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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-16061
CRITICARE SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 39-1501563
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
20925 Crossroads Circle, Waukesha, WI 53186
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(Address of principal executive offices)
Registrant's telephone number, including area code: (414) 798-8282
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Number of shares outstanding of each class of the registrant's classes of common
stock as of February 12, 1999: Common Stock, par value $.04, 8,701,151 shares.
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Items 5 and 6 of Part II of the Quarterly Report on Form 10-Q of Criticare
Systems, Inc. for the fiscal quarter ended December 31, 1998, filed with the
Securities and Exchange Commission on February 16, 1999, are hereby amended in
their entirety as follows to reflect the information required by such items.
PART II - OTHER INFORMATION
Item 5. Other Information.
The Company owns 1,093,842 shares (after giving effect to a 1-for-2 reverse
stock split effected in the first quarter of 1999) of common stock of Immtech
International, Inc. ("Immtech"), a biopharmaceutical company focusing on the
development of therapeutic products for the treatment of opportunistic diseases
and cancer in patients with compromised immune responses. The Company's Board of
Directors has previously approved a spin-off (the "Spin-Off") of 375,000 shares
of Immtech common stock to the Company's stockholders in the form of a stock
dividend to be consummated immediately prior to the effectiveness of a public
offering of Immtech common stock and warrants. Immtech has informed the Company
that the Company will not be able to proceed with the Spin-Off in view of the
required underwriting arrangements for Immtech's proposed public offering.
Accordingly, the Company can not complete the Spin-Off.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to the Registration Statement filed on Form S-1,
Registration No. 33-13050).
3.2 By-Laws of the Company (incorporated by reference to the
Registration Statement filed on Form S-1, Registration No. 33-13050).
4.1 Specimen Common Stock certificate (incorporated by reference to
the Registration Statement filed on Form S-1, Registration No. 33-13050).
4.2 Specimen Convertible Debenture (incorporated by reference to the
Registration Statement filed on Form S-3, Registration No. 333-25153).
10.1* Assignment of Rights to Patent Applications, Patents and/or
Inventions, effective November 3, 1998, between the Company and TeleMed
Technologies International, Inc.
10.2* Registration Agreement, dated as of November 3, 1998, between
the Company and TeleMed Technologies International, Inc.
10.3 Severance Agreement, dated as of November 16, 1998, between the
Company and Gerhard J. Von der Ruhr.
10.4 Severance Agreement, dated as of November 16, 1998, between the
Company and N.C. Joseph Lai.
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27* Financial Data Schedule.
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* Previously filed.
(b) The registrant filed no reports on Form 8-K during the quarter ended
December 31, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date 03/02/99
CRITICARE SYSTEMS, INC.
(Registrant)
By /s/ Joseph M. Siekierski
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Joseph M. Siekierski
Vice President - Finance
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EXHIBIT 10.3
SEVERANCE AGREEMENT
THIS AGREEMENT made as of this 16th day of November, 1998, by
and between GERHARD VON DER RUHR ("Von der Ruhr") and CRITICARE SYSTEMS, INC., a
Delaware corporation ("Criticare").
RECITALS
A. Criticare desires to retain the services of a new
President.
B. Von der Ruhr presently holds the titles of Chairman of the
Board and President, and is willing to resign such positions (at or immediately
after the conclusion of Criticare's annual shareholder meeting) and assist
Criticare with its efforts to retain and transition management responsibilities
to an acceptable replacement candidate.
AGREEMENTS
It is agreed as follows:
1. Von der Ruhr hereby resigns as President and Chairman of
the Board of Directors of Criticare effective as of the close of business at
Criticare's annual meeting of stockholders, or any adjournment thereof, and
Criticare hereby accepts such resignation. It is expressly agreed that nothing
contained in this Agreement nor Von der Ruhr's resignation shall affect Von der
Ruhr's right to indemnification for acts undertaken on Criticare's behalf
pursuant to Criticare's By-Laws or applicable statutes.
2. Von der Ruhr shall continue to be employed by Criticare as
an independent consultant and in such capacity shall support and assist
Criticare's new President with any reasonable requests with respect to the
transition to new management, including but not limited to, introductions to
employees, vendors, key customers and other persons having important
relationships with Criticare. In addition, he shall hold himself available on
reasonable advance notice and at reasonable times for consultation on
significant issues affecting Criticare.
3. In consideration of Von der Ruhr's cooperation and
consultation efforts, he shall be entitled to receive and Criticare agrees to
provide to Von der Ruhr, the following:
(a) His normal monthly salary for the month of
November and thereafter commencing December 1, 1998, Von der Ruhr shall be paid
the sum of $6,000 per month for a period of 36 months.
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(b) Von der Ruhr shall pay to Criticare on or before
November 30, 1998 the principal amount and any accrued interest on Von der
Ruhr's obligation to Criticare with respect to his loan to Immtech
International, Inc., approximating $45,000.
(c) Effective as of November 30, 1998, Criticare
shall issue to Von der Ruhr options exercisable for 21,000 shares of Criticare
common stock at an exercise price of $2.0625 per share for a period of five
years. Criticare will utilize its reasonable best efforts to register shares
issuable upon exercise of such options by inclusion of same in any existing or
future registration statement covering employee options.
(d) Von der Ruhr may continue to occupy his current
office for a period of 12 months; provided, however, such occupancy may be
terminated at any time after the expiration of 60 days by 60-day notice to Von
der Ruhr if deemed advisable by the new President. Criticare shall also provide
secretarial services for Von der Ruhr for a period of 12 months.
(e) All fringe benefits currently provided to Von der
Ruhr shall be continued through September 30, 2001, and thereafter Von der Ruhr
and his spouse shall be entitled to coverage under Criticare's group health and
dental insurance programs until he reaches age 65 or comparable coverage
(including coverage for any pre-existing conditions) is available through his
then employer. Criticare need only provide to Von der Ruhr that coverage made
available to its key management employees (including any medical reimbursement
plan but less any deductible (which may be charged to Von der Ruhr) ). In the
event such group coverage is not available, Criticare shall purchase or pay for
an individual policy providing comparable coverages. Company shall not in the
future lease vehicles from Von der Ruhr and may, at any time, purchase vehicles
presently under lease in accordance with lease terms.
4. Von der Ruhr desires to acquire from Criticare and
Criticare is willing to sell, transfer and assign to Von der Ruhr:
(a) the technologies recently acquired from Immtech
International, Inc. consisting of mcrp for (i) sepsis treatment and prophylaxis,
and (ii) diagnostic tests, and (iii) 172,414 shares of Immtech International,
Inc. stock received by Criticare in connection with such purchase.
(b) sensor technology and patent owned by Criticare
with respect to fetal pulse oximetry.
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As partial consideration for such transfer, Von der Ruhr shall form a
new corporation ("Newco") to hold the purchased technologies, which shall have
an initial capitalization of 6,000,000 shares, ten percent (10%) of which shall
be issued to Criticare and the balance to be owned by Von der Ruhr, with a
portion thereof to be made available to investors for no less than $150,000. Von
der Ruhr will commit to use his reasonable best efforts to make such
technologies commercially viable. The parties agree that they will negotiate in
good faith appropriate put and call options for such shares. Criticare will be
entitled to appoint one director to Newco's board until Newco is publicly held
or its shares are repurchased.
Von der Ruhr also agrees to pay to Criticare the sum of $150,000,
payable in 10 semi-annual installments of $15,000 without interest, commencing
June 1, 1999 and continuing on the six-month anniversary thereof until fully
paid. Such obligation shall be represented by Von der Ruhr's promissory note in
form attached hereto as Exhibit A. In addition to the foregoing, Criticare shall
(i) have a right to distribute or purchase OEM Newco's fetal pulse oximeters and
probes from Newco when available for sale which Newco will provide to Criticare
at "most favored nation" prices (excluding large quantity purchase discounts
which may be offered to others) or (ii) Criticare may design, manufacture and
sell a competitive monitor provided it purchases all probes covered by the
patent being transferred to Von der Ruhr from Newco, again the same to be sold
to Criticare at "most favored nation" pricing (excluding large quantity
discounts which may be offered to others). Similarly, Newco shall have the right
to purchase Criticare's fetal pulse oximeter (monitors) OEM which Criticare will
sell to Newco at "most favored nation" pricing (excluding large quantity
purchase discounts which may be offered to others). Criticare makes no
representations or warranties whatsoever regarding the assets being acquired by
Von der Ruhr, such assets being purchased "as is, where is." With respect to the
fetal pulse oximeter, Criticare reserves the absolute right to withhold, retain
and protect its source codes, it being Von der Ruhr's obligation to develop such
source codes at his expense.
In the event that Von der Ruhr fails to make substantial progress with
respect to developing a commercially viable fetal pulse oximeter by August 1,
2000, Criticare shall be granted a royalty-free license to utilize the fetal
sensor patent world-wide.
Consummation of the transaction contemplated by this paragraph 4 are
subject to satisfaction of the following conditions:
(y) with respect to acquisition of the fetal pulse oximetory
technology, confirmation by Messrs. Diaz and Okland that the terms of such
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acquisition will not unfairly or negatively affect Criticare's long term best
interests, and
(z) with respect to mcrp technology and fetal pulse oximetry, receipt
of a "fairness" opinion from an independent investment banker to the effect that
the terms of such acquisition are not "in the whole" substantially unfair to
Criticare when considered in light of Criticare's desire to promptly conclude
this Agreement, its investment in such assets to date, the costs and efforts
necessary to make such technologies commercially viable and the long term
strategic interests of Criticare.
5. The parties agree that Criticare will issue the press release agreed
upon between Von der Ruhr and Karsten Houm and, to the extent practicable,
decline any other comments. The existing directors agree that they will nominate
Von der Ruhr for election as a director of Criticare when his current term
expires, barring the occurrence of an event which they reasonably believe
renders him unsuitable for such position.
6. Von der Ruhr agrees that the noncompetition provisions of his
Employment Agreement shall continue to apply, it being also agreed, however,
that the technology being acquired by Von der Ruhr shall not be deemed
"substantially identical" to the products sold by Criticare. Von der Ruhr
further agrees that he will not during the term of this Agreement solicit or
attempt to hire any employees of Criticare without the prior written consent of
Criticare's Chairman of the Board.
7. Any notice, request, approval, consent, demand, permission or other
communication required or permitted by this Agreement shall be effective only if
it is in a writing signed by the party giving same and shall be deemed to have
been sent, given and received only either (a) when personally received by the
intended recipient, or (b) three days after depositing in the United States
Mail, registered or certified mail, return receipt requested, with first class
postage prepaid, addressed as follows:
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If to Von der Ruhr: Gerhard Von der Ruhr
2455 Brook Springs Drive
Brookfield, WI 53005
If to the Company: Criticare Systems, Inc.
20925 Crossroads Circle
Waukesha, WI 53186
Attn: President
or to such other address as the intended recipient may have theretofore
specified by notice given to the sender as provided in this section.
8. This Agreement requires the personal services of Von der Ruhr, and Von
der Ruhr's rights or obligations hereunder may not be assigned or delegated
except as set forth in this Agreement. Subject to the foregoing, this Agreement
shall bind and inure to the benefit of the parties and their respective
successors and assigns.
9. This Agreement contains the entire agreement between Criticare and Von
der Ruhr with respect to the subject matter hereof, and merges and supersedes
all prior agreements, understandings or negotiations whatsoever with respect to
the subject matter hereof.
10. No amendments of this Agreement or any waiver of any of its provisions
shall be effective unless expressly stated in a writing signed by both parties.
No delay or omission in the exercise of any right, power or remedy under or for
this Agreement shall impair such right, power or remedy or be construed as a
waiver of any breach. Any waiver of a breach of any provision of this Agreement
shall not be treated as a waiver of any other provision of this Agreement or of
any subsequent breach of the same or any other provision of this Agreement.
11. If any provision of this Agreement shall be held illegal, invalid or
otherwise unenforceable under controlling law, the remaining provisions of this
Agreement shall not be affected thereby but shall continue in effect.
12. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Wisconsin.
CRITICARE SYSTEMS, INC.
BY: /s/ Emil H. Soika /s/ Gerhard Von der Ruhr
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President and Chief Executive Officer Gerhard Von der Ruhr
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EXHIBIT 10.4
SEVERANCE AGREEMENT
THIS AGREEMENT made as of this 16th day of November, 1998, by
and between N. C. JOSEPH LAI ("Lai") and CRITICARE SYSTEMS, INC., a Delaware
corporation ("Criticare").
RECITAL
Lai presently holds the title of Senior Vice President, and is
willing to resign such position and his position as an international sales
representative in China (at or immediately after the conclusion of Criticare's
annual shareholder meeting) and assist Criticare with its efforts to retain and
transition management responsibilities to an acceptable replacement candidate.
AGREEMENTS
It is agreed as follows:
1. Lai hereby resigns as Senior Vice President of Criticare
effective as of the close of business at Criticare's annual meeting of
stockholders, or any adjournment thereof, and Criticare hereby accepts such
resignation. It is expressly agreed that nothing contained in this Agreement nor
Lai's resignation shall affect Lai's right to indemnification for acts
undertaken on Criticare's behalf pursuant to Criticare's By-Laws or applicable
statutes.
2. Lai shall continue to be employed by Criticare as an
independent consultant and in such capacity shall support and assist Criticare's
new President with any reasonable requests with respect to the transition to new
management, including but not limited to, development and sales efforts in
China, introductions to employees, vendors, key customers and other persons
having important relationships with Criticare. In addition, he shall hold
himself available on reasonable advance notice and at reasonable times for
consultation on significant issues affecting Criticare.
3. In consideration of Lai's cooperation and consultation
efforts, he shall be entitled to receive and Criticare agrees to provide to Lai,
the following:
(a) His normal monthly salary and commissions for the
month of November and thereafter commencing December 1, 1998, Lai shall be paid
(i) commissions on sales to China under purchase orders accepted prior to the
date hereof, such payments to be made when such sales are collected, and (ii)
the sum of $5,000 per month for a period of 36 months.
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(b) Lai shall pay to Criticare on or before November
30, 1998 the principal amount and any accrued interest on Lai's obligation to
Criticare with respect to his loan to Immtech International, Inc., approximating
$10,000 (actual amount to be confirmed).
(c) Effective as of November 30, 1998, Criticare shall
issue to Lai options exercisable for the number of shares of Criticare common
stock determined by dividing the amount paid to Criticare under subsection (b)
above by the exercise price of $2.0625 per share. Such options shall be
exercisable for a period of five years. Criticare will utilize its reasonable
best efforts to register shares issuable upon exercise of such options by
inclusion of same in any existing or future registration statement covering
employee options.
(d) Lai hereby releases Criticare and forever remises
any claims he may have with respect to unpaid life insurance premiums for years
1994 and 1995 in the approximate amount of $62,800, and in return therefor
Criticare will transfer to Lai the following equipment: (i) three 507 EP Units,
(ii) three 506 DX Units, and (iii) four 503 Units, which Lai intends to donate
to a hospital in Toysan, Guangdon Province, China, to be used as a Criticare
reference account.
(e) Lai may continue to occupy his current office for
a period of 12 months; provided, however, such occupancy may be terminated at
any time after the expiration of 60 days by 60-day notice to Lai if deemed
advisable by the new President. Criticare shall also provide secretarial
services for Lai for a period of 12 months.
(f) All fringe benefits currently provided to Lai
shall be continued through September 30, 2001, and thereafter Lai and his spouse
shall be entitled to coverage under Criticare's group health and dental
insurance programs until he reaches age 65 or comparable coverage (including
coverage for any pre-existing conditions) is available through his then
employer. Criticare need only provide to Lai that coverage made available to its
key management employees (including any medical reimbursement plan but less any
deductible (which may be charged to Lai) ). In the event such group coverage is
not available, Criticare shall purchase or pay for an individual policy
providing comparable coverages. Company shall not in the future lease vehicles
from Lai and may, at any time, purchase vehicles presently under lease in
accordance with lease terms.
4. The existing directors agree that they will nominate Lai
for election as a director of Criticare when his current term expires, barring
the occurrence of an event which they reasonably believe renders him unsuitable
for such position.
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5. Lai agrees that the noncompetition provisions of his
Employment Agreement shall continue to apply. Lai further agrees that he will
not during the term of this Agreement solicit or attempt to hire any employees
of Criticare without the prior written consent of Criticare's Chairman of the
Board.
6. Any notice, request, approval, consent, demand, permission
or other communication required or permitted by this Agreement shall be
effective only if it is in a writing signed by the party giving same and shall
be deemed to have been sent, given and received only either (a) when personally
received by the intended recipient, or (b) three days after depositing in the
United States Mail, registered or certified mail, return receipt requested, with
first class postage prepaid, addressed as follows:
If to Lai: N. C. Joseph Lai
19660 Killarney Way
Brookfield, WI 53005
If to the Company: Criticare Systems, Inc.
20925 Crossroads Circle
Waukesha, WI 53186
Attn: President
or to such other address as the intended recipient may have theretofore
specified by notice given to the sender as provided in this section.
7. This Agreement requires the personal services of Lai, and
Lai's rights or obligations hereunder may not be assigned or delegated except as
set forth in this Agreement. Subject to the foregoing, this Agreement shall bind
and inure to the benefit of the parties and their respective successors and
assigns.
8. This Agreement contains the entire agreement between
Criticare and Lai with respect to the subject matter hereof, and merges and
supersedes all prior agreements, understandings or negotiations whatsoever with
respect to the subject matter hereof.
9. No amendments of this Agreement or any waiver of any of its
provisions shall be effective unless expressly stated in a writing signed by
both parties. No delay or omission in the exercise of any right, power or remedy
under or for this Agreement shall impair such right, power or remedy or be
construed as a waiver of any breach. Any waiver of a breach of any provision of
this Agreement shall not be treated as a waiver of any other provision of this
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Agreement or of any subsequent breach of the same or any other provision of this
Agreement.
10. If any provision of this Agreement shall be held illegal,
invalid or otherwise unenforceable under controlling law, the remaining
provisions of this Agreement shall not be affected thereby but shall continue in
effect.
11. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Wisconsin.
CRITICARE SYSTEMS, INC.
BY: /s/ Emil H. Soika
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President and Chief Executive Officer
/s/ N.C. Joseph Lai
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N. C. Joseph Lai
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