<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended August 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ to _____
Commission File No. 0-12240
BIO-LOGIC SYSTEMS CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 36-3025678
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
One Bio-logic Plaza, Mundelein, Illinois 60060
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code (847-949-5200)
(Former name, address and former fiscal year, if changed since last report): not
applicable
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
----- -----
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 11, 1999
Common Stock $.01 par value 4,059,596 shares
Transitional Small Business Disclosure Format
Yes X No
----- -----
<PAGE>
TABLE OF CONTENTS
Part I. Financial Information
<TABLE>
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Page
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at August 31, 1999
and February 28, 1999. 3
Condensed Consolidated Statements of Operations and
Retained Earnings for the three and six months ended
August 31, 1999 and 1998. 4
Condensed Consolidated Statements of Cash Flows for
the six months ended August 31, 1999 and 1998. 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
Signatures
<PAGE>
Bio-logic Systems Corp.
Form 10-QSB
Part 1. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS August 31, 1999 Feb. 28, 1999
--------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,370,474 $ 5,957,112
Accounts receivable, less allowance for doubtful accounts
of $310,918 at Aug. 31, 1999 and $249,322 at Feb. 28, 1999 4,801,202 3,359,291
Inventories 4,095,178 3,533,408
Prepaid expenses 85,108 236,865
Deferred income taxes 299,195 299,195
----------- -----------
Total current assets 15,651,157 13,385,871
PROPERTY, PLANT AND EQUIPMENT - Net 1,850,571 1,906,057
OTHER ASSETS 638,209 746,279
----------- -----------
TOTAL ASSETS $18,139,937 $16,038,207
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 149,126 $ 143,467
Accounts payable 713,997 599,228
Accrued salaries and payroll taxes 1,313,562 876,770
Accrued interest and other expenses 473,569 619,023
Accrued income taxes 536,895 354,735
Deferred revenue 394,586 200,138
----------- -----------
Total current liabilities 3,581,735 2,793,361
LONG-TERM DEBT - less current maturities 220,691 294,618
DEFERRED INCOME TAXES 244,895 244,895
----------- -----------
Total liabilities 4,047,321 3,332,874
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COMMITMENTS ------ ------
SHAREHOLDERS' EQUITY:
Capital stock, $.01 par value; authorized, 10,000,000 shares;
issued and outstanding; issued 4,035,134 and outstanding
3,987,334 at August 31, 1999; issued 4,034,734 and
outstanding 4,002,934 at February 28, 1999 40,351 40,347
Additional paid-in capital 4,755,940 4,754,981
Retained earnings 9,428,305 7,998,925
----------- -----------
14,224,596 12,794,253
Less treasury stock, at cost: 47,800 shares at Aug. 31, 1999
and 31,800 shares at February 28, 1999 131,980 88,920
----------- -----------
Total Shareholders' equity 14,092,616 12,705,333
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $18,139,937 $16,038,207
=========== ===========
</TABLE>
3
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Bio-logic Systems Corp.
Form 10-QSB
Condensed Consolidated Statements of Operations and Retained Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
----------------------------------------------------
1999 1998 1999 1998
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
NET SALES $6,590,484 $4,361,167 $12,868,768 $8,068,481
COST OF SALES 1,917,890 1,364,980 3,914,814 2,592,134
---------- ---------- ----------- ----------
Gross Profit 4,672,594 2,996,187 8,953,954 5,476,347
---------- ---------- ----------- ----------
OPERATING EXPENSES:
Selling, general & administrative 2,892,790 2,213,705 5,561,174 4,328,366
Research & development 829,942 703,019 1,513,462 1,450,222
---------- ---------- ----------- ----------
Total operating expenses 3,722,732 2,916,724 7,074,636 5,778,588
---------- ---------- ----------- ----------
OPERATING INCOME (LOSS) 949,862 79,463 1,879,318 (302,241)
OTHER INCOME (EXPENSE):
Interest income 60,961 63,705 119,488 128,357
Interest expense (4,682) (8,839) (12,106) (18,189)
Miscellaneous (916) 458 (1,445) (403)
---------- ---------- ----------- ----------
TOTAL OTHER INCOME 55,363 55,324 105,937 109,765
---------- ---------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 1,005,225 134,787 1,985,255 (192,476)
PROVISION (BENEFIT) FOR INCOME TAXES 281,475 45,100 555,875 (64,200)
---------- ---------- ----------- ----------
NET INCOME (LOSS) $ 723,750 $ 89,687 $ 1,429,380 $ (128,276)
========== ========== =========== ==========
RETAINED EARNINGS,
BEGINNING OF PERIOD 8,704,555 7,491,822 7,998,925 7,709,785
---------- ---------- ----------- ----------
RETAINED EARNINGS,
END OF PERIOD $9,428,305 $7,581,509 $ 9,428,305 $7,581,509
========== ========== =========== ==========
EARNINGS (LOSS) PER SHARE:
Basic $0.18 $0.02 $0.36 $(0.03)
========== ========== =========== ==========
Diluted $0.17 $0.02 $0.35 $(0.03)
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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Bio-logic Systems Corp.
Form 10-QSB
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
August 31,
-------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 1,429,380 $ (128,276)
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Depreciation and amortization 225,470 229,276
Provision for bad debts 57,600 57,600
Provision for inventory valuation 158,750 154,650
Deferred income taxes ------- -------
(Increases) decreases in assets:
Accounts receivable (1,499,511) 1,021,181
Inventories (720,520) (149,112)
Prepaid expenses 151,757 (570)
Increases (decreases) in liabilities:
Accounts payable and overdrafts 114,769 (77,226)
Accrued liabilities and deferred revenue 485,786 59,101
Accrued income taxes 182,160 (367,484)
----------- ----------
Net cash flows from operating activities 585,641 799,140
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (54,359) (88,897)
Other assets (7,555) (34,369)
Proceeds from maturities of investments ------- 1,500,099
----------- ----------
Net cash flows from (used in) investing activities (61,914) 1,376,833
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 963 57,695
Purchase of treasury stock (43,060) (14,272)
Payments of long-term debt (68,268) (65,797)
----------- ----------
Net cash flows used in financing activities (110,365) (22,574)
----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 413,362 2,153,399
CASH AND CASH EQUIVALENTS - Beginning of period 5,957,112 3,624,368
----------- ----------
CASH AND CASH EQUIVALENTS - End of period $ 6,370,474 $5,777,767
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Cash paid during the period for:
Interest $ 15,410 $ 18,189
=========== ==========
Income Taxes $ 339,415 $ 299,500
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
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Bio-logic Systems Corp.
Form 10-QSB
Notes to Condensed Consolidated Financial Statements
1. The information furnished in this report reflects all adjustments
(consisting of only normal recurring adjustments) which are, in the opinion
of management, necessary to a fair statement of the results for the interim
periods. The results of operations for the three and six months ended August
31, 1999 are not necessarily indicative of the results to be expected for
the full year.
2. Inventories
Inventories, consisting principally of components, parts and supplies, are
stated at the lower of cost, determined by the first-in, first-out method or
market.
3. Net Income Per Share
Basic earnings per share are based on the weighted average number of shares
outstanding during each quarter. The weighted average shares for computing
basic earnings per share were 3,987,152 and 4,023,184 for the quarters ended
August 31, 1999 and 1998, respectively, and 3,991,092 and 4,005,888 for the
six months ended August 31, 1999 and 1998, respectively.
Diluted earnings per share are based on the weighted average number of
common and dilutive common equivalent shares calculated at average market
prices. The weighted average shares for computing diluted earnings per share
were 4,139,639 and 4,115,047 for the quarters ended August 31, 1999 and
1998, respectively, and 4,082,467 and 4,005,888 for the six months ended
August 31, 1999 and 1998, respectively.
Because of the net loss for the six months ended August 31, 1998, common
equivalent shares were not included in the calculation of diluted earnings
per share as their inclusion would be anti-dilutive.
4. Accounting for Income Taxes
Deferred tax assets and liabilities are computed annually for differences
between financial statement basis and tax basis of assets, liabilities and
available general business tax credit carry-forwards. A valuation allowance
is established when necessary to reduce deferred tax assets to the amount
expected to be realized.
5. Treasury Stock Repurchase
As of August 31, 1999, the Company purchased an aggregate of 47,800 shares
of its common stock at a total cost of $131,980.
6
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Bio-logic Systems Corp.
Form 10-QSB
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Prospective investors are cautioned that the statements in this Quarterly
Report on Form 10-QSB that are not descriptions of historical facts may be
forward-looking statements within the meaning of the Private Securities Reform
Act of 1995, including statements concerning the Company's future products,
results of operations and prospects. These forward-looking statements are
subject to risks and uncertainties. Actual results could differ materially from
those currently anticipated, including those relating to general economic and
business conditions, the results of research and development efforts,
technological changes and competition, potential changes in regulation by the
FDA, costs relating to manufacturing of products and the timing of customer
orders detailed elsewhere in this Quarterly Report on Form 10-QSB and from time
to time in the Company's filings with the Securities and Exchange Commission.
Liquidity and Capital Resources
As of August 31, 1999, the Company had working capital of $12,069,422
including $6,370,474 in cash, short-term investments and other cash equivalents.
The Company believes its capital and liquidity requirements for the foreseeable
future will be satisfied by available and internally generated funds. To the
extent the Company's capital and liquidity requirements are not satisfied
internally, the Company may utilize a $1,000,000 unsecured bank line of credit,
all of which is currently available. Borrowings under this line will bear
interest at the bank's prime rate.
For the six months ended August 31, 1999, cash flow increased by $413,362
and net cash flow from operations increased by $585,641. Net income for the six
months ended August 31, 1999 increased net cash flow from operating activities
by $1,429,380 compared to a net loss of $128,276 that decreased net cash flow
from operating activities for the six months ended August 31,1998. In the six
months ended August 31, 1999, the Company invested in inventory to support the
increase in net sales resulting in a decrease of net cash flow of $720,520. In
addition, the Company's sales growth fueled an increase in accounts receivable
resulting in decreased net cash flow of $1,499,511.
Results of Operations
Net sales for the three and six month periods ended August 31, 1999 (the
"1999 three and six months") increased significantly to $6,590,484 and
$12,868,768, respectively, compared to $4,361,167 and $8,068,481 in the three
and six month periods ended August 31, 1998 (the "1998 three and six months.")
Domestic sales led the increase in net sales for the 1999 three and six months
increasing by 67% and 66% to $6,160,900 and $11,332,157, respectively, compared
to $3,682,742 and $6,835,296 for the 1998 three and six months, respectively.
Foreign sales of $429,584 and $1,536,611 contributed 7% and 12% of net sales for
the 1999 three and six months, respectively, a decrease of 37% from $678,425 for
the 1998 three months, while an increase of 25% from $1,233,185 for the 1998 six
months. The foreign sales in the three month period ended August 31, 1999
continued to be negatively impacted by the Far Eastern and South American
monetary crisis. The Company's overall increase in net sales for the 1999 three
and six months was the result of higher unit sales in the Ceegraph, Sleep, and
Audiology product lines.
As the result of significantly higher net sales, cost of sales increased to
$1,917,890 and $3,914,814 in the 1999 three and six months, respectively,
compared to $1,364,980 and $2,592,134 for the 1998 three and six months,
respectively. Cost of sales as a percentage of net sales decreased however to
29% and 30% for the 1999 three and six months, respectively, from 31% and 32%
for the 1998 three and six months, respectively. This decrease in cost of sales
as a percentage of net sales in the 1999 three and six months was primarily due
to increases in net
7
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Bio-logic Systems Corp.
Form 10-QSB
sales of higher margin audiology products plus an increase in net sales of the
Company's high-end epilepsy systems. In addition, cost of sales as a percentage
of net sales declined due to savings realized from increased efficiencies in the
Company's manufacturing processes and fuller utilization of its manufacturing
plant capacities.
Selling, general and administrative expenses increased by 31% and 29% to
$2,892,790 and $5,561,174 during the 1999 three and six months, respectively,
compared to $2,213,705 and $4,328,366 for the 1998 three and six months,
respectively. Selling, general and administrative expenses as a percentage of
net sales, decreased to 44% and 43% during the 1999 three and six months,
respectively, compared to 51% and 54%, respectively, for the 1998 three and six
months. The increases in the 1999 three and six months reflects the hiring of
additional sales and customer support personnel to better serve our current and
future customers, plus substantial increases in travel costs and sales
commissions associated with substantially higher net sales.
Research and development costs increased by 18% and 4% to $829,942 and
$1,513,462 for the 1999 three and six months, respectively, from $703,019 and
$1,450,222 for the 1998 three and six months, respectively. As a percentage of
net sales, total research and development costs decreased to approximately 13%
and 12% for the 1999 three and six months, respectively, compared to 16% and 18%
for the 1998 three and six months, respectively. The increase in research and
development costs for the 1999 three and six months was the result of higher
individual salaries, increased outside development costs, and higher consulting
expenses associated with the Company's continued conversion of its DOS based
systems to Windows 95 and Windows NT platforms.
The Company had operating income of $949,862 and $1,879,318 for the 1999
three and six months, respectively, compared to operating income of $79,463 and
an operating loss of $302,241 for the 1998 three and six months, respectively.
The increases in operating income for the 1999 three and six months was the
result of substantially higher domestic net sales that were manufactured at
higher gross margins offset by lower foreign net sales coupled with higher
selling, general and administrative costs and research and development costs.
Net interest income decreased to $107,382 for the 1999 six months compared
to $110,168 for the 1998 six months. This slight decrease reflects lower
investment returns on the Company's cash investments offset by lower interest
expense on long term debt.
The Company had income tax expense of $281,475 and $555,875 for the 1999
three and six months, respectively, compared to income tax expense of $45,100
and a income tax benefit of $64,200 for the 1998 three and six months,
respectively. The Company's income tax rate differs from the federal statutory
rate of 35% due to the differences in foreign income and its corresponding tax
rates.
The Company had net income of $723,750 and $1,429,380 or $0.17 and $0.35
per diluted share for the 1999 three and six months, respectively, compared to
net income of $89,687 and a net loss of $128,276, or $.02 and $(0.03) per
diluted share, for the 1998 three and six months, respectively. The Company
attributes the higher earnings in the 1999 three and six months to higher net
sales particularly along the Ceegraph and Audx product lines offset by higher
selling, general and administrative and research and development costs.
8
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Bio-logic Systems Corp.
Form 10-QSB
Year 2000 Issue
The Year 2000 issue (i.e., the ability of computer systems to accurately
identify and process dates beginning with Year 2000 and beyond) affects
virtually all companies and organizations. The Company recognizes that
information systems are integral to its operations. As all of the Company's
software is either developed internally or acquired from third party vendors to
be included in the Company's product line for subsequent sale, the Company's
efforts to limit problems associated with Year 2000 software failures are
focused on investigating, testing and ensuring that all such software is Year
2000 compliant. As a result of these efforts, the Company believes that the
Year 2000 issue will not pose significant internal problems for the Company's
business. The Company is also communicating with its suppliers, financial
institutions and third-party payors to determine their plans to limit problems
associated with the Year 2000 issue problems. The Company does not anticipate
that there will be a material cost associated with addressing its potential
exposure to Year 2000 problems. Despite these efforts, the Year 2000 issue is
complex and may present unforeseen problems in the Company's systems and from
third parties with which the Company deals, such as third-party vendors and
payors. Failure of the Company's or third parties' computer systems could
materially and adversely impact the Company's operations.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's 1999 Annual Meeting of Shareholders (the "1999 Annual
Meeting") was held on August 19, 1999
(b) The following directors were elected at the 1999 Annual Meeting:
Charles Z. Weingarten.
Albert Milstein
The following are the other directors of the Company whose term of
office continued after the 1999 Annual Meeting:
Gabriel Raviv, Ph.D.
Craig W. Moore
Gil Raviv
Irving Kupferberg
The following votes were cast in connection with the election of
directors at the 1999 Annual Meeting:
FOR AGAINST
Charles Z. Weingarten 3,843,118 25,170
Albert Milstein 3,843,118 25,170
9
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Bio-logic Systems Corp.
Form 10-QSB
Item 5. Other Information
In September 1999, the Company entered into an employment agreement with
Roderick G. Johnson, to serve as President and Chief Operating Officer. The
agreement has an initial term of three years, subject to automatic successive
one year renewal periods unless terminated by either party on 90 days notice.
Mr. Johnson will receive a base annual salary of $200,000 plus a bonus (not to
exceed 50% of his base salary), based in part upon the Company's financial
performance. The Company also granted Mr. Johnson options to purchase 100,000
shares of common stock at an exercise price of $7.125 per share, which options
vest in installments commencing September 2000 through May 2005. In the event
the Company terminates his employment without cause (as defined in the
agreement), Mr. Johnson will be entitled to severance equal to 18 months' base
salary and a pro rata portion of any bonus he would have received for the year.
Item 6. Exhibits and Reports on 8-K
(a) Exhibits
10.15 Employment Agreement with Roderick G. Johnson
27. Financial Data Schedule
____________________
(b) The Registrant did not file any reports on Form 8-K during the three months
ended August 31, 1999
10
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Bio-logic Systems Corp.
Form 10-QSB
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of September 22, 1999, between Bio-logic Systems Corp.,
a Delaware corporation (the "Company"), and Roderick G. Johnson ("Executive").
W I T N E S S E T H:
WHEREAS, on and subject to the terms and conditions set forth in this
Agreement, the Company desires to employ Executive as the President and Chief
Operating Officer of the Company, and Executive is agreeable to being employed
in such capacity;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive and Executive accepts
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on September 22, 1999 and ending as provided
in Section 4 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the President
and Chief Operating Officer of the Company and shall have the normal duties,
responsibilities and authority of the President and Chief Operating Officer,
subject to the power of the Board of Directors of the Company (the "Board"),
acting in good faith, to expand or limit such duties, responsibilities and
authority commensurate with such positions, and subject to the power of the
Chief Executive Officer of the Company, carrying out the responsibilities of
such office and acting in good faith, to expand or limit such duties,
responsibilities and authority of Executive commensurate with such positions of
Executive.
(b) Executive shall report to the Board and to the Chief Executive Officer
of the Company, and Executive shall devote his best efforts and his full
business time and attention (except for permitted vacation periods and
reasonable periods of illness or other incapacity) to the business and affairs
of the Company. Executive shall perform his duties and responsibilities to the
best of his abilities.
(c) Upon Executive's accepting employment hereunder, the Board will
promptly undertake to increase the size of the Board by one additional director
and cause Executive to be elected to fill the newly created directorship.
Thereafter, as long as Executive is employed hereunder, the Board shall from
time to time nominate Executive to be a director and submit Executive's
nomination to the stockholders of the Company with a recommendation that
Executive be elected a director.
11
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Bio-logic Systems Corp.
Form 10-QSB
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base salary shall be
$200,000 per annum or such higher rate as the Board may designate from time to
time (the "Base Salary"), which salary shall be payable in regular installments
in accordance with the Company's general payroll practices, but not less
frequently than monthly. The Board shall review Executive's Base Salary at
least annually. The Executive's Base Salary may be increased, but once
increased shall not thereafter be decreased. In addition, during the Employment
Period, Executive shall be entitled to participate in all of the Company's
employee benefit programs for which senior executive employees of the Company
are generally eligible, including, without limitation, a 401(k) savings plan,
health and disability insurance programs providing benefits to Executive no less
extensive than those provided to senior executives of the Company and reasonable
and appropriate office accommodations and secretarial assistance. Executive
shall be entitled to four weeks of paid vacation each year. Executive shall
also be entitled to be reimbursed for up to $10,000 per calendar year for
premium expenses for supplemental life and disability insurance policies which
Executive obtains in respect of his own life and health (which premium
reimbursement shall be grossed up to take into account all federal, state and
local taxes to which such reimbursement may be subject upon receipt by Executive
based on the maximum marginal tax rates for the calendar year in which Executive
receives the reimbursement).
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's customary requirements with respect to reporting and documentation
of such expenses.
(c) In addition to the Base Salary, Executive shall be entitled to a bonus
for each year in an amount of up to 50% of Base Salary, between 60% and 80% of
which bonus shall be based upon the Company's financial performance for such
year (based upon minimum and maximum financial performance targets to be
determined by the Board in consultation with the Chief Executive Officer and
Executive and determined on a straight line basis based upon the amount by which
actual financial performance exceeds the minimum target level for such year,
with the full 60% to 80% amount to be payable if actual performance exceeds the
maximum target level for such year) and the remainder of which bonus shall be
based upon other goals for and/or projects of Executive for such year to be
established by the Board in consultation with the Chief Executive Officer and
Executive. The bonus provided for pursuant to this Section 3(c) shall not
preclude the Board, in its sole discretion, from determining and awarding
additional compensation to Executive in the form of bonuses from time to time.
Executive shall receive payment of any bonus payable under this Section 3(c)
within thirty (30) days following receipt by the Company of audited consolidated
financial statements of the Company in respect of such fiscal year.
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Bio-logic Systems Corp.
Form 10-QSB
(d) In addition to the other amounts payable under the preceding clauses
of this Section 3, promptly following the execution of this Agreement by the
parties hereto, the Company shall take or cause to be taken all actions
necessary to grant to Executive incentive stock options pursuant to the
Company's stock option plan to purchase all or any part of an aggregate of
100,000 shares of the Company's common stock, $0.01 par value per share, at a
price per share equal to the closing price of the Company's common stock on the
last business day preceding the date of this Agreement. Subject to the
provisions of the next to last sentence of this Section 3(d), such options shall
be subject to vesting on the following timetable:
12,500 shares on the first anniversary of Executive's commencement of
employment
6,250 shares on May 15, 2001
12,500 shares on the second anniversary of Executive's commencement of
employment
12,500 shares on May 15, 2002
12,500 shares on the third anniversary of Executive's commencement of
employment
12,500 shares on May 15, 2003
12,500 shares on the fourth anniversary of Executive's commencement of
employment
12,500 shares on May 15, 2004
6,250 shares on May 15, 2005
Such options shall also provide that (i) upon the occurrence of a "Change In
Control" (as defined in Section 4(f) below), all options which have not yet
vested shall immediately vest and become exercisable by Executive, and (ii) upon
a termination of the Employment Period by the Company or Executive all unvested
options shall terminate and be of no further force or effect. Subject to the
foregoing, such stock options shall otherwise be subject to the Company's 1994
Stock Option Plan, a copy of which is attached hereto.
4. Term.
(a) The Employment Period shall be for an initial term of three (3) years,
and shall be automatically extended for successive one-year terms, unless either
party gives written notice of termination to the other party at least ninety
(90) days before any scheduled termination date; provided that the Employment
Period shall terminate prior to any such date:
(i) upon Executive's resignation or death;
(ii) upon Executive's becoming permanently disabled such that he shall
become entitled to disability benefits for permanently disabled individuals
under the Company's benefit plans for its salaried employees and, by reason
thereof, the Company shall elect to terminate the Employment Period by
giving the Executive not less than thirty (30) days' prior written notice;
(iii) upon termination of Executive's employment by the Company for
"Cause" (as defined in Section 4(h) hereof); or
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Bio-logic Systems Corp.
Form 10-QSB
(iv) upon termination of Executive's employment by the Company
without Cause (including any termination by Executive by resignation
which is deemed to be a termination by the Company without Cause under
Section 4(c) below).
(b) If the Company elects not to extend the Employment Period at the end
of the initial term or any extension thereof, such termination shall for all
purposes hereunder be deemed to be a termination without Cause. If Executive
elects not to extend the Employment Period at the end of the initial term or any
extension thereof, such termination shall for all purposes hereunder be deemed
to be a resignation. The Company shall be deemed to have elected not to extend
the Employment Period for another term if the Company does not offer Executive,
at least ninety (90) days before any scheduled termination date, a Base Salary
for such term of not less than the Base Salary then in effect; together with
other employment terms economically no less favorable to Executive than those
then in effect and otherwise on substantially the same terms then in effect.
The Company shall be deemed to have made the minimum offer required by the
preceding sentence unless the Company sends written notice to the contrary to
Executive at least ninety (90) days before any scheduled termination date.
Executive shall be deemed to have accepted the offer which the Company has made
or has been deemed to have made unless Executive sends written notice to the
contrary to the Company at least seventy five (75) days before any scheduled
termination date.
(c) If the Company:
(i) requires Executive to relocate his office to a location outside
of Cook County, Illinois and Lake County, Illinois and more than 25
miles from Lake County, Illinois; or
(ii) reassigns Executive to a position of lesser rank or status or
reduces or materially changes Executive's responsibilities to the
Company or requires that Executive report to or take direction from
anyone other than the Board and the Chief Executive Officer;
and in either case Executive resigns as a result thereof, such resignation shall
for all purposes hereunder be deemed to be a termination by the Company without
Cause.
(d) If the Employment Period is terminated by the Company (or is deemed to
be terminated by the Company) without Cause:
(i) Executive shall be entitled to receive his Base Salary for
eighteen (18) months following termination of the Employment Period
(the "Severance Period"), payable immediately in a lump sum (less any
applicable withholding), provided that if Section 4(f) below is
applicable, then Executive shall receive the lump sum provided for
therein in lieu of the payments under this clause (i).
14
<PAGE>
Bio-logic Systems Corp.
Form 10-QSB
(ii) Executive shall be entitled to receive any bonus payment
provided for in Section 3(c) above with respect to the year in which
the Employment Period is terminated, determined on a pro rata basis
according to the number of days elapsed since the beginning of the
applicable year.
(iii) The Company shall reimburse Executive for fees and expenses
reasonably incurred by Executive in connection with job hunting, job
creation and other efforts to become employed, up to a maximum amount
of $50,000, including, without limitation, any executive outplacement
or search firm fees and expenses, expenses of furnishing and operating
a home office, legal and consulting fees and expenses, costs of travel,
telephone, facsimile and copying charges, fees and expenses paid to
attend industry and/or trade meetings, membership expenses in industry
and/or trade associations and the like and all other costs and expenses
incurred by Executive with the intent or goal of finding or creating
gainful employment; provided, however, that Executive shall be entitled
to reimbursement only for fees and expenses that are substantiated by
appropriate receipts or other documentation.
(iv) The Company, at its sole expense, will maintain Executive's
coverage under the Company's medical insurance coverages for senior
executives for eighteen (18) months following the date upon which the
Employment Period is terminated.
(e) If the Employment Period is terminated as a result of Executive's
permanent disability:
(i) Executive shall be entitled to receive his Base Salary for the
Severance Period, so long as Executive has not breached the provisions
of Sections 5 and 6 hereof (it being understood and agreed that any
cessation of such payments as a result of any such breach shall not
relieve Executive of his obligations under such Sections); provided
that any payments due to Executive pursuant to this Section 4(e)(i)
shall be reduced by any Grossed-Up Disability Insurance Proceeds
received from Executive during the Severance Period as a result of such
permanent disability. "Grossed-Up Disability Insurance Proceeds" shall
mean: (x) any disability insurance proceeds received by Executive if
such proceeds are not excludable from taxable income or (y) if such
proceeds are excludable from taxable income, a fraction, the numerator
of which is the amount of such proceeds received by Executive and the
denominator of which is one minus the sum of the maximum marginal
federal tax rate, the maximum state tax rate and the maximum city or
other local tax rate (if any) for the calendar year in which Executive
receives such proceeds. Grossed-Up Disability Insurance Proceeds shall
be limited to proceeds of insurance the premiums for which were paid or
reimbursed by the Company but shall specifically exclude the proceeds
of any insurance purchased by the Company or Executive in accordance
with the last sentence of Section 3(a);
15
<PAGE>
Bio-logic Systems Corp.
Form 10-QSB
(ii) Executive shall be entitled to receive any bonus payment
provided for in Section 3(c) above with respect to the year in which
the Employment Period is terminated, determined on a pro rata basis
according to the number of days elapsed since the beginning of the
applicable year; and
(iii) The Company, at its sole expense, will maintain Executive's
coverage under the Company's medical insurance coverages for senior
executives for eighteen (18) months following the date upon which the
Employment Period is terminated.
(f) If the Employment Period is terminated by the Company or by Executive's
resignation within one (1) year after a "Change In Control" shall occur, then
such termination shall be deemed to be by the Company without Cause and, in
addition to any other benefits to which Executive is entitled under this
Agreement, Executive shall be entitled to receive an amount equal to three (3)
times his Base Salary then in effect, payable immediately in a lump sum (less
any applicable withholding). For purposes hereof, a "Change In Control" shall
occur if:
(i) any "person" (as defined in the Securities Exchange Act of 1934,
as amended (the "Act")), other than such a person which is, on the date
of this Agreement, the Beneficial Owner (as defined in the Act) of
voting securities of the Company representing more than five percent
(5%) of the total voting power of all then outstanding voting
securities of the Company, or an employee benefit plan of the Company,
acquires, directly or indirectly, the Beneficial Ownership (as defined
in the Act) of any security of the Company and after such acquisition
that Person is, directly or indirectly, the Beneficial Owner of voting
securities of the Company representing more than fifty percent (50%) of
the total voting power of all then outstanding voting securities of the
Company; or
(ii) if, within three years after the date of commencement of the
Employment Period, (x) Gabriel Raviv sells or otherwise disposes of
substantially all of the shares of common stock of the Company which he
beneficially owns or has rights to acquire on the date of this
Agreement; (y) anyone other than Gabriel Raviv or Executive becomes
Chief Executive Officer of the Company; or (z) Gabriel Raviv ceases to
be a director of the Company other than as a result of health problems
causing him to retire from active business activities generally; or
(iii) the stockholders of the Company shall adopt a resolution
providing for a sale or disposition of all or substantially all of the
assets of the Company, or a merger, consolidation or other corporate
reorganization of the Company under which the Company will not be the
surviving entity or the dissolution or liquidation of the Company.
(g) If the Employment Period is terminated before the end of its term then
in effect, whether with or without Cause, then in addition to any severance
benefits provided by Sections 4(d) and 4(e), Executive shall be entitled to
receive his Base Salary through the date of termination.
16
<PAGE>
Bio-logic Systems Corp.
Form 10-QSB
(h) The Company may terminate Executive's employment at any time for
Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the commission by Executive of any act of fraud or embezzlement
against the Company;
(ii) any conviction or admission by Executive of a felony;
(iii) a material and willful breach by Executive of any provision of
this Agreement, which breach is not cured within sixty (60) days
following written notice thereof to Executive; or
(iv) repeated failure to comply with the lawful and reasonable
written directions of the Board or the Chief Executive Officer of the
Company.
In any legal action by Executive against the Company relating to the basis for
Executive's termination for Cause, the Company shall have the burden of proving
the existence of Cause.
5. Confidential Information. Executive acknowledges that the "Trade
Secrets" (as such term is defined as of the date hereof in the Illinois Trade
Secrets Act, 765 ILCS 1065/2(b)) of the Company obtained by him while employed
by the Company (referred to herein as "Confidential Information") are the
property of the Company. Therefore, Executive agrees that he shall not,
directly or indirectly, disclose to any unauthorized person or use for his own
account any Confidential Information without the prior written consent of the
Board, unless and to the extent that the aforementioned matters cease to be
"Trade Secrets" as defined in the Illinois Trade Secrets Act other than as a
result of Executive's acts or omissions to act. Executive shall deliver to the
Company at the termination of the Employment Period, or at any other time the
Company may request, all memoranda, notes, plans, records, reports, computer
tapes and software and other documents and data (and copies thereof) relating to
the Confidential Information or the business of the Company which he may then
possess or have under his control; provided that Executive shall have no
obligation to deliver any of such items which Executive received in the capacity
of a stockholder of the Company.
6. Non-Compete, Non-Solicitation.
(a) Executive acknowledges that in the course of his employment with the
Company he will become familiar with trade secrets and other confidential
information concerning the Company and that his service will be of special,
unique and extraordinary value to the Company. Therefore, Executive agrees
that, during the Employment Period and for eighteen (18) months thereafter
(unless Executive is terminated without Cause, is deemed to have been terminated
without Cause pursuant to Section 4(b), 4(c), or 4(d) or is terminated as a
result of Executive's permanent disability, in which cases the period shall last
until the termination of the Employment Period but not beyond) (the "Noncompete
Period"), he shall not directly or indirectly own, manage, control, participate
in, consult with, render services for, or in any manner engage in any
17
<PAGE>
Bio-logic Systems Corp.
Form 10-QSB
business competing with the business of the Company as such business exists or
is in process on the date of the termination of Executive's employment, within
North America, Puerto Rico or any country in which the Company manufactures,
distributes or sells products (or in which the Company manufactured, distributed
or sold products during the twelve-month period preceding termination of
Executive's employment). Nothing herein shall prohibit Executive from being a
passive owner of not more than five percent (5%) of the outstanding stock of any
class of a corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly: (i) induce or attempt to induce any employee of the Company to
leave the employ of the Company, or in any way interfere with the relationship
between the Company and any employee thereof; (ii) hire any person (other than
Executive's secretary) who was an employee of the Company at any time during the
six (6) month period prior to the end of the Employment Period; or (iii) induce
or attempt to induce any customer, supplier, licensee or other business relation
of the Company to cease doing business with the Company, or in any way interfere
with the relationship between any such customer, supplier, licensee or business
relation and the Company.
(c) If, at the time of enforcement of this Section 6, a court shall hold
that the duration, scope or area restrictions stated herein are unreasonable
under circumstances than existing, the parties agree that the maximum duration,
scope or area reasonable under such circumstances shall be substituted for the
stated duration, scope or area and that the court shall be allowed to revise the
restrictions contained herein to cover the maximum period, scope and area
permitted by law.
(d) In the event of the breach or a threatened breach by Executive of any
of the provisions of this Section 6, the Company, in addition and supplementary
to other rights and remedies existing in its favor, may apply to any court of
law or equity of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any violations of the
provisions hereof.
7. Executive Representations. Executive hereby represents and warrants
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound; (ii) Executive is
not a party to or bound by any employment agreement or other agreement relating
to his rendering of personal services, noncompete agreement or confidentiality
agreement with any other person or entity; and (iii) upon the execution and
delivery of this Agreement by the Company, this Agreement shall be the valid and
binding obligation of Executive, enforceable in accordance with its terms,
except as enforcement hereof may be limited by bankruptcy, insolvency,
moratorium and other laws affecting the enforcement of creditors' rights
generally, and except as such enforcement may be limited by general principles
of equity.
8. Survival. Sections 5, 6 and 9 through 17 hereof shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period.
18
<PAGE>
Bio-logic Systems Corp.
Form 10-QSB
9. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered (including by reputable courier
or overnight delivery service), or mailed by first class certified mail, return
receipt requested, to the recipient at the address below indicated:
Notices to Executive:
--------------------
Roderick G. Johnson
1250 Kajer Lane
Lake Forest, Illinois 60045
Notices to Company:
------------------
Bio-logic Systems Corp.
One Bio-Logic Plaza
Mundelein, Illinois 60060-3700
Attention: Chairman
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or three days after so mailed.
10. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
11. Complete Agreement. This Agreement embodies the complete agreement
and understanding between the parties and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
12. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same Agreement.
19
<PAGE>
Bio-logic Systems Corp.
Form 10-QSB
13. Successors and Assigns. This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
14. Choice of Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Illinois.
15. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
16. No Strict Construction. The language used in this Agreement has been
mutually agreed upon by the parties hereto, and no doctrine of construction
shall be applied against any party.
17. Costs and Expenses. The Company will pay all costs and expenses
(including attorneys' fees and expenses) incurred by it in connection with the
negotiation, preparation and execution of this Agreement. Executive will pay
Executive's costs and expenses (including attorneys' fees and expenses) incurred
in connection with the negotiation, preparation and execution of this Agreement.
[Balance of page intentionally left blank; signature page follows.]
20
<PAGE>
Bio-logic Systems Corp.
Form 10-QSB
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
BIO-LOGIC SYSTEMS CORP.
By:
Name:
Its:
RODERICK G. JOHNSON
21
<PAGE>
Bio-logic Systems Corp.
Form 10-QSB
Signatures
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 12, 1999 By: /s/ Gabriel Raviv
-----------------
Gabriel Raviv, C.E.O.
Date: October 12, 1999 By: /s/ James M. Smearman
---------------------
James M. Smearman,
Controller
22
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