- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___ to ____
Commission File Number 0-22146
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APPLIED BIOMETRICS, INC.
(Exact name of Registrant as specified in its charter)
State of Incorporation: Minnesota
I.R.S. Employer Identification No.: 41-1508112
Principal Executive Offices: 501 East Highway Thirteen, Suite 108
Burnsville, Minnesota 55337
Telephone Number: (612) 890-1123
---------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
On August 6, 1999, there were 4,484,004 shares of the Registrant's common stock,
par value $.01 per share, outstanding.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
APPLIED BIOMETRICS, INC.
CONDENSED BALANCE SHEETS
AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
- ----------------------------------------------------------------------------------------------
June 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 1,407,330 $ 1,869,413
Marketable securities, short-term ........................... -- 500,000
Inventories, net ............................................ 99,598 175,078
Other ....................................................... 58,704 37,833
------------ ------------
Total current assets .................................... 1,565,632 2,582,324
Equipment and leasehold improvements, net ................... 380,623 427,086
Patents, net ................................................ 66,541 75,074
Other ....................................................... 9,585 9,585
Net assets of discontinued operations ....................... -- 202,642
------------ ------------
Total assets ............................................ $ 2,022,381 $ 3,296,711
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 17,870 $ 56,186
Accrued expenses ............................................ 104,233 87,200
------------ ------------
Total current liabilities ............................... 122,103 143,386
Non-current liabilities:
Liability for pending issuance of common stock .............. -- 1,001,761
Capital lease obligation .................................... 6,306 --
------------ ------------
Total non-current liabilities ........................... 6,306 1,001,761
Shareholders' equity:
Common stock: authorized 10,000,000 shares of $.01 par value;
4,484,004 issued and outstanding at June 30, 1999 and
4,337,117 at December 31, 1998 .......................... 44,840 43,371
Additional paid-in capital .................................. 21,636,144 20,560,849
Accumulated deficit ......................................... (19,787,012) (18,452,656)
------------ ------------
Total shareholders' equity .............................. 1,893,972 2,151,564
------------ ------------
Total liabilities and shareholders' equity .............. $ 2,022,381 $ 3,296,711
============ ============
</TABLE>
The accompanying notes are an integral part of the interim unaudited
financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
APPLIED BIOMETRICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
- -------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative ................... $ 313,432 $ 197,050 $ 491,324 $ 402,961
Research and development ..................... 348,734 226,488 555,018 479,342
----------- ----------- ----------- -----------
Operating loss ............................... (662,166) (423,538) (1,046,342) (882,303)
Other income, net ............................ 21,914 52,214 46,157 109,618
----------- ----------- ----------- -----------
Net loss from continuing operations .......... (640,252) (371,324) (1,000,185) (772,685)
Discontinued operations:
Loss from operations of transcatheter
closure business .................... -- (253,712) -- (419,258)
----------- ----------- ----------- -----------
Net loss ..................................... $ (640,252) $ (625,036) $(1,000,185) $(1,191,943)
=========== =========== =========== ===========
Basic and diluted loss per share:
Continuing operations ............... $ (0.14) $ (0.09) $ (0.23) $ (0.18)
Discontinued operations ............. (0.00) (0.06) (0.00) (0.10)
----------- ----------- ----------- -----------
Net loss ............................ $ (0.14) $ (0.15) $ (0.23) $ (0.28)
=========== =========== =========== ===========
Weighted-average common shares outstanding ... 4,468,619 4,300,732 4,414,895 4,291,034
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the interim unaudited
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
APPLIED BIOMETRICS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIODS ENDED DECEMBER 31, 1997, DECEMBER 31, 1998 AND JUNE 30, 1999
- -------------------------------------------------------------------------------------------------------------------------
Common Stock Additional Accumulated
Shares Amount Paid in Capital Deficit
----------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996 .............................................. 4,168,987 $41,690 $19,703,468 $(12,458,048)
Shares issued for purchase of transcatheter closure product line 85,000 850 509,150
Exercise of stock options ...................................... 22,130 221 66,341
Net loss ....................................................... (2,592,470)
----------------------------------------------------
December 31, 1997 .............................................. 4,276,117 42,761 20,278,959 (15,050,518)
Exercise of stock options ...................................... 61,000 610 281,890
Net loss ....................................................... (3,402,138)
----------------------------------------------------
December 31, 1998 .............................................. 4,337,117 43,371 20,560,849 (18,452,656)
Exercise of stock options ...................................... 146,887 1,469 1,075,295
Distribution of the net assets of Cardia, Inc. ................. (334,171)
Net loss for the six months ended
June 30, 1999 .................................................. (1,000,185)
----------------------------------------------------
June 30, 1999 .................................................. 4,484,004 $44,840 $21,636,144 $(19,787,012)
====================================================
</TABLE>
The accompanying notes are an integral part of the interim unaudited
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
APPLIED BIOMETRICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
- ----------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................................... $(1,000,185) $(1,191,943)
Net loss from discontinued operations .......................................... -- 419,258
----------- -----------
Loss from continuing operations ................................................ (1,000,185) (772,685)
Adjustments to reconcile net loss from continuing operations to net cash used by
operating activities:
Depreciation ................................................................... 88,585 104,868
Amortization ................................................................... 8,553 4,590
Changes in operating assets and liabilities:
Inventory ...................................................................... 75,480 (732)
Prepaid expenses and other current assets ...................................... (20,871) 17,039
Accounts payable and accrued expenses .......................................... (25,571) (12,680)
----------- -----------
Net cash used by continuing operations .................................... (874,009) (659,600)
Net cash used by discontinued operations .................................. (120,548) (456,040)
----------- -----------
Net cash used by operating activities ..................................... (994,557) (1,115,640)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of short-term investments ................................. 500,000 1,082,340
Purchase equipment and improvements ............................................ (31,280) (45,707)
Discontinued operations, purchase of equipment ................................. (10,981) (5,225)
----------- -----------
Net cash provided by investing activities ................................. 457,739 1,031,408
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options ........................................ 75,001 185,000
Repayment of capital lease obligations ......................................... (266) --
----------- -----------
Net cash provided by financing activities ................................. 75,001 185,000
----------- -----------
Net increase in cash and cash equivalents ...................................... (462,083) 100,768
Cash and cash equivalents at beginning of year ................................. 1,869,413 821,673
----------- -----------
Cash and cash equivalents at end of the period ................................. $ 1,407,330 $ 922,441
=========== ===========
</TABLE>
The accompanying notes are an integral part of the interim unaudited
financial statements.
5
<PAGE>
APPLIED BIOMETRICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed financial statements of Applied Biometrics,
Inc. ("Applied Biometrics" or "the Company") have been prepared by the Company
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the financial statements
and footnotes thereto included in the Company's 1999 Annual Report to
Shareholders and incorporated by reference in the Company's Form 10-K for the
year ended December 31, 1998.
In the opinion of management, all adjustments considered necessary, consisting
only of items of a normal recurring nature, for a fair presentation of the
financial position, results of operations and cash flows of the Company as of
and for the interim periods presented have been included. Operating results and
cash flows for the six months ended June 30, 1999 are not necessarily indicative
of the results of operations and cash flows of the Company that may be expected
for the year ending December 31, 1999.
(2) DISCONTINUED OPERATIONS:
In December 1998, the Board of Directors of the Company approved a plan to
distribute its transcatheter closure business through a wholly owned subsidiary,
Cardia, Inc. ("Cardia") to the shareholders. The distribution was completed on
February 11, 1999 to shareholders of record on January 25, 1999. Shareholders
received one share of Cardia, Inc. common stock for every 11.563 common shares
of Applied Biometrics held. The Company's financial statements report Cardia as
a discontinued operation.
Cardia's 1999 operating results through the distribution date were breakeven.
Net assets attributable to Cardia of $334,171 were distributed at their net book
value and were reflected as a dividend and no gain or loss was recorded by the
Company as a result of the distribution.
6
<PAGE>
APPLIED BIOMETRICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(3) EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share, during fiscal year 1998. Earnings per share for the periods
presented have been prepared in accordance with the provisions of SFAS No. 128.
The following table sets forth the computation of shares outstanding used in the
calculation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Denominator for basic earnings per share:
Weighted-average common shares ....................... 4,468,619 4,300,732 4,414,895 4,291,034
Effect of dilutive securities:
Shares associated with option plans .................. -- -- -- --
Dilutive potential common shares ..................... -- -- -- --
--------- --------- --------- ---------
Denominator for diluted earnings per share:
Adjusted weighted-average common shares
and dilutive potential common shares ................. 4,468,619 4,300,732 4,414,895 4,291,034
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
As of June 30,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Options outstanding....................... 508,400 875,037
Exercise prices........................... $3.00 - 12.625 3.00 - 12.625
Expiration dates.......................... 2000 - 2009 1999 - 2008
</TABLE>
For the three and six-month periods ended June 30, 1999 and 1998, none of the
options outstanding were included in the computation of diluted earnings per
share for those periods because the Company had incurred net losses, and the
inclusion of options would have been anti-dilutive.
(4) COMPREHENSIVE INCOME:
Effective January 1, 1999, the Company adopted SFAS No. 130 ("SFAS 130"),
Reporting Comprehensive Income, which establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains
and losses) in the financial statements. The Company currently has no items that
would be included as a component of other comprehensive income.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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FORWARD-LOOKING STATEMENTS:
CERTAIN STATEMENTS CONTAINED IN THIS FORM 10-Q INCLUDE "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. SUCH STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULT TO DIFFER MATERIALLY FROM ANY
FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED IN OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FACTORS MAY INCLUDE, THE COMPANY'S LIMITED
EXPERIENCE AND FINANCIAL RESOURCES AND UNCERTAINTY OF FUTURE RESULTS, THE
UNCERTAINTY OF MARKET ACCEPTANCE OF THE COMPANY'S PRODUCT, THE REGULATED NATURE
OF THE MEDICAL DEVICE MARKET, COMPETITIVE FACTORS AND OTHER RISK FACTORS LISTED
FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
OVERVIEW
Applied Biometrics, Inc. ("Applied Biometrics" or "the Company") is a
late-development stage medical device company in the business of development and
commercialization of advanced medical diagnostic and monitoring systems. The
Company has core competencies in ultrasound transducer technology, signal
processing, cardiac anatomy and pathology, and the fluid dynamics of blood flow
which position it to develop and commercialize a range of cardiac diagnostic and
patient monitoring products. The Company is currently developing a new medical
device which monitors the amount of blood pumped by a patient's heart: called
cardic output. The cardiac output monitoring system is for use during and after
open-heart surgery.
During the six months ended June 30, 1999, the Company made substantial progress
toward completing development of its cardiac output monitoring system. The
Company's plans are for commercialization the first half of 2000. Critical
objectives focused on during the period were: hiring key management and
technical personnel, assessing requirements needed for manufacturing, quality
systems and clinical validation, and mammal testing. To meet its development and
commercialization objectives during the second half of the year the Company
plans to continue adding management, technical and other personnel, to upgrade
its manufacturing facility for commercial production and to conduct clinical
marketing validation.
Also during the period the Company completed the distribution of Cardia, Inc.
("Cardia"). The distribution of Cardia's common stock occurred on February 11,
1999 to the shareholders of record on January 25, 1999. The completion of the
Cardia distribution allows the Company to focus all of its resources on
completing the development of its cardiac output monitoring system.
RESULTS OF CONTINUING OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1999 WITH
THE THREE MONTHS ENDED JUNE 30, 1998
General and administrative expenses increased $116,000 in the second quarter of
1999 from $197,000 to $313,000 over the same quarter last year. General and
administrative costs for the 1998 period were allocated between continuing and
discontinued operations, while general and administrative costs for the 1999
period were fully absorbed by continuing operations. Increased costs are related
to personnel additions, corporate logo and image development and general legal
matters.
Research and development expenses increased $123,000 from $226,000 in 1998 to
$349,000 in 1999, due to increased engineering, operations and quality personnel
costs and prototype testing in the 1999 period and reduced costs in the 1998
period due to the allocation of costs to discontinued operations.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- CONTINUED
- --------------------------------------------------------------------------------
Operating costs are expected to increase as the Company adds personnel,
equipment and other costs to complete the development and brings to market its
cardiac output monitoring system. This forward looking statement will be
influenced primarily by the Company's estimate of time and resources needed to
complete development, the Company's ability to establish manufacturing and
quality systems necessary to produce the product and market acceptance of the
cardiac output monitoring system.
Other income, primarily interest income, decreased $30,000 from $52,000 in the
second quarter of 1998 to $22,000 in the 1999 quarter. The decrease is due to
lower average investment balances in the 1999 quarter than in the 1998 quarter.
Investment resources were used throughout the 1998 year and first quarter of
1999 for development efforts toward both the Company's cardiac output monitoring
system and the transcatheter closure device, which comprised the core technology
distributed with Cardia, Inc.
The 1999 second quarter net loss was $640,000, or $0.14 per share, compared to a
net loss of $625,000, or $0.15 per share in 1998, including a $254,000 or $.06
per share loss from discontinued operations.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 WITH
THE SIX MONTHS ENDED JUNE 30, 1998
General and administrative expenses increased $88,000 from $403,000 in the first
half of 1998 to $491,000 in the first half of 1999. Similar to the three month
results, 1999 costs are higher than the 1998 period due to 1998 costs allocated
between continuing and discontinuing operations. Additionally, the 1999 period
had higher spending for legal, shareholder meeting and communication and
corporate logo and image development.
Research and development expenses increased $76,000 from $479,000 in 1998 to
$555,000 in 1999 as increased spending for engineering, operations and quality
personnel and prototype testing more than offset costs that were shared between
continuing and discontinued operations in the 1998 period.
Other income, primarily interest income, decreased $63,000 from $109,000 in the
first half of 1998 to $46,000 in the first half of 1999. The decrease is due to
lower average investment balances in the 1999 period than in the 1998 period.
Investment resources were used throughout the 1998 year and the first quarter of
1999 for development efforts toward both the Company's cardiac output monitoring
system and the transcatheter closure device, which comprised the core technology
distributed with Cardia, Inc.
The net loss for the six months ended June 30, 1999 was $1,000,000, or $0.23 per
share, compared to a net loss of $1,192,000, or $0.28 per share in 1998,
including a $419,000 or $0.10 per share loss from discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,400,000 at June 30, 1999 as compared to
$2,400,000 of cash, cash equivalents and marketable securities at December 31,
1998, a reduction of $1,000,000. The reduction in cash and cash equivalents is
in line with the year to date loss from operations.
Continuing operating activities used cash of $995,000 in the first six months of
1999 as compared to $1,116,000 used during the first six months of fiscal 1998.
Discontinued operations used cash of $121,000 during the 1999 period as compared
to $456,000 in the prior six month period.
Investing activities provided $458,000 in the 1999 period as compared to
$1,031,000 in the 1998 period, primarily due to the maturity of short-term
investments. Investing activities in 1999 included the use of $31,000 for the
purchase of equipment. Discontinued operations used $11,000 and $5,000 in the
1999 and 1998 periods,
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- CONTINUED
- --------------------------------------------------------------------------------
respectively. The Company intends to spend approximately $500,000 on capital
expenditures in the second half of the year. These expenditures are primarily to
upgrade and equip its manufacturing area that will support the commercialization
of the Company's cardiac output monitoring system and to expand its information
system capabilities. The Company is seeking financing for these expenditures
that will likely be secured by the equipment and may include a warrant to
purchase the Company's common stock.
Financing activities in the six-month period provided $75,000 of cash from the
exercise of stock options.
The Company believes, based on its expected rate of spending, that its existing
cash and cash equivalents will enable the Company to meet its cash requirements
for approximately the next six months. The Company will need additional
financing in order to successfully meet its current product development, market
commercialization plans for its cardiac output monitoring system and capital
expenditure needs. The Company is pursuing alternatives for obtaining additional
working capital.
NEW ACCOUNTING STANDARDS
Effective January 1, 1999, the Company adopted SFAS No. 130 ("SFAS 130"),
Reporting Comprehensive Income, which establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains
and losses) in the financial statements. The Company currently has no items that
would be included as a component of other comprehensive income.
Other than the above statement, no other new accounting pronouncements have been
issued that will have a impact on the Company's financial statements.
YEAR 2000 READINESS - UPDATE
The following Year 2000 disclosure update is required by the rules and
regulations of the Securities and Exchange Commission and constitutes a "Year
2000 Readiness Disclosure" as defined in the Year 2000 Information and Readiness
Disclosure Act.
The "Year 2000" or "Y2K" problem references the problem caused by computer
systems that have historically been written using two digits rather than four
digits to define the applicable year. Additionally, Y2K includes a problem
calculating leap year if a computer system does not correctly identify the year
2000 as being a leap year. Company computer systems and other equipment and
technology having date sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000 and may not recognize the year 2000 as a
leap year. The Company has instituted a Year 2000 readiness program (the "Y2K
Plan") in order to identify, evaluate and address its exposure to these
problems.
For purposes of its Y2K Plan, the Company defines "Year 2000 compliant" to mean
that a product or service accurately process dates and times into and between
the twentieth and twenty-first centuries, into and between the years 1900 and
2000, performs correct leap year calculations and properly exchanges date and
time information with other products or services when used in combination. The
goal of the Y2K Plan is to ensure that the Company's products, equipment,
systems and processes and those of its significant business partners are
sufficiently Year 2000 compliant such that no date/time issue will have any
adverse impact on the services or products that the Company provides its
customers or the timely and accurate processing of transactions.
STATE OF READINESS. The Company has tested and validated that its cardiac output
monitoring system is Y2K
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- CONTINUED
- --------------------------------------------------------------------------------
compliant. The Company is in the process of documenting this validation process
and the underlying component in the system. In addition, as part of the
Company's Y2K Plan, management is in the process of evaluating of its
information technology ("IT") and non-information technology ("non-IT") systems,
including manufacturing equipment, telephone and mechanical systems and other
equipment and systems having embedded, date sensitive technology for Year 2000
compliance. The Company's Y2K Plan is focused on assessing and assuring
compliance in the following areas: IT and non-IT hardware, operating systems,
and software. Additionally, the Company is in the process of reviewing the Year
2000 compliance status of its customers, vendors and other service providers.
HARDWARE. The Company is in the process of completing its assessment of its IT
and non-IT hardware for Y2K compliance. The Company estimates that most of its
IT hardware has either been upgraded for Y2K compliance or has been certified
internally or through the appropriate vendor to be compliant. The Company
expects that all IT and non-IT hardware systems will be upgraded or certified as
Y2K compliant by October 31, 1999.
OPERATING SYSTEMS. The Company's operating systems are Microsoft NT, Novell
Netware, Microsoft Windows 95 and Microsoft Windows NT. Novell has certified
Netware to be Y2K compliant. Microsoft has certified Windows 95 and Windows NT
to be Y2K compliant. Microsoft has also certified its NT 4.x network operating
system is Y2K compliant upon installation of service release four. The Company
has completed all such operating system upgrades.
SOFTWARE APPLICATIONS. The Company's software systems consist of "off-the-shelf"
software. The Company is in the process of obtaining from its vendors
certification that each software package is compliant. None of these software
programs are critical to the Company's ability to accurately and timely process
transactions. The Company expects that all software applications will either be
assessed to be not dependent on date/time accuracy, certified by the vendor to
be Y2K compliant or replaced by October 31, 1999.
THIRD PARTY RELATIONSHIPS. Because Y2K issues may also impact the Company by
affecting the business and operations of the Company's vendors, customers and
other business partners, the Company is in the process of communicating with
these parties in order to determine their Y2K compliant status. The Company is
in the process of communicating with these parties in order to determine their
compliance status. This communication is in the early stage and accordingly, the
Company has not been able to determine if the failure of a third-party to be Y2K
compliant will have a material adverse affect on the Company. The Company
anticipates that this part of its Y2K plan will be substantially complete by
October 31, 1999.
COSTS TO ADDRESS YEAR 2000 ISSUES. Although the ultimate cost of attaining Year
2000 compliance is not fully known at this time, management anticipates that
external costs will not be material. These costs will be funded from operations.
The Company does not track internal personnel time spent on IT projects,
including the Y2K project. To date, no IT projects have been delayed as a result
of the Company's Y2K project. In the event the Company's Y2K Plan is not
successful or timely implemented, the Company may need to devote more resources
to the process and additional costs may be incurred. Such a situation could have
a material adverse effect on the Company's financial condition and results of
operations.
The costs of Year 2000 compliance and the expected completion dates are the best
estimates of Company management. Estimated costs of the Company's Y2K project
and projected completion dates are forward-looking statements that may be
affected by the Company's current belief as to the extent of its internal
exposure to the Y2K problem, the timeliness and accuracy of information provided
by the Company's vendors, customers and other business partners in response to
Y2K compliance inquiries by the Company, the cost and availability of upgrades,
corrections or replacements for IT and non-IT systems identified as
non-compliant, and the cost of and the Company's ability to procure the services
of consultants or qualified personnel to assist with its Y2K Plan.
WORST CASE SCENARIO. The Company believes that its most reasonably likely, worst
case scenario as a result of the Year 2000 problem will be the failure of one or
more significant vendors, customers or business partners to become
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- CONTINUED
- --------------------------------------------------------------------------------
Year 2000 complaint and the inability of the Company to determine or react on a
timely basis in order to mitigate the effects on the Company. If the operations
of any significant vendor, customer or other business partner are disrupted due
to the Year 2000 problem and the Company is unable to develop and implement an
effective contingency plan, the Company's ability to carry on essential
activities could be materially affected. Even though the Company is undertaking
its Y2K Plan in an effort to mitigate its risks, there can be no assurance that
this scenario or any other impact of the Y2K problem will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
CONTINGENCY PLANS. To date, the Company has not yet developed any detailed
contingency plans to address Year 2000 compliance deficiencies, as it is still
in the process of gathering data from its customers, vendors and other business
partners regarding their Year 2000 compliance and otherwise implementing its Y2K
Plan. To the extent that the Company identifies Year 2000 compliance issues that
cannot be addressed on a timely basis, it will seek to develop appropriate
contingency plans in order to mitigate its risks.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
12
<PAGE>
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following is a report of the voting results of the Company's annual
shareholders meeting held on June 14, 1999.
1. The proposal to elect three directors was approved. Andrew M. Weiss,
Demetre Nicoloff and Jeffrey W. Green were elected until the next
annual meeting of shareholders or until their successors are duly
elected and qualified. The tabulation is as follows:
Director Votes For Votes Against
-------- --------- -------------
Andrew M. Weiss 4,277,373 81,152
Demetre Nicoloff 4,275,373 81,152
Jeffrey W. Green 4,275,973 82,552
2. The proposal to amend the Company's Articles of Incorporation to
increase the authorized shares of common stock from 10,000,000 to
20,000,000 and to authorize 5,000,000 undesignated shares was approved.
There were 2,048,262 votes cast in favor and 384,552 votes cast against
the proposal, with 20,790 shares abstaining.
3. The proposal to approve the appointment of PricewaterhouseCoopers LLP
as independent auditors of the Company was approved. There were
4,330,673 votes cast in favor and 27,152 votes cash against the
proposal, with 700 shares abstaining.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The exhibits to this quarterly report on Form 10-Q are listed
in the exhibit index beginning on page 15.
(b) Form 8-K. None.
13
<PAGE>
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report signed on its behalf by the undersigned
hereunto duly authorized.
APPLIED BIOMETRICS, INC.
Dated: August 16, 1999 /s/ Camille M. Meyer
---------------------------------------------------
Camille M. Meyer
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)
14
<PAGE>
APPLIED BIOMETRICS, INC.
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------
10.1 Applied Biometrics 1996 Stock Option Plan, amended July 2, 1999. (filed
herewith electronically).
10.2 Applied Biometrics Amended 1994 Stock Option Plan, amended July 2,
1999. (filed herewith electronically).
10.3 Applied Biometrics 1998 Stock Plan, amended June 12, 1998. (filed
herewith electronically).
27.1 Financial Data Schedule for the six-month period ended June 30, 1999
(filed herewith electronically).
15
APPLIED BIOMETRICS, INC.
1996 STOCK PLAN
<PAGE>
APPLIED BIOMETRICS, INC.
1996 STOCK PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the Applied Biometrics, Inc. 1996 Stock
Plan (the "Plan"). The purpose of the Plan is to enable Applied Biometrics, Inc.
(the "Company") and its Subsidiaries to retain and attract executives and other
key employees and non-employee directors who contribute to the Company's success
by their ability, ingenuity and industry, and to enable such individuals to
participate in the long-term success and growth of the Company by giving them a
proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as
set forth below:
a. "Agreement" means an agreement by and between the
Company and an optionee or recipient of an award under
the Plan setting forth the terms and conditions of the
option or award.
b. "Board" means the Board of Directors of the Company.
c. "Cause" means a felony conviction of a participant or
the failure of a participant to contest prosecution for
a felony, or a participant's willful misconduct or
dishonesty, any of which is directly and materially
harmful to the business or reputation of the Company.
d. "Code" means the Internal Revenue Code of 1986, as
amended.
e. "Committee" means the Committee referred to in Section 2
of the Plan. If at any time no Committee shall be in
office, then the functions of the Committee specified in
the Plan shall be exercised by the Board, unless the
Plan specifically states otherwise.
f. "Company" means the Applied Biometrics, Inc., a
corporation organized under the laws of the State of
Minnesota (or any successor corporation).
g. "Deferred Stock" means an award made pursuant to Section
8 below of the right to receive Stock at the end of a
specified deferral period.
h. "Disability" means permanent and total disability as
determined by the Committee.
i. "Disinterested Person" shall have the meaning set forth
in Rule 16b-3 as promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of
1934, or any successor definition adopted by the
Commission.
<PAGE>
j. "Fair Market Value" means the value of the Stock on a
given date as determined by the Committee in accordance
with the applicable Treasury Department regulations
under Section 422 of the Code with respect to "incentive
stock options."
k. "Incentive Stock Option" means any Stock Option intended
to be and designated as an "Incentive Stock Option"
within the meaning of Section 422 of the Code.
l. "Non-Employee Director" means any member of the Board
who is not an employee of the Company, any Parent
Corporation or Subsidiary.
m. "Non-Qualified Stock Option" means any Stock Option that
is not an Incentive Stock Option, and is intended to be
and is designated as a "Non-Qualified Stock Option."
n. "Other Awards" means those awards granted pursuant to
Section 9 hereof.
o. "Parent Corporation" means any corporation (other than
the Company) in an unbroken chain of corporations ending
with the Company if each of the corporations (other than
the Company) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in
one of the other corporations in the chain.
p. "Restricted Stock" means an award of shares of Stock
that are subject to restrictions under Section 7 below.
q. "Retirement" means retirement from active employment
with the Company and any Subsidiary or Parent
Corporation of the Company on or after age 55.
r. "Stock" means the Common Stock, $.01 par value per
share, of the Company.
s. "Stock Appreciation Right" means the right pursuant to
an award granted under Section 6 below to surrender to
the Company all or a portion of a Stock Option in
exchange for an amount equal to the difference between
(i) the Fair Market Value, as of the date such Stock
Option or such portion thereof is surrendered, of the
shares of Stock covered by such Stock Option or such
portion thereof, and (ii) the aggregate exercise price
of such Stock Option or such portion thereof.
t. "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5 below.
u. "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning
with the Company if each of the corporations (other than
the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting
power of all classes of stock in one of the other
corporations in the chain.
2
<PAGE>
SECTION 2. Administration.
The Plan shall be administered by the Board of Directors or by a
Committee of not less than two Disinterested Persons, who shall be appointed by
the Board of Directors of the Company and who shall serve at the pleasure of the
Board.
The Committee shall have the power and authority to grant to
eligible optionees and participants, pursuant to the terms of the Plan: (i)
Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv)
Deferred Stock awards, or (v) Other Awards.
In particular, the Committee shall have the authority:
(i) to select the optionees and participants to whom Stock
Options, Stock Appreciation Rights, Restricted Stock,
Deferred Stock awards and/or Other Awards may from time
to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock awards and/or
Other Awards, or a combination of the foregoing, are to
be granted hereunder;
(iii) to determine the number of shares to be covered by each
such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted
hereunder (including, but not limited to, any
restriction on any Stock Option or other award and/or
the shares of Stock relating thereto), which authority
shall be exclusively vested in the Committee (and not
the Board) for purposes of establishing performance
criteria used with Restricted Stock and Deferred Stock
awards and Other Awards; and
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with
respect to an award under this Plan shall be deferred
either automatically or at the election of the
participant.
The Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as it
shall, from time to time, deem advisable; to interpret the terms and provisions
of the Plan and any award issued under the Plan (and any agreements relating
thereto); and to otherwise supervise the administration of the Plan. The
Committee may delegate its authority to officers of the Company for the purpose
of selecting employees who are not officers of the Company for purposes of (i)
above.
All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company and
Plan participants.
3
<PAGE>
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 250,000. Such shares may consist, in whole
or in part, of authorized and unissued shares.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that
have been optioned ceased to be subject to Options, or if any shares subject to
any Restricted Stock or Deferred Stock award or Other Award granted hereunder
are forfeited or such award otherwise terminates without a payment being made to
the participant, such shares shall again be available for distribution in
connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, other change in corporate
structure affecting the Stock, or spin-off or other distribution of assets to
shareholders, such substitution or adjustment shall be made in the aggregate
number of shares reserved for issuance under the Plan, in the number and option
price of shares subject to outstanding options granted under the Plan, and in
the number of shares subject to Restricted Stock or Deferred Stock awards
granted under the Plan as may be determined to be appropriate by the Committee,
in its sole discretion, provided that the number of shares subject to any award
shall always be a whole number. Such adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Option.
SECTION 4. Eligibility.
Officers, other key employees of the Company and Subsidiaries and
Non-Employee Directors who are responsible for or contribute to the management,
growth and/or profitability of the business of the Company and its Subsidiaries
are eligible to be granted Stock Options, Stock Appreciation Rights, Restricted
Stock or Deferred Stock awards or Other Awards under the Plan. The optionees and
participants under the Plan shall be selected from time to time by the
Committee, in its sole discretion, from among those eligible, and the Committee
shall determine, in its sole discretion, the number of shares covered by each
award.
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after March 14, 2006.
The Committee shall have the authority to grant any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of options
(in each case with or without Stock Appreciation Rights). To the extent that any
option does not qualify as an Incentive Stock Option, it shall constitute a
separate Non-Qualified Stock Option.
4
<PAGE>
Anything in the Plan to the contrary notwithstanding, no term of
this Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Option as
an Incentive Stock Option, provided the optionee consents in writing to the
modification or amendment.
Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of grant.
In no event shall the option price per share of Stock purchasable under an
Incentive Stock Option or a Non-Qualified Stock Option be less than 100% of the
Fair Market Value of the Stock on the date of the grant of the option. If an
employee owns or is deemed to own (by reason of the attribution rules applicable
under Section 424(d) of the Code) more than 10% of the combined voting power of
all classes of stock of the Company or any Parent Corporation or Subsidiary and
an Incentive Stock Option is granted to such employee, the option price shall be
no less than 110% of the Fair Market Value of the Stock on the date the option
is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) Exercisability. Stock Options shall be exercisable at such time
or times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time. Notwithstanding the foregoing, unless the Stock Option Agreement
provides otherwise, any Stock Option granted under this Plan shall be
exercisable in full, without regard to any installment exercise provisions, for
a period specified by the Company, but not to exceed sixty (60) days prior to or
subsequent to the occurrence of any of the following events: (i) dissolution or
liquidation of the Company other than in conjunction with a bankruptcy of the
Company or any similar occurrence, (ii) any merger, consolidation, acquisition,
separation, reorganization, or similar occurrence, where the Company will not be
the surviving entity or (iii) the transfer of substantially all of the assets of
the Company or 50% or more of the outstanding Stock of the Company.
(d) Method of Exercise. Stock Options may be exercised in whole or
in part at any time during the option period by giving written notice of
exercise to the Company specifying the number of shares to be purchased. Such
notice shall be accompanied by payment in full of the
5
<PAGE>
purchase price, either by certified or bank check, or by any other form of legal
consideration deemed sufficient by the Committee and consistent with the Plan's
purpose and applicable law, including promissory notes or a properly executed
exercise notice together with irrevocable instructions to a broker acceptable to
the Company to promptly deliver to the Company the amount of sale or loan
proceeds to pay the exercise price. As determined by the Committee, in its sole
discretion, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee or, in the case of the exercise
of a Non-Qualified Stock Option, Restricted Stock or Deferred Stock subject to
an award hereunder (based, in each case, on the Fair Market Value of the Stock
on the date immediately preceding the date the option is exercised, as
determined by the Committee), provided, however, that, in the case of an
Incentive Stock Option, the right to make a payment in the form of already owned
shares may be authorized only at the time the option is granted, and provided
further that in the event payment is made in the form of shares of Restricted
Stock or a Deferred Stock award, the optionee will receive a portion of the
option shares in the form of, and in an amount equal to, the Restricted Stock or
Deferred Stock award tendered as payment by the optionee. No shares of Stock
shall be issued until full payment therefor has been made. An optionee shall
generally have the rights to dividends and other rights of a shareholder with
respect to shares subject to the option when the optionee has given written
notice of exercise, has paid in full for such shares.
(e) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(f) Termination by Death. If an optionee's employment by the Company
and any Subsidiary or Parent Corporation terminates by reason of death, the
Stock Option may thereafter be immediately exercised, to the extent then
exercisable (or on such accelerated basis as the Committee shall determine at or
after grant), by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of three years (or such
shorter period as the Committee shall specify at grant) from the date of such
death or until the expiration of the stated term of the option, whichever period
is shorter.
(g) Termination by Reason of Disability. If an optionee's employment
by the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after three years (or such shorter period as
the Committee shall specify at grant) from the date of such termination of
employment or the expiration of the stated term of the option, whichever period
is the shorter. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment
by the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised
to the extent it was exercisable
6
<PAGE>
at the time of such Retirement, but may not be exercised after three years (or
such shorter period as Committee shall specify at grant) from the date of such
termination of employment or the expiration of the stated term of the option,
whichever period is the shorter. In the event of termination of employment by
reason of Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, the option will thereafter be treated as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee,
if an optionee's employment by the Company and any Subsidiary or Parent
Corporation terminates for any reason other than death, Disability or
Retirement, the Stock Option may be exercised to the extent it was exercisable
at such termination for the lesser of three months or the balance of the
option's term, except that if the optionee is terminated for Cause by the
Company or any Subsidiary or Parent Corporation, the Stock Option shall
thereupon terminate.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair
Market Value (determined as of the time the Option is granted) of the Common
Stock with respect to which an Incentive Stock Option under this Plan or any
other plan of the Company and any Subsidiary or Parent Corporation is
exercisable for the first time by an optionee during any calendar year shall not
exceed $100,000.
SECTION 6. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of the grant of the option.
Stock Appreciation Rights may not be granted to a Non-Employee Director.
A Stock Appreciation Right or applicable portion thereof granted
with respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option, except
that a Stock Appreciation Right granted with respect to less than the full
number of shares covered by a related stock Option shall not be reduced until
the exercise or termination of the related Stock Option exceeds the number of
shares not covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with paragraph (b) of this Section 6, by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in paragraph (b) of this Section 6. Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to the extent
the related Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the Plan,
as shall be determined from time to time by the Committee, including the
following:
7
<PAGE>
(i) Stock Appreciation Rights shall be exercisable only
at such time or times and to the extent that the Stock Options to
which they relate shall be exercisable in accordance with the
provisions of Section 5 and this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an
amount in cash or shares of Stock equal in value to the excess of
the Fair Market Value of one share of Stock over the option price
per share specified in the related option multiplied by the number
of shares in respect of which the Stock Appreciation Right shall
have been exercised, with the Committee having the right to
determine the form of payment; provided the Committee may not
require the optionee to receive more than 50% of the aggregate value
of such Stock Appreciation Rights in shares of Stock.
(iii) Stock Appreciation Rights shall be transferable
only when and to the extent that the underlying Stock Option would
be transferable under Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right,
the Stock Option or part thereof to which such Stock Appreciation
Right is related shall be deemed to have been exercised for the
purpose of the limitation set forth in Section 3 of the Plan on the
number of shares of Stock to be issued under the Plan, but only to
the extent of the number of shares issued or issuable under the
Stock Appreciation Right at the time of exercise based on the value
of the Stock Appreciation Right at such time.
(v) A Stock Appreciation Right granted in connection
with an Incentive Stock Option may be exercised only if and when the
market price of the Stock subject to the Incentive Stock Option
exceeds the exercise price of such Option.
(vi) Each award shall be confirmed by, and subject to
the terms of, a Stock Appreciation Rights Agreement executed by the
Company and the participant.
SECTION 7. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and Subsidiaries to
whom, and the time or times at which, grants of Restricted Stock will be made,
the number of shares to be awarded, the time or times within which such awards
may be subject to forfeiture, and all other conditions of the awards. The
Committee may also condition the grant of Restricted Stock upon the attainment
of specified performance goals. The provisions of Restricted Stock awards need
not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an award
of shares of Restricted Stock shall not have any rights with respect to such
award, unless and until such recipient has executed an Agreement evidencing the
award and has delivered a fully executed
8
<PAGE>
copy thereof to the Company, and has otherwise complied with the then applicable
terms and conditions.
(i) Each participant shall be issued a stock certificate
in respect of shares of Restricted Stock awarded under the Plan.
Such certificate shall be registered in the name of the participant,
and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such award, substantially
in the following form:
"The transferability of this certificate and
the shares of stock represented hereby are subject to
the terms and conditions (including forfeiture) of the
Applied Biometrics, Inc. 1996 Stock Plan and an
Agreement entered into between the registered owner and
Applied Biometrics, Inc.. Copies of such Plan and
Agreement are on file in the offices of Applied
Biometrics, Inc., 501 East Highway 13, Suite 100,
Burnsville, MN 55337.
(ii) The Committee shall require that the stock
certificates evidencing such shares be held in custody by the
Company until the restrictions thereon shall have lapsed, and that,
as a condition of any Restricted Stock award, the participant shall
have delivered a stock power, endorsed in blank, relating to the
Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock
awarded pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
Agreement, during a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. In no event shall the
Restriction Period be less than one (1) year. Within these limits,
the Committee may provide for the lapse of such restrictions in
installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this
Section 7, the participant shall have, with respect to the shares of
Restricted Stock, all of the rights of a shareholder of the Company,
including the right to vote the shares and the right to receive any
cash dividends. The Committee, in its sole discretion, may permit or
require the payment of cash dividends to be deferred and, if the
Committee so determines, reinvested in additional shares of
Restricted Stock (to the extent shares are available under Section 3
and subject to paragraph (f) of Section 13). Certificates for shares
of unrestricted Stock shall be delivered to the grantee promptly
after, and only after, the period of forfeiture shall have expired
without forfeiture in respect of such shares of Restricted Stock.
(iii) Subject to the provisions of the award Agreement
and paragraph (c)(iv) of this Section 7, upon termination of
employment for any reason during the Restriction Period, all shares
still subject to restriction shall be forfeited by the participant.
9
<PAGE>
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause),
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in
part any or all remaining restrictions with respect to such
participant's shares of Restricted Stock.
(v) Notwithstanding the foregoing, all restrictions with
respect to any participant's shares of Restricted Stock shall lapse
on the date determined by the Committee, but in no event more than
sixty (60) days prior to or subsequent to the occurrence of any of
the following events: (i) dissolution or liquidation of the Company
other than in conjunction with a bankruptcy of the Company or any
similar occurrence, (ii) any merger, consolidation, acquisition,
separation, reorganization, or similar occurrence, where the Company
will not be the surviving entity or (iii) the transfer of
substantially all of the assets of the Company or 20% or more of the
outstanding Stock of the Company.
SECTION 8. Deferred Stock Awards.
(a) Administration. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees of the Company and Subsidiaries to whom and the
time or times at which Deferred Stock shall be awarded, the number of Shares of
Deferred Stock to be awarded to any participant or group of participants, the
duration of the period (the "Deferral Period") during which, and the conditions
under which, receipt of the Stock will be deferred, and the terms and conditions
of the award in addition to those contained in paragraph (b) of this Section 8.
The Committee may also condition the grant of Deferred Stock upon the attainment
of specified performance goals. The provisions of Deferred Stock awards need not
be the same with respect to each recipient.
(b) Terms and Conditions.
(i) Subject to the provisions of this Plan and the award
agreement, Deferred Stock awards may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral
Period. In no event shall the Deferral Period be less than one (1)
year. At the expiration of the Deferral Period (or Elective Deferral
Period, where applicable), share certificates shall be delivered to
the participant, or his legal representative, in a number equal to
the shares covered by the Deferred Stock award.
(ii) Amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares covered by a
Deferred Stock award will be paid to the participant currently or
deferred and deemed to be reinvested in additional Deferred Stock or
otherwise reinvested, all as determined at the time of the award by
the Committee, in its sole discretion.
10
<PAGE>
(iii) Subject to the provisions of the award Agreement
and paragraph (b)(iv) of this Section 8, upon termination of
employment for any reason during the Deferral Period for a given
award, the Deferred Stock in question shall be forfeited by the
participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause)
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in
part any or all of the remaining deferral limitations imposed
hereunder with respect to any or all of the participant's Deferred
Stock.
(v) A participant may elect to further defer receipt of
the award for a specified period or until a specified event (the
"Elective Deferral Period"), subject in each case to the Committee's
approval and to such terms as are determined by the Committee, all
in its sole discretion. Subject to any exceptions adopted by the
Committee, such election must generally be made prior to completion
of one half of the Deferral Period for a Deferred Stock award (or
for an installment of such an award).
(vi) Each award shall be confirmed by, and subject to
the terms of, a Deferred Stock Agreement executed by the Company and
the participant.
SECTION 9. Other Awards.
The Committee may from time to time grant Stock, other Stock based
and non-Stock based awards under this Plan including without limitations those
awards pursuant to which shares of Stock are or in the future may be acquired,
awards denominated in Stock units, securities convertible into Stock, phantom
securities and dividend equivalents. The Committee shall determine the terms and
conditions of such Stock, Stock based and non-Stock based awards provided that
such awards shall not be inconsistent with the terms of this Plan.
SECTION 10. Transfer, Leave of Absence, etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent
Corporation or Subsidiary, or from a Parent Corporation or Subsidiary to the
Company, or from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the Company
if the period of such leave does not exceed ninety (90) days (or such longer
period as the Committee may approve, in its sole discretion); and
11
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(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to reemployment is
guaranteed either by a statute or by contract, and provided that, in the case of
any leave of absence, the employee returns to work within 30 days after the end
of such leave.
SECTION 11. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made (i) which would impair
the rights of an optionee or participant under a Stock Option, Stock
Appreciation Right, Restricted Stock, Deferred Stock or other Stock-based award
theretofore granted, without the optionee's or participant's consent, or (ii)
which without the approval of the stockholders of the Company would cause the
Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act of
1934, Section 422 of the Code or any other regulatory requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted options,
including previously granted options having higher option prices.
SECTION 12. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 13. General Provisions.
(a) All certificates for shares of Stock delivered under the Plan
pursuant to any Restricted Stock, Deferred Stock or other Stock-based awards
shall be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
laws, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted Stock,
Deferred Stock and other Stock-based awards under the Plan (other than Stock
Options) are not required to make any payment or provide consideration other
than the rendering of services.
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(c) Nothing contained in this Plan shall prevent the Board of
Directors from adopting other or additional compensation arrangements, subject
to stockholder approval if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific cases. The
adoption of the Plan shall not confer upon any employee of the Company or any
Subsidiary any right to continued employment with the Company or a Subsidiary,
as the case may be, nor shall it interfere in any way with the right of the
Company or a Subsidiary to terminate the employment of any of its employees at
any time.
(d) Each participant shall, no later than the date as of which any
part of the value of an award first becomes includible as compensation in the
gross income of the participant for Federal income tax purposes, pay to the
Company, or make arrangements satisfactory to the Committee regarding payment
of, any Federal, state, or local taxes of any kind required by law to be
withheld with respect to the award. The obligations of the Company under the
Plan shall be conditional on such payment or arrangements and the Company and
Subsidiaries shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the participant. With
respect to any award under the Plan, if the terms of such award so permit, a
participant may elect by written notice to the Company to satisfy part or all of
the withholding tax requirements associated with the award by (i) authorizing
the Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 13(d). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings and in the event shares are withheld, the amount withheld may not exceed
the minimum required federal, state and FICA withholding amount.
(e) At the time of grant, the Committee may provide in connection
with any grant made under this Plan that the shares of Stock received as a
result of such grant shall be subject to a repurchase right in favor of the
Company pursuant to which any participant who, at any time within a specified
period after termination of employment with the Company, directly or indirectly
competes with, or is employed by a competitor of, the Company, shall be required
to offer to the Company any shares that the participant acquired under the Plan,
with the price being the then Fair Market Value of the Stock, subject to such
other terms and conditions as the Committee may specify at the time of grant.
(f) The reinvestment of dividends in additional Restricted Stock (or
in Deferred Stock or other types of Plan awards) at the time of any dividend
payment shall only be permissible if the Committee (or the Company's chief
financial officer) certifies in writing that under Section 3 sufficient shares
are available for such reinvestment (taking into account then outstanding Stock
Options and other Plan awards).
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SECTION 14. Effective Date of Plan.
The Plan shall be effective on the date it is approved by a vote of
the holders of a majority of the Stock present and entitled to vote at a meeting
of the Company's shareholders.
Amended by the Board of Directors: July 2, 1999.
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TABLE OF CONTENTS
SECTION 1. General Purpose of Plan; Definitions...............................1
SECTION 2. Administration.....................................................3
SECTION 3. Stock Subject to Plan..............................................4
SECTION 4. Eligibility........................................................4
SECTION 5. Stock Options......................................................4
SECTION 6. Stock Appreciation Rights..........................................7
SECTION 7. Restricted Stock...................................................8
SECTION 8. Deferred Stock Awards.............................................10
SECTION 9. Other Awards......................................................11
SECTION 10. Transfer, Leave of Absence, etc..................................11
SECTION 11. Amendments and Termination.......................................12
SECTION 12. Unfunded Status of Plan..........................................12
SECTION 13. General Provisions...............................................12
SECTION 14. Effective Date of Plan...........................................14
i
APPLIED BIOMETRICS, INC.
1994 AMENDED STOCK PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. General Purpose of Plan; Definitions...............................3
SECTION 2. Administration.....................................................5
SECTION 3. Stock Subject to Plan..............................................6
SECTION 4. Eligibility........................................................6
SECTION 5. Stock Options......................................................7
SECTION 6. Stock Appreciation Rights.........................................10
SECTION 7. Restricted Stock..................................................11
SECTION 8. Deferred Stock Awards.............................................13
SECTION 9. Other Awards......................................................14
SECTION 10. Transfer, Leave of Absence, etc..................................14
SECTION 11. Amendments and Termination.......................................15
SECTION 12. Unfunded Status of Plan..........................................15
SECTION 13. General Provisions...............................................15
SECTION 14. Effective Date of Plan...........................................17
<PAGE>
APPLIED BIOMETRICS, INC.
AMENDED 1994 STOCK PLAN
SECTION 1. General Purpose Of Plan; Definitions.
The name of this plan is the Applied Biometrics, Inc. Amended 1994
Stock Plan (the "Plan"). The purpose of the Plan is to enable Applied
Biometrics, Inc. (the "Company") and its Subsidiaries to retain and attract
executives and other key employees and non-employee directors who contribute to
the Company's success by their ability, ingenuity and industry, and to enable
such individuals to participate in the long-term success and growth of the
Company by giving them a proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as
set forth below:
a. "Agreement" means an agreement by and between the
Company and an optionee or recipient of an award under
the Plan setting forth the terms and conditions of the
option or award.
b. "Board" means the Board of Directors of the Company.
c. "Cause" means a felony conviction of a participant or
the failure of a participant to contest prosecution for
a felony, or a participant's willful misconduct or
dishonesty, any of which is directly and materially
harmful to the business or reputation of the Company.
d. "Code" means the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute.
e. "Committee" means the Committee referred to in Section 2
of the Plan. If at any time no Committee shall be in
office, then the functions of the Committee specified in
the Plan shall be exercised by the Board, unless the
Plan specifically states otherwise.
f. "Company" means the Applied Biometrics, Inc., a
corporation organized under the laws of the State of
Minnesota (or any successor corporation).
g. "Deferred Stock" means an award made pursuant to Section
8 below of the right to receive Stock at the end of a
specified deferral period.
h. "Disability" means permanent and total disability as
determined by the Committee.
i. "Fair Market Value" of Stock on any given date shall be
determined by the Committee as follows: (a) if the Stock
is listed for trading on one or more national
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securities exchanges, or is traded on the Nasdaq Stock
Market, the last reported sales price on the principal
such exchange or the Nasdaq Stock Market on the date in
question, or if such Stock shall not have been traded on
such principal exchange on such date, the last reported
sales price on such principal exchange or the Nasdaq
Stock Market on the first day prior thereto on which
such stock was so traded; or (b) if the Stock is not
listed for trading on a national securities exchange or
the Nasdaq Stock Market, but is traded in the
over-the-counter market, including the Nasdaq Small Cap
Market, the closing bid price for such Stock on the date
in question, or if there is no such bid price for such
Stock on such date, the closing bid price on the first
day prior thereto on which such price existed; or (c) if
neither (a) nor (b) is applicable, by any means fair and
reasonable by the Committee, which determination shall
be final and binding on all parties.
j. "Incentive Stock Option" means any Stock Option intended
to be and designated as an "Incentive Stock Option"
within the meaning of Section 422 of the Code.
k. "Non-Employee Director" means a "Non-Employee Director"
within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934.
l. "Non-Qualified Stock Option" means any Stock Option that
is not an Incentive Stock Option, and is intended to be
and is designated as a "Non-Qualified Stock Option."
m. "Other Awards" means those awards granted pursuant to
Section 9 hereof.
n. "Parent Corporation" means any corporation (other than
the Company) in an unbroken chain of corporations ending
with the Company if each of the corporations (other than
the Company) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in
one of the other corporations in the chain.
o. "Restricted Stock" means an award of shares of Stock
that are subject to restrictions under Section 7 below.
p. "Retirement" means retirement from active employment
with the Company and any Subsidiary or Parent
Corporation of the Company on or after age 55.
q. "Stock" means the Common Stock, $.01 par value per
share, of the Company.
r. "Stock Appreciation Right" means the right pursuant to
an award granted under Section 6 below to surrender to
the Company all or a portion of a Stock Option in
exchange for an amount equal to the difference between
(i) the Fair Market Value, as of the date such Stock
Option or such portion thereof is surrendered, of the
shares of Stock covered by such Stock Option or such
portion thereof, and (ii) the aggregate exercise price
of such Stock Option or such portion thereof.
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<PAGE>
s. "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5 below.
t. "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning
with the Company if each of the corporations (other than
the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting
power of all classes of stock in one of the other
corporations in the chain.
SECTION 2. Administration.
The Plan shall be administered by the Board of Directors or by a
Committee appointed by the Board of Directors of the Company consisting of at
least two Directors, all of whom shall be Non-Employee Directors, who shall
serve at the pleasure of the Board.
The Committee shall have the power and authority to grant to
eligible optionees and participants, pursuant to the terms of the Plan: (i)
Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv)
Deferred Stock awards, or (v) Other Awards.
In particular, the Committee shall have the authority:
(i) to select the optionees and participants to whom Stock
Options, Stock Appreciation Rights, Restricted Stock,
Deferred Stock awards and/or Other Awards may from time
to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock awards and/or
Other Awards, or a combination of the foregoing, are to
be granted hereunder;
(iii) to determine the number of shares to be covered by each
such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted
hereunder (including, but not limited to, any
restriction on any Stock Option or other award and/or
the shares of Stock relating thereto), which authority
shall be exclusively vested in the Committee (and not
the Board) for purposes of establishing performance
criteria used with Restricted Stock and Deferred Stock
awards and Other Awards; provided, however, that in the
event of a merger or asset sale, the applicable
provisions of Sections 5(c) and 7(c) of the Plan shall
govern the acceleration of vesting of any Stock Option
or awards; and
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with
respect to an award under this Plan shall be deferred
either automatically or at the election of the
participant.
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<PAGE>
The Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as it
shall, from time to time, deem advisable; to interpret the terms and provisions
of the Plan and any award issued under the Plan (and any agreements relating
thereto); and to otherwise supervise the administration of the Plan. The
Committee may delegate to executive officers of the Company the authority to
exercise the powers specified in (i), (ii), (iii), (iv) and (v) above with
respect to persons who are not either the chief executive officer of the Company
or the four highest paid officers of the Company other than the chief executive
officer.
All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company and
Plan participants.
SECTION 3. Stock Subject To Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 300,000. Such shares may consist, in whole
or in part, of authorized and unissued shares.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that
have been optioned ceased to be subject to Stock Options, or if any shares
subject to any Restricted Stock or Deferred Stock award or Other Award granted
hereunder are forfeited or such award otherwise terminates without a payment
being made to the participant, such shares shall again be available for
distribution in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, other change in corporate
structure affecting the Stock, or spin-off or other distribution of assets to
shareholders, such substitution or adjustment shall be made in the aggregate
number of shares reserved for issuance under the Plan, in the number and option
price of shares subject to outstanding options granted under the Plan, and in
the number of shares subject to Restricted Stock or Deferred Stock awards
granted under the Plan as may be determined to be appropriate by the Committee,
in its sole discretion, provided that the number of shares subject to any award
shall always be a whole number. Such adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Option.
SECTION 4. Eligibility.
Officers, other key employees of the Company and Subsidiaries and
members of the Board who are responsible for or contribute to the management,
growth and/or profitability of the business of the Company and its Subsidiaries
are eligible to be granted Stock Options, Stock Appreciation Rights, Restricted
Stock or Deferred Stock awards or Other Awards under the Plan. The optionees and
participants under the Plan shall be selected from time to time by the
Committee, in its sole discretion, from among those eligible, and the Committee
shall determine, in its sole discretion, the number of shares covered by each
award.
6
<PAGE>
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after February 22, 2004.
The Committee shall have the authority to grant any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of options
(in each case with or without Stock Appreciation Rights). To the extent that any
option does not qualify as an Incentive Stock Option, it shall constitute a
separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of
this Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Option as
an Incentive Stock Option, provided the optionee consents in writing to the
modification or amendment.
Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
a. Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by
the Committee at the time of grant. In no event shall
the option price per share of Stock purchasable under an
Incentive Stock Option or a Non-Qualified Stock Option
be less than 100% of the Fair Market Value of the Stock
on the date of the option is granted. If an employee
owns or is deemed to own (by reason of the attribution
rules applicable under Section 424(d) of the Code) more
than 10% of the combined voting power of all classes of
stock of the Company or any Parent Corporation or
Subsidiary and an Incentive Stock Option is granted to
such employee, the option price shall be no less than
110% of the Fair Market Value of the Stock on the date
the option is granted.
b. Option Term. The term of each Stock Option shall be
fixed by the Committee, but no Incentive Stock Option
shall be exercisable more than ten years after the date
the option is granted. If an employee owns or is deemed
to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting
power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock
Option is granted to such employee, the term of such
option shall be no more than five years from the date of
grant.
7
<PAGE>
c. Exercisability. Stock Options shall be exercisable at
such time or times as determined by the Committee at or
after grant, subject to the restrictions stated in
Section 5(b) above. If the Committee provides, in its
discretion, that any option is exercisable only in
installments, the Committee may waive such installment
exercise provisions at any time. Notwithstanding
anything contained in the Plan to the contrary, the
Committee may, in its discretion, extend or vary the
term of any Stock Option or any installment thereof,
whether or not the optionee is then employed by the
Company, if such action is deemed to be in the best
interests of the Company; provided, however, that in the
event of a merger or sale of assets, the provisions of
this Section 5(c) shall govern vesting acceleration.
Notwithstanding the foregoing, unless the Stock Option
Agreement provides otherwise, any Stock Option granted
under this Plan shall be exercisable in full, without
regard to any installment exercise provisions, for a
period specified by the Committee, but not to exceed
sixty (60) days prior to or subsequent to the occurrence
of any of the following events: (i) dissolution or
liquidation of the Company other than in conjunction
with a bankruptcy of the Company or any similar
occurrence, (ii) any merger, consolidation, acquisition,
separation, reorganization, or similar occurrence, where
the Company will not be the surviving entity or (iii)
the transfer of substantially all of the assets of the
Company or 50% or more of the outstanding Stock of the
Company. The grant of an option pursuant to the Plan
shall not limit in any way the right or power of the
Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business
structure or to merge, exchange or consolidate or to
dissolve, liquidate, sell or transfer all or any part of
its business or assets.
d. Method of Exercise. Stock Options may be exercised in
whole or in part at any time during the option period by
giving written notice of exercise to the Company
specifying the number of shares to be purchased. Such
notice shall be accompanied by payment in full of the
purchase price, either by certified or bank check, or by
any other form of legal consideration deemed sufficient
by the Committee and consistent with the Plan's purpose
and applicable law, including promissory notes or a
properly executed exercise notice together with
irrevocable instructions to a broker acceptable to the
Company to promptly deliver to the Company the amount of
sale or loan proceeds to pay the exercise price. As
determined by the Committee, in its sole discretion,
payment in full or in part may also be made in the form
of Stock already owned by the optionee (which in the
case of Stock acquired upon the exercise of an option
have been owned for more than six months on the date of
surrender) or, in the case of the exercise of a
Non-Qualified Stock Option, Restricted Stock or Deferred
Stock subject to an award hereunder (based, in each
case, on the Fair Market Value of the Stock on the date
immediately preceding the date the option is exercised,
as determined by the Committee), provided, however,
that, in the case of an Incentive Stock Option, the
right to make a payment in the form of already owned
shares may be authorized only at the time the option is
granted, and provided further that in the event payment
is made in the form of shares of Restricted Stock or a
Deferred Stock award, the optionee will receive a
8
<PAGE>
portion of the option shares in the form of, and in an
amount equal to, the Restricted Stock or Deferred Stock
award tendered as payment by the optionee. No shares of
Stock shall be issued until full payment therefor has
been made. An optionee shall generally have the rights
to dividends and other rights of a shareholder with
respect to shares subject to the option when the
optionee has given written notice of exercise, has paid
in full for such shares.
e. Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or
by the laws of descent and distribution, and all Stock
Options shall be exercisable, during the optionee's
lifetime, only by the optionee.
f. Termination by Death. If an optionee's employment by the
Company and any Subsidiary or Parent Corporation
terminates by reason of death, the Stock Option may
thereafter be immediately exercised, to the extent then
exercisable (or on such accelerated basis as the
Committee shall determine at or after grant), by the
legal representative of the estate or by the legatee of
the optionee under the will of the optionee, for a
period of three years (or such shorter period as the
Committee shall specify at grant) from the date of such
death or until the expiration of the stated term of the
option, whichever period is shorter. In the event of
termination of employment by reason of death, if any
Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422
of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option.
g. Termination by Reason of Disability. If an optionee's
employment by the Company and any Subsidiary or Parent
Corporation terminates by reason of Disability, any
Stock Option held by such optionee may thereafter be
exercised, to the extent it was exercisable at the time
of termination due to Disability (or on such accelerated
basis as the Committee shall determine at or after
grant), but may not be exercised after three years (or
such shorter period as the Committee shall specify at
grant) from the date of such termination of employment
or the expiration of the stated term of the option,
whichever period is the shorter. In the event of
termination of employment by reason of Disability, if an
Incentive Stock Option is exercised after the expiration
of the exercise periods that apply for purposes of
Section 422 of the Code, the option will thereafter be
treated as a Non-Qualified Stock Option.
h. Termination by Reason of Retirement. If an optionee's
employment by the Company and any Subsidiary or Parent
Corporation terminates by reason of Retirement and the
terms of the Stock Option so provide, any Stock Option
held by such optionee may thereafter be exercised to the
extent it was exercisable at the time of such
Retirement, but may not be exercised after three years
(or such shorter period as Committee shall specify at
grant) from the date of such termination of employment
or the expiration of the stated term of the option,
whichever period is the shorter. In the event of
termination of employment by reason of Retirement, if
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an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for
purposes of Section 422 of the Code, the option will
thereafter be treated as a Non-Qualified Stock Option.
i. Other Termination. Unless otherwise determined by the
Committee, if an optionee's employment by the Company
and any Subsidiary or Parent Corporation terminates for
any reason other than death, Disability or Retirement,
the Stock Option may be exercised to the extent it was
exercisable at such termination for the lesser of three
months or the balance of the option's term, except that
if the optionee is terminated for Cause by the Company
or any Subsidiary or Parent Corporation, the Stock
Option shall thereupon terminate.
j. Annual Limit on Incentive Stock Options. The aggregate
Fair Market Value (determined as of the time the Option
is granted) of the Common Stock with respect to which an
Incentive Stock Option under this Plan or any other plan
of the Company and any Subsidiary or Parent Corporation
is exercisable for the first time by an optionee during
any calendar year shall not exceed $100,000.
SECTION 6. Stock Appreciation Rights.
a. Grant and Exercise. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock
Option granted under the Plan. In the case of a
Non-Qualified Stock Option, such rights may be granted
either at or after the time of the grant of such Option.
In the case of an Incentive Stock Option, such rights
may be granted only at the time of the grant of the
option. Stock Appreciation Rights may not be granted to
Non-Employee Directors.
A Stock Appreciation Right or applicable portion thereof granted
with respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option, except
that a Stock Appreciation Right granted with respect to less than the full
number of shares covered by a related stock Option shall not be reduced until
the exercise or termination of the related Stock Option exceeds the number of
shares not covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with paragraph (b) of this Section 6, by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in paragraph (b) of this Section 6. Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to the extent
the related Stock Appreciation Rights have been exercised.
b. Terms and Conditions. Stock Appreciation Rights shall be
subject to such terms and conditions, not inconsistent
with the provisions of the Plan, as shall be determined
from time to time by the Committee, including the
following:
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(i) Stock Appreciation Rights shall be
exercisable only at such time or times and
to the extent that the Stock Options to
which they relate shall be exercisable in
accordance with the provisions of Section 5
and this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation
Right, an optionee shall be entitled to
receive up to, but not more than, an amount
in cash or shares of Stock equal in value to
the excess of the Fair Market Value of one
share of Stock over the option price per
share specified in the related option
multiplied by the number of shares in
respect of which the Stock Appreciation
Right shall have been exercised, with the
Committee having the right to determine the
form of payment; provided the Committee may
not require the optionee to receive more
than 50% of the aggregate value of such
Stock Appreciation Rights in shares of
Stock.
(iii) Stock Appreciation Rights shall be
transferable only when and to the extent
that the underlying Stock Option would be
transferable under Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation
Right, the Stock Option or part thereof to
which such Stock Appreciation Right is
related shall be deemed to have been
exercised for the purpose of the limitation
set forth in Section 3 of the Plan on the
number of shares of Stock to be issued under
the Plan and the maximum number of shares to
be awarded to any one person in a fiscal
year, but only to the extent of the number
of shares issued or issuable under the Stock
Appreciation Right at the time of exercise
based on the value of the Stock Appreciation
Right at such time.
(v) A Stock Appreciation Right granted in
connection with an Incentive Stock Option
may be exercised only if and when the market
price of the Stock subject to the Incentive
Stock Option exceeds the exercise price of
such Option.
(vi) Each award shall be confirmed by, and
subject to the terms of, a Stock
Appreciation Rights Agreement executed by
the Company and the participant.
SECTION 7. Restricted Stock.
a. Administration. Shares of Restricted Stock may be issued
either alone or in addition to other awards granted
under the Plan. The Committee shall determine the
officers and key employees of the Company and
Subsidiaries to whom, and the time or times at which,
grants of Restricted Stock will be made, the number of
shares to be awarded, the time or times within which
such awards may be subject to forfeiture, and all other
conditions of the awards. The Committee may also
condition the grant of Restricted Stock upon the
attainment of specified performance goals. The
provisions of Restricted Stock awards need not be the
same with respect to each recipient.
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b. Awards and Certificates. The prospective recipient of an
award of shares of Restricted Stock shall not have any
rights with respect to such award, unless and until such
recipient has executed an Agreement evidencing the award
and has delivered a fully executed copy thereof to the
Company, and has otherwise complied with the then
applicable terms and conditions.
(i) Each participant shall be issued a stock
certificate in respect of shares of
Restricted Stock awarded under the Plan.
Such certificate shall be registered in the
name of the participant, and shall bear an
appropriate legend referring to the terms,
conditions, and restrictions applicable to
such award, substantially in the following
form:
"The transferability of this certificate and
the shares of stock represented hereby are
subject to the terms and conditions
(including forfeiture) of the Applied
Biometrics, Inc. 1994 Amended Stock Plan and
an Agreement entered into between the
registered owner and Applied Biometrics,
Inc. Copies of such Plan and Agreement are
on file in the offices of Applied
Biometrics, Inc., 501 E. Highway 13,
Burnsville, Minnesota 55337."
(ii) The Committee shall require that the stock
certificates evidencing such shares be held
in custody by the Company until the
restrictions thereon shall have lapsed, and
that, as a condition of any Restricted Stock
award, the participant shall have delivered
a stock power, endorsed in blank, relating
to the Stock covered by such award.
c. Restrictions and Conditions. The shares of Restricted
Stock awarded pursuant to the Plan shall be subject to
the following restrictions and conditions:
(i) Subject to the provisions of this Plan and
the award Agreement, during a period set by
the Committee commencing with the date of
such award (the "Restriction Period"), the
participant shall not be permitted to sell,
transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. In
no event shall the Restriction Period be
less than one (1) year. Within these limits,
the Committee may provide for the lapse of
such restrictions in installments where
deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of
this Section 7, the participant shall have,
with respect to the shares of Restricted
Stock, all of the rights of a shareholder of
the Company, including the right to vote the
shares and the right to receive any cash
dividends. The Committee, in its sole
discretion, may permit or require the
payment of cash dividends to be deferred
and, if the Committee so determines,
reinvested in additional shares of
Restricted Stock (to the extent shares are
available under Section 3 and subject to
paragraph (f) of Section 13). Certificates
for shares of unrestricted Stock shall be
delivered to the grantee promptly after, and
only after, the period of forfeiture shall
have expired without forfeiture in respect
of such shares of Restricted Stock.
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(iii) Subject to the provisions of the award
Agreement and paragraph (c)(iv) of this
Section 7, upon termination of employment
for any reason during the Restriction
Period, all shares still subject to
restriction shall be forfeited by the
participant.
(iv) In the event of special hardship
circumstances of a participant whose
employment is terminated (other than for
Cause), including death, Disability or
Retirement, or in the event of an
unforeseeable emergency of a participant
still in service, the Committee may, in its
sole discretion, when it finds that a waiver
would be in the best interest of the
Company, waive in whole or in part any or
all remaining restrictions with respect to
such participant's shares of Restricted
Stock.
(v) Notwithstanding the foregoing, all
restrictions with respect to any
participant's shares of Restricted Stock
shall lapse on the date determined by the
Committee, but in no event more than sixty
(60) days prior to or subsequent to the
occurrence of any of the following events:
(i) dissolution or liquidation of the
Company other than in conjunction with a
bankruptcy of the Company or any similar
occurrence, (ii) any merger, consolidation,
acquisition, separation, reorganization, or
similar occurrence, where the Company will
not be the surviving entity or (iii) the
transfer of substantially all of the assets
of the Company or 20% or more of the
outstanding Stock of the Company.
SECTION 8. Deferred Stock Awards.
a. Administration. Deferred Stock may be awarded either
alone or in addition to other awards granted under the
Plan. The Committee shall determine the officers and key
employees of the Company and Subsidiaries to whom and
the time or times at which Deferred Stock shall be
awarded, the number of Shares of Deferred Stock to be
awarded to any participant or group of participants, the
duration of the period (the "Deferral Period") during
which, and the conditions under which, receipt of the
Stock will be deferred, and the terms and conditions of
the award in addition to those contained in paragraph
(b) of this Section 8. The Committee may also condition
the grant of Deferred Stock upon the attainment of
specified performance goals. The provisions of Deferred
Stock awards need not be the same with respect to each
recipient.
b. Terms and Conditions.
(i) Subject to the provisions of this Plan and
the award agreement, Deferred Stock awards
may not be sold, assigned, transferred,
pledged or otherwise encumbered during the
Deferral Period. In no event shall the
Deferral Period be less than one (1) year.
At the expiration of the Deferral Period (or
Elective Deferral Period, where applicable),
share certificates shall be delivered to the
participant, or his legal representative, in
a number equal to the shares covered by the
Deferred Stock award.
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(ii) Amounts equal to any dividends declared
during the Deferral Period with respect to
the number of shares covered by a Deferred
Stock award will be paid to the participant
currently or deferred and deemed to be
reinvested in additional Deferred Stock or
otherwise reinvested, all as determined at
the time of the award by the Committee, in
its sole discretion.
(iii) Subject to the provisions of the award
Agreement and paragraph (b)(iv) of this
Section 8, upon termination of employment
for any reason during the Deferral Period
for a given award, the Deferred Stock in
question shall be forfeited by the
participant.
(iv) In the event of special hardship
circumstances of a participant whose
employment is terminated (other than for
Cause) including death, Disability or
Retirement, or in the event of an
unforeseeable emergency of a participant
still in service, the Committee may, in its
sole discretion, when it finds that a waiver
would be in the best interest of the
Company, waive in whole or in part any or
all of the remaining deferral limitations
imposed hereunder with respect to any or all
of the participant's Deferred Stock.
(v) A participant may elect to further defer
receipt of the award for a specified period
or until a specified event (the "Elective
Deferral Period"), subject in each case to
the Committee's approval and to such terms
as are determined by the Committee, all in
its sole discretion. Subject to any
exceptions adopted by the Committee, such
election must generally be made prior to
completion of one half of the Deferral
Period for a Deferred Stock award (or for an
installment of such an award).
(vi) Each award shall be confirmed by, and
subject to the terms of, a Deferred Stock
Agreement executed by the Company and the
participant.
SECTION 9. Other Awards.
The Committee may from time to time grant Stock, other Stock based
and non-Stock based awards under this Plan including without limitations those
awards pursuant to which shares of Stock are or in the future may be acquired,
awards denominated in Stock units, securities convertible into Stock, phantom
securities and dividend equivalents. The Committee shall determine the terms and
conditions of such Stock, Stock based and non-Stock based awards provided that
such awards shall not be inconsistent with the terms of this Plan.
SECTION 10. Transfer, Leave Of Absence, Etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
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<PAGE>
a. a transfer of an employee from the Company to a Parent
Corporation or Subsidiary, or from a Parent Corporation
or Subsidiary to the Company, or from one Subsidiary to
another;
b. a leave of absence, approved in writing by the
Committee, for military service or sickness, or for any
other purpose approved by the Company if the period of
such leave does not exceed ninety (90) days (or such
longer period as the Committee may approve, in its sole
discretion); and
c. a leave of absence in excess of ninety (90) days,
approved in writing by the Committee, but only if the
employee's right to reemployment is guaranteed either by
a statute or by contract, and provided that, in the case
of any leave of absence, the employee returns to work
within 30 days after the end of such leave.
SECTION 11. Amendments And Termination.
The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made (i) which would impair
the rights of an optionee or participant under a Stock Option, Stock
Appreciation Right, Restricted Stock, Deferred Stock or other Stock-based award
theretofore granted, without the optionee's or participant's consent, or (ii)
which without the approval of the stockholders of the Company would cause the
Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act of
1934, Section 422 of the Code or any other regulatory requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, to the extent such amendment is
consistent with the terms of this Plan, but no such amendment shall impair the
rights of any holder without his or her consent except to the extent authorized
under the Plan. The Committee may also substitute new Stock Options for
previously granted options, including previously granted options having higher
option prices.
SECTION 12. Unfunded Status Of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 13. General Provisions.
a. All certificates for shares of Stock delivered under the
Plan pursuant to any Restricted Stock, Deferred Stock or
other Stock-based awards shall be subject to
15
<PAGE>
such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules,
regulations, and other requirements of the Securities
and Exchange Commission, any stock exchange upon which
the Stock is then listed, and any applicable Federal or
state securities laws, and the Committee may cause a
legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
b. Subject to paragraph (d) below, recipients of Restricted
Stock, Deferred Stock and other Stock-based awards under
the Plan (other than Stock Options) are not required to
make any payment or provide consideration other than the
rendering of services.
c. Nothing contained in this Plan shall prevent the Board
of Directors from adopting other or additional
compensation arrangements, subject to stockholder
approval if such approval is required; and such
arrangements may be either generally applicable or
applicable only in specific cases. The adoption of the
Plan shall not confer upon any employee of the Company
or any Subsidiary any right to continued employment with
the Company or a Subsidiary, as the case may be, nor
shall it interfere in any way with the right of the
Company or a Subsidiary to terminate the employment of
any of its employees at any time.
d. Each participant shall, no later than the date as of
which any part of the value of an award first becomes
includible as compensation in the gross income of the
participant for Federal income tax purposes, pay to the
Company, or make arrangements satisfactory to the
Committee regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld
with respect to the award. The obligations of the
Company under the Plan shall be conditional on such
payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind
otherwise due to the participant. With respect to any
award under the Plan, if the terms of such award so
permit, a participant may elect by written notice to the
Company to satisfy part or all of the withholding tax
requirements associated with the award by (i)
authorizing the Company to retain from the number of
shares of Stock that would otherwise be deliverable to
the participant, or (ii) delivering to the Company from
shares of Stock already owned by the participant, that
number of shares having an aggregate Fair Market Value
equal to part or all of the tax payable by the
participant under this Section 13(d). Any such election
shall be in accordance with, and subject to, applicable
tax and securities laws, regulations and rulings and in
the event shares are withheld, the amount withheld may
not exceed the minimum required federal, state and FICA
withholding amount.
e. At the time of grant, the Committee may provide in
connection with any grant made under this Plan that the
shares of Stock received as a result of such grant shall
be subject to a repurchase right in favor of the Company
pursuant to which any participant who, at any time
within a specified period after termination of
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<PAGE>
employment with the Company, directly or indirectly
competes with, or is employed by a competitor of, the
Company, shall be required to offer to the Company any
shares that the participant acquired under the Plan,
with the price being the then Fair Market Value of the
Stock, subject to such other terms and conditions as the
Committee may specify at the time of grant.
f. The reinvestment of dividends in additional Restricted
Stock (or in Deferred Stock or other types of Plan
awards) at the time of any dividend payment shall only
be permissible if the Committee (or the Company's chief
financial officer) certifies in writing that under
Section 3 sufficient shares are available for such
reinvestment (taking into account then outstanding Stock
Options and other Plan awards).
SECTION 14. Effective Date Of Plan.
The Plan is expressly made subject to the approval by the
shareholders of the Company. If the Plan is not so approved by the shareholders
on or before one year after this Plan's adoption by the Board of Directors, this
Plan shall not come into effect. The offering of the shares hereunder shall be
also subject to the effecting by the Company of any registration or
qualification of the shares under any federal or state law or the obtaining of
the consent or approval of any governmental regulatory body which the Company
shall determine, in its sole discretion, is necessary or desirable as a
condition to or in connection with, the offering or the issue or purchase of the
shares covered thereby. The Company shall make every reasonable effort to effect
such registration or qualification or to obtain such consent or approval.
Adopted by the Board of Directors: February 22, 1994.
Ratified and Approved by the Shareholders: June 8, 1994.
Amended by the Board of Directors: March 12, 1999.
Amended by the Board of Directors: July 2, 1999.
17
APPLIED BIOMETRICS, INC.
1998 STOCK PLAN
<PAGE>
TABLE OF CONTENTS
SECTION 1. General Purpose of Plan; Definitions...............................3
SECTION 2. Administration.....................................................5
SECTION 3. Stock Subject to Plan..............................................6
SECTION 4. Eligibility........................................................7
SECTION 5. Stock Options......................................................7
SECTION 6. Stock Appreciation Rights.........................................10
SECTION 7. Restricted Stock..................................................12
SECTION 8. Deferred Stock Awards.............................................13
SECTION 9. Other Awards......................................................14
SECTION 10. Transfer, Leave of Absence, etc..................................15
SECTION 11. Amendments and Termination.......................................15
SECTION 12. Unfunded Status of Plan..........................................15
SECTION 13. General Provisions...............................................16
2
<PAGE>
APPLIED BIOMETRICS, INC.
1998 STOCK PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the Applied Biometrics, Inc. 1998 Stock Plan (the
"Plan"). The purpose of the Plan is to enable Applied Biometrics, Inc. (the
"Company") and its Subsidiaries to retain and attract executives and other key
employees and consultants who contribute to the Company's success by their
ability, ingenuity and industry, and to enable such individuals to participate
in the long-term success and growth of the Company by giving them a proprietary
interest in the Company.
For purposes of the Plan, the following terms shall be defined as
set forth below:
a. "Agreement" means an agreement by and between the
Company and an optionee or recipient of an award under
the Plan setting forth the terms and conditions of the
option or award.
b. "Board" means the Board of Directors of the Company.
c. "Cause" means a felony conviction of a participant or
the failure of a participant to contest prosecution for
a felony, or a participant's willful misconduct or
dishonesty, any of which is directly and materially
harmful to the business or reputation of the Company.
d. "Code" means the Internal Revenue Code of 1986, as
amended.
e. "Committee" means the Committee referred to in Section 2
of the Plan. If at any time no Committee shall be in
office, then the functions of the Committee specified in
the Plan shall be exercised by the Board, unless the
Plan specifically states otherwise.
f. "Company" means the Applied Biometrics, Inc., a
corporation organized under the laws of the State of
Minnesota (or any successor corporation).
g. "Consultant" means any person, including an advisor,
engaged by the Company or a Parent Corporation of
Subsidiary of the Company to render services, who is
3
<PAGE>
compensated for such services and who is not an employee
of the Company or any Parent Corporation or Subsidiary
of the Company. A Non-Employee Director may serve as a
Consultant.
h. "Deferred Stock" means an award made pursuant to Section
8 below of the right to receive Stock at the end of a
specified deferral period.
i. "Disability" means permanent and total disability as
determined by the Committee.
j. "Fair Market Value" means the value of Stock on any
given date which shall be determined by the Committee as
follows: (a) if the Stock is listed for trading on one
of more national securities exchanges, or is traded on
the Nasdaq Stock Market or the Nasdaq Small Cap Market,
the last reported sales price on the principal such
exchange, the Nasdaq Stock Market or the Nasdaq Small
Cap Market on the date in question, or if such Stock
shall not have been traded on such principal exchange on
such date, the last reported sales price on such
principal exchange, the Nasdaq Stock Market or the
Nasdaq Small Cap Market, on the first day prior thereto
on which such Stock was so traded; or (b) if the Stock
is not listed for trading on a national securities
exchange, the Nasdaq Stock Market or the Nasdaq Small
Cap Market, but is traded in the over-the-counter
market, the closing bid price for such Stock on the day
prior to the date in question, or if there is no closing
bid price for such Stock on such day, the closing bid
price on the first day prior thereto on which such price
existed; or (c) if neither (a) nor (b) is applicable, by
any means fair and reasonable by the Committee, which
determination shall be final and binding on all
parties."
k. "Incentive Stock Option" means any Stock Option intended
to be and designated as an "Incentive Stock Option"
within the meaning of Section 422 of the Code.
l. "Non-Employee Director" means a "Non-Employee Director"
within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934.
m. "Non-Qualified Stock Option" means any Stock Option that
is not an Incentive Stock Option, and is intended to be
and is designated as a "Non-Qualified Stock Option."
n. "Other Awards" means those awards granted pursuant to
Section 9 hereof.
o. "Outside Director" means a Director who: (a) is not a
current employee of the Company or any member of an
affiliated group which includes the Company; (b) is not
a former employee of the Company who receives
compensation for prior services (other than benefits
under a tax-qualified retirement plan) during the
taxable year; (c) has not been an officer of the
Company; (d) does not receive remuneration from the
Company, either directly or indirectly, in any capacity
other than as a director, except as otherwise permitted
under Code Section 162(m) and regulations thereunder.
For this purpose, remuneration includes any payment in
exchange for good or services.
4
<PAGE>
This definition shall be further governed by the
provisions of Code Section 162(m) and regulations
promulgated thereunder.
p. "Parent Corporation" means any corporation (other than
the Company) in an unbroken chain of corporations ending
with the Company if each of the corporations (other than
the Company) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in
one of the other corporations in the chain.
q. "Restricted Stock" means an award of shares of Stock
that are subject to restrictions under Section 7 below.
r. "Retirement" means retirement from active employment
with the Company and any Subsidiary or Parent
Corporation of the Company on or after age 55.
s. "Stock" means the Common Stock, $.01 par value per
share, of the Company.
t. "Stock Appreciation Right" means the right pursuant to
an award granted under Section 6 below to surrender to
the Company all or a portion of a Stock Option in
exchange for an amount equal to the difference between
(i) the Fair Market Value, as of the date such Stock
Option or such portion thereof is surrendered, of the
shares of Stock covered by such Stock Option or such
portion thereof, and (ii) the aggregate exercise price
of such Stock Option or such portion thereof.
u. "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5 below.
v. "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning
with the Company if each of the corporations (other than
the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting
power of all classes of stock in one of the other
corporations in the chain.
SECTION 2. Administration.
The Plan shall be administered by the Board of Directors or by a
Committee appointed by the Board of Directors of the Company consisting of at
least two Directors, all of whom shall be Non-Employee Directors and Outside
Directors, who shall serve at the pleasure of the Board.
The Committee shall have the power and authority to grant to
eligible optionees and participants, pursuant to the terms of the Plan: (i)
Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv)
Deferred Stock awards, or (v) Other Awards.
In particular, the Committee shall have the authority:
5
<PAGE>
(i) to select the optionees and participants to whom Stock
Options, Stock Appreciation Rights, Restricted Stock,
Deferred Stock awards and/or Other Awards may from time
to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock awards and/or
Other Awards, or a combination of the foregoing, are to
be granted hereunder;
(iii) to determine the number of shares to be covered by each
such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted
hereunder (including, but not limited to, any
restriction on any Stock Option or other award and/or
the shares of Stock relating thereto), provided,
however, that in the event of a merger or asset sale,
the applicable provisions of Section 5(c) of the Plan
shall govern the acceleration of the vesting of any
Stock Option; and
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with
respect to an award under this Plan shall be deferred
either automatically or at the election of the
participant.
The Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as it
shall, from time to time, deem advisable; to interpret the terms and provisions
of the Plan and any award issued under the Plan (and any agreements relating
thereto); and to otherwise supervise the administration of the Plan. The
Committee may delegate to officers of the Company the authority to exercise the
powers specified in (i), (ii), (iii), (iv) and (v) above with respect to persons
who are not either the chief executive officer of the Company or the four
highest paid officers of the Company other than the chief executive officer.
All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company and
Plan participants.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 500,000. Such shares may consist, in whole
or in part, of authorized and unissued shares.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that
have been optioned ceased to be subject to Options, or if any shares subject to
any Restricted Stock or Deferred Stock award or Other Award granted hereunder
are forfeited or such award otherwise terminates without a payment being made to
the participant, such shares shall again be available for distribution in
connection with future awards under the Plan. Upon a Stock-for-Stock exercise of
a Stock Option or upon the withholding of Stock for the payment of the option
price or taxes, only the net number of shares
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<PAGE>
issued to the optionee shall be used to calculate the number of shares remaining
available for distribution under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, other change in corporate
structure affecting the Stock, or spin-off or other distribution of assets to
shareholders, such substitution or adjustment shall be made in the aggregate
number of shares reserved for issuance under the Plan, in the number and option
price of shares subject to outstanding options granted under the Plan, and in
the number of shares subject to Restricted Stock or Deferred Stock awards
granted under the Plan as may be determined to be appropriate by the Committee,
in its sole discretion, provided that the number of shares subject to any award
shall always be a whole number. Such adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Option.
SECTION 4. Eligibility.
Officers, other key employees of the Company and Subsidiaries and
Consultants who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company and its Subsidiaries are
eligible to be granted Stock Options, Stock Appreciation Rights, Restricted
Stock or Deferred Stock awards or Other Awards under the Plan. The optionees and
participants under the Plan shall be selected from time to time by the
Committee, in its sole discretion, from among those eligible, and the Committee
shall determine, in its sole discretion, the number of shares covered by each
award.
Notwithstanding the foregoing, no person shall receive grants of
Stock Options, Restricted and Deferred Stock under this Plan which exceed
150,000 shares during any fiscal year of the Company.
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after June 1, 2008.
The Committee shall have the authority to grant any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of options
(in each case with or without Stock Appreciation Rights). To the extent that any
option does not qualify as an Incentive Stock Option, it shall constitute a
separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of
this Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority
7
<PAGE>
granted under the Plan be so exercised, so as to disqualify either the Plan or
any Incentive Stock Option under Section 422 of the Code. The preceding sentence
shall not preclude any modification or amendment to an outstanding Incentive
Stock Option, whether or not such modification or amendment results in
disqualification of such Option as an Incentive Stock Option, provided the
optionee consents in writing to the modification or amendment.
Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of grant.
In no event shall the option price per share of Stock purchasable under an
Incentive Stock Option or a Non-Qualified Stock Option be less than 100% of the
Fair Market Value of the Stock on the date of the grant of the option. If an
employee owns or is deemed to own (by reason of the attribution rules applicable
under Section 424(d) of the Code) more than 10% of the combined voting power of
all classes of stock of the Company or any Parent Corporation or Subsidiary and
an Incentive Stock Option is granted to such employee, the option price shall be
no less than 110% of the Fair Market Value of the Stock on the date the option
is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) Exercisability. Stock Options shall be exercisable at such time
or times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time. Notwithstanding the foregoing, unless the Stock Option Agreement
provides otherwise, any Stock Option granted under this Plan shall be
exercisable in full, without regard to any installment exercise provisions, for
a period specified by the Company, but not to exceed sixty (60) days prior to or
subsequent to the occurrence of any of the following events: (i) dissolution or
liquidation of the Company other than in conjunction with a bankruptcy of the
Company or any similar occurrence, (ii) any merger, consolidation, acquisition,
separation, reorganization, or similar occurrence, where the Company will not be
the surviving entity or (iii) the transfer of substantially all of the assets of
the Company or the acquisition of beneficial ownership of more than 50% of any
class of equity security of the Company.
(d) Method of Exercise. Stock Options may be exercised in whole or
in part at any time during the option period by giving written notice of
exercise to the Company specifying the number of shares to be purchased. Such
notice shall be accompanied by payment in full of the purchase price, either by
certified or bank check, or by any other form of legal consideration deemed
sufficient by the Committee and consistent with the Plan's purpose and
applicable law, including promissory
8
<PAGE>
notes or a properly executed exercise notice together with irrevocable
instructions to a broker acceptable to the Company to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise price. As
determined by the Committee at the time of grant or exercise, in its sole
discretion, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee (which in the case of Stock
acquired upon exercise of an option have been owned for more than six months on
the date of surrender)(based on the Fair Market Value of the Stock on the date
immediately preceding the date the option is exercised, as determined by the
Committee), provided, however, that, in the case of an Incentive Stock Option,
the right to make a payment in the form of already owned shares may be
authorized only at the time the option is granted. No shares of Stock shall be
issued until full payment therefor has been made. An optionee shall generally
have the rights to dividends and other rights of a shareholder with respect to
shares subject to the option when the optionee has given written notice of
exercise, has paid in full for such shares and, if requested, has given the
representation described in paragraph (a) of Section 13.
(e) Non-transferability of Options.
(i) Subject to Section 5(e)(ii) below, no Stock Option
shall be transferable by the optionee otherwise than by will or by
the laws of descent and distribution, and all Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee.
(ii) The Committee may, in its discretion, authorize all
or a portion of the options to be granted to an optionee to be on
terms which permit transfer by such optionee to (A) the spouse,
children or grandchildren of the optionees ("Immediate Family
Members"), (B) a trust or trusts for the exclusive benefit of such
Immediate Family Members, or (C) a partnership or partnerships in
which such Immediate Family Members are the only partners, provided
that (1) there may be no consideration for any such transfer, (2)
the stock option agreement pursuant to which such options are
granted must be approved by the Committee, and must expressly
provide for transferability in a manner consistent with this Section
5(e)(ii), and (3) subsequent transfers of transferred options shall
be prohibited except those in accordance with Section 5(e)(i).
Following transfer, any such options shall continue to be subject to
the same terms and conditions as were applicable immediately prior
to transfer, provided that the term "optionee" herein shall in such
event be deemed to refer to the transferee, except that the events
of termination of employment of Sections 5(f), 5(g), 5(h) and 5(i)
hereof shall continue to be applied with respect to the original
optionee, following which the options shall be exercisable by the
transferee only to the extent, and for the periods specified in such
Sections.
(f) Termination by Death. If an optionee's employment by the Company
and any Subsidiary or Parent Corporation terminates by reason of death, the
Stock Option may thereafter be immediately exercised, to the extent then
exercisable (or on such accelerated basis as the Committee shall determine at or
after grant), by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of three years (or such
shorter period as the Committee shall specify at grant) from the date of such
death or until the expiration of the stated term of the option, whichever period
is shorter. In the event of termination of employment by reason of death, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that
9
<PAGE>
apply for purposes of Section 422 of the Code, the option will thereafter be
treated as a Non-Qualified Stock Option.
(g) Termination by Reason of Disability. If an optionee's employment
by the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after three years (or such shorter period as
the Committee shall specify at grant) from the date of such termination of
employment or the expiration of the stated term of the option, whichever period
is the shorter. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment
by the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised
to the extent it was exercisable at the time of such Retirement, but may not be
exercised after three years (or such shorter period as Committee shall specify
at grant) from the date of such termination of employment or the expiration of
the stated term of the option, whichever period is the shorter. In the event of
termination of employment by reason of Retirement, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee,
if an optionee's employment by the Company and any Subsidiary or Parent
Corporation terminates for any reason other than death, Disability or
Retirement, the Stock Option may be exercised to the extent it was exercisable
at such termination for the lesser of three months or the balance of the
option's term. In the event of a termination of employment other than for death,
Disability or Retirement and if pursuant to its terms any Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option. In the event the optionee is terminated for Cause by
the Company or any Subsidiary or Parent Corporation, the Stock Option shall
thereupon terminate.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair
Market Value (determined as of the time the Option is granted) of the Common
Stock with respect to which an Incentive Stock Option under this Plan or any
other plan of the Company and any Subsidiary or Parent Corporation is
exercisable for the first time by an optionee during any calendar year shall not
exceed $100,000.
SECTION 6. Stock Appreciation Rights.
10
<PAGE>
(a) Grant and Exercise. Except as set forth in paragraph (k) of
Section 5, Stock Appreciation Rights may be granted in conjunction with all or
part of any Stock Option granted under the Plan. In the case of a Non-Qualified
Stock Option, such rights may be granted either at or after the time of the
grant of such Option. In the case of an Incentive Stock Option, such rights may
be granted only at the time of the grant of the option.
A Stock Appreciation Right or applicable portion thereof granted
with respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option, except
that a Stock Appreciation Right granted with respect to less than the full
number of shares covered by a related Stock Option shall not be reduced until
the exercise or termination of the related Stock Option exceeds the number of
shares not covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with paragraph (b) of this Section 6, by surrendering the applicable
portion of the related Stock Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in paragraph (b) of this Section 6. Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to the extent
the related Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the Plan,
as shall be determined from time to time by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only
at such time or times and to the extent that the Stock Options to
which they relate shall be exercisable in accordance with the
provisions of Section 5 and this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an
amount in cash or shares of Stock equal in value to the excess of
the Fair Market Value of one share of Stock over the option price
per share specified in the related option multiplied by the number
of shares in respect of which the Stock Appreciation Right shall
have been exercised, with the Committee having the right to
determine the form of payment; provided the Committee may not
require the optionee to receive more than 50% of the aggregate value
of such Stock Appreciation Rights in shares of Stock.
(iii) Stock Appreciation Rights shall be transferable
only when and to the extent that the underlying Stock Option would
be transferable under Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right,
the Stock Option or part thereof to which such Stock Appreciation
Right is related shall be deemed to have been exercised for the
purpose of the limitation set forth in Section 3 of the Plan on the
number of shares of Stock to be issued under the Plan, but only to
the extent of the number of shares
11
<PAGE>
issued or issuable under the Stock Appreciation Right at the time of
exercise based on the value of the Stock Appreciation Right at such
time.
(v) A Stock Appreciation Right granted in connection
with an Incentive Stock Option may be exercised only if and when the
market price of the Stock subject to the Incentive Stock Option
exceeds the exercise price of such Option.
(vi) Each award shall be confirmed by, and subject to
the terms of, a Stock Appreciation Rights Agreement executed by the
Company and the participant.
SECTION 7. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and Subsidiaries to
whom, and the time or times at which, grants of Restricted Stock will be made,
the number of shares to be awarded, the time or times within which such awards
may be subject to forfeiture, and all other conditions of the awards. The
Committee may also condition the grant of Restricted Stock upon the attainment
of specified performance goals. The provisions of Restricted Stock awards need
not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an award
of shares of Restricted Stock shall not have any rights with respect to such
award, unless and until such recipient has executed an Agreement evidencing the
award and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate
in respect of shares of Restricted Stock awarded under the Plan.
Such certificate shall be registered in the name of the participant,
and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such award, substantially
in the following form:
"The transferability of this certificate and the shares
of stock represented hereby are subject to the terms and
conditions (including forfeiture) of the Applied
Biometrics, Inc. 1998 Stock Plan and an Agreement
entered into between the registered owner and Applied
Biometrics, Inc. Copies of such Plan and Agreement are
on file in the offices of Applied Biometrics, Inc., 501
East Highway 13, Suite 108, Burnsville, MN 55337.
(ii) The Committee shall require that the stock
certificates evidencing such shares be held in custody by the
Company until the restrictions thereon shall have lapsed, and that,
as a condition of any Restricted Stock award, the participant shall
have delivered a stock power, endorsed in blank, relating to the
Stock covered by such award.
12
<PAGE>
(c) Restrictions and Conditions. The shares of Restricted Stock
awarded pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
Agreement, during a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. In no event shall the
Restriction Period be less than one (1) year. Within these limits,
the Committee may provide for the lapse of such restrictions in
installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this
Section 7, the participant shall have, with respect to the shares of
Restricted Stock, all of the rights of a shareholder of the Company,
including the right to vote the shares and the right to receive any
cash dividends. The Committee, in its sole discretion, may permit or
require the payment of cash dividends to be deferred and, if the
Committee so determines, reinvested in additional shares of
Restricted Stock (to the extent shares are available under Section 3
and subject to paragraph (g) of Section 13). Certificates for shares
of unrestricted Stock shall be delivered to the grantee promptly
after, and only after, the period of forfeiture shall have expired
without forfeiture in respect of such shares of Restricted Stock.
(iii) Subject to the provisions of the award Agreement
and paragraph (c)(iv) of this Section 7, upon termination of
employment for any reason during the Restriction Period, all shares
still subject to restriction shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause),
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in
part any or all remaining restrictions with respect to such
participant's shares of Restricted Stock.
(v) Notwithstanding the foregoing, all restrictions with
respect to any participant's shares of Restricted Stock shall lapse
on the date determined by the Committee, but in no event more than
sixty (60) days prior to or subsequent to the occurrence of any of
the following events: (i) dissolution or liquidation of the Company
other than in conjunction with a bankruptcy of the Company or any
similar occurrence, (ii) any merger, consolidation, acquisition,
separation, reorganization, or similar occurrence, where the Company
will not be the surviving entity or (iii) the transfer of
substantially all of the assets of the Company or the acquisition of
beneficial ownership of more than 50% of any class of equity
security of the Company.
SECTION 8. Deferred Stock Awards.
(a) Administration. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees of
13
<PAGE>
the Company and Subsidiaries to whom and the time or times at which Deferred
Stock shall be awarded, the number of Shares of Deferred Stock to be awarded to
any participant or group of participants, the duration of the period (the
"Deferral Period") during which, and the conditions under which, receipt of the
Stock will be deferred, and the terms and conditions of the award in addition to
those contained in paragraph (b) of this Section 8. The Committee may also
condition the grant of Deferred Stock upon the attainment of specified
performance goals. The provisions of Deferred Stock awards need not be the same
with respect to each recipient.
(b) Terms and Conditions.
(i) Subject to the provisions of this Plan and the award
agreement, Deferred Stock awards may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral
Period. In no event shall the Deferral Period be less than one (1)
year. At the expiration of the Deferral Period (or Elective Deferral
Period, where applicable), share certificates shall be delivered to
the participant, or his legal representative, in a number equal to
the shares covered by the Deferred Stock award.
(ii) Amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares covered by a
Deferred Stock award will be paid to the participant currently or
deferred and deemed to be reinvested in additional Deferred Stock or
otherwise reinvested, all as determined at the time of the award by
the Committee, in its sole discretion.
(iii) Subject to the provisions of the award Agreement
and paragraph (b)(iv) of this Section 8, upon termination of
employment for any reason during the Deferral Period for a given
award, the Deferred Stock in question shall be forfeited by the
participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause)
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in
part any or all of the remaining deferral limitations imposed
hereunder with respect to any or all of the participant's Deferred
Stock.
(v) A participant may elect to further defer receipt of
the award for a specified period or until a specified event (the
"Elective Deferral Period"), subject in each case to the Committee's
approval and to such terms as are determined by the Committee, all
in its sole discretion. Subject to any exceptions adopted by the
Committee, such election must generally be made prior to completion
of one half of the Deferral Period for a Deferred Stock award (or
for an installment of such an award).
(vi) Each award shall be confirmed by, and subject to
the terms of, a Deferred Stock Agreement executed by the Company and
the participant.
SECTION 9. Other Awards.
14
<PAGE>
The Committee may from time to time grant Stock, other Stock based
and non-Stock based awards under this Plan including without limitations those
awards pursuant to which shares of Stock are or in the future may be acquired,
awards denominated in Stock units, securities convertible into Stock, phantom
securities and dividend equivalents. The Committee shall determine the terms and
conditions of such Stock, Stock based and non-Stock based awards provided that
such awards shall not be inconsistent with the terms of this Plan.
SECTION 10. Transfer, Leave of Absence, etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent
Corporation or Subsidiary, or from a Parent Corporation or Subsidiary to the
Company, or from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the Company
if the period of such leave does not exceed ninety (90) days (or such longer
period as the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to reemployment is
guaranteed either by a statute or by contract, and provided that, in the case of
any leave of absence, the employee returns to work within 30 days after the end
of such leave.
SECTION 11. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made (i) which would impair
the rights of an optionee or participant under a Stock Option, Stock
Appreciation Right, Restricted Stock, Deferred Stock or other Stock-based award
theretofore granted, without the optionee's or participant's consent, or (ii)
which without the approval of the stockholders of the Company would cause the
Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act of
1934, Section 422 of the Code or any other regulatory requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted options,
including previously granted options having higher option prices.
SECTION 12. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments not yet made to a
participant or optionee by the
15
<PAGE>
Company, nothing contained herein shall give any such participant or optionee
any rights that are greater than those of a general creditor of the Company. In
its sole discretion, the Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver Stock or
payments in lieu of or with respect to awards hereunder, provided, however, that
the existence of such trusts or other arrangements is consistent with the
unfunded status of the Plan.
SECTION 13. General Provisions.
(a) All certificates for shares of Stock delivered under the Plan
pursuant to any Restricted Stock, Deferred Stock or other Stock-based awards
shall be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
laws, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions. The Committee
may require each person purchasing shares pursuant to a Stock Option under the
Plan to represent to and agree with the Company in writing that the optionee is
acquiring the shares without a view to distribution thereof. The certificates
for such shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
(b) Subject to paragraph (d) below, recipients of Restricted Stock,
Deferred Stock and other Stock-based awards under the Plan (other than Stock
Options) are not required to make any payment or provide consideration other
than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of
Directors from adopting other or additional compensation arrangements, subject
to stockholder approval if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific cases. The
adoption of the Plan shall not confer upon any employee of the Company or any
Subsidiary any right to continued employment with the Company or a Subsidiary,
as the case may be, nor shall it interfere in any way with the right of the
Company or a Subsidiary to terminate the employment of any of its employees at
any time.
(d) Each participant shall, no later than the date as of which any
part of the value of an award first becomes includible as compensation in the
gross income of the participant for Federal income tax purposes, pay to the
Company, or make arrangements satisfactory to the Committee regarding payment
of, any Federal, state, or local taxes of any kind required by law to be
withheld with respect to the award. The obligations of the Company under the
Plan shall be conditional on such payment or arrangements and the Company and
Subsidiaries shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the participant. With
respect to any award under the Plan, if the terms of such award so permit, a
participant may elect by written notice to the Company to satisfy part or all of
the withholding tax requirements associated with the award by (i) authorizing
the Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 13(d). Any such election shall be in accordance
with, and subject to, applicable tax and
16
<PAGE>
securities laws, regulations and rulings and in the event shares are withheld,
the amount withheld may not exceed the minimum required federal, state and FICA
withholding amount.
(e) At the time of grant, the Committee may provide in connection
with any grant made under this Plan that the shares of Stock received as a
result of such grant shall be subject to a repurchase right in favor of the
Company pursuant to which any participant who, at any time within a specified
period after termination of employment with the Company, directly or indirectly
competes with, or is employed by a competitor of, the Company, shall be required
to offer to the Company any shares that the participant acquired under the Plan,
with the price being the then Fair Market Value of the Stock, subject to such
other terms and conditions as the Committee may specify at the time of grant.
(f) The Committee may, at the time of the grant of an award under
the Plan, provide the Company with the right to repurchase, or require the
forfeiture of, shares of Stock acquired pursuant to the Plan by any participant
who, at any time within two years after termination of employment with the
Company or any Subsidiary or Parent Corporation, directly or indirectly competes
with, or is employed by a competitor of, the Company or any Subsidiary or Parent
Corporation.
(g) The reinvestment of dividends in additional Restricted Stock (or
in Deferred Stock or other types of Plan awards) at the time of any dividend
payment shall only be permissible if the Committee (or the Company's chief
financial officer) certifies in writing that under Section 3 sufficient shares
are available for such reinvestment (taking into account then outstanding Stock
Options and other Plan awards).
SECTION 14. Effective Date of Plan.
The Plan shall be effective on the date it is adopted by the Board
of Directors.
----------------------
Adopted by the Board of Directors -- June 1, 1998.
Approved by the Shareholders -- June 12, 1998.
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FROM FINANCIAL STATEMENTS AND RELATED NOTES FOR THE PERIOD ENDED JUNE 30, 1999
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,407,330
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 99,598
<CURRENT-ASSETS> 1,565,632
<PP&E> 1,091,713
<DEPRECIATION> (711,090)
<TOTAL-ASSETS> 2,022,381
<CURRENT-LIABILITIES> 122,103
<BONDS> 0
0
0
<COMMON> 44,840
<OTHER-SE> 1,849,132
<TOTAL-LIABILITY-AND-EQUITY> 2,022,381
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,046,342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,000,185)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,000,185)
<EPS-BASIC> (.23)
<EPS-DILUTED> (.23)
</TABLE>
