEASE
--------
THIS SUBLEASE ("Sublease") is made and entered into as of December 31,
1997, by and between DELTA DENTAL PLANS ASSOCIATION, an Illinois not-for-profit
corporation ("Sublessor") and MEDCARE TECHNOLOGIES, INC., a Delaware corporation
("Sublessee").
RECITALS:
---------
THE PARTIES ENTER into this Sublease on the basis of the following facts,
intentions and understandings:
A. Sublessor is the tenant of certain office space consisting of
approximately 11,992 rentable square feet which is a portion of the twelfth
(12th) floor and designated as Suite 1200 (the "Leased Premises") as shown on
Exhibit A attached hereto in the building located at 1515 West 22nd Street, Oak
Brook, Illinois (the "Building"), pursuant to that certain Lease Agreement by
and between WHOBT Real Estate Limited Partnership (as successor-in-interest to
The Equitable Life Assurance Society of the United States) ("Landlord") and
Sublessor dated as of June 22, 1995 (the "Lease").
B. Sublessee desires to sublease from Sublessor, and Sublessor desires to
sublease to Sublessee, upon the term and conditions hereinafter set forth, that
portion of the Leased Premises containing approximately 2,923 rentable square
feet and commonly known as Suite 1210 (the "Subleased Premises") as shown on
Exhibit A.
NOW, THEREFORE, in consideration of the rents herein agreed to be paid to
Sublessor, and the mutual covenants and agreements hereinafter set forth, the
parties hereto hereby agree as follows:
1. Sublease. Sublessor hereby agrees to lease the Subleased Premises to
Sublessee and Sublessee agrees to lease the Subleased Premises from Sublessor on
the conditions hereinafter set forth.
2. Sublease Subject to Lease.
(a) Sublessee acknowledges that all rights which it is hereby
acquiring in and to the Subleased Premises are ultimately derived from the Lease
and that the rights, terms and conditions of this Sublease are in all respects
subject to all the terms and conditions set forth in the Lease and all such
terms and conditions of the Lease are incorporated herein as terms and
conditions of this Sublease, except as excluded in Paragraph 2(b) below.
Sublessee agrees to assume, observe and be bound by each and every covenant,
condition and provision contained in the Lease, as same may be modified hereby,
insofar as any such covenant, condition or provision affects the Subleased
Premises or Sublessee's use thereof, as though all such covenants, conditions
and provisions were set forth in full in this Sublease. For purposes of this
Sublease, any reference in the Lease to "Landlord" shall be deemed to refer to
Sublessor and
<PAGE>
any reference to "Tenant" shall be deemed to refer to Sublessee and any
reference in the Lease to "Premises" shall be deemed to refer to the Subleased
Premises. Notwithstanding anything to the contrary contained herein, it is
further agreed that in the event the Lease shall terminate for any reason, this
Sublease and all rights of Sublessee in and to the Subleased Premises shall
terminate on the date the Lease is terminated. Sublessee acknowledges that it
has received a true copy of the Lease and that it has reviewed and is familiar
with the terms of the Lease.
(b) The terms and provisions of the following sections and portions of the
Lease are not incorporated into this Sublease: the Introductory Article,
Articles 1-3, 4(a)(ii), 6, 7(b), second paragraph of 9(a), 17, 18, 22, 25, 26,
29(i), (j), (k) and (v), 30, 32 and 33; Exhibits B, E and H; and the Guaranty.
3. Term.
(a) Initial Term. The term ("Term") of this Sublease shall commence
on February 1, 1998 (the "Commencement Date") and shall terminate on January 31,
2003 (the "Termination Date"), unless sooner terminated or extended as set forth
herein.
(b) Renewal Qption. Subject to Sublessor's right to terminate the
Lease as provided in Article 33(c) of the Lease, provided that no default is
existing under this Sublease at the time the option to renew described below
(the "Renewal Option") is exercised or at the commencement of any Renewal Term
(hereinafter defined), Sublessee shall have the right to extend the Term for one
(1) additional two (2) year and ten (10) month period (the "Renewal Term"). The
option to extend for the Renewal Term shall be exercised, if at all, by written
notice from Sublessee to Sublessor ("Sublessee's Renewal Notice") given not
later than February 1, 2002. In the event Sublessee fails strictly to comply
with the procedure for exercise of the Renewal Option, Sublessee shall have no
further right to extend the Term. The lease of the Subleased Premises during the
Renewal Term shall be upon the same terms and conditions as are contained in the
Sublease, as amended hereby, except as hereinafter provided:
(i) The Base Rent (as hereinafter defined) for the Renewal Term
shall be as follows:
Monthly Installment
Period Annual Base Rent Base Rent
------ ---------------- -------------------
February 1, 2003 - January 31, 2004 $68,690.52 $5,724.21
February 1, 2004 - January 31, 2005 70,152.00 5,846.00
February 1, 2005 - November 30, 2005 71,613.48 5,967.79
(ii) Sublessor shall have no obligation to make improvements,
decorations, repairs, alterations, or additions to the Subleased Premises as a
condition to Sublessee's obligation to pay Base Rent or Additional Rent (as
hereinafter defined) for the Renewal Term.
-2-
<PAGE>
(c) Sublessor hereby agrees that in the event Sublessor exercises the
Cancellation Option as provided in Article 33(c) of the Lease, Sublessor shall
provide Sublessee with written notice thereof on or before January 1, 2002.
4. Rent.
(a) Base Rent. Sublessee agrees to pay to Sublessor monthly in
advance, beginning on the Commencement Date and continuing on the first day of
each month thereafter for the balance of the Term of this Sublease, rent ("Base
Rent") for the Subleased Premises, in the following amounts:
Monthly Installment
Period Annual Base Rent of Base Rent
------ ---------------- -------------------
February 1, 1998 - January 31, 1999 $61,383.00 $5,115.25
February 1, 1999 - January 31, 2000 62,844.48 5,237.04
February 1, 2000 - January 31, 2001 64,305.96 5,358.83
February 1, 2001 - January 31, 2002 65,767.56 5,480.63
February 1, 2002 - January 31, 2003 67,229.04 5,602.42
All Base Rent and other payments payable by Sublessee hereunder shall be
paid in lawful money of the United States to Sublessor at such place as
Sublessor shall from time to time designate, without any prior demand therefor
and without any deduction or offset whatsoever. Sublessee hereby agrees to pay
the first monthly installment of Base Rent and Additional Rent upon Sublessee's
execution of this Sublease.
Any installment of Base Rent or Additional Rent not paid when due shall
bear interest at the Default Rate (as defined in the Lease) from the date when
due until the date paid.
(b) Additional Rent. In addition to Base Rent, Sublessee agrees to
pay Sublessor as "Additional Rent" under this Sublease an amount equal to
"Sublessee's Proportionate Share" of the amount, if any, by which the Taxes and
Operating Expenses Sublessor is required to pay to Landlord pursuant to Article
4 of the Lease for each calendar year during the Term of this Sublease exceed
Sublessee's Proportionate Share of the amount of Taxes and Operating Expenses
paid by Sublessor for the calendar year 1998. For purposes hereof, Sublessee's
Proportionate Share shall mean 24.37%, being the percentage calculated by
dividing the rentable area contained in the Subleased Premises (being 2,923) by
the rentable area of the Leased Premises (11,992). The monthly installment of
Additional Rent Sublessee shall pay hereunder shall be determined based upon
Sublessor's estimate of the amount Sublessor is required to pay to Landlord;
such Additional Rent is subject to adjustment based upon the actual amounts
Sublessor is required to pay to Landlord under the Lease for any applicable
calendar year. Except for Additional Rent as described in this Paragraph 4(b),
Sublessee, shall not be required to pay any "Additional Rent" as such term may
otherwise be defined in the Lease.
-3-
<PAGE>
5. Use of the Subleased Premises. Sublessee shall use and occupy the
Subleased Premises for general office purposes only, and for no other use or
purpose. Sublessee shall not use or occupy the Subleased Premises or permit the
use or occupancy of the Subleased Premises for any purpose or in any manner
which (i) is unlawful or in violation of any applicable legal or governmental
requirement, ordinance or rule; (ii) may be dangerous to persons or property;
(iii) may invalidate or increase the amount of premiums for any policy of
insurance affecting the Building; (iv) may create a nuisance, disturb any other
tenant of the Building or injure the reputation of the Building; (v) may
interfere with the operation of the Building or the maintenance of same as a
first-class office building; or (vi) may violate any of Sublessee's other
obligations under this Sublease.
6. Condition of Subleased Premises.
(a) Sublessee accepts the Subleased Premises in its "AS-IS, WHERE-
LOCATED" condition. No promise of Sublessor to alter, remodel, improve, repair,
decorate or clean the Subleased Premises or any part thereof, and no
representation respecting the condition of the Subleased Premises has been made
to Sublessee by Sublessor, except that Sublessor, at its sole cost and expense,
shall (i) construct and complete the improvements set forth in the plans and
specifications prepared by Lieber Architects, Inc. dated December 5, 1997
commonly known as Project No. 7005.1, and (ii) shampoo the carpet throughout the
Subleased Premises.
(b) Sublessee shall not make or install any additions, renovations,
alterations, improvements or changes in or to the Subleased Premises, including
the walls, floors, ceilings and fixtures located therein, without first
obtaining the prior written consent of Sublessor in each instance, which
approval shall not be unreasonably withheld but shall be conditioned upon (i)
Sublessor first obtaining Landlord's prior written consent in each instance
pursuant to the terms of the Lease, (ii) Sublessee's compliance with any
applicable provisions of the Lease, and (iii) the satisfaction of any other
reasonable conditions or restrictions that Sublessor deems appropriate. All work
done by or for Sublessee with respect to the Subleased Premises, including any
removal and/or restoration required at the expiration or termination of this
Sublease, shall be at Sublessee's sole cost and expense.
(c) Sublessor agrees to pay a sum ("Sublessor's Allowance") up to
Eight Thousand Seven Hundred Sixty-Nine and 00/100 Dollars ($8,769.00) toward
the cost of any improvements Sublessee desires to complete for a reception area
in the Subleased Premises (the "Reception Area Improvements"). Any costs
incurred by Sublessee in connection with the Reception Area Improvements in
excess of Sublessor's Allowance shall be paid by Sublessee. Any such alterations
and improvements shall be constructed in accordance with the provisions of
Paragraph 6(b) above. Provided that no default exists under the Sublease (beyond
any applicable notice and cure periods), Sublessor shall disburse the
Sublessor's Allowance to Sublessee within thirty (30) days following written
request from Sublessee, which request shall be accompanied by such paid invoices
and other supporting documentation as Sublessor may reasonably require,
including (if applicable), but not limited to, general contractors' sworn
affidavits and partial or final waivers of Lien, as the case may be, in form and
substance reasonably satisfactory to Sublessor. In the event the cost of the
Reception Area Improvements
-4-
<PAGE>
does not exceed Sublessor's Allowance, any excess thereof shall be applied and
credited against the rent due hereunder following February 28, 1998.
7. Repairs and Maintenance. Throughout the Term, Sublessee shall, at its
sole cost and expense, keep and maintain the Subleased Premises and every part
thereof, in good order, condition and repair. All damage or injury to the
Subleased Premises which is caused by Sublessee or any of its employees, agents
or visitors shall be promptly repaired by Sublessee, at its sole cost and
expense. Sublessor shall have the right to make any repairs to the Subleased
Premises which Sublessee does not make within a reasonable time after receiving
notice in writing from Sublessor of the necessity for such repairs, and
Sublessee shall pay to Sublessor upon demand all out-of-pocket costs and
expenses of such repairs. Upon the expiration or termination of this Sublease or
the termination of Sublessee's right to possession hereunder, Sublessee shall
surrender the Subleased Premises in as good condition as they are in at the
commencement of the Term hereof, ordinary wear and tear and damage caused by
fire or other casualty excepted, failing which Sublessor may restore the
Subleased Premises to such condition and Sublessee shall pay the out-of-pocket
expense to Sublessor of doing so on demand.
8. Services and Utilities.
(a) Sublessee acknowledges that, certain utilities and building
services as set forth in the Lease are to be furnished by Landlord, and
Sublessor agrees to make such utilities and building services available to
Sublessee to the same extent that they are provided by Landlord with respect to
the Subleased Premises; provided, however, that Sublessor shall not have any
liability or responsibility to Sublessee for the quality of such utilities or
services or for any interruption, failure or disruption in the availability of
such utilities or services, except if such interruption, failure or disruption
is caused by the gross negligence or willful misconduct of Sublessor, its
employees or agents then the Provisions of Article 7(c) of the Lease shall be
applicable. Any additional sums due to Landlord as a result of additional
services rendered to or on behalf of Sublessee shall be the responsibility of
Sublessee and are deemed additional rent hereunder.
(b) Sublessor and Sublessee hereby acknowledge that the Subleased
Premises are not separately metered. Sublessee hereby agrees to pay to Sublessor
on a monthly basis, as additional rent, an amount equal to $243.58 (i.e., $1.00
per rentable square foot of the Subleased Premises per year) for Sublessee's use
of electricity in connection with the Subleased Premises, which use shall not
exceed normal office usage of electricity for lights and convenience outlets. In
the event Sublessee's use of electricity exceeds normal office usage, Sublessee
shall pay to Sublessor such increased usage costs as reasonably determined by
Sublessor.
(c) Nothing contained in this Sublease shall be deemed to provide
Sublessee with any specific rights with respect to Sublessor's telephone
equipment, other than that Sublessor, at Sublessee's sole cost and expense,
shall provide Sublessee with access to Sublessor's telephone switch. Any costs
incurred by Sublessee in connection with telephone usage at the Subleased
Premises shall be paid by Sublessee directly to the telephone utility providing
any such service.
-5-
<PAGE>
9. Waiver of Certain Sublessee Claims, Indemnity by Sublessee. To the
extent not expressly prohibited by law or caused by the negligence or willful
misconduct of Sublessor, its officers, directors, shareholders, partners, agents
or employees, Sublessee releases Sublessor and its beneficiaries, their
respective partners, the managing and leasing agents for the Building, and the
respective officers, directors, shareholders, partners, agents and employees of
each of them from and waives all loss, cost, expense, liabilities and claims for
damages (including reasonable attorneys' fees) to person or property sustained
by Sublessee, or its invitees, licensees and employees, or by any other person,
resulting, directly or indirectly, from any fire or other casualty, cause,
existing or future condition, defect, matter or thing in or about the Building
or any part thereof, or from any equipment or appurtenance therein, or from any
accident in or about the Building or the Land, or from any act or neglect of any
tenant, Sublessor or other person in the Building or any part thereof or of any
other person, including Landlord, their beneficiaries, their partners, the
managing and leasing agents for the Building, or any of their officers,
directors, shareholders, partners, agents or employees. This Paragraph 9 shall
apply especially, but not exclusively, to damage caused by water, snow, frost,
steam, excessive heat or cold, sewerage, gas, odors or noise, or the bursting or
leaking of pipes or plumbing fixtures, broken glass, sprinkling or air
conditioning devices or equipment, or flooding of basements, and shall apply
without distinction as to the person whose act or neglect was responsible for
the damage and whether the damage was due to any of the acts specifically
enumerated above, or from any other thing or circumstance, whether of a like
nature or of a wholly different nature. If any damage to any equipment or
appurtenance therein, whether belonging to Sublessor or Landlord or to other
tenants or persons in the Building, results from any act or neglect of
Sublessee, Sublessee shall be liable therefor, and Sublessor may, at its option,
repair such damage and Sublessee shall, upon demand by Sublessor, reimburse
Sublessor for the expense to Sublessor of such repairs and damages in excess of
amounts, if any, paid to Sublessor under insurance covering such damages. All
personal property belonging to Sublessee or any person in the Subleased Premises
shall be there at the risk of Sublessee or other person only and Sublessor and
Landlord and their beneficiaries and their agents shall not be liable for damage
thereto or theft or misappropriation thereof.
To the extent not expressly prohibited by law or caused by the negligence
or willful misconduct of Sublessor, its officers, directors, shareholders,
partners, agents or employees, Sublessee agrees to hold Sublessor and its
beneficiaries, their respective partners, the managing and leasing agents for
the Building, and the respective officers, directors, shareholders, partners,
agents and employees of each of them harmless and to indemnify each of them
against claims and liabilities, including reasonable attorneys' fees, for
injuries to all persons and damage to or theft or misappropriation or loss of
property occurring in or about the Subleased Premises, or arising from
Sublessee's occupancy of the Subleased Premises or the conduct of its business
or from any activity, work, or thing done, permitted or suffered by Sublessee in
or about the Subleased Premises or from any breach or default on the part of
Sublessee in the performance of any covenant or agreement on the part of
Sublessee to be performed pursuant to the term of this Sublease, or due to any
other act or omission of Sublessee, its agents, contractors, invitees,
subtenants, licensees or employees. Sublessor shall indemnify Sublessee and hold
Sublessee, its partners, officers, directors, shareholders, agents and employees
harmless from and against all loss, cost, expense, damage, claims and
liabilities, including reasonable attorneys' fees,
-6-
<PAGE>
arising out of the failure of Sublessor to perform any covenant or agreement on
the part of Sublessor to be performed pursuant to the terms of this Sublease or
the Lease.
10. Assignment and Subletting.
(a) Without the prior written approval of Sublessor (which approval
shall not be unreasonably withheld or delayed) and Landlord, Sublessee shall not
assign, pledge or encumber this Sublease or any interest herein, or further
sublease the Subleased Premises or any part thereof, or permit anyone other than
Sublessee's officers and employees to use the Subleased Premises. Any attempted
assignment, pledge or hypothecation of this Sublease or any attempted subletting
of the Subleased Premises without Sublessor's prior written approval shall be
void and, at the option of Sublessor, shall terminate this Sublease.
(b) The rights of Sublessor under Article 15(c) of the Lease shall
not be applicable in the event Sublessee subleases all or a portion of the
Subleased Premises to an Affiliate (as defined in Article 15[a] of the Lease and
as such definition is applicable to Sublessee) or assigns this Sublease to an
Affiliate.
11. Successors and Assigns. Subject to the restrictions on assignment and
subletting by Sublessee, this Sublease shall be binding upon and shall inure to
the benefit of the parties hereto, their successors, assigns and legal
representatives.
12. Default. The following shall constitute a default by Sublessee
hereunder: (i) the failure by Sublessee to pay, within five (5) days after
notice of such failure, any rental or other payment required to be paid by
Sublessee hereunder; (ii) the failure by Sublessee to observe or perform any
covenant, obligation or condition required to be performed or observed by
Sublessee hereunder and the continuation of such failure for a period of thirty
(30) days after notice thereof from Sublessor, unless with respect to any
default that cannot be cured within such thirty (30) day period, Sublessee in
good faith and promptly after receipt of such notice commences to cure such
default within such thirty (30) day period and thereafter continues to
diligently and reasonably prosecute all action necessary to cure such default
and complete such cure within a total of an additional sixty (60) days after
such initial thirty (30) day cure period subject to Force Majeure Events; (iii)
the leasehold interest of Sublessee being levied upon under execution or being
attached by process of law, which lien shall not be released or discharged or
bonded or otherwise insured over to Sublessor's reasonable satisfaction within
twenty (20) days from the date of filing thereof; or (iv) the filing by or
against Sublessee of any petition for bankruptcy or reorganization or any
petition for similar relief under any state or Federal bankruptcy or similar
law, of, with respect to any petition filed against Sublessee, such action is
not vacated or stayed pending appeal within ninety (90) days. In the event of
any such default by Sublessee, Sublessor shall have the right to terminate this
Sublease, to recover immediate possession of the Subleased Premises, and to
remove all personal property of Sublessee from the Subleased Premises at
Sublessee's cost and expense. In addition, in the event of any default by
Sublessee hereunder, Sublessor shall be entitled to recover all damages
permitted by law (including, without limitation, attorneys' fees, costs and
expenses) and to enforce all remedies available to Sublessor at law or in
equity. All rights, powers and remedies of Sublessor shall be cumulative and the
exercise of one or more of its rights or remedies shall not impair Sublessor's
right to exercise any other right or remedy, either concurrently or at any later
time.
-7-
<PAGE>
Sublessee shall not cause or permit anything to be done which would
constitute a default or breach of Sublessor's obligations as tenant under the
Lease, including, without limitation, any breach or default which would cause
the Lease to be terminated or forfeited by reason of any right of termination or
forfeiture reserved or vested in the Landlord under the Lease.
13. Access. At reasonable hours during the Term, Sublessor and its
officers, employees and representatives, and the Landlord and its officers,
employees and representatives, shall have the right to enter the Subleased
Premises, upon reasonable verbal notice to Sublessee under the circumstances
(except in the case of an emergency or for the supplying of janitorial services
when no such notice shall be required), for reasonable purposes, including
inspection, furnishing janitorial services, or the making of repairs and for
alterations or additions to any portion of the Building outside the Subleased
Premises.
14. Damage to Subleased Premises. In the event of any damage to or
destruction to the Subleased Premises, the provisions of the Lease shall be
applicable.
15. Condemnation. If the Subleased Premises are condemned or taken by any
governmental authority under the power of eminent domain, the provisions of the
Lease shall be applicable.
16. Holding Over. Sublessee will, at the termination of this Sublease by
lapse of time or otherwise, yield up immediate possession of the Subleased
Premises to Sublessor and Landlord. If Sublessee retains possession of the
Subleased Premises or any part thereof after such termination, then Sublessee
shall pay to Sublessor (i) during the initial thirty (30) days of any such
holding over 150% of the Base Rent and 150% of the Additional Rent herein
provided and thereafter, 200% of the Base Rent and 200% of the Additional Rent
herein provided for each month Sublessor retains possession of the Subleased
Premises or portion thereof, and (ii) all damages, consequential as well as
direct, sustained by Sublessor by reason of such retention of possession. The
provisions of this Paragraph 16 do not exclude Sublessor's or Landlord's rights
of re-entry, or any other right, hereunder or under the Lease or at law or in
equity.
17. Estoppel Certificates. Sublessee agrees, at any time and from time to
time, upon not less than five (5) business days' prior written notice by
Sublessor, to execute, acknowledge and deliver to Sublessor and Landlord a
statement in writing (i) certifying that this Sublease is unmodified and in full
force and effect (or if there have been modifications, that the Sublease is in
full force and effect as modified and stating the modifications); (ii) stating
the dates to which the rent and any other charges hereunder have been paid by
Sublessee, (iii) stating whether or not, to the best knowledge of Sublessee,
Sublessor is in default in the performance of any covenant, agreement or
condition contained in this Sublease, and if so, specifying the nature of such
default; and (iv) stating the address to which notices to Sublessee are to be
sent. Any such statement delivered to Sublessee may be relied upon by any owner
of the Subleased Premises or the land upon which it is situated, any prospective
purchaser of the Subleased Premises, any mortgagee or prospective mortgagee, or
any prospective assignee of any such mortgage.
-8-
<PAGE>
18. Sublessee's Insurance. Throughout the Term hereof, Sublessee shall
obtain and maintain insurance as required by the Lease. Said insurance shall
name Sublessor and the Landlord as additional insureds thereunder, and shall
contain an endorsement that such policy shall remain in full force and effect
notwithstanding that the insured has waived its right of action against any
party prior to the occurrence of a loss. If requested by Sublessor, Sublessee
shall provide Sublessor receipts evidencing payment of premiums for such
insurance. Such policy shall contain an endorsement providing it cannot be
cancelled without thirty (30) days' prior written notice being given to
Sublessor. Sublessor and Sublessee agree to have all fire and extended coverage
and material damage insurance which may be carried by either of them endorsed
with a clause providing that any release from liability of or waiver of claim
for recovery from the other party entered into in writing by the insured
thereunder prior to any loss or damage shall not affect the validity of said
policy or the right of the insured to recover thereunder and providing further
that the insurer waives all rights of subrogation which such insurer might have
against the other party. Without limiting any release or waiver of liability or
recovery contained in any other Paragraph of this Sublease or of the Lease but
rather in confirmation and furtherance thereof, each of the parties hereto waive
all claims for recovery from the other party for any loss or damage to any of
its property insured under valid and collectible insurance policies to the
extent of any recovery collectible under such insurance policies or any recovery
which would have been so collectible had such party obtained and maintained
insurance coverage in accordance with the terms of Article 11 of the Lease.
19. Real Estate Brokers. Each party represents that it has not dealt with
any brokers in connection with this Sublease other than The John Buck Company,
as Sublessor's agent, and Insignia/FC&S, as Sublessee's agent, and that insofar
as each party knows no other broker negotiated this Sublease or is entitled to
any commission in connection herewith. Sublessor and Sublessee agrees to
indemnify, defend and hold each other and their respective partners, employees,
agents, officers and partners harmless from and against any claims resulting
from a breach of the foregoing representation.
20. Covenant Against Liens. Sublessee covenants and agrees not to suffer or
permit any lien of mechanics or materialmen to be placed upon or against the
Subleased Premises, the Building, or the land or against Sublessee's
subleasehold interest in the Subleased Premises and, in case of any such lien
attaching, to immediately pay and remove same. Sublessee has no authority or
power to cause or permit any lien or encumbrance of any kind whatsoever, whether
created by any act of Sublessee, operation of law or otherwise, to attach to or
be placed upon the Subleased Premises, the Building or the land and any and all
liens and encumbrances created by Sublessee shall attach only to Sublessee's
interest in the Subleased Premises. If any such liens so attach and Sublessee
fails to pay and remove same within ten (10) days following receipt of written
notice from Sublessor, Sublessor, at its election, may pay and satisfy the same
and in such event the sums so paid by Sublessor, with interest from the date of
payment at the rate set forth in Article 29(b) of the Lease for amounts owed
Sublessor by Sublessee, shall be deemed to be additional rent due and payable by
Sublessee at once without notice or demand.
21. Rules and Regulations. This Sublease is subject to all the Rules and
Regulations listed in Exhibit D attached to the Lease. Sublessee acknowledges
receipt of a copy of said Exhibit and hereby agrees to observe all such Rules
and Regulations.
-9-
<PAGE>
22. General Provisions.
(a) Whenever Sublessee proposes to take any action which would require
Sublessor to obtain the consent of the Landlord under the terms of the Lease,
for purposes of this Sublease such action shall require the consent of Sublessor
and Landlord.
(b) The waiver by Sublessor of a breach of any covenant, obligation or
condition set forth herein shall not be deemed to be a waiver of any subsequent
breach of the same or of any other covenant, obligation or condition of this
Sublease.
(c) This Sublease shall be governed by and construed in accordance
with the laws of the State of Illinois.
(d) This Sublease constitutes the entire agreement between the parties
hereto and may not be modified except by a written instrument executed by both
parties hereto.
(e) If any provision of this Sublease is declared invalid or
unenforceable, the remainder hereof shall continue in full force and effect.
(f) All notices required or permitted to be given to Sublessee
hereunder shall be to the attention of Mr. Jeff Aronin, President and delivered
in person or by a nationally recognized overnight courier, or by U.S. mail,
postage prepaid, certified or registered mail, return receipt requested, to the
Subleased Premises or to such other address as Sublessee shall from time to time
designate in writing. All notices required or permitted to be given to Sublessor
hereunder shall be delivered in person or by a nationally recognized overnight
courier, or by U.S. mail, postage prepaid, certified or registered mail, return
receipt requested, to Delta Dental Plans Association, 1515 West 22nd Street,
Suite 1200, Oak Brook, Illinois 60521, Attention: President and Chief Executive
Officer or to such other address as Sublessor shall from time to time designate
in writing. All notices shall be deemed given upon delivery or refusal to accept
delivery.
(g) Paragraph headings are used herein solely for the convenience of
reference and are not to be construed as a part of this Sublease.
(h) This Sublease may be executed in one (1) or more counterparts,
each of which shall constitute an original but all of which together shall
constitute one and the same instrument.
(i) Time is of the essence of this Sublease.
(j) In the event of an action in order to enforce any term, covenant
or condition of this Sublease, the prevailing party shall be entitled to recover
from the non-prevailing party the costs and expenses of such action, including
attorneys' fees to be set by the court in such action.
(k) The rights and obligations of Sublessor and Sublesses under this
Sublease are contingent upon Sublessor obtaining the written consent of Landlord
to this Sublease.
-10-
<PAGE>
23. Parking. Sublessor shall provide Sublessee with two (2) reserved
parking spaces during the Term of this Sublease, as designated by Sublessor.
Sublessee shall pay to Sublessor the prevailing market rate for such reserved
parking spaces as determined by Landlord, which rate is currently $30.00 per
month per reserved parking space. Sublessee's use of the reserved parking spaces
and any unreserved parking spaces shall be subject to any rules and regulations
of Landlord applicable to such parking.
24. Security Deposit. As security for the faithful and prompt performance
of its obligations hereunder, Sublessee hereby deposits with Sublessor cash or
an unconditional irrevocable letter of credit in favor of Sublessor (the
"Security Deposit"), which may be drawn upon in full or in part, from an
institution and in form acceptable to Landlord in the amount of $25,000.00,
subject to reduction on the (i) first anniversary of the Commencement Date to
$17,500.00, (ii) second anniversary of the Commencement Date to $10,000.00, and
(iii) third anniversary of the Commencement Date to $7,500.00, provided that
Sublessee is not in default under the terms of this Sublease and provided that
no event has occurred that upon the passage of time or the giving of notice,
would result in Sublessee being in default hereunder. The Security Deposit shall
serve as security for the prompt, full and faithful performance by Sublessee of
each and every provision of this Sublease and of all obligations of Sublessee
hereunder. In the event that the letter of credit is not for a period extending
through February 29, 2004 (or, if Sublessee exercises the Renewal Option, the
letter of credit shall be extended through December 31, 2005), Sublessee shall
renew such letter of credit or provide Sublessor with a replacement letter of
credit, from an institution and in form acceptable to Sublessor, at least thirty
(30) days prior to the expiration of the current letter of credit. In the event
that Sublessee does not renew the letter of credit or provide a replacement
letter of credit within such time period, Sublessor may draw upon the letter of
credit and hold such funds in accordance with the terms of this Paragraph 24.
(a) If Sublessee fails to perform any of its obligations hereunder
(beyond any applicable notice and cure periods), Sublessor may draw on the
letter of credit or apply the cash deposit (as the case may be), in fall or in
part as damages for Sublessee's default under Paragraph 12, or for the payment
of (i) any Base Rent, Additional Rent or other sums of money which Sublessee may
not have paid when due, (ii) any sum expended by Sublessor on Sublessee's behalf
in accordance with the provisions of this Sublease, or (iii) any sum which
Sublessor may expend or be required to expend by reason of Sublessee's default,
including, without limitation, any damage or deficiency in or from the reletting
of the Subleased Premises as provided in Paragraph 12. The use, application or
retention of the Security Deposit, or any portion thereof, by Sublessor shall
not prevent Sublessor from exercising any other right or remedy provided by this
Sublease or by law (it being intended that Sublessor shall not first be required
to proceed against the Security Deposit) and shall not operate as a limitation
on any recovery to which Sublessor may otherwise be entitled. If any portion of
the Security Deposit is used, applied or retained by Sublessor for the purposes
set forth above, Sublessee agrees, within ten (10) days after the written demand
therefor is made by Sublessor, to deposit cash with Sublessor in an amount
sufficient to restore the Security Deposit to its original amount.
(b) If Sublessee has not defaulted hereunder and Sublessor has not
applied the Security Deposit to cure a default, or if Sublessor has applied said
Security Deposit to cure a default and Sublessee has replenished the same, then
said Security Deposit, or such remaining
-11-
<PAGE>
portion thereof, shall be returned to Sublessee, without interest, after the
last to occur of thirty (30) days following (i) the expiration or termination of
the Term, or (ii) any later date after which Sublessee has vacated the Subleased
Premises. Said deposit shall not be deemed an advance payment of rent or measure
of Sublessor's damages for any default hereunder by Sublessee. In the absence of
evidence satisfactory to Sublessor of any permitted assignment of the right to
receive the Security Deposit, or of the remaining balance thereof, Sublessor may
return the same to the original sublessee, regardless of one or more assignments
of Sublessee's interest in this Sublease or the Security Deposit. In such event,
upon the return of the Security Deposit or the remaining balance thereof to the
original sublessee, Sublessor shall be completely relieved of liability under
this Paragraph 24 or otherwise with respect to the Security Deposit.
25. Signage. Pursuant to the Consent to Sublease executed by the Sublessee,
Sublessor and Landlord in connection with this Sublease, Landlord has agreed
that Sublessee shall have the right, at its sole cost and expense, to have
Sublessee's name and location identified with building standard identification
(i) upon the directory board located in the lobby of the Building, and (ii) in
the elevator lobby on the floor the Subleased Premises is located.
26. Furniture. Sublessor shall transfer to Sublessee all of Sublessor's
right, title and interest in and to any furniture located in the Subleased
Premises as set forth in Exhibit B attached hereto (collectively, the
"Furniture"), free and clear of any rights, claim or encumbrances of others, for
a sum equal to Four Thousand Five Hundred and 00/100 Dollars ($4,500.00), which
sum shall be paid to Sublessor in three (3) installments of $1,500.00 each as
follows: (i) the first installment shall be paid to Sublessor upon execution by
Sublessee of this Sublease, (ii) the second installment shall be paid to
Sublessor on or before July 1, 2000, and (iii) the third installment shall be
paid to Sublessor on or before January 1, 2003. Following Sublessee's payment of
the final installment to Sublessor, this Paragraph 26 shall act as a bill of
sale for the Furniture and no other documentation shall be required therefor.
27. Expansion Opportunities. Subject to Sublessor's desire to exercise any
expansion option or right of first offer provided to it under the Lease,
Sublessor shall reasonably cooperate with Sublessee to encourage Landlord to
lease directly to Sublessee any space offered to Sublessor for such expansion
purposes which Sublessor does not desire to lease from Landlord for its own
purposes. With respect to the Option Space described in Article 33(b) of the
Lease, Sublessor shall provide Sublessee with written notice on or before
September 1, 1999 of whether or not it intends to exercise its option to lease
such space from Landlord. In the event that Sublessee leases directly from
Landlord or subleases any other space in the Building, Sublessee shall be deemed
to have exercised the Renewal Option hereunder.
28. Additional Provisions.
(a) For the purpose of this Sublease, the reference to "Exhibit E" in
the Lease shall be deemed to mean Exhibit A of this Sublease.
(b) The supervisory and administrative fee set forth in Article 9(b)
of the Lease shall only be payable to Landlord; accordingly, Sublessor shall not
be entitled to a supervisory and administrative fee in connection with
additions, alterations, improvements or
-12-
<PAGE>
repairs that Sublessee may make in the Subleased Premises in accordance with the
terms of this Sublease.
(c) Sublessor covenants and agrees that from and after the date
hereof and during the Term hereof, Sublessor shall perform all its duties and
obligations and comply in all respects with the requirements of the Lease and
not take any action or enter into any agreements that might cause or result in
any termination of the Lease or may be in conflict with Sublessor's obligations
under this Sublease.
(d) In the event of any inconsistency or conflict between the terms
and provisions of this Sublease and the Lease, the terms and provisions of this
Sublease shall control.
(e) Capitalized terms not otherwise defined herein shall have the same
meaning in this Sublease as defined in the Lease.
(f) As of the date hereof, Sublessor hereby represents and warrants to
Sublessee as follows:
(i) Status. The Lease is in full force and effect.
(ii) Rent. All rents and other amounts (including additional
rents and other charges) reserved or required under the
Lease have been paid to the extent they were payable prior
to the date hereof; and, throughout the Term of this
Sublease, Sublessor shall pay or cause to be paid all Rent
and Additional Rent under the terms of the Lease on or
before the due date thereof.
(iii) No Default. Sublessor is not in default under the Lease and
to the best of Sublessor's knowledge, there is no existing
default by Landlord under the Lease.
(g) Sublessor covenants that so long as Sublessee keeps, observes and
performs all of the terms, conditions, provisions and agreements herein
contained on the part of Sublessee to be kept, observed and performed,
including, without limitation, payment of Base Rent and Additional Rent,
Sublessee shall during the Term hereof peaceably and quietly hold the Subleased
Premises, subject to the Lease and subject to the terms, covenants, conditions,
provisions and agreements hereof, free from hinderance by any other party.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Sublease as of
the day and year first above written.
SUBLESSOR:
DELTA DENTAL PLANS ASSOCIATION,
an Illinois not-for-profit corporation
By: /s/ Kim E. Volk
------------------
Name: Kim Volk
----------------
Title: President & CEO
---------------
SUBLESSEE:
MEDCARE TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Jeff Aronin
-------------------
Name: Jeffrey Aronin
------------------
Title: President
-----------------
-14-
<PAGE>
EXHIBIT A
SUBLEASED PREMISES
[FLOOR PLAN ARTWORK OF TWELFTH FLOOR APPEARS HERE]
<PAGE>
EXHIBIT B
Furniture
Kimball Conference Table 48" x 96" w/glass table top 1
Conference room chair, swivel-tilt, mechanical adjustment
(color: knoll classic boucle) 8
Kimball wood veneer work station - footprint worksurfaces,
adjustable keyboard, credenza and drawers 2
Kimball collage guest chair, royal on mahogany 8
Kimball era - high back, multi-task chair 3
Kimball wood veneer work station - footprint worksurfaces,
adjustable keyboard and drawers 1
Kimball workstation - including work surfaces, adjustable
keyboard drawers & overheads - laminate/metal 8
Kimball era - low back dedicated task chairs 8
Harpers lateral file w/common top 36" W x 18" x 27" H 5
Harpers lateral file w/common top 42" W x 18 x 27" H 5
U-line small refrigerator 1
Merillar overhead cabinets and drawers N/A
<PAGE>
EXHIBIT 21.
MEDCARE TECHNOLOGIES, INC.
SUBSIDIARIES
MEDCARE TECHNOLOGIES, CORPORATION
MEDCAREONLINE.COM, INC.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 1998 Form
10KSB and is qualified in its entirety by reference to such financial
statements.</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,826,086
<SECURITIES> 0
<RECEIVABLES> 271,240
<ALLOWANCES> 45,165
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 283,630
<DEPRECIATION> 65,231
<TOTAL-ASSETS> 3,381,888
<CURRENT-LIABILITIES> 469,743
<BONDS> 0
0
12
<COMMON> 7,825
<OTHER-SE> 2,904,308
<TOTAL-LIABILITY-AND-EQUITY> 3,381,888
<SALES> 786,586
<TOTAL-REVENUES> 786,586
<CGS> 0
<TOTAL-COSTS> 4,687,400
<OTHER-EXPENSES> 29,248
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (162,109)
<INCOME-PRETAX> (3,769,953)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,769,953)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,769,953)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
