<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ --------------
Commission file number 0-27588
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VITALCOM INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3662 33-0538926
- ------------------------------- --------------------------- ----------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
15222 DEL AMO AVENUE
TUSTIN, CALIFORNIA 92680
(714) 546-0147
- -------------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed 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 requirements for the past 90 days.
Yes X No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 1996, there were 7,905,623 shares outstanding of the
issuer's common stock.
<PAGE> 2
I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VITALCOM INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . $22,721,346 $ 2,163,645
Accounts receivable, net. . . . . . . . . . . . . . . . 3,033,290 6,399,221
Inventories . . . . . . . . . . . . . . . . . . . . . . 3,211,723 1,479,921
Prepaid expenses . . . . . . . . . . . . . . . . . . . 258,615 173,097
Income tax refund receivable . . . . . . . . . . . . . 2,067,529 -
Deferred tax assets . . . . . . . . . . . . . . . . . . 800,600 800,600
----------- -----------
Total current assets . . . . . . . . . . . . . . . 32,093,103 11,016,484
Property
Machinery and equipment . . . . . . . . . . . . . . . . 1,227,270 864,127
Office furniture and computer equipment . . . . . . . . 1,503,603 961,138
Leasehold improvements . . . . . . . . . . . . . . . . 67,919 73,351
----------- -----------
2,798,792 1,898,616
Less accumulated amortization and depreciation . . . . (837,842) (541,922)
----------- -----------
Property, net. . . . . . . . . . . . . . . . . . . 1,960,950 1,356,694
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 100,355 268,701
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . 680,019 711,501
----------- -----------
$34,834,427 $13,353,380
=========== ===========
</TABLE>
2
<PAGE> 3
VITALCOM INC.
BALANCE SHEETS - (CONTINUED)
<TABLE>
<CAPTION>
------------- ------------
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 766,664 $ 969,350
Current portion of long-term debt. . . . . . . . . . . . . . . - 500,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . - 312,127
Accrued payroll and related costs. . . . . . . . . . . . . . . 1,073,502 1,341,040
Accrued warranty costs . . . . . . . . . . . . . . . . . . . . 723,993 602,362
Customer deposits . . . . . . . . . . . . . . . . . . . . . . 460,051 419,528
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . 950,062 615,000
Current portion of capital lease obligations 21,120 21,120
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . 3,995,392 4,780,527
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . - 1,041,667
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . 49,473 49,473
Capital lease obligations, less current portion . . . . . . . . . . 87,113 106,151
Redeemable preferred stock (5,783,930 shares authorized
at December 31, 1995), $.001 par value:
Series C convertible preferred stock . . . . . . . . . . . . . - 8,858,760
Series D convertible preferred stock . . . . . . . . . . . . . - 1,489,726
Stockholders' equity (deficit):
Common stock, including paid-in capital, $.0001 par value;
8,700,000 shares authorized, 7,905,623 and 1,155,994 shares
issued and outstanding at September 30, 1996
and December 31, 1995, respectively . . . . . . . . . . . . 36,628,053 519,603
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (5,925,604) (3,492,527)
----------- -----------
Net stockholders' equity (deficit) . . . . . . . . . . . 30,702,449 (2,972,924)
----------- -----------
$34,834,427 $13,353,380
=========== ===========
</TABLE>
3
<PAGE> 4
VITALCOM INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------- ---------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ---------------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Facility-wide networks . . . . . . . . . . . $ 623,400 $3,060,969 $ 6,826,380 $ 7,961,426
Departmental products . . . . . . . . . . . 2,278,854 2,735,910 8,049,884 7,855,651
------------ ---------- ------------ -----------
Total revenues . . . . . . . . . . . . . 2,902,254 5,796,879 14,876,264 15,817,077
Cost of sales . . . . . . . . . . . . . . . . 1,988,072 2,513,070 7,227,662 7,078,458
------------ ---------- ------------ -----------
Gross profit . . . . . . . . . . . . . . . . . 914,182 3,283,809 7,648,602 8,738,619
Operating expenses
Sales and marketing . . . . . . . . . . . . 2,720,234 1,604,000 6,996,941 4,253,812
Research and development . . . . . . . . . 1,786,880 691,617 3,928,257 1,769,299
General and administration . . . . . . . . 596,214 441,657 1,720,260 1,085,234
------------ ---------- ------------ -----------
Total operating expenses . . . . . . . . 5,103,328 2,737,274 12,645,458 7,108,345
Operating income (loss) . . . . . . . . . . . (4,189,146) 546,535 (4,996,856) 1,630,274
Other income (expense), net . . . . . . . . . 280,152 (9,105) 690,524 (76,719)
------------ ---------- ------------ -----------
Income (loss) before provision for income taxes (3,908,994) 537,430 (4,306,332) 1,553,555
Provision (benefit) for income taxes . . . . . (1,700,773) 230,880 (1,873,254) 667,625
------------ ---------- ------------ -----------
Net income (loss) . . . . . . . . . . . . . . $ (2,208,221) $ 306,550 $ (2,433,078) $ 885,930
============ ========== ============ ===========
Pro forma net income (loss) and
net income (loss) per common share . . . . . $ (0.27) $ 0.05 $ (0.32) $ 0.16
Weighted average common shares . . . . . . . . 8,090,211 5,743,409 7,681,189 5,433,794
</TABLE>
4
<PAGE> 5
VITALCOM INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------
NINE MONTHS ENDED
-------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . $(2,433,078) $ 885,930
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 366,630 724,431
Deferred income taxes . . . . . . . . . . . . . . . . . . - (180,270)
Loss (gain) on disposal of property . . . . . . . . . . . 12,248 (338)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . 3,365,933 (1,875,861)
Inventories . . . . . . . . . . . . . . . . . . . . . (1,731,802) (408,614)
Income tax receivable . . . . . . . . . . . . . . . . (2,379,656) -
Prepaid expenses and other current assets . . . . . . (85,518) (63,126)
Accounts payable . . . . . . . . . . . . . . . . . . . (202,686) 57,192
Accrued payroll and related costs . . . . . . . . . . (267,538) 503,188
Accrued warranty costs . . . . . . . . . . . . . . . . 121,631 (140,931)
Customer deposits . . . . . . . . . . . . . . . . . . 40,523 (70,313)
Income taxes payable . . . . . . . . . . . . . . . . . - 34,426
Accrued liabilities . . . . . . . . . . . . . . . . . 335,062 331,800
----------- -----------
Net cash (used in) operating activities . . . . . . (2,858,251) (202,486)
Cash flows from investing activities:
Purchases of property . . . . . . . . . . . . . . . . . . (951,653) (463,993)
(Increase) decrease in other assets . . . . . . . . . . . 168,346 82,511
----------- -----------
Net cash used in investing activities . . . . . . . (783,307) (381,482)
Cash flows from financing activities:
Preferred stock dividends . . . . . . . . . . . . . . . . - (154,060)
Repayment of long-term debt . . . . . . . . . . . . . . . (1,560,705) (375,000)
Proceeds from issuance of preferred and common stock. . . 25,759,964 2,209,878
----------- -----------
Net cash provided by financing activities . . . . . 24,199,259 1,680,818
Net increase in cash and cash equivalents . . . . . . . . . 20,557,701 1,096,850
Cash and cash equivalents, beginning of period . . . . . . 2,163,645 1,223,330
----------- -----------
Cash and cash equivalents, end of period . . . . . . . . . $22,721,346 $ 2,320,180
=========== ===========
Supplemental disclosures of cash flow information
Interest paid . . . . . . . . . . . . . . . . . . . . . . $ 9,331 $ 160,119
Income taxes paid . . . . . . . . . . . . . . . . . . . . $ 229,665 $ 982,479
</TABLE>
5
<PAGE> 6
VITALCOM INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim condensed financial statements included herein have been prepared
by the Company without audit pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures, normally included in the financial statements prepared in
accordance with generally accepted accounting principles, have been condensed
or omitted pursuant to such SEC rules and regulations; nevertheless, the
management of the Company believes that the disclosures herein are adequate to
make the information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's prospectus dated February 14, 1996, for
the year ended December 31, 1995 filed with the SEC in February 1996. In the
opinion of management, the condensed financial statements included herein
reflect all adjustments consisting of normal recurring accruals necessary to
present fairly the financial position of the Company as of September 30, 1996,
and the results of its operations and its cash flows for the nine-month periods
ended September 30, 1995 and 1996. The results of operations for the interim
periods are not necessarily indicative of the results of operations for the
full year.
2. PROFORMA NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
For the three and nine month periods ended September 30, 1995 and 1996, pro
forma and net income per share is based on the weighted average number of
common and common equivalent shares outstanding. The weighted average common
and common equivalent shares for pro forma net income per share include common
shares and stock options using the treasury stock method and the assumed
conversion of all outstanding shares of preferred stock into shares of common
stock. For the three and nine month periods ended September 30, 1996, the
weighted average common and common equivalent shares include common shares and
stock options using the treasury stock method. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin Topic 4D, stock options granted
during the twelve months prior to the date of the initial filing of the
Company's Form S-1 Registration Statement have been included in the calculation
of common equivalent shares using the treasury stock method as if they were
outstanding as of the beginning of the period. Common equivalent shares are
not included for the three and nine month periods ended September 30, 1996 as
the effect would have been antidilutive.
3. STOCK PLANS
Stock Option Plans - The following is a summary of stock option transactions
under the 1993 Stock Option Plan (the "1993 Plan") for the nine months ended
September 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF PRICE PER OPTIONS
OPTIONS SHARE EXERCISABLE
--------- --------------- -----------
<S> <C> <C> <C>
Balance, December 31, 1995 652,723 $0.60 to $5.72 98,750
Exercised (30,000) $0.60 to $1.28
Canceled (40,148) $0.60 to $5.72
Granted 81,265 $13.50 to $15.75
------- ----------------
Balance, September 30, 1996 663,840 $0.60 to $15.75 147,514
======= ================
</TABLE>
During the nine months ended September 30, 1996, no options were granted,
exercised, or canceled under the 1996 Director Option Plan (the "Directors'
Plan"), and as of September 30, 1996 there were no options outstanding under
the Directors' Plan.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth in this Quarterly Report on Form 10-Q
contains several forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements, including
but not limited to those regarding expected revenues and operating results for
the quarter ending December 31, 1996, longer sales cycles, changes in selling
methods, potential improvements in long-term financial performance and customer
cost savings achievable by using the Company's products and market
opportunities, inherently involve risks and uncertainties. Actual results
could vary materially from the description contained herein due to many
factors, including the size and timing of pending and future customer orders,
the effect of recent changes in the Company's sales and marketing efforts,
market acceptance of OpenNet(TM) and other products, the impact of competitive
products and pricing, changing market conditions and hospital operations. See
the description of factors that could effect results included herein under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - General". Also see the "Risk Factors" section of the Company's
Prospectus dated February 14, 1996 for a discussion of the factors that could
result in actual results differing from results currently anticipated.
GENERAL
The Company provides communication networks that acquire, interpret and
distribute real-time physiologic data generated by point-of-care patient
monitors located throughout a healthcare facility. The Company sells
facility-wide networks directly to acute care hospitals and integrated health
delivery networks ("IHDN's"). In addition, the Company sells certain
components, monitoring systems, clinical analysis and display software and
wireless communications components to OEM customers for use in their
departmental monitoring products.
During the third quarter ended September 30, 1996 direct sales of the
Company's facility-wide networks of $623,400 were substantially lower than the
$3,060,969 achieved in the comparable period's results in 1995. The Company
believes that the substantial reduction in sales is due primarily to a shift
toward larger potential order sizes and more quantification of the financial
benefits and re-engineering opportunities enabled by the Company's
facility-wide network and OpenNet application. This shift has resulted in
lengthened internal customer approval processes and a more financially oriented
sales approach. The Company responded to these shifts by realigning and
expanding the sales organization. Addressing the shifts in sales cycle and
financial payback analysis resulted in disruption in the sales force which
affected the Company's ability to close orders in the third quarter. The
Company also expects revenues for the fourth quarter of 1996 to be less than
the comparable period's results in 1995 because the sales force transition will
continue to affect order closure in the fourth quarter. There can be no
assurance that the realignment and expansion of the Company's sales force will
result in increased sales in future periods or that such realignment will not
continue to have a disruptive effect on the Company's operations and sales
efforts.
Through 1995, the Company's revenues had been increasingly derived from
direct sales of its facility-wide networks. During 1995, the Company increased
the size of its direct sales force from nine to 18 full-time sales persons.
During the first nine months of 1996 the Company continued to increase the size
of its direct sales force to a total of 32 at September 30, 1996.
During 1995 the Company increased the size of its research and
development staff from 26 to 34 persons and in the first nine months of 1996
continued to increase its research and
7
<PAGE> 8
development expenditures and headcount to 57 persons to develop new products
and further enhancements to its facility-wide networks. There can be no
assurance that the Company will not experience difficulties that could delay or
prevent the successful development and introduction of product enhancements or
new products or that such enhancements or products will achieve market
acceptance. Failure to do so could have a material adverse effect on the
Company's business, operating results and financial condition.
Although the Company believes that these investments in sales and
marketing and research and development expenditures will improve long-term
financial results, operating and net income as a percentage of revenues
decreased substantially during the first nine months of 1996 as compared to the
same period of 1995, and operating and net income for the fourth quarter of
1996 are expected to continue to be lower in absolute dollars and as a
percentage of revenues than achieved in the same period of 1995. If increased
direct sales efforts and research and development do not ultimately result in
an increase in revenues, there will be a material adverse effect on the
Company's business, operating results and financial condition.
The Company's products are generally shipped as orders are received
and, accordingly, the Company typically operates with limited backlog. As a
result, sales in any quarter are dependent on orders booked and shipped in that
quarter and are not predictable with any degree of certainty.
Further, a large percentage of a particular quarter's shipments of
facility-wide networks have historically been booked in the last weeks of the
quarter. In addition, the Company's sales cycle for facility-wide networks has
typically been from nine to 18 months, during which time the Company may expend
substantial time and resources without any guarantee that the transaction will
be completed, and is subject to delays attendant to large purchases over which
the Company has no control. Any significant or ongoing failure by the Company
to ultimately achieve sales would have a material adverse effect on the
Company's business, financial condition or operating results. In addition, a
significant portion of the Company's expenses are relatively fixed. To the
extent that revenues in a given quarter are below the Company's expectations,
the adverse effect may be magnified by the Company's inability to decrease
spending to compensate for the revenue shortfall.
Total Revenues. Total revenues consist of revenue from sales of facility-wide
networks and departmental products, together with fees for installation and
servicing of products. Total revenues for the quarter ended September 30, 1996
were $2,902,254 compared to $5,796,879 for the same period in 1995. Revenues
in the first nine months of 1996 were $14,876,264 compared to $15,817,077 for
the same period in 1995. The Company believes the decrease in revenues is due
primarily to lower sales of the Company's facility-wide networks due to
disruption resulting from a realignment of the sales force to respond to a more
complex sales cycle associated with larger order sizes and a more financially
oriented sales approach. Facility-wide networks sales represented 45.9% of the
revenues for the first nine months of 1996, compared to 50.3% for the same
period a year ago.
Revenues from sales of facility-wide networks are recognized upon
shipment. The Company's facility-wide networks had an average selling price of
approximately $450,000 during 1995 and the Company believes that average
selling prices of facility-wide networks are likely to increase as the size and
complexity of networks increase in the future. As a result, the timing of the
receipt of a single order can have a significant impact on the Company's
revenues and earnings for a particular period.
Revenues from sales of departmental products are recognized upon
shipment. The sales cycle for departmental products varies depending upon
product mix and the extent to which the Company develops customized operating
software for a particular OEM customer.
8
<PAGE> 9
Gross Margins. Cost of goods sold includes material, direct labor, overhead
and, for facility-wide networks, installation expenses. Cost of goods sold in
the quarter ended September 30, 1996 was 68.5% of revenues as compared to 43.4%
in the comparable period a year ago. Gross margin in the quarter ended
September 30, 1996 was $2,383,381 lower than in the quarter ended June 30, 1996
as a result of lower volume in facility-wide sales. Gross margin in the first
nine months of 1996 decreased to 51.4% from 55.2% in the comparable period a
year ago. The lower gross margin in 1996 is attributable to fixed
manufacturing costs constituting a higher percentage of revenue dollars. In
1995, the cost of goods sold for the first nine months included approximately
$460,000 in amortization of developed technology.
Sales and Marketing Expenses. Sales and marketing expenses include payroll,
commissions and related costs attributable to facility-wide and departmental
sales and marketing personnel, travel and entertainment expenses, and
advertising and other promotional expenses. Sales and marketing expenses for
the quarter ended September 30, 1996 increased to $2,720,234, or 93.7% of
revenues, an increase of $1,116,234, or 69.6% from the same period in 1995.
For the first nine months of 1996, sales and marketing expenses of $6,996,941
were 47.0% of revenues compared to $4,253,812 or 26.9% of revenues in the
comparable period in 1995, an increase of 64.5%. Sales and marketing expense
increases reflect the doubling of the size of the Company's direct sales force
in 1995 to 18 and increasing the direct sales force to 32 at September 30,
1996, recruiting costs, and the Company's carrying out further planned
increases in advertising and other marketing expenses during the first nine
months of 1996 as part of its strategy to focus on sales of facility-wide
networks.
Research and Development Expenses. Research and development expenses include
payroll and related costs attributable to research and development personnel,
prototyping expenses and other costs. Research and development expenses
increased to $1,786,880 or 61.6% of revenues in the third quarter ended
September 30, 1996, up from $691,617 or 11.9% of revenues in the same period a
year ago, a 158% increase. Research and development expenses for the first
nine months of 1996 increased to $3,928,257 or 26.4% of revenues, up from
$1,769,299, or 11.2% of revenues for the same period in 1995, an increase of
122.0%. Research and development increases are related to the Company's
strategy to increase development labor, prototype supplies and consulting fee
expenditures significantly in 1996 to develop new products and features to
further enhance its facility-wide networks and slightly higher costs for
development of products required by the Company's OEM customers.
General and Administrative Expenses. General and administrative expense
includes accounting, finance, MIS, human resources, general administration,
executive officers and professional fee expenses. General and administrative
expenses for the third quarter were $596,214, or 20.5% of total revenues as
compared to $441,657, or 7.6% of total revenues in the comparable period of
1995. General and administrative expenses for the first nine months of 1996
were $1,720,260, or 11.6% of total revenues, as compared to $1,085,234, or
6.9% of revenues, for the same period in 1995. The increase is attributable to
professional services and increased administrative headcount to accommodate the
Company's planned growth and being a publicly traded company.
Other Income (Expense), net. Other income (expense), net, consists primarily
of interest payments made in respect to outstanding indebtedness and interest
income from short term investments. Other income (expense) increased from
($9,105) for the third quarter in 1995 to $280,152 for the third quarter in
1996. Other income (expense) improved from ($76,719) for the first nine months
of 1995 to $690,524 for the first nine months of 1996 due to interest income
attributable to the proceeds of the initial public offering and payoff of the
Company's five-year term debt.
Provision (Benefit) for Income Taxes. The benefit for income taxes is due to
the Company's net loss.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
In February 1996, the Company raised net proceeds of approximately
$25.7 million through an initial public offering of 2,300,000 shares of Common
Stock at $12.50 per share.
At December 31, 1995 the Company had a five-year term loan of $1.5
million payable in monthly installments through December, 1998 with interest
payable at the rate of prime plus 2.5% (through November 30, 1995) or prime
plus 3% (after December 1, 1995). This loan was repaid with a portion of the
proceeds of the initial public offering.
During the nine months ending September 30, 1996, the Company used
$2,858,251 for operating activities compared to using $202,486 from operating
activities in the same period of 1995. In the nine months ended September 30,
1996, the Company generated cash through collections of accounts receivable
which was used for inventories, reducing accounts payable, reducing accrued
liabilities and increased income taxes receivable.
The Company's principal commitments at September 30, 1996 consisted of
a lease on its office and manufacturing facility and a long-term lease on its
telephone system. Both obligations combined represent a expenditure of
approximately $31,500 per month.
The Company believes that existing cash resources, including cash
flows from operations, if any, will be sufficient to fund the Company's
operations for at least the next twelve months.
The Company has a $5.0 million unsecured line of credit with a bank.
In the event there is debt outstanding against the line of credit, the bank at
its discretion could file a blanket lien on all the assets of the Company, in
the event the Company fails to comply with certain financial covenants. At
September 30, 1996 there was no outstanding indebtedness and the Company was in
compliance with all financial covenants.
SUBSEQUENT EVENTS
On October 14, 1996 the Board of Directors of the Company approved the
adoption of the 1996 Stock Option Plan (the "1996 Plan") for the purpose of
providing an incentive to key personnel and to attract personnel. A total of
100,000 shares of the Company's Common Stock have been reserved for issuance
thereunder. Key employees, excluding officers, of the Company are eligible to
receive nonqualified options under the 1996 Plan.
On October 14, 1996 the Board of Directors of the Company approved a
$100,000 promissory loan to David L. Schlotterbeck, President and CEO. The
note was entered into on October 17, 1996, secured by his personal residence,
bears interest at 5.94% per annum, payable quarterly, with the principal amount
due on the sooner of (i) sale of the secured residence, (ii) thirty days after
his voluntary termination of employment, or (iii) on the third anniversary date
of the note.
10
<PAGE> 11
II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
99.1 VitalCom Inc. 1996 Stock Option Plan
99.2 Promissory Note for $100,000 Secured by Deed of Trust
99.3 Loan Agreement with Silicon Valley Bank
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the reporting period.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on November 11, 1996.
VITALCOM INC.
/s/ DAVID L. SCHLOTTERBECK
---------------------------------
David L. Schlotterbeck
President and Chief
Executive Officer
/s/ SHELLEY B. THUNEN
---------------------------------
Shelley B. Thunen
Vice President Finance and
Chief Financial Officer
12
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<PAGE> 1
EXHIBIT 99.1
VITALCOM INC.
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are:
o to attract and retain the best available personnel for
positions of substantial responsibility,
o to provide additional incentive to key Employees and
Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan will be Nonstatutory Stock Options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees
as shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where Options are, or
will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a committee of Directors appointed by
the Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means VitalCom Inc., a Delaware corporation.
(h) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
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<PAGE> 2
(k) "Employee" means any person, excluding Officers,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(m) "Fair Market Value" means, as of any date, the
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(iii) In the absence of an established
market for the Common Stock, the Fair Market Value shall be determined in good
faith by the Administrator.
(n) "Nonstatutory Stock Option" means an Option not
intended to qualify as an incentive stock option within the meaning of Section
422 of the Code and the regulations promulgated thereunder.
(o) "Notice of Grant" means a written or electronic
notice evidencing certain terms and conditions of an individual Option grant.
The Notice of Grant is part of the Option Agreement.
(p) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "Option" means a stock option granted pursuant to
the Plan.
-2-
<PAGE> 3
(r) "Option Agreement" means an agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of
the Plan.
(s) "Optioned Stock" means the Common Stock subject to
an Option.
(t) "Optionee" means the holder of an outstanding
Option granted under the Plan.
(u) "Parent" means a "parent corporation," whether now
or hereafter existing, as defined in Section 424(e) of the Code.
(v) "Plan" means this 1996 Stock Option Plan.
(w) "Service Provider" means an Employee or Consultant
who is not also a Director or Officer.
(x) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 13 of the Plan.
(y) "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section
13 of the Plan, the maximum aggregate number of Shares which may be optioned
and sold under the Plan is 100,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program,
the unpurchased Shares which were subject thereto shall become available for
future grant or sale under the Plan (unless the Plan has terminated).
4. Administration of the Plan.
(a) The Plan shall be administered by (A) the Board or (B) a
Committee, which committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(m) of the Plan;
-3-
<PAGE> 4
(ii) to select the Service Providers to whom Options
may be granted hereunder;
(iii) to determine whether and to what extent Options
are granted hereunder;
(iv) to determine the number of shares of Common Stock
to be covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common
Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(viii) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to modify or amend each Option (subject to Section
15(b) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xi) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Option or
previously granted by the Administrator;
(xii) to determine the terms and restrictions applicable
to Options;
(xiii) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The
Fair Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form
and under such conditions as the Administrator may deem necessary or advisable;
and
-4-
<PAGE> 5
(xiv) to make all other determinations deemed necessary
or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Options may be granted to Service Providers;
provided, however, that notwithstanding anything to the contrary contained in
the Plan, Options may not be granted to Officers and Directors.
6. Limitation. Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
7. Term of Plan. The Plan shall become effective upon its adoption
by the Board. It shall continue in effect for ten (10) years, unless sooner
terminated under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be the per Share
Fair Market Value.
(b) Waiting Period and Exercise Dates. At the time an Option
is granted, the Administrator shall determine any conditions which must be
satisfied before the Option may be exercised and shall fix the period within
which the Option may be exercised, which may be more favorable (but not less
favorable) to the Optionee than the following vesting schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 6.25% of the Shares subject to the Option
shall vest upon the last day of each quarter thereafter, beginning with the
first full quarter after the one year anniversary of the Vesting Commencement
Date, subject to the Optionee continuing to be a Service Provider on such
dates.
(c) Form of Consideration. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. Such consideration may consist entirely of:
(i) cash;
(ii) check;
-5-
<PAGE> 6
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws; or
(viii) any combination of the foregoing methods of
payment.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable according to the terms of the
Plan and at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement. An Option may not be
exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii)
full payment for the Shares with respect to which the Option is exercised.
Full payment may consist of any consideration and method of payment authorized
by the Administrator and permitted by the Option Agreement and the Plan.
Shares issued upon exercise of an Option shall be issued in the name of the
Optionee or, if requested by the Optionee, in the name of the Optionee and his
or her spouse. Until the Shares are issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
Shares promptly after the Option is exercised. No adjustment will be made for
a dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter 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.
-6-
<PAGE> 7
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option, but only within
such period of time as is specified in the Option Agreement, and only to the
extent that the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for three (3) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified by the Administrator, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement, to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is
specified in the Option Agreement (but in no event later than the expiration of
the term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the
person(s) entitled to exercise the Option under the Optionee's will or the laws
of descent or distribution. If the Option is not so exercised within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously granted
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. Non-Transferability of Options. Unless determined otherwise by
the Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during
-7-
<PAGE> 8
the lifetime of the Optionee, only by the Optionee. If the Administrator makes
an Option transferable, such Option shall contain such additional terms and
conditions as the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger
or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option, and the number of shares of Common 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 or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance 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 an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee
to have the right to exercise his or her Option until ten (10) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option shall lapse as to all such
Shares, provided the proposed dissolution or liquidation takes place at the
time and in the manner contemplated. To the extent it has not been previously
exercised, an Option will terminate immediately prior to the consummation of
such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option, the Optionee shall
fully vest in and have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested
or exercisable. If an Option becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully vested and exercisable for a period of fifteen (15) days
from the date of such notice, and the
-8-
<PAGE> 9
Option shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option shall be considered assumed if, following the merger
or sale of assets, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock, immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
to be solely common stock of the successor corporation or its Parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of
any Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to options
granted under the Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the
exercise of an Option the Company may require the person exercising such Option
to represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
-9-
<PAGE> 10
16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
-10-
<PAGE> 11
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $________________________
Type of Option: Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 6.25% of the Shares subject to the Option
shall vest upon the last day of each quarter thereafter, beginning with the
first full quarter after the one year anniversary of the Vesting Commencement
Date, subject to the Optionee continuing to be a Service Provider on such
dates.
(1)
<PAGE> 12
Termination Period:
This Option may be exercised for three (3) months after Optionee ceases
to be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for such longer period as provided in the Plan. In no
event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share
set forth in the Notice of Grant (the "Exercise Price"), subject to the terms
and conditions of the Plan, which is incorporated herein by reference. Subject
to Section 15(b) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by
delivery of an exercise notice, in the form attached as Exhibit A (the
"Exercise Notice"), which shall state the election to exercise the Option, the
number of Shares in respect of which the Option is being exercised (the
"Exercised Shares"), and such other representations and agreements as may be
required by the Company pursuant to the provisions of the Plan. The Exercise
Notice shall be completed by the Optionee and delivered to the Company's Human
Resources Department. The Exercise Notice shall be accompanied by payment of
the aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option unless such
issuance and exercise complies with Applicable Laws. Assuming such compliance,
for income tax purposes the Exercised Shares shall be considered transferred to
the Optionee on the date the Option is exercised with respect to such Exercised
Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(2)
<PAGE> 13
(c) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
4. Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by the
Optionee. The terms of the Plan and this Option Agreement shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.
5. Term of Option. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term only
in accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating
to this Option, as of the date of this Option, are set forth below. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS
OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option. The Optionee may incur regular
federal income tax liability upon exercise of an NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(b) Disposition of Shares. If the Optionee holds NSO Shares
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes.
7. Entire Agreement; Governing Law. The Plan is incorporated herein
by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not be
modified adversely to the Optionee's interest except by means of a writing
signed by the Company and Optionee. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of California.
(3)
<PAGE> 14
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND
NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING
SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET
FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
(4)
<PAGE> 15
By your signature and the signature of the Company's representative below, you
and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Administrator upon any questions
relating to the Plan and Option Agreement. Optionee further agrees to notify
the Company upon any change in the residence address indicated below.
OPTIONEE: VITALCOM INC.
_________________________________ ________________________________
Signature By
_________________________________ ________________________________
Print Name Title
_________________________________
Residence Address
_________________________________
(5)
<PAGE> 16
EXHIBIT A
STOCK OPTION PLAN
EXERCISE NOTICE
VitalCom Inc.
Del Amo Avenue
Tustin, CA 92780
Attention: Human Resources Department
1. Exercise of Option. Effective as of today, ________________,
199__, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of VitalCom Inc. (the "Company")
under and pursuant to the 1996 Stock Option Plan (the "Plan") and the Stock
Option Agreement dated _____________, 19___ (the "Option Agreement"). The
purchase price for the Shares shall be $_______ per share for total exercise
price of $_____________, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company
the full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4. Rights as Stockholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date of issuance, except as provided in Section 12
of the Plan.
5. Tax Consultation. Purchaser understands that Purchaser may
suffer adverse tax consequences as a result of Purchaser's purchase or
disposition of the Shares. Purchaser represents that Purchaser has consulted
with any tax consultants Purchaser deems advisable in connection with the
purchase or disposition of the Shares and that Purchaser is not relying on the
Company for any tax advice.
1
<PAGE> 17
6. Entire Agreement; Governing Law. The Plan and Option Agreement
are incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: VITALCOM INC.
_______________________________ _________________________________
Signature By
_______________________________ _________________________________
Print Name Its
Address: Address:
_________________________________ 15222 Del Amo Avenue
Tustin, CA 92780
_________________________________ _________________________________
Date Received
2
<PAGE> 1
EXHIBIT 99.2
PROMISSORY NOTE SECURED BY DEED OF TRUST
$100,000 Tustin, California
October 17, 1996
FOR VALUE RECEIVED, the undersigned, David L. Schlotterbeck
("Employee") and Genell A. Schlotterbeck, husband and wife (collectively,
"Borrower"), promise to pay to VitalCom Inc., a Delaware corporation (the
"Company"), or order, the principal amount of One Hundred Thousand Dollars
($100,000) together with interest thereon at the rate of five and ninety-four
hundredths percent (5.94%) per annum. The principal amount hereof and all
accrued and unpaid interest on the outstanding principal amount shall be due
and payable to the holder hereof at 15222 Del Amo Avenue, Tustin, California
92680, or such other place as the holder hereof may designate as follows:
A. All accrued and unpaid interest shall be due and payable on
the first day of each fiscal quarter for the Company commencing on
January 1, 1997.
B. The principal amount, if not sooner paid, shall be due and
payable as follows upon the earlier of the following dates
(collectively, "Maturity Events"):
(1) Thirty (30) days following the date of voluntary
termination of the employment of Employee with the Company.
(2) The date of any sale, conveyance, assignment, alienation
or any other form of transfer, whether voluntary or involuntary,
of that certain real property commonly known as 26373 Parkside
Drive, Hayward, California 94542 (the "Property"), or any part or
interest therein; except that the following transfers of the
Property shall not be deemed to be a Maturity Event:
(a) A transfer upon the death of Employee to Employee's
surviving spouse (provided the surviving spouse is an obligor
hereunder) or upon the death of Employee's spouse to Employee;
(b) A transfer by an obligor hereof whereby such
obligor's spouse becomes a co-owner of the property
transferred;
(c) A transfer resulting from a decree of dissolution of
the marriage or legal separation of Employee and Genell A.
Schlotterbeck or from a property settlement agreement
incidental to such a decree which requires the obligor spouse
to assume responsibility for the obligations under this Note
and the second-priority deed of trust encumbering the Property
and securing this Note and pursuant to which Employee or
Genell A. Schlotterbeck (whoever is the obligor) becomes the
sole owner of the property transferred; or
-1-
<PAGE> 2
(d) a transfer by one or both obligors under this note
into an inter vivos trust in which one or both obligors are
beneficiaries.
(3) The third (3rd) anniversary of the date hereof (the
"Maturity Date").
The obligations of Borrower under this Note shall be secured by a
second-priority deed of trust (the "Deed of Trust") on that certain real
properly commonly known as 26373 Parkside Drive, Hayward, California. Borrower
hereby represents and warrants to the Company as follows:
1. The Deed of Trust shall be subordinate only to a deed of
trust made by Borrower, as trustor, for the benefit of ______________
in the approximate amount of _____________ (the "First Deed of Trust").
2. Borrower has good and marketable title to the Property free
and clear of any security interests, liens or encumbrances other than
the First Deed of Trust.
In addition to causing the execution and delivery of the Deed of Trust,
Borrower shall take any and all further actions that may from time to time be
required to ensure that the Deed of Trust creates a valid lien on the Property
in favor of the Company, which shall secure this Promissory Note and be junior
in priority only to the First Deed of Trust: (i) Borrower shall have good and
marketable title to the Property; (ii) the consent of no other person or entity
shall be required to grant a security interest in the Property to the Company;
and (iii) there shall be no deed of trust, mortgage or encumbrance against the
Property other than the First Deed of Trust. If it should hereafter be
determined that there are defects against title or matters that could result in
defects against title to the Property or that the consent of another person or
entity is required to grant to, and perfect in, the Company a valid
second-priority lien on the Property Borrower shall, promptly on demand by the
Company, take all actions necessary to remove such defects and to obtain such
consent and grant (or cause to be granted) and perfect such lien on the
Property. Failure of Borrower to comply with the provisions of this paragraph
shall be deemed a default under this Promissory Note and the Deed of Trust.
In the event that any of the following occurs, then unless otherwise
prohibited by law, the holder hereof shall have the option, without demand or
notice, to declare the entire outstanding principal balance of this Note,
together with all accrued and unpaid interest thereon to be immediately due and
payable: (i) Borrower defaults in the payment of principal or interest when
due pursuant to the terms hereof; (ii) Borrower defaults in its performance of
any obligation contained in the Deed of Trust or any other deed of trust,
security agreement or other agreement (including any amendment, modification or
extension thereof) which may hereafter be executed by Borrower for the purpose
of securing this Note; (iii) any representation or warranty contained in this
Note or the Deed of Trust or any other agreement or instrument executed in
connection with the loan evidenced hereby proves to have been false or
misleading in any material respect; (iv) Borrower defaults in obligation to pay
any indebtedness or to perform any other obligation which is secured by a deed
of trust or other lien on the Property or default under any deed of trust
securing such indebtedness; (v) Borrower defaults in obligation to pay any
indebtedness evidenced
-2-
<PAGE> 3
by any promissory note executed by Borrower and payable to the holder hereof or
there occurs any other default under any deed of trust, mortgage or other
document securing repayment of such indebtedness; or (vi) the amount of the
indebtedness secured by any deed of trust, lien or other encumbrance
encumbering the Property that is senior to the Deed of Trust is increased over
the amount of such indebtedness existing as of the date of this Note.
In the event any amount owed by Borrower pursuant to this Note is not
paid when due, such unpaid amount shall bear interest from the due date until
paid at a rate equal to the lesser of: (i) ten percent (10%) per annum; or
(ii) the maximum rate permitted by law. After such due date, all payments
shall be credited first to accrued interest and then to principal.
If an action is instituted for collection of this Note, Borrower agrees
to pay court costs and reasonable attorneys' fees incurred by the holder
thereof.
This Note may be amended or modified, and provisions hereof may be
waived, only by the written agreement of Borrower and the holder hereof. No
delay or failure by the holder hereof in exercising any right, power or remedy
hereunder shall operate as a waiver of such right, power or remedy, and a
waiver of any right, power or remedy on any one occasion shall not operate as a
bar or waiver of any such right, power or remedy on any other occasion.
Without limiting the generality of the foregoing, the delay or failure by the
holder hereof for any period of time to enforce collection of any amounts due
hereunder shall not be deemed to be a waiver of any rights of the holder hereof
under contract or under law. The rights of the holder hereof under this Note
are in addition to any other rights and remedies which the holder hereof may
have.
This Note shall be governed by and construed in accordance with the
laws of the State of California.
This Note may be prepaid at any time without penalty.
BORROWER: BORROWER:
/s/ DAVID L. SCHLOTTERBECK /s/ GENELL A. SCHLOTTERBECK
- --------------------------- ----------------------------
David L. Schlotterbeck Genell A. Schlotterbeck
-3-
<PAGE> 1
EXHIBIT 99.3
SILICON VALLEY BANK
AMENDMENT TO LOAN AGREEMENT
BORROWER: VITALCOM INC., A DELAWARE CORPORATION (FORMERLY KNOWN AS
ACCUCORE, INC., SUCCESSOR BY MERGER TO PACIFIC COMMUNICATIONS,
INC., A CALIFORNIA CORPORATION)
ADDRESS: 15222 Del Amo Avenue Tustin, CA 92780
Date: August 6,1996
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY BANK
("Silicon") and the borrower named above (the "Borrower").
The Parties agree to amend the Loan and Security Agreement between them
dated February 26, 1993, as amended by that Amendment to Loan Agreement dated
December 21, 1993, as amended by that Amendment to Loan Agreement dated April
27, 1994, as amended by that Amendment to Loan Agreement dated May 5, 1995, as
amended by that Amendment to Loan Agreement dated May 30, 1995, as amended by
that Amendment to Loan Agreement dated December 27, 1995 (the "December 1995
Amendment"), and as otherwise amended from time to time (the "Loan Agreement";
terms defined in the Loan Agreement are used herein as therein defined), as
follows, effective as of the date hereof. The Maturity Date set forth in the
December 1995 Amendment was May 5, 1996, and effective upon such date the Loan
Agreement was terminated. Effective as of the date hereof, the Loan Agreement
is considered to be revived and in full force and effect.
1. AMENDED SCHEDULE. The Schedule to the Loan Agreement is amended
effective on the date hereof, to read as set forth on the Schedule hereto.
2. MODIFIED SECTION 2.2. Section 2.2 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"2.2 CONDITIONAL GRANT OF SECURITY INTEREST IN COLLATERAL. Upon the
occurrence of an Event of Default arising from the Borrower's non-
compliance with any of the financial covenants set forth in the Loan
Agreement while any monetary Obligations are outstanding (the "Granting
Condition"), the following shall considered to be immediately and fully
effective at such time, without any further action on the part of
Silicon or Borrower: Borrower hereby grants Silicon a continuing
security interest in all of the Borrower's interest in the Collateral
(as defined below in Section 2.2A) as security for all Obligations
(such grant of a security interest is referred to herein as the
"Grant"). Until such time that the Granting Condition has occurred,
the Grant shall not be considered effective. Borrower agrees to take
such actions and execute such documentation as Silicon determines is
necessary or desirable in order to effectuate
(1)
<PAGE> 2
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
the Grant and to allow Silicon to perfect its security interest in the
Collateral at such time as the Grant becomes effective.
2.2A COLLATERAL. The following is referred to as the "COLLATERAL":
(a) All accounts contract rights, chattel paper, letters of credit,
documents, securities, money, and instruments, and all other
obligations now or in the future owing to the Borrower; (b) All
inventory, goods, merchandise, materials, raw materials, work in
process, finished goods, farm products, advertising, packaging and
shipping materials, supplies, and all other tangible personal property
which is held for sale or lease or furnished under contracts of service
or consumed in the Borrower 5 business, and all warehouse receipts and
other documents; and (c) All equipment, including without limitation
all machinery, fixtures, trade fixtures, vehicles, furnishings,
furniture, materials, tools, machine tools, office equipment, computers
and peripheral devices, appliances, apparatus, parts, dies, and jigs;
(d) All general intangibles including, but not limited to, deposit
accounts, goodwill, names, trade names, trademarks and the goodwill of
the business symbolized thereby, trade secrets, drawings, blueprints,
customer lists, patents, patent applications, copyrights, security
deposits, loan commitment fees, federal, state and local tax refunds
and claims, all rights in all litigation presently or hereafter pending
for any cause or claim (whether in contract, tort or otherwise), and
all judgments now or hereafter arising therefrom, all claims of
Borrower against Silicon, all rights to purchase or sell real or
personal property, all rights as a licensor or licensee of any kind,
all royalties, licenses, processes, telephone numbers, proprietary
information, purchase orders, and all insurance policies and claims
(including without limitation credit, liability, property and other
insurance), and all other rights, privileges and franchises of every
kind; (e) All books and records, whether stored on computers or
otherwise maintained; and (f) All substitutions, additions and
accessions to any of the foregoing, and all products, proceeds and
insurance proceeds of the foregoing, and all guaranties of and security
for the foregoing; and all books and records relating to any of the
foregoing."
3. MODIFICATION TO SECTION 3.7. SECTION 3.7 of the Loan Agreement is
hereby amended in its entirety to read as follows:
"3.7 FINANCIAL CONDITION AND STATEMENTS. All financial statements now
or in the future delivered to Silicon have been, and will be, prepared
in conformity with generally accepted accounting principles and now and
in the future will completely and accurately reflect the financial
condition of the Borrower, at the times and for the periods therein
stated subject to normal year-end adjustments. Since the last date
covered by any such statement, there has been no material adverse
change in the financial condition or business of the Borrower. The
Borrower is now and will continue to be solvent. The Borrower will
provide Silicon: (i) Within the earlier of (A) 45 days after the end of
each quarter or (B) 5 days after the earlier of the date the report
10-Q is filed or is required to be filed with the Securities and
Exchange Commission ("SEC") with respect to Borrower, such 10-Q report,
a quarterly financial statement prepared by Borrower, and a Compliance
Certificate in such form as Silicon shall reasonably specify, signed by
the Chief Financial Officer of the Borrower, certifying that throughout
such quarter the Borrower was in full compliance with all of the terms
and conditions of this Agreement, and setting forth calculations
showing compliance with the financial covenants set forth on the
Schedule and such other information as Silicon shall reasonably request
(the "Compliance Certificate"); (iii) within the earlier of (A) 90 days
after the end of Borrower's fiscal year or (B) 5 days after the earlier
of the date the report 10-K is filed or is required to be filed with
the Securities and Exchange Commission with respect to Borrower, such
10-K report, complete annual financial statements, certified by
(2)
<PAGE> 3
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
Deloitte & Touche or other independent certified public accountants
acceptable to Silicon, and a Compliance Certificate for the quarter
then ended; PROVIDED, however, with respect to the 10-Q and 10-K
reports referred to above, if (x) Borrower applies for and obtains an
extension from the SEC for the delivery of such reports to the SEC, (y)
Borrower provides Silicon with evidence of the SEC's grant of such
extension, and (z) such extension is not 30 days beyond the regular
submission date for such reports, then the required dates for the
submission of financial information and reports set forth in this
Section 3.7 shall be deemed to be modified to the date of the extension
so granted by the SEC."
4. REFERENCES IN LOAN AGREEMENT; ETC. Until such time that Grant has
become effective, Borrower and Silicon hereby agree that all references to the
security interest or lien of Silicon in the Collateral are deemed not to be in
effect; PROVIDED upon the effectiveness of the Grant, such provisions and such
references shall immediately be deemed to be in full force and effect, without
any further action or notice by Silicon or Borrower.
5. FEE. It is acknowledged that Borrower has paid to Silicon a fee in the
amount of $8,250 in connection with this Amendment, which shall be in addition
to all interest and all other fees payable to Silicon and shall be
non-refundable. At such time that any Loans are made hereunder, Borrower shall,
prior to Silicon's making of any such Loan, pay to Silicon a further fee of
$8,250, which shall be in addition to all interest and all other fees payable to
Silicon and shall be non-refundable.
6. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower,
and the other written documents and agreements between Silicon and the Borrower
set forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements
between Silicon and the Borrower shall continue in full force and effect and
the same are hereby ratified and confirmed. This Amendment shall be controlling
in the event of any conflicts between any prior written agreements and
amendments between Silicon and the BORROWER, on the one hand, and this
Amendment.
BORROWER: SILICON:
VITALCOM INC., a Delaware corporation SILICON VALLEY BANK
By /s/ DAVID L. SCHLOTTERBECK /s/ K. CHAMBERLIN for Bonnie J. Renta
- ----------------------------- -------------------------------------
President or Vice President V.P.
By /s/ SHELLEY B. THUNEN
- -----------------------------
Secretary or Ass't Secretary
(3)
<PAGE> 4
SILICON VALLEY BANK SCHEDULE TO LOAN AGREEMENT
SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: VITALCOM INC., A DELAWARE CORPORATION (FORMERLY KNOWN AS
ACCUCORE, INC., SUCCESSOR BY MERGER TO PACIFIC COMMUNICATIONS,
INC., A CALIFORNIA CORPORATION)
ADDRESS: 15222 DEL AMO AVENUE
TUSTIN, CA 92780
DATE: AUGUST 6,1996
CREDIT LIMIT An amount equal to $5,000,000.
(Section 1.1):
LETTERS OF CREDIT Silicon, in its reasonable discretion, will
from time to time during the term of this
Agreement issue letters of credit for the
account of the Borrower ("Letters of Credit"),
in an aggregate amount at any one time
outstanding not to exceed $250,000, upon the
request of the Borrower, provided that, on the
date the Letters of Credit are to be issued,
Borrower has available to it Loans in an
amount equal to or greater than the face
amount of the Letters of Credit to be issued.
Prior to the issuance of any Letters of
Credit, Borrower shall execute and deliver to
Silicon Applications for Letters of Credit and
such other documentation as Silicon shall
specify (the "Letter of Credit
Documentation"). Fees for the Letters of
Credit shall be as provided in the Letter of
Credit Documentation.
The Credit Limit set forth above and the Loans
available under this Agreement at any time
shall be reduced by the face amount of Letters
of Credit from time to time outstanding.
INTEREST RATE (SECTION 1.2): A rate equal to the "Prime Rate" in effect
from time to time. Interest shall be
calculated on the basis of a 360-day year for
the actual number of days elapsed. "Prime
Rate" means the rate announced from time to
time by Silicon as its "prime rate;" it is a
base rate upon which other rates charged by
Silicon are based, and it is not necessarily
the best rate available at Silicon. The
interest rate applicable to the Obligations
shall change on each date there is a change in
the Prime Rate.
(1)
<PAGE> 5
SILICON VALLEY BANK SCHEDULE TO LOAN AGREEMENT
LOAN ORIGINATION FEE Per the Amendment to Loan Agreement of even
(Section 1.3): date. (Section 3.10):
MATURITY DATE AUGUST 5, 1997.
(Section 5.1):
PRIOR NAMES OF BORROWER ACCUCORE, INC., PACIFIC COMMUNICATIONS, INC.
(Section 3.2):
TRADE NAMES OF BORROWER ACCUCORE
(Section 3.2):
OTHER LOCATIONS AND ADDRESSES NONE
(Section 3.3):
MATERIAL ADVERSE LITIGATION NONE
NEGATIVE COVENANTS-EXCEPTIONS Without Silicon's prior written consent,
(Section 4.6): Borrower may do the following, provided that,
after giving effect thereto, no Event of
Default has occurred and no event has occurred
which, with notice or passage of time or both,
would constitute an Event of Default, and
provided that the following are done in
compliance with all applicable laws, rules and
regulations: (i) repurchase shares of
Borrower's stock, provided that the total
amount paid by Borrower for such stock does
not exceed $250,000 in any fiscal year.
FINANCIAL COVENANTS Borrower shall comply with all of the
(Section 4.1): following covenants. Compliance shall be
determined as of the end of each calendar
quarter, except as otherwise specifically
provided below:
QUICK ASSET RATIO: Borrower shall maintain a ratio of "Quick
Assets" to current liabilities of not less
than 2.00 to 1.
TANGIBLE NET WORTH: Borrower shall maintain a tangible net worth
of not less than $25,000,000.
DEBT TO TANGIBLE NET Borrower shall maintain a ratio of total
WORTH RATIO: liabilities to tangible net worth of not more
than 1.00 to 1.
PROFITABILITY: Borrower shall not incur a loss (after taxes)
for any fiscal quarter, other than in a single
fiscal quarter during any calendar year in
which Borrower shall not incur a loss (after
taxes) in an amount greater than $500,000.
DEFINITIONS: "Current assets," and "current liabilities"
shall have the meanings ascribed to them in
accordance with generally accepted accounting
principles.
"Tangible net worth" means the excess of total
assets over total liabilities, determined in
accordance with generally accepted accounting
principles, excluding however all assets which
would be classified as intangible assets under
generally accepted
(2)
<PAGE> 6
SILICON VALLEY BANK SCHEDULE TO LOAN AGREEMENT
accounting principles, excluding however all
assets which would be classified as intangible
assets under generally accepted accounting
principles, including without limitation
goodwill, licenses, patents, trademarks, trade
names, copyrights, and franchises.
"Quick Assets" means cash on hand or on
deposit in banks, readily marketable
securities issued by the United States,
readily marketable commercial paper rated
"A-1" by Standard & Poor's Corporation (or a
similar rating by a similar rating
organization), certificates of deposit and
banker's acceptances, and accounts receivable
(net of allowance for doubtful accounts).
SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing
covenants do not include indebtedness which is
subordinated to the indebtedness to Silicon
under a subordination agreement in form
specified by Silicon or by language in the
instrument evidencing the indebtedness which
is acceptable to Silicon.
OTHER COVENANTS Borrower shall at all times comply with all of
(Section 4.1): the following additional covenants:
1. BANKING RELATIONSHIP. Borrower shall at
all times maintain its primary operating
banking relationship with Silicon.
2. 30 DAY CLEAN-UP PERIOD. Borrower shall
have no monetary Obligations outstanding
for a period of 30 consecutive days during
the term hereof.
3. INDEBTEDNESS. Without limiting any of the
foregoing terms or provisions of this
Agreement, Borrower shall not in the
future incur indebtedness for borrowed
money, except for (i) indebtedness to
Silicon, and (ii) indebtedness incurred in
the future for the purchase price of or
lease of equipment.
4. UCCS. Borrower is concurrently delivering
to Silicon UCC-1 financing statements, and
it is understood and agreed that such
financing statements shall not be
considered effective unless and until the
Grant is effective. At such time Silicon
shall be permitted to file such financing
statements immediately.
5. TERMINATION OR AGREEMENT. Borrower and
Silicon hereby agree that this Agreement
may be terminated by Borrower's written
notice to Silicon when no Obligations are
outstanding or otherwise have been paid
and performed in full.
BORROWER:
VITALCOM INC.
By /s/ DAVID L. SCHLOTTERBECK
-----------------------------
President or Vice President
By /s/ SHELLEY B. THUNEN
-----------------------------
Secretary or Ass't Secretary
(3)
<PAGE> 7
SILICON VALLEY BANK SCHEDULE TO LOAN AGREEMENT
SILICON VALLEY BANK
AMENDMENT TO LOAN AGREEMENT
BORROWER: VITALCOM INC., A DELAWARE CORPORATION
ADDRESS: 15222 DEL AMO AVENUE TUSTIN, CA 92780
DATE: SEPTEMBER 25, 1996
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower").
The Parties agree to amend the Loan and Security Agreement between them
dated February 26, 1993, as amended by that Amendment to Loan Agreement dated
December 21, 1993, as amended by that Amendment to Loan Agreement dated April
27, 1994, as amended by that Amendment to Loan Agreement dated May 5, 1995, as
amended by that Amendment to Loan Agreement dated May 30, 1995, as amended by
that Amendment to Loan Agreement dated December 27, 1995 (the "December 1995
Amendment"), as amended by that Amendment to Loan Agreement dated August 6,
1996 and as otherwise amended from time to time (the "Loan Agreement"; terms
defined in the Loan Agreement are used herein as therein defined), as follows,
effective as of the date hereof.
1. AMENDED FINANCIAL COVENANTS. The section of the Schedule to the
Loan Agreement entitled "Financial Covenants (Section 4.1)" is amended
effective as of the date hereof to read as follows:
"FINANCIAL COVENANTS Borrower shall comply with all of the
(Section 4.1): following covenants. Compliance shall be
determined as of the end of each calendar
quarter, except as otherwise specifically
provided below:
QUICK ASSET RATIO: Borrower shall maintain a ratio of "Quick
Assets" to current liabilities of not less
than 2.00 to 1.
TANGIBLE NET WORTH: Borrower shall maintain a tangible net worth
of not less than $22,500,000.
DEBT TO TANGIBLE Borrower shall maintain a ratio of total
NET WORTH RATIO: liabilities to tangible net worth of not more
than 1.00 to 1.
MINIMUM CASH COVERAGE: Borrower shall maintain an aggregate total of
cash and marketable securities (valued at
market value) in an amount at
1
<PAGE> 8
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
least equal to the product of two times the
maximum amount of the Credit Limit.
DEFINITIONS: "Current assets," and "current liabilities"
shall have the meanings ascribed to them in
accordance with generally accepted accounting
principles.
"Tangible net worth" means the excess of total
assets over total liabilities, determined in
accordance with generally accepted accounting
principles, excluding however all assets which
would be classified as intangible assets under
generally accepted accounting principles,
including without limitation goodwill,
licenses, patents, trademarks, trade names,
copyrights, and franchises.
"Quick Assets" means cash on hand or on
deposit in banks, readily marketable
securities issued by the United States,
readily marketable commercial paper rated
"A-1" by Standard & Poor's Corporation (or a
similar rating by a similar rating
organization), certificates of deposit and
banker's acceptances, and accounts receivable
(net of allowance for doubtful accounts)
SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing
covenants do not include indebtedness which is
subordinated to the indebtedness to Silicon
under a subordination agreement in form
specified by Silicon or by language in the
instrument evidencing the indebtedness which
is acceptable to Silicon."
2. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower,
and the other written documents and agreements between Silicon and the Borrower
set forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms
and provisions of the Loan Agreement, and all other documents and agreements
between Silicon and the Borrower shall continue in full force and effect and
the same are hereby ratified and confirmed. This Amendment shall be
controlling in the event of any conflicts between any prior written agreements
and amendments between Silicon and the Borrower, on the one hand, and this
Amendment.
Borrower: Silicon:
VITALCOM INC., a Delaware corporation SILICON VALLEY BANK
By /s/ DAVID L. SCHLOTTERBECK By /s/ K. CHAMBERLIN
- ----------------------------- ---------------------------
President or Vice President V.P.
By /s/ SHELLEY B. THUNEN
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Secretary or Ass't Secretary
2
