<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 25, 1999
REGISTRATION NO. 333-72665
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANSYS DIAGNOSTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2835 33-0316510
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
25200 COMMERCENTRE DRIVE
LAKE FOREST, CALIFORNIA 92630
(949) 770-9381
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEPHEN K. SCHULTHEIS
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
ANSYS DIAGNOSTICS, INC.
25200 COMMERCENTRE DRIVE
LAKE FOREST, CALIFORNIA 92630
(949) 770-9381
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
PATRICK ARRINGTON, ESQ. RODD M. SCHREIBER, ESQ.
ELLEN S. BANCROFT, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
MATTHEW L. STEIMEL, ESQ. 333 W. WACKER DRIVE, SUITE 2100
MARRIE K. STONE, ESQ. CHICAGO, ILLINOIS 60606
BROBECK, PHLEGER & HARRISON LLP (312) 407-0700
38 TECHNOLOGY DRIVE
IRVINE, CALIFORNIA 92618
(949) 790-6300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY 25, 1999
2,500,000 SHARES
ANSYS LOGO
COMMON STOCK
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This is the initial public offering of ANSYS Diagnostics, Inc., and we are
offering 2,500,000 shares of our common stock. We anticipate that the initial
public offering price will be between $8.00 and $10.00 per share. Our common
stock has been approved for quotation on the Nasdaq National Market under the
symbol "ASDI."
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INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Initial public offering price............................ $ $
Underwriting discounts and commissions................... $ $
Proceeds to ANSYS........................................ $ $
</TABLE>
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
ANSYS Diagnostics, Inc. has granted the underwriters the right to purchase up to
375,000 additional shares of common stock to cover any over-allotments.
---------------------
Vector Securities International, Inc. Sutro & Co. Incorporated
PROSPECTUS DATED , 1999
<PAGE> 3
[INSIDE FRONT COVER]
Markets Addressed by ANSYS
[Picture of Worker]
Caption: Workforce Testing
[Picture of emergency room procedure]
Caption: Emergency Room
[Picture of police car]
Caption: Law Enforcement
[Picture of laboratory testing procedure]
Caption: Laboratory Testing and Research
[Picture of Semi truck]
Caption: Department of Transportation
In this prospectus, "ANSYS," "we," "us" and "our" refer to ANSYS
Diagnostics, Inc. The use of the term "our" in phrases such as "our products" is
not intended to imply that we hold any intellectual property or other ownership
rights to the TesTcup, TesTstik, XtraAMP and SCIP product lines. Unless
otherwise indicated, all information in this prospectus gives effect to a
1.2-for-1 stock split of our common stock effected in April 1999, and assumes
that:
- the initial public offering price will be $9.00 per share;
- we will redeem all of our outstanding Series A redeemable preferred stock
for cash;
- we will convert all of our outstanding Series B convertible preferred
stock into 3,641,328 shares of our common stock based on the assumed
initial public offering price;
- we will reincorporate ANSYS in Delaware in May 1999; and
- the underwriters will not exercise their over-allotment option and no
other person will exercise any other outstanding options.
ANSYS(R), DRUGSTAT(R), DRUGSTAT RA(TM), LTD-Opiate(TM), ON-SITE(R), ON-SITE
Alcohol(R), SPEC(R), SPEC-NEWS(TM), TOXI-LAB(R) and TOXI-NEWS(TM) are trademarks
of ANSYS. TesTcup(R), TesTcup ER(TM), TesTcup 5 M2K(TM) and TesTstik(TM) are
trademarks of Roche Diagnostic Systems, Inc. XtraAMP(TM) and SCIP(TM) are
registered trademarks of Molecular Innovations, Inc. This prospectus also refers
to trademarks of other companies.
<PAGE> 4
[Inside gatefold]
Disposable Diagnostic Products from ANSYS Diagnostics, Inc.
[Picture of TesTcup]
Caption: TesTcup is a self-contained, disposable urine collection and testing
device designed to detect the presence of up to five drugs of abuse
simultaneously. TesTcup provides easily interpreted results in approximately
five minutes and is designed to be simple to use.
[Picture of ON-SITE Alcohol]
Caption: On-Site Alcohol is a self-contained, easy to use, disposable,
pocket-sized device designed to detect the presence of ethanol in urine or
saliva in approximately two minutes.
[Picture of SPEC]
Caption: SPEC solid phase extraction products use proprietary membrane
technology for preparing samples for trace analysis.
[Picture of Toxi-Lab]
Caption: The TOXI-LAB drug screening system is a unique, bench-top, thin layer
chromatography system designed to detect over 500 drugs and drug byproducts.
[Picture of TesTstik]
Caption: TesTstick is a self-contained, easy to use, disposable dipstick
designed to detect the presence of a single drug of abuse in approximately three
minutes.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights the information contained elsewhere in this
prospectus. Because this is only a summary, it does not contain all of the
information that may be important to you. You should read the entire prospectus
carefully. You should consider the information under "Risk Factors" and in our
financial statements and the notes relating to these financial statements,
together with the information included elsewhere in this prospectus, before
deciding to invest in the shares of our common stock.
OUR BUSINESS
We develop, manufacture and market drug testing products and specialty
laboratory and research products. Our drug testing products detect the presence
of drugs of abuse and alcohol, primarily in on-site testing applications. Our
specialty laboratory and research products are used in the preparation of
experimental samples for further analysis, as well as for the separation and
detection of nucleic acids (DNA and RNA). In addition to our current products,
we also have several products under development, both internally and in
conjunction with third parties. All of our products utilize our core
competencies in product design, engineering and manufacturing.
We currently manufacture twelve on-site drug testing products, all of which
are self-contained, disposable and easy to use. These products are designed to
yield highly accurate results in less than five minutes and are intended to be
cost-effective. Applications for these products include pre-employment
screening, random employee testing, government mandated testing, parole and
probation monitoring and hospital/emergency room drug testing. We also offer a
laboratory-based drug testing product that detects more than 500 drugs and drug
byproducts in urine, blood, tissue and other specimens. In addition, we are
developing additional drug testing products that will enable physicians to
monitor their patients' compliance with a prescribed therapeutic drug regimen.
Our on-site and laboratory drug testing products address the market for
products that analyze blood, urine, saliva and other specimens to detect the
presence of and monitor certain substances, to diagnose diseases and other
medical conditions, or to determine the chemical and microbiological
constituents of the specimen. The United States drugs of abuse testing segment
of this market was approximately $628 million in 1996, and is estimated to grow
to approximately $900 million by 2002.
We have collaborated with Roche Diagnostic Systems, Inc. for more than six
years, and we continue to work with Roche both contractually and informally on
developing new on-site drug testing products. For the on-site drug testing
market, we manufacture the TesTcup and TesTstik family of products, as well as
ON-SITE Alcohol. We have an exclusive contractual relationship with Roche, under
which we manufacture the TesTcup product line through January 2003 and the
TesTstik product line through October 2002. Roche owns all rights to and is
responsible for selling and marketing the TesTcup and TesTstik product lines.
In the specialty laboratory and research products market, we manufacture
and sell solid phase extraction products and nucleic acid separation products.
Solid phase extraction is a technique for removal of a target substance from a
liquid onto a solid surface and the subsequent release of that substance for
analysis. Nucleic acid separation involves isolating nucleic acids from other
soluble contaminants. Nucleic acids, including DNA and RNA, are the fundamental
regulatory molecules of life. We are currently co-developing rapid nucleic acid
separation and detection products to expand our product line. Our specialty
laboratory and research products are marketed primarily to clinical and
environmental testing laboratories, pharmaceutical and biotechnology companies,
and DNA testing and research organizations.
ANSYS was incorporated in 1988 in California and will be reincorporated in
Delaware in May 1999. Our executive offices are located at 25200 Commercentre
Drive, Lake Forest, California 92630, and our telephone number is (949)
770-9381.
3
<PAGE> 6
THE OFFERING
Common stock offered....................... 2,500,000 shares
Common stock to be outstanding after this
offering................................... 8,058,472 shares(1)
Use of proceeds............................ For redemption of preferred stock
and payment of cumulative
dividends; for repayment of
indebtedness; for the acquisition
of complementary businesses,
products and technologies; and
for working capital and other
general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol..... ASDI
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $6,589 $6,447 $8,126 $10,698 $18,964 $4,427 $5,495
Gross profit.......................... 4,588 4,178 5,068 5,599 9,261 2,263 2,727
Operating expenses.................... 3,117 3,364 3,204 3,649 4,749 1,076 1,223
Operating income...................... 1,471 814 1,864 1,950 4,512 1,187 1,504
Net income............................ $ 971 $ 494 $1,201 $ 1,206 $ 2,691 $ 716 $ 902
Earnings per share(2):
Basic............................... $ 0.34 $ 0.14 $ 0.46 $ 0.54 $ 1.33 $ 0.36 $ 0.46
Diluted............................. $ 0.15 $ 0.08 $ 0.19 $ 0.20 $ 0.45 $ 0.12 $ 0.15
Weighted average shares
outstanding(2):
Basic............................... 2,307 2,307 2,230 1,901 1,890 1,881 1,880
Diluted............................. 6,039 6,076 6,057 5,864 5,942 5,898 6,047
Pro forma earnings per share(2):
Basic............................... $ 0.47 $ 0.16
Diluted............................. $ 0.44 $ 0.14
Pro forma weighted average shares
outstanding(2):
Basic............................... 5,737 5,727
Diluted............................. 6,147 6,253
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
-------------- -------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 2,686 $ 426 $19,040(5)
Working capital....................................... 5,274 3,014 21,860(5)
Total assets.......................................... 13,205 10,945 29,128
Total long-term debt.................................. 1,842 1,842 --
Total stockholders' equity............................ 8,697 6,437 26,462
</TABLE>
- -------------------------
(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 1999, and does
not include 956,620 shares of common stock issuable upon the exercise of
options outstanding as of March 31, 1999, at a weighted average exercise
price of $1.70 per share. See "Management -- Stock Option Plans" and Notes 9
and 11 of Notes to Consolidated Financial Statements.
(2) See Notes 10 and 11 of Notes to Consolidated Financial Statements for
information regarding the determination of per share calculations.
(3) Pro forma to give effect to: (a) the payment of all undeclared cumulative
dividends on our preferred stock; (b) the redemption of all of our
outstanding Series A redeemable preferred stock; and (c) the conversion of
all of our outstanding Series B convertible preferred stock, all of which
will occur upon consummation of this offering.
(4) Pro forma as described in footnote (3) and as adjusted to give effect to the
receipt and application of the estimated net proceeds from the sale of the
2,500,000 shares offered by this prospectus. See "Use of Proceeds."
(5) Also gives effect to the payment in cash by ANSYS of $431,000 of offering
expenses as of March 31, 1999.
4
<PAGE> 7
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, YOU
SHOULD CAREFULLY READ AND CONSIDER THE FOLLOWING RISK FACTORS BEFORE PURCHASING
OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY
ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN
TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS
OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED. IN
SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE
ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
WE DEPEND ON REVENUES FROM SALES TO ROCHE AND OUR OPERATING RESULTS WOULD BE
ADVERSELY AFFECTED IF SALES TO ROCHE WERE TO DECLINE.
We derive a substantial portion of our revenues and earnings from the sale
of TesTcup, TesTstik and ON-SITE Alcohol to Roche. These products together
accounted for approximately 17% of our net sales during 1996, 42% during 1997,
65% during 1998 and 69% during the three months ended March 31, 1999. If Roche
were to stop purchasing any of these products from us, either due to lack of
consumer demand or otherwise, our business, financial condition and results of
operations would be materially and adversely affected. We expect our revenues
and profitability in the foreseeable future to depend substantially on our
relationship with Roche in general and the TesTcup and TesTstik products in
particular.
Roche owns or has licensed from other parties all patent, intellectual
property and other ownership rights to the TesTcup and TesTstik product lines.
We have no rights to these product lines except our right to manufacture these
products for Roche under our exclusive manufacturing agreements, which expire
commencing in 2002. Roche may use another vendor to manufacture the TesTcup
and/or TesTstik product lines if we do not produce a sufficient quantity of
products which meet their specifications. Roche also owns the rights to any new
versions of TesTcup and TesTstik which we may develop in the future. If Roche
terminates or decides not to renew or extend our manufacturing agreements, our
revenues will decline significantly and our business would be materially and
adversely affected.
ROCHE CONTROLS THE MARKETING OF THE TESTCUP AND TESTSTIK PRODUCT LINES, AND WE
DEPEND ON THEIR EFFORTS FOR THE SUCCESS OF THESE PRODUCTS.
Our agreements with Roche give Roche complete control over all aspects of
marketing the TesTcup and TesTstik product lines, including product pricing,
sales force composition and promotional activities. Under these agreements, we
also must offer Roche the first opportunity to exclusively market any and all
new antibody-based drugs of abuse products which we develop. Roche has full
responsibility for and complete control over the introduction, sales and
marketing of the TesTcup and TesTstik product lines, including the recently
introduced TesTcup ER. As a result, the successful marketing of the TesTcup and
TesTstik product lines, as well as other products that we may develop, will
depend on the
5
<PAGE> 8
efforts of Roche and is beyond our effective control. We cannot be certain that:
(1) Roche will continue to devote sufficient resources to market the TesTcup or
TesTstik product lines effectively; (2) that Roche will not reduce their
purchases of the TesTcup or TesTstik product lines, either due to a lack of
consumer demand or otherwise; or (3) that Roche will market any of these
products at prices that can achieve market acceptance. Roche is not required to
purchase any minimum amounts of our products, and we do not have the right to
sell or market these products directly or indirectly. Our business, financial
condition and results of operations will be materially and adversely affected if
Roche does not devote sufficient resources to marketing the TesTcup or TesTstik
product lines or if Roche's marketing efforts are not successful.
THE FAILURE OF SOLE SOURCE SUPPLIERS TO PROVIDE KEY RAW MATERIALS COULD
ADVERSELY AFFECT THE PRODUCTION OF OUR PRODUCTS AND COULD HARM OUR CUSTOMER
RELATIONSHIPS.
We use certain essential raw materials in our manufacturing processes which
are currently available only from approved sole source suppliers. These raw
materials include nitrocellulose membranes, glass fiber membranes and certain
liquid reagents. We have experienced a shortage of nitrocellulose membranes in
the past and the shortage of any of our key raw materials could disrupt our
production and reduce our sales. We do not have any long-term supply agreements
with any of these suppliers, and we have not qualified alternative suppliers for
any of these raw materials. If we were to lose any of our current suppliers of
these materials, we would have to qualify a new supplier for that material. We
would also have to repeat product testing using the raw materials from the new
supplier and may have to seek additional regulatory approvals. It is possible
that these raw materials may not continue to be available on acceptable terms,
or at all, or that alternative suppliers will be available. Any delays or
reductions in product shipments by our suppliers could damage our relationships
with our customers. Further, a significant increase in the price of one or more
of these raw materials could materially and adversely affect our gross margins
or operating results.
IF WE DO NOT MANAGE OUR GROWTH EFFECTIVELY, OUR FINANCIAL PERFORMANCE COULD BE
ADVERSELY AFFECTED.
Over the past few years, our business has grown rapidly and we have
significantly expanded our operations to accommodate this growth. This expansion
has placed a significant strain on our limited personnel, management, operating
systems and other resources. Our net sales increased 77.3% over the past year,
from $10.7 million in 1997 to $19.0 million in 1998. This rapid growth has:
- made it difficult to forecast supply requirements accurately;
- required us to implement new and upgraded operational and financial
systems, procedures and controls; and
- increased the responsibilities of management personnel.
To manage growth effectively, we must continue to implement and improve our
operational, financial and management information systems. We must also hire,
train and manage additional employees. Our future financial performance could be
materially and adversely affected if we are unable to manage our growth
effectively.
6
<PAGE> 9
WE DEPEND ON KEY PERSONNEL WHO ARE INSTRUMENTAL TO OUR BUSINESS AND ARE NOT
SUBJECT TO EMPLOYMENT AGREEMENTS.
Due to the specialized nature of our business, we are highly dependent on
the continued service of our executive officers and other key management,
scientific and technical personnel, particularly Stephen K. Schultheis, our
Chairman, President and Chief Executive Officer, Steven P. Sidwell, our
Executive Vice President -- Operations, and Dr. Dennis D. Blevins, our Vice
President -- Research and Development. We do not have employment agreements with
any of our officers or key employees. The loss of any of these persons could
adversely affect our manufacturing operations, efficiency, product quality, and
research and development efforts. Our future success will also depend in large
part upon our ability to continue to attract, retain and motivate qualified
scientific and technical personnel with advanced degrees, and technical research
and manufacturing skills. The competition for qualified personnel is intense. If
we cannot attract, retain and motivate such qualified personnel, our business
will be adversely affected.
OUR CONTINUING EFFORTS TO INCREASE AUTOMATION MAY BE COSTLY, TIME-CONSUMING AND
MAY NOT BE SUCCESSFUL.
We are currently automating certain portions of our assembly lines. This
automation is expensive and may not ultimately improve our operating
efficiencies or manufacturing capacity. This automation involves a number of
risks, including:
- automation is costly because much of our equipment must be custom made
and delays are beyond our control;
- automation is likely to increase responsibilities for management
personnel;
- automation can result in quality control issues;
- necessary qualification and validation processes may delay the
implementation of automation; and
- automation requires the hiring, training and managing of highly skilled
employees to operate our automated facilities.
We may not succeed in automating our manufacturing facility in a timely
manner, at a commercially reasonable cost, or at all. Any resulting delays or
increased down time could adversely affect our business, financial condition and
results of operations.
THE LOSS OF OUR PRINCIPAL FACILITY COULD ADVERSELY AFFECT OUR BUSINESS.
We manufacture all of our products at a single facility in Lake Forest,
California. A disaster such as an earthquake or fire that damages this facility
could interrupt our manufacturing process, disrupt our business and adversely
affect our revenues and profitability. Any damage to our facility could also
cause significant delays.
7
<PAGE> 10
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS COULD ADVERSELY AFFECT THE PRICE
OF OUR COMMON STOCK.
Our quarterly operating results have fluctuated and are likely to continue
to fluctuate due to a number of factors, many of which are not within our
control. Because many of our manufacturing costs are fixed, any significant
declines in our sales volume or sales revenue could cause our future operating
results to be below the expectations of securities analysts and/or investors. If
that happens, our business and the trading price of our common stock could be
adversely affected.
Factors that could affect our operating results also include the following:
- the resources Roche dedicates to the marketing of products we develop and
manufacture for Roche;
- ANSYS' and Roche's ability to develop, introduce, market and gain market
acceptance for new products and product enhancements in a timely manner;
- changes in pricing policies by us, Roche, suppliers or competitors;
- the availability of raw materials used to manufacture our products;
- our ability to accurately forecast demand and inventory requirements;
- the timing of sales to key customers or a decline in sales to a key
customer;
- the introduction of new products or product enhancements or technical
innovations by competitors;
- our ability to expand capacity or achieve further manufacturing
efficiencies;
- the timing and increased costs associated with increased sales and
marketing, and research and development activities; and
- changes in government regulation of our products or the legal status or
procedural requirements for employment drug testing.
THE EFFECTS OF COMPETITION COULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL
CONDITION.
We compete with numerous companies that manufacture disposable drug tests
that can be conducted on-site, such as in the workforce. We are aware of
approximately twenty companies that currently manufacture drugs of abuse tests.
We also compete with companies that manufacture products used in clinical
settings, such as hospitals and reference laboratories. We expect competition to
increase due to the increased acceptance of drug testing and technological
advancements in diagnostic testing products. Increased competition is likely to
result in price reductions, reduced gross margins and loss of market share. We
believe independent reference and hospital laboratories currently perform the
majority of diagnostic tests. We expect that these laboratories will compete
vigorously to maintain their competitive position. To achieve broad market
acceptance for the products we manufacture, we, together with Roche, will need
to demonstrate that our products are an attractive alternative to laboratory
testing. We believe the principal factors for competition in our industry
include accuracy, reproducibility, ease of use, distribution capabilities and
price. Some of our competitors may:
- have larger, more established sales and marketing, distribution and
service organizations;
8
<PAGE> 11
- offer broader product lines and test for more substances;
- have greater name recognition;
- offer discounts as a competitive tactic; and
- have invested in competing technologies that may be more effective or
more commercially attractive than our technologies.
We cannot be certain that we will have the technical expertise, or the
financial, marketing or distribution resources, either alone or in conjunction
with Roche, to compete effectively in the future.
THE LOSS OF ANY KEY DISTRIBUTOR COULD AFFECT OUR REVENUES AND THE MARKET
ACCEPTANCE OF OUR PRODUCTS.
We rely upon third party distributors, as well as our own sales force, to
distribute and market many of our new and existing products. If we lose one or
more of our key distributors and cannot arrange suitable alternatives, our sales
will likely decline. We may not be able to enter into new distribution or
marketing agreements on satisfactory terms, or at all. We cannot be certain that
our distributors will devote sufficient resources to effectively market and sell
the products we manufacture, that they will devote sufficient resources in the
future to market and sell any new products we manufacture, or that they will
market these products at prices that can achieve market acceptance. In addition,
our distributors may give higher priority to the products of similar suppliers
or their own products, thus reducing their efforts to sell products we
manufacture. If any of our distributors become unwilling or unable to promote,
market and sell products we manufacture, our business could be adversely
affected.
OUR FUTURE SUCCESS WILL DEPEND IN PART ON OUR ABILITY TO DEVELOP, INTRODUCE AND
GAIN MARKET ACCEPTANCE OF NEW PRODUCTS.
We believe our revenue growth and future operating results will depend, in
part, on our ability to complete the development of new products and
successfully introduce them. We have recently invested significant resources
into the development of TesTstik 2, TesTstik 3 and TesTcup 5 M2K. We cannot be
sure that any of these products will achieve broad market acceptance. It is
possible that Roche may decide not to launch TesTstik 2 or TesTstik 3, or not to
market or sell any of these products, and we have no right to market or sell any
of these products ourselves. We are also in the late stages of development of
the XtraAMP sample preparation product. To successfully introduce these and
other new products, we must, among other things:
- undertake time-consuming and costly development, manufacturing and other
activities;
- obtain necessary regulatory clearance or approvals in a timely manner;
- establish and maintain reliable, cost-efficient, high-volume
manufacturing capacity for these products;
- ensure that our products comply with government and regulatory testing
guidelines;
- develop new products or modify existing products to detect the presence
of new substances; and
- obtain approval from our strategic partners.
9
<PAGE> 12
Each stage of this process involves inherent difficulties, which we may not
be able to overcome. If our product development efforts are not successful, our
business, financial condition and results of operations would be materially and
adversely affected.
WE MUST COMPLY WITH VARIOUS GOVERNMENT REGULATIONS AND CANNOT BE ASSURED OF
OBTAINING FURTHER REGULATORY APPROVALS.
We cannot market or commercially sell new medical device products unless
the FDA has exempted them from its market clearance requirements or, if the
products are not exempt, until the FDA either clears a notification under
Section 510(k) of the Federal Food, Drug and Cosmetic Act or approves an
application for premarket approval. To date, the FDA has cleared our 510(k)
notifications without requiring our products to undergo the premarket approval
process, which is more time consuming, expensive and uncertain. Some of our
existing products have been modified and/or have undergone line extensions since
they received 510(k) clearance without our seeking new 510(k) clearances for the
modifications. Also, while we have in the past obtained 510(k) clearances for
SPEC and TOXI-LAB when used in testing for some substances, our present position
is that SPEC and TOXI-LAB are laboratory products not requiring 510(k) clearance
or otherwise subject to regulation by the FDA as medical devices. Furthermore,
Roche completely controls the 510(k) clearance process for the TesTcup and
TesTstik product lines and may have made modifications without obtaining new
510(k) clearances. If the FDA were to disagree with any of our decisions or
conclude that we or Roche have failed to comply with applicable requirements, we
or Roche might have to stop marketing the affected products and other penalties
could apply. It is also possible that future modifications, enhancements or line
extensions to existing products will require clearance of new 510(k)
notifications, which we or our collaborative partners may not be able to obtain.
Some new products may, however, require the more time consuming and costly
premarket approval. Government regulations typically depend heavily on
interpretation and could be applied retroactively. Future interpretations by the
FDA or other regulatory bodies could adversely affect our business. If
previously unknown problems with a cleared or approved product are discovered,
we or our collaborative partners may be required to restrict the product's
marketing or withdraw the product from the market entirely and other penalties
could apply. Our business could be materially and adversely affected by the loss
of previously obtained clearances or the failure to comply with existing or
future regulatory requirements, or the inability to obtain a 510(k) clearance or
premarket approval.
We are also subject to the FDA's Quality System Regulation because we
manufacture medical devices marketed in the United States. We are subject to
routine inspection by the FDA and other federal and state regulatory agencies
for compliance with the Quality System Regulation, Medical Device Reporting
requirements and other applicable regulations. We cannot be certain that we will
remain in compliance with all of such regulations. Noncompliance with applicable
requirements can result in, among other things:
- warning letters;
- fines;
- injunctions;
- civil penalties;
- recall or seizure of products;
- total or partial suspension of production;
10
<PAGE> 13
- failure of the government to grant 510(k) clearance or premarket approval
for devices;
- withdrawal of marketing clearances or approvals; and
- criminal prosecution.
We are also subject to various other federal and state regulations, and
numerous environmental and safety laws and regulations, including those
governing the use and disposal of hazardous materials. We may incur significant
costs in the future in complying with FDA mandates and other governmental
regulations. See "Business -- Government Regulation."
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS.
Our ability to compete effectively depends in part upon our ability to
develop and maintain the proprietary aspects of our technology and to operate
without infringing the proprietary rights of others. We hold two United States
patents relating to our ON-SITE Alcohol product and are currently pursuing three
pending United States patent applications for other existing products. In
addition, we have filed two counterpart patent cooperation treaty applications
as a first step in obtaining counterpart foreign patents. We cannot be certain
that we will receive any additional patents. Our existing or future patents may
not protect us from competitors with similar technology, particularly if they
develop similar technology independently, or if they design around our
intellectual property or the intellectual property of our strategic partners. It
is also possible that our existing or future patents could still be challenged,
invalidated or circumvented. In addition, protection of our intellectual
property may be unavailable or limited in a number of foreign countries. If we
are not able to adequately protect our technology, our competitors can more
easily offer similar products.
Roche, the owner of all of the intellectual property and other ownership
rights to the TesTcup and TesTstik product lines, including certain
modifications to these products, may not aggressively protect its patents or
licenses to these product lines.
We may be required to litigate to enforce our or our strategic partners'
intellectual property rights or protect our trade secrets. We may also need to
litigate to determine the validity and scope of proprietary rights of others,
including our customers. Any time we are involved in litigation, we will likely
incur significant costs. Litigation can also divert management's efforts and
other resources from our business. In addition, litigation could result in the
issuance of an injunction which could require us or our strategic partners to
withdraw certain products from the market or redesign certain products currently
offered for sale or under development. We may also be required to obtain a
license to continue producing a product, which may not be available on
reasonable terms, or at all. See "Business -- Intellectual Property."
WE MAY NEED TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS, OR AT ALL.
If our capital requirements are materially different from those currently
planned, we may need additional capital sooner than anticipated. Our future
capital requirements will depend on many factors, including:
- the level of product sales;
- increased research and development expenses to fund new product
development and product line expansion;
11
<PAGE> 14
- the progress and costs of our ongoing automation;
- potential acquisitions of complementary businesses, products and
technologies;
- increased sales and marketing expenses; and
- increased inventory levels to accommodate potential increases in net
sales.
Additional financing may not be available on acceptable terms, or at all.
If adequate funds are not available or are not available on acceptable terms, we
may be unable to develop or enhance our products, expand our sales and marketing
programs, take advantage of future opportunities or respond to competitive
pressures and our business, financial condition and results of operations could
be materially and adversely affected. If additional funds are raised through the
issuance of equity securities, the percentage ownership of our stockholders will
be reduced. In addition, the new equity securities may have rights, preferences
and privileges senior to our common stock.
WE DO NOT HAVE SIGNIFICANT DIRECT SALES CAPABILITIES WHICH COULD IMPACT OUR
ABILITY TO EXPAND OUR BUSINESS.
We currently have limited resources in direct sales, and in the marketing
and distribution of our products. We may consider expanding our direct sales
force to market future products ourselves if we have the right to do so. If we
decide to distribute new products directly, we will have to invest in additional
sales and marketing resources, particularly to add more field sales personnel.
Our direct sales, marketing and distribution efforts may not be successful, and
revenue from these efforts may not exceed our increased expenses.
WE MAY HAVE PRODUCT LIABILITY EXPOSURE NOT COVERED BY INSURANCE.
The manufacture and sale of medical diagnostic devices entails an inherent
risk of product liability claims. We face financial exposure to product
liability claims if the use of our products results in an improper diagnosis.
Potential product liability claims may exceed the amount of our insurance
coverage or may be excluded from coverage under the terms of the policy. Product
liability insurance is expensive, and we cannot be certain that our existing
insurance can be renewed at an acceptable cost, or at all, or that it would
adequately protect us against these types of claims.
WE MAY EXPERIENCE UNANTICIPATED WARRANTY EXPOSURE FOR WHICH WE DO NOT HAVE
RESERVES.
We may face warranty exposure which could adversely affect our results of
operations. Our products typically carry a one year warranty against defects in
materials and workmanship. For the TesTcup and TesTstik product lines, we are
responsible for all costs, expenses and consequential damages under our
contracts with Roche for all product recalls, returns and defects attributable
to manufacturing. Based on our prior warranty experience, we have not
established any reserves for the liability associated with product warranties.
Accordingly, any unforeseen warranty exposure could materially and adversely
affect our business, financial condition and results of operations.
12
<PAGE> 15
WE ARE SUBJECT TO YEAR 2000 RISKS FOR WHICH WE MAY NOT BE PREPARED AND WHICH
COULD ADVERSELY AFFECT OUR BUSINESS.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These systems and
software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies may need to be upgraded to comply with such year
2000 requirements or risk system failure or miscalculations, potentially causing
disruptions of normal business activities. We rely on our systems and
applications to operate and monitor all major aspects of our business, including
our financial, information and manufacturing systems. Although we believe our
internal infrastructure is year 2000 compliant, we cannot know for certain all
of the problems that may arise until the turn of the century. Any disruption in
our internal infrastructure could cause shipment errors, make it difficult to
forecast adequately, harm our customer relationships and in general, adversely
affect our business. We also rely on computer systems of other entities, both
domestic and international, for the accurate exchange of data. These entities
include our customers, suppliers, creditors and financial organizations. Even if
our internal systems are not affected by the year 2000 issue, our business could
be materially disrupted by year 2000 problems within these other entities. We
have not determined what costs will be incurred in connection with our third
party relationships, but such costs could be substantial. We do not currently
have any contingency plans for unforeseen year 2000 issues.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK AND STOCKHOLDER LIQUIDITY
MAY BE LIMITED.
There has been no public market for our common stock prior to this
offering. We cannot predict the extent to which investor interest in our common
stock will lead to the development of an active trading market. If a public
market does not develop, it could limit our investors' ability to sell their
shares.
THE TRADING PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
The stock markets have experienced extreme price and volume fluctuations in
the past, particularly in the diagnostic and specialty laboratory and research
products markets. The trading prices of securities of many companies in these
markets have been especially volatile, often for reasons unrelated to the
operating performance of the specific companies. These broad market and industry
factors may adversely affect the trading price of our common stock, regardless
of our actual operating performance. If the market price of our common stock
declines, we may be subject to costly and time consuming securities class action
litigation. Any such litigation could have a material adverse effect on our
business, financial condition and results of operations.
FUTURE SALES OF OUR COMMON STOCK COULD CAUSE THE PRICE OF OUR COMMON STOCK TO
DECLINE.
If our stockholders sell a substantial amount of our common stock,
including shares issuable upon exercise of outstanding options, in the public
market following this offering, the market price of our common stock could
decline. These sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have 8,058,472 shares
13
<PAGE> 16
of common stock outstanding. Of these shares, the 2,500,000 shares sold in this
offering will be freely tradeable in the public market. In addition, 18,400
shares will be available for sale in the public market 90 days following the
date of this prospectus. All of the remaining 5,540,072 shares will be eligible
for future sale in the public market 180 days from the date of this prospectus,
upon expiration of lock-up agreements between the stockholders and the
underwriters.
The holders of 5,498,112 shares of our common stock have certain rights
with respect to registration of those shares for sale in the public market. We
also intend to file a registration statement covering the sale of 1,956,620
shares of our common stock granted or authorized for grant under our employee
benefit plans. See "Management -- Stock Option Plans" and "Shares Eligible for
Future Sale."
ANTI-TAKEOVER PROVISIONS MAY AFFECT THE PRICE OF OUR COMMON STOCK.
Certain provisions of our certificate of incorporation, bylaws and Delaware
law could make it difficult for a third party to acquire us, even though an
acquisition might be beneficial to our stockholders. These provisions of our
certificate of incorporation and bylaws and of Delaware law may have the effect
of:
- delaying, deterring or preventing a change in control;
- discouraging bids for our common stock at a premium over the market
price;
- adversely affecting the market price of our common stock; and
- adversely affecting voting and other rights of our stockholders.
See "Description of Capital Stock" for a more complete discussion of these
provisions.
OUR INSIDERS HAVE CONTROL OVER ALL MATTERS REQUIRING A STOCKHOLDER VOTE AFTER
THIS OFFERING, WHICH COULD HINDER A CHANGE IN CONTROL THAT MIGHT BE IN BEST
INTERESTS OF OUR STOCKHOLDERS.
Following this offering, Ronald J. Hall, one of our directors, and his
affiliates, will beneficially own an aggregate of 47.3% of our common stock, or
45.2% if the underwriters' over-allotment option is exercised in full. Our
directors, executive officers and their affiliates as a group will beneficially
own approximately 65.7% of our common stock upon completion of this offering, or
approximately 63.0% if the underwriters' over-allotment option is exercised in
full. As a result, our insiders will still have control over all matters
requiring a stockholder vote after this offering, including the election of a
majority of the Board of Directors and approval of significant corporate
transactions. Such control could prevent or delay a change in control that might
be in the best interests of our stockholders.
14
<PAGE> 17
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus, the words "expects," "anticipates,"
"estimates," "intends" and similar expressions are intended to identify
forward-looking statements. These statements include, but are not limited to,
statements concerning:
- our ability to maintain or expand strategic relationships;
- our ability to achieve cost reductions and automate our manufacturing
processes;
- our ability to develop, introduce and gain market acceptance of new
products in a timely manner;
- the timing and availability of products under development;
- our ability to commercialize new products;
- our ability to provide sufficient customer support;
- the adequacy of our capital resources;
- our ability to address year 2000 issues adequately;
- future fluctuations in our operating expenses;
- our future capital expenditures and cash resources; and
- the use of the net proceeds from this offering.
Our actual results could differ materially from those expressed or implied
by these forward-looking statements as a result of various factors, including
the risk factors described above and elsewhere in this prospectus. We undertake
no obligation to update publicly any such forward-looking statements for any
reason, or to update the reasons actual results could differ materially from
those anticipated in such forward-looking statements, even if new information
becomes available in the future.
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds to ANSYS from the sale of the 2,500,000 shares of common
stock offered by ANSYS are estimated to be approximately $20.0 million ($23.2
million if the underwriters exercise their over-allotment option in full),
assuming an initial public offering price of $9.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by ANSYS.
We intend to use approximately $2.3 million of the net proceeds of this
offering to redeem all of our outstanding Series A redeemable preferred stock
and to pay all cumulative dividends that have accrued on all of the outstanding
shares of our preferred stock through the closing of this offering. We also plan
to use approximately $1.8 million of the net proceeds of this offering to repay
our bank debt, which was used for tenant improvements associated with our
relocation to our new facilities in February 1998. Interest on the bank debt
accrues at a fixed rate of 8.42% and the bank debt matures on June 30, 2005.
We may use a portion of the net proceeds of this offering to acquire
businesses, products and technologies that are complementary to ours. As of the
date of this prospectus, we are not engaged in any agreements or negotiations
regarding any material acquisition. We intend to use the balance of the net
proceeds of this offering for general corporate purposes, including the funding
of working capital requirements, increasing research and development
expenditures and investing in automation equipment for our manufacturing
facility. We currently have an option to purchase our facility in February 2000
for an aggregate purchase price of $5.6 million. We may use a portion of the net
proceeds of this offering to purchase this facility.
Pending the use of the net proceeds of this offering, we intend to invest
the net proceeds in short-term, investment grade, interest bearing securities.
Other than as described above, we have no specific plans for the net proceeds of
this offering. Our management will have broad discretion concerning the
allocation and use of a significant portion of the net proceeds of this offering
which we receive. The principal purposes for conducting this offering are to
create a public market for our common stock and to increase our financial
flexibility and working capital.
The foregoing represents our best estimate of the allocation of the net
proceeds from the sale of the common stock offered by this prospectus, based
upon the current state of our business operations, our current plans for
expansion and the current economic and industry conditions. This estimate is
subject to reallocation among the categories stated above. The amount or timing
of actual expenditures will depend on numerous factors, including our
profitability, the availability of alternative financing, our business
development activities and competition.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings to finance the growth and
development of our business. Therefore, we do not anticipate that we will
declare or pay any cash dividends on our common stock in the foreseeable future.
Any future determination to pay cash dividends will be at the discretion of our
Board of Directors and will be dependent upon our financial condition, results
of operations, capital requirements, restrictions under any existing
indebtedness and such other factors as the Board of Directors deems relevant. In
addition, our bank debt contains restrictions on the payment of cash dividends
without the lender's prior written consent.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of ANSYS at March 31,
1999. The Pro Forma column gives effect to the payment of all undeclared
cumulative dividends on our preferred stock, the redemption of all of our
outstanding Series A redeemable preferred stock and the conversion of all of our
outstanding Series B convertible preferred stock into shares of our common
stock. The Pro Forma As Adjusted column additionally reflects the issuance of
2,500,000 shares of common stock offered by this prospectus and the receipt and
application of the estimated net proceeds of this offering, assuming an initial
public offering price of $9.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses payable by ANSYS. This
table should be read in conjunction with our Consolidated Financial Statements
and the Notes thereto included elsewhere in this prospectus. See "Use of
Proceeds" and "Description of Capital Stock."
<TABLE>
<CAPTION>
MARCH 31, 1999(1)
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Total long-term debt...................... $ 1,842 $1,842 $ --
Stockholders' equity:
Preferred stock, $.0001 par value;
5,000,000 shares authorized; 18,000
shares issued and outstanding,
actual; no shares issued and
outstanding, pro forma and pro forma
as adjusted.......................... -- -- --
Common stock, $.0001 par value;
30,000,000 shares authorized;
1,917,144 shares issued and
outstanding, actual; 5,558,472 shares
issued and outstanding, pro forma;
8,058,472 shares issued and
outstanding, pro forma as adjusted... -- 1 1
Additional paid-in capital.............. 1,965 1,564 21,589
Retained earnings....................... 6,732 4,872 4,872
------- ------ -------
Total stockholders' equity........... 8,697 6,437 26,462
------- ------ -------
Total capitalization............ $10,539 $8,279 $26,462
======= ====== =======
</TABLE>
- -------------------------
(1) Excludes 956,620 shares of common stock issuable upon the exercise of
options outstanding as of March 31, 1999, at a weighted average exercise
price of $1.70 per share. See "Management -- Stock Option Plans" and Notes 9
and 11 of Notes to Consolidated Financial Statements.
17
<PAGE> 20
DILUTION
The net tangible book value of ANSYS as of March 31, 1999 was approximately
$8.2 million, or $4.27 per share of common stock. Net tangible book value per
share represents the amount of ANSYS' total tangible assets less total
liabilities divided by the number of shares of common stock outstanding as of
March 31, 1999. After giving effect to the payment of all undeclared, cumulative
dividends on our preferred stock, the redemption of all of our outstanding
Series A redeemable preferred stock and the conversion of all of our outstanding
Series B convertible preferred stock into shares of common stock, the pro forma
net tangible book value of ANSYS as of March 31, 1999 was approximately $5.9
million, or $1.07 per share of common stock. Without taking into account any
other changes in pro forma net tangible book value other than to give effect to
the sale by ANSYS of the 2,500,000 shares of common stock offered by this
prospectus and the receipt and application of the net proceeds of this offering,
the pro forma net tangible book value of ANSYS as of March 31, 1999, would have
been $26.4 million, or $3.27 per share of common stock. This represents an
immediate increase in pro forma net tangible book value of $2.20 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $5.73 per share to investors purchasing common stock in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...... $ 9.00
Net tangible book value per share as of March 31,
1999............................................ $ 4.27
Pro forma effect of the transactions referenced
above........................................... (3.20)
------
Pro forma net tangible book value per share as of
March 31, 1999.................................. 1.07
Increase per share attributable to new investors... 2.20
------
Pro forma net tangible book value per share after
this offering...................................... 3.27
------
Dilution per share to new investors.................. $ 5.73
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the difference between the number of shares of common stock purchased from
ANSYS, the total consideration paid and the average price per share paid by
existing stockholders and by new investors, assuming an initial public offering
price of $9.00 per share and before deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by ANSYS:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders.............. 5,558,472 69.0% $ 1,875,000 7.7% $ 0.34
New investors.......... 2,500,000 31.0 22,500,000 92.3 9.00
--------- ----- ----------- -----
Total............. 8,058,472 100.0% $24,375,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options. As of March 31, 1999, options
to purchase 956,620 shares of our common stock were outstanding at a weighted
average exercise price of $1.70 per share. To the extent that these options are
exercised, new investors will experience further dilution. See
"Management -- Stock Option Plans" and Notes 9 and 11 of Notes to Consolidated
Financial Statements.
18
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1997
and 1998 and for each of the years ended December 31, 1996, 1997 and 1998 was
derived from, and should be read in conjunction with, ANSYS' Consolidated
Financial Statements and Notes thereto audited by McGladrey & Pullen, LLP,
independent auditors, included elsewhere herein. Selected consolidated financial
data as of December 31, 1994, 1995 and 1996 and for the years ended December 31,
1994 and 1995 has been derived from ANSYS' unaudited consolidated financial
statements not included herein. The selected consolidated financial data as of
and for the three months ended March 31, 1999 and 1998 have been derived from
ANSYS' unaudited consolidated financial statements included elsewhere in this
prospectus. Such unaudited consolidated financial information has been prepared
by ANSYS on a basis consistent with ANSYS' annual audited consolidated financial
statements and, in the opinion of management, contains all normal recurring
adjustments necessary for a fair presentation of the consolidated financial
position and results of operations for the applicable periods. Interim results
are not necessarily indicative of future results. The following data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------- ------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $6,589 $6,447 $8,126 $10,698 $18,964 $4,427 $5,495
Cost of goods sold............. 2,001 2,269 3,058 5,099 9,703 2,164 2,768
------ ------ ------ ------- ------- ------ ------
Gross profit................... 4,588 4,178 5,068 5,599 9,261 2,263 2,727
Operating expenses:
Research and development..... 663 561 434 773 700 174 207
Selling, general and
administrative............. 2,454 2,803 2,770 2,876 4,049 902 1,016
------ ------ ------ ------- ------- ------ ------
Total operating expenses..... 3,117 3,364 3,204 3,649 4,749 1,076 1,223
------ ------ ------ ------- ------- ------ ------
Operating income............... 1,471 814 1,864 1,950 4,512 1,187 1,504
Interest income (expense)...... (100) 20 55 59 (46) (4) (9)
------ ------ ------ ------- ------- ------ ------
Income before income taxes..... 1,371 834 1,919 2,009 4,466 1,183 1,495
Provision for income taxes..... 400 340 718 803 1,775 467 593
------ ------ ------ ------- ------- ------ ------
Net income..................... $ 971 $ 494 $1,201 $ 1,206 $ 2,691 $ 716 $ 902
====== ====== ====== ======= ======= ====== ======
Earnings per share(1):
Basic........................ $ 0.34 $ 0.14 $ 0.46 $ 0.54 $ 1.33 $ 0.36 $ 0.46
Diluted...................... $ 0.15 $ 0.08 $ 0.19 $ 0.20 $ 0.45 $ 0.12 $ 0.15
Weighted average shares
outstanding(1):
Basic........................ 2,307 2,307 2,230 1,901 1,890 1,881 1,880
Diluted...................... 6,039 6,076 6,057 5,864 5,942 5,898 6,047
Pro forma earnings per
share(1):
Basic........................ $ 0.47 $ 0.16
Diluted...................... $ 0.44 $ 0.14
Pro forma weighted average
shares outstanding(1):
Basic........................ 5,737 5,727
Diluted...................... 6,147 6,253
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
MARCH 31, 1999
DECEMBER 31, -----------------------------------
------------------------------------------- PRO PRO FORMA
1994 1995 1996 1997 1998 ACTUAL FORMA(2) AS ADJUSTED(3)
------ ------ ------ ------ ------- ------- -------- --------------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents.... $1,535 $1,247 $1,784 $1,515 $ 3,176 $ 2,686 $ 426 $19,040(4)
Working capital.............. 1,553 2,242 3,120 3,002 5,053 5,274 3,014 21,860(4)
Total assets................. 4,041 3,668 4,855 6,893 11,891 13,205 10,945 29,128
Total long-term debt......... -- -- -- -- 1,894 1,842 1,842 --
Total stockholders' equity... 2,609 3,083 3,973 4,957 7,664 8,697 6,437 26,462
</TABLE>
- -------------------------
(1) See Notes 10 and 11 of Notes to Consolidated Financial Statements for
information regarding the determination of per share calculations.
(2) Pro forma to give effect to: (a) the payment of all undeclared cumulative
dividends on our preferred stock; (b) the redemption of all of our
outstanding Series A redeemable preferred stock; and (c) the conversion of
all of our outstanding Series B convertible preferred stock, all of which
will occur upon consummation of this offering.
(3) Pro forma as described in footnote (2) and as adjusted to give effect to the
receipt and application of the estimated net proceeds from the sale of the
2,500,000 shares offered by this prospectus. See "Use of Proceeds."
(4) Also gives effect to the payment in cash by ANSYS of $431,000 of offering
expenses as of March 31, 1999.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL DATA" AND OUR FINANCIAL STATEMENTS AND THE
NOTES RELATING TO THESE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
ANSYS was organized in 1988 to acquire the Analytical Systems division of
Marion Laboratories, Inc. Since our inception, we have financed our working
capital requirements primarily from cash provided by operations. In 1995, we
completed the repayment of indebtedness incurred in connection with the
acquisition from Marion Laboratories.
We commenced our collaborative relationship with Roche in 1992, and began
developing products for the on-site drug testing markets. We believe on-site
testing represents the principal opportunity for growth in the drug testing
market. In 1991, we introduced our first on-site product, ON-SITE Alcohol, a
self-contained, disposable, pocket-sized test for the detection of ethanol in
urine or saliva. TesTcup, introduced in 1995, and TesTstik, introduced in 1997,
were developed in collaboration with Roche as disposable, rapid screening tests
for certain drugs of abuse in urine. We manufacture both of these products for
Roche under exclusive agreements. Our revenue growth during the last three
fiscal years has resulted primarily from increased sales of on-site drug testing
products to Roche and has been driven by increased demand for existing on-site
diagnostic products, as well as by new product introductions. During 1996, 1997,
1998 and the three months ended March 31, 1999, our sales of on-site drug
testing products (including our proprietary product, ON-SITE Alcohol, which is
also distributed by Roche) accounted for 17%, 42%, 65% and 69% of our total net
sales, respectively. Substantially all of our sales of on-site drug testing
products were to Roche during each of the past three fiscal years and the three
months ended March 31, 1999. The balance of our revenue during these periods was
derived from sales of TOXI-LAB and SPEC products, and to a lesser extent, sales
of nucleic acid separation products to Promega Corporation. We expect to
continue to be substantially dependent on Roche for our net sales and
profitability for the foreseeable future.
Roche paid us development fees for customer sponsored research and
development in the amount of $96,000 in 1993 in connection with the development
of the initial TesTcup product, and a total of $60,000 in 1996 and $20,000 in
1997 in connection with the development of the initial TesTstik product. We
accounted for these fees as revenue. Pursuant to our contractual agreements with
Roche, these development fees were not refundable and were not subject to any
future performance obligations by either party. No further development fees are
due to us under our agreements with Roche. ANSYS sponsored all other research
and development activities for the years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1999. While we perform substantially all of
our own research and development, we have, from time to time, engaged third
parties to conduct discrete research and development projects.
TOXI-LAB, our first laboratory-based drug testing product, was introduced
by our predecessor company in 1978. TOXI-LAB is a broad spectrum drug screening
system that uses our proprietary membranes. We introduced SPEC, our first
specialty laboratory and research product, in 1990. In addition, we began
manufacturing nucleic acid separation
21
<PAGE> 24
products for Promega in 1996. Since 1997, we have also been developing rapid
nucleic acid separation and detection products in conjunction with Molecular
Innovations.
RESULTS OF OPERATIONS
The following table sets forth certain income statement items expressed as
a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------
1996 1997 1998 1998 1999
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Gross profit.......................... 62.3 52.3 48.8 51.1 49.6
Operating expenses:
Research and development............ 5.3 7.2 3.7 3.9 3.8
Selling, general and
administrative................... 34.1 26.9 21.3 20.4 18.5
Total operating expenses.............. 39.4 34.1 25.0 24.3 22.3
Operating income...................... 22.9 18.2 23.8 26.8 27.3
Interest income (expense)............. 0.7 0.6 (0.2) (0.1) (0.1)
Income before income taxes............ 23.6 18.8 23.6 26.7 27.2
Provision for income taxes............ 8.8 7.5 9.4 10.5 10.8
Net income............................ 14.8 11.3 14.2 16.2 16.4
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Net Sales. Net sales for the three months ended March 31, 1999 were $5.5
million compared to $4.4 million for the same period in 1998, representing an
increase of 24.1%. The $1.1 million increase in net sales was primarily
attributable to a 177.4% increase in unit sales of TesTcup during the three
months ended March 31, 1999 compared to the same period in 1998. This increase
was partially offset by a 11.7% decrease in the per unit price of TesTstik as a
result of contractual volume pricing concessions to Roche, as well as a 26.0%
decrease in the unit sales of TesTstik over the same period. This decrease in
unit sales reflects the inclusion of large initial orders of TesTstik in the
first quarter of 1998 related to the introduction of the product in October
1997.
Gross Profit. Gross profit for the three months ended March 31, 1999 was
$2.7 million compared to $2.3 million for the same period in 1998, representing
an increase of 20.5%. As a percentage of net sales, gross profit decreased to
49.6% for the three months ended March 31, 1999 compared to 51.1% for the same
period in 1998. This decrease in gross profit as a percentage of net sales was
primarily due to the decrease in the per unit price of TesTstik referred to
above.
Research and Development Expense. Research and development expense
primarily consists of payroll and related expenses, material expenses and
facility costs associated with our development of new technologies and products.
Research and development expense for the three months ended March 31, 1999 was
$207,000 compared to $174,000 for the same period in 1998, representing an
increase of 19.0%. As a percentage of net sales, research and development
expense decreased slightly to 3.8% for the three months ended March 31, 1999
from 3.9% for the same period in 1998.
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<PAGE> 25
Selling, General and Administrative Expense. Selling, general and
administrative expense primarily consists of compensation and related expenses
for sales and marketing, technical support, executive, accounting and
administrative personnel, travel expenses, advertising and product promotion
costs, insurance costs, facilities costs, and accounting, legal and other
general corporate expenses. Selling, general and administrative expense for the
three months ended March 31, 1999 was $1.0 million compared to $902,000 for the
same period in 1998, representing an increase of 12.6%. This increase in
selling, general and administrative expense was primarily due to increased
compensation expense related to additional administrative personnel. As a
percentage of net sales, selling, general and administrative expense decreased
to 18.5% for the three months ended March 31, 1999 from 20.4% for the same
period in 1998. This decrease resulted from the fixed nature of a substantial
portion of our operating expenses and higher sales volume during the three
months ended March 31, 1999.
Interest Income (Expense). Interest expense for the three months ended
March 31, 1999 was $9,000 compared to $4,000 for the same period in 1998,
representing an increase of 125.0%. The increase in interest expense was
attributable to increased borrowings related to the purchase of equipment and
leasehold improvements associated with the completion of our new corporate
headquarters and manufacturing facility.
Provision for Income Taxes. Provision for income taxes for the three months
ended March 31, 1999 was $593,000 compared to $467,000 for the same period in
1998. The increase in provision for income taxes was due to our increased
profitability.
Net Income. Net income for the three months ended March 31, 1999 was
$902,000 compared to $716,000 for the same period in 1998, representing an
increase of 26.0%. As a percentage of net sales, net income increased to 16.4%
for the three months ended March 31, 1999 compared to 16.2% for the same period
in 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Net Sales. Net sales for the year ended December 31, 1998 were $19.0
million compared to $10.7 million for 1997, representing an increase of 77.3%.
The $8.3 million increase in net sales was primarily attributable to unit sales
increases of our on-site drug testing products, principally a 667.2% increase in
unit sales of TesTstik, reflecting a full year of sales of this product in 1998.
The increase in net sales was also attributable to a lesser extent to a 84.4%
increase in unit sales of TesTcup.
Gross Profit. Gross profit for the year ended December 31, 1998 was $9.3
million compared to $5.6 million for 1997, representing an increase of 65.4%. As
a percentage of net sales, gross profit decreased to 48.8% in the year ended
December 31, 1998 compared to 52.3% for 1997. The decrease as a percentage of
net sales reflects an increasing percentage of total net sales of on-site drug
testing products, which generally carry lower gross margins than our laboratory
products.
Research and Development Expense. Research and development expense for the
year ended December 31, 1998 was $700,000 compared to $773,000 for 1997,
representing a decrease of 9.4%. As a percentage of net sales, research and
development expense decreased to 3.7% for the year ended December 31, 1998 from
7.2% for 1997. We anticipate that research and development expense will increase
significantly in future periods, both in dollar amount and as a percentage of
net sales, as we begin to implement a more active product development strategy.
We anticipate that initial increases in research
23
<PAGE> 26
and development expense will consist primarily of increased labor costs and
supplies to enhance and expand our current product lines. Substantially all of
the anticipated increases in research and development expense are at
management's discretion.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the year ended December 31, 1998 was $4.0 million
compared to $2.9 million for 1997, representing an increase of 40.8%. The
increase in selling, general and administrative expense was due to increased
compensation expense associated with the growth of our workforce. As a
percentage of net sales, selling, general and administrative expense decreased
to 21.3% for the year ended December 31, 1998 from 26.9% for 1997. The decrease
as a percentage of net sales was due to the effective use of our infrastructure
to support higher volumes of net sales, the realization of improved operating
efficiencies and proportionately lower selling expenses associated with
increased sales of products marketed by Roche.
Interest Income (Expense). Interest expense for the year ended December 31,
1998 was $46,000 compared to interest income of $59,000 for 1997, reflecting our
increased borrowings during 1998 for the purchase of equipment and leasehold
improvements in our new corporate headquarters and manufacturing facility, in
which we occupied in February 1998.
Provision for Income Taxes. Provision for income taxes for the year ended
December 31, 1998 was $1.8 million compared to $803,000 for 1997. The increase
in provision for income taxes was due to our increased profitability.
Net Income. Net income for the year ended December 31, 1998 was $2.7
million compared to $1.2 million for 1997, representing an increase of 123.1%.
As a percentage of net sales, net income increased to 14.2% for the year ended
December 31, 1998 from 11.3% for 1997.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Sales. Net sales for the year ended December 31, 1997 were $10.7
million compared to $8.1 million for 1996, representing an increase of 31.7%.
The $2.6 million increase in net sales was primarily attributable to unit sales
increases of our on-site drug testing products, principally a 149.8% increase in
unit sales of TesTcup, and to a lesser extent, initial sales of TesTstik, which
was introduced in October 1997.
Gross Profit. Gross profit for the year ended December 31, 1997 was $5.6
million compared to $5.1 million for 1996, representing an increase of 10.5%. As
a percentage of net sales, gross profit decreased to 52.3% in the year ended
December 31, 1997 compared to 62.3% for 1996. The decrease as a percentage of
net sales reflects an increasing percentage of total net sales of on-site drug
testing products, which generally carry lower gross margins than our laboratory
products. The decrease as a percentage of net sales also reflects certain raw
material and production process issues that occurred in the second quarter of
1997. These issues related to greater than expected variability in our
nitrocellulose membranes for our TesTcup and TesTstik product lines, as well as
production difficulties associated with the early ramp-up of the TesTcup
manufacturing process. Although the quality of nitrocellulose membranes is
inherently inconsistent, we implemented quality control procedures in 1997 which
have enabled us to detect these inconsistencies earlier in the manufacturing
process and to implement any necessary adjustments.
24
<PAGE> 27
Research and Development Expense. Research and development expense for the
year ended December 31, 1997 was $773,000 compared to $434,000 for 1996,
representing an increase of 78.1%. As a percentage of net sales, research and
development expense increased to 7.2% for the year ended December 31, 1997 from
5.3% for 1996. The increase in research and development expenses was due to
expense associated with the development of the TesTstik product that was
introduced in October 1997.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the year ended December 31, 1997 was $2.9 million
compared to $2.8 million for 1996, representing an increase of 3.8%. As a
percentage of net sales, selling, general and administrative expense decreased
to 26.9% for the year ended December 31, 1997 from 34.1% for 1996. The decrease
as a percentage of net sales was due to the effective use of our infrastructure
to support higher volumes of net sales, the realization of improved operating
efficiencies, and proportionately lower selling expenses associated with
increased sales of products marketed by Roche.
Interest Income (Expense). Interest income for the year ended December 31,
1997 was $59,000 compared to $55,000 for 1996, representing an increase of 7.3%.
Provision for Income Taxes. Provision for income taxes for the year ended
December 31, 1997 was $803,000 compared to $718,000 for 1996. The increase in
the provision for income taxes was due to our increased profitability. The
Internal Revenue Service has notified us that it intends to examine our 1996
income tax return and certain of our other financial records. The examination
has not yet begun and, accordingly, we are not able to assess the nature or
extent of this inquiry.
Net Income. Net income for each of the years ended December 31, 1997 and
1996 was $1.2 million. As a percentage of net sales, net income decreased to
11.3% for the year ended December 31, 1997 from 14.8% for 1996.
25
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following tables present quarterly results of operations, in dollar
amounts and as a percentage of net sales, for the last nine quarters, that have
been derived from the consolidated financial statements of ANSYS. The
information has been prepared by us on a basis consistent with our audited
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for a fair
presentation of the information for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
1997 1998 1999
-------------------------------------- -------------------------------------- -------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
------- ------- -------- ------- ------- ------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................... $2,400 $2,395 $2,551 $3,352 $4,427 $4,597 $4,883 $5,057 $5,495
Gross profit................ 1,426 1,087 1,356 1,730 2,263 2,307 2,471 2,220 2,727
Operating expenses:
Research and
development............. 173 178 215 207 174 163 179 184 207
Selling, general and
administrative.......... 732 705 694 745 902 991 1,216 940 1,016
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.............. 905 883 909 952 1,076 1,154 1,395 1,124 1,223
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income............ 521 204 447 778 1,187 1,153 1,076 1,096 1,504
Interest income (expense)... 18 26 7 8 (4) (14) (14) (14) (9)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes..................... 539 230 454 786 1,183 1,139 1,062 1,082 1,495
Provision for income
taxes..................... 214 99 181 309 467 482 417 409 593
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income.................. $ 325 $ 131 $ 273 $ 477 $ 716 $ 657 $ 645 $ 673 $ 902
====== ====== ====== ====== ====== ====== ====== ====== ======
Earnings per share:
Basic..................... $ 0.14 $ 0.05 $ 0.12 $ 0.23 $ 0.36 $ 0.32 $ 0.32 $ 0.33 $ 0.46
Diluted................... $ 0.05 $ 0.02 $ 0.05 $ 0.08 $ 0.12 $ 0.11 $ 0.10 $ 0.11 $ 0.15
AS A PERCENTAGE OF NET SALES:
Net sales................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit................ 59.4 45.4 53.2 51.6 51.1 50.2 50.6 43.9 49.6
Operating expenses:
Research and
development............. 7.2 7.4 8.4 6.2 3.9 3.5 3.7 3.6 3.8
Selling, general and
administrative.......... 30.5 29.5 27.3 22.2 20.4 21.6 24.9 18.6 18.5
Total operating
expenses.............. 37.7 36.9 35.7 28.4 24.3 25.1 28.6 22.2 22.3
Operating income............ 21.7 8.5 17.5 23.2 26.8 25.1 22.0 21.7 27.3
Interest income (expense)... 0.8 1.1 0.3 0.2 (0.1) (0.3) (0.3) (0.3) (0.1)
Income before income
taxes..................... 22.5 9.6 17.8 23.4 26.7 24.8 21.7 21.4 27.2
Provision for income
taxes..................... 9.0 4.1 7.1 9.2 10.5 10.5 8.5 8.1 10.8
Net income.................. 13.5 5.5 10.7 14.2 16.2 14.3 13.2 13.3 16.4
</TABLE>
Our quarterly operating results have fluctuated in the past and may
continue to fluctuate in the future based on a number of factors, not all of
which are in our control. For example, during the second quarter of 1997, we
experienced a decline in gross profit largely as a result of raw material and
production process problems. See "Risk Factors -- The Failure of Sole Source
Suppliers to Provide Key Raw Materials Could Adversely Affect the Production of
Our Products and Could Harm Our Customer Relationships" and "Risk
Factors -- Fluctuations In Our Quarterly Operating Results Could Adversely
Affect the Price of Our Common Stock."
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<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
The primary source of liquidity for ANSYS has been cash generated from
operations and borrowings under our revolving credit facility and secured term
note payable.
Cash flows from operating activities were $1.1 million, $625,000, $2.9
million and $710,000 for the years ended December 31, 1996, 1997 and 1998, and
the three months ended March 31, 1999, respectively. Our accounts receivable and
inventory have increased in each of 1996, 1997, 1998 and 1999, primarily due to
increased product sales. Cash inflows from net income plus noncash expenses and
the effect of increased accounts payable have been adequate to fund this growth.
During the year ended December 31, 1998 and the three months ended March 31,
1999, expenditures for equipment and leasehold improvements at our new
manufacturing and corporate headquarters facility, where we commenced occupancy
in February 1998, were $2.2 million and $440,000, respectively. Expenditures for
leasehold improvements were financed by a seven-year term loan in the principal
amount of $2.0 million, which bears interest at the rate of 8.42% per annum and
is secured by our accounts receivable, inventories, equipment and intangible
assets. We intend to use a portion of the proceeds of this offering to repay all
outstanding indebtedness under our term loan. We also have a revolving line of
credit of $1.0 million to provide for short-term financing, which bears interest
at the lender's prime rate plus 0.125% per annum. At December 31, 1998, we were
in violation of one of the negative covenants under this line of credit which
relates to the stock redemptions effected by us. The lender has, however,
subsequently waived this violation. We had no outstanding balance under this
line of credit at December 31, 1998 or March 31, 1999. Our current line of
credit expires in May 1999; however, we have received a letter of intent from
the lender to extend the line of credit until May 2001, subject to the execution
of satisfactory documentation. Notwithstanding this letter of intent, it is
possible that we may not be able to extend this line of credit on acceptable
terms, or at all. In addition, we have advised the lender concerning the
redemption of all of our outstanding Series A redeemable preferred stock, the
conversion of all of our Series B convertible preferred stock into common stock
and the payment of accumulated dividends on our preferred stock upon
consummation of this offering. The lender has conditionally consented to and
waived the negative covenants for these transactions subject to the completion
of this offering.
Working capital at March 31, 1999 amounted to $5.3 million compared to $5.1
million at December 31, 1998 and $3.0 million at December 31, 1997. Cash and
cash equivalents amounted to $2.7 million at March 31, 1999 compared to $3.2
million at December 31, 1998, and $1.5 million at December 31, 1997. The
increases in working capital at December 31, 1998 and March 31, 1999 of $2.1
million and $221,000, respectively, were primarily due to the $2.9 million and
$710,000 of cash provided by operating activities during 1998 and the three
months ended March 31, 1999, respectively.
Our primary short-term capital requirements are for increasing the level of
automation of our production lines and increased research and development
activity. The aggregate maturities on our term loan are expected to be $224,000
in 1999 and $245,000 in 2000. We currently plan to spend approximately $1.0
million annually over the next several years for the expansion and development
of our manufacturing capabilities. We also expect our research and development
expenses to increase significantly over the next several years as we expand our
product development activity. Our future liquidity and capital funding
requirements will depend on numerous factors. We believe that the net proceeds
of this offering, together with existing cash and cash generated from
operations, will be sufficient to satisfy our capital requirements for at least
the next twelve months. To the extent our capital requirements are materially
different from those planned, we may seek to raise additional funds through the
27
<PAGE> 30
issuance of equity or debt securities. It is possible that additional funds may
not be available on acceptable terms, or at all. See "Risk Factors -- We May
Need to Raise Additional Capital, Which May Not Be Available on Acceptable
Terms, or at All."
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss to future earnings, to fair values or to
future cash flows that may result from changes in the price of a financial
instrument. The value of a financial instrument may change as a result of
changes in interest rates, exchange rates, commodity prices, equity prices and
other market changes.
We do not engage in trading activities, do not have significant foreign
currency transactions, do not utilize derivative financial instruments and, as
of the date of this prospectus, do not have any outstanding floating rate
indebtedness. As a result, our exposure to market risk is primarily related to
our investment in Molecular Innovations, an unrelated company.
At March 31, 1999, our investment in Molecular Innovations included a
$125,000 investment in the preferred stock of Molecular Innovations and a
$300,000 convertible term note that bears interest at 9% and matures in July
2000. There is no public market for the securities of Molecular Innovations. If
the value of these investments was to become impaired, we would record a loss
equal to the decline in value of these investments.
In addition, we have bank debt consisting of a fixed rate term note and a
variable rate revolving line of credit. At March 31, 1999, we had approximately
$1.8 million outstanding under the term loan and no balance outstanding under
the line of credit. As a consequence, unless we borrow under this line of
credit, a change in interest rates would not have a material effect on our
operating results.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, as well as other control
devices, use only two digits to identify a year in the date field, without
considering the impact of the upcoming change in the century. As a result, such
systems and applications could fail or create erroneous results unless corrected
so that they can process data related to the year 2000. We are continuing to
assess the impact of the year 2000 issue. While our products do not include any
software or embedded computer circuitry that could be impacted by these issues,
we have identified two key areas of our business that may be affected by the
year 2000 issue:
Internal Infrastructure. We rely on our systems and applications in
operating and monitoring all major aspects of our business, including our
financial reporting, information and manufacturing systems. The year 2000 issue
could impact all of the systems and computer applications used in all aspects of
our business, including our general and subsidiary ledgers, networking and
telecommunication systems, production, planning and scheduling, manufacturing
equipment and customer service. While we believe our internal systems are year
2000 compliant, we will not know the full extent of the impact of those issues
until the turn of the century. Any disruption in our internal infrastructure
could cause shipment errors, make it more difficult to obtain certain raw
materials or to forecast adequately, cause business interruptions, harm our
customer relationships, and in general, adversely affect our business. In 1997,
we developed a three-phase program for year 2000
28
<PAGE> 31
internal infrastructure systems compliance. Phase I identified those systems
with which we have exposure to the year 2000 issue. Phase II involved the
development and implementation of action plans to be year 2000 compliant. Phase
III, which is expected to be completed by mid-1999, involves the final testing
of each major area of exposure to ensure compliance.
In accordance with Phase I of this program, we have conducted an internal
review of all of our systems and have contacted all software suppliers to
determine our major areas of exposure to the year 2000 issue. In our financial
reporting, information and manufacturing systems area, a number of applications
have been identified as being year 2000 compliant due to their recent
implementation. We believe that our financial reporting, information and
manufacturing systems are year 2000 compliant.
Third Party Relationships. We also rely, directly and indirectly, on the
external systems of our customers, suppliers, creditors and financial
organizations, both domestic and international, for the accurate exchange of
data. Even if the year 2000 issue does not affect our internal infrastructure,
we could be affected through disruptions in the operations of the enterprises
with which we interact. Despite our efforts to address the impact of the year
2000 issue on our own internal systems, the impact of the year 2000 issue on
other enterprises could adversely affect our business.
We are currently in the process of contacting most of the entities with
which we have a material third party relationship. To date, those who have
responded, including Roche, have represented to us that they either are or
intend to be year 2000 compliant by the year 2000. We have not yet determined
what costs may be incurred in connection with our third party relationships, but
such costs could be substantial.
To date, we believe our expenses to address the year 2000 issue have
totaled less than $100,000. We believe there will be no additional material
expenditures necessary to replace our core financial, reporting and
manufacturing systems. We currently have no contingency plans to address any
unforeseen year 2000 problems. We believe our most reasonably likely worse case
scenario for our internal infrastructure would be that our business would be
disrupted, and all of our accounting, customer service, manufacturing,
purchasing and production planning processes would have to revert back to the
prior manual systems to record transactions, which could cause significant
delays. Our most reasonably likely worse case scenario for our third party
relationships with our suppliers and vendors would be that our vendors will not
be able to supply our raw materials, which would prohibit us from shipping
products and recognizing revenue, or our customers will not be able to pay the
amounts due us in a timely manner. Our business could be adversely affected by
disruptions in our operations if either our internal infrastructure or that of
our key suppliers and customers is not year 2000 compliant. Any such disruption
could cause shipment errors, harm our customer relationships and cause serious
business interruptions and production delays. We could also be affected by
general widespread problems or economic crisis resulting from noncompliant year
2000 systems.
29
<PAGE> 32
BUSINESS
GENERAL
ANSYS develops, manufactures and markets drug testing products for both
on-site and laboratory settings, as well as specialty laboratory and research
products. Our on-site drug testing products are self-contained, easy to use,
disposable tests which detect the presence of drugs of abuse and alcohol, and
provide highly accurate results in less than five minutes. These products are
used in a variety of applications, including pre-employment screening, random
employee testing, government mandated testing and parole and probation
monitoring, as well as in other applications that require rapid, accurate
results. Our laboratory-based drug testing product line, sold under the name
TOXI-LAB, can accurately detect more than 500 drugs and drug byproducts in
urine, blood, tissue and other specimens. TOXI-LAB is primarily used by hospital
and forensic laboratories.
ANSYS also develops, manufactures and markets specialty laboratory and
research products. Our SPEC products are used for a variety of analytical
applications, including drugs of abuse confirmation testing, therapeutic drug
monitoring and sample preparation in drug discovery and drug metabolism studies.
Our nucleic acid separation and detection products are used by clinical and
environmental testing laboratories, pharmaceutical and biotechnology companies
and DNA testing and research organizations.
STRATEGY
We seek to strengthen our competitive position in the drug testing and
specialty laboratory and research markets by pursuing the following strategies:
EMPLOY MARKET DRIVEN PRODUCT DEVELOPMENT. Our product development strategy
is to adapt and enhance our diagnostic testing technologies, our engineering,
production and chemistry capabilities and our product formats in response to
customer demands. To accomplish this, we monitor existing markets, maintain a
continuing dialogue with our current customers through workshops and technical
consultation hotlines, and assist our customers in identifying new needs as they
develop.
FOCUS ON STRATEGIC RELATIONSHIPS. We seek to enhance our present
relationships with companies such as Roche and Molecular Innovations, as well as
to develop new strategic relationships. We have collaborated with Roche for more
than six years, and continue to work with Roche both contractually and
informally in developing new products, such as TesTcup ER, for the drug testing
markets. In addition, we have formed a strategic relationship with Molecular
Innovations to develop rapid nucleic acid separation and detection products. We
believe we are in a position to attract and develop additional strategic
relationships because of our innovative design and development expertise and
efficient manufacturing capability. We intend to target licensing and
distribution partners whose strong sales and marketing capabilities will enable
them to promote and sell our products more effectively.
ACCELERATE DEVELOPMENT OF NEW DRUG TESTING PRODUCTS. We emphasize
innovation in the design and development of products that address the needs of
our target markets. We intend to accelerate new drug testing product development
by hiring additional scientific and technical personnel, investing additional
resources in research and development, and pursuing joint research and
development arrangements with companies that offer complementary resources.
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INCREASE EMPHASIS ON SPECIALTY LABORATORY AND RESEARCH PRODUCTS. We intend
to focus a significant portion of our product development effort on expanding
our specialty laboratory and research product line. We believe a substantial
market exists for these products in a variety of diagnostic applications. We
plan to develop additional nucleic acid purification and separation products, as
well as complete kits for performing the laboratory work required to isolate and
purify nucleic acids. We also plan to expand our sample preparation product line
to accommodate a wider variety of automated sample processing equipment.
ACHIEVE MANUFACTURING EFFICIENCIES THROUGH AUTOMATION. We are currently
incorporating sophisticated automation equipment into our manufacturing facility
in order to automate certain portions of our production processes. We are
continually evaluating our manufacturing processes to identify additional
automation opportunities. By installing custom-designed, state of the art
manufacturing systems, we believe we can further enhance productivity and
improve cost-efficiency while maintaining our high level of product quality.
PURSUE STRATEGIC ACQUISITIONS. We intend to examine opportunities to
acquire, license or enter into supply arrangements to obtain innovative
diagnostic testing technologies, product formats and products that complement
our existing operations and address the needs of our target customer base. We
regularly identify and review strategic acquisition opportunities through our
industry contacts and recognized position in the industry, as well as through
dialogue with our strategic partners.
THE DRUG TESTING MARKET
According to an independent research company, the market for drugs of abuse
testing products in the United States was approximately $628 million in 1996,
and will increase to approximately $900 million by 2002. Drug testing has
historically consisted primarily of urine-based screening performed in reference
laboratories. Specimens are collected and sent to these laboratories, where
skilled technicians process the specimens and document test procedures and
results. Laboratory testing is typically carried out on sophisticated analyzers,
which use automated liquid handling mechanisms for the addition of chemical
solutions and rely on absorption or fluorescence of light, or other detection
methods to determine the presence and amount of substances in the specimen.
Laboratory instruments are generally capable of detecting multiple
substances from a large number of specimens, and provide accurate and highly
sensitive test results. Laboratory testing, however, has several limitations.
Laboratory instruments are generally large, complex and costly. They require
high specimen throughput to justify the required investment in equipment,
training and staffing, as well as the costs required to operate and support
these instruments. Generally, the turnaround time for test results in reference
laboratories is measured in hours and days. In addition, laboratory testing in
which a large number of samples must be handled creates special challenges in
meeting chain of custody requirements. Chain of custody refers to the
documentation of the transportation and handling of the specimen from the time
of collection until the specimen is analyzed in a laboratory and ultimately
discarded. Chain of custody requirements are primarily designed to ensure that a
specimen is correctly associated with a given individual and has not been
adulterated. All specimens must be accompanied by chain of custody forms and be
in specially sealed, tamper-evident containers.
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The limitations of laboratory testing, combined with technological advances
permitting accurate testing outside the laboratory, have resulted in a
continuing shift to simple, rapid, self-contained, disposable diagnostic tests
that can be performed in a variety of on-site settings. On-site tests have been
developed in a number of formats, including lateral flow and flow-through
membrane devices, dipsticks and test tubes. These tests are intended to generate
accurate results that provide either a yes/no answer or a quantitative result,
primarily through a color change. When an on-site drug test indicates the
presence of a drug, the samples are routinely subjected to confirmation testing,
typically performed in an off-site laboratory. We believe that the on-site
segment of the drug testing market has experienced substantially higher growth
in recent years than the traditional laboratory-based market segment. While we
believe that laboratory testing will continue to play an important role in drug
testing, particularly confirmation testing, we also believe that on-site testing
will be increasingly used in the following applications:
WORKPLACE DRUG TESTING. Drugs of abuse testing in the workplace includes
pre-employment screening, random employee testing and government mandated
testing. According to the United States Substance Abuse Mental Health Services
Administration, over 13 million people in the United States in 1996 were illicit
drug users. The U.S. Department of Labor estimates that over 70% of illegal drug
users are employed. In addition, the Society for Human Resources Management
estimates that approximately 95% of Fortune 500 companies conduct pre-employment
drug screening. Corporations are using drug screening in the workplace with the
intention of reducing workers' compensation claims, absenteeism, employee
turnover, accidents, health care costs and generally creating a safer workplace.
Drugs of abuse testing in the workplace has experienced significant growth in
recent years due to various factors, including: (1) government regulations which
mandate testing in certain job categories; (2) the Federal Drug-Free Workplace
Act of 1988; (3) court decisions recognizing a private sector employer's right
to test both employees and job applicants; (4) efforts by insurance carriers to
reduce accident liability and control health care costs; and (5) corporate
requirements that vendors and contractors certify that their workplaces are drug
free.
Historically, workplace drug testing has been performed primarily in
reference laboratories or hospital-based laboratories. Recently, however, an
increasing portion of workplace drug testing has been performed using tests that
can be easily administered on-site. The SmithKline Beecham Drug Testing Index
indicated that only 5% of the nearly five million workplace drug tests performed
in 1997 by SmithKline's clinical laboratories were positive for illegal
substances. On-site drug tests are particularly valuable in settings like this
because they enable employers to permit the large number of employees whose test
results are negative to enter or return to the workforce without undue delay.
GOVERNMENT MANDATED DRUG TESTING. Several government agencies screen their
workers for drugs of abuse, while others mandate drug testing of certain persons
subject to monitoring. For example, the United States Department of
Transportation has established mandatory guidelines for random drug testing of
workers involved in the transportation industry, including airline pilots, truck
drivers and rail employees. The Department of Transportation's regulations
currently require 50% of its regulated workers, or approximately four million
persons, to be randomly tested for drugs each year. State parole and probation
agencies test subjects for suspected drug and alcohol abuse if there is
behavioral evidence of abuse. According to the U.S. Department of Justice,
approximately 3.8 million people are on parole or probation in the United
States, and one-third of them are subject to mandatory drug testing.
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Other government agencies have implemented extensive pre-employment drug
screening programs. For example, the United States Postal Service has
implemented a pilot drug screening program using TesTcup that will require
approximately 250,000 on-site drug tests. The United States military also
routinely performs drug screens on all recruits, as well as random tests and
testing for cause.
HOSPITAL/EMERGENCY ROOM DRUG TESTING. Drug abuse plays a role in many
emergency room visits, either as a primary cause such as an overdose, or as a
contributing factor such as in an accident. When an emergency room physician
receives a patient with symptoms that may or may not be drug related, that
physician must quickly determine the presence of drugs in order to prescribe the
correct treatment. Currently, most emergency room drugs of abuse testing
procedures are performed away from the patient at the hospital laboratory, a
process which can take several hours to produce a result. Tests have also been
developed for on-site use in the emergency room, but most of these tests require
multiple steps, are time-sensitive and are cumbersome to use. We believe that a
diagnostic test that could be easily performed by nontechnical personnel in
order to rapidly diagnose drugs of abuse in the emergency room would be of
substantial benefit in determining the appropriate course of treatment.
THERAPEUTIC DRUG MONITORING. We believe that a significant opportunity
exists for rapid, easy to use on-site diagnostic products in therapeutic drug
monitoring, an area also traditionally addressed by laboratory testing products.
Many therapeutic drugs require complicated dosing regimens in order for the drug
to be effective. The failure of patients to take their medications as prescribed
could lead physicians to improperly prescribe treatment in an effort to achieve
the desired effect. As a result, physicians may desire to periodically monitor
their patients to validate compliance with prescribed treatment. Currently, most
physicians monitor therapeutic drugs by sending a urine or blood sample to a
central laboratory for analysis. This process can be time consuming and can add
significant cost to the overall treatment. Thus, physicians may be unable to
employ monitoring as frequently as they might desire. The ability to rapidly
monitor the presence of therapeutic drugs or their byproducts while the patient
is in the physician's office would provide the physician with real-time
information that could improve patient treatment.
OTHER DRUG TESTING APPLICATIONS. We believe there is a growing demand for
rapid, accurate, easy to use drug testing products in drug treatment centers. We
also believe there is a substantial over-the-counter market for rapid drug
screening devices that will be used by small employers, academic institutions,
private counselors, physicians and concerned parents.
THE SPECIALTY LABORATORY AND RESEARCH PRODUCTS MARKET
Clinical and environmental testing laboratories, pharmaceutical and
biotechnology companies and DNA testing and research organizations frequently
conduct research on samples that must be isolated and purified prior to
analysis. This isolation and purification process is known as sample
preparation. Sample preparation is important in these specialty laboratory and
research settings because impurities in a sample can cause test results that are
inaccurate, unreliable or cannot be reproduced. Historically, sample preparation
has been a labor and time-intensive process. In recent years, however,
traditional sample preparation methods have begun to be replaced with reliable,
fast and high quality technologies and products. Two important segments of the
specialty laboratory and research products market are solid phase extraction and
nucleic acid separation.
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SOLID PHASE EXTRACTION. Sample preparation products are used to separate
both solid and liquid components using various techniques including filtration,
chromatography (chemical separation), centrifugation (physical separation by
rotational force), solid phase extraction and liquid extraction techniques.
Solid phase extraction is a technique for removal of a target substance from a
liquid onto a solid surface and the subsequent release of the substance for
analysis. Solid phase extraction techniques are employed for sample preparation
in drug discovery and drug metabolism studies in the pharmaceutical and clinical
laboratory industries. Biomedical laboratories use solid phase extraction to
prepare samples for drugs of abuse confirmation, therapeutic drug monitoring and
other applications. Environmental testing laboratories also use solid phase
extraction for sample preparation of drinking water and waste water analysis
under the guidelines of the EPA. Biotechnology laboratories also use solid phase
extraction for isolating DNA from biological matrices.
NUCLEIC ACID SEPARATION. Nucleic acid separation involves isolating nucleic
acids from other soluble contaminants. Nucleic acids, including DNA and RNA, are
the fundamental regulatory molecules of life. Over the past 20 years, an
increased understanding of nucleic acid structure and function has led to the
use of nucleic acids in a broad array of therapeutic and diagnostic
applications. All of these applications require highly purified nucleic acids.
Pure nucleic acids are essential for reliability and reproducibility of
molecular biology experiments in both academic and industrial research
laboratories, as well as for the accuracy of results in nucleic acid-based
clinical diagnostics. Most nucleic acid separation and purification occurs in
laboratories using specialized equipment. In addition, because the results of
nucleic acid testing can be compromised due to contamination of the testing
environment, and because handling requirements must be strictly followed,
individuals specially trained in molecular biology typically conduct these
procedures. In addition to a need for improved nucleic acid separation products
in the laboratory, we believe there are a number of potential applications for
on-site nucleic acid testing. For example, on-site nucleic acid tests could be
used to detect microorganisms in drinking water and other liquids, or viral or
bacterial contamination in environmental samples.
ANSYS PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
DRUG TESTING PRODUCTS
We develop products that we believe address many of the limitations of
traditional laboratory and on-site testing products. We have applied our core
competencies in product design, engineering and manufacturing to bring to market
products for drugs of abuse and alcohol testing and are developing new products
for these applications as well as for new applications such as therapeutic drug
monitoring. We intend to continue to develop, manufacture and sell products
which are designed to meet the changing needs of the diagnostic testing markets
and offer some or all of the following attributes:
- EASE OF USE. TesTcup, TesTstik, ON-SITE Alcohol and the on-site products
under development are designed to be easy to use, read and interpret.
These tests are portable, self-contained and disposable, and eliminate
the need to handle the specimen and/or mix and dispense chemical
solutions. Test results from these products are provided in a
"positive/negative" color change format that is designed to be clear and
easy to read and interpret. In addition, TesTcup features specimen
collection and testing in a single, integrated device, which effectively
addresses strict chain of custody requirements.
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- IMMEDIATE RESULTS. TesTcup, TesTstik, ON-SITE Alcohol and the on-site
products under development are designed to offer complete test results in
less than five minutes, allowing employers, government testing
administrators, health care professionals and other customers to take
appropriate action immediately. By contrast, processing of tests in
reference or hospital laboratories can require hours or days to obtain
results. In addition, our products do not require refrigeration and
remain stable at room temperature, making them immediately available for
use. TesTcup ER, a version of TesTcup designed specifically for the
hospital emergency room, is intended to be a cost-effective means to
shorten time to medical intervention and to minimize the need for
additional patient follow-up.
- ANALYTICAL ACCURACY. The on-site products developed by ANSYS are
designed to provide accurate and reproducible results, comparable to
results obtained in a reference or hospital laboratory using complex
laboratory analyzers. In addition, our TOXI-LAB system is designed to
provide high analytical accuracy and identifying power similar to
instrument based methods.
- MULTI-SUBSTANCE TESTING CAPABILITY. TesTcup and TOXI-LAB, as well as
certain other products under development, are designed to measure
multiple target substances simultaneously without sacrificing the quality
of the individual analysis. Our products that test for multiple
substances can identify the presence of one or more substances while
simultaneously indicating the absence of other substances. We believe
that when multiple substance screening is required, simultaneous
detection capability provides significant time and cost savings. TesTcup
offers simultaneous testing for amphetamines, cocaine, morphine, THC and
PCP. TesTcup ER is designed to simultaneously detect the presence or
absence of amphetamines, cocaine, morphine, barbiturates and
benzodiazepines. The TOXI-LAB system has the ability to detect over 500
drugs and drug byproducts.
- QUALITY. We endeavor to maintain high standards of quality in all aspects
of our operations. All of the products developed by ANSYS incorporate
high quality biological and chemical solutions. Our manufacturing
facility is designed to comply with Quality System Regulations and other
government guidelines. In addition, we employ extensive quality control
procedures at all stages of the manufacturing process, from receipt of
raw materials to shipping of finished products. We continuously monitor
compliance with our quality standards in order to ensure product
reliability.
- COST-EFFECTIVENESS. TesTcup, TesTstik, ON-SITE Alcohol and the on-site
products under development are designed to eliminate the need for highly
trained technicians and significant outlays for laboratory equipment,
making them cost-effective alternatives to laboratory analyzers in many
applications. Unlike automated sample processing instruments, TOXI-LAB
does not require significant capital expenditures.
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Our drug testing products and products under development include the
following:
<TABLE>
- --------------------------------------------------------------------------------
OUR DRUG TESTING PRODUCTS
- --------------------------------------------------------------------------------
PRODUCT
OWNERSHIP
PRODUCT DESCRIPTION/USE STATUS RIGHTS
- ---------------- ----------------------------------- ------------ -----------
<S> <C> <C> <C>
TesTcup 4/5 Collection and testing device for Commercial Roche
simultaneous screening of multiple
drugs of abuse: amphetamines,
cocaine, morphine, THC (marijuana
metabolite) and PCP (TesTcup 5
version only)
TesTcup ER Hospital emergency room version of Commercial Roche
TesTcup configured to
simultaneously screen for
amphetamines, cocaine, morphine,
barbiturates and benzodiazepines
TesTcup 5 M2K Version of TesTcup 5 which has a Launch Roche
higher detection level for morphine
TesTstik Family of products in a dipstick
format that each test for a single
abused drug:
- Amphetamines, cocaine, morphine, Commercial Roche
THC, PCP, barbiturates,
benzodiazepines
TesTstik 2 Version of TesTstik configured to Prototype Roche
test for two substances (cocaine Stage
and THC) simultaneously
TesTstik 3 Version of TesTstik configured to Prototype Roche
test for three substances (cocaine, Stage
THC and either amphetamines or
morphine) simultaneously
ON-SITE Alcohol Pocket-sized device designed to Commercial ANSYS
detect the presence of alcohol
(ethanol) in saliva or urine
TOXI-LAB Drug Bench-top system designed to detect Commercial ANSYS
Screening over 500 drugs and drug byproducts,
System with built-in quality control
TOXI-LAB THC II Extension of the TOXI-LAB system Commercial ANSYS
System used to test for evidence of
marijuana usage
TOXI-LAB LTD- Extension of the TOXI-LAB system Commercial ANSYS
Opiate System used to test for evidence of opiate
usage
DRUGSTAT RA Lateral flow device designed to Early ANSYS
monitor the ritalinic acid Development
metabolite of Ritalin, a
therapeutic drug used to treat
attention deficit disorder
- --------------------------------------------------------------------------------
</TABLE>
Roche has the exclusive right to market and distribute TesTcup 4/5, TesTcup
ER, TesTcup 5 M2K, TesTstik, TesTstik 2 and TesTstik 3. For a description of our
manufacturing and development agreements with Roche, see "Business -- Agreements
with Roche."
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TESTCUP 4/5. TesTcup is a self-contained, disposable urine collection and
testing device designed to detect the presence of up to five drugs of abuse
simultaneously. TesTcup provides easily interpreted results in approximately
five minutes and is designed to be simple to use. Once the urine specimen is
collected in the TesTcup, the lid is secured to the cup and the cup is tilted
forward for ten seconds, allowing urine to flow through a valve into a sample
reservoir in the cup. The cup is righted and left undisturbed for approximately
three minutes, until distinct blue lines appear on the side of the cup in the
"TEST VALID" windows indicating that results are ready. At that point, a cover
label is peeled off to reveal the test results. A white plus (+) sign indicates
the presence of a drug and a blue minus (-) sign indicates the absence of a
drug.
By integrating sample collection, detection and storage features into one
device, TesTcup eliminates the need to handle samples, mix chemical solutions,
calibrate and maintain instruments, and other aspects of most drug testing
methods. We believe that TesTcup provides enhanced convenience and exceptional
testing flexibility and reliability. When test results are negative, immediate
action can be taken without the need to wait for laboratory results. In the
workplace setting, these immediate results enable employees to return to or
enter the workforce without delay. When test results are positive, the TesTcup
device acts as a shipping container to transport the specimen to the laboratory
for confirmation testing. TesTcup's innovative sealing mechanism and labeling
system ensure that all chain of custody requirements are met in the event any
disputes arise regarding the integrity of the test.
TesTcup is used primarily in pre-employment screening, random employee
testing, criminal justice testing and clinical applications. For example, we
have been advised by Roche that the United States Postal Service is currently
using TesTcup for its recently implemented pilot drug screening program.
TESTCUP ER. ANSYS and Roche co-developed TesTcup ER, a new version of the
TesTcup product specifically designed to meet the requirements of hospital
emergency rooms. TesTcup ER tests for five substances simultaneously, including
barbiturates and benzodiazepines, substances which are often encountered in drug
related emergency room visits. We believe that TesTcup ER will offer a number of
advantages in the emergency room setting, including ease of use, rapid, accurate
results and cost-effectiveness. Roche has begun advertising and is currently
taking orders for TesTcup ER. We commenced shipments of TesTcup ER to Roche in
the first quarter of 1999.
TESTCUP 5 M2K. ANSYS and Roche co-developed TesTcup 5 M2K, a new version
of the TesTcup product specifically designed to meet the new guidelines of the
Substance Abuse and Mental Health Services Administration, which call for a
higher detection level for morphine. TesTCup 5 M2K tests for five substances
simultaneously and is equivalent to the TesTcup 5 product, except for the higher
detection level for morphine. We anticipate that TesTcup 5 M2K will be offered
through Roche to customers who request a higher morphine detection level.
TESTSTIK. TesTstik is a self-contained, easy to use, disposable dipstick
designed to detect the presence of a single drug of abuse in approximately three
minutes. We currently manufacture separate versions of TesTstik for five common
drugs of abuse, and we began shipping to Roche new versions for detection of
barbiturates and benzodiazepines in the first quarter of 1999. The test is
conducted by submersing the sample pad in the urine specimen for five to seven
seconds, after which the slide cover is closed. Once the distinct
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blue line appears indicating "TEST VALID," a plastic tab is broken off and
results can be read. A white plus (+) sign indicates the presence of a drug and
a blue minus (-) sign indicates the absence of a drug. TesTstik requires no
mixing or dispensing of chemical solutions, no pipetting of urine and no
refrigeration. TesTstik is used primarily for parole and probation testing,
workplace testing and drug treatment programs.
TESTSTIK 2 AND TESTSTIK 3. ANSYS and Roche are currently developing
TesTstik 2 and TesTstik 3, new versions of the TesTstik product designed
primarily to meet the requirements of parole and probation agencies and drug
treatment programs. TesTstik 2 is designed to test for two substances
simultaneously and TesTstik 3 is designed to test for three substances
simultaneously. We believe that these products, if successfully developed, could
offer a number of advantages in parole and probation settings, including ease of
use, rapid, accurate results and cost-effectiveness. We have produced prototypes
of these products for Roche and Roche is currently conducting marketing
evaluations of the products.
ON-SITE ALCOHOL. ON-SITE Alcohol is a self-contained, easy to use,
disposable, pocket-sized device designed to detect the presence of ethanol in
urine or saliva. Using a small pipette included in the test kit, a drop of
reagent is transferred from the built-in reagent well to the detection pad. A
drop of the specimen is transferred to the sample well using either the kit's
pipette or its saliva swab, and the result appears in approximately two minutes.
A purple plus (+) sign indicates the presence of ethanol while no color change
indicates the absence of ethanol. ON-SITE Alcohol is primarily used for parole
and probation testing, workplace testing and drug treatment programs. ON-SITE
Alcohol qualifies under the Department of Transportation's regulations for
mandatory random testing of transportation industry workers, including airline
pilots, truck drivers and rail employees.
TOXI-LAB DRUG SCREENING SYSTEM. The TOXI-LAB drug screening system is a
unique, bench-top, thin layer chromatography system that is designed to detect
over 500 drugs and drug byproducts. TOXI-LAB uses a comprehensive, standardized
set of reference materials and offers built-in quality control, and consistent
and reproducible procedures. TOXI-LAB incorporates disposable extraction and
evaporation components which prevent cross-contamination and eliminates the
spraying of hazardous chemical solutions, thus creating a safer working
environment for the technician. TOXI-LAB is primarily used by small or mid-sized
hospitals and forensic laboratories. In emergency room applications, TOXI-LAB is
used to detect or rule out many drugs quickly in suspected poisoning cases, and
to substantiate drug overdoses or drug interactions. TOXI-LAB is used prior to
hospital admission or surgery to guard against harmful drug interactions.
TOXI-LAB is also used to monitor patient and employee compliance in substance
abuse programs, psychiatric centers, employee assistance programs and in
geriatric medicine. Law enforcement agencies, forensic laboratories and prisons
use TOXI-LAB to monitor compliance with probation and parole requirements, as
well as to analyze certain types of contraband.
TOXI-LAB THC II SYSTEM. The TOXI-LAB THC II System is an extension of the
TOXI-LAB drug screening system, and is designed to be a rapid, easy to use urine
test to detect for evidence of marijuana usage. THC II is primarily used in
reference laboratories. THC II allows the laboratory to process multiple samples
simultaneously and incorporates our SPEC solid phase extraction columns, which
provide rapid and selective substance extraction and a reduction in sample
preparation time. The level of sensitivity achieved with THC II satisfies the
most stringent drug screening and confirmation requirements.
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TOXI-LAB LTD-OPIATE SYSTEM. The TOXI-LAB LTD-Opiate System is an extension
of the TOXI-LAB drug screening system designed to be a rapid, easy to use test
for screening or confirmation of opiates in urine. LTD-Opiate is primarily used
in reference laboratories to detect low levels of opiate alkaloids and their
byproducts. This system differentiates each of the opiates, providing a specific
analytical result without the need for sophisticated instrumentation. LTD-Opiate
also includes our SPEC solid phase extraction columns, which provide rapid and
selective substance extraction and a reduction in sample preparation time.
DRUGSTAT RA. We are in the early stage of development of a lateral flow
immunoassay device for the detection of ritalinic acid in urine. Ritalinic acid
is a metabolite of Ritalin, which is a prescription drug used to treat attention
deficit disorder. Currently, dosage compliance by the patient is not frequently
monitored. DRUGSTAT RA would be used outside a laboratory setting to detect the
presence of ritalinic acid and would provide a noninvasive alternative to a
blood test so that patient compliance could be monitored quickly and appropriate
treatments could be prescribed immediately.
SPECIALTY LABORATORY AND RESEARCH PRODUCTS
Our specialty laboratory and research products include products for solid
phase extraction and for nucleic acid separation and detection. The specialty
laboratory and research products and products under development by ANSYS include
the following:
<TABLE>
- ----------------------------------------------------------------------------
OUR SPECIALTY LABORATORY AND RESEARCH PRODUCTS
- ----------------------------------------------------------------------------
PRODUCT
OWNERSHIP
PRODUCT DESCRIPTION/USE STATUS RIGHTS
- ----------------- ------------------------------ ------------ -----------
<S> <C> <C> <C>
SPEC Solid Phase Family of sample preparation Commercial ANSYS
Extraction products marketed in four
Products primary formats: SPEC Columns,
SPEC 96-Well Plates, SPEC
Pipette Tips and SPEC
Extraction Discs
Nucleic Acid Sample preparation products Commercial Promega
Isolation that isolate nucleic acids
Products
XtraAMP Sample preparation tubes Beta Testing Molecular
incorporating DNA binding Innovations
material for rapid isolation
of nucleic acids
SCIP DNA testing cartridge that Research Molecular
integrates isolation, Innovations
amplification and detection to
screen for environmental
toxins and microorganisms
- ----------------------------------------------------------------------------
</TABLE>
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SPEC SOLID PHASE EXTRACTION PRODUCTS. Our SPEC solid phase extraction
products use proprietary membrane technology for preparing samples for trace
analysis. The SPEC products isolate substances of interest from urine, blood,
plasma or any other liquid sample. Unlike conventional solid phase extraction
products, our SPEC products use a proprietary small extraction disc, thereby
reducing solvent usage and hazardous waste generation, and reducing sample size
requirements for more efficient laboratory sample preparation. We currently
market the SPEC products in four primary formats: SPEC Columns, SPEC 96-Well
Plates, SPEC Pipette Tips and SPEC Extraction Discs. We believe that these four
formats satisfy the needs of various types of laboratories with respect to
sample size, number of samples processed and compatibility with existing
laboratory instrumentation. The primary markets for our SPEC products are
pharmaceutical companies and clinical testing laboratories performing drug
discovery and drug metabolism studies and confirmations, as well as
biotechnology companies engaged in DNA testing.
NUCLEIC ACID ISOLATION PRODUCTS. We exclusively manufacture two custom
nucleic acid isolation products for Promega using our proprietary membrane
technology. These products are packaged into kits by Promega and sold through
their biological research catalog.
XTRAAMP. In collaboration with Molecular Innovations, we have commenced
beta testing of our new XtraAMP product, which incorporates DNA binding material
into sample preparation tubes. The resulting XtraAMP tube is intended to be used
for the rapid extraction of DNA prior to amplification and detection. We have
the exclusive worldwide right to manufacture XtraAMP. We also have the exclusive
worldwide right to market and distribute XtraAMP to the bloodbanking market, and
the non-exclusive right to market and distribute XtraAMP in other markets.
SCIP. ANSYS, in conjunction with Molecular Innovations, is conducting late
stage research of an on-site DNA testing device known as the SCIP
(Self-Contained Isothermal Particle) cartridge. This device integrates sample
preparation, DNA amplification and lateral flow detection into a single
cartridge. Incorporation of the multiple steps into an individual cartridge
simplifies the process and reduces the potential for contamination. We believe
potential applications for SCIP include testing environmental samples for viral
contamination or the presence of other microorganisms.
TECHNOLOGY
Our technology integrates creative scientific concepts with innovative
product designs. Our research and development program applies our core
technology expertise to research projects and is currently performed in
accordance with the Quality System Regulations. We have expertise in several
core scientific disciplines, including membrane technologies, surface
chemistries and molecular interactions, all of which have enabled us to develop
innovative devices for both on-site and laboratory testing applications.
MEMBRANE TECHNOLOGIES. All of our products rely upon specialized membranes.
We have significant expertise in the manufacturing and processing of both
inorganic and organic membranes. Our inorganic membranes are used as the
separation media in our TOXI-LAB system, and the SPEC solid phase extraction
membranes are an extension of the TOXI-LAB membrane technology. We also have
expertise in processing organic membranes, such as the nitrocellulose-based
membranes used in the TesTcup and TesTstik product lines.
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SURFACE CHEMISTRIES AND MOLECULAR INTERACTIONS. Our technical expertise
includes the chemical modification of surfaces. By changing the surface
characteristics of the membrane through chemical modifications and other
techniques, we can control interactions between the membrane and the substance
of interest. We have developed 15 surface chemistries targeted at specific
product separations. We apply our understanding of surface chemistries and
molecular interactions between the substance and the surface of the membrane to
customize membranes for specific applications.
RESEARCH AND DEVELOPMENT
We principally focus our research and development efforts on responding to
market demands through the integration of creative scientific concepts with
innovative product designs. As of March 31, 1999, we had 12 employees in
research and development, all of whom are dedicated to the development of new
drug testing products and specialty laboratory and research testing products, as
well as new applications for our current products. Our scientific personnel
utilize expertise in several core scientific disciplines, including membrane
technologies, surface chemistries and molecular interactions. We also have a
core competency in design engineering. The engineering staff uses computer aided
design and rapid prototype techniques for the design and development of new
diagnostic devices and manufacturing processes which incorporate biological and
chemical solutions into our products. Our engineering abilities enable us to
design products rapidly. For example, we provided Roche with working prototypes
of TesTstik 2 and TesTstik 3, each in approximately two weeks. While we
currently fund substantially all of our own research and development, we
received development fees from Roche in the amount of $60,000 in the fourth
quarter of 1996 and in the amount of $20,000 in the first quarter of 1997 to
co-develop the initial TesTstik product. We have also engaged third parties from
time to time to conduct discrete research and development projects.
SALES AND MARKETING
As of March 31, 1999, we employed 11 persons in various sales and marketing
functions, including technical support. We sell our on-site drug testing
products primarily to Roche. Roche has the exclusive right to market and
distribute the TesTcup and TesTstik product lines as well as any modifications
and improvements to these products. Roche also markets and distributes ON-SITE
Alcohol in the United States and Canada. In addition, Roche has the right of
first refusal to exclusively market any and all new antibody based drugs of
abuse products that we developed. Sales to Roche represented 17% of our net
sales in 1996, 42% in 1997, 65% in 1998 and 69% for the three months ended March
31, 1999. Sales to Baxter Scientific Products represented 19% of our net sales
in 1996, and sales to Curtin Matheson Scientific represented 16% of our net
sales for the same period. No other customer or distributor accounted for more
than 10% of our net sales for the past three fiscal years or for the three
months ended March 31, 1999.
We sell our laboratory drug testing products direct in the United States to
hospitals, laboratories and universities, and through independent distributors
internationally. We sell our specialty laboratory and research products through
a combination of direct sales representatives and distributors.
Our Technical Support department operates a customer hotline 24 hours a
day, seven days a week in order to assist our customers in the use of our
products. Technical Support also publishes the SPEC-NEWS and TOXI-NEWS product
newsletters. These news-
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letters keep our customers informed of new developments in areas of interest
relevant to their industries. We also conduct numerous TOXI-LAB customer
training workshops throughout the year, and participate in annual product trade
shows and technical presentations.
MANUFACTURING
As of March 31, 1999, we had 235 employees involved in manufacturing,
assembly, process engineering, quality control and materials management. We
believe we comply with all aspects of the Quality System Regulations in the
production of our products and we maintain strict quality control regimens in
order to ensure high standards of quality.
Several of our manufacturing processes are automated. We are currently in
the process of automating additional manufacturing processes. We expect the
implementation of these manufacturing changes to allow for increased production
volumes while reducing per unit cost of goods sold. Our new automated equipment
is custom designed by manufacturers working closely with our engineering
department to ensure that our high quality standards are maintained. See "Risk
Factors -- Our Continuing Efforts to Increase Automation May Be Costly,
Time-Consuming and May Not Be Successful."
We obtain all raw materials for the manufacture of our products from
outside sources. The key raw materials used in our products include the
nitrocellulose membranes and liquid reagents used in our TesTcup and TesTstik
products, and the glass fiber membranes used in our TOXI-LAB and SPEC products.
All of these raw materials are currently only available from approved sole
source suppliers. We also use custom injection molded plastic parts which
comprise the packaging for our products. While the plastic pellets used in the
manufacture of these parts are readily available, Roche owns the custom molds
for TesTcup and TesTstik. We endeavor to keep a three-month supply of critical
raw materials and component parts on hand to avoid manufacturing interruptions.
See "Risk Factors -- The Failure of Sole Source Suppliers to Provide Key Raw
Materials Could Adversely Affect the Production of Our Products and Could Harm
Our Customer Relationships." Our quality control department inspects and tests
all raw materials, subassemblies and finished goods against established
acceptance standards.
COMPETITION
Our target markets are intensely competitive. We believe the principal
factors for competition include accuracy, reproducibility, ease of use,
distribution capabilities and price. Our competitors include diagnostic
companies that manufacture on-site and laboratory-based drug testing products,
as well as those that manufacture specialty laboratory and research products.
Some of our competitors have substantially greater financial, technical,
research and other resources and larger, more established sales, marketing,
distribution and service organizations than we have. Moreover, a number of these
competitors offer broader product lines, have greater name recognition than we
do and offer discounts as a competitive tactic. In addition, several smaller
companies are currently making or developing products that compete with or will
compete with our products.
We believe independent reference and hospital-based laboratories perform
the majority of diagnostic tests. We expect that these laboratories will compete
vigorously to maintain their position in our target markets. To achieve broad
market acceptance for our products, we, together with Roche, will be required to
demonstrate that our products are an
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attractive alternative to testing performed by reference and hospital-based
laboratories, which may require changes to their established means of testing.
Our products may not be able to compete with the testing services provided by
these laboratories.
Our competitors may develop or market technologies or products that are
more effective or commercially attractive than our current or future products or
that would render our technologies and products obsolete. These technologies may
limit or interfere with our ability to make, use or sell our products. In
addition, we may not have the financial resources, technical expertise or
marketing, distribution or support capabilities to compete successfully in the
future. See "Risk Factors -- The Effects of Competition Could Adversely Affect
Our Business and Financial Condition."
AGREEMENTS WITH ROCHE
TesTcup Agreement. In April 1993, we entered into a commercial agreement
(the "TesTcup Agreement") with Roche. Pursuant to this agreement, Roche paid us
a $96,000 development fee to develop, in collaboration with Roche, a multiple
substance drugs of abuse testing device that ultimately became TesTcup. No
further development fees have been received or are due to us under this
agreement. Under the TesTcup agreement, we assigned to Roche in perpetuity all
of our ownership rights to TesTcup and to any modifications and improvements of
these products, such as TesTcup ER. In exchange for this assignment, we were
given the exclusive right to manufacture and supply TesTcup to Roche for the
term of the agreement. Roche also has the right of first refusal to exclusively
market any and all new antibody-based drugs of abuse products developed by us.
The initial TesTcup Agreement terminates on December 31, 1999 and gives Roche an
option to renew for additional three-year periods. In May 1998, the TesTcup
Agreement was amended to extend the termination date to January 1, 2003. The
TesTcup Agreement also provides that any patentable inventions relating to
TesTcup, whether developed by us or by Roche, or jointly, are the sole and
exclusive property of Roche. Roche agreed to pay or reimburse all reasonable
costs and expenses we incur related to the filing of patent applications
concerning TesTcup. Roche also agreed to pay for all equipment and supply all
reagents and other materials necessary to manufacture TesTcup, and owns all such
equipment and reagents. Roche's proprietary reagents are used in TesTcup. We
have the right to use such equipment and reagents during the term of the TesTcup
Agreement and are required to return all such equipment and reagents to Roche
upon expiration or termination of the agreement.
The TesTcup Agreement provides that we will manufacture TesTcup according
to defined specifications, subject to modification of quality control
specifications at Roche's sole discretion, and in accordance with all applicable
laws. Roche may use another vendor to manufacture TesTcup if Roche gives us
notice that the TesTcup products we are manufacturing do not meet the
specifications of the agreement, or that we are not providing sufficient
quantities of TesTcup on a timely basis, and we are unable to promptly cure the
problem or manufacture a sufficient quantity of products. We are responsible for
all costs, expenses and consequential damages under our contract with Roche for
all product recalls, returns and defects attributable to our manufacturing.
Production of TesTcup is based upon a "rolling forecast" of four three-calendar
month periods provided to us on a quarterly basis. Roche is not required to
forecast a minimum number of units, provided that the number of units for the
initial three-calendar month period of any rolling forecast may not vary in
excess of 20%. The agreement provides maximum order limitations, subject to the
our maximum production capacity. Orders for TesTcup are
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based upon written purchase orders delivered by Roche. We currently invoice
Roche only for products actually shipped, based upon predetermined contractual
unit prices. The unit price of TesTcup is determined by a formula derived in
part from our cost of production.
The TesTcup Agreement provides that Roche will offer to license TesTcup to
us in those markets or market segments in which Roche has determined that it
will not sell the product. In such event, we have no right to sublicense, assign
or transfer our rights under any such license without the prior written approval
of Roche. If we do not accept such an offer within the time period allotted
under the TesTcup Agreement, then Roche may offer such license to third parties
without any further obligation to us. The TesTcup Agreement also gives Roche a
right of first refusal to exclusively market any and all new antibody-based
drugs of abuse products we develop. The TesTcup Agreement also provides that we
and Roche each indemnify the other against damages resulting from our respective
performances under the agreement and certain other matters.
The TesTcup Agreement allows either party to terminate the agreement upon
certain breaches by the other party, or the bankruptcy or insolvency of the
other party, and allows Roche to terminate the agreement upon the occurrence of
certain FDA actions or objections. In the event that Roche does not renew its
agreement with us at the end of its term for reasons other than as a result of a
breach by us, Roche will pay us a fee to be negotiated by the parties, not to
exceed 3% of the net sales price of TesTcup, for each unit sold by Roche
following such termination. Neither Roche nor ANSYS may assign its rights under
the TesTcup Agreement to a third party without the prior written consent of the
other.
TesTstik Agreement. In September 1996, we entered into a development and
manufacturing agreement with Roche (the "TesTstik Agreement"). Pursuant to this
agreement, Roche paid us an $80,000 development fee to develop, in collaboration
with Roche, a single substance drug of abuse testing device that ultimately
became TesTstik. No further development fees have been received or are due to us
under this agreement. The TesTstik Agreement terminates in October 2002, and
gives Roche an option to extend the agreement for additional three-year terms,
or portions thereof. The TesTstik Agreement contains material terms
substantially identical to the TesTcup Agreement, including:
- terms relating to Roche's ownership of all rights to TesTstik, including
rights to related patents, and the equipment and reagents used to
manufacture TesTstik;
- payment by Roche of patent related fees and expenses;
- our exclusive manufacturing and supply rights;
- forecasting, ordering and licensing provisions;
- specifications; and
- quality control.
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The TesTstik Agreement also contains certain terms which differ from those
of the TesTcup Agreement, including:
- Roche will receive product pricing discounts based upon volume of
purchases and levels of automation;
- Roche does not have to pay us any fee in respect of Roche's net sales of
TesTstik if Roche does not renew its agreement with us after the end of
its term;
- Roche has a right of first refusal to exclusively market any and all new
products we develop using Roche's reagent technology during the term of
the agreement;
- Our financial liability is limited for certain breaches of the TesTstik
Agreement to the price Roche pays us for the TesTstik products;
- Roche and ANSYS each have equitable remedies in the event of a breach by
the other;
- We must pay Roche a license fee not to exceed ten percent (10%) of our
net sales in markets where Roche licenses TesTstik to us for sale because
Roche has decided not to sell TesTstik in that market;
- Roche or ANSYS has the right to assign their rights to an affiliate or a
successor in interest to substantially all of the assigning party's
assets without obtaining the other party's consent, provided that all
other assignments require the prior written consent of the non-assigning
party; and
- Pricing disputes following a modification by Roche of TesTstik
specifications shall be submitted to binding arbitration.
RELATIONSHIP WITH MOLECULAR INNOVATIONS
We have been collaborating with the scientific staff at Molecular
Innovations since 1995 to develop new products such as SCIP and XtraAMP. We are
designing and developing these products, as well as the related manufacturing
processes, Molecular Innovations has developed the nucleic acid chemistries for
these products. Under existing agreements with Molecular Innovations, we have
the exclusive right to manufacture and the non-exclusive right to market and
distribute SCIP until February 2002. We have the exclusive right to manufacture
XtraAMP, the exclusive right to market and distribute XtraAMP in the
bloodbanking markets, and the non-exclusive right to market and distribute
XtraAMP in all other markets, for five years from the launch of XtraAMP. In
exchange for these rights, we will pay a royalty to Molecular Innovations for
XtraAMP and SCIP products we sell. We have not paid any royalties to date to
Molecular Innovations. We are not obligated to pay any research and development
fees to Molecular Innovations. Under our agreements, Molecular Innovations holds
all intellectual property and other ownership rights to SCIP and XtraAMP. In
1998, we purchased less than a 5% equity interest in, and in March 1999 provided
convertible debt financing to, Molecular Innovations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Qualitative and Quantitative Disclosures about Market Risk." In
addition, we have the right to designate a member of the Board of Directors of
Molecular Innovations. Stephen K. Schultheis, our Chairman, President and Chief
Executive Officer, is presently our designee on the Board of Directors of
Molecular Innovations.
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INTELLECTUAL PROPERTY
Our ability to compete effectively will depend in part upon our ability to
develop and maintain the proprietary aspects of our technology and to operate
without infringing the proprietary rights of others. We hold two United States
patents which expire in 2009 relating to our ON-SITE Alcohol product and are
currently pursuing three pending United States patent applications. We have also
filed two counterpart patent cooperation treaty applications as a first step in
obtaining counterpart foreign patents. We cannot be certain that our pending
patent applications will result in the issuance of any patents or that we will
receive any additional patents. In addition, because patent applications in the
United States are maintained in secrecy until patents issue, patent applications
are not generally published until many months or years after they are filed and
publication of technological developments in the scientific and patent
literature often occurs long after the date of such developments, we cannot be
certain that we were the first to invent the subject matter covered by the
patent applications, or that we were the first to file patent applications for
such inventions. Even if any patents are issued, they may not adequately protect
our intellectual property rights against competitors with similar technology. In
addition, any existing or future patents could be challenged, invalidated or
circumvented, and any right granted under the patents may not provide meaningful
protection to us. The failure of any patents to protect our technology would
make it easier for our competitors to offer similar products.
These products also incorporate reagent technologies owned by Roche. Roche
holds all of the intellectual property and other ownership rights of two of the
largest volume products we sell, TesTcup and TesTstik. Pursuant to development
and manufacturing agreements with Roche, we have the exclusive manufacturing
rights to the TesTstik product line until October 2002 and to TesTcup until
January 2003. If during the term of these agreements, or any renewals of these
agreements, an invention is made relating to TesTcup or TesTstik that results in
additional patentable rights to these products, all of those patentable rights
will belong to Roche. Roche may not aggressively protect its patents or licenses
on the products we manufacture. Roche's failure to protect its rights could
adversely affect our business.
We rely principally upon trade secrets, technical know-how and continuing
innovation to develop and maintain our competitive position, particularly with
respect to our membrane technologies. We generally enter into confidentiality
agreements with our employees and strategic partners, and attempt to control
access to and distribution of our confidential documentation and other
proprietary information. Notwithstanding these precautions, it may be possible
for a third party to copy or otherwise obtain and use our products, services or
technology without authorization, develop similar technology independently or
design around our and Roche's intellectual property. Accordingly, we may not be
able to protect our proprietary technology adequately, and our failure or
inability to do so could adversely affect our business. In addition, effective
copyright, trademark and trade secret protection may be unavailable or limited
in certain foreign countries. Moreover, litigation may be necessary in the
future to enforce either our or our strategic partners' intellectual property
rights, to protect their respective trade secrets or to determine the validity
and scope of proprietary rights of others, including its customers. Irrespective
of the validity or success of litigation, we would likely incur significant
costs and that litigation could divert management's efforts and other resources.
In addition, the litigation could result in the issuance of an injunction
against us, requiring us or our strategic partners to withdraw certain products
from the market, redesign certain products
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currently offered for sale or under development, or require them to obtain
licenses, which may not be available on reasonable terms, or at all. Any of the
foregoing could adversely affect our business. See "Risk Factors -- We May Not
Be Able to Adequately Protect or Enforce Our Intellectual Property Rights."
GOVERNMENT REGULATION
PREMARKET CLEARANCE AND APPROVAL. Unless an exemption applies, any medical
device that we and our collaborative partners wish to market in the United
States must receive either 510(k) clearance or PMA approval in advance from the
FDA pursuant to the Federal Food, Drug, and Cosmetic Act. The 510(k) clearance
process usually takes from four to 12 months, but it can last longer. The
process of obtaining PMA approval is much more costly and uncertain and
generally requires from one to three years or even longer. It is possible that
we may not be able to obtain either 510(k) clearance or PMA approval for any
product we propose to market in the United States.
The FDA decides whether a device must undergo either the 510(k) clearance
or PMA approval process based upon statutory criteria. These criteria include
the level of risk that the agency perceives is associated with the device and a
determination of whether the product is within a type of device that is similar
to devices that are already legally marketed. Those devices deemed to pose
relatively less risk are placed in either Class I or II, which require the
manufacturer to submit a premarket notification requesting 510(k) clearance
unless an exemption applies. The premarket notification must demonstrate that
the proposed device is "substantially equivalent" in intended use and in safety
and effectiveness to a legally marketed "predicate device" that is either in
Class I, Class II, or is a "preamendments" Class III device (i.e., one that was
in commercial distribution before May 28, 1976) for which the FDA has not yet
decided to require PMA approval. In contrast, devices the FDA deems to pose the
greatest risk, or to be novel devices lacking a legally marketed predicate, are
placed in Class III and are required to undergo the PMA approval process. This
process requires the manufacturer to file a premarket approval application
presenting extensive testing data and other information to prove the safety and
effectiveness of the device to the FDA's satisfaction. To date, we have
considered our diagnostic test products and those of our collaborative partners,
such as TesTcup, TesTstik, ON-SITE Alcohol, TOXI-LAB and SPEC, to be Class II
devices eligible for 510(k) clearance, exempt Class I devices or laboratory
products that are unregulated by the FDA. It is possible that the FDA may not
agree with our assessments. Also, one or more of our future products, including
potential line extensions to detect additional substances, may be deemed Class
III devices and required to undergo the time consuming and costly PMA approval
process.
After a device receives 510(k) clearance, any modification that could
significantly affect its safety or effectiveness, or that would constitute a
major change in the intended use of the device, requires a new 510(k) clearance.
The FDA requires each manufacturer to make this determination in the first
instance, but the FDA can review any such decision. If the FDA disagrees with a
manufacturer's decision not to seek a new 510(k) clearance, the FDA can
retroactively require the manufacturer to submit a premarket notification
requiring 510(k) clearance. The FDA also can require the manufacturer to cease
marketing and/or recall the modified device until 510(k) clearance is obtained
and other penalties could apply. We have made modifications and/or line
extensions to some of our marketed products such as ON-SITE Alcohol, TOXI-LAB,
and SPEC, for which we believed new 510(k) clearances were not required. In
addition, Roche decides whether to
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seek new 510(k) clearances for changes to TesTcup and TesTstik, and we cannot be
sure that changes that would require new 510(k)s have not been made to those
products. We cannot be sure that the FDA would agree with any of our or our
collaborative partners' decisions not to seek 510(k) clearance. If the FDA
requires 510(k) clearance for any modification, the FDA also may require us to
cease marketing and/or recall the modified device until a new 510(k) clearance
is obtained.
We obtained 510(k) clearance for SPEC and TOXI-LAB when used in testing for
some substances, but subsequently added other substances and/or made other
modifications for which we did not seek 510(k) clearance. Our present position
is that SPEC and TOXI-LAB are laboratory products not regulated by the FDA as
medical devices. We cannot be assured that the FDA would accept our position. If
the FDA were to disagree, the FDA could impose enforcement sanctions, such as
stopping the commercial distribution of these products until they receive new
510(k) clearances and are otherwise brought into regulatory compliance.
RESEARCH AND INVESTIGATIONAL USE. In vitro diagnostic products can be
distributed for "research use only," commonly referred to as RUO, or
"investigational use only," commonly referred to as IUO, under conditions
prescribed in the FDA's regulations, before they receive 510(k) clearance or PMA
approval. The FDA requires manufacturers to include results from testing with
specimens taken from humans to support a 510(k) clearance or a PMA approval for
most diagnostic tests, including tests that we are developing. Investigational
use clinical studies of most other types of medical devices require the FDA's
prior approval of an investigational device exemption application, commonly
known as an IDE. Clinical studies of in vitro diagnostic tests, however, are
exempt from the IDE requirements, provided that the testing is noninvasive, does
not require an invasive sampling procedure that presents a significant risk,
does not intentionally introduce energy into the subject, and is not used as a
diagnostic procedure without confirmation by another, medically established,
test or procedure. In vitro diagnostic products distributed for clinical studies
under this exemption from the IDE requirement must be labeled, "For
Investigational Use Only. The performance characteristics of this product have
not been established," and products that are in the laboratory research phase of
development and meet the exemption criteria described in this paragraph must be
labeled "For Research Use Only. Not for use in diagnostic procedures."
Both RUO and IUO products must be distributed in a controlled manner to
assure that the products are not improperly used for purposes other than
research or investigation. In addition, all IUO clinical studies must comply
with the FDA's informed consent requirements and other requirements designed to
protect the integrity of the data and the health and welfare of patients. The
FDA has announced an intent to exercise heightened enforcement with respect to
RUO and IUO tests that are improperly commercialized prior to receipt of 510(k)
clearance or PMA approval.
We and/or our collaborative partners may distribute tests on an RUO or IUO
basis in order to gather clinical or other data to support 510(k) clearance or
PMA approval for products that we are developing. It is possible that the FDA
would not agree that our RUO or IUO distribution meets the requirements for the
IDE exemption or complies with the prohibition against improper
commercialization and other requirements for RUO and IUO studies. Failure by us,
our collaborative partners or the recipients of the RUO or IUO tests to comply
with these regulatory limitations could cause the FDA to take enforcement
action, including revocation of the IDE exemption and/or the imposition of
restrictions on our distribution of RUO or IUO tests. Any such enforcement
action would
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adversely affect our ability to conduct the clinical studies necessary to
support marketing clearance or approval of our products in development. It is
possible that we may not be able to complete any research or clinical study that
we initiate or, if completed, that the study will not provide data and
information that will support a 510(k) clearance or PMA approval.
PERVASIVE AND CONTINUING REGULATION. After the FDA grants a manufacturer
approval to bring a device to market, a host of postmarket regulatory
requirements apply, including:
- labeling regulations;
- Quality System Regulation, which requires that manufacturers follow
elaborate design, testing, control, documentation and other quality
assurance procedures;
- Medical Device Reporting regulations, which require that
manufacturers report to the FDA certain types of adverse events
involving their products; and
- the FDA's general prohibition against promoting products for
unapproved or "off-label" uses.
Class II devices can be subject to additional special controls such as
performance standards, postmarket surveillance, patient registries and FDA
guidelines, that do not apply to Class I devices.
We are subject to inspection by the FDA to determine compliance with
regulatory requirements. If we fail to comply with the FDA's requirements, the
FDA can institute a wide variety of enforcement actions. The FDA sometimes
issues public warning letters, which, if received by us, could have an adverse
impact on our business. The FDA also can pursue more drastic remedies, such as:
- refusing our requests for 510(k) clearance or PMA approval of new
products;
- withdrawing product approvals already granted;
- requiring us to recall products; or
- asking a court to require us to pay civil penalties or criminal
fines, adhere to operating restrictions, or close down our
operations. Ultimately, criminal prosecution is available to the FDA
as punishment for egregious offenses.
Any FDA enforcement action could have an adverse effect on our business,
financial condition and results of operations.
We are also subject to various state, local and foreign regulatory
requirements in the various jurisdictions in which we do business. For example,
the California Department of Health must license and inspect our manufacturing
facility in California. The California Department of Health has a broad range of
enforcement options, some of which are not available to the FDA. Moreover,
state, local and foreign regulatory agencies work together on certain
enforcement issues. Any adverse action by state, local or foreign regulatory
agencies could have an adverse effect on our business, financial condition and
results of operations.
Roche controls the FDA regulatory clearance, labeling and marketing
functions for the TesTcup and TesTstik product lines and is responsible for
assuring that these products comply with the applicable FDA requirements. Roche
may fail to obtain necessary 510(k)
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clearances, may engage in prohibited "off-label" promotional activity, or
otherwise may not comply with FDA requirements. Such noncompliance, which is
outside our control, could cause the FDA to revoke or limit Roche's ability to
commercially distribute the TesTcup or TesTstik product lines.
THE CLINICAL LABORATORY IMPROVEMENT AMENDMENTS OF 1988 AND RELATED
REGULATIONS. The use of our products is also affected by the Clinical Laboratory
Improvement Amendments of 1988, commonly referred to as CLIA, and related
federal and state regulations which provide for regulation of laboratory
testing. The scope of these regulations includes quality control, proficiency
testing, personnel standards and federal inspections. CLIA categorizes tests as
"waived," "moderately complex" or "highly complex" on the basis of specific
criteria. Any future amendment of CLIA or the promulgation of additional
regulations impacting laboratory testing may adversely affect our business.
OTHER REGULATIONS. We also are subject to numerous other federal, state and
local laws relating to matters such as: (1) safe working conditions; (2)
manufacturing practices; (3) environmental protection; (4) fire hazard control;
and (5) disposal of hazardous or potentially hazardous substances. We may incur
significant costs to comply with these laws and regulations in the future. See
"Risk Factors -- We Must Comply With Various Government Regulations and Cannot
Be Assured of Obtaining Further Regulatory Approvals."
EMPLOYEES
As of March 31, 1999, we had 273 full-time employees, including 12
employees engaged in research and development, 11 engaged in sales and
marketing, 235 engaged in manufacturing operations and 15 engaged in general and
administrative activities. Our employees are not represented by any collective
bargaining agreement, and we have never experienced a work stoppage. We believe
our employee relations are good.
FACILITIES
Our administrative, engineering and manufacturing facilities are located in
an 84,000 square foot facility in Lake Forest, California. We believe our
existing facility will be sufficient for our needs for the foreseeable future.
We have a fixed-price option to purchase this facility in February 2000 for $5.6
million.
LEGAL PROCEEDINGS
We are not involved in any material litigation and are not aware of any
claims which would give rise to material liability.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides certain information with respect to our
executive officers and directors as of March 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- ---------------------------------------
<S> <C> <C>
Stephen K. Schultheis.......... 53 Chairman of the Board, President and
Chief Executive Officer
Steven P. Sidwell.............. 59 Executive Vice President -- Operations
Dennis D. Blevins, Ph.D. ...... 45 Vice President -- Research and
Development
Suzanne M. David............... 32 Chief Financial Officer and Secretary
Darrell J. Adams............... 51 Vice President -- Technical Support
Wilford C. Downs............... 47 Vice President of Operations --
Laboratory Products
Jeffrey G. Uding............... 44 Director of Operations -- On-Site
Products
Ronald J. Hall(1)(2)........... 58 Director
George D. Holmes(1)(2)......... 67 Director
John M. Morris(2).............. 50 Director
C. Michael O'Donnell, Ph.D..... 59 Director
William C. Shepherd............ 60 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
STEPHEN K. SCHULTHEIS has served as our President and Chief Executive
Officer since 1995, and Chairman of the Board since July 1998. Mr. Schultheis
joined ANSYS in 1990 as Director of Research and Development. He was promoted to
Vice President -- Research and Development in 1992 and promoted to Chief
Operating Officer in 1994. From 1986 to 1990, Mr. Schultheis was a professional
Consulting Engineer designing and developing products for various medical
diagnostic and commercial companies. From 1979 to 1986, he was Vice
President -- Engineering and Operations for Orangematic, Inc., a manufacturer of
food processing equipment. From 1974 to 1979, Mr. Schultheis was Vice
President -- Research and Development of Bennett Industries, a manufacturer of
commercial plastic products. From 1968 to 1973, he was a research engineer with
the United States Naval Undersea Center, engaged in weapons development. Mr.
Schultheis currently serves on the Board of Directors of Molecular Innovations,
Inc. Mr. Schultheis received a B.S. from California State University at San Jose
in 1968, and a M.S. in Mechanical Engineering from the University of Southern
California in 1972.
STEVEN P. SIDWELL has served as our Executive Vice President -- Operations
since 1998. From 1990 to 1998, Mr. Sidwell held a variety of positions with
Sensormedics Corporation, which is engaged in pulmonary function, exercise,
nutrition and metabolic function diagnosis, most recently as its Executive Vice
President of Operations. Prior to joining Sensormedics, Mr. Sidwell served as
President of National Service Concepts, a consumer electronics production
company, from 1988 to 1989. Mr. Sidwell received a B.S. in Chemical Engineering
from Purdue University in 1964 and a M.B.A. from the University of Pennsylvania
in 1968. Mr. Sidwell also serves on the board of directors of IOMED, Inc., a
publicly-traded drug delivery company.
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DENNIS D. BLEVINS, PH.D. has served as our Vice President -- Research and
Development since 1997. Dr. Blevins joined ANSYS in 1992, and served as Senior
Scientist from 1992 to 1994. From 1994 to 1996, Dr. Blevins served as SPEC
Division Manager. From 1996 to 1997 he served as Director of Research and
Development. From 1990 to 1992, Dr. Blevins was employed by S-CUBED, the
environmental laboratory division of Maxwell Laboratories. Prior to 1990, Dr.
Blevins held a number of research and development positions for laboratory
products and pharmaceutical companies. Dr. Blevins received a Ph.D. in
Analytical Chemistry in 1982 from the University of Arizona.
SUZANNE M. DAVID has served as our Chief Financial Officer and Secretary
since July 1998. Ms. David joined ANSYS in March 1996 as Controller. From 1991
to 1996, Ms. David served as the Accounting Manager for Corona Clipper, a
manufacturer of garden products where she was responsible for the preparation of
all financial reporting documents. Prior to 1991, Ms. David held a number of
finance positions with various manufacturing companies. Ms. David received a
B.A. in Business Administration from California State University Fullerton in
1992.
DARRELL J. ADAMS has served as our Vice President -- Technical Support
since 1988. Mr. Adams joined ANSYS in 1976 as a Technical Representative. From
1977 to 1981, Mr. Adams worked as Chief Technologist and Supervisor and
developed ANSYS' reanalysis and technical consultation services. From 1981 to
1988 Mr. Adams worked as Director of Technical Support. Mr. Adams received a
B.S. in Microbiology from Idaho State University in 1973.
WILFORD C. DOWNS has served as our Vice President of
Operations -- Laboratory Products since 1988. From 1981 to 1988, Mr. Downs was
Manufacturing and Distribution Manager for Marion Laboratories, Inc., a
pharmaceutical company. From 1974 to 1981, Mr. Downs served as Production
Manager for Analytical Systems, Inc., a manufacturer of diagnostic products. Mr.
Downs received a B.S. in Business Administration from the University of La
Verne, California in 1987.
JEFFREY G. UDING has served as our Director of Operations -- On-Site
Products since July 1997. Mr. Uding joined ANSYS in March 1996 as Manager of
On-Site Products. Prior to joining ANSYS, Mr. Uding held management positions
for Pacesetter Systems, a division of St. Jude Medical, and was Group Manager at
Mallinckrodt Medical (formerly Sorin Biomedical). Prior to that, Mr. Uding was
employed at Baxter Healthcare for approximately 12 years, holding positions in
manufacturing and research and development for medical, respiratory, parenterals
and kidney dialysis products. Mr. Uding received a B.S. from Roosevelt
University in Chicago in 1983. He received a M.S. in Management from University
of LaVerne, California in 1988 and a M.B.A. from Pepperdine University in 1991.
RONALD J. HALL has served as a director of ANSYS since 1991. Since 1990,
Mr. Hall has also been the Managing General Partner of Hall Capital Management,
the General Partner of Hall, Morris & Drufva II, L.P., an institutional venture
capital fund. From 1986 to 1990, Mr. Hall was Senior Vice President of First
Interstate Venture Capital Corporation, the venture capital subsidiary of First
Interstate Bank. From 1973 to 1983, Mr. Hall was also a General Partner of
Weiss, Peck & Greer, a New York and San Francisco-based venture capital and
money management firm. Mr. Hall is a director of Encad, Inc., a publicly-traded
manufacturer of wide format color ink-jet printers. He is also a director of
five privately-held companies which are part of the Hall, Morris & Drufva II,
L.P. portfolio.
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<PAGE> 55
GEORGE D. HOLMES has served as a director of ANSYS since 1988. Mr. Holmes
is a retired medical industry executive with 22 years of medical systems
management experience. From 1987 to 1996, Mr. Holmes was Chief Executive Officer
of Sensormedics Corporation. From 1984 to 1985, Mr. Holmes was Executive Vice
President of ADAC Laboratories, a manufacturer in nuclear medicine diagnostic
systems. From 1980 to 1984, Mr. Holmes served as the President of Squibb
Vitatek, Inc., a manufacturer of portable patient monitoring systems. Mr. Holmes
also served as the Chairman of the St. Joseph Hospital Foundation and a director
of the Oregon State March of Dimes. He was also Chairman of the Advisory Board
of the University of Southern California School of Medicine, Department of
Physical Therapy and Biokinesiology. He is currently a director of the American
Pulmonary Medicine Institute.
JOHN M. MORRIS has served as a director of ANSYS since 1988. Mr. Morris has
been a Managing Director in the Corporate Finance Department of Sutro & Co.
Incorporated since 1996. From 1995 to 1996, Mr. Morris was a Managing Director
in the Investment Banking Department of Wedbush Morgan Securities. From 1992 to
1995, Mr. Morris was a Principal at NewCap Partners, a private investment bank.
From 1988 to 1992, he was a partner in Hall, Morris and Drufva Capital
Management, the successor to First Interstate Venture Capital Corporation. From
1984 to 1988, Mr. Morris served in various investment banking capacities with
PaineWebber, Inc. and with Wedbush Morgan Securities. Mr. Morris is a founding
director of the Forum of Corporate Directors in Orange County and served as its
President in 1994.
C. MICHAEL O'DONNELL, PH.D. has served as a director of ANSYS since 1988.
Since 1996, Dr. O'Donnell has been President and Chief Executive Officer of EMS,
Inc., a manufacturer of electronic monitoring devices for parole and probation.
Prior to joining EMS, Dr. O'Donnell served in various capacities with ANSYS,
most recently as our Chairman of the Board, from 1994 to 1998. Prior to that he
served as President and Chief Executive Officer from 1988 to 1994, and served as
our Operations Manager from 1984 to 1988. During 1984, Dr. O'Donnell was a
private consultant. From 1982 to 1984, Dr. O'Donnell was President and Chief
Executive Officer of Clinetics Corporation, a manufacturer of immunodiagnostic
reagents.
WILLIAM C. SHEPHERD has served as a director of ANSYS since 1998. Mr.
Shepherd was previously Chairman of the Board of Allergan, Inc., a leading
provider of eye care and specialty pharmaceutical products, from January 1, 1996
to January 1, 1998. He was President and Chief Executive Officer of Allergan
from 1992 to 1996, and prior to that, served as the President and Chief
Operating Officer of Allergan from 1984 to 1992. Currently, Mr. Shepherd serves
as Chief Executive Officer and President of Allergan Specialty Therapeutics
Inc., a pharmaceutical research and development company. In addition, Mr.
Shepherd serves on the board of directors of Furon Company, a leading
international manufacturer of engineered polymer components, and Techniclone
Corporation, a biotechnology company engaged in the research and development of
therapeutics for the treatment of cancer.
There are no family relationships among any of our directors or executive
officers. Our certificate of incorporation provides for a classified Board of
Directors. Prior to the closing of this offering, the terms of office of the
Board of Directors will be divided into three classes, such that the terms of
Class I, Class II and Class III directors will expire at the annual meetings of
stockholders to be held in 2000, 2001 and 2002, respectively. The number of
directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the Board of Directors. The
classification of
53
<PAGE> 56
the Board of Directors has the effect of requiring at least two annual
stockholder meetings, instead of one, to replace a majority of members of the
Board of Directors. Executive officers are appointed to serve at the discretion
of the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two standing committees: the Audit
Committee and the Compensation Committee. The Audit Committee consists of Ronald
J. Hall and George D. Holmes. The Audit Committee recommends the appointment of
independent public accountants for the annual audit of our financial statements
to the Board of Directors. The Audit Committee reviews the scope of the annual
audit and other services the auditors are asked to perform. This committee also
reviews the report on our financial statements prepared by the auditors
following the audit, and our accounting and financial policies in general. The
Audit Committee also reviews management's procedures and policies with respect
to our internal accounting controls.
The Compensation Committee consists of Ronald J. Hall, George D. Holmes and
John M. Morris. The Compensation Committee reviews and approves salaries,
benefits and bonuses for all executive officers. It reviews and recommends to
the Board of Directors on matters relating to employee compensation and benefit
plans. The Compensation Committee also administers our 1990 Stock Option Plan
and the 1997 Stock Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the Board of Directors or
Compensation Committee and the board of directors of any other company.
DIRECTOR COMPENSATION
We currently pay our nonemployee directors $1,000 per board meeting
attended and reimburse out-of-pocket expenses incurred by our directors in
connection with attendance of board and committee meetings.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
We do not currently have any employment contracts with any of our executive
officers. Accordingly, the Board of Directors may terminate the employment of
any executive officer at any time in its discretion. We provide incentives such
as salary, benefits and option grants (which are typically subject to a three to
five year vesting schedule) to attract and retain executive officers and other
key employees. The Compensation Committee has the authority to provide for an
accelerated vesting of any outstanding options if an individual's employment is
terminated following an acquisition or certain hostile changes in control of
ANSYS.
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<PAGE> 57
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION. The following table summarizes the
compensation earned by, and paid to, our Chief Executive Officer and our four
most highly compensated executive officers, other than the Chief Executive
Officer, who received compensation in excess of $100,000 for the year ended
December 31, 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
------------------------------------- SHARES OF
OTHER ANNUAL COMMON STOCK
NAME AND PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION(2) UNDERLYING OPTIONS(#)
- --------------------------------- --------- ------- --------------- ---------------------
<S> <C> <C> <C> <C>
Stephen K. Schultheis............ $180,909 $51,923 $4,609 60,000
Chairman, President and Chief
Executive Officer
Dennis D. Blevins, Ph.D.......... 92,259 21,037 2,580 --
Vice President -- Research and
Development
Darrell J. Adams................. 92,683 21,218 3,449 --
Vice President -- Technical
Support
Wilford C. Downs................. 88,470 20,254 840 --
Vice President of Operations --
Laboratory Products
Jeffrey G. Uding................. 89,690 19,846 2,714 --
Director of
Operations -- On-Site
Products
</TABLE>
- -------------------------
(1) We provide our officers with certain non-cash group life and health benefits
generally available to all salaried employees. These benefits are not
included in the above table pursuant to applicable Securities and Exchange
Commission rules. No Named Executive Officer received aggregate personal
benefits or perquisites that exceed the lesser of $50,000 or 10% of his
total annual salary and bonus.
(2) Represents our matching contribution under our 401(k) Plan to the respective
accounts of the Named Executive Officers.
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<PAGE> 58
STOCK OPTION GRANTS. The following table sets forth certain information
regarding options granted to the Named Executive Officers during 1998. We have
not granted any stock appreciation rights.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS MARKET
UNDERLYING GRANTED TO EXERCISE PRICE ON
OPTIONS EMPLOYEES IN PRICE PER DATE OF EXPIRATION
NAME GRANTED(#)(2) 1998(3) SHARE GRANT(4) DATE
- --------------------------- ------------- ------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Stephen K. Schultheis...... 60,000 34.2% $3.83 $4.74 04/08/08
Dennis D. Blevins,
Ph.D. ................... -- -- -- -- --
Darrell J. Adams........... -- -- -- -- --
Wilford C. Downs........... -- -- -- -- --
Jeffrey G. Uding........... -- -- -- -- --
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERM($)(1)
--------------------------------------
NAME 0% 5% 10%
- --------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Stephen K. Schultheis...... $54,600 $233,458 $507,860
Dennis D. Blevins,
Ph.D. ................... -- -- --
Darrell J. Adams........... -- -- --
Wilford C. Downs........... -- -- --
Jeffrey G. Uding........... -- -- --
</TABLE>
- -------------------------
(1) The potential realizable value is calculated by assuming that (a) the stock
option price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire ten year term of the options, and (b) the
option is exercised and the underlying common stock sold on the last day of
its term for the appreciated stock price. The potential realizable value of
each option at 0% is based on the fair market value of the common stock on
the date of grant, $4.74 per share, minus the exercise price times the
number of shares underlying the option. The potential realizable value of
each option at 5% and 10% are based on the term of the option at its time of
grant (ten years). Each is calculated by assuming that the stock price on
the date of the grant appreciates at 5% or 10%, as applicable, compounded
annually for the entire term of the option, and that the option is exercised
and sold on the last day of its term for the appreciated stock price. Actual
gains, if any, on stock option exercises will depend on the future
performance of the common stock and the date at which the options are
exercised. Upon completion of this offering, the value of these options will
be $310,200, which is derived by subtracting the exercise price of the
option from the assumed initial public offering price of $9.00 per share.
(2) All options were granted under the 1997 Plan. Options granted in 1998 vest
over three years in 36 equal monthly installments.
(3) Based on an aggregate of 175,200 options granted to employees in 1998,
including the Named Executive Officers.
(4) The exercise price of the options was equal to the fair market value of the
underlying common stock on the grant date, as determined in good faith by
our Board of Directors. Notwithstanding this determination, we have recorded
compensation expense with respect to these options based upon the difference
between the exercise price and $4.74. This value was derived from a
combination of discounted cash flow methods, comparisons to publicly-traded
companies and book value. See Note 1 of Notes to Consolidated Financial
Statements for the determination of market value on the date of grant.
YEAR-END OPTION HOLDINGS. The following table sets forth certain aggregated
option information for the Named Executive Officers for the year ended December
31, 1998. None of the Named Executive Officers exercised stock options in 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS(1) OPTIONS(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen K. Schultheis........... 351,600 76,800 $2,913,600 $479,800
Dennis D. Blevins, Ph.D. ....... 44,000 4,000 $ 376,971 $ 31,729
Darrell J. Adams................ -- -- -- --
Wilford C. Downs................ -- -- -- --
Jeffrey G. Uding................ 17,600 18,400 $ 139,871 $146,329
</TABLE>
- -------------------------
(1) The value of unexercised options represents the difference between the
exercise price of the options and the assumed initial public offering price
of $9.00 per share.
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<PAGE> 59
STOCK OPTION PLANS
1990 STOCK OPTION PLAN. Our Stock Option Plan for Employees was adopted by
the Board of Directors and approved by the stockholders on October 10, 1990. A
total of 780,000 shares of common stock have been authorized for issuance under
the 1990 Plan. As of March 31, 1999, options for 597,820 shares were outstanding
under the 1990 Plan, and no shares remained available for future option grant.
Option grants under the 1990 Plan are made at the discretion of the plan
administrator. Eligible individuals (including officers and directors), in the
case of nonqualified stock options, may be granted options to purchase shares of
common stock at an exercise price not less than 85% of the fair market value of
the common stock, determined by the plan administrator on the grant date. Option
grants have a maximum term of ten years, subject to earlier termination if the
optionee's service with us ends.
The Compensation Committee administers the 1990 Plan. This committee has
complete discretion, within the scope of its administrative jurisdiction, to
determine: (1) which eligible individuals are to receive option grants; (2) the
time or times when such option grants are to be made; (3) the number of shares
subject to each such grant; (4) the fair market value of the option at the date
it is granted provided that the common stock is not publicly traded; (5) the
exercise or vesting schedule to be in effect for the option grant; (6) the
maximum term for which any granted option is to remain outstanding; and (7) the
status of any granted option as either an incentive stock option or a
non-statutory stock option under the Federal tax laws.
Optionees may pay the exercise price for their options in cash or with the
consent of the Compensation Committee, in shares of common stock. If the
exercise price is paid in shares of common stock, those shares are valued at
fair market value on the exercise date.
The plan administrator may cancel options outstanding under the 1990 Plan
in return for the grant of new options for the same or different number of
option shares. In that case, the exercise price per share is based on the fair
market value per share of common stock on the new grant date.
If we are acquired by merger or asset sale, each outstanding option under
the 1990 Plan not otherwise assumed by the successor company will immediately
vest. Such options will then be exercisable for all of the shares subject to
that option at the time, unless the option is assumed by the successor
corporation in the acquisition.
The Board of Directors may amend, modify or terminate the 1990 Plan at any
time. The 1990 Plan will terminate on October 11, 2000, unless sooner terminated
by the Board of Directors. No options may be granted under the 1990 Plan after
it is terminated.
1997 STOCK INCENTIVE PLAN. Our 1997 Stock Incentive Plan was adopted by the
Board of Directors and approved by the stockholders on January 23, 1998. A total
of 1,088,800 shares of common stock have been authorized for issuance under the
1997 Plan, and as of March 31, 1999, options to purchase 820,000 shares remained
available for grant under the 1997 Plan.
The 1997 Plan is divided into two separate components: the Option Grant
Program and the Stock Issuance Program. Under the Option Grant Program, eligible
individuals (including officers, non-employee Board members and consultants) may
be granted options to purchase shares of common stock at an exercise price not
less than 100% of their fair market value on
57
<PAGE> 60
the grant date as determined by the plan administrator. Under the Stock Issuance
Program, these individuals may be issued shares of common stock directly. The
individual may purchase the shares at a price not less than 100% of their fair
market value at the time of issuance; however, the purchase price per share
issued to a 10% stockholder may not be less than 110% of the fair market value
of the underlying common stock. Shares of common stock may also be granted as a
bonus tied to the performance of services.
The Compensation Committee administers the 1997 Plan. The plan
administrator has complete discretion to determine: (1) which eligible
individuals are to receive option grants or stock issuances under those
programs; (2) the time or times when such option grants or stock issuances are
to be made; (3) the number of shares subject to each such grant or issuance; (4)
the fair market value of the option at the date it is granted provided that the
common stock is not publicly traded; (5) the status of any granted option as
either an incentive stock option or a non-statutory stock option under the
Federal tax laws; (6) the vesting schedule to be in effect for the option grant
or stock issuance; and (7) the maximum term for which any granted option is to
remain outstanding.
Optionees may pay the exercise price for their options in cash or in shares
of common stock. If the exercise price is paid in shares of common stock, those
shares are valued at fair market value on the exercise date.
Once the common stock subject to the 1997 Plan has been registered under
Section 12 of the Securities Exchange Act of 1934, as amended, the options may
also be exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the plan administrator may provide financial assistance
to one or more optionees in the exercise of their outstanding options or the
purchase of their unvested shares. The plan administrator may allow these
optionees to deliver a full-recourse, interest-bearing promissory note in
payment of the exercise price. The note would also cover any associated
withholding taxes incurred in connection with such exercise or purchase.
If we are acquired by merger or asset sale, options outstanding under the
Option Grant Program which are not to be assumed by the successor corporation or
otherwise continued will automatically accelerate. All unvested shares under the
Option Grant and Stock Issuance Programs will immediately vest, unless our
repurchase rights with respect to those shares will be assigned to the successor
corporation. The plan administrator may grant options under the Option Grant
Program which accelerate upon an acquisition of ANSYS, whether or not those
options are assumed or continued. The plan administrator may also grant options
which accelerate if the optionee's service terminates within the 18 months
following an acquisition in which (1) those options are assumed or otherwise
continued and (2) the applicable repurchase rights do not terminate. The vesting
of outstanding shares under the Stock Issuance Program may be accelerated on
similar terms and conditions.
The Board of Directors may amend or modify the 1997 Plan at any time.
However, certain amendments to the 1997 Plan may require shareholder approval.
The 1997 Plan will terminate on the earliest of: (1) January 22, 2008; (2) the
date on which all shares available for issuance under the 1997 Plan have been
issued as fully-vested shares; or (3) the termination of all outstanding options
in connection with an acquisition of ANSYS.
OTHER OPTIONS. In December 1996, Stephen K. Schultheis, our Chairman,
President and Chief Executive Officer, was granted options to purchase 90,000
shares of common stock at an exercise price of $1.07 per share. These options
were nonqualified stock options and were not granted pursuant to the 1990 Plan
or the 1997 Plan.
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<PAGE> 61
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 Employee Stock Purchase Plan was adopted by the Board of Directors
and approved by the stockholders in April 1999, and will become effective
immediately upon the execution of the underwriting agreement related to this
offering. The ESPP is designed to allow our eligible employees and those of our
participating subsidiaries to purchase shares of common stock, at semi-annual
intervals, through their periodic payroll deductions under the ESPP. We have
initially reserved 180,000 shares of our common stock for issuance under the
ESPP.
The ESPP will be implemented in a series of successive offering periods,
each with a maximum duration of 24 months. The initial offering period, however,
will start on the date the underwriting agreement related to this offering is
executed and will end on the last business day in July 2001. The next offering
period will start on the first business day in August 2001, and subsequent
offering periods will be set by our compensation committee.
ANSYS employees who are scheduled to work more than 20 hours per week for
more than five calendar months per year may join an offering period on the start
date or on any semi-annual entry date within that period. Semi-annual entry
dates will occur on the first business day of February and August of each year.
Individuals who become eligible employees after the start date of an offering
period may join the ESPP on any subsequent semi-annual entry date within that
offering period.
Payroll deductions may not exceed 15% of the participant's cash earnings,
and the accumulated payroll deductions of each participant will be applied to
the purchase of shares on each semi-annual purchase date. The purchase price per
share will be equal to 85% of the fair market value per share on the
participant's entry date into the offering period or, if lower, 85% of the fair
market value per share on the semi-annual purchase date. Semi-annual purchase
dates will be on the last business day of January and July each year. In no
event, however, may any participant purchase more than 1,000 shares on any
purchase date, and not more that 45,000 shares may be purchased in total by all
participants on any purchase date.
If the fair market value per share of our common stock on any purchase date
is less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day. All
participants in the terminated offering will be transferred to the new offering
period.
In the event of a change in control as defined in the ESPP, all outstanding
purchase rights will automatically be exercised immediately prior to the
effective date of such change in control. The purchase price will be equal to
85% of the fair market value per share on the participant's entry date into the
offering period in which the change in control occurs or, if lower, 85% of the
fair market value per share immediately prior to such change in control.
The following provisions will also be in effect under the ESPP:
- The ESPP will terminate no later than the last business day in July 2009.
- The Board of Directors may at any time amend, suspend or discontinue the
ESPP provided that any such termination will be effective immediately
following the close of any purchase interval. Certain amendments,
however, may require stockholder approval.
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<PAGE> 62
401(k) PLAN
We have an employee savings and retirement plan that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
The 401(k) Plan allows eligible employees to defer up to 15% of their pre-tax
earnings, subject to the Internal Revenue Service annual contribution limit
($10,000 in 1998). Eligible employees must be 20 1/2 years of age and have
worked at least 1,000 hours in a 12 consecutive month period. Employees may
first participate on the first day of the month following three months of
service.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Under Section 145 of the Delaware General Corporation Law, we can indemnify
our directors and officers against liabilities they may incur in these
capacities, including liabilities under the Securities Act. Our bylaws provide
that we will indemnify our directors and officers to the fullest extent
permitted by law. The bylaws require ANSYS to advance litigation expenses, but
the director or officer must agree to repay such advances if he or she is not
entitled to indemnification. These rights do not exclude any other right such
persons may have or acquire under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
Our certificate of incorporation provides that, pursuant to Delaware Law,
directors are not liable for money damages for breach of their fiduciary duty of
care to ANSYS and its stockholders. This provision does not eliminate the duty
of care. In certain circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware Law. In
addition, each director will still be subject to liability for (1) breach of the
duty of loyalty to ANSYS or its stockholders, (2) acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, (3)
actions leading to improper personal benefit to the director, and (4) payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware Law. The provision also does not affect a director's
responsibilities under any other law, such as the Federal securities laws or
state or federal environmental laws.
In addition to the indemnification provided for in our bylaws, we have
entered into agreements to indemnify our executive officers and all of our
directors. This indemnification includes indemnity for certain expenses,
including attorneys' fees. It also includes indemnity for judgments, fines and
settlement amounts incurred in any action or proceeding. The indemnification
includes: (1) actions by or for ANSYS; (2) actions on account of services as an
executive officer or a director of ANSYS; and (3) actions on account of services
as an officer or a director of another company or enterprise if the services
were provided at our request.
The Securities and Exchange Commission is of the opinion that
indemnification of directors, officers and persons controlling ANSYS for
violations of the Securities Act is against public policy as expressed in the
Securities Act and is therefore unenforceable.
We have also obtained directors' and officers' liability insurance for our
directors and executive officers.
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 31, 1999
regarding the ownership of our common stock by: (a) each person whom we know to
own more than 5% of such shares of common stock; (b) each Named Executive
Officer; (c) each of our directors; and (d) all of our directors and executive
officers as a group.
The number of shares beneficially owned and the percentage of shares
beneficially owned are based on (1) 5,558,472 shares of common stock outstanding
as of March 31, 1999, and (2) 8,058,472 shares of common stock outstanding upon
consummation of this offering. Beneficial ownership is determined in accordance
with the rules and regulations of the Securities and Exchange Commission. Shares
subject to options that are exercisable currently or within 60 days following
March 31, 1999 are deemed to be outstanding and beneficially owned by the
optionee for the purpose of computing share and percentage ownership of that
optionee. They are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person. Except (1) as indicated in the
footnotes to this table, and (2) as affected by applicable community property
laws, all persons listed have sole and voting investment power with for all
shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OFFERING OFFERING
--------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
Ronald J. Hall(2)(3)....................... 3,808,844 68.5% 47.3%
Hall, Morris & Drufva II, L.P.(3).......... 3,616,620 65.1 44.9
C. Michael O'Donnell, Ph.D. ............... 509,808 9.2 6.3
Stephen K. Schultheis(4)................... 453,450 7.7 5.4
Darrell J. Adams........................... 345,516 6.2 4.3
Wilford C. Downs........................... 345,516 6.2 4.3
George D. Holmes(5)........................ 54,000 * *
Dennis D. Blevins, Ph.D.(5)................ 45,320 * *
Jeffrey G. Uding(5)........................ 22,400 * *
John M. Morris(6).......................... -- * *
William C. Shepherd........................ 13,464 * *
All executive officers and directors as a
group
(12 persons)(7).......................... 5,642,851 92.7 65.7
</TABLE>
- -------------------------
* Less than one percent.
(1) The address for each of Messrs. O'Donnell, Schultheis, Adams and Downs is
c/o ANSYS at 25200 Commercentre Drive, Lake Forest, California 92630.
(2) Includes (a) 3,616,620 shares of common stock held by Hall, Morris & Drufva
II, L.P. and (b) 192,224 shares of common stock held by Mr. Hall's IRA. Mr.
Hall is the Managing General Partner of Hall Capital Management, which is
the General Partner of Hall, Morris & Drufva II, L.P. Mr. Hall disclaims
beneficial ownership of all of the shares held by Hall, Morris & Drufva II,
L.P.
(3) The address for Hall, Morris & Drufva II, L.P. and Mr. Hall is 26161 La Paz
Road, Suite E, Mission Viejo, California 92691.
(4) Includes 359,850 shares of common stock issuable upon exercise of vested
stock options.
(5) Consists solely of shares of common stock issuable upon exercise of vested
stock options.
(6) Excludes the shares of common stock that Mr. Morris may have a right to
receive in the event of an in kind distribution from or the dissolution of
Hall, Morris & Drufva II, L.P. See "Underwriting."
(7) Includes 526,103 shares of common stock issuable upon exercise of vested
stock options.
61
<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
The following summary of the capital stock of ANSYS and certain provisions
of our certificate of incorporation and bylaws does not purport to be complete.
It is qualified in its entirety by the provisions of the certificate and bylaws.
Copies of the certificate and bylaws have been filed as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
ANSYS is authorized to issue 30,000,000 shares of common stock. At March
31, 1999, 5,558,472 shares of common stock were deemed outstanding and held of
record by approximately 17 holders. Under the certificate and bylaws, holders of
common stock will not have cumulative voting rights after the common stock is
listed for trading on the Nasdaq National Market. Holders of shares representing
a majority of the voting power of common stock can elect all of the directors.
The holders of the remaining shares will not be able to elect any directors. The
shares of common stock offered pursuant to this offering, when issued, will be
fully paid and nonassessable and will not be subject to any redemption or
sinking fund provisions. Holders of common stock do not have any preemptive,
subscription or conversion rights.
Holders of common stock are entitled to receive those dividends the Board
of Directors declares, subject to the rights of preferred stockholders and the
terms of any existing or future agreements between ANSYS and its debtholders.
Since its inception, we have not declared or paid any cash dividends on our
common stock. We presently intend to retain future earnings, if any, for use in
the operation and expansion of our business. We do not anticipate paying cash
dividends in the foreseeable future. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of ANSYS, common stockholders are
entitled to share ratably in all assets legally available for distribution (1)
after payment of all debts and other liabilities and (2) subject to the prior
rights of any holders of outstanding shares of preferred stock.
PREFERRED STOCK
Our certificate of incorporation authorizes 5,000,000 shares of preferred
stock. The preferred stock may be issued in series from time to time as the
Board of Directors determines. The Board of Directors determines the
designations, relative rights, priorities, preferences, qualifications,
limitations and restrictions of the preferred stock, unless they are fixed in
our certificate of incorporation. The characteristics of different series of
preferred stock may differ with respect to: (1) dividend rates; (2) amounts
payable on liquidation; (3) voting rights; (4) conversion rights; (5) redemption
provisions; (6) sinking fund provisions; and (7) other matters. The Board of
Directors may authorize preferred stock senior to the common stock with respect
to dividends and the distribution of assets on liquidation. The Board of
Directors may also set limitations and restrictions on payment of common stock
dividends while any shares of preferred stock are outstanding. No stockholder
approval is required for the Board of Directors to issue preferred stock with
voting and conversion rights which could adversely affect the voting power of
the holders of common stock.
We believe that the ability to issue preferred stock without the expense
and delay of a special stockholders' meeting will provide us with increased
flexibility in structuring possible future financings and acquisitions, and in
meeting other corporate needs that might arise. This also permits the Board of
Directors to issue preferred stock containing
62
<PAGE> 65
terms which could impede the completion of a takeover attempt, subject to
certain limitations imposed by the securities laws. The Board of Directors will
make any determination to issue such shares based on its judgment as to the best
interests of ANSYS and its stockholders at the time of issuance. This could
discourage an acquisition attempt or other transaction which stockholders might
believe to be in their best interests or in which they might receive a premium
for their stock over the then market price of the stock.
ANTI-TAKEOVER PROVISIONS
Our certificate of incorporation and bylaws contain provisions that may
make it more difficult to acquire control of ANSYS by various means. These
provisions could deprive the stockholders of opportunities to realize a premium
on the shares of common stock owned by them. In addition, they may adversely
affect the prevailing market price of the stock. These provisions are intended
to: (1) enhance the likelihood of continuity and stability in the composition of
the Board of Directors and in the policies formulated by the Board of Directors;
(2) discourage transactions which may involve an actual or threatened change in
control of ANSYS; (3) discourage tactics that may be used in proxy fights; (4)
encourage persons seeking to acquire control of ANSYS to consult first with the
Board of Directors to negotiate the terms of any proposed business combination
or offer; and (5) reduce our vulnerability to an unsolicited proposal for a
takeover that does not contemplate the acquisition of all outstanding shares of
ANSYS or that is otherwise unfair to our stockholders.
CLASSIFIED BOARD OF DIRECTORS; REMOVAL; FILLING VACANCIES AND
AMENDMENT. Our certificate of incorporation provides that the Board of Directors
will consist of between five and nine members, with the exact number to be fixed
from time to time by resolution adopted by a majority of the directors then in
office. Currently, the number is set at six. Prior to the closing of this
offering, the terms of office of the Board of Directors will be divided into
three classes, such that the terms of Class I, Class II and Class III directors
will expire at the annual meetings of stockholders to be held in 2000, 2001 and
2002, respectively. The number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the Board of Directors. The classification of the Board of Directors has the
effect of requiring at least two annual stockholder meetings, instead of one, to
replace a majority of members of the Board of Directors. Subject to the rights
of the holders of any outstanding series of preferred stock, the certificate
authorizes only the Board of Directors to fill vacancies, including newly
created directorships. Accordingly, this provision could prevent a stockholder
from obtaining majority representation on the Board of Directors by enlarging
the Board of Directors and filling the new directorships with its own nominees.
The certificate also provides that directors may be removed by stockholders only
for cause and only by the affirmative vote of holders of two-thirds of the
outstanding shares of voting stock.
SPECIAL STOCKHOLDER MEETINGS. The certificate of incorporation provides
that special meetings of the stockholders for any purpose or purposes, unless
required by law, shall be called by: (1) the President or Secretary pursuant to
a request in writing of the President; (2) a majority of the entire Board of
Directors; or (3) stockholders owning not less than 50% of the entire voting
stock of ANSYS then issued and outstanding. A special meeting may not be held
absent such a written request. The request shall state the purpose or purposes
of the proposed meeting. This limitation on the right of stockholders to call a
special meeting could make it more difficult for stockholders to initiate
actions that are
63
<PAGE> 66
opposed by the Board of Directors. These actions could include the removal of an
incumbent director or the election of a stockholder nominee as a director. They
could also include the implementation of a rule requiring stockholder
ratification of specific defensive strategies that have been adopted by the
Board of Directors with respect to unsolicited takeover bids. In addition, the
limited ability of the stockholders to call a special meeting of stockholders
may make it more difficult to change the existing Board of Directors and
management.
WRITTEN CONSENT; SPECIAL MEETINGS OF STOCKHOLDERS. Our certificate of
incorporation prohibits the taking of stockholder action by written consent
without a meeting. These provisions will make it more difficult for stockholders
to take action opposed by the Board of Directors.
AMENDMENT OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION. Our
certificate of incorporation generally requires the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock in order to amend
any provisions of the certificate concerning: (1) the removal or appointment of
directors; (2) the authority of stockholders to act by written consent; (3) the
required vote to amend the certificate; (4) calling a special meeting of
stockholders; (5) procedure and content of stockholder proposals concerning
business to be conducted at a meeting of stockholders; and (6) director
nominations by stockholders. These voting requirements will make it more
difficult for minority stockholders to make changes in the certificate that
could be designed to facilitate the exercise of control over ANSYS. On the other
hand, the requirement for approval by at least a two-thirds stockholder vote
will enable minority stockholders to prevent the majority stockholders from
amending these provisions of the certificate. Following the completion of this
offering, our present directors and executive officers and their respective
affiliates will beneficially own approximately 65.7% of our common stock. This
gives them veto power with respect to any stockholder action or approval
requiring either a two-thirds vote or a simple majority.
REGISTRATION RIGHTS
Following this offering, the holders of approximately 5,498,112 shares of
common stock (the "Registrable Securities") will be entitled to rights with
respect to the registration of their shares under the Securities Act. If ANSYS
proposes to register securities under the Securities Act, either for its own
account or the account of other securityholders, it must give notice of the
registration to the holders of Registrable Securities. These holders are
entitled to include their Registrable Securities in the registration, subject to
certain marketing and other limitations. We generally must bear the expenses,
other than underwriting discounts and sales commissions, of these registrations.
We may in certain circumstances defer such registrations. The underwriters have
the right, subject to certain limitations, to limit the number of Registrable
Securities included in such registrations.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock
Transfer Corporation.
64
<PAGE> 67
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, ANSYS will have 8,058,472 shares of common
stock outstanding (8,433,472 shares if the underwriter's over-allotment option
is exercised in full), assuming no exercise of options after March 31, 1999. Of
this amount, the 2,500,000 shares offered by this prospectus will be available
for immediate sale in the public market as of the date of this prospectus. All
of the remaining 5,558,472 shares are "restricted securities" as that term is
defined by Rule 144 of the Securities Act. Our directors, executive officers and
certain other stockholders who collectively hold an aggregate of 5,540,072
shares of common stock, together with ANSYS, have agreed pursuant to the
underwriting agreement and other agreements that they will not sell any common
stock without the prior written consent of Vector Securities International, Inc.
for a period of 180 days from the date of this prospectus except that we may,
without this consent, grant options and sell shares pursuant to the 1997 Plan.
Following the 180 day period, 332,764 shares of common stock will be eligible
for sale in the public market without restriction, including shares eligible for
sale under Rule 144(k). An additional 5,207,308 shares will be eligible for sale
under Rule 144, subject to certain volume, manner of sale and other restrictions
of Rule 144. In addition, 18,400 shares will be available for sale in the public
market 90 days following the date of this prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this prospectus a number of shares that does not exceed the greater
of (1) 1% of the then outstanding shares of common stock (approximately 80,585
shares immediately after this offering) or (2) the average weekly trading volume
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of ANSYS at any time
during the 90 days immediately preceding the sale and who has beneficially owned
his or her shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to this offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after this offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered by this prospectus.
Any employee or consultant who purchased his or her shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of March 31, 1999, the holders of options to purchase
approximately 956,620 shares of common stock will be eligible to sell their
shares upon the expiration of the 180-day Lockup Period, subject in certain
cases to vesting of such options.
65
<PAGE> 68
We intend to file a registration statement on Form S-8 under the Securities
Act as soon as practicable after the completion of this offering to register
1,956,620 shares of common stock subject to outstanding stock options or
reserved for issuance under our employee benefit plans. This registration will
permit the resale of such shares by nonaffiliates in the public market without
restriction under the Securities Act, upon completion of the 180-day Lockup
Period. Shares held by affiliates registered under such registration statement
will be subject to Rule 144 volume limitations. See "Management -- Executive
Compensation," "-- Stock Option Plans," and "-- 1999 Employee Stock Purchase
Plan."
In addition, some stockholders have registration rights with respect to
5,498,112 shares of common stock. Registration of these securities would render
them freely tradeable without restriction under the Securities Act. See "Risk
Factors -- Future Sales of Our Common Stock Could Cause the Price of Our Common
Stock to Decline."
66
<PAGE> 69
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for whom Vector Securities International, Inc. and
Sutro & Co. Incorporated are acting as representatives, have severally agreed to
purchase, and we have agreed to sell to the underwriters, the following
respective number of shares of common stock:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Vector Securities International, Inc...................
Sutro & Co. Incorporated...............................
---------
Total........................................ 2,500,000
=========
</TABLE>
John M. Morris, a director of ANSYS, is a Managing Director of Sutro & Co.
Incorporated, one of the representatives of the underwriters. Mr. Morris has an
equity interest in Hall, Morris & Drufva II, L.P. which, upon an in kind
distribution from or upon its liquidation will result in Mr. Morris receiving
approximately 127,300 shares of ANSYS common stock.
The underwriting agreement makes the obligations of the underwriters
subject to a number of conditions, including the absence of any material adverse
change in our business and the receipt of certificates, opinions and letters
from us, our counsel and our experts. If any of the shares are purchased, the
underwriters must purchase all shares of common stock being offered. If any
underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the defaulting underwriters do not exceed 10% of the shares
offered, some or all of the remaining underwriters must assume the obligations
of the defaulting underwriters.
The underwriters propose to offer the shares of common stock directly to
the public at the offering price set forth on the cover page of this prospectus.
They propose to offer shares to certain dealers at that price less a concession
not in excess of $ per share. The underwriters may allow $ to selected
dealers and the dealers may reallow a concession not in excess of $ per
share to other dealers. After the initial public offering of the shares, the
offering price and other selling terms may be changed by the representatives of
the underwriters.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to 375,000 additional
shares of common stock at the public offering price, less underwriting discounts
and commissions. The underwriters may exercise this option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
Subject to a number of conditions, if this option is exercised, each underwriter
must purchase approximately the same percentage of over-allotment shares as the
number of shares set forth next to each underwriter's name in the preceding
table bears to the total number of shares listed in that table. We must sell
these shares to the underwriters if the option is exercised.
The following table summarizes the compensation we will pay to the
underwriters:
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Total underwriting discounts and
commissions..................... $ $ $
</TABLE>
67
<PAGE> 70
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may sell shares in excess of the
offering size, creating a syndicate short position. In addition, the
underwriters may bid for and purchase shares of common stock in the open market
to cover syndicate short positions or to stabilize the price of the common
stock. Finally, the underwriting syndicate may reclaim selling concessions from
syndicate members in this offering if the syndicate repurchases previously
distributed common stock in syndicated covering transactions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make with respect to these
liabilities.
The officers, directors and certain other of our stockholders have agreed
that they will not, without the prior written consent of Vector Securities
International, Inc., offer, sell or otherwise dispose of: (1) any shares of our
common stock; (2) options or warrants to acquire shares of our common stock; or
(3) securities exchangeable for or convertible into shares of common stock owned
by them for a period of 180 days after the date of this prospectus subject to
certain exceptions. We have agreed not to offer, sell or otherwise dispose of
any of the above securities for a period of 180 days after the date of this
prospectus. See "Shares Eligible for Future Sale."
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the shares of common
stock included in this offering will be determined by negotiations between us
and the representatives of the underwriters. Among the factors considered in
determining the price will be:
- the history of, and the prospects for, our business and the industry in
which we compete;
- an assessment of our management and the present state of our development;
- our past and present revenues and earnings;
- the prospects for growth of our revenues and earnings;
- the current state of the economy in the United States;
- the current level of economic activity in the industry in which we
compete and in related or comparable industries; and
- currently prevailing conditions in the securities markets, including
current market valuations of publicly-traded companies that are
comparable to ANSYS.
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "ASDI."
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<PAGE> 71
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for ANSYS by Brobeck, Phleger & Harrison LLP,
Irvine, California. Certain legal matters relating to this offering will be
passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom
(Illinois), Chicago, Illinois.
EXPERTS
The consolidated financial statements of ANSYS as of December 31, 1997 and
1998 and for each of the three years in the period ended December 31, 1998,
included in this prospectus and the registration statement have been audited by
McGladrey & Pullen, LLP, independent auditors, as set forth in their report
appearing on page F-2 of this prospectus and in the registration statement. The
financial statements are included in reliance upon that report given upon the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
ANSYS has filed a registration statement on Form S-1 with the Securities
and Exchange Commission under the Securities Act with respect to the common
stock offered by this prospectus. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to ANSYS and the common
stock, please see the registration statement and the exhibits and schedules
filed with the registration statement. Statements contained in this prospectus
concerning the contents of any contract of other document referred to are not
necessarily complete. Please refer to the copy of such contract or other
document filed as an exhibit to the registration statement. Each such statement
is qualified in all respects by such reference. The registration statement,
including the exhibits and schedules thereto, may be inspected without charge at
the principal office of the Commission in Washington, D.C. Copies of all or any
part of the registration statement may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. Such copies may also be inspected and copied
at the Commission's Regional Offices located at:
- Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and
- 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may be obtained at prescribed rates by mail from
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Securities and Exchange Commission
maintains an Internet site at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants,
including ANSYS, that file electronically.
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<PAGE> 72
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income........................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 73
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
ANSYS Diagnostics, Inc.
Lake Forest, California
We have audited the accompanying consolidated balance sheets of ANSYS
Diagnostics, Inc. and subsidiary as of December 31, 1997 and 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ANSYS
Diagnostics, Inc. and subsidiary as of December 31, 1997 and 1998 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
McGladrey & Pullen, LLP
Anaheim, California
April 23, 1999
F-2
<PAGE> 74
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1999
------------------------ MARCH 31, PRO FORMA
1997 1998 1999 (NOTE 11)
---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS (Note 4)
Current Assets
Cash and cash equivalents................... $1,515,000 $ 3,176,000 $ 2,686,000 $ 426,000
Accounts receivable, less allowance for
doubtful accounts: 1997 $20,000; 1998
$20,000; 1999 $20,000 (Note 8)........... 1,707,000 2,093,000 3,471,000 3,471,000
Income taxes receivable..................... -- 420,000 -- --
Inventories (Note 2)........................ 1,528,000 1,581,000 1,652,000 1,652,000
Prepaid expenses............................ 99,000 40,000 63,000 63,000
Deferred income taxes (Note 7).............. 89,000 120,000 120,000 120,000
---------- ----------- ----------- -----------
Total current assets................... 4,938,000 7,430,000 7,992,000 5,732,000
Equipment and Leasehold Improvements, net
(Note 3).................................... 1,567,000 4,199,000 4,224,000 4,224,000
Intangibles and Other Assets.................. 160,000 262,000 989,000 989,000
Deferred Income Taxes (Note 7)................ 228,000 -- -- --
---------- ----------- ----------- -----------
Total assets........................... $6,893,000 $11,891,000 $13,205,000 $10,945,000
========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank line of credit (Note 4)................ $ 733,000 $ -- $ -- $ --
Current maturities of long-term debt (Note
4)....................................... -- 224,000 232,000 232,000
Accounts payable............................ 553,000 1,439,000 1,514,000 1,514,000
Accrued liabilities......................... 121,000 433,000 527,000 527,000
Accrued compensation........................ 311,000 281,000 345,000 345,000
Income taxes payable........................ 218,000 -- 100,000 100,000
---------- ----------- ----------- -----------
Total current liabilities.............. 1,936,000 2,377,000 2,718,000 2,718,000
---------- ----------- ----------- -----------
Deferred Income Taxes (Note 7)................ -- 180,000 180,000 180,000
---------- ----------- ----------- -----------
Long-term Debt, net of current maturities
(Note 4).................................... -- 1,670,000 1,610,000 1,610,000
---------- ----------- ----------- -----------
Commitments and Contingencies (Notes 6 and 8)
Stockholders' Equity (Notes 4, 5, 9 and 11)
Preferred stock, par value $.0001 per share;
5,000,000 shares authorized: 18,000
issued and outstanding in 1997 and 1998,
none outstanding pro forma ($3,600,000
aggregate liquidation preference
including $1,800,000 of undeclared
cumulative dividends at December 31, 1998
amounting to $100 per share)............. -- -- -- --
Common stock, par value $.0001 per share;
30,000,000 shares authorized: issued and
outstanding 1,880,784 shares in 1997;
1,875,184 shares in 1998; 1,917,144
shares in 1999; 5,558,472 shares pro
forma.................................... -- -- -- 1,000
Additional paid-in capital.................. 1,818,000 1,834,000 1,965,000 1,564,000
Retained earnings........................... 3,139,000 5,830,000 6,732,000 4,872,000
---------- ----------- ----------- -----------
Total stockholders' equity............. 4,957,000 7,664,000 8,697,000 6,437,000
---------- ----------- ----------- -----------
Total liabilities and stockholders'
equity.............................. $6,893,000 $11,891,000 $13,205,000 $10,945,000
========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 75
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales (Note 8)............ $8,126,000 $10,698,000 $18,964,000 $4,427,000 $5,495,000
Cost of goods sold............ 3,058,000 5,099,000 9,703,000 2,164,000 2,768,000
---------- ----------- ----------- ---------- ----------
Gross profit........... 5,068,000 5,599,000 9,261,000 2,263,000 2,727,000
---------- ----------- ----------- ---------- ----------
Operating expenses:
Research and development.... 434,000 773,000 700,000 174,000 207,000
Selling, general and
administrative
(Notes 6 and 9).......... 2,770,000 2,876,000 4,049,000 902,000 1,016,000
---------- ----------- ----------- ---------- ----------
3,204,000 3,649,000 4,749,000 1,076,000 1,223,000
---------- ----------- ----------- ---------- ----------
Operating income.............. 1,864,000 1,950,000 4,512,000 1,187,000 1,504,000
Interest income (expense)..... 55,000 59,000 (46,000) (4,000) (9,000)
---------- ----------- ----------- ---------- ----------
Income before income taxes.... 1,919,000 2,009,000 4,466,000 1,183,000 1,495,000
Provision for income taxes
(Note 7).................... 718,000 803,000 1,775,000 467,000 593,000
---------- ----------- ----------- ---------- ----------
Net income (Note 9).... $1,201,000 $ 1,206,000 $ 2,691,000 $ 716,000 $ 902,000
========== =========== =========== ========== ==========
Less preferred stock dividends
(Note 5).................... 180,000 180,000 180,000 45,000 45,000
---------- ----------- ----------- ---------- ----------
Income available to
common
stockholders........ $1,021,000 $ 1,026,000 $ 2,511,000 $ 671,000 $ 857,000
========== =========== =========== ========== ==========
Earnings per share (Note 9):
Basic....................... $ 0.46 $ 0.54 $ 1.33 $ 0.36 $ 0.46
========== =========== =========== ========== ==========
Diluted (Note 10)........... $ 0.19 $ 0.20 $ 0.45 $ 0.12 $ 0.15
========== =========== =========== ========== ==========
Weighted average shares
outstanding:
Basic....................... 2,230,408 1,900,951 1,890,204 1,880,784 1,879,795
========== =========== =========== ========== ==========
Diluted (Note 10)........... 6,057,018 5,863,517 5,941,534 5,898,334 6,047,276
========== =========== =========== ========== ==========
Pro forma earnings per share
(Note 11):
Basic....................... $ 0.47 $ 0.16
=========== ==========
Diluted..................... $ 0.44 $ 0.14
=========== ==========
Pro forma weighted average
shares outstanding (Note
11):
Basic....................... 5,736,987 5,726,578
=========== ==========
Diluted..................... 6,146,989 6,252,731
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 76
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ ------------------ ADDITIONAL
NUMBER NUMBER PAID-IN RETAINED
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL EARNINGS
--------- ------ --------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995..... 18,000 $ -- 2,307,408 $ -- $$2,011,000 $1,072,000
Exercise of stock options.... -- -- 4,080 -- 1,000 --
Common stock purchased for
retirement................ -- -- (250,704) -- (195,000) (117,000)
Net income................... -- -- -- -- -- 1,201,000
------ ------ --------- ------ ---------- ----------
Balance, December 31, 1996..... 18,000 -- 2,060,784 -- 1,817,000 2,156,000
Common stock purchased for
retirement................ -- -- (180,000) -- (1,000) (223,000)
Compensation expense related
to stock options (Note
9)........................ -- -- -- -- 2,000 --
Net income................... -- -- -- -- -- 1,206,000
------ ------ --------- ------ ---------- ----------
Balance, December 31, 1997..... 18,000 -- 1,880,784 -- 1,818,000 3,139,000
Exercise of stock options.... -- -- 18,400 -- 19,000 --
Common stock purchased for
retirement................ -- -- (24,000) -- (111,000) --
Compensation expense related
to stock options (Note
9)........................ -- -- -- -- 108,000 --
Net income................... -- -- -- -- -- 2,691,000
------ ------ --------- ------ ---------- ----------
Balance, December 31, 1998..... 18,000 -- 1,875,184 -- 1,834,000 5,830,000
Exercise of stock options
(unaudited)............... -- -- 41,960 -- 25,000 --
Compensation expense related
to stock options
(unaudited)............... -- -- -- -- 33,000 --
Tax benefit relating to
exercise of stock options
(unaudited)............... -- -- -- -- 73,000 --
Net income (unaudited)....... -- -- -- -- -- 902,000
------ ------ --------- ------ ---------- ----------
Balance, March 31, 1999
(unaudited).................. 18,000 $ -- 1,917,144 $ -- $1,965,000 $6,732,000
====== ====== ========= ====== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 77
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net income...................... $1,201,000 $ 1,206,000 $ 2,691,000 $ 716,000 $ 902,000
Depreciation and amortization... 328,000 315,000 395,000 99,000 134,000
Deferred taxes.................. (42,000) (17,000) 377,000 -- --
Noncash compensation (Note 9)... -- 2,000 108,000 -- 33,000
Changes in operating assets and
liabilities:
Accounts receivable.......... (371,000) (626,000) (386,000) (58,000) (1,377,000)
Income taxes receivable...... -- -- (420,000) -- 420,000
Inventories.................. (279,000) (513,000) (53,000) (77,000) (70,000)
Prepaid expenses............. (18,000) (63,000) 59,000 (52,000) (23,000)
Accounts payable and accrued
liabilities................ 328,000 148,000 366,000 289,000 518,000
Income taxes payable......... (29,000) 173,000 (218,000) 22,000 173,000
---------- ----------- ----------- ----------- -----------
Net cash provided by
operating activities.... 1,118,000 625,000 2,919,000 939,000 710,000
---------- ----------- ----------- ----------- -----------
Cash Flows from Investing
Activities
Purchase of equipment and
leasehold improvements....... (270,000) (1,231,000) (2,202,000) (1,470,000) (440,000)
Purchase of intangibles and
other assets................. -- (172,000) (125,000) -- (733,000)
---------- ----------- ----------- ----------- -----------
Net cash (used in)
investing activities.... (270,000) (1,403,000) (2,327,000) (1,470,000) (1,173,000)
---------- ----------- ----------- ----------- -----------
Cash Flows from Financing
Activities
Borrowings on line of credit.... -- 883,000 -- 1,266,000 --
Payments on line of credit...... -- (150,000) (733,000) (200,000) --
Common stock purchased for
retirement................... (312,000) (224,000) (111,000) -- --
Common stock issued............. 1,000 -- 19,000 5,000 25,000
Long-term borrowings............ -- -- 2,000,000 -- --
Payments on long-term debt...... -- -- (106,000) -- (52,000)
---------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) financing
activities.............. (311,000) 509,000 1,069,000 1,071,000 (27,000)
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in
cash and cash
equivalents............. 537,000 (269,000) 1,661,000 540,000 (490,000)
Cash and Cash Equivalents
Beginning of period............. 1,247,000 1,784,000 1,515,000 1,515,000 3,176,000
---------- ----------- ----------- ----------- -----------
End of period................... $1,784,000 $ 1,515,000 $ 3,176,000 $ 2,055,000 $ 2,686,000
========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 78
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
ANSYS Diagnostics, Inc. and its wholly owned subsidiary, ANSYS
International, Inc., a foreign sales corporation (together, the "Company"),
develops, manufactures and markets drug testing products and specialty
laboratory and research products. The Company's drug testing products are used
for pre-employment screening, random employee testing, government mandated
testing, parole and probation monitoring and hospital-based testing. The
Company's specialty laboratory and research products are used for sample
preparation, including solid phase extraction and nucleic acid isolation. The
Company's products are subject to approval and regulation by the Food and Drug
Administration (FDA) and other state and foreign regulatory agencies.
Reorganization:
In April 1999, the Company entered into a restructuring and reorganization
arrangement. As a result of the restructuring and reorganization, the Company
(1) increased the number of authorized common shares to 30,000,000 shares, (2)
increased the number of authorized preferred shares to 5,000,000 shares, (3)
reduced the par value of the common and preferred stock to $.0001 per share and
(4) effected a 1.2-for-one stock split. This reorganization has been accounted
for as if it occurred as of the beginning of the earliest period presented in
these consolidated financial statements. In addition, the Company is in the
process of reincorporating in Delaware.
A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All material intercompany balances
and transactions are eliminated in consolidation.
Cash and cash equivalents:
The Company classifies all highly liquid investments with original
maturities of less than 90 days at the time of purchase as cash and cash
equivalents.
F-7
<PAGE> 79
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company, periodically throughout the year, has amounts on deposit that
exceed the insured limit.
Accounts receivable:
Most of the Company's business activity is with distributors of medical
products who are primarily located in the United States. The Company grants
normal trade credit to creditworthy customers without requiring collateral or
other security.
Inventories:
Inventories are stated at the lower of average cost or market.
Inventory quantities in excess of one year's usage, based upon the
preceding twelve months' usage, are appropriately reserved in order to
approximate their net realizable values. In addition, management reviews the
remaining inventory for damaged goods, technologically obsolete goods and excess
supply for potential reserves.
Equipment and leasehold improvements:
Equipment and leasehold improvements are carried at cost. Depreciation and
amortization are provided on a straight-line method over (1) five to ten years
for manufacturing equipment, (2) five years for office equipment, and (3) the
lesser of (a) the asset life, (b) ten years, or (c) the remaining term of the
facility lease for leasehold improvements. Amortization of leasehold
improvements is included in depreciation expense.
Intangibles and other assets:
Intangibles and other assets consist primarily of a licensing agreement and
an investment in an unrelated company. The licensing agreement is being
amortized on a straight-line basis over its estimated useful life of five years.
The investment in an unrelated company consists of preferred stock which
represents less than five percent of that company's outstanding ownership and is
accounted for at its historical cost of $125,000. This investment also includes,
as of March 31, 1999, a $300,000 convertible note receivable from this same
company. This note bears interest at 9% and is due with all accrued interest on
July 31, 2000 and is carried at its historical cost.
Revenue recognition:
The Company recognizes revenue when goods are shipped to the customer.
F-8
<PAGE> 80
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and development:
The Company expenses research and development costs as they are incurred.
The Company incurs research and development costs in developing new products.
Income taxes:
Deferred taxes are provided on a liability method whereby deferred tax
assets and liabilities are recognized for deductible temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
Stock-based compensation:
The Company accounts for stock-based employee compensation under the
requirements of Accounting Principles Board (APB) Opinion No. 25, which does not
require compensation to be recorded if the consideration to be received is at
least equal to fair value at the measurement date. Nonemployee stock-based
transactions are accounted for under the requirements of the Financial
Accounting Standards Board's (FASB) Statement of Financial Accounting Standard
(SFAS) No. 123, Accounting for Stock Based Compensation, which requires
compensation to be recorded based on the fair value of the securities issued or
the services received, whichever is more reliably measurable. The Company's
compensation committee determines the exercise price based upon their estimation
of the fair value of the common stock at the date of grant. The Company
estimates market value at the measurement date by utilizing a combination of the
discounted cash flows method, comparison to comparable publicly traded companies
and book value. In addition, the Company periodically uses an outside valuation
specialist to validate its estimation of fair value.
Earnings per share:
Basic earnings per share is computed as net income available to common
stockholders divided by the weighted average number of common shares outstanding
for the period.
Diluted earnings per share is computed as net income available to common
stockholders plus dividends on Series B convertible preferred stock divided by
the weighted average number of common shares outstanding for the period plus
potential dilutive common shares issuable through convertible preferred stock
and stock options.
F-9
<PAGE> 81
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value of financial instruments:
The Company's financial instruments consist primarily of cash, the bank
line of credit and long term debt. The carrying value of these instruments is
considered to be representative of their fair value.
Determining impairment on long-term assets:
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets.
Segment information:
In accordance with FASB Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information, the Company has determined the products are
all classified as in vitro diagnostic products that are produced using similar
methods and are regulated by the FDA. In addition, the Company has analyzed the
type and class of customers, and the product distribution methods, and has
determined that the Company has one reportable segment.
Unaudited interim financial information
The interim financial information presented herein as of and for the three
months ended March 31, 1998 and 1999 reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation for the periods
presented. Such adjustments are of a normal and recurring nature. The interim
financial information is not intended to be a complete presentation in
accordance with generally accepted accounting principles. The March 31, 1999
interim financial statements are not necessarily indicative of the results in
the entire fiscal year ending December 31, 1999, or any subsequent period.
F-10
<PAGE> 82
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 2. INVENTORIES
Inventories consisted of the following at December 31, 1997 and 1998 and at
March 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- -----------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Raw materials......................... $ 633,000 $ 754,000 $ 801,000
Work in process....................... 363,000 433,000 509,000
Finished goods........................ 532,000 394,000 342,000
----------- ----------- -----------
$ 1,528,000 $ 1,581,000 $ 1,652,000
=========== =========== ===========
</TABLE>
NOTE 3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consisted of the following at December
31, 1997 and 1998 and March 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Manufacturing equipment............... $ 989,000 $ 1,045,000 $ 1,573,000
Office equipment...................... 985,000 1,134,000 1,297,000
Leasehold improvements................ 1,302,000 2,181,000 2,339,000
----------- ----------- -----------
3,276,000 4,360,000 5,209,000
Depreciation and amortization......... (2,796,000) (1,850,000) (1,972,000)
----------- ----------- -----------
480,000 2,510,000 3,237,000
Construction in progress.............. 1,087,000 1,689,000 987,000
----------- ----------- -----------
$ 1,567,000 $ 4,199,000 $ 4,224,000
=========== =========== ===========
</TABLE>
Depreciation and amortization expense on equipment and leasehold
improvements for the years ended December 31, 1996, 1997 and 1998 and the three
months ended March 31, 1999 was $328,000, $303,000, $370,000 and $124,000,
respectively.
NOTE 4. BANK LINE OF CREDIT AND LONG-TERM DEBT
Bank line of credit:
The Company has a revolving credit agreement with a bank to provide for
short-term financing. Under the terms of this agreement, the Company may borrow
up to $1,000,000. Borrowings under this line are restricted to a certain
percentage of accounts receivable and inventories and bear interest at the
lender's prime rate plus 0.125% (totaling 7.875% as of December 31, 1998). There
were no borrowings under this line of credit agreement at December 31, 1998 or
March 31, 1999. Borrowings under the agreement at December 31, 1997 totaled
$733,000. The agreement is secured by the Company's accounts receivable,
inventories, equipment and intangibles. It also contains certain financial
covenants, restricts the payment of dividends and redemption of stock, and
expires in May 1999. The
F-11
<PAGE> 83
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 4. BANK LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
Company was in violation of the negative covenant relating to stock redemptions.
However, this violation has been waived by the bank. As of December 31, 1998,
the Company had approximately $1,000,000 in availability under this credit
facility.
Long-term debt:
At December 31, 1998, the Company has an 8.42% term loan that is secured by
inventory, equipment and intangibles and is due in monthly installments of
$32,000 through June 2005. Aggregate future annual maturities on this debt as of
December 31, 1998 are as follows: 1999 $224,000; 2000 $245,000; 2001 $266,000;
2002 $290,000; 2003 $316,000; 2004 $345,000; and 2005 $208,000 (total
$1,894,000).
NOTE 5. CAPITAL STOCK
The following summarizes the capitalization of the Company as of December
31, 1998:
<TABLE>
<CAPTION>
ISSUED AND ADDITIONAL
AUTHORIZED OUTSTANDING PAID-IN
CAPITAL STOCK SHARES SHARES PAR VALUE CAPITAL
------------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Preferred Series A.................. 4,000 4,000 $.0001 $ 400,000
Preferred Series B.................. 14,000 14,000 .0001 1,400,000
Preferred, undesignated............. 4,982,000 -- -- --
Common.............................. 30,000,000 1,875,184 .0001 34,000
----------
$1,834,000
==========
</TABLE>
Preferred dividends on the Series A and B preferred stock are cumulative at
a rate of $10 per annum and are payable, if declared, on a quarterly basis. No
dividends shall be paid to common stockholders until the preferred stockholders
have received all unpaid accumulated dividends. The Company has not declared any
preferred stock dividends. Such accumulated dividends totaled $1,800,000 ($100
per share) at December 31, 1998 and $1,620,000 ($90 per share) at December 31,
1997.
In the event of liquidation, the holders of the Series A and Series B
preferred stock are entitled to receive an amount per share equal to $100
(carrying value is also $100 per share) plus any unpaid accumulated dividends,
prior to any distribution of the assets of the Company to the common
stockholders.
Series A Redeemable Preferred Stock -- Upon consent of the holders of the
majority of common shares, the Company may redeem the outstanding shares of
Series A redeemable preferred stock at a per share price of $100 plus all unpaid
accumulated dividends.
Series B Convertible Preferred Stock -- Each share of Series B convertible
preferred stock is convertible, at the option of the holder, into a number of
common shares
F-12
<PAGE> 84
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 5. CAPITAL STOCK (CONTINUED)
determined by dividing $100 by the conversion price as defined. The conversion
price at December 31, 1998 is $0.384475 per common share. Each share of Series B
convertible preferred stock shall automatically be converted into common shares,
at the then effective conversion price, in the event of a public offering.
Series B convertible preferred stock carries full voting rights and powers, with
the exception of voting on the redemption of Series A redeemable preferred
stock. Each holder of Series B convertible preferred stock is entitled to 164.7
votes per share held. The Company has reserved 3,641,328 shares of common stock
for issuance upon conversion of Series B preferred stock.
The Company is prohibited from repurchasing any common stock (other than
the shares originally issued to employees of the Company, of which 1,262,904
shares are outstanding as of December 31, 1998, which the Company has the right
to repurchase at the original issuance price or the fair market value, under
certain circumstances) prior to redeeming all the Series A preferred stock and
paying all accumulated dividends. Holders of the Series A preferred stock have
no voting rights or powers except in certain circumstances as defined in the
Company's articles of incorporation.
Preferred stock, undesignated -- The Board of Directors has the authority,
without action by the stockholders, to designate and issue any authorized but
unissued shares of preferred stock in one or more series and to designate the
rights, preferences and privileges of each such series.
NOTE 6. OPERATING LEASE
The Company leases its facilities under the terms of an operating lease
agreement that expires in December 2007. The agreement calls for initial monthly
lease payments of approximately $48,000 plus the payment of insurance, property
tax and normal maintenance. The Company has the option to purchase these
facilities for $5,578,000 in February 2000.
The approximate future minimum annual lease payments as of December 31,
1998 are as follows: 1999 $575,000; 2000 $605,000; 2001 $634,000; 2002 $634,000;
2003 $699,000; thereafter $2,976,000 (total $6,123,000).
Rent expense for the years ended December 31, 1996, 1997 and 1998 and the
three months ended March 31, 1999 was $557,000, $580,000, $697,000 and $167,000,
respectively.
F-13
<PAGE> 85
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 7. INCOME TAXES
The income tax provision for the years ended December 31, 1996, 1997 and
1998 consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Federal
Current................................. $590,000 $623,000 $1,820,000
Deferred................................ (37,000) (13,000) (315,000)
-------- -------- ----------
553,000 610,000 1,505,000
-------- -------- ----------
State
Current................................. 170,000 197,000 332,000
Deferred................................ (5,000) (4,000) (62,000)
-------- -------- ----------
165,000 193,000 270,000
-------- -------- ----------
Total income tax provision........... $718,000 $803,000 $1,775,000
======== ======== ==========
</TABLE>
A reconciliation of income tax expense recorded to the amount of income tax
expense that would result from applying the federal statutory rate to income
before income taxes for the years ended December 31, 1996, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate................. 35% 35% 35%
State taxes, net of federal benefit............... 6 6 6
Foreign sales corporation benefit................. (1) (1) (1)
Benefit of income taxed at lower rates............ (1) (1) (1)
Other............................................. (2) 1 1
-- -- --
Effective tax rate........................... 37% 40% 40%
== == ==
</TABLE>
The major components of the Company's deferred tax assets and liabilities
as of December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Deferred tax assets
Equipment and leasehold improvements.......... $228,000 $ --
State taxes................................... 65,000 63,000
Inventories................................... 19,000 58,000
Accounts receivable reserves.................. 8,000 8,000
Other......................................... (3,000) (9,000)
-------- ---------
Total deferred tax assets.................. $317,000 $ 120,000
======== =========
Deferred tax liabilities
Equipment and leasehold improvements.......... $ -- $(180,000)
======== =========
</TABLE>
F-14
<PAGE> 86
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 7. INCOME TAXES (CONTINUED)
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheets as of December 31, 1997 and 1998 as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Current assets.................................. $ 89,000 $ 120,000
Noncurrent assets............................... 228,000 --
Noncurrent liabilities.......................... -- (180,000)
</TABLE>
NOTE 8. FOREIGN SALES, MAJOR CUSTOMERS AND DEPENDENCE ON SUPPLIERS
Foreign sales:
Net sales for the years ended December 31, 1996, 1997 and 1998 and for the
three months ended March 31, 1999 included sales to customers located outside
the United States. The sales to foreign customers are primarily denominated in
U.S. dollars, and the Company has not experienced any significant foreign
currency gains or losses.
Net foreign sales for the years ended December 31, 1996, 1997 and 1998 and
for the three months ended March 31, 1999 by country are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Australia............ $ 227,000 $ 349,000 $ 323,000 $ 82,000
Canada............... 169,000 158,000 147,000 28,000
China................ 173,000 107,000 108,000 19,000
Denmark.............. 65,000 59,000 78,000 27,000
England.............. 165,000 150,000 217,000 64,000
Germany.............. 166,000 235,000 210,000 75,000
Other................ 290,000 203,000 144,000 38,000
---------- ---------- ---------- --------
$1,255,000 $1,261,000 $1,227,000 $333,000
========== ========== ========== ========
</TABLE>
Major customers:
Net sales for the years ended December 31, 1996, 1997 and 1998 and for the
three months ended March 31, 1999 include sales to the following customers:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED
--------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Customer A........... $1,387,000 $4,503,000 $12,276,000 $3,811,000
Customer B........... 1,560,000 * * *
Customer C........... 1,296,000 * * *
</TABLE>
F-15
<PAGE> 87
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 8. FOREIGN SALES, MAJOR CUSTOMERS AND DEPENDENCE ON SUPPLIERS (CONTINUED)
Accounts receivable balance due from these customers as of December 31,
1996, 1997 and 1998 and as of March 31, 1999 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Customer A........... $ 224,000 $1,169,000 $ 889,000 $2,285,000
Customer B........... -- * * *
Customer C........... 6,000 * * *
</TABLE>
- -------------------------
* Net sales to this customer are less than 10% of the total net sales for the
years ended December 31, 1997 and 1998 and for the three months ended March
31, 1999.
Dependence on Roche Diagnostic Systems, Inc.:
The Company is highly dependent on its arrangement with Roche Diagnostic
Systems, Inc. ("Roche") (Customer A above) for the distribution and marketing of
three of its principal products, which accounted for 17%, 42%, 65% and 69% of
the Company's net sales during the years ended December 31, 1996, 1997, and 1998
and the three months ended March 31, 1999, respectively. Two of these three
products were jointly developed by the Company in collaboration with Roche. The
Company's agreements with Roche, which expire in 2002 and 2003 by their terms,
provide that the Company has exclusive manufacturing rights to the products.
These agreements do not require Roche to purchase any minimum amounts of
product, and the Company does not have the ability to sell or market these
products directly. Roche holds all intellectual property and other ownership
rights to these products, and has no obligation to renew or extend the Company's
manufacturing rights upon expiration of the Company's agreements with Roche.
Dependence on suppliers:
The Company currently relies on several third party suppliers for the
manufacture of certain key components used in its products. In particular, the
Company receives all of its requirements for the nitrocellulose membranes used
in the TesTcup and TesTstik products from a single approved supplier. Under the
Roche agreements, Roche provides all of the Company's requirements for certain
liquid reagents in the TesTcup and TesTstik products. Such components are custom
made biomaterials manufactured specifically for the Company's products. The
Company does not have any long-term supply agreements with either of these
suppliers or an alternate approved supplier for these components. In addition,
the Company also has additional single source suppliers for other components
used in the manufacture of certain products.
F-16
<PAGE> 88
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN
During 1998 the Company adopted the 1997 Stock Option Plan (the "1997
Plan"). At December 31, 1998, the Company has reserved 1,329,780 shares of
common stock for issuance under the 1997 Stock Incentive Plan, the Stock Option
Plan for Employees of ANSYS, Inc. (1990) (the "1990 Plan") and certain officer
and employee nonqualified stock options. The options vest immediately or over a
three- to five-year period.
The 1997 Plan is divided into two separate components; the Option Grant
Program and the Stock Issuance Program. Under the Option Grant Program, eligible
individuals (including officers, non-employee board members and consultants) may
be granted options to purchase shares of common stock at an exercise price not
less than 100% of their fair market value on the grant date as determined by the
plan administrator. Under the Stock Issuance Program, these individuals may be
issued shares of common stock directly. The individual may purchase the shares,
at a price not less than 100% of their fair market value as determined by the
plan administrator at the time of issuance; however, the purchase price per
share issued to a 10% stockholder may not be less than 110% of the fair market
value of the underlying common stock. Shares may also be granted as a bonus tied
to the performance of services. A total of 1,088,800 shares of common stock have
been authorized for issuance under the 1997 Plan, as amended. At December 31,
1998, there were 388,800 remaining options available for grant under the 1997
Plan prior to the plan's amendment, which on March 31, 1999 increased the number
of authorized options to purchase shares by an additional 488,800.
The 1990 Plan was adopted during 1990 and a total of 780,000 shares of
common stock have been authorized for issuance under the 1990 Plan. Options
granted under the 1990 Plan are made at the discretion of the plan
administrator. Option grants have a maximum term of ten years, subject to
earlier termination if the optionee's service with the Company is discontinued.
Options granted under the 1990 Plan vested over three to five years. At December
31, 1998, there were no remaining options available under the 1990 Plan.
In addition, during 1996, the Company granted options to purchase 90,000
shares of common stock to an officer that are nonqualified stock options and
were not granted pursuant to the 1990 Plan or the 1997 Plan. These options vest
over three years.
F-17
<PAGE> 89
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
A summary of the status of the 1990 Plan, the 1997 Plan and certain officer
and employee nonqualified stock options and changes for the years ended December
31, 1996, 1997 and 1998 and for the three months ended March 31, 1999 is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS
---------------------------------------------------------------- ENDED
1996 1997 1998 MARCH 31, 1999
------------------- ------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
------------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period............. 483,180 $0.43 723,780 $0.64 777,780 $0.74 940,980 $1.45
Granted............... 244,800 1.05 54,000 2.13 211,200 3.97 60,000 4.97
Exercised............. (4,080) 0.29 -- -- (18,400) 1.05 (41,960) 0.60
Forfeited............. (120) 0.29 -- -- (29,600) 1.05 (2,400) 4.97
------- ----- ------- ----- ------- ----- ------- -----
Outstanding at end of
period................ 723,780 $0.64 777,780 $0.74 940,980 $1.45 956,620 $1.70
======= ===== ======= ===== ======= ===== ======= =====
Exercisable at end of
period................ 332,969 $0.38 486,186 $0.51 688,920 $0.94 665,375 $1.02
======= ===== ======= ===== ======= ===== ======= =====
Remaining options
available under the
Plans................. 75,744 21,744 388,800 820,000
======= ======= ======= =======
Weighted average minimum
value per option
granted during the
period:
At market price..... 244,800 $0.68 -- $ -- -- $ -- -- $ --
======= ===== ======= ===== ======= ===== ======= =====
Below market
price............. -- $ -- 54,000 $1.29 211,200 $2.22 60,000 $4.97
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
F-18
<PAGE> 90
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
A further summary of options outstanding at December 31, 1998, is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING OPTIONS
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
-------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.29 318,780 3.32 years 318,780
0.52 40,200 2.10 years 40,200
0.75 120,000 6.50 years 120,000
1.04 36,000 7.20 years 17,600
1.07 160,800 7.91 years 107,202
2.13 54,000 8.96 years 18,003
3.83 175,200 9.32 years 49,135
4.64 36,000 9.83 years 18,000
------- -------
940,980 688,920
======= =======
</TABLE>
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations to account for the stock options issued
to employees and directors. Had compensation cost for the stock option plans
been determined based on the fair value at the date consistent with the method
of FASB Statement No. 123, Accounting for Stock-Based Compensation, the
Company's net income would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported.................... $1,201,000 $1,206,000 $2,691,000
Pro forma...................... 1,178,000 1,153,000 2,451,000
Basic earnings per share:
As reported.................... 0.46 0.54 1.33
Pro forma...................... 0.45 0.51 1.20
Diluted earnings per share:
As reported.................... 0.19 0.20 0.45
Pro forma...................... 0.19 0.19 0.41
</TABLE>
The minimum value of options granted under the Company's Stock Option Plan
was estimated on the date of grant with the following assumptions: no dividend
yield, risk-free interest 6.4% to 6.5% in 1996, 6.6% in 1997 and 6.3% 1998, and
expected lives of ten years. The effects of applying SFAS No. 123 are not
indicative of future amounts since, among other reasons, the requirements of the
Statement have been applied only to options granted after December 1994.
The 54,000 stock options granted by the Company in 1997 and the 211,200
stock options granted by the Company in 1998 were granted at an exercise price
that was less than the fair value of common stock per share. The Company
recorded related compensation expense during the years ended December 31, 1997
and 1998 of $2,000 and
F-19
<PAGE> 91
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
$108,000, respectively, based on an estimated fair value per share of $2.98 for
54,000 shares, $4.74 for 175,200 shares and $7.38 for 36,000 shares. In
addition, the Company recorded compensation expense of $33,000 for the three
months ended March 31, 1999 reflecting the compensation attributable to the 1997
and 1998 grants and the additional options to acquire 60,000 shares issued
during the three months ended March 31, 1999 with an estimated fair value per
share of $10.00.
On March 31, 1999, the Company adopted an Employee Stock Purchase Plan
covering substantially all full-time employees and has reserved 180,000 shares
of its common stock for issuance under this plan. This plan will become
effective immediately upon the execution of the underwriting agreement related
to this offering.
NOTE 10. DILUTED EARNINGS PER SHARE
Diluted earnings per share is computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income available to common
stockholders............. $1,021,000 $1,026,000 $2,511,000 $ 671,000 $ 857,000
Plus impact of assumed
conversion of Series B
preferred stock.......... 140,000 140,000 140,000 35,000 35,000
---------- ---------- ---------- ---------- ----------
Income available to common
stockholders plus assumed
conversion............... $1,161,000 $1,166,000 $2,651,000 $ 706,000 $ 892,000
========== ========== ========== ========== ==========
Weighted average shares
outstanding.............. 2,230,408 1,900,951 1,890,204 1,880,784 1,879,795
Plus incremental shares
from Series B preferred
stock conversion......... 3,641,328 3,641,328 3,641,328 3,641,328 3,641,328
Stock options.............. 185,282 321,238 410,002 376,222 526,153
---------- ---------- ---------- ---------- ----------
Diluted weighted average
shares outstanding....... 6,057,018 5,863,517 5,941,534 5,898,334 6,047,276
========== ========== ========== ========== ==========
</TABLE>
NOTE 11. PRO FORMA INFORMATION
The Company plans to redeem the Series A preferred stock, convert the
Series B preferred stock into common stock and pay the cumulative dividends on
the preferred stock in connection with a planned public stock offering. The
objective of the pro forma financial information included in these financial
statements is to show what the significant effects might have been on the
historical stockholders' equity and earnings per share.
F-20
<PAGE> 92
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 11. PRO FORMA INFORMATION (CONTINUED)
Pro forma balance sheet at March 31, 1999:
The following pro forma balance sheet adjustments have been made assuming
the following transactions occurred as of March 31, 1999:
- Series A preferred stock has been redeemed for $400,000 in cash.
- Series B preferred stock has been converted into 3,641,328 shares of
common stock.
- An estimated $1,860,000 in cumulative dividends on the Series A and B
preferred stock is paid in cash.
Pro forma earnings per share:
Pro forma basic earnings per share is computed as net income divided by the
pro forma weighted average number of common shares outstanding for the period.
Pro forma common shares outstanding for all periods presented in the computation
of pro forma basic earnings per share include (1) the number of shares of common
stock that the Series B preferred stock will be converted into upon the
completion of the initial public offering and (2) the number of equivalent
common shares to be issued in the initial public offering necessary to redeem
the Series A preferred stock and pay the cumulative dividends on the Series A
and B preferred stock through the estimated effective date of the initial public
offering at the assumed public offering price per share.
F-21
<PAGE> 93
ANSYS DIAGNOSTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED
NOTE 11. PRO FORMA INFORMATION (CONTINUED)
Pro forma diluted earnings per share is computed as net income divided by
the pro forma weighted average number of common shares outstanding for the
period as computed above plus dilutive potential common shares that could occur
from common shares issuable through stock options. Pro forma basic and diluted
shares for the year ended December 31, 1998 and for the three months ended March
31, 1999 are computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
Basic:
Weighted average shares outstanding............... 1,890,204 1,879,795
Pro forma conversion of Series B preferred
stock.......................................... 3,641,328 3,641,328
Pro forma common shares to be issued necessary to:
Redeem Series A preferred stock................ 36,364 36,364
Pay cumulative dividends on preferred stock.... 169,091 169,091
--------- ---------
Pro forma weighted average shares outstanding..... 5,736,987 5,726,578
========= =========
Diluted:
Pro forma weighted average shares outstanding..... 5,736,987 5,726,578
Stock options..................................... 410,002 526,153
--------- ---------
Pro forma diluted weighted average shares
outstanding.................................... 6,146,989 6,252,731
========= =========
</TABLE>
NOTE 12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1996 1997 1998 1998 1999
-------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash paid for:
Interest................... $ -- $ 16,000 $ 148,000 $ 25,000 $ 42,000
======== ======== ========== ======== ========
Income taxes............... $618,000 $646,000 $2,002,000 $446,000 $ --
======== ======== ========== ======== ========
Supplemental disclosures of
non-cash investing and
financing activities:
Accounts payable incurred
for purchase of
equipment and leasehold
improvements............ $ -- $ -- $ 452,000 $ -- $165,000
======== ======== ========== ======== ========
</TABLE>
F-22
<PAGE> 94
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS DATED , 1999
ANSYS LOGO
2,500,000 SHARES
COMMON STOCK
Vector Securities International, Inc. Sutro & Co. Incorporated
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................... 3
Risk Factors................................. 5
Forward-Looking Statements................... 15
Use of Proceeds.............................. 16
Dividend Policy.............................. 16
Capitalization............................... 17
Dilution..................................... 18
Selected Consolidated Financial Data......... 19
Management's Discussion and Analysis of
Financial Condition and Results
of Operations.............................. 21
Business..................................... 30
Management................................... 51
Principal Stockholders....................... 61
Description of Capital Stock................. 62
Shares Eligible for Future Sale.............. 65
Underwriting................................. 67
Legal Matters................................ 69
Experts...................................... 69
Additional Information....................... 69
Index to Consolidated Financial Statements... F-1
</TABLE>
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO PROVIDE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
NOT AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THESE SHARES OF COMMON
STOCK IN JURISDICTIONS WHERE IT IS UNLAWFUL TO DO SO. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS.
-------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission and NASD registration fees. All of
the expenses below will be paid by ANSYS.
<TABLE>
<CAPTION>
ITEM
----
<S> <C>
Registration fee............................................ $ 9,591
NASD filing fee............................................. 3,950
Nasdaq National Market listing fee.......................... 70,000
Blue sky fees and expenses.................................. 10,000
Printing and engraving expenses............................. 225,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 200,000
Transfer Agent and Registrar fees........................... 30,000
Miscellaneous............................................... 51,459
--------
Total............................................. $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, we can indemnify
our directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Our bylaws provide that we will indemnify our directors
and officers to the fullest extent permitted by law and require us to advance
litigation expenses upon our receipt of an undertaking by the director or
officer to repay such advances if it is ultimately determined that the director
or officer is not entitled to indemnification. Our bylaws further provide that
rights conferred under such bylaws do not exclude any other right such persons
may have or acquire under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Our certificate of incorporation provides that, pursuant to Delaware law,
our directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty of care to ANSYS and our stockholders. This provision
in the certificate of incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company or our stockholders, for acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemption's that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
II-1
<PAGE> 96
In addition, our certificate of incorporation (Exhibit 3.1 to this
registration statement) provides that we shall indemnify our directors and
officers if such persons acted: (1) in good faith; (2) in a manner reasonably
believed to be in or not opposed to our best interests; and (3) with respect to
any criminal action or proceeding, with reasonable cause to believe such conduct
was lawful. The certificate of incorporation also provides that, pursuant to
Delaware law, our directors shall not be liable for monetary damages for breach
of the directors' fiduciary duty of care to our company and our stockholders.
This provision in the certificate of incorporation does not eliminate the duty
of care, and in appropriate circumstances equitable remedies such as injunctive
or other forms of non-monetary relief will remain available under Delaware law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to ANSYS for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemption's that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The certificate of incorporation further
provides that we are authorized to indemnify our directors and officers to the
fullest extent permitted by law through the bylaws, agreement, vote of
stockholders or disinterested directors, or otherwise. We intend to obtain
directors' and officers' liability insurance in connection with this offering.
In addition, we have has entered or, concurrently with this offering, will
enter, into agreements to indemnify our directors and certain of our officers in
addition to the indemnification provided for in the certificate of incorporation
and bylaws. These agreements will, among other things, indemnify our directors
and certain of our officers for certain expenses (including attorneys fees),
judgments, fines and settlement amounts incurred by such person in any action or
proceeding, including any action by or in our right, on account of services by
that person as a director or officer of ANSYS or as a director or officer of any
subsidiary of ANSYS, or as a director or officer of any other company or
enterprise that the person provides services to at the request of ANSYS.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the underwriters of ANSYS and its officers and directors, and
by ANSYS of the underwriters, for certain liabilities arising under the
Securities Act or otherwise.
II-2
<PAGE> 97
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by ANSYS since January 1, 1996
involving sales of our securities that were not registered under the Securities
Act of 1933, as amended.
Since January 1, 1996, the Registrant has issued stock options under its
1990 Plan and 1997 Plan to certain eligible officers, directors and employees to
purchase an aggregate of 480,000 shares of common stock. In addition, on
December 12, 1996 the Registrant issued options to purchase 90,000 shares of
common stock to Stephen K. Schultheis, then its President and Chief Executive
Officer, which options were not granted pursuant to any plan.
None of the optionees paid any cash consideration for such options. Such
options did not involve a "sale" of securities; and, accordingly, registration
was not required. The following table sets forth the grant date, number of
options, current exercise price and class of optionees for all of such options.
<TABLE>
<CAPTION>
GRANT DATE NO. OF OPTIONS EXERCISE PRICE CLASS OF OPTIONEES
---------- -------------- -------------- ------------------
<S> <C> <C> <C>
01/01/96 to 05/31/96 72,000 $1.04 Employee
03/01/96 to 12/31/96 82,800 $1.07 Employee
12/12/96 90,000 $1.07 Officer
12/18/97 54,000 $2.13 Employee
04/08/98 108,000 $3.83 Employee
07/01/98 67,200 $3.83 Officer
10/16/98 18,000 $4.64 Director
11/16/98 18,000 $4.64 Director
01/22/99 60,000 $4.97 Employee
</TABLE>
In March 1999, the Registrant issued 41,960 shares of its common stock to
four employees upon exercise of their vested stock options. In April 1998, the
Registrant also issued 18,400 shares of its common stock to a former employee
upon exercise of his vested stock options. In addition, in April 1996 the
Registrant issued 4,080 shares to another former employee upon exercise of his
vested stock options.
The sale and issuance of securities in the above transactions were deemed
to be exempt from registration under the Securities Act by virtue of Section
4(2) or Rule 701 thereof, or Regulation D, as transactions by an issuer not
involving a public offering. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information.
II-3
<PAGE> 98
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of ANSYS
as filed with the Delaware Secretary of State on May 21,
1999
3.2 Bylaws of ANSYS
3.3 Agreement and Plan of Merger dated May 22, 1999
4.1* Specimen certificate representing shares of common stock of
the Company
5.1* Form of Opinion of Brobeck Phleger & Harrison LLP
10.1* Form of Indemnification Agreement
10.2 Stock Option Plan for Employees of ANSYS, together with form
of Stock Option Agreement (and related Notice of Grant of
Option), Stock Purchase Agreement and Stock Issuance
Agreement
10.3 1997 Stock Incentive Plan, together with form of Stock
Option Agreement (and related Notice of Grant of Option),
Stock Purchase Agreement and Stock Issuance Agreement
10.4+* Commercial Agreement dated as of April 1, 1993 by and
between Roche Diagnostic Systems, Inc. and ANSYS
10.5* Amendment to Commercial Agreement between Roche Diagnostic
Systems, Inc. and ANSYS dated May 1, 1998
10.6+* Development and Manufacturing Agreement dated as of
September 1, 1996 by and between Roche Diagnostic Systems,
Inc. and ANSYS
10.7+* First Amendment to Development and Manufacturing Agreement
between Roche Diagnostic Systems, Inc. and ANSYS dated as of
September 25, 1998
10.8* Standard Industrial Commercial Single-Tenant Lease -- Net
dated November 1, 1996 between Makena Properties and ANSYS
10.9* Form of International Distributorship Agreement for ANSYS
10.10* Form of Distributorship Agreement for ANSYS
10.11* Registration Rights Agreement dated December 12, 1988
between ANSYS and certain stockholders of ANSYS
10.12* Management Subscription Agreement dated December 12, 1988
between ANSYS and certain stockholders of ANSYS
10.13* $2,000,000 Promissory Note Change in Terms Agreement dated
June 1, 1998 between ANSYS and Southern California Bank
10.14* $1,000,000 Promissory Note Change in Terms Agreement dated
May 28, 1998 between ANSYS and Southern California Bank
10.15+* Letter Agreement dated September 24, 1998 by and between
ANSYS and Molecular Innovations, Inc.
10.16* $300,000 Convertible Note dated February 5, 1999 between
ANSYS and Molecular Innovations, Inc.
10.17+* Convertible Note Purchase Agreement dated February 5, 1999
between ANSYS and Molecular Innovations, Inc.
10.18 ANSYS 1999 Employee Stock Purchase Plan
10.19 Option Agreement dated December 12, 1999 between ANSYS and
Donald W. Jones, M.D. and Julie E. Jones
21.1* List of Subsidiaries
23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors
23.2* Consent of Brobeck Phleger & Harrison LLP (contained in
Exhibit 5.1)
24.1* Power of Attorney
27.1* Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed.
+ Confidential treatment has been obtained with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
II-4
<PAGE> 99
(b) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus as filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Lake
Forest, State of California, on the 24th day of May, 1999.
ANSYS DIAGNOSTICS, INC.
By: /s/ STEPHEN K. SCHULTHEIS
-----------------------------------
Stephen K. Schultheis,
Chairman of the Board, President
and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ STEPHEN K. SCHULTHEIS Chairman of the Board, May 24, 1999
- ------------------------------------------ President and Chief Executive
Stephen K. Schultheis Officer (principal executive
officer)
/s/ SUZANNE M. DAVID Chief Financial Officer May 24, 1999
- ------------------------------------------ (principal financial and
Suzanne M. David accounting officer)
* Director May 24, 1999
- ------------------------------------------
Ronald J. Hall
* Director May 24, 1999
- ------------------------------------------
George D. Holmes
* Director May 24, 1999
- ------------------------------------------
John M. Morris
* Director May 24, 1999
- ------------------------------------------
C. Michael O'Donnell, Ph.D.
* Director May 24, 1999
- ------------------------------------------
William C. Shepherd
</TABLE>
*By: /s/ STEPHEN K. SCHULTHEIS
- --------------------------------
Stephen K. Schultheis,
Attorney-in-fact
II-6
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
1.1* Form of Underwriting Agreement..............................
3.1 Amended and Restated Certificate of Incorporation of ANSYS
as filed with the Delaware Secretary of State on May 21,
1999........................................................
3.2 Bylaws of ANSYS.............................................
3.3 Agreement and Plan of Merger dated May 22, 1999.............
4.1* Specimen certificate representing shares of common stock of
the Company.................................................
5.1* Form of Opinion of Brobeck Phleger & Harrison LLP...........
10.1* Form of Indemnification Agreement...........................
10.2 Stock Option Plan for Employees of ANSYS, together with form
of Stock Option Agreement (and related Notice of Grant of
Option), Stock Purchase Agreement and Stock Issuance
Agreement...................................................
10.3 1997 Stock Incentive Plan, together with form of Stock
Option Agreement (and related Notice of Grant of Option),
Stock Purchase Agreement and Stock Issuance Agreement.......
10.4+* Commercial Agreement dated as of April 1, 1993 by and
between Roche Diagnostic Systems, Inc. and ANSYS............
10.5* Amendment to Commercial Agreement between Roche Diagnostic
Systems, Inc. and ANSYS dated May 1, 1998...................
10.6+* Development and Manufacturing Agreement dated as of
September 1, 1996 by and between Roche Diagnostic Systems,
Inc. and ANSYS..............................................
10.7+* First Amendment to Development and Manufacturing Agreement
between Roche Diagnostic Systems, Inc. and ANSYS dated as of
September 25, 1998..........................................
10.8* Standard Industrial Commercial Single-Tenant Lease -- Net
dated November 1, 1996 between Makena Properties and
ANSYS.......................................................
10.9* Form of International Distributorship Agreement for ANSYS...
10.10* Form of Distributorship Agreement for ANSYS ................
10.11* Registration Rights Agreement dated December 12, 1988
between ANSYS and certain stockholders of ANSYS.............
10.12* Management Subscription Agreement dated December 12, 1988
between ANSYS and certain stockholders of ANSYS.............
10.13* $2,000,000 Promissory Note Change in Terms Agreement dated
June 1, 1998 between ANSYS and Southern California Bank.....
10.14* $1,000,000 Promissory Note Change in Terms Agreement dated
May 28, 1998 between ANSYS and Southern California Bank.....
10.15+* Letter Agreement dated September 24, 1998 by and between
ANSYS and Molecular Innovations, Inc........................
10.16* $300,000 Convertible Note dated February 5, 1999 between
ANSYS and Molecular Innovations, Inc........................
10.17+* Convertible Note Purchase Agreement dated February 5, 1999
between ANSYS and Molecular Innovations, Inc................
10.18 ANSYS 1999 Employee Stock Purchase Plan.....................
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
10.19 Option Agreement dated December 12, 1998 between ANSYS and
Donald W. Jones, M.D. and Julie E. Jones....................
21.1* List of Subsidiaries........................................
23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors....
23.2* Consent of Brobeck Phleger & Harrison LLP (contained in
Exhibit 5.1)................................................
24.1* Power of Attorney...........................................
27.1* Financial Data Schedule.....................................
</TABLE>
- -------------------------
* Previously filed.
+ Confidential treatment has been obtained with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have been
filed separately with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ANSYS DIAGNOSTICS, INC.
A DELAWARE CORPORATION
Ansys Diagnostics, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
ONE: The original Certificate of Incorporation of this
corporation was filed with the Secretary of State of the State of Delaware on
March 1, 1999, under its present name.
TWO: This Amended and Restated Certificate of Incorporation was
duly adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law.
THREE: The stockholder approval required by Section 242 of the
Delaware General Corporation Law was obtained by written consent of the sole
stockholder of this corporation in accordance with Section 228 of the Delaware
General Corporation Law.
FOUR: The Amended and Restated Certificate of Incorporation of
this corporation shall be amended and restated to read in full as follows:
I.
The name of this corporation (hereinafter, the "Corporation") is
Ansys Diagnostics, Inc.
II.
The address of the registered office of the Corporation in the
State of Delaware is 9 East Loockerman Street, Dover, Delaware 19901, County of
Kent and the name of the registered agent at that address is National Registered
Agent, Inc.
III.
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Laws of Delaware (the "GCL").
IV.
A. Classes of Stock. This Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is authorized to issue
is Thirty Five Million (35,000,000) shares. Thirty Million (30,000,000) shares,
$.0001 par value per share, shall be Common Stock and Five Million (5,000,000)
shares, $.0001 par value per share, shall be Preferred Stock.
<PAGE> 2
B. Rights, Preferences and Restrictions of Preferred Stock. The rights,
preferences, privileges and restrictions granted to or imposed upon the shares
of preferred stock or the holders thereof are as follows:
1. Designation of Series A Redeemable Preferred Stock. Four
Thousand (4,000) shares of preferred stock of the Corporation shall be
designated and known as "Series A Redeemable Preferred Stock."
2. Designation of Series B Convertible Preferred Stock. Fourteen
Thousand (14,000) shares of preferred stock shall be designated and known as
"Series B Convertible Preferred Stock." The Series A Redeemable Preferred Stock
and the Series B Convertible Preferred Stock are sometimes hereinafter
collectively referred to as the "Preferred Stock."
3. Dividends. The holders of the shares of the outstanding
Preferred Stock shall be entitled to receive, when and as declared by the Board
of Directors of the Corporation, out of any assets at the time legally available
therefor, dividends at the rate of $10.00 per share of Preferred Stock per
annum, and no more, payable in cash quarterly on the first day of January,
March, June and September, each year beginning March 1, 1989. Such dividends
shall accrue on each such share from the date of its original issuance and shall
accrue from day to day, whether or not earned or declared.
Such dividends shall be cumulative so that if dividends in
respect of any previous quarterly dividend period shall not have been paid on or
declared and set apart for all Preferred Stock at the time outstanding, such
deficiency shall be fully paid on or declared and the full amount thereof set
apart for payment on such shares before the Corporation makes any distribution
(as hereinafter defined) to holders of shares of common stock of the Corporation
(the "Common Shares") or any other class or series of stock hereinafter
authorized. For purposes of this Section 3, "distribution" means the transfer of
cash or property without consideration, whether by way of dividend or otherwise
(except a dividend in Common Shares or shares of the Corporation ranking upon
liquidation, dissolution, winding up or otherwise junior in right of payment to
the shares of Preferred Stock) or the purchase or redemption of shares of the
Corporation for cash or property (except the purchase of up to 1,262,904 Common
Shares issued to employees of the Corporation, which the Corporation has the
right to repurchase under certain circumstances), including any such transfer,
purchase or redemption by a subsidiary of the Corporation. For purposes of this
Section 3, the time of any distribution by way of dividend shall be the date of
declaration thereof and the time of any distribution by purchase or redemption
of shares shall be the date on which cash or property is transferred by the
Corporation, whether or not pursuant to a contract of an earlier date; provided
that where a debt security or instrument is issued in exchange for shares the
time of the distribution shall be the date on which the Corporation acquires the
shares in such exchange.
When full cumulative dividends are not paid upon both series of
shares of Preferred Stock, all dividends declared upon such shares shall be
declared pro rata so that the amount of dividends declared per share of Series A
Redeemable Preferred Stock and Series B Convertible Preferred Stock shall in all
cases bear to each other the same ratio that accrued and unpaid accumulated
dividends per share on the shares of Series A Redeemable Preferred Stock and
Series B Convertible Preferred Stock bear to each other.
2
<PAGE> 3
4. Liquidation Preference. In the event of a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of shares of Preferred Stock shall be entitled to receive out of the
assets of the Corporation, whether such assets are capital or surplus of any
nature, an amount equal to $100 per share of Preferred Stock and a further
amount equal to any accumulated dividends accrued and unpaid thereon, as
provided in Section 3, to the date that payment is made available to the holders
of shares of Preferred Stock, whether earned or declared or not, and no more,
before any payment shall be made or any assets distributed to the holders of
Common Shares or any shares of the Corporation ranking upon liquidation,
dissolution, winding up or otherwise junior or pari passu in right of payment to
the shares of Preferred Stock.
If upon such liquidation, dissolution or winding up, the assets
thus distributed among the holders of shares of Series A Redeemable Preferred
Stock and Series B Convertible Preferred Stock shall be insufficient to permit
the payment to such stockholders of the full preferential amounts set forth in
the immediately preceding paragraph, then the entire assets of the Corporation
to be distributed shall be distributed ratably among the holders of shares of
Series A Redeemable Preferred Stock and Series B Convertible Preferred Stock in
proportion to the full amounts to which they otherwise would be entitled.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, subject to all of the preferential
rights of the holders of shares of Preferred Stock on distribution or otherwise,
the holders of Common Shares and any shares of the Corporation ranking upon
liquidation, dissolution, winding-up or otherwise junior or pari passu in right
of payment to the shares of Preferred Stock shall be entitled to receive all
remaining assets of the Corporation.
A consolidation or merger of the Corporation with or into any
other corporation or corporations, or a sale of all or substantially all of the
assets of the Corporation which does not involve the distribution by the
Corporation of cash or other property to holders of the Common shares, shall not
be deemed to be a liquidation, dissolution or winding up within the meaning of
this Section 4.
Each holder of an outstanding share of Preferred Stock shall be
deemed to have consented, for purposes of Section 170 of the Delaware General
Corporation Law, to the distributions made by the Corporation in connection with
the repurchase of up to 1,262,904 Common Shares issued to employees of the
Corporation, which the Corporation has the right or obligation to repurchase
under certain circumstances.
5. Redemption of Series A Redeemable Preferred Stock.
(a) General. The Corporation, at the option of the
Board of Directors with the consent of the holders of a majority of the Common
Shares, may at any time or from time to time redeem the whole or any part of the
outstanding shares of Series A Redeemable Preferred Stock by paying therefor in
cash one hundred dollars ($100) per share plus an amount in cash equal to all
accumulated dividends accrued and unpaid thereon, as provided in Section 3,
whether earned or declared or not, to and including the date fixed for
redemption, such sum being hereinafter sometimes referred to as the "Redemption
Price." In case of the redemption of
3
<PAGE> 4
a part only of the outstanding shares of Series A Redeemable Preferred Stock,
the Corporation shall designate pro rata the shares to be redeemed. Less than
all of the shares of Series A Redeemable Preferred Stock at any time outstanding
may not be redeemed until all accumulated dividends accrued and unpaid upon all
shares of Series A Redeemable Preferred Stock outstanding shall have been paid
for all past dividend periods, and until full dividends for the then current
dividend period on all shares of Series A Redeemable Preferred Stock then
outstanding, other than the shares to be redeemed, shall have been paid or
declared and the full amount thereof set apart for payment.
(b) Notice of Redemption. At least ten (10) days' previous notice
by mail, postage prepaid, shall be given to the holders of record of shares of
Series A Redeemable Preferred Stock to be redeemed pursuant to subparagraph (a)
above, such notice shall be addressed to each such holder at the address of such
holder appearing on the books of the Corporation or given by such holder to the
Corporation for the purpose of notice, or if no such address appears or is so
given, at the place where the principal office of the Corporation is located.
Such notice shall state the date fixed for redemption and the Redemption Price,
and shall call upon such holder to surrender to the Corporation on said date at
the place designated in the notice such holder's certificate or certificates
representing shares of Series A Redeemable Preferred Stock to be redeemed on or
after the date fixed for redemption and stated in such notice, each holder of
shares of Series A Redeemable Preferred Stock called for redemption shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the Redemption Price. If less than all of the shares represented by any such
surrendered certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares. If such notice of redemption shall have been
duly given, and if on the date fixed for redemption funds necessary for the
redemption shall be available therefor, then, notwithstanding that any
certificate for shares of Series A Redeemable Preferred Stock so called for
redemption shall not have been surrendered for cancellation, shares so called
shall no longer be outstanding, shall not be transferred on the books of the
Corporation and the holders thereof shall cease to be stockholders with respect
to such shares, and shall have no rights with respect thereto (including,
without limitation, the right to receive dividends thereon after the redemption
date), except the right to receive payment of the Redemption Price without
interest, upon surrender of their certificate therefor.
(c) Redemption by Deposit. If, on or prior to any date fixed for
redemption of shares of Series A Redeemable Preferred Stock, the Corporation
deposits, with any bank or trust company in the State of California, as a trust
fund, a sum sufficient to redeem, on the date fixed for redemption thereof, the
shares called for redemption, with irrevocable instructions and authority to the
bank or trust company to give the notice of redemption thereof (or to complete
the giving of such notice if theretofore commenced) and to pay, on or after the
date fixed for redemption or prior thereto, the Redemption Price to their
respective holders upon the surrender of their share certificates, then from and
after the date of the deposit (although prior to the date fixed for redemption),
notwithstanding that any certificate for shares of Series A Redeemable Preferred
Stock so called for redemption shall not have been surrendered for cancellation,
the shares so called shall no longer be outstanding, and the holders thereof
shall cease to be stockholders with respect to such shares, and shall have no
rights with respect thereto (including, without limitation, the right to receive
dividends thereon after the redemption date), except the right to receive from
the bank or trust company payment of the Redemption Price
4
<PAGE> 5
without interest, upon the surrender of their certificates therefor. Any
interest accrued on any funds so deposited shall be the property of, and paid
to, the Corporation. If the holders of shares of Series A Redeemable Preferred
Stock so called for redemption shall not, at the end of two years (or any longer
period required by law) from the date fixed for redemption thereof have claimed
any funds so deposited, such bank or trust company shall thereupon pay over to
the Corporation such unclaimed funds, and such bank or trust company shall
thereafter be relieved of all responsibility in respect thereof to such holders
and such holders shall look only to the Corporation for payment of the
Redemption Price without interest.
(d) Priority on Redemption. The Corporation shall not, directly
or indirectly, redeem or purchase or otherwise acquire for value any Common
Shares or any shares of the Corporation ranking on liquidation, dissolution,
winding up or otherwise, junior or pari passu in right of payment to the shares
of Series A Redeemable Preferred Stock (other than not more than 1,262,904
Common Shares issued to employees of the Corporation which the Corporation has
the right or obligation to repurchase under certain circumstances) unless the
Corporation shall contemporaneously redeem all of the then outstanding shares of
Series A Redeemable Preferred Stock at the applicable Redemption Price
(including accrued and unpaid accumulated dividends thereon to the redemption
date) set forth in subparagraph (a) of this Section 5.
6. Conversion Rights of Series B Convertible Preferred Stock. The holders
of shares of Series B Convertible Preferred Stock shall have conversion rights
as follows:
(a) Right to Convert. Each share of Series B Convertible
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time at the office of the Corporation or any transfer agent for such shares
of Series B Convertible Preferred Stock, into such number of fully paid and
nonassessable Common Shares (calculated to the nearest 1/100th of a share,
fractions of less than 1/100th of a share being disregarded) as is determined by
dividing $100 by the Conversion Price (as hereinafter defined) in effect at the
time of conversion determined as hereinafter provided. The price at which Common
Shares shall be deliverable upon conversion (herein called the "Conversion
Price") shall be initially $0.38445 per Common Share. Such initial Conversion
Price shall be subject to adjustment from time to time in certain instances, as
hereinafter provided. Upon surrender of any share of Series B Redeemable
Preferred Stock for conversion, the Corporation shall pay the holder thereof any
accumulated dividends accrued and unpaid thereon; provided, however, that such
accumulated dividends shall not be paid in cash if, at the time of such payment,
an Event of Default (as defined in those certain Credit Agreements, dated as of
September 24, 1997 and May 14, 1997, between the Corporation and Southern
California Bank, as they may be amended from time to time (collectively, the
"Credit Agreements")), has occurred and is continuing or if payment would cause
such an Event of Default.
(b) Automatic Conversion.
(i) Each share of Series B Convertible Preferred Stock
shall automatically be converted into Common Shares at the then effective
Conversion Price immediately upon the closing of a firm commitment underwritten
public offering pursuant to an
5
<PAGE> 6
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Shares for the account of the Corporation
to the public.
(ii) In the event of such an offering, the person(s)
entitled to receive the Common Shares issuable upon such automatic conversion of
Series B Convertible Preferred Stock shall not be deemed to have converted such
shares of Series B Convertible Preferred Stock until immediately prior to the
closing of such sale of securities. Upon the occurrence of such an offering the
outstanding shares of Series B Convertible Preferred Stock shall be converted
automatically without further action by the holders of such shares of Series B
Convertible Preferred Stock and whether or not the certificates representing
such shares of Series B Convertible Preferred Stock are surrendered to the
Corporation or its transfer agent; provided, however, that the Corporation shall
not be obligated to issue certificates evidencing the Common Shares issuable
upon conversion of any shares of Series B Redeemable Preferred Stock unless
certificates evidencing such shares of Series B Redeemable Preferred Stock are
either delivered to the Corporation or any transfer agent as hereinafter
provided, or the holder notifies the Corporation that said certificates have
been lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation against any loss incurred by it in
connection therewith. Upon the occurrence of the automatic conversion of the
shares of Series B Redeemable Preferred Stock, the holders of shares of Series B
Redeemable Preferred Stock shall surrender the certificates representing such
shares at the office of the Corporation or of any transfer agent for the Series
B Convertible Preferred Stock or the Common Shares. Thereupon, there shall be
issued and delivered to such holder of shares of Series B Convertible Preferred
Stock, promptly at such office and in his name as shown on such surrendered
certificate or certificates, a certificate or certificates for the number of
Common Shares into which the shares of Series B Convertible Preferred Stock
surrendered were convertible on the date on which the event effecting the
automatic conversion occurred.
(c) Manner of Conversion. Except as otherwise provided in
subparagraph (b) of this Section 6, before any holder of shares of Series B
Convertible Preferred Stock shall be entitled to convert the same into Common
Shares, such holder shall surrender the certificate or certificates therefor,
duly endorsed in blank or accompanied by proper instruments of transfer, at the
office of the Corporation or of any transfer agent for shares of Series B
Convertible Preferred Stock, and shall give written notice to the Corporation at
such office that such holder elects to convert the same and shall state in
writing therein the name or names in which such holder wishes the certificate or
certificates for Common Shares to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder, or to
such holder's nominee or nominees, certificates for the number of full Common
Shares to which such holder shall be entitled, as aforesaid, together with cash
in lieu of any fraction of a share. Such conversion shall be deemed to have been
made as of the date of such surrender of the shares of Series B Convertible
Preferred Stock to be converted, and the person or persons entitled to receive
the Common Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Shares on such date.
(d) Adjustment of Conversion Price. The Conversion Price shall be
subject to adjustment from time to time as follows:
6
<PAGE> 7
(i) Subdivision or Combination of Common Shares. In case
the Corporation shall at any time subdivide its outstanding Common Shares into a
greater number of shares, the Conversion Price shall forthwith be reduced
proportionately. Conversely, in case the outstanding Common Shares shall at any
time be combined into a smaller number of shares, the Conversion Price shall
forthwith be increased proportionately.
(ii) Dividends in Common Shares, Other Stock or Property.
If at any time or from time to time the holders of Common Shares (or any shares
of stock or other securities at the time receivable upon the conversion of
shares of Series B Convertible Preferred Stock) shall have received or become
entitled to receive, without payment therefor,
(x) Common Shares or any shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Common Shares, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or other
distribution,
(y) any cash paid or payable otherwise than as a
cash dividend, or
(z) Common Shares or additional stock or other
securities or property (including cash) by way of spin-off, split-up,
reclassification or similar corporate rearrangement (other than Common Shares
issued as a stock split or combination, adjustments in respect of which shall be
covered by the terms of subparagraph (d)(i) of this Section 6) then
(1) in the case of holders of Common Shares
receiving or becoming entitled to receive Common Shares as provided in clause
(x) of this subparagraph (d)(ii) of Section 6, the Conversion Price then in
effect shall be decreased at the time of issuance of such Common Shares, or in
case a record date for the distribution of such Common Shares is set, on such
record date, as provided in subparagraph (d)(i) of this Section 6 as though such
distribution or proposed distribution were a stock split, and
(2) in all other cases, the holders of shares
of Series B Convertible Preferred Stock shall, upon conversion thereof, be
entitled to receive, in addition to the number of Common Shares receivable
thereupon, and without payment of any additional consideration therefor, the
amount of stock and other securities and property (including cash in the cases
referred to in clauses (y) and (z) of this subparagraph (d)(ii) of Section 6)
which such holders would hold on the date of such conversion had such holders
been holders of record of such Common Shares as of the date on which holders of
Common Shares received or became entitled to receive such shares and all other
additional stock and other securities and property.
(iii) Reorganization, Reclassification, Consolidation,
Merger or Sale. If any reorganization of the capital stock of the Corporation,
or any consolidation or merger of the Corporation with another corporation, or
the sale of all or substantially all of its assets to another corporation shall
be effected in such a way that holders of Common Shares shall be entitled to
receive stock, securities or assets of the Corporation or another corporation,
as
7
<PAGE> 8
the case may be, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made and
duly executed documents evidencing the same from the Corporation, or its
successor, shall be delivered to each holder of shares of Series B Convertible
Preferred Stock whereby such holder shall have the right, at a price not to
exceed the Conversion Price, to receive (in lieu of the Common Shares
immediately theretofore receivable upon conversion) such shares of stock,
securities or assets as may be issued by the Corporation or another corporation,
as the case may be, with respect to or in exchange for a number of outstanding
Common Shares equal to the number of Common Shares immediately theretofore
receivable upon conversion. In any reorganization described above, appropriate
provision shall be made with respect to the rights and interests of the holders
of shares of Series B Convertible Preferred Stock to the end that the provisions
of the Series B Convertible Preferred Stock (including, without limitation,
provisions for adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be practicable, in relation to any shares of stock,
securities or assets thereafter deliverable upon conversion. The Corporation
will not effect any such consolidation, merger or sale unless, prior to the
consummation thereof, the successor corporation (if other than the Corporation)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument, executed and mailed or delivered to
each holder of shares of Series B Redeemable Preferred Stock at the last address
of such holder appearing on the books of the Corporation, the obligation to
deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase.
(iv) Adjustment Upon Issuance of Additional Shares
of Common.
(x) Special Definitions. For purposes of this
subparagraph (d)(iv) of Section 6, the following definitions shall apply:
(1) `Option' shall mean rights,
options or warrants to subscribe for, purchase or otherwise acquire either
Common Shares, Convertible Securities or other options.
(2) `Original Issue Date' shall mean
December 12, 1988.
(3) `Convertible Securities' shall
mean any evidences of indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common Shares.
(4) `Additional Shares of Common'
shall mean all Common Shares issued (or, pursuant to subparagraph (d)(iv)(y)(2)
of this Section 6, deemed to be issued) by the Corporation after the Original
Issue Date, other than:
a. Common Shares issued or
issuable upon conversion of shares of Series B Convertible Preferred Stock;
b. Common Shares issued or
issuable upon exercise of the Warrant, dated December 12, 1988, issued by the
Corporation in favor
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<PAGE> 9
of Security Pacific National Bank or the Option granted to Donald W. Jones, M.D.
and Ms. Julie E. Jones (the "Joneses") pursuant to that certain option
Agreement, dated as of December 12, 1988, between the Corporation and the
Joneses;
c. Common Shares issued or
issuable to officers or employees of, or consultants to, the Corporation,
pursuant to a stock grant or option plan or other employee stock incentive
program (collectively, the "Plans") approved by the Board of Directors, and
Common Shares repurchased by the Corporation pursuant to the terms of those
certain Management Subscription Agreements, dated as of December 12, 1988, and
reissued by the Corporation to its officers, employees or consultants, subject,
in each case, to adjustment for all subdivisions and combinations of Common
Shares after the Original Issue Date; and
d. Common Shares issued or
issuable by way of dividend or other distribution on Common Shares excluded from
the definition of Additional Shares of Common by the foregoing clauses a., b.
and c. of this subparagraph (d)(iv)(x)(4) of Section 6 or on Common Shares so
excluded.
(y) Adjustment to Conversion Price.
(1) No Adjustment of Conversion
Price. No adjustments to the Conversion Price shall be made in respect of the
issuance of Additional Shares of Common under this subparagraph (d)(iv)(y) of
Section 6 unless the consideration per share for an Additional Share of Common
issued or deemed to be issued by the Corporation is less than the Conversion
Price in effect on the date of, and immediately prior to, such issuance or
deemed issuance.
(2) Issue of Securities Deemed Issue
of Additional Shares of Common. In the event the Corporation at any time or from
time to time after the Original Issue Date shall issue any options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such options or
Convertible Securities, then the maximum number of Common Shares (as set forth
in the instrument relating thereto without regard to any provisions contained
therein for a subsequent adjustment of such numbers) issuable upon the exercise
of such options or, in the case of Convertible Securities or options therefor,
upon the conversion or exchange of such Convertible Securities, shall be deemed
to be Additional Shares of Common issued as of the time of the issuance of such
Options or Convertible Securities or, in case such a record date shall have been
fixed, as of the close of business on such record date; provided that Additional
Shares of Common shall not be deemed to have been issued unless the
consideration per share (determined pursuant to subparagraph (d)(iv)(y)(4) of
Section 6) of such Additional Shares of Common would be less than the Conversion
Price in effect on the date of and immediately prior to such issue, or such
record date, as the case may be; and provided further that in any case in which
Additional Shares of Common are deemed to be issued:
a. no further adjustment in
the Conversion Price shall be made upon the subsequent issue of Convertible
Securities or Common
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<PAGE> 10
Shares upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
b. if such options or
Convertible Securities by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the Corporation, or
decrease in the number of Common Shares issuable upon the exercise, conversion
or exchange thereof, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
adjustments subsequent to the date thereof based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
c. upon the expiration or
cancellation of any such options or any rights of conversion or exchange under
such Convertible Securities which shall not have been exercised, the Conversion
Price computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration or cancellation, be recomputed as if:
A) in the case of
Convertible Securities or Options for Common Shares, the only Additional Shares
of Common issued were the Common Shares, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such conversion or exchange; and
B) in the case of
options for Convertible Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued at the time of issue of
such options, and the consideration received by the Corporation for the
Additional Shares of Common deemed to have been then issued was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration deemed to have been
received by the Corporation (determined pursuant to subparagraph
(d)(iv)(y)(4)(2) of this Section 6) upon the issue of the Convertible Securities
with respect to which such Options were actually exercised;
d. no readjustment pursuant to
clauses b. and c. of this subparagraph (d)(iv)(y)(2) of Section 6 shall have the
effect of increasing the Conversion Price to an amount which exceeds the lower
of (i) the Conversion Price on the original adjustment date, or (ii) the
Conversion Price that would have resulted from any issuance of Additional Shares
of Common between the original adjustment date and such readjustment date; and
e. in the case of any Options
which expire by their terms not more than thirty (30) days after the date of
issue thereof, no adjustment of the Conversion Price shall be made until the
expiration or exercise of all such Options,
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<PAGE> 11
whereupon such adjustment shall be made in the same manner provided in clause c.
of this subparagraph (d)(iv)(y)(2) of Section 6.
(3) Adjustment Upon Issuance of
Additional Shares of Common. In the event the Corporation at any time or from
time to time after the Original Issue Date shall issue Additional Shares of
Common (including Additional Shares Common deemed to be issued pursuant to
subparagraph (d)(iv)(y)(2) of this Section 6, but excluding Additional Shares of
Common issued pursuant to subparagraphs (d)(i) or (d)(ii) of this Section 6,
respectively) without consideration or for a consideration per share less than
the Conversion Price in effect on the date of and immediately prior to such
issue, then and in such event, such Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction (x) the numerator
of which shall be the number of Common Shares outstanding immediately prior to
such issue (excluding Common Shares if such shares or securities on account of
which such shares were issued would have been excluded from the definition of
"Additional Shares of Common" by virtue of clauses b., c. and d. of subparagraph
(d)(iv)(x)(4) of this Section 6) plus the number of Common Shares which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common so issued would purchase at such Conversion Price,
and (y) the denominator of which shall be the number of Common Shares
outstanding immediately prior to such issue (excluding Common Shares if such
shares or securities on account of which such shares were issued would have been
excluded from the definition of "Additional Shares of Common" by virtue of
clauses b., c. and d. of' subparagraph (d)(iv)(x)(4) of this Section 6) plus the
number of such Additional Shares of Common so issued.
(4) Determination of Consideration.
For purposes of this subparagraph (d)(iv)(y) of Section 6, the consideration
received by the Corporation for the issue of any Additional Shares of Common
shall be computed as follows:
a. Cash and Property. Such
consideration shall:
A) Insofar as it
consists of cash, be computed at the aggregate amount of cash received by the
Corporation excluding amounts paid or payable for accrued interest or accrued
dividends;
B) Insofar as it
consists of property other than cash, be computed at the fair value thereof at
the time of such issue, as determined in good faith by the Board of Directors of
the Corporation; and
C) In the event
Additional Shares of Common are issued together with other shares or securities
or other assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clauses A)
and B) of this subparagraph (d)(iv)(y)(4) of Section 6, as determined in good
faith by the Board.
b. Options and Convertible
Securities. The consideration per share received by the Corporation for
Additional Shares of Common
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<PAGE> 12
deemed to have been issued pursuant to subparagraph (d)(iv)(y)(2) of this
Section 6, relating to options and Convertible Securities, shall be determined
by dividing:
A) the total amount, if any,
received or receivable by the Company as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities; by
B) the maximum number of
Common Shares (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such options or the conversion 6r exchange of such
Convertible Securities.
(v) De Minimis Adjustments. No adjustment or
readjustment in the Conversion Price pursuant to this subparagraph (d) of
Section 6 shall be required unless such adjustment or readjustment would require
an increase or decrease of at least 1% in the Conversion Price, as adjusted from
time to time; provided, however, that any adjustments which by reason of this
subparagraph (d)(v) of Section 6 are not required to be, and are not, made shall
be carried forward and taken into account in any subsequent adjustment.
(vi) Notice of Adjustment. Upon any adjustment of
the conversion Price, the Corporation shall give written notice thereof, by
first class mail, postage prepaid, addressed to each holder of Series B
Convertible Preferred Stock at the address of such holders as shown on the books
of the Corporation. The notice shall be signed by the Corporation's chief
financial officer and shall state the Conversion Price resulting from such
adjustment setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
(vii) Other Notices. If at any time:
(x) the Corporation shall declare any cash
dividend upon its capital stock;
(y) the Corporation shall declare any
dividend upon its Common Shares payable in stock or make any special dividend or
other distribution to the holders of its Common Shares;
(z) the Corporation shall offer for
subscription pro rata to the holders of its Common Shares any additional shares
of stock of any class or other rights;
(xx) there shall be any capital
reorganization or reclassification of the capital stock of the Corporation; or
consolidation or merger of the Corporation with, or sale of all or substantially
all of its assets to, another corporation;
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<PAGE> 13
(yy) there shall be voluntary or involuntary
dissolution, liquidation or winding-up of the Corporation; or
(zz) there shall be an initial public
offering of the Corporation's securities;
then, in any one or more of such cases, the Corporation shall give, by first
class mail, postage prepaid, addressed to each holder of Series B Convertible
Preferred Stock at the address of such holder appearing on the books of the
Corporation (a) at least thirty (30) days' prior written notice of the date on
which the books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding-up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up or public offering, at least thirty (30) days' prior
written notice of the date when the same shall take place. Any notice given in
accordance with the foregoing clause (a) of this subparagraph (d)(vii) of
Section 6 shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Shares shall be
entitled thereto. Any notice given in accordance with the foregoing clause (b)
of this subparagraph (d)(vii) of Section 6 shall also specify the date on which
the holders of Common Shares shall be entitled to exchange their Common Shares
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, conversion or public offering, as the case may be.
(viii) Certain Events. If any change in the
outstanding Common Shares of the Corporation or any other event occurs as to
which the other provisions of this subparagraph (d) of Section 6 are not
strictly applicable or if strictly applicable would not fairly protect the
rights of the holders of Series B Convertible Preferred Stock in accordance with
the essential intent and principles of such provisions, then the Board of
Directors of the Corporation shall make an adjustment in the Conversion Price or
the application of such provisions, in accordance with such essential intent and
principles so as to protect such rights as aforesaid. The adjustment shall be
such as will give each holder of shares of Series B Convertible Preferred Stock
upon conversion for the same aggregate Conversion Price the total number, class
and kind of shares as such holder would have owned had such holder converted
prior to the event and had such holder continued to hold the Common Shares
received upon such conversion until after the event requiring adjustment.
(e) Reservation of Common Shares. The Corporation shall at
all times reserve and keep available, out of its authorized but unissued Common
Shares, solely for the purpose of effecting the conversion of shares of Series B
Convertible Preferred Stock, the full number of Common Shares deliverable upon
the conversion of all shares of Series B Convertible Preferred Stock from time
to time outstanding. The Corporation shall from time to time, in accordance with
the laws of the State of Delaware, increase the authorized amount of its Common
Shares if at any time the authorized number of Common Shares remaining unissued
shall not be sufficient to permit the conversion of all of the shares of Series
B Convertible Preferred Stock at the time outstanding.
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<PAGE> 14
(f) Payment of Taxes. The Corporation shall pay any and
all issue and other taxes that may be payable in respect of any issue or
delivery of Common Shares on conversion of shares of Series B Convertible
Preferred Stock pursuant hereto. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of Common Shares in a name other than that in which the
shares of Series B Convertible Preferred Stock so converted were registered, and
no such issue or delivery shall be made unless and until the person requesting
such issue has paid to the Corporation the amount of any such tax, or has
established to the satisfaction of the Corporation that such tax has been paid.
7. Voting Rights of Series A Redeemable Preferred Stock.
(a) No General Voting Rights. Except as provided in this
Section 7 or as otherwise provided by law, the holders of the Common Shares and
shares of Series B Convertible Preferred Stock issued and outstanding shall have
and possess the exclusive right to notice of stockholders' meetings, and the
exclusive voting rights and powers, and the holders of shares of Series A
Redeemable Preferred Stock shall not be entitled to notice of any stockholders'
meetings or to vote upon the election of directors or upon any other matter. On
such matters set forth below, upon which the holders of shares of Series A
Redeemable Preferred Stock are entitled to vote, each such holder shall have
twelve (12) votes per share.
(b) Voting Rights on Extraordinary Matters. So long as any
of the shares of Series A Redeemable Preferred Stock shall be outstanding the
Corporation shall not without first obtaining the approval of the holders of at
least a majority of the total number of shares of Series A Redeemable Preferred
Stock outstanding:
(i) amend or repeal any provision of, or add any
provision to, this Certificate of Incorporation, if such action would alter or
change in any manner the rights, preferences or privileges of the shares of
Series A Redeemable Preferred Stock or materially adversely affect the holders
of shares of Series A Redeemable Preferred Stock;
(ii) increase the authorized number of shares of
Series A Redeemable Preferred Stock;
(iii) create any new class of shares, or any other
securities convertible into equity securities, of the Corporation having
preferences over or being on a parity with the shares of Series A Redeemable
Preferred Stock as to dividends, upon liquidation, dissolution, winding-up or
otherwise, unless the purpose of creation of such class or other securities is,
and the proceeds to be derived from the sale and issuance thereof are to be used
for, the retirement of all shares of Series A Redeemable Preferred Stock then
outstanding;
(iv) purchase any shares of Series B Convertible
Preferred Stock or Common Shares except as expressly permitted herein;
(v) merge or consolidate with any other
corporation;
(vi) sell, convey or otherwise dispose of, or
create or incur any mortgage, lien, charge or encumbrance on or security
interest in or pledge of, or sell and
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<PAGE> 15
leaseback, all or substantially all of the property or business of the
Corporation, except as contemplated by the terms of the Credit Agreements;
(vii) effect any transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Corporation is disposed of; or
(viii) incur, assume or guarantee any indebtedness
(other than such as may be represented by the obligation to pay rent under
leases) maturing more than eighteen (18) months after the date on which it is
incurred, assumed, or guaranteed by the corporation, except purchase money
obligations, obligations assumed as part of the price of property purchased, or
the extension, renewal or refunding of any thereof and except pursuant to the
Credit Agreements.
8. Voting Rights of Series B Convertible Preferred Stock.
(a) General. Except as provided in Section 7, the holders
of shares of Series B Convertible Preferred Stock, shall together with the
holders of Common Shares possess the exclusive right to notice of stockholders'
meetings, and the exclusive voting rights and powers, including without
limitation, the power to vote upon the election of directors; provided, however,
that the holders of shares of Series B Convertible Preferred Stock shall not be
entitled to vote on the redemption of the shares of Series A Redeemable
Preferred Stock. On all such matters upon which holders of shares of Series B
Convertible Preferred Stock shall be entitled to vote, each such holder shall
have 164.71 votes per share.
(b) Right to Elect Directors. If (i) an Event of Default
(as defined in the Credit Agreements) shall have occurred and be continuing and,
in the case of any non-payment default, the holders of 66 2/3% of the
outstanding shares of Series B Convertible Preferred Stock shall not have
consented to such Event of Default and such Event of Default shall continue for
a period of 90 days or, in the case of a payment default, the holders of 66 2/3%
of the outstanding shares of Series B Convertible Preferred Stock shall not have
consented to such Event of Default and such Event of Default shall continue for
a period of 45 days, or (ii) at such time as the Credit Agreements are no longer
in effect, two (2) or more quarterly dividends, whether or not consecutive, on
the shares of Series B Convertible Preferred Stock shall be in arrears, in whole
or in part, and the holders of 66 2/3% of the outstanding shares of Series B
Convertible Preferred Stock shall not have consented to such arrearage the
rights of holders of the Series B Convertible Preferred Stock with respect to
the election of directors provided in subparagraph (a) of this Section 8 shall
cease and the holders of shares of Series B Convertible Preferred Stock as a
class shall be entitled to elect the smallest number of directors which will
constitute a majority of the authorized number of directors, and the holders of
Common Shares voting as a single class shall be entitled to elect the remaining
members of the Board of Directors. At such time as such Event of Default shall
have been cured or consented to by the holders of 66 2/3% of the outstanding
shares of Series B Convertible Preferred Stock, the rights of the holders of
shares of Series B Convertible Preferred Stock to vote as provided in this
subparagraph (b) of Section 8 shall cease, subject to renewal from time to time
upon the same terms and conditions and the rights of the holders of Series B
Convertible Preferred Stock to vote for the election of directors as provided in
subparagraph (a) of this Section 8 shall be renewed.
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<PAGE> 16
At any time after the voting power to elect a majority of the
Board of Directors shall have become vested in the holders of shares of Series B
Convertible Preferred Stock as provided in this subparagraph (b) of Section 8,
the Secretary of the Corporation may, and upon the request of the record holders
of at least fifty percent (50%) of the shares of Series B Convertible Preferred
Stock then outstanding addressed to the Secretary at the principal executive
office of the Corporation shall, call a special meeting of the holders of shares
of Series B Convertible Preferred Stock and Common Shares for the election of
directors, to be held at the place and upon the notice provided in the Bylaws of
the Corporation for the holding of annual meetings. If such meeting shall not be
so called within ten (10) days' after personal service of the request, or within
fifteen (15) days' after mailing of the same by registered mail within the
United States of America, then a person designated by the record holders of at
least fifty percent (50%) of the shares of Series B Convertible Preferred Stock
then outstanding may call such meeting at the place and upon the notice above
provided, and for that purpose shall have access to the stock books of the
Corporation. At any meeting so called or at any annual meeting held while the
holders of shares of Series B Convertible Preferred Stock have the voting power
to elect a majority of the Board of Directors, the holders of a majority of the
then outstanding shares of Series B Convertible Preferred Stock, present in
person or by proxy, shall be sufficient to constitute a quorum for the election
of the directors which the holders of shares of Series B Convertible Preferred
Stock are entitled to elect pursuant to this subparagraph (b) of Section 8 and
the vote of a majority of the shares of Series B Convertible Preferred Stock
counted towards such quorum shall be sufficient to elect any such director. For
purposes of this subparagraph (b) of Section 8 only, each holder of shares of
Series B Convertible Preferred Stock shall be entitled to one vote per share.
The terms of office of all persons who are directors of the Corporation at the
time of such meeting shall terminate upon the election at such meeting by the
holders of shares of Series B Convertible Preferred Stock of the number of
directors they are entitled to elect, and the persons so elected as directors by
the holders of shares of Series B Convertible Preferred Stock, together with
such persons, if any, as may be elected as directors by the holders of Common
Shares, shall constitute the duly elected directors of the Corporation. In the
event the holders of Common Shares fail to elect the number of directors which
they are entitled to elect at such meeting, additional directors may be
appointed by the directors elected by the holders of shares of Series B
Convertible Preferred Stock.
Any director elected by holders of shares of Series B Convertible
Preferred Stock may be removed, and shall not be removed except by, the vote of
the holders of record of a majority of the outstanding shares of Series B
Convertible Preferred Stock who are at the time of such vote entitled to vote
for the election of such director, at a meeting of the stockholders called for
such purpose. Any vacancy in the office of a director entitled to be elected by
holders of shares of Series B Convertible Preferred Stock may be filled (i) by
any instrument in writing signed by the remaining directors elected by the
holders of shares of Series B Convertible Preferred Stock and filed with the
Corporation or (ii) in the case of the removal of any such director, by the vote
of the holders of a majority of the outstanding shares of Series B Convertible
Preferred Stock who are at that time entitled to vote for the election of such
director at the same meeting at which such removal shall be voted.
Whenever the voting rights of holders of the shares of Series B
Convertible Preferred Stock shall cease as provided in this subparagraph (2) of
paragraph (h), the term of office of all persons who are at the time directors
of the Corporation shall terminate upon the
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<PAGE> 17
election of their successors by the holders of shares of Series B Convertible
Preferred Stock (pursuant to subparagraph (a) of this Section 8 and Common
Shares.
9. Status of Reacquired Shares. All shares of Preferred Stock of
the Corporation which have been redeemed or reacquired in any manner by the
Corporation after the original issuance thereof shall have the status of
authorized and unissued shares of the class of preferred stock issuable in
series, undesignated as to series, and may be redesignated and reissued, but may
not be reissued as shares of Series A Redeemable Preferred Stock or Series B
Convertible Preferred Stock. The Board of Directors is authorized to divide such
reacquired shares of preferred stock into such number of series as the Board of
Directors may determine. The Board of Directors is authorized to determine or
alter the rights, preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of preferred stock. and to fix the number of
shares of any series of preferred stock, and to determine the designation of any
series of preferred stock.
10. Reports to Stockholders. The Corporation shall distribute
copies of its annual reports and quarterly reports which it may be required to
file with the Securities and Exchange Commission ("SEC") to holders of shares of
Preferred Stock. In addition, so long as the Corporation is not required to file
copies of its annual reports and quarterly reports with the SEC, the Corporation
shall mail to each holder of shares of Preferred Stock, at the address of such
holder appearing on the books of the Corporation, its monthly, quarterly and
annual financial statements and management reports, within 10 days after such
statements and reports are completed, and any other financial statements or
reports which the Corporation is then providing to any of its lenders,
including, without limitation, Southern California Bank, at the same time as
such statements and reports are provided to such lenders.
V.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation. In addition, the
Bylaws may be amended by the affirmative vote of holders of at least sixty-six
and two-thirds percent (66 2/3%) of the outstanding shares of voting stock of
the Corporation entitled to vote at an election of directors.
The number of directors of the Corporation shall be determined by
resolution of the Board of Directors.
Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide. Advance notice of stockholder
nominations for the election of directors and of any other business to be
brought before any meeting of the stockholders shall be given in the manner
provided in the Bylaws of this Corporation.
At each annual meeting of stockholders, directors of the
Corporation shall be elected to hold office until the expiration of the term for
which they are elected, or until their successors have been duly elected and
qualified; except that if any such election shall not be so held, such election
shall take place at a stockholders' meeting called and held in accordance with
the GCL.
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Notwithstanding the provisions contained in Article 4, Section B,
Subsections 7 and 8, the directors of the Corporation shall be divided into
three (3) classes as nearly equal in size as is practicable, hereby designated
Class I, Class II and Class III. For the purposes hereof, the initial Class I,
Class II and Class III directors shall be those directors so designated by a
resolution of the Board of Directors. At the annual meeting of stockholders to
be held in 2000, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three (3) years. At the
annual meeting of stockholders to be held in 2001, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three (3) years. At the annual meeting of stockholders to be held
in 2002, the term of office of the Class III directors shall expire and Class
III directors shall be elected for a full term of three (3) years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three (3) years to succeed the directors of the class whose terms expire
at such annual meeting. If the number of directors is hereafter changed, each
director then serving as such shall nevertheless continue as a director of the
Class of which he is a member until the expiration of his current term and any
newly created directorships or decrease in directorships shall be so apportioned
among the classes as to make all classes as nearly equal in number as is
practicable.
Vacancies occurring on the Board of Directors for any reason may
be filled by vote of a majority of the remaining members of the Board of
Directors, even if less than a quorum, at any meeting of the Board of Directors.
A person so elected by the Board of Directors to fill a vacancy shall hold
office for the remainder of the full term of the director for which the vacancy
was created or occurred and until such director's successor shall have been duly
elected and qualified. A director may be removed from office by the affirmative
vote of the holders of 66 2/3% of the outstanding shares of voting stock of the
Corporation entitled to vote at an election of directors, provided that such
removal is for cause.
VI.
Stockholders of the Corporation shall take action by meetings
held pursuant to this Amended and Restated Certificate of Incorporation and the
Bylaws and shall have no right to take any action by written consent without a
meeting. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. Special meetings of the stockholders, for
any purpose or purposes, may only be called by the Board of Directors of the
Corporation. The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
VII.
Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by (1) the President or Secretary
pursuant to a request in writing of the President; (2) a majority of the entire
Board of Directors; or (3) stockholders owning not less than 50% of the entire
voting stock of ANSYS then issued and outstanding, but such special meetings may
not be called by any other person or persons; provided, however, that if and to
the extent that any special meeting of stockholders may be called by any other
person or persons specified in any provisions of the Certificate of
Incorporation or any amendment thereto or any certificate filed under Section
151(g) of the General Corporation Law of Delaware (or its
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successor statute as in effect from time to time hereunder), then such special
meeting may also be called by the person or person in the manner, at the times
and for the purposes so specified. A special meeting may not be held absent a
written request. The request shall state the purpose or purposes of the proposed
meeting.
VIII.
To the fullest extent permitted by applicable law, this
Corporation is authorized to provide indemnification of (and advancement of
expenses to) directors, officers, employees and agents (and any other persons to
which Delaware law permits this Corporation to provide indemnification) through
Bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the GCL,
subject only to limits created by applicable Delaware law (statutory or
non-statutory), with respect to action for breach of duty to the Corporation,
its stockholders, and others.
No director of the Corporation shall be personally liable to the
Corporation or any stockholder for monetary damages for breach of fiduciary duty
as a director, except for any matter in respect of which such director shall be
liable under Section 174 of the GCL or any amendment thereto or shall be liable
by reason that, in addition to any and all other requirements for such
liability, such director (1) shall have breached the director's duty or loyalty
to the Corporation or its stockholders, (2) shall have acted in manner involving
intentional misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or a knowing
violation of law, or (3) shall have derived an improper personal benefit. If the
GCL is hereafter amended to authorize the further elimination or limitation of
the liability of a director, the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the GCL, as so
amended.
Each person who was or is made a party or is threatened to be
made a party to or is in any way involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), including any appeal therefrom, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or a direct
or indirect subsidiary of the Corporation, or is or was serving at the request
of the Corporation as a director or officer of another entity or enterprise, or
was a director or officer of a foreign or domestic corporation which was
predecessor corporation of the Corporation or of another entity or enterprise at
the request of such predecessor corporation, shall be indemnified and held
harmless by the Corporation, and the Corporation shall advance all expenses
incurred by any such person in defense of any such proceeding prior to its final
determination, to the fullest extent authorized by the GCL. In any proceeding
against the Corporation to enforce these rights, such person shall be presumed
to be entitled to indemnification and the Corporation shall have the burden of
proving that such person has not met the standards of conduct for permissible
indemnification set forth in the GCL. The rights to indemnification and
advancement of expenses conferred by this Article VIII shall be presumed to have
been relied upon by the directors and officers of the Corporation in serving or
continuing to serve the Corporation and shall be enforceable as contract rights.
Said rights shall not be exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. The Corporation may, upon written
demand
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presented by a director or officer of the Corporation or of a direct or
indirect subsidiary of the Corporation, or by a person serving at the request of
the Corporation as a director or officer of another entity or enterprise, enter
into contracts to provide such persons with specified rights to indemnification,
which contracts may confer rights and protections to the maximum extent
permitted by the GCL, as amended and in effect from time to time.
If a claim under this Article VIII is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expenses of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce the right to be advanced expenses incurred in
defending any proceeding prior to its final disposition where the required
undertaking, if any, has been tendered to the Corporation ) that the claimant
has not met the standards of conduct which make it permissible under the GCL for
the Corporation to indemnify the claimant for the amount claimed, but the
claimant shall be presumed to be entitled to indemnification and the Corporation
shall have the burden of proving that the claimant has not met the standards of
conduct for permissible indemnification set forth in the GCL.
If the GCL is hereafter amended to permit the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment, the indemnification rights conferred by this
Article VIII shall be broadened to the fullest extent permitted by the GCL, as
so amended.
IX.
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in Articles
V, VI, VII, VIII and IX of this Amended and Restated Certificate of
Incorporation may not be repealed or amended in any respect without the
affirmative vote of holders at least 66 2/3% of the outstanding voting stock of
the Corporation entitled to vote at election of directors.
SIX: The foregoing amendment and restatement has been approved by
the Board of Directors of the Corporation.
SEVEN: The foregoing amendment and restatement has been approved
by the required vote of the sole stockholder of the Corporation in accordance
with Section 242 of the Delaware General Corporation Law; the total number of
outstanding shares of the corporation is 1,000 shares of Common Stock. The
number of shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than 51% of the Common Stock.
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IN WITNESS WHEREOF, the undersigned have executed this
Certificate on May 21, 1999.
/s/ STEPHEN K. SCHULTHEIS
------------------------------------
Stephen K. Schultheis, President
/s/ SUZANNE M. DAVID
------------------------------------
Suzanne M. David, Secretary
The undersigned, Stephen K. Schultheis and Suzanne M. David, the
President and Secretary, respectively, of Ansys Diagnostics, Inc., each declares
under penalty of perjury that the matters set out in the foregoing Amended and
Restated Certificate of Incorporation are true of his/her own knowledge.
Executed at Lake Forest, California, on May 21, 1999.
/s/ STEPHEN K. SCHULTHEIS
------------------------------------
Stephen K. Schultheis, President
/s/ SUZANNE M. DAVID
------------------------------------
Suzanne M. David, Secretary
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EXHIBIT 3.2
BYLAWS
OF
ANSYS DIAGNOSTICS, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Dover,
County of Kent, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at such
date and time as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting. At each annual meeting, the
stockholders shall elect directors to succeed those directors whose terms expire
in that year and shall transact such other business as may properly be brought
before the meeting.
Section 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make available, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to
<PAGE> 2
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 5. Special meetings of the stockholders, for any purpose
or purposes, may only be called by the Board.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, either the Chairman of the
Board, or the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted that might have been
transacted at the meeting as originally notified. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of applicable statute
or of the certificate of incorporation, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
Section 11. Nominations for election to the Board of Directors
must be made by the Board of Directors or by a committee appointed by the Board
of Directors for such purpose or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Nominations by stockholders must be preceded by notification in writing received
by the secretary of the corporation not less than one-hundred twenty (120) days
prior to any meeting of stockholders called for the election of directors. Such
notification shall contain the written consent of each proposed nominee to serve
as a director if so elected and the
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following information as to each proposed nominee and as to each person, acting
alone or in conjunction with one or more other persons as a partnership, limited
partnership, syndicate or other group, who participates or is expected to
participate in making such nomination or in organizing, directing or financing
such nomination or solicitation of proxies to vote for the nominee:
(a) the name, age, residence, address, and business address of
each proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type of
business and address of the corporation or other organization in which such
employment is carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned beneficially,
either directly or indirectly, by each proposed nominee and each such person;
and
(d) a description of any arrangement or understanding of each
proposed nominee and of each such person with each other or any other person
regarding future employment or any future transaction to which the corporation
will or may be a party.
The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
Section 12. At any meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this Bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Bylaw.
For business to be properly brought before any meeting by a stockholder
pursuant to clause (c) above of this Section 12, the stockholder must have given
timely notice thereof in writing to the secretary of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than one hundred
twenty (120) days prior to the date of the meeting. A stockholder's notice to
the secretary shall set forth as to each matter the stockholder proposes to
bring before the meeting (a) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, and the name and address of the
beneficial owner, if any, on whose behalf the proposal is made, (c) the class
and number of shares of the corporation which are owned beneficially and of
record by such stockholder of record and by the beneficial owner, if any, on
whose behalf of the proposal is made and (d) any material interest of such
stockholder of record and the beneficial owner, if any, on whose behalf the
proposal is made in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 12.
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The presiding officer of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
and in accordance with the procedures prescribed by this Section 12, and if such
person should so determine, such person shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 12, a stockholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this Section 12.
Section 13. Effective upon the closing of the corporation's
initial public offering of securities pursuant to a registration statement filed
under the Securities Act of 1933, as amended, the stockholders of the
Corporation may not take action by written consent without a meeting but must
take any such actions at a duly called annual or special meeting in accordance
with these Bylaws and the Certificate of Incorporation.
ARTICLE III
DIRECTORS
Section 1. The number of directors of this corporation that shall
constitute the whole board shall be determined by resolution of the Board of
Directors; provided, however, that no decrease in the number of directors shall
have the effect of shortening the term of an incumbent director. The Board of
Directors shall be classified, with respect to the time for which they severally
hold office, into three classes, as nearly equal in number as possible, as
determined by the Board of Directors, one class to hold office initially for a
term expiring at the annual meeting to be held in 2000, another class to hold
office initially for a term expiring at the annual meeting of stockholders held
in 2001 and another class to hold office initially for a term expiring at the
annual meeting of stockholders to be held in 2002, with the members of each
class to hold office until their successors are elected and qualified. At each
annual meeting of stockholders, the successors of the class of directors whose
term expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election.
Section 2. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next election of the class for which such directors were chosen and until their
successors are duly elected and qualified or until earlier resignation or
removal. If there are no directors in office, then an election of directors may
be held in the manner provided by statute.
Section 3. The business of the corporation shall be managed by or
under the direction of its Board of Directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
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MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
Chairman of the Board or the president on twelve (12) hours' notice to each
director by phone, fax or electronic mail; special meetings shall be called by
the Chairman of the Board, the president or secretary in like manner and on like
notice on the written request of a majority of the Board unless the Board
consists of only one director, in which case special meetings shall be called by
the Chairman of the Board, the president or secretary in like manner and on like
notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
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COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence of disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 7 of Article III of
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these Bylaws), but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telephone, telegram or facsimile.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a president, a chief financial officer and a
secretary. The Board of Directors may elect from among its members a Chairman of
the Board. The Board of Directors may also choose one or more vice-presidents,
assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person, unless the certificate of incorporation or these bylaws
otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president, a chief financial
officer, and a secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers of the corporation shall
be fixed by the Board of Directors or any committee established by the Board of
Directors for such purpose. The salaries of agents of the corporation shall,
unless fixed by the Board of Directors, be fixed by the president or any
vice-president of the corporation.
Section 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at
all meetings of the Board of Directors and of the stockholders at which he/she
shall be present. He/she shall have and may exercise such powers as are, from
time to time, assigned to him/her by the Board and as may be provided by
law.
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Section 7. In the absence of the Chairman of the Board, the
president, shall preside at all meetings of the Board of Directors and of the
stockholders at which he shall be present. He shall have and may exercise such
powers as are, from time to time, assigned to him by the Board and as may be
provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief executive officer of
the corporation; and in the absence of the Chairman of the Board he/she shall
preside at all meetings of the stockholders and the Board of Directors; he/she
shall have general and active management of the business of the corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
Section 9. The president or any vice president shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 10. In the absence of the president or in the event of
his inability or refusal to act, the vice-president, if any, (or in the event
there be more than one vice-president, the vice-presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board
of Directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He/she shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he/she shall be. He/she shall have custody of
the corporate seal of the corporation and he/she, or an assistant secretary,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by his signature or by the signature of such
assistant secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
Section 12. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
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THE CHIEF FINANCIAL OFFICER
Section 13. The chief financial officer shall be the chief
financial officer of the corporation, shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He/she shall disburse the funds of the corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Chief Financial Officer and of the financial condition
of the corporation.
Section 15. If required by the Board of Directors, he/she shall
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his/her office and for
the restoration to the corporation, in case of his/her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his/her control
belonging to the corporation.
Section 16. The treasurer or an assistant treasurer, in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election) shall, in the absence of the Chief Financial
Officer or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the Chief Financial Officer and shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the Chairman of the Board of Directors, or the president or a vice-president and
the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the corporation, certifying the number of shares owned by him/her
in the corporation.
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent
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such class or series of stock, provided that, except as otherwise provided in
section 202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate that
the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Any of or all the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he/she were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his/her
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
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REGISTERED STOCKHOLDERS
Section 5. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
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INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent
authorized under the laws of the State of Delaware, as those laws may be amended
and supplemented from time to time, indemnify any director made, or threatened
to be made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section 6
shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be a director, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide indemnification under this Section 6 shall
be offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the corporation or
any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be
a contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on
behalf of the corporation to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been
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"fiduciaries" of any employee benefit plan of the corporation which may exist
from time to time, Section 145 of the General Corporation Law of Delaware shall,
for the purposes of this Section 6, be interpreted as follows: an "other
enterprise" shall be deemed to include such an employee benefit plan, including
without limitation, any plan of the corporation which is governed by the Act of
Congress entitled "Employee Retirement Income Security Act of 1974," as amended
from time to time; the corporation shall be deemed to have requested a person to
serve an employee benefit plan where the performance by such person of his
duties to the corporation also imposes duties on, or otherwise involves services
by, such person to the plan or participants or beneficiaries of the plan; excise
taxes assessed on a person with respect to an employee benefit plan pursuant to
such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or
new bylaws may be adopted by the affirmative vote of holders of at least 66-2/3%
vote of the outstanding voting stock of the corporation. These bylaws may also
be altered, amended or repealed or new bylaws may be adopted by the Board of
Directors, when such power is conferred upon the Board of Directors by the
certificate of incorporation. The foregoing may occur at any regular meeting of
the stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal bylaws is conferred upon
the Board of Directors by the certificate of incorporation it shall not divest
or limit the power of the stockholders to adopt, amend or repeal bylaws.
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CERTIFICATE OF ADOPTION BY THE
SECRETARY OF
ANSYS DIAGNOSTICS, INC.
The undersigned, Suzanne M. David, hereby certifies that she is
the duly elected and acting Secretary of Ansys Diagnostics, Inc., a Delaware
corporation (the "Corporation"), and that the Bylaws attached hereto constitute
the Bylaws of said Corporation as duly adopted by the Board of Directors on May
__, 1999 and the Stockholders on May __, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed her
name this _____ day of May, 1999.
--------------------------------
Suzanne M. David,
Secretary
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<PAGE> 1
EXHIBIT 3.3
AGREEMENT AND PLAN OF MERGER
OF ANSYS DIAGNOSTICS, INC.,
A DELAWARE CORPORATION,
AND
ANSYS DIAGNOSTICS, INC.,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated as of May 22, 1999, (the
"AGREEMENT") is entered into by and between ANSYS Diagnostics, Inc., a Delaware
corporation ("ANSYS-DELAWARE" or the "SURVIVING CORPORATION"), and ANSYS
Diagnostics, Inc., a California corporation ("ANSYS-CALIFORNIA"). ANSYS-Delaware
and ANSYS-California are sometimes referred to herein as the "CONSTITUENT
CORPORATIONS."
R E C I T A L S
A. ANSYS-Delaware is a corporation duly organized and existing
under the laws of the State of Delaware and has authorized capital stock of
35,000,000 shares, 30,000,000 of which are designated "Common Stock," par value
$.0001 per share, and 5,000,000 of which are designated "Preferred Stock," par
value $.0001 per share. Four Thousand (4,000) shares are designated Series A
Redeemable Preferred Stock and Fourteen Thousand (14,000) shares are designated
Series B Convertible Preferred Stock. As of the date hereof, 1,000 shares of
Common Stock are issued and outstanding, all of which are held by
ANSYS-California. No shares of Preferred Stock are outstanding.
B. ANSYS-California is a corporation duly organized and existing
under the laws of the State of California and has authorized capital stock of
35,000,000 shares, 30,000,000 of which are designated "Common Stock," no par
value, and 5,000,000 of which are designated, "Preferred Stock," no par value.
As of the date hereof, 5,558,472 shares of Common Stock are issued and
outstanding and 956,620 shares of Common Stock are subject to issuance upon
exercise of outstanding stock options. As of the date hereof, 18,000 shares of
Preferred Stock are issued and outstanding, of which 4,000 shares are Series A
Redeemable Preferred Stock and 14,000 shares are Series B Convertible Preferred
Stock.
C. The Board of Directors of ANSYS-California has determined
that, for the purpose of effecting the reincorporation of ANSYS-California in
the State of Delaware, it is advisable and in the best interests of
ANSYS-California that ANSYS-California merge with and into ANSYS-Delaware upon
the terms and conditions herein provided, with ANSYS-Delaware as the surviving
corporation.
D. The respective Boards of Directors of ANSYS-Delaware and
ANSYS-California have approved this Agreement and have directed that this
Agreement be submitted to a vote of the sole stockholder of ANSYS-Delaware and
shareholders of ANSYS-California, respectively, and be executed by the
undersigned officers.
E. ANSYS-Delaware is a wholly-owned subsidiary of
ANSYS-California.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual agreements and
covenants set forth herein, ANSYS-Delaware and ANSYS-California hereby agree,
subject to the terms and conditions hereinafter set forth, as follows:
I. MERGER
1.1 Merger. In accordance with the provisions of this Agreement,
the Delaware General Corporation Law and the California General Corporation Law,
ANSYS-California shall be merged with and into ANSYS-Delaware (the "MERGER"). By
virtue of the Merger, the separate existence of ANSYS-California shall cease and
ANSYS-Delaware shall continue as the surviving corporation under the name "ANSYS
Diagnostics, Inc."
1.2 Filing and Effectiveness. The Merger shall become effective
when the following actions shall have been completed:
(a) This Agreement and the Merger shall have been
adopted and approved by the shareholders of ANSYS-California in accordance with
the requirements of the Delaware General Corporation Law and the California
General Corporation Law;
(b) All of the conditions precedent to the consummation
of the Merger specified in this Agreement shall have been satisfied or duly
waived by the party entitled to satisfaction thereof; and
(c) An executed Certificate of Merger or an executed
counterpart of this Agreement meeting the requirements of the Delaware General
Corporation Law and California General Corporation Law shall have been filed
with the Secretary of State of the State of Delaware.
The date and time when the Merger shall become effective, as
aforesaid, is herein called the "EFFECTIVE DATE OF THE MERGER."
1.3 Effect of the Merger. Upon the Effective Date of the Merger,
the separate existence of ANSYS-California shall cease and ANSYS-Delaware, as
the Surviving Corporation, (i) shall continue to possess all of its assets,
rights, powers and property as constituted immediately prior to the Effective
Date of the Merger, (ii) shall be subject to all actions previously taken by its
and ANSYS-California's Board of Directors, (iii) shall succeed, without other
transfer or action on the part of any other party, to all of the assets, rights,
powers and property of ANSYS-California in the manner more fully set forth in
Section 259 of the Delaware General Corporation Law, (iv) shall continue to be
subject to all of the debts, liabilities and obligations of ANSYS-Delaware as
constituted immediately prior to the Effective Date of the Merger, and (v) shall
succeed, without other transfer or other action on the part of any other party,
to all of the debts, liabilities and obligations of ANSYS-California in the same
manner as if ANSYS-Delaware had itself incurred them, all as more fully provided
under the applicable provisions of the Delaware General Corporation Law and the
California General Corporation Law.
2
<PAGE> 3
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of
Incorporation of ANSYS-Delaware as in effect immediately prior to the Effective
Date of the Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of ANSYS-Delaware as in effect immediately
prior to the Effective Date of the Merger shall continue in full force and
effect as the Bylaws of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of
ANSYS-California immediately prior to the Effective Date of the Merger shall be
the directors and officers of the Surviving Corporation until their successors
shall have been duly elected and qualified or until as otherwise provided by
law, the Certificate of Incorporation of the Surviving Corporation or the Bylaws
of the Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 Conversion of ANSYS-California Capital Stock. Subject to the
terms and conditions of this Agreement, upon the Effective Date of the Merger,
by virtue of the Merger and without any action on the part of the Constituent
Corporations or the holders of the capital stock thereof:
(a) Each share of Common Stock, no par value, of ANSYS-California
issued and outstanding immediately prior to the Effective Date of the Merger
shall be converted into and exchanged for one (1) fully paid and nonassessable
share of Common Stock, par value $.0001 per share, of the Surviving Corporation;
(b) Each share of Series A Redeemable Preferred Stock, no par
value, of ANSYS-California issued and outstanding immediately prior to the
Effective Date of the Merger shall be converted into and exchanged for one (1)
fully paid and nonassessable share of Series A Redeemable Preferred Stock, par
value $.0001 per share, of the Surviving Corporation; and
(c) Each share of Series B Convertible Preferred Stock, no par
value, of ANSYS-California issued and outstanding immediately prior to the
Effective Date of the Merger shall be converted into and exchanged for one (1)
fully paid and nonassessable share of Series B Convertible Preferred Stock, par
value $.0001 per share, of the Surviving Corporation;
3.2 ANSYS-California Stock Options.
(a) Upon the Effective Date of the Merger, each option
to purchase shares of Common Stock of ANSYS-California (an "OPTION"), whether
vested or unvested, outstanding and unexercised immediately prior to the
Effective Date of the Merger shall be assumed by the Surviving Corporation and
shall be converted, subject to the provisions in paragraph 3.3(b) below, on the
basis of one (1) share of the Surviving Corporation's Common Stock for each
share of ANSYS-California Common Stock issuable pursuant to any such Option,
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<PAGE> 4
into an option to purchase the Surviving Corporation's Common Stock on the same
terms and conditions set forth in such Option. The Surviving Corporation shall
also assume all of the rights and obligations of ANSYS-California under its 1990
Stock Option Plan (the "1990 Plan") and its 1997 Stock Incentive Plan (the "1997
PLAN"). The 1990 Plan and 1997 Plan are sometimes collectively referred to
herein as the "PLAN."
(b) One (1) share of the Surviving Corporation's Common
Stock shall be reserved for issuance (i) under the Plan for each share of Common
Stock of ANSYS-California so reserved immediately prior to the Effective Date of
the Merger and (ii) upon the exercise of any Option issued outside of the Plan
for each share of Common Stock of ANSYS-California so reserved immediately prior
to the Effective Date of the Merger.
(c) Following the Effective Date of the Merger, no
"additional benefits" (within the meaning of Section 424(a)(2) of the Internal
Revenue Code of 1986, as amended) shall be accorded to the optionees pursuant to
the assumption of their options.
3.3 ANSYS-Delaware Common Stock. Upon the Effective Date of the
Merger, each share of Common Stock, par value $.0001 per share, of
ANSYS-Delaware issued and outstanding immediately prior thereto shall, by virtue
of the Merger and without any action by ANSYS-Delaware, the holder of such
shares or any other person, be cancelled and returned to the status of
authorized but unissued shares.
3.4 Exchange of Certificates. After the Effective Date of the
Merger, each holder of an outstanding certificate representing shares of Common
Stock or Preferred Stock of ANSYS-California may be asked to surrender the same
for cancellation to an exchange agent, whose name will be delivered to holders
prior to any requested exchange (the "EXCHANGE AGENT"), and each such holder
shall be entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of the Surviving Corporation's Common Stock or
Preferred Stock into which the surrendered shares were converted as herein
provided. Until so surrendered, each outstanding certificate theretofore
representing shares of Common Stock or Preferred Stock of ANSYS-California shall
be deemed for all purposes to represent the number of shares of the Surviving
Corporation's Common Stock or Preferred Stock, as the case may be, into which
such shares of Common Stock or Preferred Stock of ANSYS-California were
converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to the Surviving Corporation or the Exchange Agent, have
and be entitled to exercise any voting and other rights with respect to, and to
receive dividends and other distributions upon, the shares of Common Stock or
Preferred Stock of the Surviving Corporation, as the case may be, represented by
such outstanding certificate as provided above.
Each certificate representing Common Stock or Preferred Stock of
the Surviving Corporation issued in the Merger shall bear the same legends, if
any, with respect to the restrictions on transferability as the certificates of
ANSYS-California so converted and given in exchange therefore, unless otherwise
determined by the Board of Directors of the Surviving
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<PAGE> 5
Corporation in compliance with applicable laws, or such other additional legends
as agreed upon by the holder and the Surviving Corporation.
If any certificate for shares of the Surviving Corporation's
stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it shall be a condition of
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer, that such transfer otherwise be
proper and comply with applicable securities laws and that the person requesting
such transfer pay to the Exchange Agent any transfer or other taxes payable by
reason of issuance of such new certificate in a name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
payable.
IV. GENERAL
4.1 Covenants of ANSYS-Delaware. ANSYS-Delaware covenants and
agrees that it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in
the State of California and in connection therewith irrevocably appoint an agent
for service of process as required under the provisions of Section 2105 of the
California General Corporation Law.
(b) File any and all documents with the California
Franchise Tax Board necessary for the assumption by ANSYS-Delaware of all of the
franchise tax liabilities of ANSYS-California.
(c) Take such other actions as may be required by the
California General Corporation Law to effect the Merger.
4.2 Further Assurances. From time to time, as and when required
by ANSYS-Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of ANSYS-California such deeds and other instruments, and
there shall be taken or caused to be taken by it such further and other actions
as shall be appropriate or necessary in order to vest or perfect in or conform
of record or otherwise by ANSYS-Delaware the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of ANSYS-California and otherwise to carry out the purposes of
this Agreement, and the officers and directors of ANSYS-Delaware are fully
authorized in the name and on behalf of ANSYS-California or otherwise to take
any and all such action and to execute and deliver any and all such deeds and
other instruments.
4.3 Abandonment. At any time before the Effective Date of the
Merger, this Agreement may be terminated and the Merger may be abandoned for any
reason whatsoever by the Board of Directors of either ANSYS-California or of
ANSYS-Delaware, or of both, notwithstanding the approval of this Agreement by
the shareholders of ANSYS-California.
4.4 Amendment. The Boards of Directors of the Constituent
Corporations may amend this Agreement at any time prior to the filing of this
Agreement (or certificate in lieu thereof) with the Secretary of State of the
State of Delaware; provided, that an amendment made subsequent to the adoption
of this Agreement by the shareholders of ANSYS-California or sole
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<PAGE> 6
stockholder of ANSYS-Delaware shall not: (1) alter or change the amount or kind
of shares, securities, cash, property and/or rights to be received in exchange
for or on conversion of all or any of the shares of any class or series thereof
of such Constituent Corporation, (2) alter or change any term of the Certificate
of Incorporation of the Surviving Corporation to be effected by the Merger, or
(3) alter or change any of the terms and conditions of this Agreement if such
alteration or change would adversely affect the holders of any class or series
of capital stock of any Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving
Corporation in the State of Delaware is 9 East Loockerman Street, in the City of
Dover, County of Kent. The registered agent of the Surviving Corporation at such
address is National Registered Agents, Inc.
4.6 Agreement. Executed copies of this Agreement will be on file
at the principal place of business of the Surviving Corporation at 25200
Commercentre Drive, Lake Forest, California 92630, and copies thereof will be
furnished to any shareholder or stockholder of either Constituent Corporation,
upon request and without cost.
4.7 Governing Law. This Agreement shall in all respects be
construed, interpreted and enforced in accordance with and governed by the laws
of the State of Delaware and, so far as applicable, the merger provisions of the
California General Corporation Law.
4.8 Counterparts. In order to facilitate the filing and recording
of this Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
4.9 Approval of ANSYS-California as Sole Stockholder of
ANSYS-Delaware. By its execution and delivery of this Agreement,
ANSYS-California, as sole stockholder of ANSYS-Delaware, consents to, approves
and adopts this Agreement and approves the Merger. ANSYS-California agrees to
execute such further instruments as may be necessary or desirable to evidence
its approval and adoption of this Agreement and the Merger as the sole
stockholder of ANSYS-Delaware.
6
<PAGE> 7
IN WITNESS WHEREOF, this Agreement having first been approved by
the resolutions of the Board of Directors of ANSYS Diagnostics, Inc., a Delaware
corporation, and ANSYS Diagnostics, Inc., a California corporation, is hereby
executed on behalf of each of such corporations and attested by their respective
officers thereunto duly authorized.
Dated: May 22, 1999 ANSYS DIAGNOSTICS, INC.,
a Delaware corporation
By: /s/ STEPHEN K. SCHULTHEIS
--------------------------------
Stephen K. Schultheis, President
ATTEST:
/s/ SUZANNE M. DAVID
- -------------------------------
Suzanne M. David, Secretary
ANSYS DIAGNOSTICS, INC.,
a California corporation
By: /s/ STEPHEN K. SCHULTHEIS
--------------------------------
Stephen K. Schultheis, President
ATTEST:
/s/ SUZANNE M. DAVID
- -------------------------------
Suzanne M. David, Secretary
7
<PAGE> 1
EXHIBIT 10.2
THE STOCK OPTION PLAN
FOR EMPLOYEES OF TOXI-LAB, INC.
Toxi-Lab, Inc., a corporation organized under the laws of the State of
California, hereby adopts this Stock Option Plan for Employees of Toxi-Lab, Inc.
The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of the
Company by providing additional incentives to certain of its Employees who have
been or will be given responsibility for the management or administration of
the. Company's business affairs, by assisting them to become owners of capital
stock of the Company and thus to benefit directly from its growth, development
and financial success.
(2) To enable the Company to obtain and retain the services of the type
of professional, technical and managerial employees considered essential to the
long-range success of the Company by providing and offering them an opportunity
to become owners of capital stock of the Company under options, including
options that are intended to qualify as "incentive stock options" under Section
422A of the Internal Revenue Code of 1986, as amended.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
The masculine pronoun shall include the feminine and neuter and the singular
shall include the plural, where the context so indicates.
Section 1.1 - Board
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
"Committee" shall mean the Stock option Committee of the Board,
appointed as provided in Section 6.1.
<PAGE> 2
Section 1.4 - Company
"Company" shall mean Toxi-Lab, Inc. In addition, "Company" shall mean
any corporation assuming, or issuing new employee stock options in substitution
for, Incentive Stock Options, outstanding under the Plan, in a transaction to
which Section 425(a) of the Code applies.
Section 1.5 - Director
"Director" shall mean a member of the Board.
Section 1.6 - Employee
"Employee" shall mean any employee (as defined in accordance with the
Regulations and Revenue Rulings then applicable under Section 3401(c) of the
Code) of the Company, or of any corporation which is then a Parent Corporation
or a Subsidiary, whether such employee is so employed at the time this Plan is
adopted or becomes so employed subsequent to the adoption of this Plan.
Section 1.7 - Incentive Stock Option
"Incentive Stock Option" shall mean an option which qualifies under
Section 422A of the Code and which is designated as an Incentive Stock Option by
the Committee.
Section 1.8 - Non-Qualified Option
"Non-Qualified Option" shall mean an option which is not an Incentive
Stock Option and which is designated as a Non-Qualified option by the Committee.
Section 1.9 - Officer
"Officer" shall mean an officer of the Company, any Parent corporation
or any Subsidiary.
Section 1.10 - Option
"Option" shall mean an option to purchase capital stock of the Company,
granted under the Plan. "Options" includes both Incentive Stock options and
Non-Qualified Options.
Section 1.11 - Optionee
"Optionee" shall mean an Employee to whom an Option is granted under the
Plan.
<PAGE> 3
Section 1.12 - Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than the
Company then owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
Section 1.13 - Plan
"Plan" shall mean this Stock Option Plan for Employees of Toxi-Lab, Inc.
Section 1.14 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.15 - Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.16 - Shares
"Shares" shall mean shares of the Company's $.01 par value Common Stock.
Section 1.17 - Subsidiary
"Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock possessing
50% or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
Section 1.18 - Termination of Employment
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee and the Company, a Parent
Corporation or a Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death or retirement, but excluding terminations where there is a
simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary.
The Committee, in its absolute discretion, shall determine the effect of all
other matters and questions relating to Termination of Employment, including,
but not by way of limitation, the question of whether a Termination of
Employment resulted from a discharge for good cause, and all questions of
<PAGE> 4
whether particular leaves of absence constitute Terminations of Employment;
provided, however, that, with respect to Incentive Stock Options, a leave of
absence shall constitute a Termination of Employment if, and to the extent that,
such leave of absence interrupts employment for the purposes of Section
422A(a)(2) of the Code and the then applicable Regulations and Revenue Rulings
under said Section.
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.1 - Shares Subject to Plan
The Shares of stock subject to options shall be shares of the Company's
$.01 par value Common Stock. Subject to Section 3.3(d), the aggregate number of
such Shares which may be issued upon exercise of Options shall not exceed
200,000.
Section 2.2 - Unexercised Options
If any option expires or is cancelled without having been fully
exercised, the number of Shares subject to such Option but as to which such
option was not exercised prior to its expiration or cancellation may again be
optioned hereunder, subject to the limitations of Section 2.1.
Section 2.3 - Changes in Company's Shares
In the event that the outstanding Shares of the Company are hereafter
changed into or exchanged for a different number or kind of shares or other
securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend or combination of shares, appropriate adjustments shall
be made by the Committee in the number and kind of shares for the purchase of
which Options may be granted, including adjustments of the limitations in
Section 2.1 on the maximum number and kind of shares which may be issued on
exercise of options.
ARTICLE III
GRANTING OF OPTIONS
Section 3.1 - Eligibility
Any Employee of the Company or of any corporation which is then a Parent
Corporation or a Subsidiary shall be eligible to be granted Options, except as
provided in subsection (b), Sections 3.2 and 6.4(a). However, no option shall be
granted to any
<PAGE> 5
Employee who owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, any
Parent Corporation or any Subsidiary.
Section 3.2 - Qualification of Incentive Stock Options
No Incentive Stock Option shall be granted unless such option, when
granted, qualifies as an "incentive stock option" under Section 422A of the
Code.
Section 3.3 - Granting of Options
(a) The Committee shall from time to time, in its absolute
discretion:
(i) Select from among the Employees (including those to
whom Options have been previously granted under the Plan) such of them
as in its opinion should be granted Options; and
(ii) Determine the number of Shares to be subject to such
Options granted to such selected Employees, and determine whether such
options are to be Incentive Stock Options or Non-Qualified options; and
(iii) Determine the terms and conditions of such Options,
consistent with the Plan.
(b) Upon the selection of an Employee to be granted an Option,
the Committee shall instruct the Secretary to issue such Option and may impose
such conditions on the grant of such option as it deems appropriate. Without
limiting the generality of the preceding sentence, the Committee may, in its
discretion and on such terms as it deems appropriate, require as a condition on
the grant of an Option to an Employee that the Employee surrender for
cancellation some or all of the unexercised options which have been previously
granted to him. An Option the grant of which is conditioned upon such surrender
may have an option price lower (or higher) than the option price of the
surrendered option, may cover the same (or a lesser or greater) number of Shares
as the surrendered Option, may contain such other terms as the Committee deems
appropriate and shall be exercisable in accordance with its terms, without
regard to the number of Shares, price, option period or any other term or
condition of the surrendered Option.
(c) Options may not be granted by the Committee to Employees who
are then Directors or officers unless such grants have been recommended by the
Special Committee. Such recommendation shall be in writing and shall specify the
<PAGE> 6
Directors or Officers to whom such grants are recommended and the recommended
number of Shares to be covered by such Options.
(d) Notwithstanding subsection (a), with respect to any Option
to-be granted before the Company becomes subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, on
the date of grant:
(i) Either,
a the aggregate offering price of the Shares to
be subject to such option shall not exceed the
greater of
i the dollar amount equal to $500,000,
less the sum of (1) the aggregate
offering price of Shares subject to
outstanding options (and securities of
the Company subject to outstanding
offers made by the Company, other than
options, in reliance on Rule 701
promulgated by the securities and
Exchange Commission, 17 CFR 230.701
(hereinafter referred to as "Rule
70111)), and (2) the aggregate offering
price of Shares sold within the next
preceding twelve months pursuant to the
exercise of Options (and securities of
the Company sold by the Company within
the next preceding twelve months, other
than pursuant to Options, in reliance on
Rule 701); and
ii the dollar amount equal to 15% of the
total assets of the Company measured as
at the end of the Company's last fiscal
year, less the sum of (1) the aggregate
offering price of Shares subject to
outstanding Options (and securities of
the Company subject to outstanding
offers made by the Company, other than
options, in reliance on Rule 701), and
(2) the aggregate offering price of
Shares sold within the next preceding
twelve months pursuant to the exercise
of options (and securities of the
Company sold by the Company within the
next preceding twelve months,
<PAGE> 7
other than pursuant to options, in
reliance on Rule 701); or
b the number of Shares to be subject to such
option shall not exceed 15% of the number of
outstanding Shares, less the sum of
i the number of Shares subject to
outstanding options (and Shares subject
to outstanding offers made by the
Company, other than options, in reliance
on Rule 701), and
ii the number of Shares sold within the
next preceding twelve months pursuant to
the exercise of Options (and Shares sold
by the Company within the next preceding
twelve months, other than pursuant to
options, in reliance on Rule 701); and
(ii) the aggregate offering price of the Shares to be
subject to such Option shall not exceed the dollar amount equal to
$5,000,000, less the sum of
a the aggregate offering price of Shares subject
to outstanding options (and securities of the
Company subject to outstanding offers made by
the Company, other than Options, in reliance on
Rule 701), and
b the aggregate offering price of Shares sold
Within the next preceding twelve months
pursuant to the exercise of Options (and
securities of the Company sold by the Company
within the next preceding twelve months, other
than pursuant to options, in reliance on Rule
701).
For the purpose of clause (i) b, the term "Shares" shall include Shares issuable
pursuant to the exercise of outstanding options, warrants, rights or conversion
of convertible securities unless such options, warrants, rights or convertible
securities were issued under Rule 701, and if securities of the Company offered
or sold under Rule 701 are convertible securities, the number of Shares subject
to outstanding offers or sold shall be deemed to be the Shares into which such
securities may be converted.
<PAGE> 8
ARTICLE IV
TERMS OF OPTIONS
Section 4.1 - Option Agreement
Each Option shall be evidenced by a written Stock Option Agreement,
which shall be executed by the Optionee and an authorized officer of the Company
and which shall contain such terms and conditions as the Committee shall
determine I consistent with the Plan. Stock Option Agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may be
necessary to qualify such options as "incentive stock options" under Section
422A of the Code.
Section 4.2 - Option Price
(a) The price of the Shares subject to each option shall be set
by the Committee; provided, however, that, in the case of any Incentive Stock
Option, the price per Share shall be not less than 100% of the fair market value
of such Shares on the date such option is granted; provided, further, that, in
the case of any Non-Qualified Option, the price per Share shall be not less than
85% of the fair market value of such Shares on the date such Option is granted.
(b) For purposes of the Plan, the fair market value of a Share of
the Company's stock as of a given date shall be: (i) the closing price of a
Share on the principal exchange on which Shares are then trading, if any, on the
day previous to such date, or, if Shares were not traded on the day previous to
such date, ' then on the next preceding trading day during which a sale
occurred; or (ii) if such stock is not traded on an exchange but is quoted on
NASDAQ or a successor quotation system, (1) the last sales price (if the stock
is then listed as a National Market Issue under the NASD National Market System)
or (2) the mean between the closing representative bid and asked prices (in all
other cases) for the stock on the day previous to such date as reported by
NASDAQ or such successor quotation system; or (iii) if such stock is not
publicly traded on an exchange and not quoted on NASDAQ or a successor quotation
system, the mean between the closing bid and asked prices for the stock, on the
day previous to such date, as determined in good faith by the Committee; or (iv)
if the Company's stock is not publicly traded, the fair market value established
by the Committee acting in good faith.
Section 4.3 - Commencement of Exercisability
<PAGE> 9
(a) Except as the Committee may otherwise provide, no Option may
be exercised in whole or in part during the first year after such Option is
granted.
(b) Subject to the provisions of Sections 4.3(a), 4.3(c), 4.3(d)
and 7.3, Options shall become exercisable at such times and in such installments
(which may be cumulative) as the Committee shall provide in the terms of each
individual Option; provided, however, that by a resolution adopted after an
Option is granted the Committee may, on such terms and conditions as it may
determine to be appropriate and subject to Sections 4.3(a), 4.3(c), 4.3(d) and
7.3, accelerate the time at which such Option or any portion thereof may be
exercised.
(c) No portion of an Option which is unexercisable at Termination
of Employment shall thereafter become exercisable.
(d) To the extent that the aggregate fair market value of stock
with respect to which "incentive stock options" (within the meaning of Section
422A of the Code, but without regard to Section 422A(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and all other incentive stock option plans of the Company, any
Subsidiary and any Parent Corporation) exceeds $100,000, such options shall be
taxed as Non-Qualified Options. The rule set forth in the preceding sentence
shall be applied by taking options into account in the order in which they were
granted. For purposes of this Section 4.2(d), the fair market value of stock
shall be determined as of the time the option with respect to such stock is
granted.
Section 4.4 - Expiration of Options
(a) No option may be exercised to any extent by anyone after the
first to occur of the following events:
(i) Except as required by Section 422A(c)(6) of the Code,
in the case of an Incentive Stock Option, the expiration of ten years from the
date the Option was granted; or
(ii) In the case of a Non-Qualified Option, the
expiration of ten years from the date the option was granted; or
(iii) Except in the case of any Optionee who is disabled
(within the meaning of Section 22(e)(3) of the Code), the expiration of three
months from the date of the Optionee's Termination of Employment for any reason
other than such Optionee's death unless the Optionee dies within said
three-month period; or
<PAGE> 10
(iv) In the case of an Optionee who is disabled (within
the meaning of Section 22(e)(3) of the Code), the expiration of one year from
the date of the Optionee's Termination of Employment for any reason other than
such Optionee's death unless the Optionee dies within said one-year period; or
(v) The expiration of one year from the date of the
Optionee's death.
(b) Subject to the provisions of Section 4.4(a), the Committee
shall provide, in the terms of each individual Option, when such Option expires
and becomes unexercisable; and (without limiting the generality of the
foregoing) the Committee may provide in the terms of individual Options that
said Options expire immediately upon a Termination of Employment for any reason.
Section 4.5 - Employment by the Company
Nothing in this Plan or in any Stock Option Agreement hereunder shall
confer upon any Optionee any right to continue in the employ of the Company, any
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporations and its Subsidiaries,
which are hereby expressly reserved, to discharge any Optionee at any time for
any reason whatsoever, with or without cause.
Section 4.6 - Adjustments in Outstanding Options
In the event that the outstanding Shares of the stock subject to Options
are changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend or
combination of shares, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares as to which all outstanding Options,
or portions thereof then unexercised, shall be exercisable, to the end that
after such event the Optionee's proportionate interest shall be maintained as
before the occurrence of such event. Such adjustment in an outstanding Option
shall be made without change in the total price applicable to the Option or the
unexercised portion of the Option (except for any change in the aggregate price
resulting from rounding-off of Share quantities or prices) and with any
necessary corresponding adjustment in option price per Share; provided, however,
that, in the case of Incentive Stock Options, each such adjustment shall be made
in such manner as not to constitute a "modification" within the meaning of
Section 425(h)(3) of the
<PAGE> 11
Code. Any such adjustment made by the Committee shall be final and binding upon
all Optionees, the Company and all other interested persons.
Section 4.7 - Merger, Consolidation, Acquisition, Liquidation or Dissolution
The Committee shall provide by the terms of each Option that, upon or in
connection with the merger or consolidation of the Company with or into another
corporation, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's then
outstanding voting stock or the liquidation or dissolution of the Company, such
option shall either (a) be (i) assumed or (ii) replaced by a substitute option
granted by any successor corporation or (b) be or become exercisable, for a
minimum of 30 days prior to such event, as to all Shares covered thereby,
notwithstanding anything to the contrary in Section 4.3(a), Section 4.3(b)
and/or any installment provisions of such option, but subject to section 4.3(d).
ARTICLE V
EXERCISE OF OPTIONS
Section 5.1 - Person Eligible to Exercise
During the lifetime of the Optionee, only he may exercise an Option
granted to him, or any portion thereof. After the death of the Optionee, any
exercisable portion of an option may, prior to the time when such portion
becomes unexercisable under Section 4.4 or Section 4.7, be exercised by his
personal representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and distribution.
Section 5.2 - Partial Exercise
At any time and from time to time prior to the time when
any exercisable option or exercisable portion thereof becomes unexercisable
under Section 4.4 or Section 4.7, such option or portion thereof may be
exercised in whole or in part; provided, however, that the Company shall not be
required to issue fractional Shares and the Committee may, by the terms of the
Option, require any partial exercise to be with respect to a specified minimum
number of Shares.
<PAGE> 12
Section 5.3 - Manner of Exercise
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when such option or such portion becomes
unexercisable under Section 4.4 or Section 4.7:
(a) Notice in writing signed by the Optionee or other person then
entitled to exercise such option or portion, stating that such option or portion
is exercised, such notice complying with all applicable rules established by the
Committee; and
(b) (i) Full payment (in cash or by check) for the Shares with
respect to which such Option or portion is thereby exercised; or
(ii) With the consent of the Committee, shares of any
class of the Company's stock owned by the Optionee duly endorsed for transfer to
the Company with a fair market value (as determinable under Section 4.2(b)) on
the date of delivery equal to the aggregate Option price of the shares with
respect to which such option or portion is thereby exercised; or
(iii) A combination of the consideration provided in the
foregoing subsections (i) and (ii); and
(c) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its absolute discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share certificates
and issuing stop-transfer orders to transfer agents and registrars; and
(d) In the event that the Option or portion thereof shall be
exercised pursuant to Section 5.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to exercise
the Option or portion thereof.
Section 5.4 - Conditions to Issuance of Stock Certificates
The Shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
Shares or issued Shares which have then been reacquired by the Company. The
Company shall not be required to issue or deliver any certificate or
certificates
<PAGE> 13
for Shares of stock purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:
(a) The admission of such Shares to listing on all stock
exchanges on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of
such Shares under any state or federal law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body, which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of
all amounts which it is required to withhold under federal, state or local law
in connection with the exercise of the option; and
(e) The lapse of such reasonable period of time following the
exercise of the option as the Committee may establish from time to time for
reasons of administrative convenience.
Section 5.5 - Rights as Shareholders
The holders of options shall not be, nor have any of the rights or
privileges of, shareholders of the Company in respect of any Shares purchasable
upon the exercise of any part of an option unless and until certificates
representing such Shares have been issued by the Company to such holders;
provided, however, that the Company shall provide to Optionees, on an annual
basis, such financial and other information as it provides to its shareholders.
Section 5.6 - Transfer Restrictions
The Committee, in its absolute discretion, may impose such restrictions
on the transferability of the Shares purchasable upon the exercise of an option
as it deems appropriate. Any such restriction shall be set forth in the
respective Stock Option Agreement and may be referred to on the certificates
evidencing such Shares. The Committee may require the Employee to give the
Company prompt notice of any disposition of Shares of stock, acquired by
exercise of an Incentive Stock Option, within two
<PAGE> 14
years from the date of granting such Option or one year after the transfer of
such Shares to such Employee. The Committee may direct that the certificates
evidencing Shares acquired by exercise of an Incentive Stock Option refer to
such requirement to give prompt notice of disposition.
ARTICLE VI
ADMINISTRATION
Section 6.1 - Stock Option Committee
The Stock Option Committee shall consist of at least three Directors,
appointed by and holding office during the pleasure of the Board. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee shall be filled by the Board.
Section 6.2 - Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan and the options and to adopt such
rules for the administration, interpretation and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules in regard to Incentive Stock Options shall be
consistent with the basic purpose of the Plan to grant "incentive stock options"
within the meaning of Section 422A of the Code. In its absolute discretion, the
Board may at any time and from time to time exercise any and all rights and
duties of the Committee under the Plan.
Section 6.3 - Majority Rule
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
Section 6.4 - Special Committee
(a) The Special Committee shall consist of three persons
appointed by and holding office during the pleasure of the Board. No Options may
be granted to any member of the Special Committee during the term of his
membership on the Special Committee. No person shall be eligible to serve on the
Special Committee unless he is then a "disinterested person" within the meaning
of paragraph (d) (3) of Rule 16b-3 which has been adopted
<PAGE> 15
by the securities and Exchange Commission under the securities Exchange Act of
1934, if and as such Rule is then in effect.
(b) All members of the Special Committee shall be Directors;
provided, however, that if less than three Directors are eligible to serve on
the Special Committee, eligible persons who are not Directors shall be appointed
by the Board to fill such vacancies on the Special Committee. Members of the
Special Committee (who are not Directors) may also serve as members of the Stock
Option Committee.
(c) Appointment of Special Committee members shall be effective
upon acceptance of appointment. Special Committee members may resign at any time
by delivering written notice to the Board. Vacancies in the Special Committee
shall be filled by the Board.
Section 6.5 - Compensation; Professional Assistance; Good Faith Actions
Members of the Committee or the Special Committee shall receive such
compensation for their services as members as may be determined by the Board.
All expenses and liabilities incurred by members of the Committee or the Special
committee in connection with the administration of the Plan shall be borne by
the Company. The Committee and the Special Committee may, with the approval of
the Board, employ attorneys, consultants, accountants, appraisers, brokers or
other persons. The Committee, the Special Committee, the Company and its
officers and Directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee or the Special Committee in good faith
shall be final and binding upon all Optionees, the Company and all other
interested persons. No member of the Committee or the Special Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the options, and all members of the Committee
and the Special Committee shall be fully protected by the Company in respect to
any such action, determination or interpretation.
ARTICLE VII
OTHER PROVISIONS
Section 7.1 - Options Not Transferable
No Option or interest or right therein or part thereof shall be liable
for the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition
<PAGE> 16
by transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means whether such disposition be voluntary or involuntary or by operation
of law by judgment, levy, attachment, garnishment or any other legal or
equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect; provided, however, that nothing
in this Section 7.1 shall prevent transfers by will or by the applicable laws of
descent and distribution.
Section 7.2 - Amendment, Suspension or Termination of the Plan
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board or the
Committee. However, without approval of the Company's shareholders given within
12 months before or after the action by the Board or the Committee, no action of
the Board or the Committee may, except as provided in Section 2.3, increase any
limit imposed in Section 2.1 on the maximum number of Shares which may be issued
on exercise of Options, modify the eligibility requirements of Section 3.1,
amend Section 3.3(c) to permit the grant of Options to officers or Directors
other than upon the written recommendation of the Special Committee, reduce the
minimum option price requirements of Section 4.2(a) or extend the limit imposed
in this Section 7.2 on the period during which options may be granted. Neither
the amendment, suspension nor termination of the Plan shall, without the consent
of the holder of the Option, impair any rights or obligations under any Option
theretofore granted. No Option may be granted during any period of suspension
nor after termination of the Plan, and in no event may any Option be granted
under this Plan after the first to occur of the following events:
(a) The expiration of ten years from. the date the Plan is
adopted by the Board; or
(b) The expiration of ten years from the date the Plan is
approved by the Company's shareholders under Section 7.3.
Section 7.3 - Approval of Plan by Shareholders
This Plan will be submitted for the approval of the Company's
shareholders within 12 months after the date of the Board's initial adoption of
the Plan. Options may be granted prior to such shareholder approval; provided,
however, that such Options shall not be exercisable prior to the time when the
Plan is approved by the shareholders; provided, further, that if such approval
has not been obtained at the end of said 12-month period, all options previously
granted under the Plan shall thereupon be cancelled and become null and void.
<PAGE> 17
Section 7.4 - Effect of Plan Upon Other Option and Compensation Plans
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or any Subsidiary (a) to establish any other
forms of incentives or compensation for employees of the Company, any Parent
Corporation or any Subsidiary or (b) to grant or assume ,options otherwise than
under this Plan in connection with any proper corporate purpose, including, but
not by way of limitation, the grant or assumption of options in connection with
the acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, firm or association.
Section 7.5 - Titles
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of the Plan.
* * * *
1 I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of Toxi-Lab, Inc. on ___________, 1998.
Executed on this ___ day of ____________, 1998.
___________________________________
Secretary
* * * *
I hereby certify that the foregoing Plan was duly approved by the
shareholders of Toxi-Lab, Inc. on ___________________, 1998.
Executed on this _____ day of ______________, 1998.
___________________________________
Secretary
<PAGE> 18
AMENDMENT
TO
THE STOCK OPTION PLAN
FOR EMPLOYEES OF TOXI-LAB, INC.
Pursuant to Section 7.2 of The Stock Option Plan for Employees of
Toxi-Lab, Inc. (the "Plan"), the Plan may be amended to increase any limit
imposed in Section 2.1 of the Plan on the maximum number of shares of Common
Stock which may be issued on exercise of options by the Board of Directors of
Ansys, Inc. (formerly, Toxi-Lab, Inc.) (the "Company"), with approval of the
Company's shareholders.
The Board of Directors of the Company, at their April 21, 1993 meeting,
and a majority of the Shareholders of the Company, by written consent dated
April 21, 1993, approved amending Section 2.1 of Article II of the Plan to read
in its entirety as follows:
"Section 2.1 - Shares Subject to Plan
The Shares of stock subject to Options shall be shares of the Company's
$.01 par value Common Stock. Subject to Section 3.3(d), the aggregate number of
such Shares which may be issued upon exercise of Options shall not exceed
350,000."
I hereby certify that the foregoing Amendment was duly adopted by the
Board of Directors and duly approved by the shareholders of the Company on the
respective dates set forth above.
Executed at Irvine, California on May 3, 1993.
/s/ MICHAEL BEEUWSAERT
-------------------------------------------
Michael Beeuwsaert,
Secretary
<PAGE> 19
SECOND AMENDMENT
TO
THE STOCK OPTION PLAN
FOR EMPLOYEES OF TOXI-LAB, INC.
Pursuant to Section 7.2 of The Stock Option Plan for Employees of
Toxi-Lab, Inc. (the "Plan"), the Plan may be amended at any time by the Board or
the Committee.
The Board of Directors, at their September 20, 1995, meeting approved
amending the name of the Plan to read as follows:
"The Stock Option Plan For Employees of Ansys, Inc."
Pursuant to Section 7.2 of The Stock Option Plan for Employees of Ansys,
Inc. (the "Plan"), the Plan may be amended to increase any limit imposed in
Section 2.1 of the Plan on the maximum number of shares of Common Stock which
may be issued on exercise of options by the Board of Directors or by the
Committee of Ansys, Inc. (formerly Toxi-Lab, Inc.) (the "Company"), with
approval of the Company's shareholders.
The Committee of the Company, at its September 20, 1995 meeting, and a
majority of the Shareholders of the Company, by written consent dated September
20, 1995, approved amending Section 2.1 of Article II of the plan to read in its
entirety as follows:
"Section 2.1 - Shares Subject to Plan
The Shares of stock subject to Options shall be shares of the Company's
$.01 par value Common Stock. Subject to Section 3.3(d),the aggregate number of
such Shares which may be issued upon exercise of Options shall not exceed
650,000."
I hereby certify that the Amendment changing the name of the plan to The
Stock Option Plan for Employees of Ansys, Inc. was adopted by the Board of
Directors on September 20, 1995.
I hereby certify that Section 2.1 of the Plan was also duly approved by
the Committee and shareholders of the Company on September 20, 1995.
Executed at Irvine, California on the _____ day of _________________,
1995.
___________________________________
Michael Beeuwsaert, Secretary
<PAGE> 20
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, dated _______________, 19_, is made by and between
Toxi-Lab, Inc., a California corporation hereinafter referred to as "Company,"
and ________________________, an employee of the Company or a Subsidiary of the
Company, hereinafter referred to as "Employee":
WHEREAS, the Company wishes to afford the Employee the opportunity to
purchase shares of its $.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Stock Option Plan for
Employees of Toxi-Lab, Inc. (the terms of which are hereby incorporated by
reference and made a part of this Agreement); and
WHEREAS, the Stock Option Committee of the Company's Board of Directors
(hereinafter referred to as the "Committee"),, appointed to administer said
Plan, has determined that it would be to the advantage and best interest of the
company and its shareholders to grant the Incentive Stock Option provided for
herein to the Employee as an inducement to remain in the service of the Company,
its Parent Corporations or its Subsidiaries and as an incentive for increased
efforts during such service, and has advised the Company thereof and instructed
the undersigned officers to issue said Option; and
WHEREAS, if the Employee is a Director or an Officer of the company, the
grant of said Option has been recommended by the Special Committee;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE> 21
Section 1.2 - Company
"Company" shall mean Toxi-Lab, Inc. In addition, "Company" shall mean
any corporation assuming, or issuing a new incentive stock option in
substitution for, the Option in a transaction to which Section 425(a) of the
Code applies.
Section 1.3 - Option
"Option" shall mean the incentive stock option to purchase common stock
of the Company granted under this Agreement.
Section 1.4 - Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than the
Company then owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one (1) of the other
corporations in such chain.
Section 1.5 - Plan
"Plan" shall mean the Stock Option Plan for Employees of Toxi-Lab, Inc.
Section 1.6 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.7 - Securities Act
"Securities Act" shall mean the Securities Act of 1933,, as amended.
Section 1.8 - Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.9 - Termination of Employment
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Employee and the Company, a Parent
Corporation or a Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death or retirement, but excluding any termination where there is a
simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary.
The Committee, in its absolute discretion, shall determine the effect of all
other matters and questions relating to Termination of Employment, including,
but not by way of limitation, the question of whether a Termination of
Employment resulted from a discharge
<PAGE> 22
for good cause, and all questions of whether particular leaves of absence
constitute Terminations of Employment; provided, however, that a leave of
absence shall constitute a Termination of Employment if, and to the extent that,
such leave of absence interrupts employment for purposes of Section 422A(a)(2)
of the Code and the then applicable Regulations and Revenue Rulings under said
Section.
ARTICLE II
GRANT OF OPTION
Section 2.1 - Grant of Option
For good and valuable consideration, on the date hereof the Company
irrevocably grants to the Employee the option to purchase any part or all of an
aggregate of shares of its $.01 par value Common Stock upon the terms and
conditions set forth in this Agreement.
Section 2.2 - Purchase Price
The purchase price of the shares of stock covered by the option shall be
$ per share without commission or other charge.
Section 2.3 - Employment by the Company
Nothing in this Agreement or in the Plan shall confer upon the Employee
any right to continue in the employ of the Company, any Parent Corporation or
any Subsidiary or shall interfere with or restrict in any way the rights of the
Company, its Parent corporations and its Subsidiaries, which are hereby
expressly reserved, to discharge the Employee at any time for any reason
whatsoever, with or without cause.
Section 2.4 - Adjustments in Option
In the event that the outstanding shares of the stock subject to the
option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Employee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the option price per share; provided, however, that each such adjustment
shall be made in such manner as not to constitute a "modification" within the
meaning of Section 425(h) (3) of the Code. Any such adjustment made by the
Committee
<PAGE> 23
shall be final and binding upon the Employee, the Company and all other
interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
(a) Subject to Sections 3.5 and 5.6, the Option shall become
exercisable as described in Exhibit A, which shall provide that options shall
become exercisable at a minimum of 20% per year and shall be fully exercisable
no later then at the end of 5 years from the date the Option is granted.
(b) No portion of the Option which is unexercisable at
Termination of Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3 - Expiration of Option
The Option may not be exercised to any extent by anyone after the first
to occur of the following events:
(a) Except as required by Section 422A(c) (6) of the Code, the
expiration of ten (10) years from the date the option was granted; or
(b) The time of the Employee's Termination of Employment unless
such Termination of Employment results from his death, his retirement, his
disability (within the meaning of Section 22 (e) (3) of the Code) or his being
discharged not for good cause; or
(c) The expiration of three (3) months from the date of the
Employee's Termination of Employment by reason of his retirement or his being
discharged not f or good cause, unless the Employee dies within said three-month
period; or
(d) The expiration of one (1) year from the date of the
Employee's Termination of Employment by reason of his disability (within the
meaning of Section 22 (e) (3) of the Code); or
(e) The expiration of one (1) year from the date of the
Employee's death.
<PAGE> 24
Section 3.4 - Merger, Consolidation, Acquisition or Dissolution of the Company
In the event of the merger or consolidation of the Company with or into
another corporation, or the acquisition by another corporation or person of all
or substantially all of the Company's assets or eighty percent (80%) or more of
the Company's then outstanding voting stock, or the liquidation or dissolution
of the Company, either:
(a) The option shall be assumed or an equivalent option
substituted by any successor corporation to the Company. The Company undertakes
to make reasonable and adequate provision for such assumption or substitution of
the option upon or in connection with such merger, consolidation, acquisition,
liquidation or dissolution; or
(b) The Committee shall provide that the Option shall become
exercisable, for a minimum of thirty (30) days prior to such event, as to all
the shares covered hereby, notwithstanding that this Option may not yet have
become fully exercisable under Section 3.1(a), but subject to Section 3.5.
Section 3.5 - Special Tax Consequences
The Employee acknowledges that, to the extent that the aggregate, fair
market value of stock with respect to which "incentive stock options" (within
the meaning of Section 422A of the Code, but without regard to Section 422A(d)
of the Code), including the Option, are exercisable for the first time by the
Employee during any calendar year (under the Plan and all other incentive stock
option plans of the Company, any Subsidiary and any Parent Corporation) exceeds
$100,000, such options shall be treated as not qualifying under Section 422A of
the Code but rather shall be taxed as non-qualified options. The Employee
further acknowledges that the rule set forth in the preceding sentence shall be
applied by taking options into account in the order in which they were granted.
For purposes of these rules, the fair market value of stock shall be determined
as of the time the option with respect to such stock is granted.
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
During the lifetime of the Employee, only he may exercise the option or
any portion thereof. After the death of the Employee, any exercisable portion of
the option may, prior to the time when the option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Employee's will or under the then applicable laws
of descent and distribution.
<PAGE> 25
Section 4.2 - Partial Exercise
Any exercisable portion of the option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
ten (10) shares (or minimum installment set forth in Section 3.1, if a smaller
number of shares) and shall be for whole shares only.
Section 4.3 - Manner of Exercise
The Option, or any exercisable portion thereof, may be exercised solely
by delivery to the Secretary or his office of .all of the following prior to the
time when the option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Employee or the other person
then entitled to exercise the Option or portion, stating that the option or
portion is thereby exercised, such notice complying with all applicable rules
established by the Committee; and
(b) (i) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is exercised; or
(ii) With the consent of the Committee, Shares of any
class of the Company's stock owned by the Employee duly endorsed for transfer to
the Company with a fair market value (as determinable under Section 4.2 (b) of
the Plan) on the date of delivery equal to the aggregate purchase price of the
shares with respect to which such option or portion is exercised; or
(iii) A combination of the consideration provided in the
foregoing paragraphs (i) and (ii) and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Employee or other person then
entitled to exercise such option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Employee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
insure the observance and performance of such representation and agreement and
to effect compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable to it to
the effect that any subsequent transfer of shares acquired on an option exercise
does not violate the Securities Act, and may issue stop-transfer orders covering
such shares. Share certificates evidencing stock issued on
<PAGE> 26
exercise of this option shall bear an appropriate legend referring to the
provisions of this subsection (c) and the agreements herein. The written
representation and agreement referred to in the first sentence of this
subsection (c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the Securities Act, and
such registration is then effective in respect of such shares; (d) Full payment
to the Company (or other employer corporation) of all amounts which, under
federal, state or local tax law, it is required to withhold upon exercise of the
Option; and
(e) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the Employee,
appropriate proof of the right of such person or persons to exercise the Option.
Section 4.4 - Conditions to Issuance of Stock Certificates
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of
such shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental regulatory
body, which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
Section 4.5 - Rights as Shareholder
The holder of the option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
Notwithstanding the foregoing provision, the company shall
<PAGE> 27
provide to the Employee, on an annual basis, such financial and other
information as it provides to its shareholders for so long as no part of the
Option has been exercised and the Option has not expired by its terms.
ARTICLE V
OTHER PROVISIONS
Section 5.1 - Administration
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and binding upon the
Employee, the Company and all other interested persons. No member of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the option. In its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under the Plan and this
Agreement.
Section 5.2 - Option Not Transferable
Neither the option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Employee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
The Company shall at all times during the term of the option reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of this Agreement.
Section 5.4 - Notices
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to be
given to the Employee shall be addressed to him at the address given beneath his
signature hereto. By a notice given pursuant to this Section 5.4, either party
may hereafter designate a different address for notices to be given to him. Any
notice which is required to be given to the Employee shall, if the Employee is
then deceased, be given to the Employee's personal representative if such
representative has previously informed the Company of his status and address by
written notice under this
<PAGE> 28
Section 5.4. Any notice shall be deemed duly given when enclosed in a properly
sealed envelope or wrapper addressed as aforesaid, deposited (with postage
prepaid) in a post office or branch post office regularly maintained by the
United States Postal Service.
Section 5.5 - Titles
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of this Agreement.
Section 5.6 - Shareholder Approval
The Plan will be submitted for approval by the Company's
shareholders within twelve (12) months after the date the Plan was initially
adopted by the Board. This Option may not be exercised to any extent by anyone
prior to the time when the Plan is approved by the shareholders, and if such
approval has not been obtained by the end of said twelve-month period, this
Option shall thereupon be cancelled and become null and void.
Section 5.7 - Notification of Disposition
The Employee shall give prompt notice to the Company of any disposition
or other transfer of any shares of stock acquired under this Agreement if such
disposition or transfer is made (a) within two (2) years from the date of
granting the Option with respect to such shares or (b) within one (1) year after
the transfer of such shares to him. Such notice shall specify the date of such
disposition or other transfer and the amount realized, in cash, other property,
assumption of indebtedness or other consideration, by the Employee in such
disposition or other transfer.
Section 5.8 - Construction
This Agreement shall be administered, interpreted and enforced under the
laws of the State of California.
Section 5.9 - Company's Right to Repurchase Shares
Upon Termination of Employment, the Company shall have the option to
repurchase all (but not less than all) of the shares of stock which have been
purchased by the Employee pursuant to exercise of the option and which the
Employee then holds. The repurchase price payable by the Company if it exercises
its repurchase option shall be the fair market value of the shares (determined
pursuant to Section 4.2(b) of the Plan) on the date of the Termination of
Employment.
The Company's repurchase option shall be exercisable by giving written
notice (accompanied by payment for the shares) to the Employee within thirty
(30) calendar days after the Termination of Employment.
<PAGE> 29
Section 5.10 - Restrictions on Transfer of Shares
(a) There can be no valid transfer (as hereinafter defined) of
any shares of stock purchased on exercise of the option, or any interest in such
shares, by any holder of such shares or interests unless such transfer is solely
for cash consideration and is made in compliance with the following provisions:
(i) Before there can be a valid transfer of any shares or
any interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give ,.written notice (by registered or certified mail)
to the Company. Such notice shall specify the identity of the proposed
transferee, the cash price offered for the offered Shares by the proposed
transferee and the other terms and conditions of the proposed transfer. The date
such notice is mailed shall be hereinafter referred to as the "notice date" and
the record holder of the Offered Shares shall be hereinafter referred to as the
"Offeror."
(ii) For a period of thirty (30) calendar days after the
notice date, the Company shall have the option to purchase all (but not less
than all) of the Offered Shares at the purchase price and on the terms set forth
in subsection (a)(iii) of this Section 5.10. This option shall be exercisable by
the company by mailing (by registered or certified mail) written notice of
exercise to the Offeror prior to the end of said thirty (30) days.
(iii) The price at which the Company may purchase the
Offered Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in the
notice required under subsection (a)(i) of this Section 5.10). The Company's
notice of exercise of such option shall be accompanied by full payment for the
offered Shares and, upon such payment by the Company, the Company shall acquire
full right, title and interest to all of the Offered Shares.
(iv) If, and only if, the option given pursuant to
subsection (a)(ii) of this Section 5.10 is not exercised, the transfer proposed
in the notice given pursuant to subsection (a)(i) of this Section 5.10 may take
place; provided, however, that such transfer must, in all respects, be exactly
as proposed in said notice except that such transfer may not take place either
before the tenth (10th) calendar day after the expiration of said thirty-day
option exercise period or after the ninetieth (90th) calendar day after the
expiration of said thirty-day option exercise period, and if such transfer has
not taken place prior to said ninetieth (90th) day, such transfer may not take
place without once again complying with subsection (a) of this Section 5.10.
(b) As used in this Section 5.10, the term "transfer" means any
sale, encumbrance, pledge, gift or other form of disposition or transfer of
shares of the Company's stock or any legal or equitable interest therein;
provided, however, that the term "transfer" does not include a transfer of such
shares or interests by will or by the applicable laws of descent and
<PAGE> 30
distribution or a gift of such shares if the donee agrees to be bound by the
provisions of this Section 5.10.
(c) None of the shares of the Company's stock purchased on
exercise of the option shall be transferred on the Company's books nor shall the
Company recognize any such transfer of any such shares or any interest therein
unless and until all applicable provisions of this Section 5.10 have been
complied with in all respects. The certificates of stock evidencing shares of
stock purchased on exercise of the Option shall bear an appropriate legend
referring to the transfer restrictions imposed by this Section 5.10 and to the
repurchase option provided for in Section 5.10.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
TOXI-LAB, INC.
By_________________________________
By_________________________________
___________________________________
Employee
___________________________________
___________________________________
Address
Employee's Taxpayer
Identification Number:
___________________________________
<PAGE> 31
Exhibit A
INCENTIVE STOCK OPTION AGREEMENT
OF _____________________________
1. The first installment shall consist of percent (_%) of the shares
covered by the Option and shall become exercisable on the first anniversary of
the date the Option is granted.
2. The second installment shall consist of _____________ percent (_%) of
the shares covered by the option and shall become exercisable on the second
anniversary of the date the option is granted.
3. The third installment shall consist of _______________ percent (_%)
of the shares covered by the option and shall become exercisable on the third
anniversary of the date the option is granted.
4. The fourth installment shall consist of ______________ percent (_%)
of the shares covered by the Option and shall become exercisable on the fourth
anniversary of the date the Option is granted.
5. The fifth installment shall consist of _______________ percent (_%)
of the shares covered by the Option and shall become exercisable on the fifth
anniversary of the date the Option is granted.
<PAGE> 1
EXHIBIT 10.3
ANSYS DIAGNOSTICS, INC.
1997 STOCK INCENTIVE PLAN
(As amended through April 20, 1999)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Incentive Plan is intended to promote the
interests of Ansys Diagnostics, Inc., a California corporation, by providing
eligible persons in the Corporation's employ or service with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to continue in such employ
or service.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity programs:
(i) the Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock, and
(ii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued
shares of Common Stock directly, either through the immediate purchase
of such shares or as a bonus for services rendered the Corporation (or
any Parent or Subsidiary).
B. The provisions of Articles One and Four shall apply to both equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to
<PAGE> 2
removal by the Board at any time. The Board may also at any time terminate the
functions of the Committee and reassume all powers and authority previously
delegated to the Committee.
B. The Plan Administrator shall have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Plan and to make such
determinations under, and issue such interpretations of, the Plan and any
outstanding options or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator shall be final and binding on all
parties who have an interest in the Plan or any option or stock issuance
thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or the
non-employee members of the board of directors of any Parent or
Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine, (i)
with respect to the grants under the Option Grant Program, which eligible
persons are to receive the option grants, the time or times when those grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non- Statutory
Option, the time or times when each option is to become exercisable, the vesting
schedule (if any) applicable to the option shares and the maximum term for which
the option is to remain outstanding, and (ii) with respect to stock issuances
under the Stock Issuance Program, which eligible persons are to receive such
stock issuances, the time or times when those issuances are to be made, the
number of shares to be issued to each Participant, the vesting schedule (if any)
applicable to the issued shares and the consideration to be paid by the
Participant for such shares.
C. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Option Grant Program or to effect stock
issuances in accordance with the Stock Issuance Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed
1,088,800(1) shares. Such share reserve consists of (i) the 600,000 shares of
Common Stock initially reserved under the Plan plus (ii) an additional increase
of 488,800 shares authorized by the Board and the shareholders on March 31,
1999.
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(1) All share numbers in the Plan reflect the 1.2-for-1 stock split effected
on April 20, 1999.
2.
<PAGE> 3
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent the options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently repurchased by the Corporation, at the
option exercise price or direct issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan.
C. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan and (ii) the number and/or class of securities and the exercise price per
share in effect under each outstanding option in order to prevent the dilution
or enlargement of benefits thereunder. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive. In no event shall any such
adjustments be made in connection with the conversion of one or more outstanding
shares of the Corporation's preferred stock into shares of Common Stock.
3.
<PAGE> 4
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
(ii) If the person to whom the option is granted is a
10% Shareholder, then the exercise price per share shall not be less
than one hundred ten percent (110%) of the Fair Market Value per share
of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Four
and the documents evidencing the option, be payable in cash or check made
payable to the Corporation. Should the Common Stock be registered under Section
12 of the 1934 Act at the time the option is exercised, then the exercise price
may also be paid as follows:
(i) in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable instructions
(A) to a Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares plus
all
4.
<PAGE> 5
applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise
and (B) to the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option grant. However, no option shall have a term in excess of ten (10)
years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service
for any reason other than death, Disability or Misconduct, then the
Optionee shall have a period of three (3) months following the date of
such cessation of Service during which to exercise each outstanding
option held by such Optionee.
(ii) Should Optionee's Service terminate by reason of
Disability, then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which to exercise
each outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an outstanding
option, then the personal representative of his or her estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance shall have a twelve
(12)-month period following the date of the Optionee's death to exercise
such option.
(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding
5.
<PAGE> 6
for any vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's cessation of
Service, terminate and cease to be outstanding with respect to any and
all option shares for which the option is not otherwise at the time
exercisable or in which the Optionee is not otherwise at that time
vested.
(vi) Should Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to remain outstanding.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is
to remain exercisable following Optionee's cessation of Service or death
from the limited period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the
Optionee would have vested under the option had the Optionee continued
in Service.
D. SHAREHOLDER RIGHTS. The holder of an option shall have no shareholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become the recordholder
of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right. The Plan Administrator may not impose a vesting schedule upon any option
grant or the shares of Common Stock subject to that option which is more
restrictive than twenty percent (20%) per year vesting, with the initial vesting
to occur not later than one (1) year after the option grant date. However, such
limitation shall not be applicable to any option grants made to individuals who
are officers of the Corporation, non-employee Board members or independent
consultants.
6.
<PAGE> 7
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is first
registered under Section 12 of the 1934 Act, the Corporation shall have the
right of first refusal with respect to any proposed disposition by the Optionee
(or any successor in interest) of any shares of Common Stock issued under the
Plan. Such right of first refusal shall be exercisable in accordance with the
terms established by the Plan Administrator and set forth in the document
evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death.
H. WITHHOLDING. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of any options granted under the Plan shall be subject
to the satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
the Plan shall be applicable to Incentive Options. Options which are
specifically designated as Non-Statutory Options shall not be subject to the
terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one (1) calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% SHAREHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.
7.
<PAGE> 8
III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the Plan at the
time of a Corporate Transaction shall automatically vest in full so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the shares of Common Stock at
the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. However, the shares subject to an
outstanding option shall NOT vest on such an accelerated basis if and to the
extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and the Corporation's repurchase rights
with respect to the unvested option shares are concurrently assigned to such
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
E. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration (in whole or in part) of
one or more outstanding options (and the immediate termination of the
Corporation's repurchase rights with respect to the shares subject to those
options) upon the
8.
<PAGE> 9
occurrence of a Corporate Transaction, whether or not those options are to be
assumed in the Corporate Transaction.
F. The Plan Administrator shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest on an accelerated basis should the
Optionee's Service terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which the option is assumed and the
repurchase rights applicable to those shares do not otherwise terminate. Any
option so accelerated shall remain exercisable for the fully-vested option
shares until the earlier of (i) the expiration of the option term or (ii) the
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination. In addition, the Plan Administrator may provide that
one or more of the Corporation's outstanding repurchase rights with respect to
shares held by the Optionee at the time of such Involuntary Termination shall
immediately terminate on an accelerated basis, and the shares subject to those
terminated rights shall accordingly vest at that time.
G. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
H. The grant of options under the Plan shall in no way affect the right
of the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
9.
<PAGE> 10
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issue date. However, the purchase
price per share of Common Stock issued to a 10% Shareholder shall not be less
than one hundred and ten percent (110%) of such Fair Market Value.
2. Subject to the provisions of Section I of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the Corporation
(or any Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. However, the Plan Administrator may not impose a vesting schedule
upon any stock issuance effected under the Stock Issuance Program which is more
restrictive than twenty percent (20%) per year vesting, with initial vesting to
occur not later than one (1) year after the issuance date. Such limitation shall
not apply to any Common Stock issuances made to the officers of the Corporation,
non-employee Board members or independent consultants.
10.
<PAGE> 11
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full shareholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further shareholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase- money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non- attainment of the applicable performance
objectives.
C. First Refusal Rights. Until such time as the Common Stock is first
registered under Section 12 of the 1934 Act, the Corporation shall have the
right of first refusal with respect to any proposed disposition by the
Participant (or any successor in interest) of any shares of Common Stock issued
under the Stock Issuance Program. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.
11.
<PAGE> 12
II. CORPORATE TRANSACTION
A. Upon the occurrence of a Corporate Transaction, all outstanding
repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall automatically terminate on an
accelerated basis, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase rights are assigned
to the successor corporation (or parent thereof).
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
12.
<PAGE> 13
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price or the purchase price for shares issued to such
person under the Plan by delivering a full-recourse, interest-bearing promissory
note payable in one or more installments and secured by the purchased shares. In
no event shall the maximum credit available to the Optionee or Participant
exceed the sum of (i) the aggregate option exercise price or purchase price
payable for the purchased shares (less the par value of those shares) plus (ii)
any Federal, state and local income and employment tax liability incurred by the
Optionee or the Participant in connection with the option exercise or share
purchase.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board, but no
option granted under the Plan may be exercised, and no shares shall be issued
under the Plan, until the Plan is approved by the Corporation's shareholders. If
such shareholder approval is not obtained within twelve (12) months after the
date of the Board's adoption of the Plan, then all options previously granted
under the Plan shall terminate and cease to be outstanding, and no further
options shall be granted and no shares shall be issued under the Plan. Subject
to such limitation, the Plan Administrator may grant options and issue shares
under the Plan at any time after the effective date of the Plan and before the
date fixed herein for termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the expiration of
the ten (10)-year period measured from the date the Plan is adopted by the
Board, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. All options and
unvested stock issuances outstanding at the time of a clause (i) termination
event shall continue to have full force and effect in accordance with the
provisions of the documents evidencing such options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
13.
<PAGE> 14
modification. In addition, certain amendments may require shareholder approval
pursuant to applicable laws and regulations.
B. Options may be granted under the Option Grant Program and shares may
be issued under the Stock Issuance Program which are in each instance in excess
of the number of shares of Common Stock then available for issuance under the
Plan, provided any excess shares actually issued under those programs shall be
held in escrow until there is obtained shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such shareholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock
upon the exercise of any options or upon the issuance or vesting of any shares
issued under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under
the Plan and the issuance of any shares of Common Stock (i) upon the exercise of
any option or (ii) under the Stock Issuance Program shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it and
the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person)
14.
<PAGE> 15
or of the Optionee or the Participant, which rights are hereby expressly
reserved by each, to terminate such person's Service at any time for any reason,
with or without cause.
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
15.
<PAGE> 16
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(a) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(b) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Ansys Diagnostics, Inc., a California
corporation.
G. DISABILITY shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment and shall be determined by
the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
A-1.
<PAGE> 17
J. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(a) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market or any successor system. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(b) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(c) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
K. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
L. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(a) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(b) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and target
bonuses under any corporate performance-based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected without the
individual's consent.
A-2.
<PAGE> 18
M. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
P. OPTION GRANT PROGRAM shall mean the option grant program in effect
under the Plan.
Q. OPTIONEE shall mean any person to whom an option is granted under the
Plan.
R. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
S. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
T. PLAN shall mean the Corporation's 1997 Stock Incentive Plan, as set
forth in this document.
U. PLAN ADMINISTRATOR shall mean either the Board or the Committee
acting in its capacity as administrator of the Plan.
V. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
W. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
A-3.
<PAGE> 19
X. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
Y. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
Z. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
AA. 10% SHAREHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-4.
<PAGE> 20
ANSYS DIAGNOSTICS, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of Ansys Diagnostics, Inc. (the
"Corporation"):
Optionee: _____________________________________________________
Grant Date: ___________________________________________________
Vesting Commencement Date: ____________________________________
Exercise Price: $____________ per share
Number of Option Shares: ____________ shares of Common Stock
Expiration Date: ______________________________________________
Type of Option: [ ] Incentive Stock Option
[ ] Non-Statutory Stock Option
Date Exercisable: Immediately Exercisable
Vesting Schedule: The Option Shares shall be initially unvested
and subject to repurchase by the Corporation at the Exercise
Price paid per share. Optionee shall acquire a vested interest
in, and the Corporation's repurchase right shall accordingly
lapse with respect to, (i) twenty five percent (25%) of the
Option Shares upon Optionee's completion of one (1) year of
Service measured from the Vesting Commencement Date and (ii) the
balance of the Option Shares in a series of thirty-six (36)
successive equal monthly installments upon Optionee's completion
of each additional month of Service over the thirty-six
(36)-month period measured from the first anniversary of the
Vesting Commencement Date. In no event shall any additional
Option Shares vest after Optionee's cessation of Service.
Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the Ansys Diagnostics, Inc. 1997
Stock Incentive Plan (the "Plan"). Optionee further agrees to be bound by the
terms of the Plan and the terms of the Option as set forth in the Stock Option
Agreement attached hereto as Exhibit A.
Optionee understands that any Option Shares purchased under the
Option will be subject to the terms set forth in the Stock Purchase Agreement
attached hereto as Exhibit B.
<PAGE> 21
Optionee further acknowledges receipt of a copy of the Plan in the form attached
hereto as Exhibit C.
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE
RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS
ASSIGNS. THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE
AGREEMENT.
No Employment or Service Contract. Nothing in this Notice or in
the attached Stock Option Agreement or Plan shall confer upon Optionee any right
to continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
DATED: , 199
-------------------- --
ANSYS DIAGNOSTICS, INC.
By:
---------------------------------------
Title:
-------------------------------------
-------------------------------------------
OPTIONEE
Address:
-----------------------------------
-------------------------------------------
ATTACHMENTS:
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - STOCK PURCHASE AGREEMENT
EXHIBIT C - 1997 STOCK INCENTIVE PLAN
2.
<PAGE> 22
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE> 23
EXHIBIT B
STOCK PURCHASE AGREEMENT
<PAGE> 24
EXHIBIT C
1997 STOCK INCENTIVE PLAN
<PAGE> 25
ANSYS DIAGNOSTICS, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants and other independent
advisors in the service of the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. During Optionee's lifetime, this
option shall be exercisable only by Optionee and shall not be assignable or
transferable other than by will or by the laws of descent and distribution
following Optionee's death.
4. DATES OF EXERCISE. This option shall become exercisable for
the Option Shares in one or more installments as specified in the Grant Notice.
As the option becomes exercisable for such installments, those installments
shall accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
<PAGE> 26
(a) Should Optionee cease to remain in Service for any reason
(other than death, Disability or Misconduct) while this option is outstanding,
then Optionee shall have a period of three (3) months (commencing with the date
of such cessation of Service) during which to exercise this option, but in no
event shall this option be exercisable at any time after the Expiration Date.
(b) Should Optionee die while this option is outstanding,
then the personal representative of Optionee's estate or the person or persons
to whom the option is transferred pursuant to Optionee's will or in accordance
with the laws of inheritance shall have the right to exercise this option. Such
right shall lapse, and this option shall cease to be outstanding, upon the
earlier of (i) the expiration of the twelve (12)-month period measured from the
date of Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Disability
while this option is outstanding, then Optionee shall have a period of twelve
(12) months (commencing with the date of such cessation of Service) during which
to exercise this option. In no event shall this option be exercisable at any
time after the Expiration Date.
Note: Exercise of this option on a date later than three (3)
months following cessation of Service due to Disability will
result in loss of favorable Incentive Option treatment, unless
such Disability constitutes Permanent Disability. In the event
that Incentive Option treatment is not available, this option
will be taxed as a Non-Statutory Option upon exercise.
(d) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number of
Option Shares in which Optionee is, at the time of Optionee's cessation of
Service, vested pursuant to the Vesting Schedule specified in the Grant Notice
or the special vesting acceleration provisions of Paragraph 6. Upon the
]expiration of such limited exercise period or (if earlier) upon the Expiration
Date, this option shall terminate and cease to be outstanding for any vested
Option Shares for which the option has not been exercised. To the extent
Optionee is not vested in the Option Shares at the time of Optionee's cessation
of Service, this option shall immediately terminate and cease to be outstanding
with respect to those shares.
(e) Should Optionee's Service be terminated for Misconduct,
then this option shall terminate immediately and cease to remain outstanding.
6. ACCELERATED VESTING.
(a) In the event of any Corporate Transaction, the Option
Shares at the time subject to this option but not otherwise vested shall
automatically vest in full so that this option shall, immediately prior to the
effective date of the Corporate Transaction, become exercisable for all of the
Option Shares as fully-vested shares and may be exercised for any or
all of those vested
2.
<PAGE> 27
shares. However, the Option Shares shall NOT vest on such an accelerated basis
if and to the extent: (i) this option is assumed by the successor corporation
(or parent thereof) in the Corporate Transaction and the Corporation's
repurchase rights with respect to the unvested Option Shares are assigned to
such successor corporation (or parent thereof) or (ii) this option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing on the unvested Option Shares at the time of the
Corporate Transaction (the excess of the Fair Market Value of those Option
Shares over the Exercise Price payable for such shares) and provides for
subsequent payout in accordance with the same Vesting Schedule applicable to
those unvested Option Shares as set forth in the Grant Notice.
(b) Immediately following the Corporate Transaction, this
option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) in connection with the
Corporate Transaction.
(c) If this option is assumed in connection with a
Corporate Transaction, then this option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class
of securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.
(d) The Option Shares may also vest upon an accelerated
basis in accordance with the terms and conditions of any special addendum
attached to this Agreement.
(e) This Agreement shall not in any way affect the right
of the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. SHAREHOLDER RIGHTS. The holder of this option shall not have
any shareholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become the record holder
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all
or any part of the Option Shares for which this option is at the time
exercisable, Optionee (or any other person or persons exercising the option)
must take the following actions:
3.
<PAGE> 28
(i) Execute and deliver to the Corporation a
Purchase Agreement for the Option Shares for which the option is
exercised.
(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms:
(A) cash or check made payable to the
Corporation; or
(B) a promissory note payable to the
Corporation, but only to the extent authorized by the Plan
Administrator in accordance with Paragraph 14.
Should the Common Stock be registered under Section 12 of
the 1934 Act at the time the option is exercised, then the
Exercise Price may also be paid as follows:
(C) in shares of Common Stock held by
Optionee (or any other person or persons exercising the option)
for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date; or
(D) to the extent the option is exercised
for vested Option Shares, through a special sale and remittance
procedure pursuant to which Optionee (or any other person or
persons exercising the option) shall concurrently provide
irrevocable instructions (a) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for the purchased shares plus
all applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of
such exercise and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage
firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Purchase Agreement delivered to
the Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if other
than Optionee) have the right to exercise this option.
4.
<PAGE> 29
(iv) Execute and deliver to the Corporation
such written representations as may be requested by the Corporation in
order for it to comply with the applicable requirements of Federal and
state securities laws.
(v) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee)
for the satisfaction of all Federal, state and local income and
employment tax withholding requirements applicable to the option
exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any
fractional shares.
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE
EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION
AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS
SPECIFIED IN THE PURCHASE AGREEMENT.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of
the Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the Nasdaq
National Market, if applicable) on which the Common Stock may be listed for
trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain
approval from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any Common Stock pursuant to
this option shall relieve the Corporation of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. The Corporation, however, shall use its best efforts to
obtain all such approvals.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns and the legal representatives, heirs
and legatees of Optionee's estate.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the
5.
<PAGE> 30
Grant Notice. All notices shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
14. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a full-recourse,
interest-bearing promissory note secured by those Option Shares. The payment
schedule in effect for any such promissory note shall be established by the Plan
Administrator in its sole discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby
are made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
16. GOVERNING LAW. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.
17. SHAREHOLDER APPROVAL. If the Option Shares covered by this
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may be issued under the Plan as last approved by the shareholders, then
this option shall be void with respect to such excess shares, unless shareholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the
event this option is designated an Incentive Option in the Grant Notice, the
following terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.
(b) This option shall not become exercisable in the
calendar year in which granted if (and to the extent) the aggregate Fair Market
Value (determined at the Grant Date) of the Common Stock for which this option
would otherwise first become exercisable in such calendar year would, when added
to the aggregate value (determined as of the respective date or dates of grant)
of the Common Stock and any other securities for which one or more other
Incentive Options granted to Optionee prior to the Grant Date (whether under the
Plan or any other option plan of the Corporation or any Parent or Subsidiary)
first become exercisable during the same calendar year, exceed One Hundred
Thousand Dollars ($100,000) in the aggregate. To the extent the exercisability
6.
<PAGE> 31
of this option is deferred by reason of the foregoing limitation, the deferred
portion shall become exercisable in the first calendar year or years thereafter
in which the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph
18(b) would not be contravened, but such deferral shall in all events end
immediately prior to the effective date of a Corporate Transaction in which this
option is not to be assumed, whereupon the option shall become immediately
exercisable as a Non-Statutory Option for the deferred portion of the Option
Shares.
(c) Should Optionee hold, in addition to this option, one
or more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
7.
<PAGE> 32
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Ansys Diagnostics, Inc., a California
corporation.
G. DISABILITY shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute PERMANENT DISABILITY in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
J. EXERCISE PRICE shall mean the exercise price payable per Option Share
as specified in the Grant Notice.
A-1.
<PAGE> 33
K. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as the price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
M. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.
N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary)
may consider as
A-2.
<PAGE> 34
grounds for the dismissal or discharge of Optionee or any other individual in
the Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option.
T. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PLAN shall mean the Corporation's 1997 Stock Incentive Plan.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
X. PURCHASE AGREEMENT shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.
Y. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant.
Z. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AB. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
A-3.
<PAGE> 35
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement dated (the "Option
Agreement") by and between Ansys Diagnostics, Inc. (the "Corporation") and
("Optionee") evidencing the stock option (the "Option") granted on such
date to Optionee under the terms of the Corporation's 1997 Stock Incentive Plan,
and such provisions shall be effective immediately. All capitalized terms in
this Addendum, to the extent not otherwise defined herein, shall have the
meanings assigned to them in the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Option is, in connection with a Corporate
Transaction, to be assumed in accordance with Paragraph 6 of the Option
Agreement, the Option Shares shall not vest on an accelerated basis upon the
occurrence of that Corporate Transaction, and Optionee shall accordingly
continue, over his or her period of Service following the Corporate Transaction,
to vest in those Option Shares in one or more installments in accordance with
the provisions of the Option Agreement. However, upon an Involuntary Termination
of Optionee's Service within eighteen (18) months following such Corporate
Transaction, all the Option Shares at the time subject to the Option shall
automatically vest in full on an accelerated basis so that the Option shall
immediately become exercisable for all the Option Shares as fully-vested shares
and may be exercised for any or all of those Option Shares as vested shares. The
Option shall remain so exercisable until the earlier of (i) the Expiration Date
or (ii) the expiration of the one (1)-year period measured from the date of the
Involuntary Termination.
2. For purposes of this Addendum, an INVOLUNTARY TERMINATION
shall mean the termination of Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than for Misconduct, or
(ii) Optionee's voluntary resignation following (A) a
change in Optionee's position with the Corporation (or Parent or
Subsidiary employing Optionee) which materially reduces
Optionee's duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in
Optionee's level of compensation (including base salary, fringe
benefits and target bonuses under any corporate-performance
based incentive programs) by more than fifteen percent (15%) or
(C) a relocation of Optionee's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without Optionee's
consent.
<PAGE> 36
3. The provisions of Paragraph 1 of this Addendum shall govern
the period for which the Option is to remain exercisable following the
Involuntary Termination of Optionee's Service within eighteen (18) months after
the Corporate Transaction and shall supersede any provisions to the contrary in
Paragraph 5 of the Option Agreement. The provisions of this Addendum shall also
supersede any provisions to the contrary in Paragraph 18 of the Option Agreement
concerning the deferred exercisability of the Option.
IN WITNESS WHEREOF, Ansys Diagnostics, Inc. has caused this
Addendum to be executed by its duly-authorized officer as of the Effective Date
specified below.
ANSYS DIAGNOSTICS, INC.
BY:
--------------------------
TITLE:
---------------------
EFFECTIVE DATE: , 199
-----------------
2.
<PAGE> 37
ANSYS DIAGNOSTICS, INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made this ________ day of _____________________ 199___,
by and between Ansys Diagnostics, Inc., a California corporation, and
____________________, Optionee under the Corporation's 1997 Stock Incentive
Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
1. EXERCISE. Optionee hereby purchases ______ shares of Common
Stock (the "Purchased Shares") pursuant to that certain option (the "Option")
granted Optionee on ____________________, 199__ (the "Grant Date") to purchase
up to _______________ shares of Common Stock (the "Option Shares") under the
Plan at the exercise price of $___________ per share (the "Exercise Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to
the Corporation, Optionee shall pay the Exercise Price for the Purchased Shares
in accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly-executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.
3. SHAREHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right or the First Refusal Right, Optionee (or any
successor in interest) shall have all the rights of a shareholder (including
voting, dividend and liquidation rights) with respect to the Purchased Shares,
subject, however, to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
confirms that Optionee has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Optionee hereby acknowledges that Optionee is prepared to hold the
<PAGE> 38
Purchased Shares for an indefinite period and that Optionee is aware that SEC
Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
2. RESTRICTIONS ON DISPOSITION OF PURCHASED SHARES. Optionee
shall make no disposition of the Purchased Shares (other than a Permitted
Transfer) unless and until there is compliance with all of the following
requirements:
(i) Optionee shall have provided the Corporation with
a written summary of the terms and conditions of the proposed
disposition.
(ii) Optionee shall have complied with all
requirements of this Agreement applicable to the disposition of the
Purchased Shares.
(iii) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in violation of
the provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
Shares shall be endorsed with one or more of the following restrictive legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER SUCH ACT, (B) A "NO ACTION" LETTER OF THE
SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH SALE OR OFFER OR
(C) SATISFACTORY ASSURANCES TO THE CORPORATION THAT REGISTRATION UNDER
SUCH ACT IS NOT REQUIRED WITH RESPECT TO SUCH SALE OR OFFER."
2.
<PAGE> 39
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL GRANTED TO THE
CORPORATION AND ACCORDINGLY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
ENCUMBERED, OR IN ANY MANNER DISPOSED OF EXCEPT IN CONFORMITY WITH THE
TERMS OF A WRITTEN AGREEMENT DATED _______________, 199___ BETWEEN THE
CORPORATION AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR
IN INTEREST TO THE SHARES). A COPY OF SUCH AGREEMENT IS MAINTAINED AT
THE CORPORATION'S PRINCIPAL CORPORATE OFFICES."
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Optionee.
3. MARKET STAND-OFF.
(a) In connection with any underwritten public offering
by the Corporation of its equity securities pursuant to an effective
registration statement filed under the 1933 Act, including the Corporation's
initial public offering, Owner shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any Purchased Shares without the prior written
consent of the Corporation or its underwriters. Such restriction (the "Market
Stand-Off") shall be in effect for such period of time from and after the
effective date of the final prospectus for the offering as may be requested by
the Corporation or such underwriters. In no event, however, shall such period
exceed one hundred eighty (180) days and the Market Stand-Off shall in all
events terminate two (2) years after the effective date of the Corporation's
initial public offering.
(b) Owner shall be subject to the Market Stand-Off
provided and only if the officers and directors of the Corporation are also
subject to similar restrictions.
3.
<PAGE> 40
(c) Any new, substituted or additional securities which
are by reason of any Recapitalization or Reorganization distributed with respect
to the Purchased Shares shall be immediately subject to the Market Stand-Off, to
the same extent the Purchased Shares are at such time covered by such
provisions.
(d) In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason to remain in Service or (if
later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Exercise Price any or all of the Purchased
Shares in which Optionee is not, at the time of his or her cessation of Service,
vested in accordance with the Vesting Schedule applicable to those shares or the
special vesting acceleration provisions of Paragraph D.6 of this Agreement (such
shares to be hereinafter referred to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule. All Purchased
Shares as to which the Repurchase Right lapses shall, however, remain subject to
(i) the First Refusal Right and (ii) the Market Stand-Off.
4. AGGREGATE VESTING LIMITATION. If the Option is exercised in
more than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of
4.
<PAGE> 41
Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
5. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right and
any escrow requirements hereunder, but only to the extent the Purchased Shares
are at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.
6. CORPORATE TRANSACTION.
(a) The Repurchase Right shall automatically terminate
in its entirety, and all the Purchased Shares shall vest in full, immediately
prior to the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to any new securities
or other property (including any cash payments) received in exchange for the
Purchased Shares in consummation of the Corporate Transaction, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Corporate Transaction upon the
Corporation's capital structure; provided, however, that the aggregate purchase
price shall remain the same. The new securities or other property (including any
cash payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Optionee vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.
(c) The Repurchase Right may also terminate on an
accelerated basis, and the Purchased Shares shall immediately vest in full, in
accordance with the terms and conditions of any special addendum attached to
this Agreement.
E. RIGHT OF FIRST REFUSAL
1. GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in
5.
<PAGE> 42
which Optionee has vested in accordance with the provisions of Article D. For
purposes of this Article E, the term "transfer" shall include any sale,
assignment, pledge, encumbrance or other disposition of the Purchased Shares
intended to be made by Owner, but shall not include any Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall,
for a period of twenty-five (25) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares subject to
the Disposition Notice upon the same terms as those specified therein or upon
such other terms (not materially different from those specified in the
Disposition Notice) to which Owner consents. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to Owner prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares, then the Corporation shall
effect the repurchase of such shares, including payment of the purchase price,
not more than five (5) business days after delivery of the Exercise Notice; and
at such time the certificates representing the Target Shares shall be delivered
to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase
6.
<PAGE> 43
price) no more favorable to such third-party offeror than those specified in the
Disposition Notice; provided, however, that any such sale or disposition must
not be effected in contravention of the provisions of Articles B and C. The
third-party offeror shall acquire the Target Shares free and clear of the First
Refusal Right, but the acquired shares shall remain subject to the provisions of
Article B and Paragraph C.3. In the event Owner does not effect such sale or
disposition of the Target Shares within the specified thirty (30)-day period,
the First Refusal Right shall continue to be applicable to any subsequent
disposition of the Target Shares by Owner until such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
(i) sale or other disposition of all the Target Shares to
the third-party offeror identified in the Disposition Notice, but in
full compliance with the requirements of Paragraph E.4, as if the
Corporation did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target
Shares which the Corporation has elected to purchase, such sale to be
effected in substantial conformity with the provisions of Paragraph E.3.
The First Refusal Right shall continue to be applicable to any
subsequent disposition of the remaining Target Shares until such right
lapses.
Owner's failure to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal
Right shall remain in full force and effect and shall apply to the new capital
stock or other property received in exchange for the Purchased Shares in
consummation of the Reorganization, but only to the extent the Purchased Shares
are at the time covered by such right.
7. LAPSE. The First Refusal Right shall lapse upon the earliest
to occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred
7.
<PAGE> 44
(500) persons, (ii) a determination is made by the Board that a public market
exists for the outstanding shares of Common Stock or (iii) a firm commitment
underwritten public offering, pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of the Common Stock in the
aggregate amount of at least ten million dollars ($10,000,000). However, the
Market Stand-Off shall continue to remain in full force and effect following the
lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND
NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more shareholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon Optionee any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
8.
<PAGE> 45
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Optionee. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
H. MISCELLANEOUS PROVISIONS
1. OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
2. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
3. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
4. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Optionee, Optionee's permitted assigns and the legal
representatives, heirs and legatees of Optionee's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
9.
<PAGE> 46
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first indicated above.
ANSYS DIAGNOSTICS, INC.
By:
-----------------------------------------------
Title:
-------------------------------------------
Address:
-----------------------------------------
-----------------------------------------
--------------------------------------------------
OPTIONEE
Address:
-----------------------------------------
-----------------------------------------
10.
<PAGE> 47
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Optionee has read and hereby approves
the foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting Optionee the right to acquire the Purchased Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms of such Agreement, including (without limitation) the
right of the Corporation (or its assigns) to purchase any Purchased Shares in
which Optionee is not vested at time of his or her cessation of Service.
-----------------------------------------------
OPTIONEE'S SPOUSE
Address:
----------------------------------------
----------------------------------------
11.
<PAGE> 48
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ___________ hereby sell(s), assign(s) and
transfer(s) unto Ansys Diagnostics, Inc. (the "Corporation"),
_________________(_____) shares of the Common Stock of the Corporation standing
in his or her name on the books of the Corporation represented by Certificate
No. _____ herewith and do(es) hereby irrevocably constitute and appoint
__________________________Attorney to transfer the said stock on the books of
the Corporation with full power of substitution in the premises.
Dated:_________
Signature _________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
<PAGE> 49
EXHIBIT II
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION
I. FEDERAL INCOME TAX CONSEQUENCES AND SECTION 83(b) ELECTION FOR
EXERCISE OF NON-STATUTORY OPTION. If the Purchased Shares are acquired pursuant
to the exercise of a Non-Statutory Option, as specified in the Grant Notice,
then under Code Section 83, the excess of the Fair Market Value of the Purchased
Shares on the date any forfeiture restrictions applicable to such shares lapse
over the Exercise Price paid for such shares will be reportable as ordinary
income on the lapse date. For this purpose, the term "forfeiture restrictions"
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. However, Optionee may elect under Code Section
83(b) to be taxed at the time the Purchased Shares are acquired, rather than
when and as such Purchased Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of the Agreement. Even if the Fair Market
Value of the Purchased Shares on the date of the Agreement equals the Exercise
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE
APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY
INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
II. FEDERAL INCOME TAX CONSEQUENCES AND CONDITIONAL SECTION 83(b)
ELECTION FOR EXERCISE OF INCENTIVE OPTION. If the Purchased Shares are acquired
pursuant to the exercise of an Incentive Option, as specified in the Grant
Notice, then the following tax principles shall be applicable to the Purchased
Shares:
(i) For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
(ii) The excess of (a) the Fair Market Value of the
Purchased Shares on the date the Option is exercised or (if later) on
the date any forfeiture restrictions applicable to the Purchased Shares
lapse over (b) the Exercise Price paid for the Purchased Shares will be
includible in Optionee's taxable income for alternative minimum tax
purposes.
(iii) If Optionee makes a disqualifying disposition of the
Purchased Shares, then Optionee will recognize ordinary income in the
year of such disposition equal in amount to the excess of (a) the Fair
Market Value of the Purchased Shares on the date the Option is exercised
or (if later) on the date any forfeiture restrictions applicable to the
Purchased Shares lapse over (b) the Exercise Price paid for the
II-1.
<PAGE> 50
Purchased Shares. Any additional gain recognized upon the disqualifying
disposition will be either short-term or long-term capital
gain depending upon the period for which the Purchased Shares are held
prior to the disposition.
(iv) For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase
the Purchased Shares pursuant to the Repurchase Right. The term
"disqualifying disposition" means any sale or other disposition(1) of
the Purchased Shares within two (2) years after the Grant Date or within
one (1) year after the exercise date of the Option.
(v) In the absence of final Treasury Regulations relating
to Incentive Options, it is not certain whether Optionee may, in
connection with the exercise of the Option for any Purchased Shares at
the time subject to forfeiture restrictions, file a protective election
under Code Section 83(b) which would limit (a) Optionee's alternative
minimum taxable income upon exercise and (b) Optionee's ordinary income
upon a disqualifying disposition to the excess of the Fair Market Value
of the Purchased Shares on the date the Option is exercised over the
Exercise Price paid for the Purchased Shares. Accordingly, such election
if properly filed will only be allowed to the extent the final Treasury
Regulations permit such a protective election. Page 2 of the attached
form for making the election should be filed with any election made in
connection with the exercise of an Incentive Option.
--------
(1) Generally, a disposition of shares purchased under an Incentive
Option includes any transfer of legal title, including a transfer by
sale, exchange or gift, but does not include a transfer to the
Optionee's spouse, a transfer into joint ownership with right of
survivorship if Optionee remains one of the joint owners, a pledge, a
transfer by bequest or inheritance or certain tax free exchanges
permitted under the Code.
II-2.
<PAGE> 51
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is _______
shares of the common stock of Ansys Diagnostics, Inc.
(3) The property was issued on ____________ , 199__.
(4) The taxable year in which the election is being made is the calendar
year 199__.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's service with the issuer terminates.
The issuer's repurchase right lapses in a series of annual and monthly
installments over a four (4)-year period ending on ___________________,
200__.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will
never lapse) is $ per share.
(7) The amount paid for such property is $ ____________ per share.
(8) A copy of this statement was furnished to Ansys Diagnostics, Inc. for
whom taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on ________________________ , 199__.
- ------------------------------ ------------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 52
The property described in the above Section 83(b) election is
comprised of shares of common stock acquired pursuant to the exercise of an
incentive stock option under Section 422 of the Internal Revenue Code (the
"Code"). Accordingly, it is the intent of the Taxpayer to utilize this election
to achieve the following tax results:
1. The purpose of this election is to have the alternative
minimum taxable income attributable to the purchased shares measured by the
amount by which the fair market value of such shares at the time of their
transfer to the Taxpayer exceeds the purchase price paid for the shares. In the
absence of this election, such alternative minimum taxable income would be
measured by the spread between the fair market value of the purchased shares and
the purchase price which exists on the various lapse dates in effect for the
forfeiture restrictions applicable to such shares. The election is to be
effective to the full extent permitted under the Code.
2. Section 421(a)(1) of the Code expressly excludes from income
any excess of the fair market value of the purchased shares over the amount paid
for such shares. Accordingly, this election is also intended to be effective in
the event there is a "disqualifying disposition" of the shares, within the
meaning of Section 421(b) of the Code, which would otherwise render the
provisions of Section 83(a) of the Code applicable at that time. Consequently,
the Taxpayer hereby elects to have the amount of disqualifying disposition
income measured by the excess of the fair market value of the purchased shares
on the date of transfer to the Taxpayer over the amount paid for such shares.
Since Section 421(a) presently applies to the shares which are the subject of
this Section 83(b) election, no taxable income is actually recognized for
regular tax purposes at this time, and no income taxes are payable, by the
Taxpayer as a result of this election. The election shall be effective to the
full extent permitted under the Code.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN
CONNECTION WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER
THE FEDERAL TAX LAWS.
2.
<PAGE> 53
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Purchase Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Ansys Diagnostics, Inc., a California
corporation.
G. DISPOSITION NOTICE shall have the meaning assigned to such term in
Paragraph E.2.
H. EXERCISE NOTICE shall have the meaning assigned to such term in
Paragraph E.3.
I. EXERCISE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
J. FAIR MARKET VALUE of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.
K. FIRST REFUSAL RIGHT shall mean the right granted to the Corporation
in accordance with Article E.
L. GRANT DATE shall have the meaning assigned to such term in Paragraph
A.1.
A-1
<PAGE> 54
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option pursuant
to which Optionee has been informed of the basic terms of the Option.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
P. 1933 ACT shall mean the Securities Act of 1933, as amended.
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. OPTION shall have the meaning assigned to such term in Paragraph A.1.
T. OPTION AGREEMENT shall mean all agreements and other documents
evidencing the Option.
U. OPTIONEE shall mean the person to whom the Option is granted under
the Plan.
V. OWNER shall mean Optionee and all subsequent holders of the Purchased
Shares who derive their chain of ownership through a Permitted Transfer from
Optionee.
W. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
X. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
Y. PLAN shall mean the Corporation's 1997 Stock Incentive Plan.
A-2
<PAGE> 55
Z. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
AA. PRIOR PURCHASE AGREEMENT shall have the meaning assigned to such
term in Paragraph D.4.
AB. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
AC. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
AD. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is not
the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from
the persons holding those securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding company
structure.
AE. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article D.
AF. SEC shall mean the Securities and Exchange Commission.
AG. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or an independent consultant.
AH. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing
A-3
<PAGE> 56
fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AI. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
AJ. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a
series of installments over his or her period of Service.
AK. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
A-4
<PAGE> 57
ADDENDUM
TO
STOCK PURCHASE AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Purchase Agreement dated ____________
(the "Purchase Agreement") by and between Ansys Diagnostics, Inc. (the
"Corporation") and _______________________ ("Optionee") evidencing the shares of
Common Stock purchased on such date by Optionee pursuant to the option granted
to him or her under the Corporation's 1997 Stock Incentive Plan, and such
provisions shall be effective immediately. All capitalized terms in this
Addendum, to the extent not otherwise defined herein, shall have the meanings
assigned to such terms in the Purchase Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Repurchase Right is assigned to the
successor corporation (or parent thereof) in connection with a Corporate
Transaction, no accelerated vesting of the Purchased Shares shall occur upon
such Corporate Transaction, and the Repurchase Right shall continue to remain in
full force and effect in accordance with the provisions of the Purchase
Agreement. Optionee shall, over his or her period of Service following the
Corporate Transaction, continue to vest in the Purchased Shares in one or more
installments in accordance with the provisions of the Purchase Agreement.
However, upon an Involuntary Termination of Optionee's Service within eighteen
(18) months following the Corporate Transaction, the Repurchase Right shall
terminate automatically, and all the Purchased Shares shall immediately vest in
full at that time.
2. For purposes of this Addendum, the following definitions shall
be in effect:
An INVOLUNTARY TERMINATION shall mean the termination of
Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than for Misconduct, or
(ii) Optionee's voluntary resignation following (A) a
change in his or her position with the Corporation (or Parent or
Subsidiary employing Participant) which materially reduces his or
her duties and responsibilities or the level of management to which
he or she reports, (B) a reduction in Optionee's level of
compensation (including base salary, fringe benefits and target
bonuses under any corporate-performance based incentive programs) by
more than fifteen percent (15%) or (C) a relocation of Optionee's
place of employment by more than fifty (50) miles, provided and only
if such change, reduction or relocation is effected by the
Corporation without Optionee's consent.
<PAGE> 58
MISCONDUCT shall mean the termination of Optionee's Service by
reason of Optionee's commission of any act of fraud, embezzlement or dishonesty,
any unauthorized use or disclosure by Optionee of confidential information or
trade secrets of the Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by Optionee adversely affecting the business or affairs
of the Corporation (or any Parent or Subsidiary) in a material manner. The
foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Corporation (or any Parent or Subsidiary) may consider as
grounds for the dismissal or discharge of Optionee or any other individual in
the Service of the Corporation (or any Parent or Subsidiary).
IN WITNESS WHEREOF, Ansys Diagnostics, Inc. has caused this
Addendum to be executed by its duly-authorized officer as of the Effective Date
specified below.
ANSYS DIAGNOSTICS, INC.
By:
--------------------------
Title:
------------------------
EFFECTIVE DATE: , 199
------------------ --
2.
<PAGE> 59
ANSYS DIAGNOSTICS, INC.
STOCK ISSUANCE AGREEMENT
AGREEMENT made as of this _____ day of ______________ 199__,
by and between Ansys Diagnostics, Inc., a California corporation, and _______
________________________________ , Participant in the Corporation's 1997 Stock
Incentive Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
1. PURCHASE. Participant hereby purchases ______shares of Common
Stock (the "Purchased Shares") pursuant to the provisions of the Stock Issuance
Program at the purchase price of $______ per share (the "Purchase Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to
the Corporation, Participant shall pay the Purchase Price for the Purchased
Shares in cash or cash equivalent and shall deliver a duly-executed blank
Assignment Separate from Certificate (in the form attached hereto as Exhibit I)
with respect to the Purchased Shares.
3. SHAREHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right or the First Refusal Right, Participant (or any
successor in interest) shall have all shareholder rights (including voting,
dividend and liquidation rights) with respect to the Purchased Shares, subject,
however, to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Participant in reliance
upon the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Participant hereby
confirms that Participant has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Participant hereby acknowledges that Participant is prepared to hold the
Purchased Shares for an indefinite period and that Participant is aware that SEC
Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
<PAGE> 60
2. DISPOSITION OF PURCHASED SHARES. Participant shall make no
disposition of the Purchased Shares (other than a Permitted Transfer) unless and
until there is compliance with all of the following requirements:
(i) Participant shall have provided the Corporation with a
written summary of the terms and conditions of the proposed disposition.
(ii) Participant shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
(iii) Participant shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in violation of
the provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
Shares shall be endorsed with one or more of the following restrictive legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SHARES MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SHARES UNDER SUCH ACT, (B) A "NO ACTION" LETTER OF THE SECURITIES AND
EXCHANGE COMMISSION WITH RESPECT TO SUCH SALE OR OFFER OR (C) SATISFACTORY
ASSURANCES TO THE CORPORATION THAT REGISTRATION UNDER SUCH ACT IS NOT REQUIRED
WITH RESPECT TO SUCH SALE OR OFFER."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL GRANTED TO THE
CORPORATION AND ACCORDINGLY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED,
OR IN ANY MANNER DISPOSED OF EXCEPT IN CONFORMITY WITH THE TERMS OF A WRITTEN
AGREEMENT DATED _________ , 199__ BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). A COPY OF
SUCH AGREEMENT IS MAINTAINED AT THE CORPORATION'S PRINCIPAL CORPORATE OFFICES."
<PAGE> 61
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Participant shall not transfer, assign, encumber or otherwise dispose of any of
the Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Participant.
3. MARKET STAND-OFF.
(a) In connection with any underwritten public offering
by the Corporation of its equity securities pursuant to an effective
registration statement filed under the 1933 Act, including the Corporation's
initial public offering, Owner shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any Purchased Shares without the prior written
consent of the Corporation or its underwriters. Such restriction (the "Market
Stand-Off") shall be in effect for such period of time from and after the
effective date of the final prospectus for the offering as may be requested by
the Corporation or such underwriters. In no event, however, shall such period
exceed one hundred eighty (180) days and the Market Stand-Off shall in all
events terminate two (2) years after the effective date of the Corporation's
initial public offering.
(b) Owner shall be subject to the Market Stand-Off
provided and only if the officers and directors of the Corporation are also
subject to similar restrictions.
(c) Any new, substituted or additional securities which
are by reason of any Recapitalization or Reorganization distributed with respect
to the Purchased Shares shall be immediately subject to the Market Stand-Off, to
the same extent the Purchased Shares are at such time covered by such
provisions.
(d) In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Participant ceases for any
<PAGE> 62
reason to remain in Service, to repurchase at the Purchase Price any or all of
the Purchased Shares in which Participant is not, at the time of his or her
cessation of Service, vested in accordance with the provisions of the Vesting
Schedule set forth in Paragraph D.3 or the special accelerated vesting
provisions of Paragraph D.5 (such shares to be hereinafter referred to as the
"Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Purchase Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Participant vests in accordance with the following Vesting Schedule:
Participant shall vest in twenty-five percent (25%) of the
Purchased Shares, and the Repurchase Right shall concurrently lapse with
respect to those Purchased Shares, upon Participant's completion of one
(1) year of Service measured from _____________, 199__.
Participant shall vest in the remaining seventy-five
percent (75%) of the Purchased Shares, and the Repurchase Right shall
concurrently lapse with respect to those Purchased Shares, in a series
of thirty-six (36) successive equal monthly installments upon
Participant's completion of each additional month of Service over the
thirty-six (36)-month period measured from the date on which the first
twenty-five percent (25%) of the Purchased Shares vests hereunder.
All Purchased Shares as to which the Repurchase Right lapses
shall, however, remain subject to (i) the First Refusal Right and (ii) the
Market Stand-Off.
4. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right and
any escrow requirements hereunder, but only to the extent the Purchased Shares
are at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order
<PAGE> 63
to reflect the effect of any such Recapitalization upon the Corporation's
capital structure; provided, however, that the aggregate purchase price shall
remain the same.
5. CORPORATE TRANSACTION.
(a) The Repurchase Right shall automatically terminate
in its entirety, and all the Purchased Shares shall vest in full, immediately
prior to the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to any new securities
or other property (including any cash payments) received in exchange for the
Purchased Shares in consummation of the Corporate Transaction, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Corporate Transaction upon the
Corporation's capital structure; provided, however, that the aggregate purchase
price shall remain the same. The new securities or other property (including any
cash payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Participant vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.
(c) The Repurchase Right may also terminate on an
accelerated basis, and the Purchased Shares shall immediately vest in full, in
accordance with the terms and conditions of any special addendum attached to
this Agreement.
E. RIGHT OF FIRST REFUSAL
1. GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Participant has vested in accordance
with the provisions of Article D. For purposes of this Article E, the term
"transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition of the Purchased Shares intended to be made by Owner, but shall not
include any Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares in which Participant has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
<PAGE> 64
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall,
for a period of twenty-five (25) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares subject to
the Disposition Notice upon the same terms as those specified therein or upon
such other terms (not materially different from those specified in the
Disposition Notice) to which Owner consents. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to Owner prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares, then the Corporation shall
effect the repurchase of such shares, including payment of the purchase price,
not more than five (5) business days after delivery of the Exercise Notice; and
at such time the certificates representing the Target Shares shall be delivered
to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the First Refusal Right, but the acquired shares shall remain subject to the
provisions of Article B and Paragraph C.3. In the event Owner does not effect
such sale or disposition of the Target Shares within the specified thirty
(30)-day period, the First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
(i) sale or other disposition of all the Target
Shares to the third-party offeror identified in the Disposition Notice,
but in full compliance with
<PAGE> 65
the requirements of Paragraph E.4, as if the Corporation did not
exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the
Target Shares which the Corporation has elected to purchase, such sale
to be effected in substantial conformity with the provisions of
Paragraph E.3. The First Refusal Right shall continue to be applicable
to any subsequent disposition of the remaining Target Shares until such
right lapses.
Owner's failure to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal
Right shall remain in full force and effect and shall apply to the new capital
stock or other property received in exchange for the Purchased Shares in
consummation of the Reorganization, but only to the extent the Purchased Shares
are at the time covered by such right.
7. LAPSE. The First Refusal Right shall lapse upon the earliest
to occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination is made by
the Board that a public market exists for the outstanding shares of Common Stock
or (iii) a firm commitment underwritten public offering, pursuant to an
effective registration statement under the 1933 Act, covering the offer and sale
of the Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
1. SECTION 83(b) ELECTION . Under Code Section 83, the excess of
the Fair Market Value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right.
Participant may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be filed
with the Internal Revenue Service within thirty (30) days after the date of this
Agreement. Even if the Fair Market Value of the Purchased Shares on the date of
this Agreement equals the Purchase Price paid (and thus no tax is payable), the
election must be made to avoid
<PAGE> 66
adverse tax consequences in the future. THE FORM FOR MAKING THIS ELECTION IS
ATTACHED AS EXHIBIT II HERETO. PARTICIPANT UNDERSTANDS THAT FAILURE TO MAKE THIS
FILING WITHIN THE APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE
RECOGNITION OF ORDINARY INCOME AS THE FORFEITURE RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(B), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more shareholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon Participant any right to continue in Service
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Participant) or of Participant, which rights are hereby expressly
reserved by each, to terminate Participant's Service at any time for any reason,
with or without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Participant. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the
<PAGE> 67
applicable provisions hereof, and the Corporation shall be deemed the owner and
holder of such shares, whether or not the certificates therefor have been
delivered as required by this Agreement.
H. MISCELLANEOUS PROVISIONS
1. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
2. PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Participant or the
Purchased Shares pursuant to the provisions of this Agreement.
3. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
4. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first indicated above.
ANSYS DIAGNOSTICS, INC.
By:
---------------------------------
Title:
-----------------------------
Address:
---------------------------
---------------------------
-----------------------------------
PARTICIPANT
Address:
---------------------------
---------------------------
<PAGE> 68
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Participant has read and hereby
approves the foregoing Stock Issuance Agreement. In consideration of the
Corporation's granting Participant the right to acquire the Purchased Shares in
accordance with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms of such Agreement, including (without
limitation) the right of the Corporation (or its assigns) to purchase any
Purchased Shares in which Participant is not vested at the time of his or her
cessation of Service.
-------------------------------------
PARTICIPANT'S SPOUSE
Address:
---------------------------
---------------------------
<PAGE> 69
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ________________ hereby sell(s),
assign(s) and transfer(s) unto Ansys Diagnostics, Inc. (the "Corporation"),
__________________(______) shares of the Common Stock of the Corporation
standing in his or her name on the books of the Corporation represented by
Certificate No. herewith and do(es) hereby irrevocably constitute and
appoint Attorney to transfer the said stock on the books of the
Corporation with full power of substitution in the premises.
Dated:______________
Signature _________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
<PAGE> 70
EXHIBIT II
SECTION 83(b) TAX ELECTION
<PAGE> 71
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
_____ shares of the common stock of Ansys Diagnostics, Inc.
(3) The property was issued on _____________________, 199__.
(4) The taxable year in which the election is being made is the calendar
year 1997.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's service with the issuer terminates.
The issuer's repurchase right lapses in a series of annual and monthly
installments over a four (4)-year period ending on ______, 200__.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will
never lapse) is $ per share.
(7) The amount paid for such property is $ ________ per share.
(8) A copy of this statement was furnished to Ansys Diagnostics, Inc. for
whom taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on _____________________, 199____.
___________________________ ____________________________________
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Issuance Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Participant must retain two (2) copies of the completed form for filing with his
or her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 72
EXHIBIT III
1997 STOCK INCENTIVE PLAN
<PAGE> 73
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Issuance Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Ansys Diagnostics, Inc., a California
corporation.
G. DISPOSITION NOTICE shall have the meaning assigned to such term in
Paragraph E.2.
H. EXERCISE NOTICE shall have the meaning assigned to such term in
Paragraph E.3.
I. FAIR MARKET VALUE of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate.
J. FIRST REFUSAL RIGHT shall mean the right granted to the Corporation
in accordance with Article E.
K. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
A-1.
<PAGE> 74
M. OWNER shall mean Participant and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
N. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
O. PARTICIPANT shall mean the person to whom shares are issued under the
Stock Issuance Program.
P. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness incurred
by Participant in connection with the acquisition of the Purchased Shares.
Q. PLAN shall mean the Corporation's 1997 Stock Incentive Plan attached
hereto as Exhibit III.
R. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
S. PURCHASE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
T. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
U. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
V. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
A-2.
<PAGE> 75
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to a person or persons
different from the persons holding those securities immediately prior to
the merger, or
(iv) any transaction effected primarily to change the state
in which the Corporation is incorporated or to create a holding company
structure.
W. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article D.
X. SEC shall mean the Securities and Exchange Commission.
Y. SERVICE shall mean the Participant's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or an independent consultant.
Z. STOCK ISSUANCE PROGRAM shall mean the Stock Issuance Program under
the Plan.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AB. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
AC. VESTING SCHEDULE shall mean the vesting schedule specified in
Paragraph D.3 pursuant to which Participant is to vest in the Purchased Shares
in a series of installments over the Participant's period of Service.
AD. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
A-3.
<PAGE> 1
EXHIBIT 10.18
ANSYS DIAGNOSTICS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Ansys Diagnostics, Inc., a Delaware corporation, by providing
eligible employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall be limited to
one hundred and eighty thousand (180,000) shares.
B. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable by all Participants in the aggregate on any one Purchase
Date, (iv) the maximum
<PAGE> 2
number and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section III.B of
this Article One and (v) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. However, the initial offering period shall
commence at the Effective Time and terminate on the last business day in July
2001. The next offering period shall commence on the first business day in
August 2001, and subsequent offering periods shall commence as designated by the
Plan Administrator.
C. Each offering period shall be comprised of a series of one or
more successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February to the last business day in July each year and from the
first business day in August each year to the last business day in January in
the following year. However, the first Purchase Interval in effect under the
initial offering period shall commence at the Effective Time and terminate on
the last business day in January 2000.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty (24) months, unless a shorter duration is
established by the Plan Administrator within five (5) business days following
the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date
of any offering period under the Plan may enter that offering period on such
start date or on any subsequent Semi-Annual Entry Date within that offering
period, provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after
the start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
2.
<PAGE> 3
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period,
the Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Cash Earnings paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
fifteen percent (15%). The deduction rate so authorized shall continue in
effect throughout the offering period, except to the extent such rate is changed
in accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with the
Plan Administrator. The Participant may not, however, effect more than
one (1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of
any new Purchase Interval within the offering period, increase the rate
of his or her payroll deduction by filing the appropriate form with the
Plan Administrator. The new rate (which may not exceed the fifteen
percent (15%) maximum) shall become effective on the start date of the
first Purchase Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of that
offering period. The amounts so collected shall be credited to the Participant's
book account under the Plan, but no interest shall be paid on the balance from
time to time outstanding in such account. The amounts collected from the
Participant shall not be required to be held in any segregated account or trust
fund and may be commingled with the general assets of the Corporation and used
for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan
on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
3.
<PAGE> 4
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. PURCHASE PRICE. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall be equal to eighty-five percent (85%) of the lower of
(i) the Fair Market Value per share of Common Stock on the Participant's Entry
Date into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed one thousand (1,000) shares, subject to periodic adjustments in the event
of certain changes in the Corporation's capitalization. In addition, the maximum
aggregate number of shares of Common Stock purchasable by all Participants on
any one Purchase Date shall not exceed forty-five thousand (45,000) shares,
subject to periodic adjustments in the event of certain changes in the
Corporation's capitalization. However, the Plan Administrator shall have the
discretionary authority, exercisable prior to the start of any offering period
under the Plan, to increase or decrease the limitations to be in effect for the
number of shares purchasable per Participant and in the aggregate by all
Participants on each Purchase Date during that offering period.
4.
<PAGE> 5
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied
to the purchase of shares of Common Stock on any Purchase Date because they are
not sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in the
aggregate on the Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next
scheduled Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Interval in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected with
respect to the terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into that offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in
status) while his or her purchase right remains outstanding, then that
purchase right shall immediately terminate, and all of the Participant's
payroll deductions for the Purchase Interval in which the purchase right
so terminates shall be immediately refunded. However, should the
Participant cease to remain in active service by reason of an approved
unpaid leave of absence, then the Participant shall have the right,
exercisable up until the last business day of the Purchase Interval in
which such leave commences, to (a) withdraw all the payroll deductions
collected to date on his or her behalf for that Purchase Interval or (b)
have such funds held for the purchase of shares on his or her behalf on
the next scheduled Purchase Date. In no event, however, shall any
further payroll deductions be collected on the Participant's behalf
during such leave. Upon the Participant's return to active service (x)
within ninety (90) days following the commencement of such leave or (y)
prior to the expiration of any longer period for which such
Participant's right to reemployment with the Corporation is guaranteed
by statute or contract, his or her payroll deductions under the Plan
shall automatically resume at the rate in
5.
<PAGE> 6
effect at the time the leave began, unless the Participant withdraws
from the Plan prior to his or her return. An individual who returns to
active employment following a leave of absence which exceeds in duration
the applicable (x) or (y) time period will be treated as a new Employee
for purposes of subsequent participation in the Plan and must
accordingly re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into the offering period.
G. CHANGE IN CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in the
aggregate.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Change in Control,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by
the Participant and shall not be assignable or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans
6.
<PAGE> 7
(within the meaning of Code Section 423) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than
Twenty-Five Thousand Dollars ($25,000.00) worth of stock of the Corporation or
any Corporate Affiliate (determined on the basis of the Fair Market Value per
share on the date or dates such rights are granted) for each calendar year such
rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of installments on
each successive Purchase Date during the offering period on which such
right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one or more other purchase rights at a rate equal to
Twenty-Five Thousand Dollars ($25,000.00) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the date
or dates of grant) for each calendar year such rights were at any time
outstanding.
C. If by reason of such accrual limitations, any purchase right
of a Participant does not accrue for a particular Purchase Interval, then the
payroll deductions which the Participant made during that Purchase Interval with
respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on March 31, 1999 and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
7.
<PAGE> 8
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in July 2009, (ii) the
date on which all shares available for issuance under the Plan shall have been
sold pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at
any time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the recognition of compensation
expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following
amendments or revisions to the Plan without the approval of the Corporation's
stockholders: (i) increase the number of shares of Common Stock issuable under
the Plan, except for permissible adjustments in the event of certain changes in
the Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation; however, each Plan Participant shall bear
all costs and expenses incurred by such individual in the sale or other
disposition of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
8.
<PAGE> 9
SCHEDULE A
----------
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
------------------------
Ansys Diagnostics, Inc.
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean the (i) regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
all overtime payments, bonuses, commissions, profit-sharing distributions and
other incentive-type payments received during such period. Such Cash Earnings
shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any and all contributions made by the Participant to any
Code Section 401(k) salary deferral plan or Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall NOT include any contributions made on
the Participant's behalf by the Corporation or any Corporate Affiliate to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions).
C. CHANGE IN CONTROL shall mean a change in ownership of the
Corporation pursuant to any of the following transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by an person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by or is under common
control with the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
A-1.
<PAGE> 11
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
G. CORPORATION shall mean Ansys Diagnostics, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Ansys Diagnostics, Inc., which shall by appropriate
action adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed and the Common Stock priced for the initial public
offering. Any Corporate Affiliate which becomes a Participating Corporation
after such Effective Time shall designate a subsequent Effective Time with
respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is sold in the initial
public offering pursuant to the Underwriting Agreement.
A-2.
<PAGE> 12
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. PLAN shall mean the Corporation's 1999 Employee Stock Purchase
Plan, as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each
Purchase Interval. The initial Purchase Date shall be January 31, 2000.
R. PURCHASE INTERVAL shall mean each successive six (6)-month
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
S. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
February and August each year on which an Eligible Employee may first enter an
offering period.
T. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
U. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE> 1
EXHIBIT 10.19
THE OPTION REPRESENTED BY THIS AGREEMENT HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (B) OPTIONOR HAS BEEN
FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE
HOLDER THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF
SECTION 5 OF THE ACT, THE RULES AND REGULATIONS THEREUNDER
AND ANY APPLICABLE STATE SECURITIES LAWS.
OPTION AGREEMENT
----------------
THIS AGREEMENT, dated as of December 12, 1988, is made by and among
Toxi-Lab, Inc., a California corporation ("Optionor"), and Donald W. Jones,
M.D. and Julie E. Jones, husband and wife (collectively, "Optionee"):
A. C. Michael O'Donnell, acting on behalf of Optionor, and Optionee have
entered into that certain Agreement, dated as of October 18, 1988 (the
"Modification Agreement").
B. Optionor has, by unanimous written consent of its Board of Directors,
adopted and ratified the Modification Agreement.
C. Section 4 of the Modification Agreement provides that, prior to the
consummation of the acquisition by Optionor of substantially all the assets and
certain of the liabilities of the Analytical Systems Division of Marion
Laboratories, Inc. (the "Acquisition") Optionor will enter into an agreement
with Optionee providing Optionee with an option to purchase shares of Common
Stock, par value $.01 per share, of Optionor (the "Common Stock").
<PAGE> 2
AGREEMENT
---------
In consideration of the covenants and agreements contained in the
Modification Agreement and in this Agreement, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged,
Optionor and Optionee agree as follows:
I. DEFINITIONS
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. All other capitalized terms used herein shall have the meanings
assigned to such terms elsewhere in this Agreement.
1.1 Board of Directors. "Board of Directors" or "Board" shall mean the
Board of Directors of Optionor.
1.2 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.3 Securities Act. "Securities Act" shall mean the Securities Act of
1933, as amended, or any successor or similar federal statute, and the
applicable rules and regulations thereunder.
II. THE OPTION
2.1 Grant of Option. Upon the terms and subject to the conditions of this
Agreement, Optionor grants to Optionee the option to purchase 20,690 shares of
Common Stock (the "Option") for an aggregate of $20,690 (the "Exercise Price").
<PAGE> 3
2.2 Adjustments in Option. In the event that the shares of Common Stock
subject to the Option are changed into or exchanged for a different number or
kind of shares of Optionor or other securities of Optionor by reason of
merger, consolidation, recapitalization, reclassification, stock split-up,
stock dividend or combination of shares, or similar transaction, the Option
shall be adjusted so that after such event Optionee's proportionate interest
shall be maintained as before the occurrence of such event. Such adjustment
in the Option shall be made without change in the Exercise Price as set forth
in Section 2.1 hereof.
2.3 Modification of Option.
(a) Except as otherwise provided in this Agreement, the Option
granted by this Agreement may be modified in any manner at any time only by
express written agreement between Optionor and Optionee.
(b) The Option shall be subject in all events to the condition that,
if at any time the Board of Directors shall determine, in its discretion, that
the listing, registration or qualification of any of Optionor's securities
upon any securities exchange or under any law, regulation or other requirement
of any governmental authority is necessary or desirable, or that any consent or
approval from any governmental authority is necessary or desirable, then
Optionor may modify the terms of the Option granted under this Agreement, with
the written consent of Optionee, which consent shall not be unreasonably
withheld in order to
3
<PAGE> 4
improve Optionor's ability to obtain such listing, registration, qualification,
consent or approval; provided, however, that except as provided in Section 2.2
hereof, Optionor may not change the Exercise Price or the number of shares
issuable upon the exercise of the Option.
(c) The Option shall be subject to the condition that such Option may not
be exercised if Optionor determines in good faith based upon advice of legal
counsel advising Optionor on securities law matters ("Securities Counsel"), that
the sale of the shares of Common Stock issuable upon the exercise of the Option
(the "Option Shares") may violate the Securities Act or any other law or
requirement of any governmental authority. Except as provided in Section 4.2
hereof, Optionor shall not be deemed, by reason of the granting of the Option,
to have any obligation to register the Option Shares under the Securities Act or
under the securities laws of any state or to maintain in effect any registration
of the Option Shares which may be made at any time under such laws.
Notwithstanding the foregoing, if the sale of the Option Shares requires
qualification or another procedure in order to comply with applicable state
securities laws, Optionor shall use all reasonable efforts to comply with such
procedure; provided, however, that Optionor shall not be required to prepare any
disclosure documents in connection with such procedure.
2.4 Period of Exercisability. The Option shall be exercisable by
Optionee at any time on or after the date on
4
<PAGE> 5
which the Acquisition is consummated (the "Closing Date") and shall continue to
be exercisable by Optionee at any time until the fifth anniversary of the
Closing Date, but may not be exercised thereafter. Notwithstanding the
foregoing, if Optionor determines that sale of Option Shares may violate the
Securities Act or other law as provided in Section 2.4(c) hereof, then the
Option shall continue to be exercisable until 60 days after such legal
impediment is no longer applicable, but in no event for more than 3 years.
Notwithstanding the foregoing, the Option shall not be exercisable after a
registration statement under the Securities Act relating to an initial public
offering of Optionor's capital stock becomes effective.
2.5 Manner of Exercises. The Option may not be exercised in part. The
Option may be exercised only by the delivery to the Secretary of Optionor at
the address set forth on the signature page hereof of all of the following
prior to the time when the Option becomes unexercisable under Section 2.4
hereof. The Option shall be deemed to have been exercised on the date on which
all of the following have actually been received by Optionor:
(a) Notice in writing signed by Optionee or any person then entitled
to exercise the Option, stating that the Option is thereby exercised.
(b) Full payment (in cash or by check) of the Exercise Price.
5
<PAGE> 6
(c) Such representations and documents as Optionor, in good faith
upon the advice of its Securities Counsel, deems necessary or advisable to
effect compliance with all applicable provisions of the Securities Act and any
other federal or state securities laws or regulations. The Optionor, may in
good faith upon the advice of its Securities Counsel, also take whatever
additional actions it determines are necessary to effect such compliance
including, without limitation, placing legends on share certificates and
issuing stop transfer orders to transfer agents and registrars.
2.6 Conditions to Transfer of Stock Certificates. The Option Shares
shall be free and clear of any security interest, claim, lien or other
encumberance and shall be fully paid and nonassessable. Optionor shall transfer
and deliver a certificate representing the Option Shares as soon as practicable
after the fulfillment of all of the conditions set forth below; however,
Optionor shall not be required to transfer or deliver said certificate prior to
the fulfillment of the following conditions:
(a) The admission of the Option Shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of the
Option Shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental regulatory
body, which Optionor shall, in good faith upon the
6
<PAGE> 7
advice of Securities Counsel, determine is necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which Optionor shall, in good faith upon the
advice of Securities Counsel, determine to be necessary or advisable.
2.7 Rights as Shareholder. Optionee shall not be, nor have any of the
rights or privileges of, a shareholder of Optionor with respect to the Option
Shares unless and until the provisions of Sections 2.5 and 2.6 hereof have been
satisfied. Notwithstanding the foregoing, Optionor shall provide or make
available to Optionee for so long as the Option has not been exercised and has
not expired by its terms, on a quarterly basis, financial and other
information comparable to the information Optionor is, or would be, required
to provide to its shareholders pursuant to Section 13 or 15(d) of the
Securities Act of 1934, as amended.
III. OPTIONEE'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS
3.1 No Resales. Optionee hereby represents and warrants that Optionee is
acquiring the Option and the Option Shares for investment solely for
Optionee's own account and not with a view to, or for resale in connection
with, the distribution or other disposition thereof. Optionee agrees and
acknowledges that Optionee will not, directly or indirectly, offer, transfer,
sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter
"Transfer") the Option or any of the Option Shares unless (i) such
7
<PAGE> 8
Transfer is pursuant to an effective registration statement under the
Securities Act and complies with any applicable state securities laws, or (ii)
counsel for Optionee (which counsel shall be acceptable to Optionor) shall
have furnished Optionor with an opinion, satisfactory in form and substance to
Optionor, to the effect that no such registration is required because of the
availability of an exemption from registration under the Securities Act and
that the Transfer is exempt from any applicable state securities laws. No
Transfer of the Option or any Option Shares in violation of this Agreement
shall be made or recorded on the books of Optionor, and any such Transfer shall
be void and of no effect.
3.2 Legend. Each certificate representing shares of Option Shares shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE 'ACT'), OR ANY STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (A) SUCH TRANSFER IS
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (B) THE COMPANY HAS BEEN FURNISHED
WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH
TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE
SECURITIES LAWS."
3.3 Securities Unregistered. Optionee acknowledges that Optionee has
been advised that:
(a) except as provided in Section 4.2 hereof, neither the Option nor
the Option Shares have been, or will
8
<PAGE> 9
be, registered under the Securities Act or qualified under the applicable
securities laws of any state.
(b) the Option and the Option Shares must be held indefinitely and
Optionee must continue to bear the economic risk of the investment in the Option
and the Option Shares unless they are subsequently registered under the
Securities Act and qualified under applicable state securities laws or an
exemption from such registration or qualification is available;
(c) it is not anticipated that there will be any public market for
the Option or the Option Shares;
(d) Rule 144 promulgated under the Securities Act ("Rule 144") is not
presently available with respect to the sales of any securities of the Company,
and the Company has made no covenant to make Rule 144 available;
(e) When and if the Option or the Option Shares may be disposed of
without registration in reliance on Rule 144, such disposition can be made only
in limited amounts in accordance with the terms and conditions of Rule 144;
(f) if the Rule 144 exemption is not available, public sale without
registration will require compliance with Regulation A promulgated under the
Securities Act or some other exemption under the Securities Act and compliance
with applicable state securities laws;
(g) a restrictive legend in the form heretofore set forth shall be
placed on the certificates representing the Option Shares; and
9
<PAGE> 10
(h) a notation shall be made in the appropriate records of Optionor
indicating that the Option and the Option Shares are subject to restrictions on
transfer and, if Optionor should at some time in the future engage the
services of a transfer agent, appropriate transfer restrictions will be issued
to such transfer agent with respect to the Option and the Option Shares.
3.4 Compliance with Rule 144. If the Option or any of the Option Shares
are disposed of in accordance with Rule 144, Optionee shall deliver to
Optionor at or prior to the time of such disposition an executed copy of Form
144 (if required by Rule 144) and such other documentation as Optionor may
reasonably require in connection with such sale.
3.5 Standstill Agreement. Optionee agrees that, if any shares of the
capital stock of Optionor are offered to the public pursuant to an effective
registration statement under the Securities Act, Optionee will not effect any
public sale or distribution of the Option or any of the Option Shares
(including a sale pursuant to Rule 144) not covered by such registration
statement during the ten-day period prior to, and the 90-day period beginning
on, the effective date of such registration statement (and Optionor agrees to
cause each holder of its Common Stock purchased from Optionor other than a
public offering to so agree).
3.6 Additional Representations. Optionee further represents and warrants
that:
10
<PAGE> 11
(a) Optionee has been given the opportunity to obtain any information
or documents and to ask questions and receive answers about such documents,
Optionor and the business and prospects of Optionor which Optionee deems
necessary to evaluate the merits and risks related to Optionee's investment in
the Option and the Option shares;
(b) Optionee's financial condition is such that Optionee can afford
to bear the economic risk of holding the unregistered Option and Option Shares
for an indefinite period of time and has adequate means for providing for
Optionee's current needs and contingencies;
(c) Optionee can afford to suffer a complete loss of Optionee's
investment in the Option and the Option Shares;
(d) all information which Optionee has provided to Optionor
concerning Optionee and Optionee's financial position is correct and complete
as of the date of this Agreement;
(e) Optionee understands and has taken cognizance of all risk factors
related to the purchase of the Option and the Option Shares;
(f) Optionee is an "Accredited Investor" as that term is defined in
Rule 501(a) of Regulation D promulgated under the Securities Act;
(g) Optionee's knowledge and experience in financial and business
matters are such that Optionee is capable of evaluating the merits and risks
of Optionee's investment in the Option and the Option Shares.
11
<PAGE> 12
(h) either (i) Optionee has a "preexisting personal or business
relationship" with the Optionor or any of its officers, directors or
controlling persons, or (ii) by reason of Optionee's business or financial
experience or the business or financial experience of Optionee's "professional
advisors" who are unaffiliated with, and who are not compensated by, Optionor
or any affiliate of Optionor, Optionee has the capacity to protect Optionee's
own interests in connection with the investment in the Option and the Option
Shares; and
(i) This Agreement has been executed and delivered by Optionee and is the
valid and binding obligation of Optionee, enforceable against Optionee in
accordance with its terms, except for (i) the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally, and (ii)
limitations imposed by federal or state law or equitable principles upon the
specific enforceability of any of the remedies, covenants or other provisions
of this Agreement and upon the availability of injunctive relief or other
equitable remedies.
For purposes of Section 3.6(h) hereof, a "preexisting personal or business
relationship" includes any relationship consisting of personal or business
contacts of a nature and duration such as would enable a reasonably prudent
person to be aware of the character, business acumen and
12
<PAGE> 13
general business and financial circumstances of the person with whom such
relationship exists and a "professional advisor" is (a) a person who, as a
regular part of that person's business, is customarily relied upon by others
for investment recommendations or decisions and who is customarily compensated
for those services, (b) an attorney, or (c) a certified public accountant.
Optionee must advise Optionor of his designated "professional advisor" in order
to rely upon the "professional advisor" in making the representation set forth
in Section 3.6(h) hereof.
IV. MISCELLANEOUS
4.1 Optionor's Representations and Warranties. Optionor represents and
warrants to Optionee that:
(a) Organization, Standing and Qualification. Optionor is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California; has all requisite power and authority to own or
lease and operate its properties and to carry on its business as now conducted
and as proposed to be conducted; and is duly qualified or licensed to do
business as a foreign corporation in good standing in all jurisdictions in which
it owns or leases property or in which the conduct of its business requires it
to so qualify to be licensed, except for such jurisdictions where the failure to
so qualify or be licensed would not have a material adverse effect on the
business or financial condition of Optionor.
13
<PAGE> 14
(b) Authority. Optionor has all requisite power and authority to
enter into and perform all of its obligations under this Agreement, to issue
the Option and the Option Shares and to carry out the transactions contemplated
hereby.
(c) Due Authorization. Optionor has taken all corporate actions
necessary to authorize it to enter into and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. This
Agreement is the legal, valid and binding obligation of Optionor, enforceable
in accordance with its respective terms, except for (i) the effect upon this
Agreement of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting the rights of
creditors generally, and (ii) limitations imposed by federal or state laws or
equitable principles upon the specific enforceability of any of the remedies,
covenants and other provisions of this Agreement and upon the availability of
injunctive relief or other equitable remedy.
(d) Capitalization. The authorized capital stock of the Company on
the date hereof consists of 4,000 shares of Series A Redeemable Preferred Stock,
par value $.01 per share, 14,000 shares of Convertible Preferred Stock, par
value $.01 per share (the "Convertible Preferred Stock"), and 766,283 shares of
Common Stock. Prior to the issuance of the Option described herein, 100 shares
of Common Stock and
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<PAGE> 15
no shares of either series of Preferred Stock were issued and outstanding. The
Option Shares (i) are duly authorized by Optionor's Restated Articles of
Incorporation; (ii) have been duly authorized to be issued by Optionor's Board
of Directors; (iii) will, upon payment therefor in accordance with the terms of
the Option, be duly and validly issued, fully paid and nonassessable; (iv) have
been reserved for issuance pursuant to the terms of the Option; and (v)
represent approximately 3% of the shares of Common Stock on a fully diluted
basis after giving effect to the exercise of the Option and the SPNB Warrant
(as hereinafter defined) and the conversion of the Convertible Preferred Stock.
Except for the Convertible Preferred Stock, the Warrant, dated December
12, 1988, in favor of Security Pacific National Bank (the "SPNB Warrant"), the
Warrant Purchase Agreement, dated December 12, 1988, between the Optionor and
Security Pacific National Bank, and the Option, (i) there are no outstanding
subscriptions, warrants, options, calls or commitments of any character
relating to or entitling any person to purchase or otherwise acquire any
capital stock of Optionor, and (ii) there are no obligations or securities
convertible into or exchangeable or exercisable for shares of any capital stock
of Optionor or any commitments of any character relating to or entitling any
person to purchase or otherwise acquire any such obligations or securities.
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<PAGE> 16
4.2 "Piggyback" Registration Rights.
(a) Right to Piggyback. If at any time Optionor proposes to file a
registration statement under the Securities Act with respect to its Common
Stock or securities convertible or exchangeable into its Common Stock (other
than a registration statement (i) on Form S-8 or any successor form to such
Form or (ii) filed in connection with an exchange offer or an offering of its
Common Stock or of securities convertible or exchangeable into its Common Stock
made solely to its existing stockholders in connection with a rights offering
or solely to employees of the Company), whether or not for its own account
including pursuant to a demand registration under that certain Registration
Rights Agreement (the "Registration Rights Agreement"), dated as of December
12, 1988, between Optionor, Security Pacific National Bank, First Interstate
Capital, Inc. and Birch Street Partners (an "Investor Demand"), then Optionor
shall give written notice of such proposed filing to Optionee at least 15 days
before the anticipated filing date. Such notice shall offer Optionee the
opportunity to register such amount of Option Shares as Optionee may request (a
"Piggyback Registration"). Subject to Section 4.2(b) hereof, Optionor shall
include in each such Piggyback Registration all Option Shares of Optionee with
respect to which Optionor received a written request for inclusion therein
within 10 days after notice has been duly given Optionee.
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(b) Priority on Piggyback Registrations. Optionor shall cause the
managing underwriter or underwriters of a proposed underwritten offering to
permit Optionee to include all Option Shares requested to be included in the
Piggyback Registration in such offering on the same terms and conditions as the
other Common Stock of Optionor included therein. Notwithstanding the foregoing,
if the managing underwriter or underwriters of such offering deliver(s) a
written opinion to Optionee that the total number of securities which Optionee,
Optionor, and any other persons or entities having registration rights, intend
to include in such offering is such as to materially and adversely affect the
success of such offering, then (i) if the Piggyback Registration is an Investor
Demand, the Registration Expenses (as defined in the Registration Rights
Agreement) for which are being paid by the Company, the number of securities to
be offered in the Piggyback Registration for the account of all persons and
entities, including Optionor (other than First Interstate Capital, Inc., Birch
Street Partners and Security Pacific National Bank) shall be reduced or limited
pro rata in proportion to the respective number of securities requested to be
included in such registration to the extent necessary to reduce the total
number of securities to be included in such offering to the number recommended
by such managing underwriter or underwriters and (ii) in all other cases, the
number of securities to be offered in the Piggyback Registration for the
account of all persons and
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entities (other than Optionor) shall be reduced or limited pro rata in
proportion to the respective number of securities required to be registered to
the extent necessary to reduce the total number of securities to be included in
such offering to the number recommended by such managing underwriter or
underwriters.
4.3 Notices. Any notice required or desired to be served, given or
delivered hereunder shall be deemed to be validly served, given or delivered
when personally delivered or five (5) days after the deposit thereof in the
United States registered or certified mail, postage prepaid, and addressed to
the party to be notified at the address given beneath its signature hereto. Any
address of any party may be changed by written notice to the other parties.
4.4 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their personal representatives, heirs, legatees,
successors and assigns as herein provided, whether or not (and as if) any such
person or entity shall have executed a separate instrument agreeing to be bound
thereby.
4.5 Amendment. This Agreement may not be amended or terminated except by a
written agreement between Optionor and Optionee.
4.6 Partial Invalidity; Headings; Governing Law. If any part of this
Agreement shall be held invalid for any reason, the remainder of this Agreement
shall continue in full force and effect. Headings are used herein for
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convenience only and shall not affect the meaning of any provisions hereof.
This Agreement shall be construed in accordance with the laws of the State of
California.
4.7 Costs and Expenses. In any action by either party hereto to enforce
this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees.
4.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed as of the date first listed above.
TOXI-LAB, INC.
By: /s/
--------------------------------------
Its:
Address:
2 Goodyear
Irvine, California 92718
Attention: Secretary
/s/ DONALD W. JONES, M.D.
--------------------------------------
Donald W. Jones, M.D.
/s/ JULIE E. JONES
--------------------------------------
Julie E. Jones
Address:
511 Chino Canyon Road,
Palm Springs, CA 92262
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Amendment No. 4 to the Registration
Statement on Form S-1 (No. 333-72665) of our report, dated April 23, 1999,
relating to the consolidated financial statements of Ansys Diagnostics, Inc. and
Subsidiary. We also consent to the reference to our Firm under the captions
"Experts" and "Selected Consolidated Financial Data" in the Prospectus.
McGladrey & Pullen, LLP
Anaheim, California
May 24, 1999
