SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended October 31, 1998; or
[ ] TRANSITION REPORT PERSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 0-28010
MEDWAVE, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1493458
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
4382 Round Lake Road West
Arden Hills, Minnesota 55112
(Address of principal executive offices,
zip code)
(651) 639-1227
(Registrant's telephone number, including
area code)
Indicate by mark whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period as 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 [ ]
As of November 30, 1998, the issuer had 5,392,396 shares of Common Stock
outstanding.
<PAGE>
Medwave, Inc.
Form 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - April 30, 1998 and October 31, 1998 2
Statements of Operations - Three Months Ended October 31, 1998 3
and 1997, Six Months Ended October 31, 1998 and 1997, and Period
from June 27, 1984 (Inception) to October 31, 1998
Statements of Cash Flows - Three Months Ended October 31, 1998 4
and 1997, Six Months Ended October 31, 1998 and 1997, and
Period from June 27, 1984 (Inception) to October 31, 1998
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 5
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters To A Vote of Security Holders 8
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Medwave, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
April 30, October 31,
1998 1998
----------------------------
(see note 2) (unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,926,697 $ 1,051,323
Short term investments 759,758 3,075,667
Accounts receivable 59,618 176,379
Inventories 249,079 243,850
Prepaid expenses 74,975 32,212
------------ ------------
Total current assets 3,070,127 4,579,431
Investments 3,484,515 2,609,658
Property and equipment:
Research and development equipment 242,606 233,560
Office Equipment 115,243 111,745
Manufacturing and engineering equipment 65,259 65,259
Sales and marketing equipment 60,183 59,927
Leasehold improvements 31,613 31,613
------------ ------------
514,904 502,104
Accumulated depreciation (383,802) (406,692)
------------ ------------
131,102 95,412
Patents, net 53,418 40,719
============ ============
Total Assets $ 6,739,162 $ 7,325,220
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 109,585 $ 165,790
Accrued payroll 57,531 54,469
Deferred revenue -- 1,500,000
------------ ------------
Total current liabilities 167,116 1,720,259
Shareholders' equity:
Common Stock, no par value:
Authorized shares--50,000,000
Issues and outstanding shares -- 5,384,396 at 16,240,970 16,252,470
April 30, 1998 and 5,392,396 at Oct 31, 1998
Unrealized gain/(loss) on investments (14,999) 16,536
Deficit accumulated during the development stage (9,653,925) (10,664,045)
------------ ------------
Total shareholders' equity 6,572,046 5,604,961
------------ ------------
Total liabilities and shareholders' equity $ 6,739,162 $ 7,325,220
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
June 27, 1984
(Inception)
Three months ended October 31 Six months ended October 31 to
---------------------------- ----------------------------
1998 1997 1998 1997 October 31, 1998
---------------------------- ---------------------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Net Sales $ 162,134 $ 106,087 $ 362,456 $ 292,796 $ 1,028,420
Operating expenses:
Cost of sales and product development 130,700 116,929 304,267 305,765 970,091
Research and development 329,495 304,698 600,164 581,355 6,221,042
Sales and marketing 210,713 307,543 429,360 560,071 2,169,416
General and administrative 126,327 112,875 227,042 206,714 2,932,760
------------ ------------ ------------ ------------ ------------
Operating loss (635,101) (735,958) (1,198,377) (1,361,109) (11,264,889)
Other income:
Interest income 110,577 61,541 188,256 123,542 1,227,610
------------ ------------ ------------ ------------ ------------
Net Loss ($ 524,524) ($ 674,417) ($ 1,010,121) ($ 1,237,567) ($10,037,279)
============ ============ ============ ============ ============
Net loss per share - basic and diluted $ (0.10) $ (0.14) $ (0.19) $ (0.26) $ (4.01)
============ ============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 5,390,176 4,821,265 5,385,609 4,819,995 2,501,955
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Period from
June 27, 1984
(Inception)
Three months ended October 31 Six months ended October 31 to
--------------------------------------------------------
1998 1997 1998 1997 October 31,
-------------------------------------------------------- 1998
------------
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss $ (524,542) $ (674,417) $(1,010,121) $(1,237,567) $(10,037,279)
Adjustments to reconcile net loss to
net cash provided (used) in operating activities:
Depreciation 16,160 19,703 35,532 37,433 592,151
Amortization 6,350 6,349 12,700 12,699 95,298
Loss on sale of equipment -- -- -- -- 7,375
Issuance of Common Stock for consulting services -- -- -- -- 3,413
Changes in operating assets and liabilities:
Accounts receivable (934) 88,082 (116,761) (22,907) (176,379)
Inventories (42,583) 27,113 5,229 (44,570) (243,850)
Prepaid expenses 12,200 38,355 42,763 72,813 (32,212)
Accounts payable and accrued expenses 35,132 (38,921) 56,205 70,843 165,790
Accrued payroll and related taxes 762 4,293 (3,062) 3,088 54,469
Deferred income 1,500,000 -- 1,500,000 -- 1,500,000
----------- ----------- ----------- ----------- ------------
Net cash used in operating activities 1,002,545 (529,443) 522,485 (1,108,168) (8,071,224)
Investing activities
Patent expenditures -- -- -- -- (136,017)
Purchase of investments (1,989,837) (1,000,045) (2,232,797) (1,488,051) (35,845,853)
Sales and maturity of investments 562,908 4,050,460 823,281 4,050,460 30,178,901
Purchase of property and equipment -- (29,743) (3,306) (46,157) (715,799)
Proceeds from sale of equipment -- -- 3,463 -- 21,663
----------- ----------- ----------- ----------- ------------
Net cash provided (used) in investing activities (1,426,929) 3,020,672 (1,409,359) 2,516,252 (6,497,105)
Financing activities
Net proceeds from issuance of Convertible Preferred Stock -- -- -- -- 4,848,258
Net proceeds from issuance of Common Stock 7,000 3,000 11,500 3,000 10,771,394
----------- ----------- ----------- ----------- ------------
Net cash provided by financing activities 7,000 3,000 11,500 3,000 15,619,652
----------- ----------- ----------- ----------- ------------
(Decrease) increase in cash and cash equivalents (417,384) 2,494,229 (875,374) 1,411,084 1,051,323
Cash and cash equivalents at beginning of period 1,468,707 156,955 1,926,697 1,240,100 --
=========== =========== =========== =========== ============
Cash and cash equivalents at end of period $ 1,051,323 $ 2,651,184 $ 1,051,323 $ 2,651,184 $ 1,051,323
=========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Medwave, Inc.
(A Development Stage Company)
Notes To Financial Statements
October 31, 1998
1. Organization and Description of Business
Medwave, Inc. (the Company) is a development stage enterprise engaged
exclusively in the development, manufacturing and marketing of a
proprietary, non-invasive system that continually monitors arterial blood
pressure of adults and in the development of related technology and
products.
2. Basis of Presentation
The financial information presented as of October 31, 1998 has been
prepared from the books and records without audit. Financial information
as of April 30, 1998 is based on audited financial statements of the
Company but does not include all disclosures required by generally
accepted accounting principles. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary for
a fair presentation of the financial information for the periods
indicated, have been included. For further information regarding the
Company's accounting policies, refer to the financial statements and
related notes included in the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 1998.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion should be read in conjunction with, and is qualified
by, the Company's financial statements set forth in Item 1 of this Form 10-Q.
General
The Company, which was formed in 1984, is a development stage company that
currently employs sixteen full-time employees and three part-time employees.
Since its inception, the Company has been engaged exclusively in the development
of a non-invasive, blood pressure measurement and monitoring system. Utilizing
proprietary technology, the Company's Vasotrac(R) system monitors blood
pressure, providing new readings approximately every fifteen heartbeats. The
Company believes that continual blood pressure readings and non-invasive
features of the Vasotrac system make it the most advanced approach to blood
pressure monitoring. In 1997, the Company began development of a hand-held blood
pressure measurement device. This hand-held unit is based on the technology used
in the Vasotrac system.
The Company has incurred an accumulated deficit of $(10,664,045) from its
inception through October 31, 1998. Additional losses from development, testing,
regulatory compliance, sales, and other expenses are expected to be incurred by
the Company at least until it emerges from the development stage.
The Company's success is dependent upon the successful development and marketing
of the Vasotrac system and/or related technology. However, there can be no
assurance that the Vasotrac system or related products will be successfully
marketed or sold in sufficient quantities and at margins necessary to achieve or
maintain profitability.
In December 1997, the Company began developing a dealer sales network for
selling the Vasotrac system. To date, the Company has entered into agreements
with twelve dealers whose territories cover most of the United States. The
success of the Company's Vasotrac system sales will depend upon the ability of
dealers to sell the Vasotrac system to the hospitals in their area. At this
time, dealers have not demonstrated that they will be successful.
<PAGE>
Feedback from the dealers and from clinicians indicate the Vasotrac system is
difficult to use and, therefore, requires significant training. Sales time is
increased because of the training required; therefore, many sales
representatives do not dedicate the time required to promote and sell the
system. To alleviate this problem, the Company is working on an enhanced
Vasotrac system with ease of use as the primary objective. The Company
anticipates completing the engineering for the enhanced product by the end of
January and hopes to begin beta testing in February. If the beta test is
successful, the Company hopes to begin selling the enhanced product by the end
of April 1999. There can be no assurance that the Company will be able to
enhance the product on the time table discussed above, or that the product
enhancements will resolve the ease of use issues the clinicians and dealers have
encountered.
The Company's research into a hand-held blood pressure measurement device may
result in a product that has sales potential both in the professional market
(doctors, nurses, and medical technicians) and in the consumer market. The
Company does not have suitable distribution channels for these potential markets
and there can be no assurance that the Company will be able to implement or
effectuate suitable arrangements for such markets.
In October 1998, the Company entered into a technical evaluation agreement with
an interested party, related to its blood pressure technology, specifically its
hand-held blood pressure device. The agreement called for the Company to receive
$1,500,000 in exchange for a "stand still" period of six (6) months, during
which the Company will not have any discussions or negotiations with other
parties including, among other things, the licensing or selling of the
technology of its hand-held blood pressure device. The amount received will be
recognized as revenue if the agreement terminates with no additional agreement
with the interested party. If the Company should enter into a license or royalty
agreement with the interested party, the amount received will be recognized as
income under the terms of the new agreement. If the Company should be purchased,
the amount received will be recognized as part of the purchase price.
During the term of the agreement, the interested party can further evaluate the
Company's hand-held blood pressure measurement device and, at the interested
party's sole discretion, can offer to license the product or to acquire the
Company. In such event, both parties agree to enter into negotiations during the
term of the agreement on a good faith basis. The agreement does not obligate the
interested party to make any offer and there is no assurance that any
transaction with the interested party will be proposed or consummated.
For the Company to emerge from the development stage, its success will also
depend on its ability to hire additional employees for key operating positions.
Competition for such employees is intense and there can be no assurance that the
Company will be successful in hiring such employees on acceptable terms or when
required, or in maintaining the services of its present employees. The Company
preliminarily estimates that these employees will increase employee-related
expenses in excess of $300,000 during the next twelve months. However, such
requirements are subject to change and are highly dependent on the development
process for the products, including the manufacturing scale-up process, market
acceptance, and the Company's distribution methods.
Cash and cash equivalents, and short and long-term investments are being used
primarily to finance continued clinical testing of the Vasotrac system, for
manufacturing and marketing, to conduct additional research and product
development efforts that may be necessary, and to provide working capital. Over
the next twelve months, the Company expects to spend in excess of $1,300,000 for
research and development. Specifically, the funds are expected to be used to
develop an improved sensor and wrist holder as part of our enhanced Vasotrac
system, to sustain engineering support for manufacturing, and for continued
development of a hand-held unit. No significant amount of equipment is expected
to be required. Even assuming limited sales, the Company believes that the cash,
cash equivalents, and short and long-term investments will allow the Company to
meet its cash requirements for approximately one and one-half years from October
31, 1998. If the development process for the system does not proceed as expected
because significant product design changes are required to achieve market
acceptance or unexpected difficulties are encountered in attaining
<PAGE>
cost-effective manufacturability, the Company may require additional capital at
an earlier date. Such capital may be sought through bank borrowing, equipment
financing, equity financing, and other methods. The Company's financing needs
are subject to change depending on, among other things, market conditions and
opportunities, equipment or other asset-based financing that may be available,
and cash flow from operations. Any material favorable or unfavorable deviation
from its anticipated expense could significantly affect the timing and amount of
additional financing that may be required. However, additional financing may not
be available when needed or, if available, may not be on terms that are
favorable to the Company or its security holders. In addition, any such
financing could result in substantial dilution to then existing security
holders.
Results of Operations
The results of operations compares the three months and six months ended October
31, 1998 and 1997, respectively. The analysis of liquidity and capital resources
compares October 31, 1998 to April 30, 1997.
Operating revenue was $162,000 and $106,000 for the quarter ended October 31,
1998 and 1997, respectively. Operating revenue was $362,500 and $293,000 for the
six months ended October 31, 1998 and 1997, respectively. Operating revenue is
up due to the purchase of Vasotrac systems by dealers for their demonstration
equipment.
Cost of sales and product development was $130,500 and $117,000 for the quarter
ended October 31, 1998 and 1997, respectively. Cost of sales and product
development was $304,000 and $305,500 for the six months ended October 31, 1998
and 1997, respectively. The cost of sales and product development increase for
the quarter was attributable to an increase in the number of units sold. The
cost of sales and product development decrease for the six month period was
attributable to increased efficiencies in product manufacturing as the Company
improves it's manufacturing processes.
The Company incurred $320,500 and $304,500 for research and development expenses
for the quarter ended October 31, 1998 and 1997, respectively. The Company
incurred $600,000 and $581,500 for research and development expenses for the six
months ended October 31, 1998 and 1997, respectively. The research and
development expense increase was primarily attributed to continuing research on
the hand-held unit.
The Company incurred $210,500 and $307,500 for sales and marketing expenses for
the quarter ended October 31, 1998 and 1997, respectively. The Company incurred
$429,500 and $560,000 for sales and marketing expenses for the six months ended
October 31, 1998 and 1997 respectively. The sales and marketing expense decrease
was attributable to the decrease in the number of sales representatives employed
by the Company as the Company converted over to a dealer network.
The Company incurred $145,000 and $113,000 for general and administrative
expenses for the quarter ended October 31, 1998 and 1997, respectively. The
Company incurred $245,500 and $206,714 for the six months ended October 31, 1998
and 1997 respectively. For the six months ended October 31, 1998 compared to the
six months ended October 31, 1997, the increase in general and administrative
expenses was attributable to a general increase in expenses.
Interest income was $110,500 and $61,500 for the quarter ended October 31, 1998
and October 31, 1997, respectively. Interest income was $188,000 and $123,500
for the six months ended October 31, 1998 and 1997 respectively. The increase
reflects higher cash, cash equivalents, and short and long-term investments as
the result of the Company's private placement in March 1998.
<PAGE>
Liquidity and Capital Resources
The Company's cash, cash equivalents, and short- and long-term investments were
$6,737,000 and $4,154,500 at October 31, 1998 and April 30, 1998, respectively.
With the cash and cash equivalents, and short and long-term investments, the
Company believes that sufficient liquidity is available to satisfy its working
capital needs for approximately one and one-half years from October 31, 1998.
The Company has no significant capital expenditure commitments.
Year 2000 Update
The Company has instituted a Year 2000 compliance project to address the issue
of computer programs and embedded computer chips being unable to distinguish
between the year 1900 and the year 2000. In the spring of 1998, the Company
conducted a review of its Information Technology ("IT") systems and non-IT
systems to identify the impact of the Year 2000 issue. The review concluded that
the Company's software and internal operations will not require Year 2000
modifications. The total cost associated with testing for Year 2000 compliance
is not expected to be material to the Company's financial position.
In connection with this review, the Company also asked critically important
vendors, suppliers, and financial institutions whose incomplete or untimely
resolution of the Year 2000 problem could potentially have a significant impact
on the Company's operations to assess their Year 2000 readiness. The Company has
been informed that these vendors, suppliers, and financial institutions will be
substantially Year 2000 compliant by mid-1999.
In the reasonable worst case scenario, the Company's suppliers and customers
would experience delays in filling orders, making payments or other Year 2000
problems that may adversely effect the Company. Contingency plans are being
prepared, where necessary, to minimize any significant exposures from the
failure of third parties to be Year 2000 compliant. These plans will be
substantially completed by mid-year 1999 and include development of backup
procedures, identification of alternate suppliers, and an assessment of the need
for increases in inventory levels.
The Company does not expect the Year 2000 problem or the cost of the compliance
program to have a material impact on the results of operations, financial
condition, or cash flows. However, there can be no absolute assurance that third
parties will convert their systems in a timely manner and in a way that is
compatible with the Company's systems.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
<PAGE>
ITEM 5. OTHER INFORMATION
Statements made in this report that are stated as expectations, plans,
anticipations, prospects or future estimates or which otherwise look forward in
time are considered "forward-looking statements" and involve a variety of risks
and uncertainties, known and unknown, which are likely to affect the actual
results. The following factors, among others, as well as factors discussed in
the Company's other filings with the SEC, have affected, and in the future,
could affect the Company's actual results: resistance to the acceptance of new
medical products, the market acceptance of the Vasotrac system or other products
of the Company, hospital budgeting cycles, the possibility of adverse or
negative commentary from clinical researchers or other users of the Company's
products, the Company's success in creating effective distribution channels for
its products, the Company's ability to scale up its manufacturing process, and
delays in product development or enhancement or regulatory approval.
Consequently, no forward-looking statement can be guaranteed and actual results
may vary materially.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
See Exhibit Index on Page Following Signatures
(B) REPORTS ON FORM 8K:
No reports on Form 8-K were filed by the Company during the
quarter ended October 31, 1998
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: December 15, 1998 Medwave, Inc.
/s/ G. Kent Archibald
By: G. Kent Archibald
President and Chief Executive Officer
/s/ Mark T. Bakko
Mark T. Bakko
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
MEDWAVE, INC.
FORM 10-Q
FOR QUARTER ENDED
OCTOBER 31, 1998
Exhibit No. Description
10.1 Amended and Restated Stock Option Plan, as amended through August 4,
1998
10.2 Agreement dated September 25, 1998 between Registrant and unnamed
company*
27 Financial Data Schedule (filed in electronic format only)
- -------------------
* Portions of this document have been omitted pursuant to a request for
confidential treatment
MEDWAVE, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
(COMPOSITE COPY AS AMENDED THROUGH AUGUST 4, 1998)
Article 1. Establishment and Purpose
1.1 Establishment. Medwave, Inc. (the "Company") hereby establishes a
plan providing for the grant of stock options to certain eligible employees,
directors and key consultants of the Company and its subsidiaries. This plan
shall be known as the Amended and Restated Stock Option Plan (the "Plan").
1.2 Purpose. The purpose of the Plan is to advance the interests of the
Company and its shareholders by enabling the Company and its subsidiaries to
attract and retain persons of ability as employees, directors, and key
consultants by providing an incentive to such individuals through equity
participation in the Company and by rewarding such employees, directors and key
consultants who contribute to the achievement by the Company of its long-term
economic objectives.
Article 2. Definitions
The following terms shall have the meanings set forth below, unless the context
clearly otherwise requires:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
2.3 "Committee" means the entity administering the Plan, as provided in
Article 3 below.
2.4 "Common Stock" means the common stock of the Company, no par value,
or the number and kind of shares of stock or other securities into which such
Common Stock may be changed in accordance with Section 4.3 below.
2.5 "Disability" means the occurrence of an event which constitutes
permanent and total disability within the meaning of Section 22(e) (3) of the
Code.
2.6 "Eligible Participants" means individuals who are full-time or
part-time employees of the Company or any Subsidiary, or directors or key
consultants to the Company or any Subsidiary.
2.7 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
2.8 "Fair Market Value" means, with respect to the Common Stock, as of
any date:
(a) if such stock is reported in the NASDAQ National Market
System or the NASDAQ SmallCap Market, or is listed upon another
established exchange or exchanges, the reported closing price of such
stock in such National Market System, SmallCap Market or on such stock
exchange or exchanges on the date the option is granted or, if no sale
of such stock shall have occurred on that date, on the next preceding
day on which there was a sale of stock;
(b) if such stock is not so reported in the NASDAQ National
Market System or the NASDAQ SmallCap Market, or is not listed upon
another established exchange, the average of the closing "bid" and
"asked" prices quoted by a recognized specialist in the Common Stock of
the Company on the date the option is granted, or if there are no
quoted "bid" and "asked" prices on such date, on the next preceding
date for which there are such quotes; or
(c) if such stock is not publicly traded as of the date the
option is granted, the per share value as determined by the Board, or
the Committee, in its sole discretion by applying principles of
valuation with respect to all such options.
2.9 "Incentive Stock Option" means a right to purchase Common Stock
granted to an Optionee pursuant to Section 6.5 of this Plan that qualifies as an
incentive stock option within the meaning of Section 422 of the Code.
2.10 "Nonstatutory Stock Option" means a right to purchase Common Stock
granted to an Optionee pursuant to Section 6.6 of the Plan and does not qualify
as an Incentive Stock Option.
2.11 "Option" means an Incentive Stock Option or a Nonstatutory Stock
Option.
2.12 "Optionee" means an Eligible Participant who receives one or more
Options under the Plan.
2.13 "Person" means any individual, corporation, partnership, group,
association or other "person (as such term is used in Section 14(d) of the
Exchange Act), other than the Company, a wholly owned subsidiary of the Company
or any employee benefit plan sponsored by the Company.
2.14 "Retirement" means the retirement of an Optionee pursuant to and
in accordance with the regular retirement plan or practice of the Company or the
Subsidiary employing the Optionee.
2.15 "Securities Act" means the Securities Act of 1933, as amended.
<PAGE>
2.16 "Subsidiary" means any corporation that is a subsidiary
corporation of the Company (within the meaning of Section 424(f) of the Code).
2.17 "Tax Date" means a date defined in Section 6.6(c) of the Plan.
Article 3. Plan Administration
The Plan shall be administered by the Board or by a committee of the
Board consisting of two (2) or more directors. As long as the Company's
securities are registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended, then, to the extent necessary for compliance with Rule
16b-3, or any successor provision, each of the members of the committee shall be
a "nonemployee director." Solely for purposes of this Article 3, "nonemployee
director" shall have the same meaning as set forth in Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended.
Members of any committee shall be appointed from time by the Board. A
majority of the members of such committee shall constitute a quorum. Such
committee shall act by majority approval of the members, shall keep minutes of
its meetings and shall provide copies of such minutes to the Board. Action of
such committee may be taken without a meeting if unanimous written consent
thereto is given. Copies of minutes of such committee's meetings and of its
actions by written consent shall be provided to the Board and kept with the
corporate records of the Company. As used in this Plan, the term "Committee"
will refer either to the Board or to any committee established by the Board.
In accordance with and subject to the provisions of the Plan, the
Committee shall select the Optionees from Eligible Participants; shall determine
the number of shares of Common Stock to be subject to Options granted pursuant
to the Plan, the time at which Options are granted, the Option exercise price,
Option period and the manner in which each Option becomes exercisable; and shall
fix such other provisions of Options as the Committee may deem necessary or
desirable as consistent with the terms of the Plan. The Committee shall
determine the form or forms of the agreements with Optionees which shall
evidence the particular terms, conditions, rights and duties of the Company and
the Optionees under Options granted pursuant to the Plan. The Committee shall
have the authority, subject to the provisions of the Plan, to establish, adopt
and revise such rules and regulations relating to the Plan as it may deem
necessary or advisable for the administration of the Plan. With the consent of
the Optionee affected thereby, the Committee may amend or modify the terms of
any outstanding Option in any manner, provided that the amended or modified
terms are permitted by the Plan as then in effect. Without limiting the
generality of the foregoing sentence, the Committee may, with the consent of the
Optionee affected thereby, modify, extend, renew or accept the surrender of any
outstanding Option, to the extent not previously exercised, and the Committee
may authorize the grant of new Options in substitution therefor.
Each determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan shall be conclusive and binding
for all purposes and on all persons, including, without limitation, the Company
<PAGE>
and its Subsidiaries, the shareholders of the Company, the Committee and each of
the members thereof, the directors, officers and employees of the Company and
its Subsidiaries, and the Optionees and their respective successors in interest.
No member of the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted under the Plan.
Article 4. Stock Subject to the Plan
4.1 Number. The maximum number of shares of Common Stock that shall be
reserved for issuance under the Plan shall be 1,700,000, subject to adjustments
upon changes in the capitalization of the Company as provided in Section 4.3
below. The maximum number of shares authorized may be increased from time to
time by approval of the Board and the shareholders of the Company. Shares of
Common Stock that may be issued upon exercise of Options shall be applied to
reduce the maximum number of shares of Common Stock remaining available for use
under the Plan.
4.2 Unused Stock. Any shares of Common Stock that are subject to an
Option (or any portion thereof) that lapses, expires or for any reason is
terminated unexercised shall automatically again become available for use under
the Plan.
4.3 Capital Adjustments. If the number of outstanding shares of Common
Stock is increased or decreased or changed into or exchanged for a different
number or kind of shares of stock or other securities of the Company or of
another corporation by reason of any reorganization, merger, consolidation,
recapitalization, reclassification, divestiture (including a spin-off), stock
dividend, stock split, combination of shares, rights offering or any other
change in the corporate structure or shares of the Company, the Committee (or,
if the company is not the surviving corporation of any such transaction, the
board of directors of the surviving corporation) shall make appropriate
adjustment as to the number and kind of securities subject to and reserved under
the Plan and, in order to prevent dilution or enlargement of the rights of
Optionees, the number and kind of securities subject to outstanding Options. Any
such adjustment in any outstanding Option shall be made without change in the
aggregate purchase price applicable to the unexercised portion of the Option
(but with an appropriate adjustment in the price for each share or other unit of
any security covered by the outstanding Incentive Stock Option as a result of
any such change in the corporate structure or shares of the Company), without
the consent of the Optionee affected thereby, in accordance with Sections 422
and 424(h) of the Code.
Article 5. Participation
Optionees shall be those Eligible Participants who, in the judgment of
the Committee, are performing, or during the term of an Option, will perform,
vital services in the management, operation and development of the Company or a
Subsidiary, and significantly contribute or are expected to significantly
contribute to the achievement of long-term corporate economic objectives.
Optionees may be granted from time to time one or more Incentive Stock Options
or Nonstatutory Stock Options under the Plan, as may be determined by the
Committee in its sole discretion; provided, however, directors and key
<PAGE>
consultants who are not employees of the Company shall not be eligible to
receive and shall not be granted Incentive Stock Options; and provided, further,
that directors who are not employees of the Company or any Subsidiary shall only
be eligible to receive Nonstatutory Stock Options pursuant to Article 13. Except
as otherwise provided in the Plan, the number, type, terms and conditions of
Options granted to various Eligible Participants need not be uniform, consistent
or in accordance with any plan, whether or not such Eligible Participants are
similarly situated. Upon determination by the Committee that an Option is to be
granted to an Optionee, written notice shall be given to such person specifying
such terms, conditions, rights and duties related thereto. Each Optionee shall
enter into an agreement with the Company, in such form as the Committee shall
determine and which shall be consistent with the provisions of the Plan,
specifying such terms, conditions, rights and duties. Options shall be deemed to
be granted as of the date specified in the grant resolution of the Committee,
which date shall be the date of the related agreement with the Optionee.
Article 6. Terms of Options
6.1 Grant of Options. Except as otherwise provided in the Plan, an
Optionee may be granted one or more options under the Plan, and the Committee in
its sole discretion (to the extent permitted pursuant to Article 5) may
designate whether an Option is to be considered an Incentive Stock Option or a
Nonstatutory Stock Option. The Committee may grant both an Incentive Stock
Option and a Nonstatutory Stock Option to the same Optionee at the same time or
at different times. Incentive Stock Options and Nonstatutory Stock Options,
whether granted at the same or different times, shall be deemed to have been
awarded in separate grants, shall be clearly identified, and in no event will
the exercise of one Option affect the right to exercise any other Option or
affect the number of shares of Common Stock for which any other Option may be
exercised.
6.2 Manner of Option Exercise. An Option may be exercised by an
Optionee in whole or in part from time to time, subject to the conditions
contained herein and in the agreement evidencing such Option, by delivery, in
person or through certified or registered mail, of written notice of exercise to
the Company at its principal executive office (Attention: Secretary), and by
paying in full the total Option exercise price of the shares of Common Stock
purchased. Such notice shall be in a form satisfactory to the Committee and
shall specify the particular Option (or portion thereof) that is being exercised
and the number of shares with respect to which the Option is being exercised.
Subject to Section 9.1, the exercise of the Option shall be deemed effective
upon receipt of such notice and payment. As soon as practicable after the
effective exercise of the Option, the Optionee shall be recorded on the stock
transfer books of the Company as the owner of the shares purchased and the
Company shall deliver to the Optionee one or more duly issued stock certificates
evidencing such ownership.
6.3 Payment of Option Exercise Price. At the time of the Option
exercise, the Optionee may determine whether the total purchase price of the
shares to be purchased shall be paid solely in cash or by transfer from the
Optionee to the Company of previously acquired shares of Common Stock, or by a
combination thereof. In the event the Optionee elects to pay the purchase price
<PAGE>
in whole or in part with previously acquired shares of Common Stock, the value
of such shares shall be equal to their Fair Market Value on the date of
exercise. The Committee may reject an Optionee's election to pay all or part of
the purchase price with previously acquired shares of Common Stock and require
such purchase price to be paid entirely in cash. For purposes of this Section
6.3, "previously acquired shares" shall include only shares of Common Stock that
were already owned by the Optionee at the time of exercise. In its sole
discretion, the Committee may permit an Optionee to pay all or any portion of
the purchase price in installments or by delivery of a promissory note in form
and substance acceptable to the Committee, or in such other form of payment as
may be authorized by the Committee.
6.4 Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock covered by an Option
until the Optionee shall have become the holder of record of such shares, and no
adjustments shall be made for dividends or other distributions or other rights
as to which there is a record date preceding the date the Optionee becomes the
holder of record of such shares except as the Committee may determine pursuant
to Section 4.3.
6.5 Incentive Stock Options.
(a) Incentive Stock Option Exercise Price. The per share price
to be paid by the Optionee at the time an Incentive Stock Option is
exercised will be determined by the Committee, but shall not be less
than (i) one hundred percent (100%) of the Fair Market Value of one (l)
share of Common Stock on the date the Option is granted, (ii) one
hundred ten percent (110%) of the Fair Market Value of one (1) share of
Common Stock on the date the Option is granted if, at that time the
Option is granted, the Optionee owns, directly or indirectly (as
determined pursuant to Section 424(d) of the Code), more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company, any Subsidiary or any parent corporation of the
Company (within the meaning of Section 424(e) of the Code).
(b) Duration of Incentive Stock Options. The period during
which an Incentive Stock Option may be exercised shall be fixed by the
Committee at the time such Option is granted, but in no event shall
such period exceed ten (10) years from the date the Option is granted
or, in the case of an Optionee that owns, directly or indirectly (as
determined pursuant to Section 424(d) of the Code) more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company, any Subsidiary or any parent corporation of the
Company (within the meaning of Section 424(e) of the Code), five (5)
years from the date the Incentive Stock Option is granted. An Incentive
Stock Option shall become exercisable at such times and in such
installments (which may be cumulative) as shall be determined by the
Committee at the time the Option is granted. Upon the completion of its
exercise period, an Incentive Stock Option, to the extent not then
exercised, shall expire.
(c) Other Provisions. The agreement evidencing an Incentive
Stock Option authorized under this Section 6.5 shall contain such other
<PAGE>
provisions as the Committee shall deem advisable. Any such agreement
shall contain such limitations and restrictions upon the exercise of
the Incentive Stock Option as shall be necessary to ensure that such
Option complies with the requirements of Section 422 of the Code, as
amended, and may contain such limitations and restrictions on the sale
of shares acquired through the exercise of the Incentive Stock Option
as the Committee may deem advisable to permit the Company to comply
with any applicable federal, state or local tax withholding
obligations.
6.6 Nonstatutory Stock Options.
(a) Option Exercise Price. Unless otherwise determined by the
Committee, the per share price to be paid by the Optionee at the time a
Nonstatutory Stock Option is exercised shall not be less than
eighty-five percent (85%) of the Fair Market Value of one (1) share of
Common Stock on the date the Option is granted.
(b) Duration of Nonstatutory Stock Option. The period during
which a Nonstatutory Stock Option may be exercised shall be fixed by
the Committee at the time such option is granted. A Nonstatutory Stock
Option shall become exercisable at such time and in such installments
(which may be cumulative) as shall be determined by the Committee at
the time the Option is granted. Upon the completion of its exercise
period, a Nonstatutory Stock Option, to the extent not then exercised,
shall expire.
(c) Withholding Taxes.
(i) The Company is entitled to (aa) withhold and
deduct from future wages of the Optionee, or make other
arrangements for the collection of, all legally required
amounts necessary to satisfy any federal, state or local
withholding tax requirements attributable to the Optionee's
exercise of a Nonstatutory Stock Option or otherwise incurred
with respect to the Option, or (bb) require the Optionee
promptly to remit the amount of such withholding to the
Company before acting on the Optionee's notice of exercise of
the Option.
(ii) The Committee may, in its discretion and subject
to such rules as the Committee may adopt, permit an Optionee
to satisfy, in whole or in part, any withholding tax
obligation which may arise in connection with the exercise of
a Nonstatutory Stock Option either by electing to have the
Company withhold from the shares of Common Stock to be issued
upon exercise that number of shares of Common Stock, or by
electing to deliver to the Company already-owned shares of
Common Stock, in either case having a Fair Market Value, on
the date such tax is determined under the Code (the "Tax
Date"), equal to the amount necessary to satisfy the
withholding amount due. An Optionee's election to have the
Company withhold shares of Common Stock or to deliver
already-owned shares of Common Stock upon exercise is
irrevocable and is subject to the consent or disapproval of
the Committee. If the Optionee is an officer, director or
beneficial owner of more than ten percent (10%) of the
<PAGE>
outstanding Common stock of the Company and at the time of
exercise of the Option the Company has a class of equity
securities registered under Section 12 of the Exchange Act,
such election must comply with any restrictions imposed by
Rule 16b-3 of the Exchange Act, as amended from time to time.
When shares of Common Stock are issued prior to the Tax Date
to an Optionee making such an election, the Optionee shall
agree in writing to surrender that number of shares on the Tax
Date having an aggregate Fair Market Value equal to the tax
due.
Article 7. Termination of Options
7.1 Termination of Employment or Status as a Director or Consultant Due
to Death, Disability or Retirement. Unless otherwise provided in the agreement
evidencing the Option, in the event an Optionee's employment or status as a
director or consultant is terminated with the Company and all Subsidiaries by
reasons of his or her death, Disability or Retirement, all outstanding Options
then held by the Optionee shall become immediately exercisable in full and shall
remain exercisable until the earlier of: (i) the three-month anniversary of the
Optionee's date of termination because of Retirement, (ii) the one-year
anniversary of the Optionee's termination because of Disability, (iii) the
one-year anniversary of the Optionee's date of death, or (iv) the expiration
date stated in the agreement evidencing such Option. Notwithstanding the
foregoing, upon an Optionee's termination of employment or status as a director
or consultant due to death, Disability, or Retirement, the Committee may, in its
sole discretion, provide that all outstanding Options held by the Optionee shall
become immediately exercisable and shall remain exercisable following such
termination of employment or status as a director or consultant in the manner
determined by the Committee; provided, however, that no Option shall be
exercisable after the expiration date stated in the agreement evidencing such
Option, and Options exercised more than three (3) months following Retirement or
more than one (l) year following Disability will not qualify as Incentive Stock
Options.
7.2 Termination of Employment or Status as a Director or Consultant for
Reasons Other than Death, Disability or Retirement.
(a) Except as otherwise provided in subsection (b) below, in
the event an Optionee's employment or status as a director or
consultant is terminated with the Company and all Subsidiaries for any
reason other than his or her death, Disability or Retirement, all
rights of the Optionee under the Plan shall terminate thirty (30) days
following such termination without notice of any kind, and no Options
then held by the Optionee shall thereafter be exercisable. During such
thirty-day period, the Optionee may exercise any outstanding Options
only to the extent such Options had become exercisable on the date of
the Optionee's termination of employment or status as a director or
consultant.
(b) Notwithstanding the provisions of Subsection (a) above,
upon an Optionee's termination of employment with or status as a
director or consultant of the Company and all Subsidiaries, the
Committee may, in its sole discretion, provide that all outstanding
Options then held by the Optionee shall remain exercisable for a period
<PAGE>
in excess of thirty (30) days, in the manner determined by the
Committee; provided, however, that no Option shall be exercisable after
the expiration date stated in the agreement evidencing such Option, and
Options exercised more than three (3) months following termination of
employment will not qualify as Incentive Stock Options.
7.3 Date of Termination. For purposes of the Plan, an Optionee's
employment or status as a director or consultant shall be deemed to have
terminated as of the date determined by the Committee in its sole discretion.
7.4 Merger, Acquisition or Other Change in Control. All outstanding
Options held by Optionees, other than those Options remaining exercisable
pursuant to Section 7.2 above, shall become immediately exercisable in full,
notwithstanding any vesting schedule in the agreements evidencing such Options
or anything in this Plan to the contrary, upon the occurrence of any of the
following events:
(a) any individual, corporation, partnership, trust or other
entity (other than any employee pension benefit plan (as defined under
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended) established by the Company):
(i) makes a tender or exchange offer which results in
the purchase of sixty percent (60%) of the shares, in the
aggregate, of the Company's stock, or
(ii) together with its "affiliates" and "associates"
(as those terms are defined in Rule 12b-2 under the Securities
Exchange Act of 1934 (the "Act")) becomes the "beneficial
owner" (within the meaning of Rule 13d-3 under the Act) of at
least sixty percent (60%) of the Company's stock;
(b) the stockholders of the Company approve an agreement or
plan to merge or consolidate the Company with or into another
corporation, or to sell or otherwise dispose of all or substantially
all of the Company's assets, or to liquidate the Company; or
(c) a majority of the members of the Company's Board of
Directors become individuals other than Continuing Directors. For
purposes of the foregoing, a "Continuing Director" shall mean: (i) any
member of the Board of Directors of the Company as of November 29,
1995; or (ii) any other member of the Board who, from time to time, was
nominated for election by the Board, or was appointed by the Board to
fill a vacancy on the Board, or to fill a newly created directorship,
but excluding any individual nominated or appointed at a Board meeting
at which the majority of the directors present were not Continuing
Directors, or by unanimous written action of the Board, unless a
majority of directors taking such action are Continuing Directors.
<PAGE>
Article 8. Rights of Employees; Optionees
8.1 Employment. Nothing in the plan shall interfere with or limit in
any way the right of the Company or any Subsidiary to terminate the employment
of any Eligible Participant or Optionee at any time, nor confer upon any
Eligible Participant or Optionee any right to continue in the employ of the
Company or any Subsidiary.
8.2 Nontransferability.
(a) Except as otherwise provided in Section 8.2(b), no right
or interest of any Optionee in any Option granted pursuant to the Plan
shall be assignable or transferable during the lifetime of the
Optionee, either voluntarily or involuntarily, or subjected to any
lien, directly or indirectly, by operation of law, or otherwise,
including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event of an Optionee's death, an Optionee's rights
and interest in any Options shall be transferable by testamentary will
or the laws of descent and distribution, and payment of any amounts due
under the Plan shall be made to, and exercise of any Options (to the
extent permitted pursuant to Section 7.1) may be made by, the
Optionee's legal representatives, heirs or legatees. If in the opinion
of the Committee an Optionee holding any Option is disabled from caring
for his or her affairs because of mental condition, physical condition
or age, any payments due the Optionee may be made to, and any rights of
the Optionee under the Plan shall be exercised by, such Optionee's
guardian, conservator or other legal personal representative upon
furnishing the Committee with evidence satisfactory to the Committee of
such status.
(b) Notwithstanding the foregoing, the Committee may, in its
sole discretion, permit the Optionee to transfer any or all
Nonstatutory Stock Options to any member of the Optionee's "immediate
family" as such term is defined in Rule 16a-1(e) promulgated under the
Securities Exchange Act of 1934, or any successor provision, or to one
or more trusts whose beneficiaries are members of such Optionee's
"immediate family" or partnerships in which such family members are the
only partners; provided, however, that the Optionee receives no
consideration for the transfer and such transferred Nonstatutory Stock
Option shall continue to be subject to the same terms and conditions as
were applicable to such Nonstatutory Stock Option immediately prior to
its transfer.
8.3 Non-Exclusivity of the Plan. Nothing contained in the Plan is
intended to amend, modify or rescind any previously approved compensation plans
or programs entered into by the Company. The Plan will be construed to be an
addition to any and all such other plans or programs. Neither the adoption of
the Plan nor the submission of the plan to the shareholders of the Company for
approval will be construed as creating any limitations on the power or authority
of the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
<PAGE>
Article 9. Share Assurance and Transfer Restrictions
9.1 Share Issuances. Notwithstanding any other provision of the Plan or
any agreements entered into pursuant hereto, the Company shall not be required
to issue or deliver any certificate for shares of Common Stock under this Plan
(and an Option shall not be considered to be exercised, notwithstanding the
tender by the Optionee of any consideration therefor), unless and until each of
the following conditions has been fulfilled:
(a) (i) there shall be in effect with respect to such shares a
registration statement under the Securities Act and any applicable
state securities laws if the Committee, in its sole discretion, shall
have determined to file, cause to become effective and maintain the
effectiveness of such registration statement; or (ii) if the Committee
has determined not to so register the shares of Common Stock to be
issued under the Plan, (A) exemptions from registration under the
Securities Act and applicable state securities laws shall be available
for such issuance (as determined by counsel to the Company) and (B)
there shall have been received from the Optionee (or, in the event of
death or disability, the Optionee's heir(s) or legal
representatives(s)) any representations or agreements requested by the
Company in order to permit such issuance to be made pursuant to such
exemptions; and
(b) there shall have been obtained any other consent, approval
or permit from any state or federal governmental agency which the
Committee shall, in its sole discretion upon the advice of counsel,
deem necessary or advisable.
9.2 Share Transfers. Shares of Common Stock issued pursuant to the
exercise of Options granted under the Plan may not be sold, assigned,
transferred, pledged, encumbered or otherwise disposed of (whether voluntarily
or involuntarily) except pursuant to registration under the Securities Act and
applicable state securities laws or pursuant to exemptions from such
registrations. The Company may condition the sale, assignment, transfer, pledge,
encumbrance or other disposition of such shares, not issued pursuant to an
effective and current registration statement under the Securities Act and all
applicable state securities laws, on the receipt from the party to whom the
shares of Common Stock are to be so transferred of any representations or
agreements requested by the Company in order to permit such transfer to be made
pursuant to exemptions from registration under the Securities Act and applicable
state securities laws.
9.3 Legends. Unless a registration statement under the Securities Act
is in effect with respect to the issuance or transfer of shares of Common Stock
issued under the Plan, each certificate representing any such shares shall be
endorsed with a legend in substantially the following form, unless counsel for
the Company is of the opinion as to any such certificate that such legend is
unnecessary:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED,
<PAGE>
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH
STATE LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT
AND SUCH STATE LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
THE SATISFACTION OF THE COMPANY.
Article 10. Plan Amendment, Modification and Termination
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Options under the Plan shall conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company. Notwithstanding the foregoing,
to the extent required by Section 422 of the Code, Rule 16b-3 of the Exchange
Act or other applicable law or regulation, no such revision or amendment shall
(i) materially increase the number of shares subject to the Plan except as
provided in Section 4.3, (ii) change the definition of Eligible Participants,
(iii) decrease the price at which options may be granted, (iv) materially
increase the benefits accruing to Optionees under the Plan, or (v) cause
Incentive Stock Options to fail to meet the requirements of Section 422 of the
Code, unless such revision or amendment is approved by the shareholders of the
Company. Furthermore, no termination, suspension or amendment of the Plan shall
alter or impair any outstanding Option without the consent of the Optionee
affected thereby, except to the extent provided under Section 4.3.
Article 11. Effective Date of the Plan
11.1 Effective Date. The effective date of this Plan is November 29,
1995, the date it was adopted by the Board, subject to shareholder approval.
Options may be granted under the Plan prior to shareholder approval if made
subject to shareholder approval.
11.2 Duration of the Plan. Incentive Stock Options may be granted
pursuant to the Plan from time to time until November 29, 2005. Nonstatutory
Stock Options may be granted pursuant to the Plan from time to time until the
Plan is discontinued or terminated by the Board. Options outstanding upon
termination of the Plan may continue to be exercised in accordance with their
terms.
Article 12. Miscellaneous
12.1 Governing Law. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Minnesota.
12.2 Gender and Number. Except when otherwise indicated by the context,
reference to the masculine gender in the Plan shall include, when used, the
feminine gender and any term used in the singular shall also include the plural.
<PAGE>
Article 13. Formula Awards
13.1 Grant of Nonstatutory Stock Options. From and after the date on
which the Company first registers a class of its equity securities under Section
12 of the Exchange Act, Nonstatutory Stock Options for directors who are not
employees of the Company or any Subsidiary (the "Nonemployee Directors") shall
be granted only under this Article 13, shall be automatic and nondiscretionary
and shall be granted strictly in accordance with the following provisions:
(a) No person shall have any discretion to select the
Nonemployee Directors that shall be eligible for Nonstatutory Stock
Options granted pursuant to this Article 13 or to determine the number
of shares of Common Stock to be subject to such Nonstatutory Stock
Options, the option price per share or the date of grant.
(b) Each Nonemployee Director who is first elected to the
Board after the effective date of the Plan, as restated, shall be
granted a Nonstatutory Stock Option to purchase 30,000 shares of Common
Stock on the date of such election to the Board.
(c) Beginning with the third anniversary of the date of his
election to the Board, each Nonemployee Director shall, on the date of
such third anniversary and on each anniversary date thereafter so long
as the Nonemployee Director continues to serve on the Board, be granted
a Nonstatutory Stock Option to purchase 10,000 shares of Common Stock;
provided, however, that no Nonemployee Director shall be granted a
Nonstatutory Stock Option pursuant to this Section 13.1(c) unless and
until shareholder approval of the Plan, as amended to include this
Section 13.1(c), has been obtained.
13.2 Option Price. The option price per share for all Nonstatutory
Stock Options granted pursuant to Section 13.1 shall be one hundred percent
(100%) of the Fair Market Value of one (1) share of Common Stock on the date of
such Option is granted.
13.3 Duration and Exercise of Options.
(a) Duration of Options. Except as otherwise provided in this
Plan, the period during which any Nonstatutory Stock Option granted to
Nonemployee Directors under this Article 13 may be exercised shall be
ten (10) years after the date that such Option is granted.
(b) Exercisability of Nonstatutory Stock Options.
(i) In no event shall any Nonstatutory Stock Options
granted to Nonemployee Directors pursuant to Section 13.1(c)
<PAGE>
be exercisable prior to the date that the Plan, as restated,
is approved by the shareholders of the Company. If shareholder
approval of the Plan, as restated, is not obtained, any
Nonstatutory Stock Options previously granted to Nonemployee
Directors pursuant to Section 13.1(c) shall be revoked.
(ii) All Nonstatutory Stock Options granted to
Nonemployee Directors pursuant to Section 13.1(b) shall, on
each of the first through the fourth anniversary dates of the
date such Option is granted, become exercisable as to
twenty-five percent (25%) of the shares of Common Stock
subject to such Option, cumulatively, and, therefore, shall be
fully exercisable on the fourth anniversary of the date that
such Option is granted.
(iii) All Nonstatutory Stock Options granted to
Nonemployee Directors pursuant to Section 13.1(c) shall, on
the first anniversary of the date such Option is granted,
become exercisable as to one hundred percent (100%) of the
shares of Common Stock subject to such Option so long as the
Nonemployee Director continues to serve on the Board on such
anniversary of the date of grant.
(iv) If the Nonemployee Director does not purchase in
any year the full number of shares which the Nonemployee
Director is entitled to purchase in that year, the Nonemployee
Director shall be entitled to purchase in any subsequent year
such previously unpurchased shares, subject to the expiration
of such Nonstatutory Stock Option as specified in Section
13.3(a) above.
13.4 Payment of Option Price. Upon the exercise of any Nonstatutory
Stock Option granted to a Nonemployee Director pursuant to this Article 13, the
purchase price for such shares to be purchased may be paid in any of the forms
of payment permitted by the Committee under Section 6.3.
13.5 Compliance with Rule 16b-3. All Nonstatutory Stock Options granted
to Nonemployee Directors under this Article 13 must comply with the applicable
provisions of Rule 16b-3, or its successor, of the Exchange Act, as amended from
time to time.
13.6 Termination of Status as a Director. In the event that a
Nonemployee Director's status as a director terminates, the period of time
following such termination during which the Nonemployee Director may exercise
any outstanding Nonstatutory Stock Options and the extent to which such Options
may become exercisable shall be governed by Article 7.
CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
AGREEMENT
THIS AGREEMENT is made the 25th day of September, 1998 by and between
[***], a Delaware corporation, and its subsidiaries ([***]) and Medwave, Inc., a
Minnesota corporation ("MEDWAVE").
WHEREAS, MEDWAVE and [***] have discussed a possible transaction
involving the hand-held, non-invasive, cuffless blood pressure monitor for
personal use and for point-of-care use by physicians, nurses and other health
care professionals developed by MEDWAVE; and
WHEREAS, for the purpose of this Agreement, the term "Field" shall be
defined as the hand-held, non-invasive, cuffless blood pressure monitor for
personal use and for point-of-care use by physicians, nurses and other health
care professionals developed by MEDWAVE prior to or during the Exclusive
Evaluation Period; and
WHEREAS, [***]
WHEREAS, [***], if it determines that products in the Field are
commercially marketable, would like to enter into a transaction with MEDWAVE
that could involve an exclusive global license agreement or an acquisition of
the assets or capital stock of MEDWAVE;
NOW THEREFORE, in consideration of the mutual promises contained herein
and other good and sufficient consideration, the parties agree as follows:
1. Exclusive Evaluation Period.
From the date of this agreement and for a period of six months from the
date MEDWAVE delivers to [***] five (5) working prototypes of the products in
the Field ("Prototypes"); MEDWAVE will: (a) refrain from having, or suspend any
further discussions with third parties relating to, any business transaction
involving the Field, or the sale of capital stock, merger or substantially all
of the assets of MEDWAVE (except with respect to investments by individuals,
financial Institutions or investment funds), subject to Section 10 below; (b)
not enter into any transaction with any other party relating to the foregoing
subject matters (except investments by individuals, financial institutions and
investment funds), subject to Section 10 below; and (c) not demonstrate products
in the Field to any other party; provided that the foregoing shall not prohibit
MEDWAVE from gathering data with respect to the products' performance, having
clinical studies and evaluations conducted or engaging in related activities
with respect to regulatory approvals and consumer evaluations of the products.
MEDWAVE will deliver the Prototypes to [***] by no later than [***],
2. Consideration for Exclusive Evaluation Period.
In consideration of MEDWAVE agreeing to the Exclusive Evaluation Period
described in Section 1 above, [***] agrees to pay MEDWAVE the amount of ONE
MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) within seven (7) business
days of receipt by [***] of this fully executed Agreement.
<PAGE>
3. Credit Against Future Royalties or Purchase Price.
In the event [***] enters into a license agreement with MEDWAVE with
respect to products in the Field or agrees to acquire the capital stock of
MEDWAVE, or substantially all of the assets of or merge with MEDWAVE, the
consideration paid for the Exclusive Evaluation Period, will be credited against
any future royalties and similar fees owed by [***] or the purchase price paid
by [***].
4. Cooperation of MEDWAVE.
During the Exclusive Evaluation Period, MEDWAVE agrees to undertake the
following:
a. cause its employees to cooperate and consult with [***] about
products in the Field as reasonably requested by [***];
b. provide to [***] all information, data, specifications, test
results, and design criteria related to products in the Field as set forth in
Exhibit A;
c. continue to file, prosecute, and maintain as reasonably necessary
patent applications in the United States and specified foreign jurisdictions
relating to the Field;
d. provide to [***] its business plans, current operating results and
projections for its Point-Of-Care business.
5. License or Purchase Agreement.
In the event [***] determines in its sole discretion to make an offer
to MEDWAVE to license products in the Field on an exclusive worldwide basis or
to acquire the stock or assets or merge with MEDWAVE, both parties agree to
enter into negotiations during the term of this Agreement on a good faith basis.
6.Confidentiality
a. Confidential information, including information about the MEDWAVE
business, financial condition, customers and suppliers, which is not claimed to
be a Trade Secret by MEDWAVE, received by [***] from MEDWAVE, will be subject to
the terms of the Disclosure Agreement between the parties dated October 28, 1997
which shall continue in effect for one additional year beyond its original term,
b. [***] agrees to maintain as confidential, and not to use for any
purpose other than the fulfillment of this Agreement, for a period of four (4)
years from the date of this Agreement, any information, date, or specifications
which are reduced to writing and labeled "MEDWAVE Trade Secrets" before
disclosure and which Will not be disclosed to [***] unless [***] specifically
asks for such disclosure in writing. For the purpose of this provision, Trade
Secrets shall consist of data, formulae, processes or devices that are not
published or divulged and that give an advantage over competitors. The
information requested by [***] on Exhibit A shall not be considered Trade
Secrets of MEDWAVE.
c. Except as required by law or consented to in writing by the other
party, neither party to this Agreement shall: a) reveal that MEDWAVE is working
with [***]; b) use the [***] or MEDWAVE name in any form of publicity or
advertising directly or indirectly; c) disclose to others that [***] may have a
possible interest in MEDWAVE or MEDWAVE'S technology: d) disclose that [***] has
<PAGE>
visited MEDWAVE'S facility; or e) disclose that MEDWAVE may prepare or have
prepared Prototypes for evaluation by [***]. In the event disclosure of the
above events is required by law, the disclosing party will notify the other
party in advance,
d. The mutual obligations of confidentiality shall survive the
termination of this Agreement.
7. Improvements to Products in the Field.
Any improvements to products in the Field, or any new ideas,
conceptions, reductions to practice or inventions of [***] or MEDWAVE, their
employees, consultants and agents, relating to the Field developed by either
party during the Exclusive Evaluation Period shall be the sole and exclusive
property of MEDWAVE.
a. MEDWAVE warrants that it has retained all of its right, title and
interest in and to its existing ideas, conceptions and inventions relating to
products in the Field. MEDWAVE further warrants that there are no outstanding
encumbrances or agreements, either oral or implied, inconsistent herewith and
that it has not granted and will not grant during the term of this agreement,
and during the period covered by any License Agreement, or any renewal thereof,
any similar right, license, consent or privilege with respect to products in the
Field.
b. MEDWAVE warrants that it has the full power and authority to enter
into this Agreement and to carry out the transactions contemplated hereby.
c. MEDWAVE warrants that there are, to its knowledge, no pending claims
by any third party that: (i) it has rights in the products in the Field, (ii)
MEDWAVE has infringed the rights of any third party with respect to products in
the Field, or (iii) MEDWAVE has interfered with the rights of any third party
with respect to products in the Field.
9. No Other Representations.
By executing this Agreement, MEDWAVE acknowledges that [***].
10. Break-up Fee.
In the event the board of directors of MEDWAVE, in the exercise of its
fiduciary duties, causes MEDWAVE, during the Exclusive Evaluation Period, to:
(a) sell or hypothecate all or substantially all of the assets of MEDWAVE to a
third party; (b) enter into an agreement to merge with a third party; or (c)
enter into an agreement in which a third party agrees to acquire more than five
percent (5%) of the voting equity of MEDWAVE (except investments by individuals,
financial institutions or investment funds); MEDWAVE will pay to [***] as
liquidated damages the sum of FIVE MILLION DOLLARS ($5,000,000).
11. Indemnification.
a. MEDWAVE will indemnify and hold harmless [***] and its directors,
officers, employees, agents, affiliates, successors and assigns from and against
any claims, suits, damages and costs, including reasonable attorneys' fees,
resulting from or arising out of a breach of the warranties set forth in Section
8 above.
<PAGE>
b. [***] will indemnify and hold harmless MEDWAVE and its directors,
officers, employees, agents, affiliates, successors and assigns from and against
any claims, suits, damages and costs, including reasonable attorneys' fees,
resulting from any testing or evaluation by Gillette, its consultants and agents
of the Prototypes.
12. Notices.
Any notices required under this Agreement shall be given by certified
mail, postage prepaid, sent to the parties at the following addresses, or by
such other means or at such other addresses as either party may advise in
writing:
To MEDWAVE:
Medwave, Inc.
4382 Round Lake Road West
Arden Hills, MN 55112-3923
Attention: G. Kent Archibald
President and Chief Executive Officer
Keith Libbey, Esq.
Fredrickson & Byron, P.A.
900 Second Avenue South
Suite 1100
Minneapolis, MN 55402
To [***]:
[***]
and
[***]
13. Governing Law.
This Agreement shall be interpreted in accordance with the laws of the
State of Delaware.
14. Entire Agreement.
This Agreement constitutes the entire agreement between the parties and
supersedes all previous understandings, representations and agreements between
the parties, whether written or oral.
<PAGE>
15. No Assignment.
This Agreement shall not be assigned nor the duties delegated without
the expressed written consent of the other party. This Agreement shall inure to
the benefit of the heirs, successors and expressly permitted assigns of the
parties hereto.
16. Severability.
In the event a court of competent jurisdiction holds a provision of
this Agreement invalid or unenforceable, such provision shall be considered
separate from the remaining provisions of this Agreement which shall remain in
full force and effect.
17. No Waiver.
Any failure by either party to enforce a provision of this Agreement
shall not constitute a waiver of any other right of either party under the terms
of this Agreement.
18. Independent Parties.
Nothing contained in this Agreement shall be construed to authorize one
party to obligate or bind the other party. Both parties are independent of the
other and there exists no relationship between the parties other than as
specifically set forth in this Agreement.
IN WITNESS WHEREOF, the parties, intending to be bound hereby, have
caused this Agreement to be executed by their duly authorized representatives on
the date first written above.
Medwave, Inc, [***]
By________________ By________________
Its_________________ Its Vice President, New
Business Development
<PAGE>
EXHIBIT A
Medwave, Inc.: Clinical Evaluation of Blood Pressure Monitor
Basic requirements for performing a clinical study with the BPM prototype:
1. Two or more prototypes.
2. Documentation of previous clinical studies with the Medwave blood pressure
monitor, i.e.
Investigator's Brochure
Protocol(s) and Patient Informed Consent Form(s)
Final Report(s) for Vasotrac 205, Reports for handheld device as developed
3. [***]
4. Declaration of conformity (if available)
5. Declaration of substantial equivalence (if available)
6. Risk Analysis
7. Literature and publications
8. Following information on the prototype, if not contained in the
Investigator's Brochure:
o a general description of the device, and its functional components
with the rationale of the design, and the scientific concepts on which
it is based (as of today only available for APM-205);
o an explanation of how the device functions and the manufacturer's
instructions for use;
o the description of the intended performance of the device;
o a brief description of the manufacturing process of the device if this
enhances the understanding of the device as far as the safety is
concerned (except manufacturing processes which need to be tracked);
o previous clinical investigation or marketing history, if any, with any
reason for recall relating to safety of the device or the performance
of the device; a description of the materials used in the device, a
summary of in vitro, ex vivo and in vivo data relevant to the device,
preclinical biological studies, non-clinical laboratory studies and
animal studies;
o a list of standards, if any, complied with in full or in part;
o a statement affirming that the device complies with relevant legal
requirements apart from those requirements which the clinical
investigation is intended to fulfil and that every reasonable
precaution has been taken to protect the health and safety of subjects
(as of today only available for Vasotrac APM 205)
Proposed Agenda for Kick-off Meeting with Medwave [***]
Purpose of Meeting: Technical in-depth discussion of Vasotrac 300 (handheld
design)
1. System review
o Pressure transducer
o Design aspects of sensor unit used in the current prototype (detailed
discussion of construction)
<PAGE>
o Discussion of possible design alternatives which do not touch
information regarded as trade secret by Medwave o Performance
requirements of analog signal conditioning and A/D-conversion
o [***]
o Implementation of software: minimum requirements of controller
performance
o User interface conception
2. Manufacturability of sensor unit
o Key aspects of fabrication process/Process specifications
o Visit to production facilities
3. Cost calculation of actual device (handheld prototype)
o Discussion of part list and component costs
o Actual production costs
4. Status of development of Medwave's prototypes/Timelines/Approbation roadmap
5. Fixing of next steps
Corporate Quality:
- - component tests of the critical sensor parts
- - reliability test of the device
- - aging test for prototype
- - storage test / climate test (as soon as available)
- - accuracy tests regarding all requirements concerning the specified operating
ambient conditions (within valid range of: pressure, temperature, humidity)
(as soon as available)
- - incoming inspection procedures for the critical parts
- - final inspection procedure after assembly of the sensor (only the process, not
the limiting values)
- - [***]
- - [***]
-Biocompatibility, are there any test results and material data sheets from
the supplier or biocompatibility tests available for the used Latex - material
and the black rubber ring?
- - [***]
- - If available: Flow chart of the assembly of the sensor/ Sensor process
specification
* Confidential portions of this document indicated by [***] have been omitted
and filed separately with the Commission.
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FROM THE REGISTRANT'S FORM 10-Q FOR THE QUARTER
ENDED OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-31-1998
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<CASH> 1,051,323
<SECURITIES> 3,075,667
<RECEIVABLES> 176,379
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<INVENTORY> 243,850
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<PP&E> 502,104
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<TOTAL-ASSETS> 7,325,220
<CURRENT-LIABILITIES> 1,720,259
<BONDS> 0
0
0
<COMMON> 16,252,420
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,325,220
<SALES> 362,456
<TOTAL-REVENUES> 362,456
<CGS> 0
<TOTAL-COSTS> 304,267
<OTHER-EXPENSES> 1,256,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,010,121)
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