<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 No. 0-20127
ESCALON MEDICAL CORP.
(Exact name of Registrant as specified in its charter)
California 33-0272839
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
351 East Conestoga Road
Wayne, PA 19087
(610) 688-6830
(Address, including zip code, and
telephone number, including area code,
of Registrant's principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Date: November 11, 1999 3,242,184 Shares of Common Stock, no par value
<PAGE> 2
ESCALON MEDICAL CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION
PAGE
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
and September 30, 1999 3
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1998 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1999
---- ----
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,854,240 $ 3,378,951
Cash and cash equivalents - restricted 1,000,000 1,000,000
Note Receivable 15,000 15,000
Accounts receivable, net 1,063,829 2,170,447
Inventory, net 1,117,208 913,704
Other current assets 142,235 141,363
------------ ------------
Total current assets 7,192,512 7,619,465
Furniture and equipment, at cost, net 449,555 438,283
Long-term note receivable 150,000 150,000
License and distribution rights, net 537,138 261,884
Patents, net 495,923 499,040
Goodwill, net 1,510,207 1,476,457
Other assets 67,438 65,217
------------ ------------
$ 10,402,773 $ 10,510,346
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, bank $ 1,000,000 $ --
Current portion of long-term debt 200,000 200,000
Accounts payable 434,308 332,789
Accrued and other liabilities 1,757,432 1,617,604
------------ ------------
Total current liabilities 3,391,740 2,150,393
Long-term debt, net of current portion 733,332 683,331
------------ ------------
Total liabilities 4,125,072 2,833,724
------------ ------------
Shareholders' Equity:
Common stock, no par value; 35,000,000 shares
authorized; 3,377,164 shares
issued less 134,980 Treasury shares at
June 30, 1999 and at September 30, 1999 46,024,811 46,024,811
Treasury stock (118,108) (118,108)
Accumulated deficit (39,629,002) (38,230,081)
------------ ------------
Total shareholders' equity 6,277,701 7,676,622
------------ ------------
$ 10,402,773 $ 10,510,346
============ ============
</TABLE>
Note: The consolidated balance sheet at June 30, 1999 has been derived from the
audited consolidated financial statements at that date but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE> 4
ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1999
---- ----
<S> <C> <C>
Sales revenues $ 1,685,422 $ 1,423,677
Costs and expenses:
Cost of goods sold 716,856 732,840
Research and development 155,437 235,434
Marketing, general and administrative 682,963 938,601
----------- -----------
Total costs and expenses 1,555,256 1,906,875
----------- -----------
Income (loss) from operations 130,166 (483,198)
----------- -----------
Other income and expenses:
Sale of Silicone Oil product line -- 1,848,215
Interest income 36,928 48,885
Interest expense (25) (14,981)
----------- -----------
Total other income and expense 36,903 1,882,119
----------- -----------
Net income $ 167,069 $ 1,398,921
=========== ===========
Basic net income per share $ 0.051 $ 0.431
=========== ===========
Diluted net income per share $ 0.041 $ 0.429
=========== ===========
Weighted average shares - basic 3,040,152 3,242,184
=========== ===========
Weighted average shares - diluted 4,114,879 3,264,610
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
ESCALON MEDICAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1999
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 167,069 $ 1,398,921
Adjustments to reconcile net income to net cash provided
from (used in) operating activities:
Depreciation and amortization 86,140 80,705
Write off of patents 24,805 --
Gain on Sale of Silicone Oil product line -- (1,848,215)
Change in operating assets and liabilities:
Accounts receivable 70,814 481,267
Inventories (243,390) 203,504
Other current assets (119,827) 8,595
Accounts payable, accrued and other liabilities 119,819 (241,347)
----------- -----------
Net cash provided from operating activities 105,430 83,430
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (259,000) (8,366,508)
Proceeds from maturities of short-term investments 255,016 8,366,508
Proceeds from sale of Silicone Oil product line -- 529,295
Long term note receivable (12,500) --
Purchase of furniture and equipment (10,457) (11,861)
Other assets (2,400) (18,187)
Patent costs (6,681) (7,965)
----------- -----------
Net cash provided from (used in) investing activities (36,022) 491,282
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on line of credit -- (1,000,000)
Principal payments on term loan -- (50,001)
Purchase of treasury stock (118,108) --
Payment of preferred stock dividends (25,770) --
----------- -----------
Net cash used in financing activities (143,878) (1,050,001)
----------- -----------
Net decrease in cash and cash equivalents (74,470) (475,289)
Cash and cash equivalents, beginning of period 2,263,967 3,854,240
----------- -----------
Cash and cash equivalents, end of period $ 2,189,497 $ 3,378,951
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
ESCALON MEDICAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Escalon Medical Corp. (formerly known as Intelligent Surgical Lasers, Inc.)
and its subsidiaries Escalon Pharmaceutical Inc. and Escalon Vascular Access,
Inc. (jointly referred to as "Escalon" or the "Company") have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented. Operating results for interim periods
are not indicative of the results that may be expected for the fiscal year
ending June 30, 2000.
For more complete financial information, the accompanying condensed
financial statements should be read in conjunction with the audited consolidated
financial statements for the year ended June 30, 1999 included in the Company's
annual report on Form 10-K.
2. PER SHARE INFORMATION
The Company follows Financial Accounting Standards Board Statement No.
128, "Earnings Per Share", in presenting basic and diluted earnings per share.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1999
---- ----
<S> <C> <C>
Numerator:
Numerator for basic earnings per share:
Net income $ 167,069 $ 1,398,921
Preferred stock dividends (12,270) --
----------- -----------
Numerator for basic earnings per share-income available to
Common shareholders 154,799 1,398,921
Effect of dilutive securities:
Preferred stock dividends 12,270 --
----------- -----------
Numerator for diluted earnings per share-income available to
Common shareholders after assumed conversions $ 167,069 $ 1,398,921
=========== ===========
Denominator:
Denominator for basic earnings per share - weighted average shares 3,040,152 3,242,184
Effect of dilutive securities:
Convertible preferred stock 1,101,661 --
Employee stock options -- 22,426
----------- -----------
Denominator for diluted earnings per share - weighted average and
assumed conversion 4,141,813 3,264,610
=========== ===========
</TABLE>
6
<PAGE> 7
2. PER SHARE INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
Basic earnings per share $ 0.051 $ 0.431
=========== ===========
Diluted earnings per share $ 0.040 $ 0.429
=========== ===========
</TABLE>
3. INVENTORIES
Inventories, stated at the lower of cost (determined on a first-in,
first-out basis) or market, consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, 1999 SEPTEMBER 30, 1999
------------- ------------------
<S> <C> <C>
Raw materials/work in process $ 526,553 $ 549,215
Finished goods 623,655 409,489
----------- -----------
1,150,208 958,704
Valuation allowance (33,000) (45,000)
----------- -----------
$ 1,117,208 $ 913,704
=========== ===========
</TABLE>
4. CONTINGENCIES
Litigation
As previously reported in reports filed with the Securities and
Exchange Commission, on or about June 8, 1995, a purported class action
complaint captioned George Kozloski v. Intelligent Surgical Lasers, Inc., et
al., 95 Civ. 4299, was filed in the U.S. District Court for the Southern
District of New York as a "related action" to In Re Blech Securities Litigation
(a litigation matter which the Company is no longer a party to). The plaintiff
purports to represent a class of all purchasers of the Company's stock from
November 17, 1993, to and including September 21, 1994. The complaint alleges
that the Company, together with certain of its officers and directors, David
Blech and D. Blech & Co., Inc., issued a false and misleading prospectus in
November 1993 in violation of Sections 11, 12 and 15 of the Securities Act of
1933. The complaint also asserts claims under Section 10(b) of the Securities
Exchange Act of 1934 and common law. Actual and punitive damages in an
unspecified amount are sought, as well as a constructive trust over the proceeds
from the sale of stock pursuant to the offering.
On June 6, 1996, the court denied a motion by the Company and the named
officers and directors to dismiss the Kozloski complaint and, on July 22, 1996,
the Company Defendants filed an answer to the complaint denying all allegations
of wrongdoing and asserting various affirmative defenses.
In an effort to curtail its legal expenses related to this litigation,
while continuing to deny any wrongdoing, the Company has reached an agreement,
subject to final court approval, to settle this action on its behalf and on
behalf of its former and present officers and directors, for $500,000. The
Company's directors and officers insurance carrier has agreed to fund a
significant portion of the settlement amount. Both the Company and its
insurance carrier have deposited such funds in an escrow account.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This document contains certain forward-looking statements that are
subject to risks and uncertainties. Forward-looking statements include certain
information relating to the development of acquisition and joint venture
opportunities, fluctuations in results of operations, as well as information
contained elsewhere in this Report where statements are preceded by, followed by
or include the words "believes," "expects," "anticipates," or similar
expressions. For such statements the Company claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. The forward-looking statements contained in this
document are subject to risks and uncertainties that could cause the assumptions
underlying such forward-looking statements and the actual results to differ
materially from those expressed in or implied by the statements. The most
important factors that could prevent the Company from achieving its goals -- and
cause the assumptions underlying the forward-looking statements and the actual
results to differ materially from those expressed in or implied by those
forward-looking statements -- include, without limitation and in addition to
those discussed in the documents filed by the Company with the Securities and
Exchange Commission (including Amendment No. 3 to a Registration Statement on
Form S-3 filed by the Company with the Securities and Exchange Commission on
April 30, 1998 (Registration No. 333-44513)), the following: (i) Future capital
needs and the uncertainty of additional funding (whether through the financial
markets, collaborative or other arrangements with strategic partners, or from
other sources); and (ii) The outcome of, and costs associated with, litigation
matters.
OVERVIEW
The following discussion should be read in conjunction with the interim
financial statements and the notes thereto which are set forth elsewhere in this
report on Form 10-Q.
Escalon Medical Corp. (formerly known as Intelligent Surgical Lasers,
Inc.) and its subsidiaries Escalon Pharmaceutical Inc. and Escalon Vascular
Access Inc. (jointly referred to as "Escalon" or the "Company"), operates in the
healthcare market specializing in the development, marketing and distribution of
ophthalmic medical devices, pharmaceutical and vascular access products. The
Company is also developing its ophthalmic drug delivery system to complement its
other businesses.
On February 12, 1996, the Company acquired all of the assets and
certain liabilities of Escalon Ophthalmics, Inc. ("E.O.I.") Prior to the
acquisition, the Company was in the development stage and devoting substantially
all of its resources to the research and development of laser systems designed
for the treatment of ophthalmic disorders. Upon completion of the acquisition,
the Company changed its market focus and is now engaged in developing, marketing
and distributing ophthalmic medical devices, pharmaceuticals and niche medical
products. The Company is continuing development of its ophthalmic drug delivery
system to complement its other businesses. Sales of products acquired from EOI
are made primarily to hospitals and physicians throughout the United States.
Escalon purchased the vascular access business unit of Radiance Medical
Systems, Inc. in January 1999. This was significant as the Company's first step
in diversification. The vascular access product line is the first niche product
acquired outside the ophthalmic medical field. Vascular products are marketed to
the pediatric and critical care providers through independent distributors.
Escalon's market strategy is to locate and acquire profitable niche
medical products that it owns and controls the rights to. To finance this
program, in the third quarter of fiscal 1999, the Company sold its
8
<PAGE> 9
license and distribution rights to Betadine(R)5% Sterile Ophthalmic Prep
Solution ("Betadine"). In August, 1999 the Company sold its license and
distribution rights to Adatosil(R)5000 Silicone Oil ("Silicone Oil").
To further develop and commercialize its proprietary laser technology,
in October 1997, the Company licensed its intellectual laser properties to a
newly formed company, IntraLase, in return for an equity interest in IntraLase
and future royalties on product sales. IntraLase has the responsibility of
funding and developing the laser technology through to commercialization.
The Company expects that results of operations may fluctuate from
quarter to quarter for a number of reasons, including: (i) anticipated order and
shipment patterns of the Company's products; (ii) lead times to produce the
Company's products; and (iii) general competitive and economic conditions of the
health care market.
RESULTS OF OPERATIONS
Three-month Periods Ended September 30, 1998 and 1999
Product revenues decreased $261,745, or 16%, to $1,423,677 for the
three-month period ended September 30, 1999 as compared to $1,685,422 for the
same period ended September 30, 1998. This revenue decrease reflects a drop in
unit sales of Silicone Oil, $424,900, and Betadine, $262,300. The license and
distribution rights to these product lines were sold in August and March of
1999, respectively. Revenue from the vascular access business, acquired in
January 1999, provided $508,600 to partially replace this revenue decline. In
the first quarter of fiscal 2000, Escalon also experienced a decline in unit
sales of its capital equipment, disposables and OEM products of $26,400, $17,800
and $61,100, respectively. These declines were offset by a $22,100 increase in
sales for ISPAN(TM) gas products. Contract manufacturing revenues vary from
quarter to quarter depending on when orders are received and the lead times to
produce such products.
Cost of goods sold totaled $732,840, or 51% of revenue, for the
three-month period ended September 30,1999, as compared to $716,856, or 42% of
revenue, for the same period last year. The costs associated with the vascular
access product line, for the current quarter, were $253,102. There was no
comparable cost for the same period last year. Silicone oil costs decreased by
$149,538 to $250,331 in the first quarter of fiscal 2000, this reflects the sale
of that product line in mid quarter. Oil costs for the entire first quarter of
fiscal 1999 amounted to $399,869. There are no costs shown in the current
quarter for Betadine (product line sold in third quarter fiscal 1999), in the
comparable first quarter of fiscal 1999; cost of goods sold for this product
line amounted to $113,044. Medical product manufacturing costs increased to
$229,407 in the first quarter of fiscal 2000, as compared to $203,943 in fiscal
1999.
Research and development expenses increased $79,997, or 51%, for the
three-month period ended September 30, 1999 when compared to the same period in
1998. Expenses for pre-clinical and clinical trials related to providone-iodine
2.5% and Ocufit SR(R) increased $50,849 over the first quarter of fiscal 1999.
The Company also incurred $29,049 in costs for vascular access products that did
not exist until the third quarter of fiscal 1999.
Marketing, general and administrative expenses increased $255,638, or
37%, for the three-month period ended September 30, 1999 compared to the same
period last year. Expenses for the vascular access product line were $302,128,
there were no comparable costs in the first fiscal quarter of 1999. The Company
experienced an overall decline in administrative and sales cost of $46,490 from
the previous year. Most of that reduction relates to amortization and other
costs associated with the sale of Silicone Oil and Betadine product lines.
9
<PAGE> 10
Interest income increased to $48,885 for the three-month period ended
September 30, 1999 from $36,928 for the same period in 1998. This increase is a
result of increased cash and cash equivalents available for investment, due to
proceeds from received from sale of the Silicone Oil and Betadine product lines.
Interest expense increased to $14,981, as a result of corporate borrowing
arrangements that did not exist until the third quarter of fiscal 1999.
In August 1999, the Company reported the sale of its license and
distribution rights for the Adatosil(R) 5000 Silicone Oil product line. This
sale resulted in a $1,848,215 gain after writing off of the remaining net book
value of license and distribution rights associated with that product line. The
Company will also continue to receive additional consideration based on future
sales of Adatosil (R) Silicone Oil over the next six years.
There is no provision for income taxes for the three-month periods
ended September 30, 1999 and 1998 due to the utilization of net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had cash and cash equivalents of
$3,378,951 as compared to $3,854,240 at June 30, 1999. Cash and cash equivalents
decreased by $475,289. During the first quarter, the Company paid off the
$1,000,000 line of credit facility that was outstanding at June 30, 1999.
Offsetting this reduction in cash was a receipt of $529,295, the first
installment paid on the Silicone Oil product line sale.
In February 1999, the Company obtained a $2,000,000 credit facility
from PNC Bank N.A. This marked the first time the Company gained access to
traditional mainstream financing sources. As a result of this financing, Escalon
obtained a $1,000,000 five-year term loan and access to a $1,000,000 line of
credit. In addition, Escalon now maintains a $1,000,000 certificate of deposit
with PNC Bank, N.A. The investment is considered current and restricted, since
it is pledged as collateral against the loan. All of the Company's assets and
cash collateral of $1,000,000 collateralize these agreements.
The Board of Directors has authorized the repurchase of up to 500,000
shares of the Company's common stock. The price, timing and manner of these
purchases will be at the discretion of management. No purchases have been made,
nor are any expected to be made, under this authority.
The Company anticipates that the cash and cash equivalents and the
interest earned thereon, together with funds generated from future product
sales, should be adequate to satisfy its capital requirements, based on current
levels of operations, through September 30, 2000. In the longer term, however,
the Company will seek corporate partnering, licensing and other fund raising
opportunities to satisfy the significant expenditures anticipated with
development of its surgical products, pharmaceutical products, vascular access
devices and drug delivery programs.
YEAR 2000 ISSUES
None of the Company's products use date sensitive software; therefore
no customer service nor support concerns need to be addressed. The Company
utilizes commercially available off the shelf software packages with support
packages that specifically address this issue. To date the cost of year 2000
compliance has been insignificant. Additional expenditures are not expected to
be of any significant amount.
10
<PAGE> 11
Management judges the likelihood of disruption of temporary
manufacturing, customer service, sales and marketing, research and development
or administrative functions to be minimal in regard to year 2000 compliance of
our key suppliers and customers. Based on communications with our key suppliers,
including utility and telecommunications providers, the year 2000 issue is being
adequately addressed.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 4 of the Notes to Condensed
Consolidated Financial Statements in Part I is incorporated herein by reference
thereto.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.5 Employment Agreement between Registrant and Ronald
Hueneke dated July 1, 1999.
10.14 1999 Equity Incentive Plan of Registrant.
27 Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed on August 26, 1999, and an Amendment
thereto was filed on October 19, 1999, announcing the sale of the Company's
inventory and license and distribution rights to Bausch & Lomb Surgical, Inc.
The content of that report is summarized below:
Effective August 13, 1999, The Company entered into a Termination
Agreement (the "Termination Agreement") between the Company and
Bausch & Lomb Surgical, Inc. ("BLS") and a Supply Agreement (the
"Supply Agreement") between the Company and BLS.
Pursuant to the Termination Agreement, the Distribution and Development
Agreement dated January 1, 1990, as amended, between the Company and
Adatomed GmbH, a wholly owned subsidiary of BLS, was terminated, and
the Company transferred its license and distribution rights for
Adatosil(R)5000 Silicone Oil, as well as related inventory, back to
BLS. In consideration of the transfer, BLS agreed to pay to the
Company cash in the amount of $2,117,180, payable in quarterly
installments, with the initial installment paid on August 14, 1999, and
additional cash consideration based on future sales of Adatosil(R)5000
Silicone Oil over the next six years. Adatosil(R)5000 Silicone Oil
represented approximately 56% of the Company's sales in the fiscal
year ended June 30, 1999.
Pursuant to the Supply Agreement, BLS agreed to purchase from the
Company, and the Company agreed to manufacture and sell to BLS,
certain viscous fluid systems for a period of six years.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESCALON MEDICAL CORP.
(Registrant)
DATE: November 15, 1999 By: /s/ Douglas R. McGonegal
----------------------------------------
Douglas R. McGonegal
Vice President Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer) and Secretary
12
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement is made as of July 1, 1999 by and between
Escalon Medical Corp., a California corporation ("Employer"), and Ronald L.
Hueneke, an individual residing at 8846 Lake Drive, West Lake, Wisconsin 53129
("Employee").
RECITALS:
WHEREAS, Employer desires to employ Employee as President and Chief
Operating Officer and Employee desires to accept such employment on the terms
set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DUTIES. Employer hereby employs Employee to serve as President and
Chief Operating Officer. Employee agrees to be so employed by Employer and to
devote his best efforts to advance the interests of Employer. Employee agrees to
devote substantially all of his business time to performing duties hereunder;
provided, however, that Employee shall be permitted to devote a portion of his
business time to serve as an advisor to the Medical College of Wisconsin.
Employee shall not be required to relocate from Wisconsin to any other location
at which Employer conducts business.
2. TERM. Subject to the provisions of Section 4 hereof, the term of Em-
ployee's employment hereunder shall commence on the date hereof and shall
continue for a term of one year; provided, however, that the term of this
Agreement shall thereafter be renewed automatically from year to year unless
Employer or Employee shall have given the other notice of termination, effective
at the end of the current term, not less than 90 days prior to the expiration
thereof.
3. COMPENSATION.
(a) BASE SALARY. For the services rendered by Employee under
this Agreement, Employer agrees to pay Employee a salary at the rate of $105,000
per annum (such salary, as adjusted from time to time, is herein called the
"Salary"), payable in accordance with Employer's normal payroll practices.
(b) BONUS. At the end of each fiscal year of Employer that
ends during the term of this Agreement, the Compensation Committee of Employer's
Board of Directors shall determine whether to pay Employee a bonus (the "Bonus")
-1-
<PAGE> 2
with respect to such fiscal year. The award of any Bonus shall be in the sole
discretion of the Employer's Compensation Committee.
(c) FRINGE BENEFITS. During the term of this Agreement,
Employer shall provide to Employee life, health and dental insurance and any
other insurance generally provided for executive employees of Employer on the
same terms as such insurance is provided to such employees.
4. TERMINATION. The provisions of this Section 4 shall be applicable
notwithstanding anything to the contrary contained herein.
(a) DEATH. In the event of the death of Employee during the
term of this Agreement, this Agreement shall terminate effective as of the date
of Employee's death, and Employer shall have no further obligation or liability
hereunder except that Employer shall pay to Employee's estate the portion, if
any, of Employee's Salary and any earned but unpaid Bonus for the period through
the date of Employee's death that remains unpaid.
(b) TOTAL DISABILITY. In the event of a mental or physical
condition that in the reasonable opinion of Employer renders Employee unable or
incompetent to perform his duties hereunder ("Total Disability") which continues
for a period of 180 consecutive days during the term of this Agreement, Employer
shall have the right to terminate Employee's employment hereunder by giving
Employee ten days' written notice thereof and, upon expiration of such ten-day
period, Employer shall have no further obligation or liability under this
Agreement except Employer shall pay to Employee the portion, if any, of
Employee's Salary and any earned but unpaid Bonus for the period through the
date of termination that remains unpaid.
(c) NO OTHER TERMINATION. Except upon a breach of this
Agreement by Employee or as otherwise expressly set forth in this Section 4,
Employer shall not be permitted to terminate Employee's employment hereunder. In
the event of a breach of this Section 4, Employee shall be entitled to receive
from Employer as Employee's sole damages and remedy, and Employer agrees to pay
as liquidated damages, all compensation to which Employee would have been
entitled under Section 3 hereof as and when such compensation would have been
received had Employee's employment not been terminated for the remainder of the
initial one-year term of this Agreement, without regard to other events
occurring thereafter that would cause a termination of employment under this
Section 4, except for a violation of Section 5 hereof. Employee shall receive
the liquidated damages agreed to herein without any obligation to prove actual
damages.
5. NON-DISCLOSURE AND NON-COMPETITION.
(a) NON-DISCLOSURE. Employee acknowledges that in the course
of performing services for Employer, Employee will obtain knowledge of
Employer's
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<PAGE> 3
business plans, products, processes, software, know-how, trade secrets,
formulas, methods, models, prototypes, discoveries, inventions, improvements,
disclosures, names and positions of employees and/or other proprietary and/or
confidential information (collectively the "Confidential Information"). Employee
agrees to keep the Confidential Information secret and confidential and not to
publish, disclose or divulge to any other party, and Employee agrees not to use
any of the Confidential Information for Employee's own benefit or to the
detriment of Employer without the prior written consent of Employer, whether or
not such Confidential Information was discovered or developed by Employee.
Employee also agrees not to divulge, publish or use any proprietary and/or
confidential information of others that Employer is obligated to maintain in
confidence.
(b) NON-COMPETITION. Employee agrees that, during his
employment by Employer hereunder and for an additional period of one year after
the termination of Employee's employment, neither Employee nor any corporation
or other entity in which Employee may be interested as a partner, trustee,
director, officer, employee, agent, shareholder, lender of money or guarantor,
or for which he performs services in any capacity (including as a consultant or
independent contractor) shall at any time during such period (i) be engaged,
directly or indirectly, in any Competitive Business (as that term is hereinafter
defined) or (ii) solicit, hire, contract for services or otherwise employ,
directly or indirectly, any of the employees of Employer. Nothing herein
contained shall be deemed to prevent Employee from investing in or acquiring one
per cent or less of any class of securities of any company if such class of
securities is listed on a national securities exchange or is quoted on the
Nasdaq Stock Market. For purposes of this Section 5(b), the term "Competitive
Business" shall mean any business that engages in the design, development,
manufacture, sale, lease, marketing or distribution of any products or provides
any services that are designed, developed, manufactured, sold, marketed or
distributed by Employer during the term of this Agreement.
6. INVENTIONS AND DISCOVERIES.
(a) DISCLOSURE. Employee shall promptly and fully disclose to
Employer with all necessary detail, all developments, know-how, discoveries,
inventions, improvements, concepts, ideas, formulae, processes and methods
(whether copyrightable, patentable or otherwise) made, received, conceived,
acquired or written by Employee (whether or not at the request or upon the
suggestion of Employer, solely or jointly with others, during the period of his
employment with Employer that relate to any line of business, activities or
fields of interest or investigation engaged in by Employer) from time to time
during the course of Employee's employment by Employer, or that are otherwise
made through the use of Employer's time, facilities or materials (collectively,
the "Inventions").
(b) ASSIGNMENT AND TRANSFER. Employee agrees to assign and
transfer to Employer all of Employee's right, title and interest in and to the
Inventions, and Employee further agrees to deliver to Employer any and all
drawings,
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<PAGE> 4
notes, specifications and data relating to the Inventions, and to sign,
acknowledge and deliver all such further papers, including applications for and
assignments of copyrights and patents, and all renewals thereof, as may be
necessary to obtain copyrights and patents for any Inventions in any and all
countries and to vest title thereto in Employer and its successors and assigns
and to otherwise protect Employer's interests therein.
(c) RECORDS. Employee agrees that in connection with any
research, development or other services performed for Employer, Employee will
maintain careful, adequate and contemporaneous written records of all
Inventions, which records shall be the property of Employer.
7. EMPLOYER DOCUMENTATION. Employee shall hold in a fiduciary capacity
for the benefit of Employer all documentation, disks, programs, data, records,
drawings, manuals, reports, sketches, blueprints, letters, notes, notebooks and
all other writings, electronic data, graphics and tangible information and
materials of a secret, confidential or proprietary information nature relating
to Employer or Employer's business that are in the possession or under the
control of Employee.
8. INJUNCTIVE RELIEF. Employee acknowledges that his compliance with
the agreements in Sections 5, 6 and 7 hereof is necessary to protect the good
will and other proprietary interests of Employer and that Employee is one of the
principal executives of Employer and conversant with its affairs, its trade
secrets and other proprietary information. Employee acknowledges that a breach
of any of his agreements in Sections 5, 6 and 7 hereof will result in
irreparable and continuing damage to Employer for which there will be no
adequate remedy at law; and Employee agrees that in the event of any breach of
the aforesaid agreements, Employer and its successors and assigns shall be
entitled to injunctive relief and to such other and further relief as may be
proper.
9. SUPERSEDES OTHER AGREEMENTS. This Agreement represents the entire
agreement between the parties regarding the subject matter hereof and supersedes
and is in lieu of any and all other employment arrangement or agreement, oral or
written, between Employer and Employee.
10. AMENDMENTS. Any amendment to this Agreement shall be made in
writing and signed by the parties hereto.
11. ENFORCEABILITY. If any provision of this Agreement shall be invalid
or unenforceable, in whole or in part, then such provision shall be deemed to be
modified or restricted to the extent and in the manner necessary to render the
same valid and enforceable, or shall be deemed excised from this Agreement, as
the case may require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law, as if such provision had been originally
incorporated herein as so
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<PAGE> 5
modified or restricted, or as if such provision had not been originally
incorporated herein, as the case may be.
12. CONSTRUCTION. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Wisconsin.
13. ASSIGNMENT.
(a) BY EMPLOYER. The rights and obligations of Employer under
this Agreement shall inure to the benefit of, and shall be binding upon, the
successors and assigns of Employer.
(b) BY EMPLOYEE. This Agreement and the obligations created
hereunder may not be assigned by Employee.
14. NOTICES. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been given when mailed by
certified or registered mail, return receipt requested, or sent by overnight
courier, addressed to the intended recipient as follows:
If to Employee:
Ronald L. Hueneke
8846 Lake Drive
West Lake, Wisconsin 53129
If to Employer:
Escalon Medical Corp.
351 East Conestoga Road
Wayne, PA 19087
Attention: Richard J. DePiano,
Chairman and CEO
Any party may from time to time change its address for the purpose of notices to
that party by a similar notice specifying a new address, but no such change
shall be deemed to have been given until it is actually received by the party
sought to be charged with its contents.
15. WAIVER. No claim or right arising out of a breach or default under
this Agreement shall be discharged in whole or in part by a waiver of that claim
or right unless the waiver is supported by consideration and is in writing and
executed by the aggrieved party hereto or its or his duly authorized agent. A
waiver by any party hereto of a breach or default by the other party hereto of
any provision of this Agreement shall not be deemed a waiver of future
compliance therewith, and such provisions shall remain in full force and effect.
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<PAGE> 6
16. SURVIVAL OF COVENANTS. The provisions of Sections 5, 6, 7 and 8
hereof shall survive the termination of this Agreement. Furthermore, any
provision of this Agreement that provides a benefit to Employee and which by the
express terms hereof does not terminate upon the termination of Employee's
employment shall remain binding upon Employer until such time as such benefits
are paid in full to Employee or his successors.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on
the date first above written.
/s/ Ronald L. Hueneke
-------------------------------
Ronald L. Hueneke
ESCALON MEDICAL CORP.
By: /s/ Richard J. DePiano
----------------------------
Richard J. DePiano,
Chairman and Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.14
ESCALON MEDICAL CORP.
1999 EQUITY INCENTIVE PLAN
1. PURPOSE. The purpose of the Escalon Medical Corp. 1999 Equity
Incentive Plan is to enhance the ability of Escalon Medical Corp. (the
"Company") and any subsidiaries to attract and retain the best available
personnel for positions of substantial responsibility, to provide additional
incentives to such personnel and to promote the success of the Company. To
accomplish these purposes, this Plan provides a means whereby employees,
directors and consultants may receive stock options ("Options") to purchase the
Company's Common Stock, no par value, (the "Common Stock").
2. ADMINISTRATION.
(a) COMPOSITION OF THE COMMITTEE. This Plan shall be administered by a
committee (the "Committee"), which shall be appointed by and serve at the
pleasure of the Company's Board of Directors (the "Board"). The Committee shall
be comprised of two or more members of the Board. Each member of the Committee
shall be (i) a "non-employee director" within the meaning of Rule 16b-3 under
the Securities Exchange Act of 1934 (the "Exchange Act") and (ii) an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"). Subject to the foregoing, from time to time the
Board may increase or decrease the size of the Committee, appoint additional
members thereof, remove members (with or without cause), appoint new members in
substitution therefor, fill vacancies or remove all members of the Committee and
thereafter directly administer this Plan.
(b) AUTHORITY OF THE COMMITTEE. The Committee shall have full and final
authority, in its sole discretion, to interpret the provisions of this Plan and
to decide all questions of fact arising in its application; to determine the
employees, directors and consultants to whom awards shall be made and the type,
amount, size and terms of each such award; to determine the time when awards
shall be granted; and to make all other determinations necessary or advisable
for the administration of this Plan. The Committee shall have the authority to
adopt, amend and rescind such rules, regulations and procedures as, in its
opinion, may be advisable in the administration of this Plan, including, without
limitation, rules, regulations and procedures that: (i) deal with satisfaction
of an optionee's tax withholding obligations pursuant to Section 13 hereof, (ii)
include arrangements to facilitate an optionee's ability to borrow funds for the
payment of the exercise price of an Option, if applicable, from securities'
brokers and dealers, and (iii) include arrangements that provide for the payment
of some or all of an Option's exercise price by delivery of previously owned
shares of Common Stock or other property and/or by withholding some of the
shares of Common Stock being acquired upon exercise of an
<PAGE> 2
Option. All decisions, determinations and interpretations of the Committee shall
be final and binding on all optionees and all other holders of Options granted
under this Plan.
(c) AUTHORITY OF THE BOARD. Notwithstanding anything to the contrary
set forth in this Plan, all authority granted hereunder to the Committee may be
exercised at any time and from time to time by the Board. All decisions,
determinations and interpretations of the Board shall be final and binding on
all optionees and all other holders of Options granted under this Plan.
3. STOCK SUBJECT TO THIS PLAN. Subject to Section 16 hereof, the shares
that may be issued under this Plan shall not exceed in the aggregate 235,000
shares of Common Stock. Such shares may be authorized and unissued shares or
shares issued and subsequently reacquired by the Company. Except as otherwise
provided herein, any shares subject to an Option that for any reason expires or
is terminated unexercised as to such shares shall again be available under this
Plan.
4. ELIGIBILITY TO RECEIVE OPTIONS. Persons eligible to receive Options
under this Plan shall be limited to those consultants, directors, officers and
other employees of the Company and any subsidiary (as defined in Section 425 of
the Code or any amendment or substitute thereto), who are in positions in which
their decisions, actions and counsel significantly impact upon the profitability
and success of the Company and any subsidiary. Directors of the Company who are
not also employees of the Company or any subsidiary and consultants shall not be
eligible to be awarded Incentive Stock Options (as defined in Section 5 hereof).
Notwithstanding anything to the contrary set forth in this Plan, the maximum
number of shares of Common Stock for which Options may be granted to any
employee in any calendar year shall be 100,000 shares.
5. TYPES OF OPTIONS. Grants may be made at any time and from time to
time by the Committee in the form of Options to purchase shares of Common Stock.
Options granted hereunder may be Options that are intended to qualify as
incentive stock options within the meaning of Section 422 of the Code or any
amendment or substitute thereto ("Incentive Stock Options") or Options that are
not intended to so qualify ("Nonqualified Stock Options").
6. OPTION AGREEMENTS. Options for the purchase of Common Stock shall be
evidenced by written agreements in such form not inconsistent with this Plan as
the Committee shall approve from time to time. The Options granted hereunder may
be evidenced by a single agreement or by multiple agreements, as determined by
the Committee in its sole discretion. Each Option agreement shall contain in
substance the following terms and conditions:
(a) TYPE OF OPTION. Each Option agreement shall identify the Options
represented thereby as Incentive Stock Options or Nonqualified Stock Options, as
the case may be.
<PAGE> 3
(b) OPTION PRICE. Each Option agreement shall set forth the purchase
price of the Common Stock purchasable upon the exercise of the Option evidenced
thereby. Subject to the limitation set forth in Section 6(d)(ii) hereof, the
purchase price of the Common Stock subject to an Incentive Stock Option shall be
not less than 100% of the fair market value of such stock on the date the Option
is granted, as determined by the Committee, but in no event less than the par
value of such stock. The purchase price of the Common Stock subject to a
Nonqualified Stock Option shall be not less than 85% of the fair market value of
such stock on the date the Option is granted, as determined by the Committee.
For this purpose, fair market value on any date shall mean the closing price of
the Common Stock, as reported in The Wall Street Journal or if not so reported,
as otherwise reported by the National Association of Securities Dealers
Automated Quotation ("Nasdaq") System, or if the Common Stock is not reported by
Nasdaq, the fair market value shall be as determined by the Committee pursuant
to Section 422 of the Code.
(c) EXERCISE TERM. Each Option agreement shall state the period or
periods of time within which the Option may be exercised, in whole or in part,
which shall be such a period or periods of time as may be determined by the
Committee, provided that no Option shall be exercisable after ten years from the
date of grant thereof. The Committee shall have the power to permit an
acceleration of previously established exercise terms, subject to the
requirements set forth herein, upon such circumstances and subject to such terms
and conditions as the Committee deems appropriate.
(d) INCENTIVE STOCK OPTIONS. In the case of an Incentive Stock Option,
each Option agreement shall contain such other terms, conditions and provisions
as the Committee determines necessary or desirable in order to qualify such
Option as a tax-favored Option (within the meaning of Section 422 of the Code or
any amendment or substitute thereto or regulation thereunder) including without
limitation, each of the following, except that any of these provisions may be
omitted or modified if it is no longer required in order to have an Option
qualify as a tax-favored Option within the meaning of Section 422 of the Code or
any substitute therefor:
(i) The aggregate fair market value (determined as of the date
the Option is granted) of the Common Stock with respect to which Incentive Stock
Options are first exercisable by any employee during any calendar year (under
all plans of the Company) shall not exceed $100,000.
(ii) No Incentive Stock Options shall be granted to any
employee if, at the time the Option is granted, the employee owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its parent or its subsidiaries unless, at the time such
Option is granted, the Option price is at least 110% of the fair market value of
the stock subject to the Option and,
<PAGE> 4
by its terms, the Option is not exercisable after the expiration of five years
from the date of grant.
(iii) No Incentive Stock Options shall be exercisable more
than three months (or one year, in the case of an employee who dies or becomes
disabled within the meaning of Section 72(m)(7) of the Code or any substitute
therefor) after termination of employment.
(e) SUBSTITUTION OF OPTIONS. Options may be granted under this Plan
from time to time in substitution for stock options held by directors,
consultants and employees of other corporations who are about to become, and who
do concurrently with the grant of such options become, directors, consultants or
employees of the Company or a subsidiary as a result of a merger or
consolidation of the employing corporation with the Company or a subsidiary, or
the acquisition by the Company or a subsidiary of the assets or capital stock of
the employing corporation or a subsidiary of the employing corporation. The
terms and conditions of the substitute options so granted may vary from the
terms and conditions set forth in this Section 6 to such extent as the Committee
at the time of grant may deem appropriate to conform, in whole or in part, to
the provisions of the stock options in substitution for which they are granted.
7. DATE OF GRANT. The date on which an Option shall be deemed to have
been granted under this Plan shall be the date of the Committee's authorization
of the Option or such later date as may be determined by the Committee at the
time the Option is authorized. Notice of the determination shall be given to
each individual to whom an Option is so granted within a reasonable time after
the date of such grant.
8. EXERCISE AND PAYMENT FOR SHARES. Options may be exercised in whole
or in part, from time to time, by giving written notice of exercise to the
Secretary of the Company, specifying the number of shares to be purchased,
except that no Option may be exercised in whole or in part during the first six
months after the Option is granted unless expressly permitted by the Committee.
The purchase price of the shares with respect to which an Option is exercised
shall be payable in full at the time notice is given in cash, Common Stock at
fair market value, or a combination thereof, as the Committee may determine from
time to time and subject to such terms and conditions as may be prescribed by
the Committee for such purpose. The Committee may also, in its discretion and
subject to prior notification to the Company by an optionee, permit an optionee
to enter into an agreement with the Company's transfer agent or a brokerage firm
of national standing whereby the optionee will simultaneously exercise the
Option and sell the shares acquired thereby through the Company's transfer agent
or such a brokerage firm and either the Company's transfer agent or the
brokerage firm executing the sale will remit the Company from the proceeds of
sale the exercise price of the shares as to which the Option has been exercised.
<PAGE> 5
9. RIGHTS UPON TERMINATION OF SERVICE. In the event that an optionee
ceases to be a consultant, director, officer or employee of the Company or any
subsidiary, for any reason other than death, retirement, as hereinafter defined,
or disability (within the meaning of Section 72(m)(7) of the Code or any
substitute therefor), the optionee shall have the right to exercise the Option
during its term within a period of three months after such termination to the
extent that the Option was exercisable at the time of termination, or within
such other period, and subject to such terms and conditions as may be specified
by the Committee. In the event that an optionee dies, becomes disabled or, in
the case of any employee, retires prior to the expiration of his Option and
without having fully exercised his Option, the optionee or his successor shall
have the right to exercise the Option during its term within a period of one
year after termination of service due to death, disability (within the meaning
of Section 72(m)(7) of the Code) or, in the case of an employee, retirement, in
each case only to the extent that the Option was exercisable at the time of
termination, or within such other period, and subject to such terms and
conditions as may be specified by the Committee. As used in this Section 9,
"retirement" means a termination of employment by reason of an optionee's
retirement at or after his earliest permissible retirement date pursuant to and
in accordance with his employer's regular retirement plan or personnel
practices. Notwithstanding the provisions of Section 6(d)(iii) hereof, an
Incentive Stock Option may be exercised more than three months after termination
of employment due to retirement, as provided in this Section 9, but in that
event, the Option shall lose its status as an Incentive Stock Option and shall
be treated as a Nonqualified Stock Option.
10. GENERAL RESTRICTIONS. Each Option granted under this Plan shall be
subject to the requirement that if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or federal law, or (ii) the consent or approval of any government regulatory
body, or (iii) an agreement by the recipient of an Option with respect to the
disposition of shares of Common Stock is necessary or desirable as a condition
of or in connection with the granting of such Option or the issuance or purchase
of shares of Common Stock thereunder, such Option shall not be consummated in
whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
11. RIGHTS OF A SHAREHOLDER. The recipient of any Option under this
Plan, unless otherwise provided by this Plan, shall have no rights as a
shareholder unless and until certificates for shares of Common Stock are issued
and delivered to him.
12. RIGHT TO TERMINATE EMPLOYMENT. Nothing contained in this Plan or in
any agreement entered into pursuant to this Plan shall confer upon any optionee
the right to continue in the employment of the Company or any subsidiary
<PAGE> 6
or affect any right that the Company or any subsidiary may have to terminate the
employment of such optionee or consulting relationship with such optionee.
13. WITHHOLDING. Whenever the Company proposes or is required to issue
or transfer shares of Common Stock under this Plan, the Company shall have the
right to require the recipient to remit to the Company an amount sufficient to
satisfy any federal, state or local withholding tax requirements prior to the
delivery of any certificate or certificates for such shares. If and to the
extent authorized by the Committee, in its sole discretion, an optionee may make
an election, by means of a form of election to be prescribed by the Committee,
to have shares of Common Stock that are acquired upon exercise of an Option
withheld by the Company or to tender other shares of Common Stock or other
securities of the Company owned by the optionee to the Company at the time of
exercise of an Option to pay the amount of tax that would otherwise be required
by law to be withheld by the Company as a result of any exercise of an Option.
Any such election shall be irrevocable and shall be subject to the disapproval
of the Committee at any time. Any securities so withheld or tendered will be
valued by the Committee as of the date of exercise.
14. NON-ASSIGNABILITY. No Option under this Plan shall be assignable or
transferable by the recipient thereof except by will or by the laws of descent
and distribution or by such other means as the Committee may approve. During the
life of the recipient such Option shall be exercisable only by such person or by
such person's guardian or legal representative.
15. NON-UNIFORM DETERMINATIONS. The Committee's determinations under
this Plan (including without limitation determinations of the persons to receive
Options, the form, amount and timing of such grants, the terms and provisions of
Options, and the agreements evidencing same) need not be uniform and may be made
selectively among persons who receive, or are eligible to receive, grants of
Options under this Plan whether or not such persons are similarly situated.
16. ADJUSTMENTS.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the number of shares of Common Stock that have been
authorized for issuance under this Plan but as to which no Options have yet been
granted or which have been returned to this Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to
<PAGE> 7
have been "effected without receipt of consideration." Such adjustment shall be
made by the Committee, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, all outstanding Options will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Committee. The Committee may, in the exercise of its
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Committee and give each Option holder the right to exercise
his Option as to all or any part of the shares of Common Stock covered by the
Option, including shares as to which the Option would not otherwise be
exercisable.
(c) SALE OR MERGER. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Committee, in the exercise of its sole
discretion, may take such action as it deems desirable, including, but not
limited to: (i) causing an Option to be assumed or an equivalent option to be
substituted by the successor corporation or a parent or subsidiary of such
successor corporation, (ii) providing that an Option holder shall have the right
to exercise his Option as to all of the shares of Common Stock covered by the
Option, including shares as to which the Option would not otherwise be
exercisable, or (iii) declaring that an Option shall terminate at a date fixed
by the Committee provided that the Option holder is given notice and opportunity
to exercise the then exercisable portion of his Option prior to such date.
17. AMENDMENT. The Board may terminate or amend this Plan at any time
with respect to shares as to which Options have not been granted, subject to any
required shareholder approval or any shareholder approval that the Board may
deem to be advisable for any reason, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under tax, securities or other
laws or satisfying any applicable stock exchange listing requirements. The Board
may not, without the consent of the holder of an Option, alter or impair any
Option previously granted under this Plan, except as specifically authorized
herein.
18. CONDITIONS UPON ISSUANCE OF SHARES.
(a) COMPLIANCE WITH SECURITIES LAWS. Shares of the Company's Common
Stock shall not be issued pursuant to the exercise of an Option unless the
exercise of such Option and the issuance and delivery of such shares pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Common Stock of the Company may then be listed, and
shall be
<PAGE> 8
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the shares of Common Stock are
being purchased only for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company, such
representation is required by any of the aforementioned relevant provisions of
law.
19. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of shares as shall be
sufficient to satisfy the requirements of this Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained.
20. EFFECT ON OTHER PLANS. Participation in this Plan shall not affect
an employee's eligibility to participate in any other benefit or incentive plan
of the Company or any subsidiary. Any Options granted pursuant to this Plan
shall not be used in determining the benefits provided under any other plan of
the Company or any subsidiary unless specifically provided.
21. DURATION OF THIS PLAN. This Plan shall remain in effect until all
Options granted under this Plan have been satisfied by the issuance of shares,
but no Option shall be granted more than ten years after the earlier of the date
this Plan is adopted by the Company or is approved by the Company's
shareholders.
22. FORFEITURE FOR DISHONESTY. Notwithstanding anything to the contrary
in this Plan, if the Committee finds, by a majority vote, after full
consideration of the facts presented on behalf of both the Company and any
optionee, that the optionee has been engaged in fraud, embezzlement, theft,
commission of a felony or dishonest conduct in the course of his employment or
retention by the Company or any subsidiary that damaged the Company or any
subsidiary or that the optionee has disclosed trade secrets of the Company or
any subsidiary, the optionee shall forfeit all unexercised Options and all
exercised Options under which the Company has not yet delivered the
certificates. The decision of the Committee in interpreting and applying the
provisions of this Section 22 shall be final. No decision of the Committee,
however, shall affect the finality of the discharge or termination of such
optionee by the Company or any subsidiary in any manner.
23. NO PROHIBITION ON CORPORATE ACTION. No provision of this Plan shall
be construed to prevent the Company or any officer or director thereof from
<PAGE> 9
taking any corporate action deemed by the Company or such officer or director to
be appropriate or in the Company's best interest, whether or not such action
could have an adverse effect on this Plan or any Options granted hereunder, and
no optionee or optionee's estate, personal representative or beneficiary shall
have any claim against the Company or any officer or director thereof as a
result of the taking of such action.
24. INDEMNIFICATION. With respect to the administration of this Plan,
the Company shall indemnify each present and future member of the Committee and
the Board against, and each member of the Committee and the Board shall be
entitled without further action on his part to indemnity from the Company for
all expenses (including the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of, any action, suit or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and the Board, whether or not he continues to be such member at the time of
incurring such expenses; provided, however, that such indemnity shall not
include any expenses incurred by any such member of the Committee or the Board
(i) in respect of matters as to which he shall be finally adjudged in any such
action, suit or proceeding to have been guilty of gross negligence or willful
misconduct in the performance of his duty as such member of the Committee or the
Board; or (ii) in respect of any matter in which any settlement is effected for
an amount in excess of the amount approved by the Company on the advice of its
legal counsel; and provided further that no right of indemnification under the
provisions set forth herein shall be available to or enforceable by any such
member of the Committee and the Board unless, within 60 days after institution
of any such action, suit or proceeding, he shall have offered the Company in
writing the opportunity to handle and defend same at its own expense. The
foregoing right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each such member of the Committee and the Board
and shall be in addition to all other rights to which such member may be
entitled as a matter of law, contract or otherwise.
25. MISCELLANEOUS PROVISIONS.
(a) COMPLIANCE WITH PLAN PROVISIONS. No optionee or other person shall
have any right with respect to this Plan, the Common Stock reserved for issuance
under this Plan or in any Option until a written option agreement shall have
been executed by the Company and the optionee and all the terms, conditions and
provisions of this Plan and the Option applicable to such optionee (and each
person claiming under or through him) have been met.
(b) APPROVAL OF COUNSEL. In the discretion of the Committee, no shares
of Common Stock, other securities or property of the Company, or other forms of
payment shall be issued hereunder with respect to any Option unless counsel for
the Company shall be satisfied that such issuance will be in compliance with
<PAGE> 10
applicable federal, state, local and foreign legal, securities exchange and
other applicable requirements.
(c) COMPLIANCE WITH RULE 16b-3. To the extent that Rule 16b-3 under the
Exchange Act applies to this Plan or to Options granted under this Plan, it is
the intention of the Company that this Plan comply in all respects with the
requirements of Rule 16b-3, that any ambiguities or inconsistencies in
construction of this Plan be interpreted to give effect to such intention and
that, if this Plan shall not so comply, whether on the date of adoption or by
reason of any later amendment to or interpretation of Rule 16b-3, the provisions
of this Plan shall be deemed to be automatically amended so as to bring them
into full compliance with such rule.
(d) UNFUNDED PLAN. This Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets under this Plan.
(e) EFFECTS OF ACCEPTANCE OF OPTION. By accepting any Option or other
benefit under this Plan, each optionee and each person claiming under or through
him shall be conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under this Plan by the
Company, the Board and/or the Committee or its delegates.
(f) CONSTRUCTION. The masculine pronoun shall include the feminine and
neuter, and the singular shall include the plural, where the context so
indicates.
26. SHAREHOLDER APPROVAL. The Company shall submit this Plan to the
shareholders entitled to vote hereon for approval within twelve months after the
date of adoption by the Board in order to meet the requirements of Section 422
of the Code and the regulations thereunder, Section 162(m) of the Code and
regulations thereunder, and the National Association of Securities Dealers, Inc.
for the quotation of the Common Stock on the Nasdaq System. The exercise of any
Option granted under this Plan shall be subject to the approval of this Plan by
the shareholders.
Date of Adoption by the Board: July 15, 1999.
Date of Approval by the Shareholders: November 9, 1999.
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