<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 June 30, 1997
-------------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ----------------
Commission file number 000-20805
------------------------------------------
APACHE MEDICAL SYSTEMS, INC.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2476415
---------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1650 Tysons Boulevard, McLean, Virginia 22102
---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(703) 847-1400
--------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 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
---
7,255,516
---------
(Number of shares of common stock
outstanding as of August 12, 1997)
<PAGE> 2
APACHE MEDICAL SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Statements of Operations (unaudited) - three
months and six months ended June 30, 1997 and 1996 1
Consolidated Balance Sheets (unaudited) - June 30, 1997
and December 31, 1996 2
Consolidated Statements of Changes in Stockholders'
Equity (Deficit) (unaudited) - six months ended
June 30, 1997 and year ended December 31, 1996 3
Consolidated Statements of Cash Flows (unaudited) - three
months and six months ended June 30, 1997 and 1996 4
Notes to Consolidated Financial Statements (unaudited) 5-7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Part II - Other Information
Item 2 - Changes in Securities 12
Item 4 - Submission of Matters to a Vote of Security Holders 12-13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8--K 14-16
Signatures 17
</TABLE>
<PAGE> 3
APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except per share data) 1997 1996 1997 1996
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenue:
Systems and related products $ 657 $1,567 $ 2,102 $ 2,809
Support 469 375 946 705
Professional services 1,326 862 2,470 1,574
------- ------ ------- -------
Total revenue 2,452 2,804 5,518 5,088
Expenses:
Cost of systems and related products 514 544 1,238 1,107
Cost of support 180 155 311 278
Cost of professional services 747 317 1,426 571
Research and development 700 297 1,371 661
Selling, general and administrative 4,507 2,050 7,658 3,873
Write-off of acquired in-process
research and development costs 500 - 1,612 -
------- ------ ------- -------
Total expenses 7,148 3,363 13,616 6,490
Loss from operations (4,696) (559) (8,098) (1,402)
Other income (expense):
Interest income 228 25 465 87
Interest expense (7) (107) (15) (214)
Other, net 9 - 10 -
------- ------ ------- -------
Total other income (expense) 230 (82) 460 (127)
Net loss $(4,466) $ (641) $(7,638) $(1,529)
======= ====== ======= =======
Net loss per share $ (0.62) $(0.11) $ (1.05) $ (0.27)
======= ====== ======= =======
Weighted average number of shares used for
calculation of net loss per share 7,245 5,014 7,242 5,006
======= ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
(in thousands except share data) JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,773 $ 20,928
Short-term investments 1,059 1,059
Accounts receivable, net 3,309 3,816
Other trade receivables 88 240
Prepaid expenses and other 546 631
-------- --------
TOTAL CURRENT ASSETS 18,775 26,674
Other trade receivables, net of current maturities 83 104
Furniture and equipment 3,310 3,062
Less accumulated depreciation and amortization (1,892) (1,799)
-------- --------
1,418 1,263
Capitalized software development costs, net 636 374
Intangible assets, net 1,125 722
-------- --------
TOTAL ASSETS $ 22,037 $ 29,137
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 763 $ 621
Accrued expenses 4,463 2,844
Purchase acquisition costs - 1,565
Current maturities of obligations under capital leases 20 57
Current maturities of notes payable - other 97 115
Deferred revenue 1,337 1,140
-------- --------
TOTAL CURRENT LIABILITIES 6,680 6,342
Deferred rent benefit 141 159
Obligations under capital leases, net of current maturities 57 2
Notes payable - stockholders, net of current maturities - 100
Notes payable - other, net of current maturities 89 129
-------- --------
TOTAL LIABILITIES 6,967 6,732
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized shares, 10,000,000 at June 30,
1997 and none at December 31, 1996; no shares issued and outstanding
at June 30, 1997 and December 31, 1996 - -
Common stock, $.01 par value, authorized shares, 30,000,000 at June 30,
1997 and December 31, 1996; issued and outstanding shares, 7,255,516
at June 30, 1997 and 7,238,922 at December 31, 1996 73 72
Additional paid-in-capital 45,627 45,325
Accumulated deficit (30,630) (22,992)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 15,070 22,405
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,037 $ 29,137
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
(unaudited)
<TABLE>
<CAPTION>
Cumulative
Dividends and
Accreted Issue
Costs on
Additional Cumulative
Common Stock Paid-in Redeemable Accumulated
-----------------
Shares Amount Capital Preferred Stock Deficit Total
--------- ------ ---------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except share data)
BALANCE, DECEMBER 31, 1994, AS PREVIOUSLY
REPORTED 1,072,835 $ 11 $ 569 $ (878) $ (14,100) $ (14,398)
Adjustment for pooling of interest 367,569 3 3 - 411 417
--------- ----- ---------- -------------- ----------- ----------
Balance, as restated 1,440,404 14 572 (878) (13,689) (13,981)
Issuance of convertible preferred stock warrants - - 787 - - 787
Issuance of common stock 2,623 - 7 - - 7
Accretion of cumulative dividends and issue costs on
redeemable preferred stock - - - (901) - (901)
Net loss - - - - (3,706) (3,706)
--------- ----- ---------- -------------- ----------- ----------
BALANCE AT DECEMBER 31, 1995 1,443,027 14 1,366 (1,779) (17,395) (17,794)
Issuance of common stock 788 - 7 - - 7
Issuance of Common stock through initial public
offering 2,300,000 23 27,577 - - 27,600
Accretion of cumulative dividends and issue costs on
redeemable preferred stock - - - (679) - (679)
Conversion of convertible preferred stock 3,294,519 33 20,017 - - 20,050
Conversion of convertible debt 122,257 1 999 - - 1,000
Conversion of cumulative dividends on redeemable
preferred stock 78,331 1 939 - - 940
Reclass cumulative dividends on redeemable
preferred stock to APIC - - (1,850) 1,850 - -
Reclass accreted issue costs on redeemable preferred
stock to APIC - - (608) 608 - -
Reclass unaccreted issue costs on redeemable
preferred stock to APIC - - (526) - - (526)
Issuance costs of initial public offering - - (3,034) - - (3,034)
Issuance of common stock options - - 438 - - 438
Net loss - - - - (5,597) (5,597)
--------- ----- ---------- -------------- ----------- ----------
BALANCE AT DECEMBER 31, 1996 7,238,922 $ 72 $ 45,325 - $ (22,992) $ 22,405
Issuance of common stock options - - 244 - - 244
Exercise of common stock options 16,594 1 58 - - 59
Net loss - - - - (7,638) (7,638)
--------- ----- ---------- -------------- ----------- ----------
BALANCE AT JUNE 30, 1997 7,255,516 $ 73 $ 45,627 - $ (30,630) $ 15,070
========= ===== ========== ============== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1997 1996
----------- -----------
<S> <C> <C>
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,638) $ (1,529)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 530 458
Provision for doubtful accounts 370 50
Accretion of interest - 133
Stock options issued 21 -
Write-off of acquired in-process research and development costs 1,612 -
Cost of acquisition 732 -
Changes in operating assets and liabilities:
Accounts receivable 137 (1,049)
Other trade receivables 173 104
Other current assets (70) (1,025)
Intangible assets (35) -
Accounts payable and accrued expenses 620 132
Deferred rent (17) (11)
Deferred revenue 196 (239)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (3,369) (2,976)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (308) (65)
Purchase of furniture and equipment (408) (20)
Purchase acquisitions (2,915) -
Purchase of short-term investments - (7)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (3,631) (92)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (56) (92)
Principal payments on borrowings (178) (147)
Proceeds from issuance of preferred stock, net of issuance costs - (37)
Proceeds from issuance of common stock upon exercise of options 59 7
Proceeds from issuance of notes payable 20 75
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (155) (194)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,155) (3,262)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,928 4,300
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,773 $ 1,038
============ ===========
SUPPLEMENTAL iNFORMATION:
Cash payments for interest $ 17 $ 52
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
APACHE MEDICAL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). The financial information included herein is unaudited,
however, in the opinion of management, all adjustments (which include normal
recurring adjustments) considered necessary for a fair presentation have been
made. Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, but the Company believes that the disclosures made are adequate to
make the information presented not misleading. For more complete financial
information, these financial statements should be read in conjunction with the
audited financial statements and notes thereto for the year ended December 31,
1996 included in the Company's annual report. Results for interim periods are
not necessarily indicative of the results for any other interim period or for
the full fiscal year.
2. ACQUISITIONS
On June 24, 1997, the Company purchased a neonatal database from the
Vermont-Oxford Network, Inc. The Company plans to develop new products using
the database which will provide the Company with strong product/service
offerings in the perinatal market. In connection with the acquisition, the
Company recorded a non-recurring charge related to acquired in-process research
and development costs of approximately $500,000 during the second quarter of
1997.
On June 2, 1997, the Company acquired National Health Advisors Ltd. (NHA); a
healthcare management consulting firm focused on strategy and management
support services for progressive healthcare organizations and networks. The
former shareholders of NHA received approximately 368,000 shares of common
stock of APACHE in exchange for all the common stock of NHA. The acquisition
was accounted for as a pooling of interests and, as such, the accompanying
consolidated financial statements reflect the combined results of the pooled
businesses for the respective periods presented. In connection with the
acquisition, the Company recorded a one-time charge in the second quarter of
1997 for acquisition-related costs of $732,000. These costs consisted
primarily of professional fees.
5
<PAGE> 8
Separate results of APACHE and NHA for the periods preceding the acquisition
are as follows (in thousands):
<TABLE>
<CAPTION>
FIRST QUARTER YEAR ENDED
ENDED DECEMBER 31,
MARCH 31, 1997 1996 1995
-------------- ---- ----
<S> <C> <C> <C>
REVENUE:
APACHE, previously
reported $ 2,401 $ 8,784 $ 7,024
NHA 665 2,810 2,741
------- ------- -------
Total, as restated $ 3,066 $11,594 $ 9,765
======= ======= =======
NET INCOME (LOSS):
APACHE, previously
reported $(3,282) $(5,661) $(3,808)
NHA 110 64 102
------- ------- -------
Total, as restated $(3,172) $(5,597) $(3,706)
======= ======= =======
</TABLE>
In January 1997, the Company acquired the assets of CardioMac, a point-of-care
data collection and reporting tool for the cardiac catheterization laboratory
and cardiovascular operating room from Iowa Health Centers, P.C. d/b/a Iowa
Heart Center, P.C., Mercy Hospital Medical Center, Mark A. Tannenbaum, M.D. and
Iowa Heart Institute. The purchase price for this acquisition was $1.35
million in cash and options to purchase 150,000 shares of APACHE Common Stock
for a total value of $1.57 million. These assets have unique capabilities
including the provision of standard and customized individual patient and group
reports for PTCA and CABG patients.
The acquisition has been accounted for using the purchase method of accounting
and resulted in intangible assets totaling $482,000. The intangible assets
consist of software technology of $271,000, assembled workforce of $15,000 and
goodwill of $196,000. These assets are being amortized over 5 to 15 years. In
connection with the acquisition, the Company also acquired and recorded a
non-recurring charge related to acquired in-process research and development
costs of approximately $1.1 million during the first quarter of 1997. The
purchase price allocation and lives of assets were determined by an independent
appraiser.
6
<PAGE> 9
3. LOSS PER SHARE
Loss per share is computed based on the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding during the
period. Stock options and warrants were excluded because the effects would be
antidilutive.
4. NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
changes the reporting requirements for earnings per share ("EPS") for publicly
traded companies by replacing primary EPS with basic EPS. The Company is
required to adopt this standard for its December 31, 1997 year-end. Since the
effect of outstanding options and warrants is antidilutive, management does not
believe that statement No. 128 will have an impact on net loss per share as
reported.
7
<PAGE> 10
APACHE MEDICAL SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1997 and 1996
On June 2, 1997, the Company acquired National Health Advisors Ltd. (NHA); a
healthcare management consulting firm focused on strategy and management
support services for progressive healthcare organizations and networks. The
acquisition was accounted for as a pooling of interests and, as such, the
accompanying consolidated financial statements and the following discussion of
results of operations reflect the combined results of the pooled businesses for
the respective periods presented.
CONSOLIDATED REVENUE. Revenue for the quarter ended June 30, 1997 decreased
13% to $2.5 million from $2.8 million in the prior year period. Revenue for the
six months ended June 30, 1997 increased 8% to $5.5 million from $5.1 million
in the prior year period.
SYSTEMS AND RELATED PRODUCTS REVENUE. Systems and related products revenue for
the quarter ended June 30, 1997, decreased 58% to $657,000 from $1.6 million in
the prior year period. Systems and related products revenue for the six months
ended June 30, 1997, decreased 25% to $2.1 million from $2.8 million in the
prior year period. The decrease in systems and related products revenue was
due to a decrease in the number of systems sold for the six months ended June
30, 1997 compared to the same period in the prior year.
SUPPORT REVENUE. Support revenue for the quarter ended June 30, 1997 increased
25% to $469,000 from $375,000 in the prior year period. Support revenue for
the six months ended June 30, 1997 increased 34% to $946,000 from $705,000 in
the prior year period. Increase in support revenue was due to the increase in
the number of clients utilizing the Company's systems.
PROFESSIONAL SERVICES REVENUE. Professional services revenue for the quarter
ended June 30, 1997 increased 54% to $1.3 million from $862,000 for the prior
year period. Professional services revenue for the six months ended June 30,
1997 increased 57% to $2.5 million from $1.6 million for the prior year period.
The increase in professional services revenue was due primarily to the services
and studies provided by Health Research Network (HRN), which was acquired by
APACHE in December 1996.
8
<PAGE> 11
COST OF SYSTEMS AND RELATED PRODUCTS. Cost of systems and related products for
the quarter ended June 30, 1997 decreased 6% to $514,000 from $544,000 in the
prior year period. Cost of systems and related products for the six months
ended June 30, 1997 increased 12% to $1.2 million from $1.1 million in the
prior year period. Increase from the prior year was due to the expansion of
the Company's client service base to support the implementation of systems sold
during 1996 and the anticipated growth in system sales during 1997. This was
partially offset by a decrease in third party cost of goods sold, which is
directly related to system sales.
Cost of systems and related products for the second quarter increased to 78% of
systems and related products revenue from 35% in the prior year period. Cost
of systems and related products for the first six months increased to 59% of
systems and related products revenue from 39% in the prior year period. The
increase as a percentage of revenue is primarily attributable to the decrease
in revenue for the periods combined with maintaining staffing levels to support
anticipated sales volume in the periods.
COST OF PROFESSIONAL SERVICES. Cost of professional services for the quarter
ended June 30, 1997 increased 136% to $747,000 from $317,000 in the prior year
period. Cost of professional services for the six months ended June 30, 1997
increased 150% to $1.4 million from $571,000 in the prior year period.
Increase was due to the costs associated with the services and studies provided
and additional staffing required to support anticipated sales volume in the
periods.
RESEARCH AND DEVELOPMENT. Research and development expenses for the quarter
ended June 30, 1997 increased 136% to $700,000 from $297,000 in the prior year
period. Research and development expenses for the six months ended June 30,
1997 increased 107% to $1.4 million from $661,000 in the prior year period.
Increase was due primarily to an increase in staffing requirements related to
the enhancement of current product lines as well as development activities for
new products and services. During the second quarter of 1997, $181,000 of
product development costs were capitalized, compared to $23,000 in the prior
year period. During the first six months of 1997, $308,000 of product
development costs were capitalized, compared to $65,000 in the prior year
period.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the quarter ended June 30, 1997 increased 120% to $4.5 million
from $2.1 million in the prior year period. Selling, general and administrative
expenses for the six months ended June 30, 1997 increased 98% to $7.7 million
from $3.9 million in the prior year period. Increase was due primarily to
acquisition costs related to the NHA merger totaling $732,000, overhead costs
associated with the increase in staffing throughout the Company, an increase in
sales and marketing related activities and an increase in expenses associated
with public reporting requirements.
9
<PAGE> 12
WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. In June 1997,
the Company purchased a neonatal database from the Vermont-Oxford Network, Inc.
The Company plans to develop new products with the database which will provide
the Company with strong product/service offerings in the perinatal market. At
the time of the acquisition, the Company recorded a non-recurring charge
resulting from the write-off of the acquired in-process research and
development costs. This charge totaled $500,000.
In January 1997, the Company acquired the assets of CardioMac, a point-of-care
data collection and reporting tool for the cardiac catheterization laboratory
and cardiovascular operating room from Iowa Health Centers, P.C. d/b/a Iowa
Heart Center, P.C., Mercy Hospital Medical Center, Mark A. Tannenbaum, M.D. and
Iowa Heart Institute. At the time of the acquisition, the Company recorded a
non-recurring charge resulting from the write-off of the acquired in-process
research and development costs. This charge totaled $1.1 million.
OTHER INCOME(EXPENSE). Other income (expense) increased from ($82,000) for the
quarter ended June 30, 1996 to $230,000 for the quarter ended June 30, 1997.
Other income (expense) increased from ($127,000) for the six months ended June
30, 1996 to $460,000 for the six months ended June 30, 1997. The increase is
attributable to interest income earned from the investment of the net proceeds
from the initial public offering of the Company's Common Stock in July 1996 and
a decrease in interest-bearing notes payable.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments were $14.8 million as of June 30, 1997 compared
to $22.0 million as of December 31, 1996.
In December 1996, the Company completed the acquisition of the assets and
certain liabilities of Health Research Network for $1.57 million in cash paid
in January 1997. In January 1997, the Company acquired the assets of CardioMac
from Iowa Health Centers, P.C. d/b/a Iowa Heart Center, P.C., Mercy Hospital
Medical Center, Mark A. Tannenbaum, M.D. and Iowa Heart Institute for a payment
of $1.35 million in cash and options to purchase 150,000 shares of APACHE
Common Stock. Each of these acquisitions has been accounted for using the
purchase method of accounting and, accordingly, the assets have been valued at
their estimated fair value. Funding for the acquisitions was provided by the
proceeds of the Company's public offering completed in July 1996.
In June 1997, the Company acquired National Health Advisors Ltd. (NHA) for
approximately 368,000 shares of Common Stock of APACHE in exchange for all the
Common Stock of NHA. The acquisition was accounted for as a pooling of
interests and, as such, the accompanying consolidated financial statements
reflect the combined results of the pooled businesses for the respective
periods presented.
10
<PAGE> 13
In April 1997, the Company entered into a secured revolving line of credit from
Crestar Bank providing for a borrowing capacity of $2.0 million. Borrowings
bear interest at a fluctuating rate equal to the Bank's prime rate plus 0.25%.
The Company also pays an annual fee on the total borrowing capacity of $2.0
million at a rate of 0.75% per annum. Borrowings are collateralized by the
Company's accounts receivable and all other uncommitted assets. The line of
credit expires on May 31, 1998. There are currently no borrowings under the
line of credit. Pursuant to the covenants under the line of credit, the
Company is not currently eligible to borrow funds under the line.
The Company anticipates that net proceeds from the initial public offering will
be sufficient to meet its planned ongoing operating and working capital
requirements and to finance planned product development, sales and marketing
activities and capital acquisitions for the next twelve months.
11
<PAGE> 14
PART II - OTHER INFORMATION
Item 2: Changes in Securities
The Company, through a wholly-owned subsidiary, acquired all of the
outstanding common stock of National Health Advisors, Ltd. (NHA) in exchange
for 367,569 shares of Common Stock, par value $.01 per share of the Company
pursuant to an agreement and plan of merger dated as of June 2, 1997.
The shares have been issued without the benefit of an effective
registration statement under the Securities Act of 1933, as amended (the "Act")
in reliance upon the private placement exemption under Section 4(2) of the Act
in that they did not involve a public offering or sale of the Company's
securities.
Item 4: Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of stockholders was held on May 6, 1997.
(b) Not applicable.
(c) At such meeting all six of the nominees for election as directors were
elected to hold office until the next Annual Meeting. The votes cast with
respect to each nominee for election as a director were as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
<S> <C> <C>
Gerald E. Bisbee, Jr., Ph.D. 5,489,658 4,100
Edward J. Connors 5,489,758 4,000
Thomas W. Hodson 5,489,758 4,000
William A. Knaus, M.D. 5,489,758 4,000
Lawrence S. Lewin 5,438,858 54,900
Francis G. Ziegler 5,489,758 4,000
</TABLE>
At such meeting the stockholders ratified the appointment of Arthur
Andersen LLP as the Company's independent accountants for the year ending
December 31, 1997. The votes cast with respect to such matter were as
follows:
For 5,475,858
Against 12,400
At such meeting the stockholders approved the Amendment and Restatement
of the Company's Employee Stock Option Plan:
For 4,005,554
Against 792,800
12
<PAGE> 15
At such meeting the stockholders approved the Amendment and Restatement
of the Company's Non-Employee Director Stock Option Plan:
For 5,226,252
Against 258,306
At such meeting the stockholders approved the Amendment and Restatement
of the Company's Amended and Restated Certificate of Incorporation:
For 3,967,171
Against 847,550
Abstentions/Broker Non-Votes 679,037
(d) Not applicable.
Item 5: Other Information
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company believes that a number of important
factors could cause the Company's actual results to differ from those that may
have been or may be projected in forward-looking statements made by or on
behalf of the Company from time to time. These factors are described under the
heading "Risk Factors" in the Company's Annual Report on Form 10-K, filed with
the Securities and Exchange Commission on March 20, 1997. Specific reference is
made to the Risk Factors set forth therein entitled "History of Operating
Losses and Accumulated Deficit; Expected Losses; Uncertainty of Future
Profitability", "Fluctuations in Quarterly Operating Results", "Uncertainty of
Market Acceptance" and "State and Federal Government Regulation".
13
<PAGE> 16
Item 6: Exhibits and Reports on Form 8--K
(a) Exhibits --
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Asset Purchase Agreement by and among the Company and Dun
& Bradstreet HealthCare Information, Inc. and Cognizant Corporation
dated as of December 30, 1996*
2.2 Asset Purchase Agreement by and among the Company and Iowa
Health Centers, P.C. d/b/a Iowa Heart Center, P.C., Mercy Hospital
Medical Center, Mark A. Tannenbaum, M.D. and Iowa Heart Institute
dated as of January 7, 1997*
2.3 Agreement and Plan of Merger among the Company, NHA
Acquisition Corporation, National Health Advisors Ltd., Scott A. Mason
and Donald W. Seymour dated as of June 2, 1997.
3.1 Amended and Restated Certificate of Incorporation
3.2 By-Laws**
4.1 Specimen Common Stock Certificate**
4.2 Rights Agreement between the Company and First Chicago Trust Company of
New York, dated as of May 6, 1997.***
10.1 APACHE Medical Systems, Inc. Employee Stock Option Plan+
10.2 APACHE Medical Systems, Inc. Non-Employee Director Option Plan+
10.3 Sublease Agreement between the Company and First Union National Bank of
Virginia, dated March 17, 1994**
10.4 Registration Agreement between the Company and Certain Stockholders,
dated December 28, 1995**
10.5 Form of Warrant Agreement relating to warrants issued in 1995**
10.6 Warrant Agreement between the Company and Venture Fund of Washington,
dated May 13, 1991**
10.7 Licensing Agreement between the Company and Cerner Corporation, dated
February 2, 1995**
10.8 Nonqualified Stock Option Agreement between the Company and The Cleveland
Clinic Foundation, dated August 19, 1994**
</TABLE>
14
<PAGE> 17
10.9 Agreement between the Company and The George
Washington University, dated August 19, 1994**
10.10 Letter Agreement between the Company and the Northern New
England Cardiovascular Disease Study Group, dated March 13, 1995**
10.11 Licensing Agreement between the Company and Quality
Information Management Corporation, dated March 24, 1994**
10.12 Marketing Agreement between the Company and American
Healthcare Systems Purchasing Partners, L.P., dated as of June 3,
1996**
10.13 Registration Agreement between the Company and each of
Iowa Health Centers, P.C. d/b/a Iowa Heart Center, P.C., Mercy
Hospital Medical Center, Mark A. Tannenbaum, M.D. and Iowa Heart
Institute dated January 7, 1997*
10.14 Nonqualified Stock Option Agreements between the Company
and each of Iowa Health Centers, P.C. d/b/a Iowa Heart Center, P.C.,
Mercy Hospital Medical Center and Mark A. Tannenbaum, M.D., dated
January 7, 1997****
10.15 Security Agreement dated February 11, 1997 made by the
Company for the use and benefit of Crestar Bank and corresponding
Commercial Note.
10.16 License Agreement between the Company and Vermont Oxford
Network, Inc., Related Services Agreement between the Company and
Vermont Oxford Network, Inc. and Consulting Agreement between the
Company and Clinimetrics, Inc. each effective as of June 24, 1997.++
10.17 Employment Agreement by and between Gerald E. Bisbee,
Jr., Ph.D. and the Company, dated May 5, 1997.+
10.18 Employment Agreement by and between the Company and Scott
A. Mason, dated June 2, 1997.+
10.19 Employment Agreement by and between Robert Joseph
Sullivan and the Company, dated June 16, 1997.+
10.20 Nonqualified Stock Option Agreement between the Company
and William A. Knaus, M.D. dated May 29, 1997.+
11.1 Computation of Earnings Per Share
21.1 List of Subsidiaries of the Company**
27.1 Financial Data Schedule
_____________
15
<PAGE> 18
+ Denotes compensatory plan.
++ Confidential treatment has been requested for a portion of this exhibit.
* Incorporated herein by reference from the Company's Report on Form 8-K
filed on January 14, 1997.
** Incorporated herein by reference from the Company's Registration
Statement on Form S-1, SEC file no. 333-4106, initially filed on April 26,
1996.
*** Incorporated herein by reference from the Company's Current Report on
Form 8-K filed on June 4, 1997.
**** Incorporated herein by reference from the Company's Report on Form 10Q
for the quarter ended March 31, 1997.
(b) Reports on Form 8-K
June 2, 1997 (filed June 4, 1997) - Item 5. Other Events. Re: Adoption
of Preferred Stock Purchase Rights Plan.
16
<PAGE> 19
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.
APACHE MEDICAL SYSTEMS, INC.
Date: August 12, 1997 /s/ Robert J. Sullivan
--------------- ---------------------------------------
Robert J. Sullivan
Vice President, Chief Financial
Officer and Treasurer (Chief
Financial and Accounting Officer)
17
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.3 Agreement and Plan of Merger among the Company, NHA Acquisition
Corporation, National Health Advisors Ltd., Scott A. Mason and
Donald W. Seymour dated as of June 2, 1997.
3.1 Amended and Restated Certificate of Incorporation
10.1 APACHE Medical Systems, Inc. Employee Stock Option Plan
10.2 APACHE Medical Systems, Inc. Non-Employee Director Option Plan
10.15 Security Agreement dated February 11, 1997 made by the Company
for the use and benefit of Crestar Bank and corresponding
Commercial Note.
10.16 License Agreement between the Company and Vermont Oxford Network,
Inc., Related Services Agreement between the Company and
Vermont Oxford Network, Inc. and Consulting Agreement
between the Company and Clinimetrics, Inc. each effective as of
June 24, 1997.
10.17 Employment Agreement by and between Gerald E.
Bisbee, Jr., Ph.D. and the Company, dated May 5, 1997.
10.18 Employment Agreement by and between the Company and
Scott A. Mason, dated June 2, 1997.
10.19 Employment Agreement by and between Robert Joseph
Sullivan and the Company, dated June 16, 1997.
10.20 Nonqualified Stock Option Agreement between the
Company and William A. Knaus, M.D. dated May 29, 1997.
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
</TABLE>
18
<PAGE> 1
EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 2, 1997, among APACHE
MEDICAL SYSTEMS, INC., a Delaware corporation ("Parent"), NHA ACQUISITION
CORPORATION, a Delaware corporation and a wholly-owned subsidiary of Parent
("Acquisition"), NATIONAL HEALTH ADVISORS LTD., a Virginia corporation (the
"Company"), SCOTT A. MASON ("Mason") and DONALD W. SEYMOUR ("Seymour" and
together with Mason, the "Shareholders"). The Company and Acquisition are
hereinafter sometimes referred to as the "Constituent Corporations" and the
Company as the "Surviving Corporation."
WHEREAS, Parent, Acquisition, the Company and the Shareholders desire
that Acquisition merge with and into the Company (the "Merger"), upon the terms
and conditions set forth herein and in accordance with the Delaware General
Corporation Law (the "DGCL") and the Virginia Stock Corporation Act (the
"Virginia Act") with the result that the Company shall continue as the
surviving corporation and the separate existence of Acquisition (except as it
may be continued by operation of law) shall cease; and
WHEREAS, Parent, Acquisition, the Company and the Shareholders desire
that at the Effective Time (as hereinafter defined) all outstanding shares of
the capital stock of the Company be converted into the right to receive fully
paid and nonassessable shares of Common Stock, par value $.01 per share, of
Parent ("Parent Common Stock"), as hereinafter provided; and
WHEREAS, Parent, Acquisition, the Company and the Shareholders desire
that, immediately after the Effective Time and solely as a result of the
Merger, Parent will own all the issued and outstanding shares of the capital
stock of the Surviving Corporation; and
WHEREAS, the parties anticipate that, as partial consideration for the
Merger, Parent will enter into employment agreements, and in connection
therewith, Non-Qualified Stock Option agreements, with each of the Shareholders
and that each of the Shareholders will execute a Proprietary Information,
Inventions, Non-Compete and Non-Solicitation Agreement; and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
qualify as a tax free reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"); and
WHEREAS, the parties intend that the Merger qualify to be accounted
for as a pooling of interests; and
WHEREAS, the respective Boards of Directors of Parent, Acquisition and
the Company have approved the Merger and the Shareholders and Parent, as the
sole shareholder of Acquisition, have approved the Merger;
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the mode of carrying
the same into effect, the parties hereto hereby agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, in accordance with this Agreement, the DGCL
and the Virginia Act, Acquisition shall be merged with and into the Company,
the separate existence of Acquisition (except as it may be continued by
operation of law) shall cease, and the Company shall continue as the Surviving
Corporation under the corporate name of "National Health Advisors Ltd."
SECTION 1.2. Effect of the Merger. Upon the effectiveness of the
Merger, the Surviving Corporation shall succeed to, and assume all the rights
and obligations of, the Company and Acquisition in accordance with the DGCL and
the Virginia Act and the Merger shall otherwise have the effects set forth in
Section 252 of the DGCL and Section 13.1-721 of the Virginia Act.
SECTION 1.3. Consummation of the Merger. As soon as practicable after
the satisfaction or waiver of the conditions to the obligations of the parties
to effect the Merger set forth herein, provided that this Agreement has not
been terminated previously, the parties hereto will cause the Merger to be
consummated by filing with the Secretary of State of the State of Delaware a
properly executed certificate of merger in accordance with the DGCL and with
the State Corporation Commission of Virginia properly executed articles of
merger in accordance with the Virginia Act (the time of such filings being the
"Effective Time").
SECTION 1.4. Charter; By-laws; Directors and Officers. The Articles of
Incorporation of the Surviving Corporation from and after the Effective Time
shall be the Articles of Incorporation of the Company as in effect immediately
prior to the Effective Time, until thereafter amended in accordance with the
provisions thereof and as provided by the Virginia Act. The By-laws of the
Surviving Corporation from and after the Effective Time shall be the By-laws of
the Company as in effect immediately prior to the Effective Time, continuing
until thereafter amended in accordance with the provisions thereof and the
Articles of Incorporation of the Surviving Corporation and as provided by the
Virginia Act. The initial directors and officers of the Surviving Corporation
shall be the directors and officers, respectively, of Acquisition immediately
prior to the Effective Time, until their removal or until their respective
successors are duly elected and qualified. In addition, the officers of the
Surviving Corporation will include Mason, who will serve as President of the
Surviving Corporation, and Seymour, who will serve as Vice President of the
Surviving Corporation, in each case until their removal or until their
respective successors are duly elected and qualified.
SECTION 1.5. Further Assurances. If at any time after the Effective
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances
-2-
<PAGE> 3
or any other acts or things are necessary, desirable or proper (i) to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, its
right, title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of either of the Constituent Corporations, or
(ii) otherwise to carry out the purposes of this Agreement, the Surviving
Corporation and its proper officers and directors or their designees shall be
authorized to execute and deliver, in the name and on behalf of either of the
Constituent Corporations, all such deeds, bills of sale, assignments and
assurances and do, in the name and on behalf of such Constituent Corporation,
all such other acts and things necessary, desirable or proper to vest, perfect
or confirm its right, title or interest in, to or under any of the rights,
privileges, powers, franchises, properties or assets of such Constituent
Corporation and otherwise to carry out the purposes of this Agreement.
SECTION 1.6. Stockholders Agreement. The parties acknowledge that the
National Health Advisors Ltd. Stockholders Agreement dated March 16, 1995 among
NHA, Mason and Seymour (the "Stockholders Agreement") shall terminate at the
Effective Time.
ARTICLE II.
CONVERSION OF SECURITIES
SECTION 2.1. Conversion of Securities of the Company; Merger
Consideration. By virtue of the Merger and without any action on the part of
the holders of the capital stock of the Company, at the Effective Time, all
outstanding shares of the capital stock of the Company, par value $.10 per
share (the "Company Common Stock"), (subject to Section 2.4(c) hereof) shall be
converted into the right to receive fully paid and nonassessable shares of
Parent Common Stock. Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be canceled and converted into
the right to receive 335.570 shares of Parent Common Stock so that an aggregate
of approximately 335,570 shares of Parent Common Stock were issued by virtue of
the Merger ("Merger Consideration"). If, prior to the Effective Time, Parent
should split or combine the outstanding shares of Parent Common Stock, or pay a
stock dividend or other stock distribution in Parent Common Stock, then the per
share Merger Consideration shall be appropriately adjusted to reflect such
split, combination, dividend or other distribution.
SECTION 2.2. Conversion of Acquisition Common Stock. At the Effective
Time, each share of Common Stock, without par value, of Acquisition issued and
outstanding immediately prior to the Effective Time shall remain outstanding
and, by virtue of the Merger, automatically and without any action on the part
of the holder thereof, be converted into and become one validly issued, fully
paid and nonassessable share of Common Stock of the Surviving Corporation.
SECTION 2.3. Dissenting Shares. Each of the Shareholders has approved
the Merger and elected not to exercise any dissenters' rights under Section
13.1-730 of the Virginia Act.
-3-
<PAGE> 4
SECTION 2.4. Surrender and Exchange of Shares.
(a) At the Effective Time, each holder of an outstanding
certificate or certificates that prior thereto represented shares of the
capital stock of the Company shall surrender the same to Parent or its agent,
and each such holder shall be entitled upon such surrender to receive in
exchange therefor, without cost to it, the number of shares of Parent Common
Stock into which the shares theretofore represented by the certificate so
surrendered shall have been converted as provided in Section 2.1 hereof, and
the certificate or certificates so surrendered in exchange for such
consideration shall forthwith be canceled by Parent.
(b) If a certificate representing shares of the capital stock
of the Company has been lost, stolen or destroyed, the holder of such
certificate shall submit an affidavit describing the lost, stolen or destroyed
certificate, the number of shares evidenced thereby and affirming the status of
that certificate in lieu of surrendering such certificate to Parent, which
shall deem such certificate canceled. Until so surrendered, the outstanding
certificates that, prior to the Effective Time, represented shares of the
capital stock of the Company that shall have been converted as aforesaid shall
be deemed for all corporate purposes, except as hereinafter provided, to
evidence the ownership of the consideration into which such shares have been so
converted.
(c) No certificates or scrip representing fractional shares
of Parent Common Stock shall be issued upon the surrender for exchange of
certificates held by shareholders of the Company, and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
stockholder of Parent. Each holder of shares of the capital stock of the
Company who would otherwise have been entitled to receive in the merger a
fraction of a share of Parent Common Stock (after taking into account all
certificates surrendered by such holder) shall be entitled to receive from
Parent at the Effective Time, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Parent Common Stock
multiplied by $5.811 per share (the "Average May Price"). It is understood (i)
that the payment of cash in lieu of fractional shares of Parent Common Stock is
solely for the purpose of avoiding the expense and inconvenience to Parent of
issuing fractional shares and does not represent separately bargained-for
consideration and (ii) that no holder of shares of Company capital stock will
receive cash in lieu of fractional shares of Parent Common Stock in an amount
greater than the value of one full share of Parent Common Stock.
SECTION 2.5. Closing of Stock Transfer Books. On and after the
Effective Time, there shall be no transfers on the stock transfer books of the
Company or Parent of shares of capital stock of the Company that were issued
and outstanding immediately prior to the Effective Time.
SECTION 2.6. Closing. The closing (the "Closing") shall be scheduled
to occur at the offices of Parent, 1650 Tysons Boulevard, McLean, Virginia
22102, at 10:00 a.m. local time, on a date as soon as practicable after the
satisfaction or waiver of the conditions to the obligations of the parties to
effect the Merger set forth herein. The Closing, and all transactions to occur
at the Closing, shall be deemed to have taken place at, and shall be effective
as of, the close of business on the date of closing (the "Closing Date").
-4-
<PAGE> 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Company and Mason.
The Company and Mason, jointly and severally, represent and warrant to Parent
and Acquisition as follows:
(a) Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Virginia and has all requisite corporate power and
authority to own or lease and operate its properties and assets and to carry on
its business as it is now being conducted. Except as set forth on Schedule
3.1(a), the Company is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction in which the character of its
properties owned or leased or the nature of its activities makes such
qualification necessary, other than where the failure to be so qualified would
not have a material adverse effect on the properties, assets, financial
condition, operating results or business of the Company (a "Company Material
Effect").
(b) Subsidiaries. The Company does not own of record or
beneficially, directly or indirectly, (i) any shares of outstanding capital
stock or securities convertible into capital stock of any other corporation or
(ii) any participating interest in any partnership, joint venture or other
noncorporate business enterprise.
(c) Capitalization. The authorized capital stock of the
Company consists of 100,000 shares of Company Common Stock. As of the date of
this Agreement, 1,000 shares of Company Common Stock are issued and
outstanding, all of which were duly authorized and validly issued and are fully
paid and nonassessable. Mason owns of record 920 shares of Company Common Stock
and such shares are not, and at the Effective Time will not be, subject to any
lien, claim or encumbrance. No shares of Company Common Stock are held in the
treasury of the Company. The Company does not have any subscription, warrant,
option, convertible security, stock appreciation or other right (contingent or
other) to purchase or acquire any shares of any class of capital stock of the
Company authorized or outstanding and there is not any commitment of the
Company to issue any shares, warrants, options or other such rights or to
distribute to holders of any class of its capital stock any evidences of
indebtedness or assets. Except for the Stockholders Agreement and as set forth
on Schedule 3.1(c), the Company does not have any obligation (contingent or
other) to purchase, redeem or otherwise acquire any shares of its capital stock
or any interest therein or to pay any dividend or make any other distribution
in respect thereof. Schedule 3.1(c) sets forth a complete and correct list of
the holders of record of the Company Common Stock.
(d) Authority Relative to Agreement. The Company has all
requisite corporate power and authority, and Mason has the requisite individual
capacity and authority, to execute and deliver this Agreement and to perform
its or his respective obligations hereunder. The execution, delivery and
performance of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by the Company's
Board of Directors and its shareholders and no other corporate approvals or
-5-
<PAGE> 6
proceedings on the part of the Company are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company and Mason and constitutes the legal,
valid and binding obligation of the Company and Mason, enforceable against the
Company and Mason in accordance with its terms. The Company's Board of
Directors, by unanimous written consent of all directors (i) determined that
this Agreement and the Merger are advisable and fair and in the best interests
of the Company and its shareholders and (ii) resolved, subject to and in
accordance with the Virginia Act and its Articles of Incorporation and By-laws,
to recommend that approval of this Agreement and the Merger by the Company's
shareholders and directed that the Merger be submitted for consideration by
such shareholders. The unanimous written consent of the holders of all of the
outstanding Company Common Stock approving the Merger has been received and is
the only approval of the holders of any class or series of the Company's
capital stock necessary to approve this Agreement, the Merger and the
transactions contemplated hereby.
(e) Non-Contravention. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not (i) violate or conflict with any
provision of the Articles of Incorporation or By-laws of the Company, (ii)
result in any violation of, conflict with, or default (or an event which with
notice or lapse of time or both would constitute a default) or loss of a
benefit under, or permit the termination of or the acceleration of any
obligation under, any mortgage, indenture, lease, agreement or other
instrument, permit, concession, grant, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the business
conducted by the Company (the "Business") or to the Company or its properties,
other than any such default or termination that would not have a Company
Material Adverse Effect, or (iii) result in the creation or imposition of any
Claim (as defined hereafter in Section 3.1(j)) in favor of any third person or
entity upon any of the assets of the Company or the Business, other than any
such violation, conflict, default, loss, termination or acceleration that would
not have a Company Material Adverse Effect.
(f) Consents. Except as set forth on Schedule 3.1(f), no
consent, approval, order or authorization of, or registration, declaration or
filing with, any Federal, state, local or foreign governmental or regulatory
authority is required to be made or obtained by the Company in connection with
the execution and delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, except for the filing
of articles of merger with the State Corporation Commission of Virginia in
accordance with the Virginia Act.
(g) Financial Statements, Etc. Prior to Closing, the Company
will furnish to Parent (i) the compiled balance sheets of the Company as of
December 31, 1996, 1995 and 1994, and the related statements of operations,
shareholders' equity (capital deficiency) and cash flows for each of the three
years ended December 31, 1996, 1995 and 1994), prepared by Matthews, Carter and
Boyce, the independent certified public accountants of the Company for such
years, (ii) the unaudited balance sheet of the Company as of March 31, 1997 and
as of the most recent month end prior to Closing, and the related statements of
operations and cash flows for the three months ended March 31, 1997, each
certified by the principal financial officer of the Company. The foregoing
financial statements shall be collectively referred to as the "Financial
Statements".
-6-
<PAGE> 7
Except as set forth on Schedule 3.1(g), all such Financial Statements
(including any related schedules and/or notes, if any) have been prepared in
accordance with GAAP consistently applied and consistent with prior periods,
except that interim statements are subject to year end adjustments (which
consist of normal recurring accruals) and do not contain certain footnote
disclosures. Such balance sheets fairly present in all material respects the
financial position of the Company as of their respective dates, and such
statements of operations, shareholders' equity (capital deficiency) and cash
flows fairly present in all material respects the results of operations of the
Company for the respective periods then ended, subject, in the case of
unaudited financial statements, to normal year-end adjustments and the absence
of certain footnote disclosures.
Except as and to the extent (i) reflected on the balance
sheet of the Company as of December 31, 1996 referred to above, (ii) incurred
since December 31, 1996 in the ordinary course of business consistent with past
practice, (iii) reflected in the unaudited balance sheet of the Company as of
March 31, 1997, or (iv) set forth on Schedule 3.1(g) hereto, the Company does
not have any liabilities or obligations of any kind or nature, whether known or
unknown or secured or unsecured (whether absolute, accrued, contingent or
otherwise, and whether due or to become due) that would be required to be
reflected on a balance sheet, or the notes thereto, prepared in accordance with
GAAP. Since March 31, 1997, the Company has not suffered any Company Material
Adverse Effect.
(h) Absence of Certain Changes or Events. Except as set forth
on Schedule 3.1(h) hereto, or as otherwise disclosed in the financial
statements of the Company as of and for the three months ended March 31, 1997
referred to above, since December 31, 1996, the Company has not (i) issued any
stock, bonds or other corporate securities, (ii) borrowed or refinanced any
amount or incurred any liabilities (absolute or contingent) in excess of
$10,000, other than trade payables incurred in the ordinary course of business
consistent with past practice, (iii) discharged or satisfied any claim in
excess of $10,000 or incurred or paid any obligation or liability (absolute or
contingent) other than current liabilities shown on the balance sheet of the
Company as of December 31, 1996 and current liabilities incurred since the date
of such balance sheet in the ordinary course of business consistent with past
practice, (iv) declared or made any payment or distribution to shareholders or
purchased or redeemed any shares of its capital stock or other securities, (v)
mortgaged, pledged or subjected to lien any of its assets, tangible or
intangible, other than liens for current real property taxes not yet due and
payable, (vi) sold, assigned or transferred any of its tangible assets, or
canceled any debts or claims, except in the ordinary course of business
consistent with past practice or as otherwise contemplated hereby, (vii) sold,
assigned, licensed, sublicensed or transferred any Intellectual Property Rights
(as hereinafter defined) or other intangible assets, (viii) waived any rights
of substantial value, whether or not in the ordinary course of business, (ix)
entered into, adopted, amended or terminated any bonus, profit sharing,
compensation, termination, stock option, stock appreciation right, restricted
stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit plan, agreement, trust, fund or
other arrangement for the benefit of any director, officer or employee, or
increased in any manner the compensation or fringe benefits of any director or
officer, or increased the compensation or fringe benefits of any executive
officer other than in the ordinary course of business consistent with past
practices, or made any payment of a cash bonus to any director or officer or to
any
-7-
<PAGE> 8
employee of, or consultant or agent to, the Company or made any other material
change in the terms or conditions of employment, (x) announced any plan or
legally binding commitment to create any employee benefit plan, program or
arrangement or to amend or modify in any material respect any existing employee
benefit plan, program or arrangement, (xi) eliminated the vesting conditions or
otherwise accelerated the payment of any compensation, including any stock
options, (xii) suffered any damage, destruction or loss to any of its assets or
properties in excess of $2,000, (xiii) made any change in its accounting
systems, policies, principles or practices, (xiv) made any loans to any person,
or (xv) to the extent not otherwise set forth herein, taken any action
described in Section 4.1 hereof.
(i) Actions Pending. Except as set forth on Schedule 3.1(i)
hereto, (i) there is no action, suit, dispute, investigation, proceeding or
claim pending or, to the best knowledge of the Company and Mason, threatened
against or affecting the Company or its properties or rights, or the Business,
before any court, administrative agency, governmental body, arbitrator,
mediator or other dispute resolution body, and neither the Company nor Mason
are aware of any facts or circumstances which may give rise to any such action,
suit, dispute, investigation, proceeding or claim, (ii) the Company is not
subject to any order, judgment, decree, injunction, stipulation, or consent
order of or with any court or other governmental agency, and (iii) the Company
has not entered into any agreement to settle or compromise any proceeding
pending or threatened against it which has involved any obligation other than
the payment of money or for which the Company has any continuing obligation.
(j) Title to Properties. The Company has good title to the
properties and assets reflected on the balance sheet of the Company as of
December 31, 1996 other than non-material properties and assets disposed of in
the ordinary course of business consistent with past practice since the date of
such balance sheet, and all such properties and assets are free and clear of
any liens, claims, charges, restrictions, rights of others, security interests,
prior assignments or other encumbrances (collectively "Claims"), except (i) as
described on Schedule 3.1(j) hereto, (ii) liens for current taxes not yet due
or (iii) minor imperfections of title, if any, not material in amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed operations of the
Company (collectively, "Permitted Liens"). Such properties and assets
constitute all of the assets necessary to conduct the Business substantially in
the same manner as it has been conducted prior to the date hereof.
(k) Real Property Interests. Schedule 3.1(k) hereto sets
forth a complete and accurate list of (i) the real properties owned by the
Company (the "Fee Properties") and (ii) the real properties leased by the
Company (the "Leased Properties"). The Company has good and marketable fee
simple title to the Fee Properties and good leasehold title to the Leased
Properties, in each case listed below its name on Schedule 3.1(k), free and
clear of all Claims, tenants and occupants except for Permitted Liens.
Complete and accurate copies of all leases or other agreements relating to the
Leased Properties have been delivered to Parent and there have been no material
changes or amendments to such leases or agreements since such delivery. The
Company is the lawful owner of all improvements and fixtures located on the Fee
Properties or the Leased Properties, free and clear of all Claims except for
Permitted Liens. Each lease or other agreement relating to the Leased
Properties is a valid and binding agreement, without any material default of
the Company thereunder and, to the best knowledge of the Company and
-8-
<PAGE> 9
Mason, without any material default thereunder of the other party thereto, and
such leases and agreements give the Company the right to use or occupy, as the
case may be, all real properties as are sufficient and adequate to operate the
Business as it is currently being conducted. Except as set forth on Schedule
3.1(k), the Company's possession of such property has not been disturbed nor,
to the best knowledge of the Company and Mason, has any claim been asserted
against the Company.
(l) Intellectual Property Rights. The patents, trademarks,
service marks and trade names, and trademark, service mark and trade name
registrations, copyrights and copyright registrations, and the applications
therefor and the licenses with respect thereto (collectively, "Intellectual
Property Rights") listed on Schedule 3.1(l) hereto constitute all material
proprietary rights owned or held by the Company that are reasonably necessary
to the conduct of the Business. Except as set forth on Schedule 3.1(l), (i)
the Company conducts the Business without infringement or claim of infringement
of any Intellectual Property Right of others and the conduct of the Business by
the Surviving Corporation after the Effective Time, as it is currently
conducted, will not infringe or misappropriate or otherwise violate the
Intellectual Property Rights of any other person or constitute a breach or
violation of any agreement relating to the Intellectual Property Rights listed
on Schedule 3.1(l), (ii) the Company is, and after the consummation of the
Merger will be, the sole and exclusive owner of each Intellectual Property
Right listed on Schedule 3.1(l), in each case free and clear of any Claims
(other than Permitted Liens) and, to the best knowledge of the Company and
Mason, no person is challenging, infringing, misappropriating or otherwise
violating any such Intellectual Property Rights or claiming that the conduct of
the Business, infringes, misappropriates or otherwise violates the Intellectual
Property Rights of any third party, (iii) neither the Company nor Mason are
aware of any impediment to the registration of any trademark that is the
subject of any application for registration listed on Schedule 3.1(l), (iv)
none of the Intellectual Property Rights listed on Schedule 3.1(l) is the
subject of any outstanding order, ruling, decree, judgment or stipulation, (v)
to the best knowledge of the Company and Mason, none of the activities of any
employee of the Company on behalf thereof violates any obligations of such
employee to third parties, including, without limitation, confidentiality or
non-competition obligations under agreements with a former employer, (vi)
neither the Company nor Mason are aware of any use by a third party of any
computer software programs or applications that the Company considers to be a
trade secret belonging to the Company, and (vii) the Company has taken and is
taking reasonable precautions to protect all material trade secrets and other
confidential information relating to its proprietary computer software programs
and applications or included in the Intellectual Property Rights that are
material to the conduct of the Business.
(m) Labor Matters. Except as set forth on Schedule 3.1(m)
hereto, the Company is in compliance in all respects with all laws and
regulations or other legal or contractual requirements regarding the terms and
conditions of employment of employees, former employees or prospective
employees or other labor related matters, including, without limitation, laws,
rules, regulations, orders, rulings, conciliation agreements, decrees,
judgments and awards relating to wages, hours, the payment of social security
and similar taxes, equal employment opportunity, employment discrimination,
fair labor standards and occupational health and safety, wrongful discharge or
violation of the personal rights of employees, former employees or prospective
employees, other than where the failure to comply would not have a
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Company Material Adverse Effect. The Company is not liable for any arrears of
wages or any taxes or penalties for failure to comply with any of the
foregoing.
(n) Severance Arrangements. Except as set forth on Schedule
3.1(n) hereto, the Company is not a party to any agreement with any employee
(i) the benefits of which (including, without limitation, severance benefits)
are contingent, or the terms of which are materially altered, upon the
occurrence of the Merger or (ii) providing severance benefits in excess of
those generally available under the Company's severance policies (which are
described on Schedule 3.1(n)), or which are conditioned upon a change of
control, after the termination of employment of such employees regardless of
the reason for such termination of employment, and, except as set forth on
Schedule 3.1(n), the Company is not a party to any employment agreement or
compensation guarantee extending for a period longer than one year. Schedule
3.1(n) sets forth all employment agreements and compensation guarantees,
regardless of duration, to which the Company is a party. No amounts will be
due or payable to any employee of the Company under any such severance
arrangement or otherwise by virtue of the Merger.
(o) Taxes.
(i) Except as set forth on Schedule 3.1(o) hereto, the
Company has (A) timely filed all Federal and all material state, local and
foreign returns, declarations, reports, estimates, information returns and
statements ("Returns") required to be filed by it in respect of any Taxes
(as hereinafter defined), (B) timely paid all Taxes that are due and
payable with respect to the periods covered by the Tax Returns referred to
in clause (A) without regard to whether such Taxes have been assessed
(except for audit adjustments not material in the aggregate or to the
extent that liability therefor is reserved for in the Company's most recent
audited financial statements), (C) established reserves that are adequate
for the payment of all Taxes not yet due and payable with respect to the
results of operations of the Company, and (D) complied in all material
respects with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes and has in all material respects timely
withheld from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over.
(ii) Schedule 3.1(o) sets forth the last taxable period
through which the Federal Income Tax Returns of the Company have been
examined by the Internal Revenue Service or otherwise closed. All
deficiencies asserted as a result of such examinations and any examination
by any applicable state, local or foreign taxing authority which have not
been or will not be appealed or contested in a timely manner have been
paid, fully settled or adequately provided for in the Company's most recent
audited financial statements. Except as set forth on Schedule 3.1(o), no
Federal, state, local or foreign Tax audits or other administrative
proceedings or court proceedings are currently pending with regard to any
Federal or material state, local or foreign Taxes for which the Company
would be liable, and no deficiency for any such Taxes has been proposed,
asserted or assessed or, to the best knowledge of the Company and Mason,
threatened pursuant to such examination of the Company by such Federal,
state, local or foreign taxing authority with respect to any period.
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(iii) Except as set forth on Schedule 3.1(o), the Company
has not executed or entered into (or prior to the Effective Time will
execute or enter into) with the Internal Revenue Service or any taxing
authority (A) any agreement or other document extending or having the
effect of extending the period for assessments or collection of any
Federal, state, local or foreign Taxes for which the Company would be
liable or (B) a closing agreement pursuant to Section 7121 of the Internal
Revenue Code, or any predecessor provision thereof or any similar provision
of state, local or foreign income tax law that relates to the assets or
operations of the Company.
(iv) Except as set forth on Schedule 3.1(o), the Company
is not a party to any agreement providing for the allocation or
sharing of liability for any Taxes.
(v) The Company has made available to Parent complete and
accurate copies of all income and franchise Tax Returns and all material
other Tax Returns filed by or on behalf of the Company for the taxable
years ending December 31, 1991 through December 31, 1996.
(vi) The Company has had a valid election in effect to be
taxed as an S corporation, as defined in Section 1361 of the Code or any
predecessor provision thereof and any similar provision of state, local or
foreign law, for each year since and including the year ending December 31,
1988. To the knowledge of the Company and Mason, nothing has occurred
which has or would cause the S election to terminate.
(vii) The Company has never been either the common parent
of or a member of an affiliated group of corporations (as defined in
Section 1504 of the Code or any predecessor provision thereof and any
similar provision of state, local or foreign law) which has filed a
consolidated federal income tax return or similar return for state, local
or foreign tax returns.
(viii) The Company has not filed a consent under Section
341(f) of the Internal Revenue Code.
(ix) Either (i) the Company is not and has not been at any
time during the last five years a "U.S. real property holding corporation"
(as defined in Section 897(c)(2) of the Internal Revenue Code) or (ii)
neither the Company nor any shareholder of the Company is a non-resident
alien individual, foreign corporation, foreign partnership, or foreign
trust.
For purposes of this Agreement, "Taxes" shall mean all
Federal, state, local, foreign or other taxing authority income, franchise,
sales, use, ad valorem, property, payroll, social security, unemployment,
assets, value added, withholding, excise, severance, transfer, employment,
alternative or add-on minimum and other taxes, charges, fees, levies, imposts,
duties, licenses or other assessments, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority.
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<PAGE> 12
(p) Compliance with Law; Permits. The Company is not in
default in any material respect under any order or decree of any court,
governmental authority, arbitrator or arbitration board or tribunal or under
any laws, ordinances, governmental rules or regulations to which the Company or
any of its properties or assets is subject. Schedule 3.1(p) hereto sets forth
a list of all permits, authorizations, approvals, registrations, variances and
licenses ("Permits") issued to or used by the Company in connection with the
conduct of the Business; such Permits constitute all Permits necessary for the
Company to own, use and maintain its properties and assets or required for the
conduct of the Business in substantially the same manner as it is currently
conducted, the absence of which would have a Company Material Adverse Effect.
Each Permit listed on Schedule 3.1(p) is in full force and effect and no
proceeding is pending, or, to the best knowledge of the Company and Mason,
threatened, to modify, suspend, revoke or otherwise limit any of such Permits
and no administrative or governmental actions have been taken or, to the best
knowledge of the Company and Mason, threatened, in connection with the
expiration or renewal of any of such Permits. To the best knowledge of the
Company and Mason, except as set forth on Schedule 3.1(p), the Company will not
be required, as a result of the consummation of the transactions contemplated
hereby, to obtain or renew any Permits.
(q) Employee Benefit Plans.
(i) Except as described in Schedule 3.1(q), the
Company is not a party to or bound by any oral or written employee
collective bargaining agreement, employment agreement (other than
employment agreements terminable by the Company without penalty on
notice of 30 days or less under which the only monetary obligation of
the Company is to make current wage or salary payments and provide
current fringe benefits), consulting, advisory or service agreement,
deferred compensation agreement, confidentiality agreement or covenant
not to compete. There are no material controversies pending, or, to
the knowledge of the Company and Mason, threatened between the Company
and its employees or any labor union or other organization
representing or claiming to represent such employees' interests.
(ii) Except as described in Schedule 3.1(q), (A) since its
formation, the Company (either directly or indirectly through any
other person or entity) has not sponsored, established, maintained,
contributed to or become obligated under any Employee Plan (as defined
in paragraph (iii) below) on behalf of its employees, (B) no employees
of the Company are covered under any Employee Plan, and (C) each
Employee Plan that is intended to be qualified under Section 401(a) of
the Internal Revenue Code has received a favorable determination
letter from the Internal Revenue Service stating that the plan meets
the requirements of the Internal Revenue Code and that any trust
associated with the plan is tax-exempt under Section 501(a) of the
Internal Revenue Code; or, if any such plan has not received a
favorable determination letter, an opinion letter from the employee
benefits counsel for the Company has been delivered to Parent stating
that the plan meets the requirements of the Internal Revenue Code and
that any trust associated with the plan is tax- exempt under Section
501(a) of the Internal Revenue Code.
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<PAGE> 13
(iii) For purposes of the preceding paragraph and the
remainder of this Agreement, the term "Employee Plan" includes any
pension, retirement, savings, disability, medical, dental, health,
life (including, without limitation, any individual life insurance
policy under which an employee of the Company is the named insured and
as to which the Company makes premium payments, whether or not the
Company is the owner, beneficiary or both of such policy), death
benefit, group insurance, profit-sharing, deferred compensation, stock
option, stock purchase, bonus, incentive, vacation pay, severance pay,
or other employee benefit plan, trust, arrangement, contract,
agreement, policy or commitment (including, without limitation, any
pension plan as defined in Section 3(2) of ERISA ("Pension Plan"), and
any welfare plan as defined in Section 3(1) of ERISA ("Welfare Plan"),
whether or not any of the foregoing is funded or insured and whether
written or oral, which is intended to provide or does in fact provide
benefits to any employees of the Company, and to which the Company is
a party or by which the Company (or any of the rights, properties or
assets of the Company) is bound. "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended.
(iv) The Company has never contributed, or been obligated
to contribute, to any "multiemployer plan" (within the meaning of
Sections 3(37) and 4001 of ERISA) with respect to its employees.
(v) To the knowledge of the Company and Mason, each
Welfare Plan which is a group health plan (within the meaning of
Section 5000(b)(1) of the Internal Revenue Code) complies with, and
has been maintained and operated in accordance with, each of the
health care continuation requirements of Section 162(k) of the
Internal Revenue Code as in effect for years beginning prior to 1989,
Section 4980B of the Internal Revenue Code for years beginning after
December 31, 1988, and Part 6 of Title I, Subtitle B of ERISA.
(vi) Except as disclosed on Schedule 3.1(q), the Company
has no liabilities for postretirement welfare benefits, including
retiree medical benefits.
(vii) No lawsuits, claims (other than routine claims for
benefits) or complaints to, or by, any person or governmental entity
have been filed, are pending or, to the best knowledge of the Company
and Mason, have been threatened, and no facts or contemplated events
exist that reasonably could be expected to give rise to any such
lawsuit, claim (other than a routine claim for benefits) or complaint,
with respect to any Employee Plan.
(viii) To the knowledge of the Company and Mason, (A) each
Employee Plan, the administrator and fiduciaries of each Employee
Plan, and the Company have at all times complied in all material
respects with the applicable requirements of ERISA (including, but not
limited to, the fiduciary responsibilities imposed by Part 4 of Title
I, Subtitle B of ERISA), the Internal Revenue Code and any other
applicable legal requirements (including regulations and rulings
thereunder) governing each Employee Plan, and (B) each Employee Plan
has at all times been properly administered in all
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<PAGE> 14
material respects in accordance with all such legal requirements, and
in accordance with its terms to the extent consistent with all such
legal requirements.
(ix) Except as disclosed on Schedule 3.1(q), the Company
is not delinquent as to contributions or payments to or in respect of
any Employee Plan as to which it is in any way obligated to make
contributions or payments, nor has the Company failed to pay any
assessments made with respect to any such Employee Plan. All
contributions and payments with respect to Employee Plans that are
required to be made by the Company have been made or will be accrued
before the Closing Date by the Company in accordance with the
appropriate actuarial valuation report or insurance contracts or
arrangements.
(x) To the knowledge of the Company and Mason, with
respect to each Employee Plan, there has not occurred, nor is any
person contractually bound to enter into, any non-exempt "prohibited
transaction" within the meaning of Section 4975 of the Internal
Revenue Code or Section 406 of ERISA.
(xi) No Pension Plan subject to Title IV of ERISA,
maintained by the Company and covering current or former employees of
the Company, has been completely or partially terminated or has been
the subject of a "reportable event" (within the meaning of Section
4043 of ERISA) as to which notices would be required to be filed with
the Pension Benefit Guaranty Corporation, other than events reportable
on Form 5310 of the Internal Revenue Service.
(xii) No proceeding by the Pension Benefit Guaranty
Corporation to terminate any Pension Plan in accordance with Subtitle
1 of Title IV of ERISA has been instituted, is, to the knowledge of
the Company and Mason, currently threatened or could reasonably be
expected to be threatened.
(xiii) The Company has no formal plan or commitment to
create any Employee Plan.
(xiv) The funding status of the National Health Advisors
Ltd. Defined Benefit Plan (the "NHA Plan") and the circumstances
surrounding the NHA Plan are such that if the NHA Plan is terminated
by Parent or Acquisition at any time within the first twenty-four (24)
months following the Effective Time, the total amount of the added
funds that Parent or Acquisition is required to contribute to the NHA
Plan, to meet the applicable legal requirements for funding the plan
in a manner sufficient to allow the plan to pay out all benefit
liabilities under the plan (plus the total amount of any contributions
to the NHA Plan that Parent or Acquisition have already made, prior to
the termination of the Plan) will in no event be more than $50,000.
(r) Environmental Matters. The Company is in compliance
with all Federal, state or local statutes, ordinances, orders, judgments,
rulings or regulations relating to environmental pollution or to environmental
regulation or control. Neither the Company nor any of the Company's officers,
employees, representatives or agents or, to the knowledge of the
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<PAGE> 15
Company and Mason, any other person, have treated, stored, processed,
discharged, spilled or otherwise disposed of any substance defined as hazardous
or toxic by any applicable Federal, state or local law, rule, regulation, order
or directive, or any by-product thereof, at any real property or any other
facility owned, leased or used by the Company, in violation of any applicable
statutes, regulations, ordinances or directives of any governmental authority
or court, which violations may result in any material liability to the Company.
No employee or other person has ever made a claim or demand against the Company
based on alleged damage to health caused by any such hazardous or toxic
substance or by any waste or by-product thereof. The Company has not been
charged by any governmental authority with improperly using, handling, storing,
discharging or disposing of any such hazardous or toxic substance or waste or
by-product thereof or with causing or permitting any pollution of any body of
water. The Fee or Leased Properties and the Business are not subject to any
pending or, to the best knowledge of the Company and Mason, threatened
administrative or judicial proceeding under any environmental law and there are
no known facts or circumstances which may give rise to any proceeding. There
are no inactive, closed, or abandoned storage or disposal areas or facilities
or underground storage tanks on the Fee or Leased Properties.
(s) Personal Property. The Company has provided Parent
lists of (i) all of the tangible personal property used by the Company in its
business having an original acquisition cost of $1,000 or more, and (ii) all
leases of personal property binding upon the Company having an annual rental in
excess of $5,000. All of such tangible personal property is presently utilized
by the Company in the ordinary course of its business and is in good repair,
ordinary wear and tear excepted.
(t) Contracts. Schedule 3.1(t) lists all contracts and
arrangements of the following types to which the Company is a party or by which
it is bound and which are material to the conduct of the Business or to the
financial condition or results of operations of the Company, including without
limitation the following:
(i) any contract or arrangement with a
consultant, software licensor, sales representative, distributor,
dealer, broker, sales agency, advertising agency or other person
engaged in sales, distribution or promotional activities, or any
contract to act as one of the foregoing on behalf of any person, which
is not terminable by the Company on 30 or fewer days notice;
(ii) any contract or arrangement of any nature
which involves the payment or receipt of cash or other property, an
unperformed commitment, or goods or services, having a value in excess
of $10,000;
(iii) any contract or arrangement pursuant to which
the Company has made or will make loans or advances, or has or will
have incurred indebtedness for borrowed money or become a guarantor or
surety or pledged its credit on or otherwise become responsible with
respect to any undertaking of another in excess of $10,000;
(iv) any indenture, credit agreement, loan
agreement, note, mortgage, security agreement, lease of real property
or personal property, loan commitment or other
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<PAGE> 16
contract or arrangement relating to the borrowing of funds, an
extension of credit or financing;
(v) any contract or arrangement involving a
partnership, joint venture or other cooperative undertaking;
(vi) any contract or arrangement involving any
restrictions with respect to the geographical area of operations or
scope or type of business of the Company;
(vii) any power of attorney or agency agreement or
arrangement with any person pursuant to which such person is granted
the authority to act for or on behalf of the Company, or the Company
is granted the authority to act for or on behalf of any person;
(viii) any contract not fully performed and relating
to any acquisition or disposition of the Company or any predecessor in
interest of the Company, or any acquisition or disposition of any
subsidiary, division, line of business, or real property; and
(ix) any contract not specified above that is
material to the Company.
The Company has delivered to Parent complete and accurate copies of the
contracts and agreements set forth on Schedule 3.1(t), and each such contract
or agreement is a valid and binding agreement, without any default of the
Company thereunder and, to the best knowledge of the Company and Mason, without
any default thereunder of the other party thereto. The Company has not
received notice of any cancellation or termination of, or of any threat to
cancel or terminate, any such contracts or agreements. Each such contract or
arrangement (i) when entered into, was on terms no less favorable to the
Company than the terms which could have been obtained at the date thereof from
an unrelated third party, and (ii) if canceled at any time by the other party,
would not, individually, have a Company Material Adverse Effect.
(u) Insurance.
(i) All policies of fire, liability, workers'
compensation and other forms of insurance providing insurance coverage
to or for the Company for events or occurrences arising or taking
place in the case of occurrence type insurance, and for claims made
and/or suits commenced in the case of claims-made type insurance,
between the date of this Agreement and the Effective Time, are listed
on Schedule 3.1(u) hereto, and, except as set forth on Schedule
3.1(u), all premiums with respect thereto have been paid, and no
notice of cancellation or termination has been received with respect
to any such policy. All such policies are in full force and effect,
and, except as set forth on Schedule 3.1(u), provide insurance in such
amounts and against such risks as is customary for companies engaged
in similar businesses to protect the employees, properties, assets,
businesses and operations of the Company. All such policies will
remain in full force and effect and will not in any way be affected
by, or terminate or lapse by reason of, any of the transactions
contemplated hereby.
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<PAGE> 17
(ii) The Company has provided Parent information
concerning all claims, which (including related claims which in the
aggregate) exceed $5,000 and which have been made by the Company in
the last two years under any workers' compensation, general liability,
property, directors' and officers' liability or other insurance policy
applicable to the Company or any of its properties. Except as set
forth in Schedule 3.1(u) to the knowledge of the Company and Mason
there are no pending or threatened claims under any insurance policy.
(v) Pending Transactions. Except for this Agreement and the
transactions contemplated hereby, the Company is not a party to or bound by any
agreement, negotiation, discussion, commitment or undertaking with respect to a
merger or consolidation with, or an acquisition of all or substantially all of
the property and assets of, any other corporation or person or the sale, lease
or exchange of all or substantially all of its properties and assets to any
other person.
(w) Claims Against Officers and Directors. To the best knowledge
of the Company and Mason, there are no pending or threatened claims against any
director, officer, employee or agent of the Company or any other person which
could give rise to any claim for indemnification against the Company.
(x) Clients, Suppliers, Etc. The Company has provided Parent
information concerning and copies of agreements with clients of the Company
since January 1, 1996 ("Clients") and current clients of the Company ("Current
Clients"), all of which Clients and Current Clients are set forth on Schedule
3.1(x). Except to the extent set forth in Schedule 3.1(x), there has not been
any adverse change in the business relationship, and there has been no material
dispute, between the Company and any Client.
(y) Improper and Other Payments. To the best knowledge of the
Company and Mason, except as set forth on Schedule 3.1(y), neither the Company
nor any director, officer, employee, agent or representative of the Company, nor
any person acting on behalf of any of them, has (i) made, paid or received any
bribes, kickbacks or other similar payments to or from any person, whether
lawful or unlawful, (ii) made any unlawful contributions, directly or
indirectly, to a domestic or foreign political party or candidate, or (iii) made
any improper foreign payment (as defined in the Foreign Corrupt Practices Act).
(z) Brokers. Except as set forth on Schedule 3.1(z), the Company
has not used any broker or finder in connection with the transactions
contemplated hereby, and the Company shall not be liable for or otherwise suffer
or incur any loss as a result of or in connection with any brokerage or finder's
fee or other commission of any person retained by the Company or any of the
shareholders of the Company in connection with any of the transactions
contemplated by this Agreement.
(aa) Accounts Receivable and Advances. Except as disclosed on
Schedule 3.1(aa), (i) each account receivable of the Company (collectively, the
"Receivables") represents revenue due from consulting arrangements and related
items made in the ordinary course of business other than to affiliates and which
arose pursuant to an enforceable contract for
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<PAGE> 18
services performed, and the Company has performed all of its obligations to
perform the services to which such Receivables relate, and (ii) to the best of
knowledge of the Company and Mason, no Receivable is subject to any claim for
reduction, counterclaim, set-off, recoupment or other claim for credit,
allowances or adjustments by the obligor thereof.
(bb) Pooling of Interests. To the best knowledge of the Company
and Mason, neither the Company nor the Shareholders has taken or agreed to take
any action that (without giving effect to any actions taken or agreed to be
taken by the Parent or any of its affiliates) would prevent the Parent from
accounting for the business combinations to be effected by the Merger as a
pooling-of-interests.
(cc) Accuracy of Statements. Neither this Agreement nor any
schedule, exhibit, statement, list, document, certificate or other information
furnished or to be furnished by or on behalf of the Company to Parent in
connection with this Agreement or any of the transactions contemplated hereby
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading.
SECTION 3.2 Representations and Warranties of Seymour. Seymour
represents and warrants to Parent and Acquisition as follows:
(a) Ownership of Company Common Stock. Seymour owns of record 80
shares of Company Common Stock and such shares are not, and at the Effective
Time will not be, subject to any lien, claim or encumbrance.
(b) Authority Relative to Agreement. Seymour has the requisite
individual capacity and authority to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement has been duly executed and
delivered by Seymour and constitutes the legal, valid and binding obligation of
Seymour, enforceable against Seymour in accordance with its terms.
SECTION 3.3. Representations and Warranties of Parent. Parent
represents and warrants to the Company as follows:
(a) Organization and Qualification. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own or lease and
operate its properties and assets and to carry on its business as it is now
being conducted. Parent is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction in which the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
have a material adverse effect on the financial condition, operating results or
business of Parent and its subsidiaries, taken as a whole (a "Parent Material
Adverse Effect"). Parent owns beneficially and of record all the issued and
outstanding capital stock of Acquisition, free and clear of all Claims.
(b) Capitalization. The authorized capital stock of Parent
consists of 30,000,000 shares of Parent Common Stock and 10,000,000 shares of
Preferred Stock, par value
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<PAGE> 19
$.01 per share ("Parent Preferred Stock"), and, as of March 31, 1997, 6,871,353
shares of Parent Common Stock were issued and outstanding, all of which were
duly authorized and validly issued and are fully paid and nonassessable, and no
shares of Parent Preferred Stock were issued and outstanding. The Parent
Common Stock that represents the Merger Consideration, when issued, will be
duly authorized, validly issued, fully paid and nonassessable. Except as
described in the Parent SEC Filings (as hereinafter defined) or in Schedule
3.3(b), no subscription, warrant, option, convertible security, stock
appreciation or other right (contingent or other) to purchase or acquire any
shares of any class of capital stock of Parent is authorized or outstanding and
there is not any commitment of Parent to issue any shares, warrants, options or
other such rights or to distribute to holders of any class of its capital stock
any evidences of indebtedness or assets. Except as described in said Parent
SEC Filings, Parent does not have any obligation (contingent or other) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
(c) Authority Relative to Agreement. Parent has all requisite
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this
Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Parent, no other corporate approvals or proceedings on the part of Parent are
necessary to authorize this Agreement and the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Parent and constitutes
the legal, valid and binding obligation of Parent, enforceable against Parent
in accordance with its terms. The Parent's Board of Directors has by the
requisite vote of all directors present determined that this Agreement and the
Merger is advisable and fair and in the best interests of the Parent and its
stockholders.
(d) Non-Contravention. The execution and delivery of this
Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby will not (i) violate or conflict with any provision of the
Amended and Restated Certificate of Incorporation or By-laws of Parent, (ii)
result in any violation of, conflict with, or default (or an event which with
notice or lapse of time or both would constitute a default) or loss of a
benefit under, or permit the termination of or the acceleration of any
obligation under, any mortgage, indenture, lease, agreement or other
instrument, permit, concession, grant, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent or any
of its subsidiaries or their respective properties, or (iii) result in the
creation or imposition of any Claim in favor of any third person or entity upon
the assets of Parent or any of its subsidiaries, other than any such violation,
conflict, default, loss, termination or acceleration that would not have a
Parent Material Adverse Effect or materially adversely affect the ability of
Parent to consummate the transactions contemplated hereby or to conduct the
Business after the Effective Time.
(e) SEC Filings. Parent has filed all forms, reports and
documents required to be filed with the SEC since July 3, 1996, and, prior to
Closing, Parent has made available to the Company, as filed with the SEC,
complete and accurate copies of (i) Parent's prospectus dated June 28, 1996 in
connection with Parent's registered initial public offering, (ii) the Annual
Report of Parent on Form 10-K for the year ended December 31, 1996, and (iii)
all other reports, statements and registration statements (including Current
Reports on Form 8-K) filed by Parent
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with the SEC since July 3, 1996, in each case including all amendments and
supplements (collectively, the "Parent SEC Filings").
(f) Accuracy of Statements. Neither this Agreement nor any
schedule, exhibit, statement, list, document, certificate or other information
furnished or to be furnished by or on behalf of Parent to the Company in
connection with this Agreement or any of the transactions contemplated hereby
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they are made, not
misleading. The Parent SEC Filings, when filed with the Securities and
Exchange Commission, did not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
(g) Consents. Except as set forth on Schedule 3.3(g), no consent,
approval, order or authorization of, or registration, declaration or filing
with, any Federal, state, local or foreign governmental or regulatory authority
is required to be made or obtained by Parent in connection with the execution
and delivery of this Agreement by Parent or the consummation by Parent of the
transactions contemplated hereby, except for the filing of a certificate of
merger with the Secretary of State of the State of Delaware in accordance with
the DGCL and the filing of articles of merger with the State Corporation
Commission of Virginia in accordance with the Virginia Act.
(h) Brokers. Parent has not used any broker or finder in
connection with the transactions contemplated hereby, and Parent shall not be
liable for or otherwise suffer or incur any loss as a result of or in
connection with any brokerage or finder's fee or other commission of any person
retained by Parent in connection with any of the transactions contemplated by
this Agreement.
SECTION 3.4. Representations and Warranties of Acquisition.
Acquisition represents and warrants to the Company as follows:
(a) Organization and Qualification. Acquisition is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own or
lease and operate its properties and assets and to carry on its business as it
is now being conducted.
(b) Capitalization. The authorized capital stock of Acquisition
consists of 1,000 shares of Common Stock, without par value. As of the date
hereof, 100 shares of Common Stock are issued and outstanding, all of which
were duly authorized and validly issued and are fully paid and nonassessable,
and all such shares are owned of record and beneficially by Parent, and no
shares of Common Stock are held in the treasury of Acquisition.
(c) Authority Relative to Agreement. Acquisition has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution and delivery of this
Agreement by Acquisition and the consummation by Acquisition of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of
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Acquisition and by Parent as its sole shareholder, and no other corporate
approvals or proceedings on the part of Acquisition are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Acquisition and constitutes the legal,
valid and binding obligation of Acquisition, enforceable against Acquisition in
accordance with its terms.
(d) Non-Contravention. The execution and delivery of this
Agreement by Acquisition and the consummation by Acquisition of the
transactions contemplated hereby will not (i) violate or conflict with any
provision of the Certificate of Incorporation or By-laws of Acquisition or (ii)
result in any violation of, conflict with, or default (or an event which with
notice or lapse of time or both would constitute a default) or loss of a
benefit under, or permit the termination of or the acceleration of any
obligation under, any mortgage, indenture, lease, agreement, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Acquisition or its properties, other than any such violation, conflict,
default, loss, termination or acceleration that would not materially adversely
affect the ability of Acquisition to consummate the transactions contemplated
hereby.
(e) Other Matters. Acquisition has been formed for the sole
purpose of effecting the Merger and, except as contemplated by this Agreement,
Acquisition has not conducted any business activities and does not have any
material liabilities or obligations.
ARTICLE IV.
COVENANTS
SECTION 4.1. Conduct of the Company's Business. The Company covenants
and agrees that, prior to the Effective Time, unless Parent shall otherwise
consent in writing or as otherwise expressly contemplated by this Agreement:
(a) the business of the Company shall be conducted only in, and
the Company shall not take any action except in, the ordinary course of
business consistent with past practice and the Company shall use its best
efforts to preserve intact its present business organization, keep available
the services of its current officers and employees, maintain its assets (other
than those permitted to be disposed of hereunder) in good repair and condition,
maintain its books of account and records in the usual, regular and ordinary
manner and preserve its goodwill and ongoing business;
(b) the Company shall not directly or indirectly do any of the
following: (i) sell, pledge, dispose of or encumber any property or assets
(including Intellectual Property Rights) of the Company, except inventory and
immaterial assets in the ordinary course of business consistent with past
practice; (ii) amend or propose to amend its Articles of Incorporation or
By-laws; (iii) split, combine or reclassify any outstanding shares of its
capital stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to such shares; (iv) redeem,
purchase, acquire or offer to acquire any shares of its capital stock; or (v)
enter into any contract, agreement, commitment or arrangement with respect to
any of the matters set forth in this subsection (b);
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(c) the Company shall not (i) issue, sell, pledge or dispose of,
or agree to issue, sell, pledge or dispose of, any additional shares of, or
securities convertible or exchangeable for, or any options, warrants or rights
of any kind to acquire any shares of, its capital stock of any class or other
property or assets, or modify the terms or any outstanding options, warrants or
rights to acquire the Company's capital stock, (ii) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation, partnership
or other business organization or division thereof (except an existing wholly
owned subsidiary) or any material amount of assets, (iii) incur or guarantee
any indebtedness for borrowed money other than in the ordinary course of
business and consistent with past practices, or refinance any such indebtedness
or issue or sell any debt securities, (iv) enter into or modify any material
contract, lease, agreement or commitment, or permit or perform any act that
would cause a material breach of any such contract, lease, agreement or
commitment, (v) terminate, modify, assign, waive, release or relinquish any
material contract rights or amend any material rights or claims, (vi) discharge
or satisfy any material Claim or settle or compromise any material claim,
action, suit or proceeding pending or threatened against the Company or, if the
Company may be liable or obligated to provide indemnification, against the
Company's directors or officers, before any court, governmental agency or
arbitrator, (vii) make any loans, advances or capital contributions to or
investments in, any other person, (viii) alter through merger, liquidation,
reorganization, restructuring or in any other manner the corporate structure or
ownership of the Company, (ix) violate or fail to perform, in any material
respect, any obligation imposed upon the Company by any applicable laws, orders
or decrees, ordinances, government rules or regulations or conciliation
agreements, or (x) to the extent not described herein, take any action
described in Section 3.1(h) hereof,
(d) the Company shall not grant any increase in the salary or
other compensation of its directors, officers or employees, or grant any bonus
to any employee or enter into any employment agreement or make any loan to or
enter into any material transaction of any other nature with any employee of
the Company;
(e) the Company shall not take any action to institute any new
severance or termination pay practices with respect to any directors, officers
or employees of the Company or to increase the benefits payable under its
severance or termination pay practices;
(f) the Company shall not adopt or amend, in any material respect,
any plan for the benefit or welfare of any directors, officers or employees,
except as contemplated hereby or as may be required by applicable law or
regulation; and
(g) the Company shall use its best efforts, to the extent not
prohibited by the foregoing provisions of this Section 4.1, to maintain its
relationships with its Current Clients, suppliers and others having business
dealings with it, and if and as requested by Parent or Acquisition, (i) the
Company shall use its best efforts to make reasonable arrangements for
representatives of Parent or Acquisition to meet with Current Clients and
suppliers of the Company, and (ii) the Company shall schedule, and the
management of the Company shall participate in, meetings of representatives of
Parent or Acquisition with employees of the Company.
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SECTION 4.2. Access to Information.
(a) Subject to the terms and conditions of the confidentiality
agreement between Parent and the Company dated February 3, 1997 (the
"Confidentiality Agreement"), the Company shall, and shall cause its
subsidiaries, officers, directors, employees, representatives, advisors and
agents to, afford, from the date hereof to the Effective Time, the officers,
employees, representatives, advisors and agents of Parent complete access at
all reasonable times to its officers, employees, agents, properties, books,
records and workpapers, and shall furnish each other party all financial,
operating and other information and data as Parent, through its officers,
employees or agents, may reasonably request and shall promptly furnish to the
other monthly operating and financial reports in such form as Parent shall
reasonably request.
(b) Subject to the terms and conditions of the Confidentiality
Agreement, the Company, at least three business days prior to the Effective
Date, shall deliver to Parent a list setting forth the names and locations of
each bank or other financial institution at which the Company has an account
(giving the account numbers) or safe deposit box and the names of all persons
authorized to draw thereon or have access thereto, and the names of all
persons, if any, now holding powers of attorney or comparable delegation of
authority from the Company and a summary statement thereof.
(c) No investigation pursuant to this Section 4.2 shall affect,
add to, or subtract from any representations or warranties of the parties
hereto or the conditions to the obligations of the parties hereto to effect the
Merger.
SECTION 4.3. Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including, without limitation, using all reasonable efforts to obtain all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings; provided that the foregoing shall not require Parent
to agree to make, or to permit the Company to make, any divestiture of a
significant asset in order to obtain any waiver, consent or approval.
SECTION 4.4 Inquiries and Negotiations. Neither the Company nor any
of its affiliates, directors, officers, employees, representatives, advisors or
agents, shall, directly or indirectly, encourage, solicit or initiate any
discussions, submissions of proposals or offers or negotiations with, or,
participate in any negotiations or discussions with, or provide any information
or data of any nature whatsoever to, or otherwise cooperate in any other way
with, or assist or participate in, facilitate or encourage any effort or
attempt by, any person, other than Parent and its affiliates, representatives
and agents, concerning any merger, consolidation, sale of substantial assets,
sale of shares of capital stock or other equity securities, recapitalization,
debt restructuring or similar transaction involving the Company (such
transactions being hereinafter referred to as "Alternative Transactions"). The
Company shall immediately notify Parent if any proposal, offer, inquiry or
other contact is received by, any information is requested from, or any
discussions or negotiations are sought to be initiated or continued with, the
Company in respect of an Alternative Transaction, and shall, in any such notice
to Parent, indicate the identity of the
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offeror and the terms. and conditions of any proposals or offers or the nature
of any inquiries or contacts, and thereafter shall keep Parent informed of the
status and terms of any such proposals or offers and the status of any such
discussions or negotiations. The Company shall not release any third party
from, or waive any provision of, any confidentiality or standstill agreement to
which the Company is a party.
SECTION 4.5. Notification of Certain Matters. The Company shall give
prompt notice to Parent and Acquisition, and Parent and Acquisition shall give
prompt notice to the Company, of (i) the occurrence, or failure to occur, of
any event that such party believes would be likely to cause any of its
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time and (ii) any material failure of the Company, Parent or
Acquisition, as the case may be, or any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder.
SECTION 4.6. Resignation of Officers and Directors. Each officer and
member of the Board of Directors of, and each trustee or fiduciary of any plan
or arrangement involving employee benefits of, the Company, if so requested by
Parent, shall tender his or her resignation from such position effective as of
the Closing, except as otherwise provided in Section 1.4.
SECTION 4.7. Pooling of Interests. Each of the parties to this
Agreement will use all reasonable efforts to cause the Merger to qualify for
pooling of interests accounting treatment.
SECTION 4.8. Tax Matters.
(a) Each of the parties to this Agreement will use all reasonable
efforts to cause the Merger to qualify as a tax free reorganization under the
Internal Revenue Code.
(b) The Parent files a consolidated federal income tax return and
as a result, the taxable year of the Company shall end on the Closing Date.
The Shareholders shall prepare the federal Return of the Company and all state
Returns for the Company in those states in which an "S" election is in effect
for the taxable year ending on the Closing Date, subject to review and approval
of Parent. Any disputes regarding such Return shall be settled by Arthur
Andersen LLP. The Company shall pay any taxes due from the Company with
respect to such Returns. The taxable year ending on the Closing Date will be
an "S Termination Year" as defined in Section 1362 of the Internal Revenue
Code. With respect to such S Termination Year, if not otherwise required, at
the request of the Shareholders, the Company will make an election under
Section 1362(e)(3) of the Internal Revenue Code not to use a pro rata
allocation of income or loss to the S short year and the C short year (as such
terms are defined in Section 1362 of the Internal Revenue Code). No election
will be made that would increase the tax liability of any shareholder of the
Company for any year. The Company shall not amend, and Parent shall not cause
the Company to amend, any Return of the Company for periods prior to the
Closing Date or agree to any adjustment if such amendment or adjustment
proposed by any taxing authority would increase the tax liability of any
shareholder of the Company for any year, without such shareholder's written
consent. The Company shall and Parent shall cause Company to cooperate with
the Shareholders in the preparation of the Returns.
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SECTION 4.9. Registration of Parent Common Stock. Parent hereby
covenants and agrees to use its best efforts to include any shares of Parent
Common Stock issued to the Shareholders pursuant to the Merger Agreement in a
registered offering (other than a registered offering solely to implement or
effect an employee benefit plan or a transaction to which Rule 145 of the
Securities and Exchange Commission is applicable) effected by Parent within one
year following the Closing Date. To participate in the registration, the
Shareholders must notify Parent of their intent to do so within 20 days of
receipt of written notice from Parent of such offering. Notwithstanding the
foregoing, the inclusion of the Shareholders' shares in such registered
offering is subject to (i) the letter referenced in Section 5.3(g) and (ii) the
registration rights granted by Parent to others prior or subsequent to the
execution of this Agreement, all of which such registration rights will have
priority. Furthermore, Parent is not required to keep such registration
effective and current for more than 150 days subsequent to the effective date
of a registration statement on Form S-1 or S-2 or more than 90 days in the case
of a registration statement on Form S-3. All expenses incurred in effecting
such registered offering will be borne by Parent, except that any cost of
separate legal counsel to the Shareholders and, in the case of an underwritten
offering, any underwriting discounts or commissions will be borne solely by the
Shareholders.
SECTION 4.10. Proprietary Information, Inventions, Non-Compete and
Non-Solicitation Agreement. The Company and the Shareholders hereby covenant
to use their best efforts to cause each of the Company's employees to execute a
Proprietary Information, Inventions, Non-Compete and Non-Solicitation Agreement
in the form typically signed by employees of Parent as soon as practicable
after the Closing Date.
SECTION 4.11. Employee Benefit Plans. The Shareholders hereby
acknowledge that Parent and Acquisition shall have no obligation to maintain or
continue any of the Employee Plans maintained by the Company after the
Effective Time, including any qualified or nonqualified retirement programs,
and that any changes to or terminations of the Employee Plans after the
Effective Time will be made in the sole discretion of Parent and Acquisition;
and the Shareholders covenant that they will cooperate with Parent and
Acquisition on any such changes to or terminations of any such Employee Plans.
SECTION 4.12. Nasdaq Listing of Additional Shares. Parent hereby
covenants to take all necessary action to cause the Parent Common Stock to be
issued in the Merger to be approved for listing on the Nasdaq NM.
SECTION 4.13. Use of "National Health Advisors, Ltd." Name. Upon the
reasonable request of Mason, Parent agrees to negotiate in good faith the terms
and conditions for assignment of the name "National Health Advisors, Ltd." (the
"Name") to Mason; provided that: (i) Mason is no longer an employee of Parent;
(ii) Mason's covenant not to compete with Parent as provided in the Proprietary
Information, Inventions, Non-Competition and Non-Solicitation Agreement between
Parent and Mason has expired; and (iii) twelve months have elapsed from
Parent's discontinuation of all use of the Name. If the Name is assigned to
Mason, Mason agrees that he will take any necessary measures requested by
Parent to avoid any confusion between Parent's and Mason's use of the Name.
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ARTICLE V.
CONDITIONS TO THE MERGER
SECTION 5.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
condition: no preliminary or permanent injunction or other order, decree or
ruling issued by any court of competent jurisdiction nor any statute, rule,
regulation or order entered, promulgated or enacted by any governmental,
regulatory or administrative agency or authority shall be in effect that would
prevent the consummation of the Merger as contemplated hereby.
SECTION 5.2. Conditions to the Obligation of the Company to Effect
the Merger. The obligation of the Company to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following
additional conditions:
(a) Parent shall have performed and complied in all material
respects with all obligations and agreements required to be performed and
complied with by it under this Agreement;
(b) the representations and warranties of Parent contained in this
Agreement that are qualified as to materiality shall be true and correct and
all such representations and warranties that are not so qualified shall be true
and correct in all material respects, in each case, as of the date hereof and
at and as of the Effective Time as if made at and as of such date, except to
the extent any such representation or warranty is expressly made as of the date
hereof or as of a specified date prior to the date hereof, in which case such
representation or warranty shall have been true and correct as of such date;
(c) intentionally left blank;
(d) Parent shall have executed and delivered to Mason and Seymour
the Employment Agreements, substantially in the forms attached hereto as
Exhibit A and Exhibit B, respectively.
SECTION 5.3. Conditions to the Obligation of Parent and Acquisition
to Effect the Merger. The obligation of Parent and Acquisition to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following additional conditions:
(a) the Company shall have performed and complied in all material
respects with all obligations and agreements required to be performed and
complied with by it under this agreement;
(b) the representations and warranties of the Company contained in
this Agreement that are qualified as to materiality shall be true and correct
and all such representations and warranties that are not so qualified shall be
true and correct in all material respects, in each case, as of the date hereof
and at and as of the Effective Time as if made at and as of such date, except
to the extent any such representation or warranty is expressly made as of
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the date hereof or as of a specified date prior to the date hereof, in which
case such representation or warranty shall have been true and correct as of
such date;
(c) intentionally left blank;
(d) Parent shall have received a letter from its independent
certified public accountants to the effect the Merger will qualify for
pooling-of-interest accounting treatment if consummated in accordance with this
Agreement;
(e) Parent shall have received agreements reasonably satisfactory
to Parent and its counsel in which each shareholder of the Company represents,
warrants and agrees as follows:
(i) that the Parent Common Stock being issued and
delivered to the Company's shareholders hereunder is being acquired by such
shareholder for such shareholder's own account for investment and not with
a view to any resale or distribution thereof,
(ii) if such shareholder of the Company decides to dispose
of the Parent Common Stock, which he does not now contemplate, that he
can do so only in accordance and in compliance with the Securities Act
of 1933, as amended (the "Securities Act"), and Rule 144 and Rule 145
thereunder, as then in effect or through an effective Registration
Statement;
(iii) that (A) such shareholder of the Company has had
ready access to any and all documents which he deems relevant to the
acquisition of the Parent Common Stock, (B) to such shareholder's
knowledge, no requested information, oral or written, has been
withheld from him by Parent, (C) Parent has made available to the
shareholder, during the course of the transaction and prior to the
issuance of the Parent Common Stock the opportunity to ask questions
of, and receive answers from, Parent and its officers concerning
Parent, and to obtain any additional information, to the extent Parent
possessed such information or could acquire it without unreasonable
effort or expense, necessary to verify the accuracy of information
contained in the written materials delivered to the shareholder by
Parent and concerning Parent, and (D) the shareholder has been given
access to Parent's prospectus dated June 28, 1996 in connection with
Parent's registered initial public offering and all documents filed
publicly of record with the Securities and Exchange Commission in
connection therewith or subsequently;
(iv) that the shareholder of the Company understands and
agrees that (A) in reliance upon his representations, the Parent
Common Stock has not been registered under the Securities Act in
reliance upon Section 4(2) of the Securities Act, (B) because the
Parent Common Stock is not so registered, the Shareholder must bear
the economic risk of holding the Parent Common Stock for an indefinite
period of time unless the Parent Common Stock is subsequently
registered under the Securities Act or an exemption from such
registration is available with respect thereto, (C) Rule 144 or Rule
145 under the Securities Act may or may not be available for resales
of the Parent
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Common Stock in the future, and (D) while there is presently a trading
market for the Parent Common Stock, there is no assurance that such
market will be in existence in the future;
(v) that the documents evidencing the Parent Common Stock
shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, UNLESS AND UNTIL
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND SUCH APPLICABLE STATE
LAW OR, IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER
OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER DOES NOT VIOLATE THE
PROVISIONS THEREOF OR UNLESS SOLD PURSUANT TO RULE 144 OR THE
SECURITIES ACT OF 1933.
(vi) that such shareholder of the Company will not sell or
otherwise transfer the shares of Parent Common Stock in a public
market transaction until the holding period for restricted securities
set forth in Rule 144(d)(1), as it may be amended from time to time,
has been satisfied or pursuant to an effective Registration Statement;
(f) Parent shall have received from each of Mason and
Seymour an executed Proprietary Information, Inventions, Non-Compete and
Non-Solicitation Agreement in substantially the form attached hereto as Exhibit
C and such agreements shall be in full force and effect as of the Effective
Time.
(g) Each of the Shareholders and any other "affiliates" identified
by Parent shall have executed and delivered letter agreements with respect to
issues relating to "pooling of interests" accounting treatment in a form
satisfactory to Arthur Andersen LLP.
(h) the Company shall have adopted, by appropriate written
instrument, an amendment (the "Plan Amendment") to the NHA Plan that will
freeze all further benefit accruals and all participation in the NHA Plan; with
the Plan Amendment to be in substantially the form attached hereto as Exhibit
D, and to be in full force and effect no later than June 30, 1997, and to be
adopted pursuant to the terms of the NHA Plan regarding the procedures for
amendments to the NHA Plan.
(i) the Company shall have completed the distribution, by hand
delivery or by mailing by first class mail, of a notice (the "Plan Notice") to
each participant in the NHA Plan that will inform each such person of the Plan
Amendment; with the Plan Notice to be in substantially the form attached hereto
as Exhibit E, and with the form and the distribution of the Plan Notice to be
in accordance with the requirements of Section 204(h) of ERISA, and with the
distribution of the Plan Notice not to occur until after the adoption of the
Plan Amendment.
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ARTICLE VI.
TERMINATION AND ABANDONMENT
SECTION 6.1 Termination and Abandonment. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time:
(a) by mutual action of the Boards of Directors of Parent and the
Company;
(b) by the Company, if the conditions set forth in Sections 5.1
and 5.2 shall not have been complied with or performed and such noncompliance
or nonperformance shall not have been cured or eliminated (or by its nature
cannot be cured or eliminated) by Parent and Acquisition on or before June 30,
1997;
(c) by Parent or Acquisition, if the conditions set forth in
Sections 5.1 and 5.3 shall not have been complied with or performed and such
noncompliance or nonperformance shall not have been cured or eliminated (or by
its nature cannot be cured or eliminated) by the Company on or before June 30,
1997; or
(d) by Parent (i) if there has been a material breach of a
representation or warranty made by the Company the effect of which is a Company
Material Adverse Effect, or (ii) if there has been a breach by the Company in
any material respect of the covenants set forth in this Agreement which by its
nature cannot be cured or eliminated.
SECTION 6.2. Effect of Termination. In the event of the termination
of this Agreement and the abandonment of the Merger pursuant to Section 6.1,
this Agreement shall thereafter become void and have no effect, and no party
hereto shall have any liability to any other party hereto or its shareholders
or directors or officers in respect thereof, and each party shall be
responsible for its own expenses, except nothing herein shall relieve any party
from liability for any willful breach hereof. After such termination, the
parties will remain subject to the terms and conditions of the Confidentiality
Agreement.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.1. Indemnification by Shareholders. Each Shareholder agrees
to indemnify Parent and Acquisition and their respective officers and directors
(collectively, the "APACHE Indemnified Persons") against, and agrees to hold
each of them harmless from any and all losses, costs, claims, damages
(including consequential damages), penalties and expenses (including attorneys'
fees) ("Losses"), incurred or suffered by them relating to or arising out of or
in connection with any of the following:
(a) any breach of or any inaccuracy in any representation or
warranty made by such Shareholder in this Agreement (Section 3.1 for Mason and
Section 3.2 for Seymour) or any document delivered by the Company or the
Shareholders at the Closing; provided, however, that (i) except for breaches of
or inaccuracies in Tax Warranties (as that term is defined below) or
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Title and Authorization Warranties (as that term is defined below), a notice of
Parent's and/or Acquisition's claim shall have been given to the indemnifying
Shareholder(s) not later than the close of business on the Survival Date (as
that term is defined below), and (ii) in the case of a Tax Warranty, a notice
of Parent's and/or Acquisition's claim shall have been given to Mason not later
than the Tax Statute of Limitations Date (as that term is defined below); or
(b) any breach of or failure by such Shareholder, notice of which
is given on or before the second anniversary of the Closing Date, to perform
any covenant or obligation of such Shareholder set out or contemplated in this
Agreement or any document delivered at the Closing.
SECTION 7.2. Indemnification by Parent. Parent agrees to indemnify the
Shareholders (collectively, the "NHA Indemnified Persons") against, and agrees
to hold each of them harmless from, any and all Losses incurred or suffered by
them relating to or arising out of or in connection with any breach of or
inaccuracy in any representation or warranty made by Parent or Acquisition in
this Agreement or any document delivered by Parent or Acquisition at the
Closing; provided, however, that notice of Company's and/or Shareholders'
claims shall have been given to Parent not later than the close of business on
the Survival Date (as that term is defined below).
SECTION 7.3. Claims. The provisions of this section shall be subject
to Section 7.4. As soon as is reasonably practicable after becoming aware of a
claim for indemnification under this Agreement, any APACHE Indemnified Person
or NHA Indemnified Person, as the case may be (each an "Indemnified Person"),
shall promptly give notice on behalf of the Indemnified Persons to the
indemnifying Shareholder(s) or Parent (each an "Indemnifying Person"), of such
claim and the amount the Indemnified Persons will be entitled to receive
hereunder from the Indemnifying Persons; provided that the failure of an
Indemnified Person to promptly give notice shall not relieve the Indemnifying
Persons of their obligations, except to the extent (if any) that such
Indemnifying Person shall have been prejudiced thereby. If an Indemnifying
Person does not object in writing to such indemnification claim within 30 days
of receiving notice thereof, the Indemnified Persons shall be entitled to
recover, on the 35th day after such notice was given, from such Indemnifying
Person such claim, and no later objection by such Indemnifying Person shall be
permitted; if an Indemnifying Person agrees that he or it has an
indemnification obligation but contends that the indemnified Loss is a lesser
amount, the Indemnified Persons shall nevertheless be entitled to recover, on
the 35th day after such notice was given, from such Indemnifying Person such
lesser amount, without prejudice to the Indemnified Persons' claim for the
difference. In addition to the amounts recoverable by the Indemnified Persons
from the Indemnifying Persons pursuant to the foregoing provisions, the
Indemnified Persons shall also be entitled to recover from the Indemnifying
Persons interest on such amounts at the rate of the Prime Rate from, and
including, the 35th day after such notice of an indemnification claim is given
to, but not including, the date such recovery is actually made by the
Indemnified Persons.
SECTION 7.4. Notice of Third-Party Claims, Assumption of Defense. The
Indemnified Persons shall give notice as promptly as is reasonably practicable
to the Indemnifying Persons of the assertion of any claim, or the commencement
of any suit, action or proceeding, by any Person not a party hereto in respect
of which indemnity may be sought under this Agreement; provided
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that the failure of an Indemnified Person to promptly give notice shall not
relieve an Indemnifying Person of its or his obligations, except to the extent
(if any) that such Indemnifying Person shall have been prejudiced thereby.
Each Indemnifying Person may, at its or his own expense, participate in the
defense of any claim, suit, action or proceeding, including any examination by
any taxing authority. Upon notice to the Indemnified Persons and the delivery
to the Indemnified Persons of a written agreement signed by each Indemnifying
Person that the Indemnified Persons are entitled to indemnification for all
Losses arising out of such claim, suit, action or proceeding and that the
Indemnifying Person(s) shall be liable for the entire amount of any Loss, at
any time during the course of any such claim, suit, action or proceeding, the
Indemnifying Person(s) may, at their own expense, assume the defense thereof,
provided, however, that (i) the Indemnifying Person(s)' counsel is reasonably
satisfactory to the Indemnified Persons, and (ii) the Indemnifying Person(s)
shall thereafter consult with the Indemnified Persons upon the Indemnified
Persons' reasonable request for such consultation from time to time with
respect to such claim, suit, action or proceeding. If the Indemnifying
Person(s) assume such defense, the Indemnified Persons shall have the right
(but not the duty) to participate in the defense thereof and to employ counsel,
at its own expense, separate from the counsel employed by the Indemnifying
Person(s). If, however, the Indemnified Persons reasonably determine that
representation by the Indemnifying Person(s)' counsel of both the Indemnifying
Person(s) and the Indemnified Persons would present such counsel with a
conflict of interest, then the Indemnified Persons may employ separate counsel
to represent or defend it in any such claim, action, suit or proceeding and the
Indemnifying Person(s) shall pay the fees and disbursements of such separate
counsel. Whether or not the Indemnified Persons choose to defend or prosecute
any such claim, suit, action or proceeding, all of the parties hereto shall
cooperate in the defense or prosecution thereof.
SECTION 7.5. Settlement or Compromise. Any settlement or compromise
made or caused to be made by the Indemnified Persons or the Indemnifying
Person(s), as the case may be, of any claim, suit, action or proceeding shall
also be binding upon the Indemnifying Person(s) or the Indemnified Persons, as
the case may be, in the same manner as if a final judgment or decree had been
entered by a court of competent jurisdiction in the amount of such settlement
or compromise; provided, however, that no obligation, restriction or Loss shall
be imposed on the Indemnified Persons as a result of such settlement without
their prior written consent. The Indemnified Persons will give the
Indemnifying Person(s) at least 30 days' notice of any proposed settlement or
compromise of any claim, suit, action or proceeding they are defending, during
which time the Indemnifying Person(s) may reject such proposed settlement or
compromise; provided, however, that from and after such rejection, the
Indemnifying Person(s) shall be obligated to assume the defense of and full and
complete liability and responsibility for such claim, suit, action or
proceeding and any and all Losses in connection therewith.
SECTION 7.6. Failure of Indemnifying Person to Act. In the event
that the Indemnifying Person(s) do not elect to assume the defense of any
claim, suit, action or proceeding, then any failure of the Indemnified Persons
to defend or to participate in the defense of any such claim, suit, action or
proceeding or to cause the same to be done, shall not relieve the Indemnifying
Person(s) of their obligations hereunder.
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SECTION 7.7. Indemnification Payments. Any payment due by a
Shareholder under this Article 7 for a period of one year following the Closing
Date may be made, in whole or in part, by returning to Parent shares of Parent
Common Stock acquired as Merger Consideration. For this purpose, the value of
such shares shall be the Average May Price.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.1. Survival of Representations and Warranties. Except as
otherwise specified, the representations and warranties contained herein shall
survive the Closing for a period expiring at the close of business on the
second anniversary of the Closing Date (the "Survival Date"), except that (i)
the representations and warranties set forth in Sections 3.1(o) and (q) hereof
(the "Tax Warranties") shall survive until the 180th day after the expiration
of the applicable statute of limitations with respect to Taxes, including any
extensions thereof (the "Tax Statute of Limitations Date"), and (ii) the
representations and warranties set forth in Sections 3.1(c) and (d) and 3.2(a)
and (b) hereof (the "Title and Authorization Warranties") shall survive
forever.
SECTION 8.2. Expenses, Etc. Whether or not the transactions
contemplated by this Agreement are consummated, neither the Company, on the one
hand, and Parent and Acquisition, on the other hand, shall have any obligation
to pay any of the fees and expenses of the other incident to the negotiation,
preparation and execution of this Agreement, including the fees and expenses of
counsel, accountants, investment bankers and other experts and Parent shall pay
all such fees and expenses incurred by Acquisition. The Company, on the one
hand, and Parent and Acquisition, on the other hand, shall indemnify the other
and hold it harmless from and against any claims for finders' fees or brokerage
commissions in relation to or in connection with such transactions as a result
of any agreement or understanding between such indemnifying party and any third
party. All fees and expenses incurred by the Company in connection with the
transaction contemplated hereby in excess of $25,000 shall be borne solely by
the Shareholders, and shall be reimbursed to the Company at Closing. Any fees
and expenses incurred by either of the Shareholders in their individual
capacity shall be borne solely by such Shareholder.
SECTION 8.3. Publicity; Confidentiality. The Company and Parent agree
that this Agreement and the exchange of information pursuant thereto is
confidential and they will not disclose or issue any press release or make any
other public announcement concerning this Agreement or the transactions
contemplated hereby without the prior consent of the other party, except that
the Company or Parent may make such public disclosure that it believes in good
faith to be required by law or any applicable rules and regulations of a
national securities exchange or the NASD (in which event such party shall
consult with the other prior to making such disclosure).
SECTION 8.4. Execution in Counterparts. For the convenience of the
parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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SECTION 8.5. Notices. All notices that are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and delivered by hand or
national overnight courier service, transmitted by telecopy or mailed by
registered or certified mail, postage prepaid, and shall be deemed given upon
receipt, as follows:
If to Parent or Acquisition, to:
APACHE Medical Systems, Inc.
1650 Tysons Boulevard - Suite 300
McLean, Virginia 22102-3915
Telecopy Number: 703-847-1401
Attention: Gerald E. Bisbee, Jr., Ph.D., Chairman of the Board
with a copy to:
Gardner, Carton & Douglas
321 North Clark Street
Chicago, Illinois 60610
Telecopy Number: 312-644-3381
Attention: Nancy M. Borders, Esq.
If to the Company, to:
National Health Advisors Ltd.
8201 Greensboro Drive - Suite 817
McLean, Virginia 22102
Telecopy Number: 703-883-0426
Attention: Scott A. Mason, Managing Director
with a copy to:
Epstein Becker & Green
1227 25th Street - Suite 700
Washington, DC 20037
Telecopy Number: 202-296-2882
Attention: Robert D. Reif, Esq.
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto.
SECTION 8.6. Waivers. The Company, on the one hand, and Parent and
Acquisition, on the other hand, may, by written notice to the other, (i) extend
the time for the performance of any of the obligations or other actions of the
other under this Agreement, (ii) waive any inaccuracies in the representations
or warranties of the other contained in this Agreement or in any document
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<PAGE> 34
delivered pursuant to this Agreement, (iii) waive compliance with any of the
conditions of the other contained in this Agreement, or (iv) waive performance
of any of the obligations of the other under this Agreement. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
SECTION 8.7. Knowledge. As used herein, the "knowledge", "best
knowledge" or "awareness" as to the Company shall refer to the actual knowledge
of each director, executive officer, Principal or Senior Consultant of the
Company after due inquiry and as to each Shareholder shall refer to his actual
knowledge after due inquiry.
SECTION 8.8. Entire Agreement. This Agreement and its schedules and
exhibits, and the documents to be executed or delivered at the Effective Time
in connection herewith, constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral and written, among the parties hereto with
respect to the subject matter hereof. No representation, warranty, promise,
inducement or statement of intention has been made by any party that is not
embodied in this Agreement or such other documents, and none of the parties
shall be bound by, or be liable for, any alleged representation, warranty,
promise, inducement or statement of intention not embodied herein or therein.
SECTION 8.9. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Virginia, without regard
to conflict of laws principles.
SECTION 8.10. Binding Effect, Benefits. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns. Except for the Employment Agreements attached as
Exhibit A and Exhibit B, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
SECTION 8.11. Assignability. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by any party hereto without the
prior written consent of the other parties hereto.
SECTION 8.12. Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction.
SECTION 8.13. Variation and Amendment. This Agreement may be varied or
amended in writing at any time by action of the respective Boards of Directors
of the Company, Parent and
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Acquisition, without action by the shareholders thereof, provided that after
approval and adoption of this Agreement by the Company's shareholders no such
variance or amendment shall, without consent of such shareholders, reduce the
consideration that the holders of the capital stock of the Company shall be
entitled to receive upon the Effective Time pursuant to Section 2.1 hereof.
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<PAGE> 36
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
APACHE MEDICAL SYSTEMS, INC.
By: /s/ Gerald E. Bisbee, Jr.
----------------------------------------
Name: Gerald E. Bisbee, Jr.
Title: Chairman of the Board, Chief Executive
Officer and President
NHA ACQUISITION CORPORATION
By:/s/ Gerald E. Bisbee, Jr.
----------------------------------------
Name: Gerald E. Bisbee, Jr.
Title: President
NATIONAL HEALTH ADVISORS LTD.
By: /s/ Scott A. Mason
----------------------------------------
Name: Scott A. Mason
Title:
/s/ Scott A. Mason
----------------------------------------
Scott A. Mason
/s/ Donald W. Seymour
----------------------------------------
Donald W. Seymour
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<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF APACHE MEDICAL SYSTEMS, INC.
(Pursuant to Sections 242 & 245 of the
General Corporation Law of the State of Delaware)
Gerald E. Bisbee, Jr. hereby certifies that:
1. Gerald E. Bisbee, Jr., is the Chairman of APACHE Medical
Systems, Inc., a Delaware corporation.
2. The Certificate of Incorporation of the corporation filed on
September 1, 1987 and amended and restated on December 26, 1991, January 2,
1992, December 31, 1992 and January 20, 1994, amended on August 17, 1995,
amended and restated on December 28, 1995 and amended and restated on June 19,
1996 is amended and restated to read as follows:
FIRST. Name. The name of the corporation is APACHE Medical
Systems, Inc.
SECOND. Registered Office. The address of its registered office in
the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of
New Castle 19805. The name of its registered agent at such address is
Corporation Service Company.
THIRD. Purposes. The nature of the business or purposes to be
conducted or promoted is:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware and
to do all things and exercise all powers, rights and privileges
which a business corporation may now or hereafter be organized or
authorized to do or to exercise under the laws of the State of
Delaware.
FOURTH. Authorized Capital. The total number of shares of all classes
of capital stock which the corporation shall have authority to issue is Sixty
Million (60,000,000) shares, comprised of Thirty Million (30,000,000) shares of
Common Stock with a par value of One Cent ($.01) per share (the "Common Stock")
and Thirty Million (30,000,000) shares of Preferred Stock with a par value of
One Cent ($.01) per share (the "Preferred Stock").
A description of the respective classes of stock and a statement of
the designations, preferences, voting powers (or no voting powers), relative,
participating, optional or other special rights and privileges, and the
qualifications, limitations and restrictions of the Preferred Stock and Common
Stock are as follows:
<PAGE> 2
A. PREFERRED STOCK
1. Designation. The Preferred Stock shall be issuable in series,
and in connection with the issuance of any series of Preferred Stock and to
the extent now or hereafter permitted by the laws of the State of Delaware, the
Board of Directors is authorized to fix by resolution the designation of each
series, the stated value of the shares of each series, the dividend rate or
rates of each series (which rate or rates may be expressed in terms of a
formula or other method by which such rate or rates shall be calculated from
time to time) and the date or dates and other provisions respecting the payment
of dividends, the provisions, if any, respecting the redemption of the shares
of each series and, subject to requirements of the laws of the State of
Delaware, the voting rights (except that such shares shall not have more than
one vote per share), the terms, if any, upon which the shares of each series
shall be convertible into or exchangeable for any other shares of stock of the
corporation and any other relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of each series.
2. Redemption, Conversion, etc. Preferred Stock of any series
redeemed, converted, exchanged, purchased, or otherwise acquired by the
Corporation shall constitute authorized but unissued Preferred Stock.
3. Rank. All shares of any series of Preferred Stock, as between
themselves, shall rank equally and be identical (except that such shares may
have different dividend provisions); and all series of Preferred Stock, as
between themselves, shall rank equally and be identical except as set forth in
resolutions of the Board of Directors authorizing the issuance of such series.
B. COMMON STOCK
1. Voting Rights. Except as otherwise required by law or this
Amended and Restated Certificate of Incorporation, including any certificate of
designations for a Series of Preferred Stock, each holder of Common Stock shall
have one vote in respect of each share of stock held by him of record on the
books of the corporation for the election of directors and on all matters
submitted to a vote of stockholders of the corporation.
2. Dividends. Subject to the preferential rights of the
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the corporation which are by law available therefor, dividends payable either
in cash, in property or in shares of capital stock.
3. Dissolution, Liquidation or Winding Up. In the event of any
dissolution, liquidation or winding up of the affairs of the corporation, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of the Preferred Stock, holders of Common Stock shall be
entitled, unless otherwise provided by law or this Amended and Restated
Certificate of Incorporation, including any certificate of designations for a
Series of Preferred Stock, to receive all of the remaining assets of the
corporation of whatever kind
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<PAGE> 3
available for distribution to stockholders ratably in proportion to the number
of shares of Common Stock held by them respectively.
FIFTH. This corporation shall have perpetual existence.
SIXTH. The private property of the stockholders shall not be subject
to the payment of corporate debts to any extent whatever.
SEVENTH In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware:
A. The Board of Directors of the corporation is expressly
authorized:
(i) To make, alter or repeal the by-laws of the
corporation.
(ii) To authorize and cause to be executed mortgages and
liens upon the real and personal property of the corporation.
(iii) To set apart out of any of the funds of the
corporation available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in which it was created.
(iv) By a majority of the whole board, to designate one
or more committees, each committee to consist of one or more of the
directors of the corporation. The board may designate one or more directors as
alternate member of any committee, who may replace any absent or disqualified
member of any committee. The by-laws may provide that in the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in the place of any such absent
or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, or in the by-laws of the corporation,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in
reference to amending this Amended and Restated Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors as provided in Section 151(a) of the General Corporation Law of
the State of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), adopting an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation
Law of the State of Delaware, recommending to the stockholders the sale, lease
or exchange, of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
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<PAGE> 4
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or by-laws expressly so provide, no such committee shall
have the power or authority to declare a dividend, to authorize the issuance of
stock or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of the State of Delaware.
(v) When and as authorized by the stockholders in
accordance with statute, to sell, lease or exchange all or substantially all of
the property and assets of the corporation, including its good will and its
corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money or property
including shares of stock in, and/or other securities of, any other corporation
or corporations, as the Board of Directors shall deem expedient and for the
best interests of the corporation.
B. Elections of directors need not be by written ballot unless
the by-laws of the corporation shall so provide.
C. The books of the corporation may be kept at such place within
or without the State of Delaware as the by-laws of the corporation may provide
or as may be designated from time to time by the Board of Directors of the
corporation.
EIGHTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of Section 279 of Title 8
of the Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
NINTH.
(a) A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) for any transaction from which the
director derived an improper personal
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<PAGE> 5
benefit. If the General Corporation Law of the State of Delaware, or any other
applicable law, is amended to authorize corporation action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware, or
any other applicable law, as so amended. Any repeal or modification of this
Section (a) by the stockholders of the corporation shall not adversely affect
any right or protection of a director of the corporation existing at the time
of such repeal or modification.
(b) (1) Each person who has or is made a party or is threatened
to be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director or officer of the corporation or is or was
serving at the request of the corporation as a director, officer or employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is an alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as
a director, officer, employee or agent, shall be indemnified and held harmless
by the corporation to the fullest extent authorized by the General Corporation
Law of the State of Delaware, or any other applicable law, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the corporation to provide broader
indemnification rights than said law permitted the corporation to provide prior
to such amendment), against all expenses, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that except as provided in paragraph (2) of this Section (b)
with respect to proceedings seeking to enforce rights to indemnification, the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the corporation. The right to indemnification conferred in this Section (b)
shall be a contract right and shall include the right to be paid by the
corporation the expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that if the General Corporation
Law of the State of Delaware, or any other applicable law, requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall be made only upon delivery to
the corporation of an undertaking by or on behalf of such director or officer
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section (b) or
otherwise.
(2) If a claim under paragraph (1) of this Section (b) is not paid
in full by the corporation within thirty days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid
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<PAGE> 6
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware, or any other applicable law, for the corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the corporation. Neither the failure of the corporation
(including its Board of Directors, stockholders or independent legal counsel)
to have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in the General
Corporation Law of the State of Delaware, or any other applicable law, nor an
actual determination by the corporation (including its Board of Directors,
stockholders or independent legal counsel) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
(3) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
conferred in this Section (b) shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, provision of this
Amended and Restated Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
(4) The corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware, or any other
applicable law.
(5) The corporation may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification, and rights to
be paid by the corporation the expenses incurred in defending any proceeding in
advance of its final disposition, to any employee or agent of the corporation
to the fullest extent of the provisions of this Section (b) with respect to the
indemnification and advancement of expenses of directors and officers of the
corporation.
(6) Any repeal or modification of this Section (b) by the
stockholders of the corporation shall not adversely affect any right or
protection of a director, officer, employee or agent of the corporation
existing at the time of such repeal or modification.
TENTH. The corporation reserves the right to amend or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon a stockholder herein are granted subject to this reservation.
6
<PAGE> 7
The foregoing Amended and Restated Certificate of Incorporation has
been duly adopted in accordance with the provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Amended and
Restated Certificate of Incorporation on this 6th day of May, 1997.
/s/ Gerald E. Bisbee, Jr.
-------------------------------
GERALD E. BISBEE, JR., Chairman
7
<PAGE> 1
EXHIBIT 10.1
EMPLOYEE STOCK OPTION PLAN
OF APACHE MEDICAL SYSTEMS, INC.
(Amended and Restated Effective May 1, 1997)
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C> <C>
Section 1. Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 4. Common Stock Subject to Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 5. Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 6. Terms and Conditions of Options. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 7. Treatment of Options Upon Termination. . . . . . . . . . . . . . . . . . . . . . . 5
Section 8. Adjustment Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 9. Term of Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 10. Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 11. General Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 12. Amendment or Discontinuance of the Plan. . . . . . . . . . . . . . . . . . . . . . 8
Section 13. Effective Date of Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<PAGE> 3
EMPLOYEE STOCK OPTION PLAN
OF APACHE MEDICAL SYSTEMS, INC.
(AMENDED AND RESTATED EFFECTIVE MAY 1, 1997)
SECTION 1. PURPOSE.
The purpose of the Plan, as hereinafter set forth, is to enable the
Company to attract, retain and reward corporate officers, managerial and other
significant employees, and non-employees (other than non-employee directors)
who have an ongoing consultant or independent contractor relationship with the
Company, by offering such individuals an opportunity to have a greater
proprietary interest in and a closer identity with the Company and its
financial success.
Options granted under this Plan may be Incentive Stock Options or
Nonqualified Stock Options. However, Incentive Stock Options may only be
granted to employees of the Company.
SECTION 2. DEFINITIONS.
Board: The Board of Directors of the Company.
Change in Control: The purchase or other acquisition by any person,
entity or group of persons, within the meaning of section 13(d) or 14(d) of the
Exchange Act or any comparable successor provisions, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either the outstanding shares of common stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally; the approval by the stockholders of the Company of a reorganization,
merger, or consolidation, in each case, with respect to which persons who were
stockholders of the Company immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 30% of the combined
voting power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding securities; a
liquidation or dissolution of the Company; or of the sale of all or
substantially all of the Company's assets.
Code: The Internal Revenue Code of 1986, as amended from time to
time.
Committee: The Compensation Committee of the Board or such other
committee as shall be appointed by the Board to administer the Plan pursuant to
Section 3.
Common Stock: The common stock, $0.01 par value, of the Company or
such other class of shares or other securities as may be applicable pursuant to
the provisions of Section 8.
Company: APACHE Medical Systems, Inc., a Delaware corporation, its
subsidiary or subsidiaries, and any successor thereto.
<PAGE> 4
Disabled or Disability: Permanent and total disability, as defined in
Code Section 22(e)(3). A Participant shall not be considered Disabled unless
the Committee determines that the Disability arose prior to such Participant's
termination of employment or, in the case of a non-employee Participant, prior
to the termination of the consulting or independent contractor relationship
between such Participant and the Company.
Exchange Act: The Securities Exchange Act of 1934, as amended from
time to time.
Fair Market Value: The amount determined by the Committee from time
to time, using such good faith valuation methods as it deems appropriate,
except that as long as the Common Stock is traded on NASDAQ or a recognized
stock exchange, it shall mean the average of the highest and lowest quoted
selling prices for the shares on the relevant date, or, if there were no sales
on such date, the weighted average of the means between the highest and the
lowest quoted selling prices on the nearest day before and the nearest day
after the relevant date, as prescribed by Treasury Regulation Section
20.2031-2(b)(2), as reported in the Wall Street Journal or a similar
publication selected by the Committee.
Incentive Stock Option: An Option that is intended to qualify as an
"incentive stock option" under Code Section 422.
Nonqualified Stock Option: An Option that is not an Incentive Stock
Option.
Option: An option to purchase shares of Common Stock granted to a
Participant pursuant to Section 6.
Participant: An employee of the Company (including any employee who
is a member of the Board) or any non-employee consultant or advisor to the
Company whose participation in the Plan is determined by the Committee to be in
the best interest of the Company.
Plan: The Employee Stock Option Plan of APACHE Medical Systems, Inc.,
as amended from time to time.
SECTION 3. ADMINISTRATION.
(a) Committee. The Plan shall be administered by the Committee.
To the extent required to comply with the relevant provisions of Rule 16b-3
under the Exchange Act, each member of the Committee shall qualify as a
"non-employee director," as defined in Rule 16b-3 or in any successor
definition adopted by the Securities and Exchange Commission.
(b) Authority of the Committee. The Committee shall have the
authority to approve individuals for participation; to construe and interpret
the Plan; to establish, amend or waive rules and regulations for its
administration; and to accelerate the exercisability of any Option or the
termination of any restriction under any Option. Options may be subject to
such provisions as the Committee shall deem advisable, and may be amended by
the Committee from time to
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<PAGE> 5
time; provided that no such amendment may adversely affect the rights of the
holder of an Option without such holder's consent.
(c) Powers of the Committee. The Committee may employ such legal
counsel, consultants and agents as it may deem desirable for the administration
of the Plan and may rely upon any opinion received from any such counsel or
consultant and any computation received from any such consultant or agent.
(d) Indemnification. 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 awarded under it. To the maximum extent permitted by applicable
law, each member of the Committee shall be indemnified and held harmless by the
Company against any cost or expense (including legal fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Company) arising out of any act or omission to act in connection with the Plan
unless arising out of such member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification the
members may have as members of the Board or under the by-laws of the Company.
SECTION 4. COMMON STOCK SUBJECT TO PLAN.
The aggregate shares of Common Stock that may be issued under the Plan
shall not exceed 2,200,000, as adjusted in accordance with the provisions of
Section 8.
In the event of a lapse, expiration, termination, forfeiture or
cancellation of any Option granted under the Plan without the issuance of
shares, the Common Stock subject to or reserved for such Option may be used
again for new grants of Options hereunder; provided that in no event may the
number of shares of Common Stock issued hereunder exceed the total number of
shares reserved for issuance. Any shares of Common Stock withheld or
surrendered to pay withholding taxes pursuant to Section 11(e) or withheld or
surrendered in full or partial payment of the exercise price of an Option
pursuant to Section 6(d) shall be added to the aggregate shares of Common Stock
available for issuance.
SECTION 5. ELIGIBILITY.
Options may be granted under the Plan to any employee of the Company,
including employees who are officers and/or members of the Board, whose
participation the Committee determines is in the best interest of the Company
and to any non-employee who is a consultant or advisor to the Company whose
participation the Committee determines is in the best interests of the Company
(collectively, "Participants"). The Committee shall have absolute discretion
to determine, within the limits of the express provisions of the Plan, those
Participants to whom and the time or times at which Options shall be granted.
The Committee shall also determine, within the limits of the express provisions
of the Plan, the number of shares to be subject to each Option, the duration of
each Option, the exercise price under each Option, the time or times within
which (during the term of the Option) all or portions of each Option may become
vested and exercisable, and whether an Option shall be an Incentive Stock
Option, a Nonqualified Stock
-3-
<PAGE> 6
Option or a combination thereof. In making such determination, the Committee
may take into account the nature of the services rendered by the Participant,
his or her present and potential contributions to the Company's success and
such other factors as the Committee in its discretion shall deem relevant.
Notwithstanding the foregoing, no Incentive Stock Option shall be
granted to any Participant who is not an employee of the Company and no
non-employee member of the Board shall be eligible to receive any new Option
grant hereunder.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under the Plan shall be evidenced by an agreement,
in a form approved by the Committee, which shall be subject to the following
express terms and conditions and to such other terms and conditions as the
Committee may deem appropriate:
(a) Option Period. Each Option agreement shall specify the period
for which the Option thereunder is granted (which, in the case of Incentive
Stock Options, shall not exceed ten years from the date of grant) and shall
provide that the Option shall expire at the end of such period.
(b) Exercise Price. The per share exercise price of each Option
shall be determined by the Committee at the time the Option is granted, and, in
the case of Incentive Stock Options, shall not be less than the Fair Market
Value of Common Stock on the date the Option is granted.
(c) Vesting of Options. No part of any Option may be exercised
until the Participant shall have satisfied the vesting conditions (i.e., such
as remaining in the employ of the Company for a certain period of time), if
any, as the Committee may specify in the applicable Option agreement. Subject
to the provisions of Section 6(e), any Option may be exercised, to the extent
exercisable by its terms, at such time or times as may be determined by the
Committee.
(d) Payment. The exercise price of an Option shall be paid in
full at the time of exercise (i) in cash, (ii) through the surrender of
previously-acquired shares of Common Stock having a Fair Market Value equal to
the exercise price of the Option, (iii) through the withholding by the Company
(at the election of the Participant) of shares of Common Stock having a Fair
Market Value equal to the exercise price or (iv) by a combination of (i), (ii)
and (iii).
(e) Other Rules Applicable to Incentive Stock Options.
(i) Grant Period. Consistent with Section 9, an
Incentive Stock Option must be granted within ten years of the date this Plan
is adopted (i.e., the Effective Date, as defined in Section 13) or the date the
Plan is approved by the stockholders of the Company, whichever is earlier.
-4-
<PAGE> 7
(ii) Ten Percent Owner. If a Participant, on the date that
an Incentive Stock Option is granted, owns, directly or indirectly,
within the meaning of Section 424(d) of the Code, stock representing
more than 10% of the voting power of all classes of stock of the
Company, then the exercise price per share shall in no instance be less
than 110% of the Fair Market Value per share of Common Stock at the time
the Incentive Stock Option is granted, and no Incentive Stock Option
shall be exercisable by such Participant after the expiration of five
years from the date it is granted.
(iii) Employee Status. To retain favorable Incentive Stock
Option tax treatment, the Option holder must at all times from the date
the Option is granted through a date that is no more than three months
prior to the date it is exercised (or no more than one year prior to the
date it is exercised, where the Participant's termination of employment
is due to death or Disability) remain an employee of the Company. For
this purpose, authorized leaves of absence shall not be deemed to sever
the employment relationship.
(iv) Limitations on Dispositions. To retain favorable
Incentive Stock Option tax treatment, Common Stock received upon the
exercise of an Incentive Stock Option may not be disposed of prior to
the later of two years from the date the Incentive Stock Option is
granted or one year from the date the shares of Common Stock are
transferred to the Participant upon exercise of the Incentive Stock
Option.
(v) Value of Shares. The aggregate Fair Market Value
(determined at the date of grant) of the Incentive Stock Options
exercisable for the first time by a Participant during any calendar year
shall not exceed $100,000 or any other limit imposed by the Code.
(f) Limit on the Exercisability of all Options. No Option
granted under this Plan may become exercisable prior to six months
following the date it is granted or six months after stockholders
approve the Plan, whichever date is later.
SECTION 7. TREATMENT OF OPTIONS UPON TERMINATION.
(a) Termination due to Disability or Death. Upon the termination
of employment of an employee Participant or upon the termination of the
consulting or advisor relationship of a non-employee Participant by reason of
Disability or death, such Participant's Options shall become or remain fully
vested and shall be exercisable by such Participant (or, in the case of death,
by his or her estate) for not later than the earlier of one year after the
termination date or the expiration of the term of the Options.
(b) Termination Other than For Cause. Upon the termination of
employment of an employee Participant or upon the termination of the consulting
or advisor relationship of a non-employee Participant for any reason other than
for Cause (as defined in Section 7(c)), Disability or death, such Participant's
Options (to the extent vested prior to such termination) may be exercised by
such Participant during the six-month period commencing on the date of
-5-
<PAGE> 8
termination, but not later than the expiration of the term of the Options. If
a Participant dies during such six-month period, his or her estate may exercise
the Options (to the extent such Options were vested and exercisable prior to
death), but not later than the earlier of one year after the date of death or
the expiration of the term of the Options. Notwithstanding the foregoing, to
retain favorable Incentive Stock Option tax treatment, Incentive Stock Options
must be exercised within three months of the Participant's termination of
employment.
(c) Termination for Cause. Upon termination of the employment of
an employee Participant or upon the termination of the consulting or advisor
relationship of a non-employee Participant for Cause (as defined below), the
Participant's right to exercise his or her Options shall terminate at the time
notice of termination is given by the Company to such Participant. For
purposes of this provision, substantial cause shall include:
(i) The commission of an action against or in derogation of
the interests of the Company which constitutes an act of fraud,
dishonesty or moral turpitude or which, if proven in a court of law,
would constitute a violation of a criminal code or similar law;
(ii) A material breach of any material duty or obligation
imposed upon the Participant by the Company;
(iii) Divulging the Company's confidential information; or
(iv) The performance of any similar action that the
Committee, in its sole discretion, may deem to be sufficiently injurious
to the interests of the Company so as to constitute substantial cause
for termination.
SECTION 8. ADJUSTMENT PROVISIONS.
In the event of a stock split, stock dividend, recapitalization,
reclassification or combination of shares, merger, sale of assets or similar
event, the Committee shall adjust equitably (a) the number and class of shares
or other securities that are reserved for issuance under the Plan, (b) the
number and class of shares or other securities that are subject to outstanding
Options, and (c) the appropriate Fair Market Value and other price
determinations applicable to Options. The Committee shall make all
determinations under this Section 8, and all such determinations shall be
conclusive and binding.
SECTION 9. TERM OF PLAN.
The Plan shall be deemed adopted and shall become effective on the
date it is approved by the stockholders of the Company and shall continue until
April 1, 2006, or, if earlier, upon termination of the Plan by the Board or
until no Common Stock remains available for issuance under Section 4.
-6-
<PAGE> 9
SECTION 10. CHANGE IN CONTROL.
In the event of a Change in Control, all outstanding Options shall
fully vest in each Participant. The Committee, in its discretion, may also
provide in any Option agreement for adjustment of certain terms of such
Option upon the occurrence of a Change in Control.
SECTION 11. GENERAL PROVISIONS.
(a) Employment. Nothing in the Plan or any related instrument shall
confer upon any employee Participant or other employee any right to continue in
the employ of the Company or shall affect the right of the Company to terminate
the employment of any employee Participant or other employee with or without
cause.
(b) Legality of Issuance of Shares. No Common Stock shall be issued
pursuant to the exercise of an Option unless and until all legal requirements
applicable to such issuance have been satisfied.
(c) Ownership of Common Stock Allocated to Plan. No Participant
(individually or as a member of a group), and no beneficiary or other person
claiming under or through such Participant, shall have any right, title or
interest in or to any Common Stock allocated or reserved for purposes of the
Plan or subject to any Option, except as to shares of Common Stock, if any, as
shall have been issued to such Participant or beneficiary.
(d) Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Virginia.
(e) Withholding of Taxes. The Company may withhold, or allow a
Participant to remit to the Company, any Federal, state or local taxes required
by law to be withheld with respect to any event giving rise to income tax
liability with respect to an Option. In order to satisfy all or any portion of
such income tax liability, a Participant may elect to surrender Common Stock
previously acquired by the Participant or to have the Company withhold Common
Stock that would otherwise have been issued to the Participant pursuant to the
exercise of an Option, the number of shares of such withheld or surrendered
Common Stock to be sufficient to satisfy all or a portion of the income tax
liability that arises upon the event giving rise to income tax liability with
respect to an Option.
(f) Nontransferability. During the lifetime of a Participant, any
Option granted to him or her be exercisable only by him or her or by his or her
guardian or legal representative. No Option shall be assignable or
transferable, except by will or by the laws of descent and distribution, and no
option shall be subjected to any encumbrance, pledge or charge of any nature.
-7-
<PAGE> 10
SECTION 12. AMENDMENT OR DISCONTINUANCE OF THE PLAN.
The Board, acting by a majority of its members, without further action
on the part of the stockholders, may from time to time alter, amend or suspend
the Plan or any Option granted hereunder or may at any time terminate the Plan;
provided, however, that the Board may not materially increase the number of
shares of Common Stock subject to the Plan (except as provided in Section 8
hereof); and provided further that no such action shall materially and
adversely affect any outstanding Options without the consent of the respective
Participants.
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan as adopted by the Board and approved by stockholders was
originally effective as of November 8, 1990 and amended and restated as of
April 1, 1996. The Plan is hereby further amended and restated effective May
1, 1997 (the "Effective Date"), subject to approval by the holders of a
majority of the outstanding shares of Common Stock of the Company.
-8-
<PAGE> 1
EXHIBIT 10.2
APACHE MEDICAL SYSTEMS, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(Amended and Restated Effective May 1, 1997)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Administration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 4. Common Stock Subject to Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 5. Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 6. Terms and Conditions of Options. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 7. Treatment of Options Upon Termination. . . . . . . . . . . . . . . . . . . . . . . 4
Section 8. Adjustment Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 9. Term of Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 10. Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 11. General Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 12. Amendment or Discontinuance of the Plan. . . . . . . . . . . . . . . . . . . . . . 6
Section 13. Effective Date of Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
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<PAGE> 3
APACHE MEDICAL SYSTEMS, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(AMENDED AND RESTATED MAY 1, 1997)
SECTION 1. Purpose.
The purpose of the Plan, as hereinafter set forth, is to enable the Company to
attract, retain and reward qualified non-employee directors by offering them an
opportunity to have a greater proprietary interest in and a closer identity
with the Company and its financial success.
Options granted under this Plan shall be nonqualified stock options.
SECTION 2. Definitions.
Board: The Board of Directors of the Company.
Change in Control: The purchase or other acquisition by any person,
entity or group of persons, within the meaning of section 13(d) or 14(d) of the
Exchange Act or any comparable successor provisions, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either the outstanding shares of common stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally; the approval by the stockholders of the Company of a reorganization,
merger, or consolidation, in each case, with respect to which persons who were
stockholders of the Company immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 30% of the combined
voting power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding securities; a
liquidation or dissolution of the Company; or of the sale of all or
substantially all of the Company's assets.
Code: The Internal Revenue Code of 1986, as amended from time to
time.
Committee: The Chairman of the Board and such other employee members
of the Board, if any, who the Chairman may select to assist him or her in the
administration of the Plan in accordance with Section 3.
Common Stock: The common stock, $0.01 par value, of the Company or
such other class of shares or other securities as may be applicable pursuant to
the provisions of Section 8.
Company: APACHE Medical Systems, Inc., a Delaware corporation, its
subsidiary or subsidiaries, and any successor thereto.
<PAGE> 4
Disabled or Disability: Permanent and total disability, as defined in
Code Section 22(e)(3). A Participant shall not be considered Disabled unless
the Committee determines that the Disability arose prior to such Participant's
termination of membership on the Board.
Exchange Act: The Securities Exchange Act of 1934, as amended from
time to time.
Fair Market Value: The amount determined by the Committee from time
to time, using such good faith valuation methods as it deems appropriate,
except that as long as the Common Stock is traded on NASDAQ or a recognized
stock exchange, it shall mean the average of the highest and lowest quoted
selling prices for the shares on the relevant date, or, if there were no sales
on such date, the weighted average of the means between the highest and the
lowest quoted selling prices on the nearest day before and the nearest day
after the relevant date, as prescribed by Treasury Regulation Section
20.2031-2(b)(2), as reported in the Wall Street Journal or a similar
publication selected by the Committee.
Option: A nonqualified stock option to purchase shares of Common
Stock granted to a Participant pursuant to Section 6.
Participant: Any non-employee member of the Board.
Plan: The APACHE Medical Systems, Inc. Non-Employee Director Stock
Option Plan, as amended from time to time.
SECTION 3. ADMINISTRATION.
A. Committee. The Plan shall be administered by the Committee.
B. Authority of the Committee. The Committee shall have the
authority to construe and interpret the Plan and to establish, amend or waive
rules and regulations for its administration. Subject to the limitations of
the express provisions of the Plan, Options may be subject to such provisions
as the Committee shall deem advisable, and may be amended by the Committee from
time to time; provided that no such amendment may adversely affect the rights
of the holder of an Option without such holder's consent.
C. Powers of the Committee. The Committee may employ such legal
counsel, consultants and agents as it may deem desirable for the administration
of the Plan and may rely upon any opinion received from any such counsel or
consultant and any computation received from any such consultant or agent.
D. Indemnification. 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 awarded under it. To the maximum extent permitted by applicable
law, each member of the Committee shall be indemnified and held harmless by the
Company against any cost or expense (including legal fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Company) arising out of any act or omission to act in connection with the Plan
unless arising out
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<PAGE> 5
of such member's own fraud or bad faith. Such indemnification shall be in
addition to any rights of indemnification the members may have as members of
the Board or under the by-laws of the Company.
SECTION 4. Common Stock Subject to Plan.
The aggregate shares of Common Stock that may be issued under the Plan
shall not exceed 70,000, as adjusted in accordance with the provisions of
Section 8.
In the event of a lapse, expiration, termination, forfeiture or
cancellation of any Option granted under the Plan without the issuance of
shares, the Common Stock subject to or reserved for such Option may be used
again for new grants of Options hereunder; provided that in no event may the
number of shares of Common Stock issued hereunder exceed the total number of
shares reserved for issuance. Any shares of Common Stock withheld or
surrendered to pay withholding taxes pursuant to Section 11(e) or withheld or
surrendered in full or partial payment of the exercise price of an Option
pursuant to Section 6(d) shall be added to the aggregate shares of Common Stock
available for issuance.
SECTION 5. Eligibility.
Options shall be granted under the Plan to all non-employee members of
the Board ("Participants").
SECTION 6. Terms and Conditions of Options.
Each Option granted under the Plan shall be evidenced by an agreement,
in a form approved by the Committee, which shall be subject to the following
express terms and conditions and to such other terms and conditions as the
Committee may deem appropriate:
(a) Timing of Option Grants and Number of Underlying Shares. On
January 1 of each calendar year, each individual who is a non- employee member
of the Board on that date shall be granted an Option to purchase up to 2,500
shares of Common Stock. This number of shares shall be subject to adjustment
in accordance with the provisions of Section 8.
(b) Exercise Price. The per share exercise price of each Option
granted under the Plan shall be 100% of the Fair Market Value per share of
Common Stock at the date the Option is granted.
(c) Vesting of Options. Each Option granted under the Plan shall
become fully vested and exercisable on the December 31 immediately following
the date on which the Option is granted.
(d) Option Period. Each Option agreement shall specify the period
for which the Option thereunder is granted and shall provide that the Option
shall expire at the end of such period.
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<PAGE> 6
(e) Payment. The exercise price of an Option shall be paid in
full at the time of exercise (i) in cash, (ii) through the surrender of
previously-acquired shares of Common Stock having a Fair Market Value equal to
the exercise price of the Option, (iii) through the withholding by the Company
(at the election of the Participant) of shares of Common Stock having a Fair
Market Value equal to the exercise price or (iv) by a combination of (i), (ii)
and (iii).
SECTION 7. TREATMENT OF OPTIONS UPON TERMINATION.
(a) Termination due to Disability or Death. Upon the termination
of a Participant's membership on the Board by reason of Disability or death,
such Participant's Options shall become or remain fully vested and shall be
exercisable by such Participant (or, in the case of death, by his or her
estate) for not later than the earlier of one year after the termination date
or the expiration of the term of the Options.
(b) Termination Other than For Cause. Upon the termination of a
Participant's membership on the Board for any reason other than for Cause (as
defined in Section 7(c)), Disability or death, such Participant's Options (to
the extent vested prior to such termination) may be exercised by such
Participant during the six-month period commencing on the date of termination,
but not later than the expiration of the term of the Options. If a Participant
dies during such six-month period, his or her estate may exercise the Options
(to the extent such Options were vested and exercisable prior to death), but
not later than the earlier of one year after the date of death or the
expiration of the term of the Options.
(c) Termination for Cause. Upon termination of a Participant's
membership on the Board for Cause (as defined below), the Participant's right
to exercise his or her Options shall terminate at the time notice of
termination is given by the Company to such Participant. For purposes of this
provision, substantial cause shall include:
(i) The commission of an action against or in derogation
of the interests of the Company which constitutes an act of
fraud, dishonesty or moral turpitude or which, if proven in a
court of law, would constitute a violation of a criminal code
or similar law;
(ii) A material breach of any material duty or obligation
imposed upon the Participant by the Company;
(iii) Divulging the Company's confidential information; or
(iv) The performance of any similar action that the
Committee, in its sole discretion, may deem to be sufficiently
injurious to the interests of the Company so as to constitute
substantial cause for termination.
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SECTION 8. ADJUSTMENT PROVISIONS.
In the event of a stock split, stock dividend, recapitalization,
reclassification or combination of shares, merger, sale of assets or similar
event, the Committee shall adjust equitably (a) the number and class of shares
or other securities that are reserved for issuance under the Plan, (b) the
number and class of shares or other securities that are subject to outstanding
Options, and (c) the appropriate Fair Market Value and other price
determinations applicable to Options. The Committee shall make all
determinations under this Section 8, and all such determinations shall be
conclusive and binding.
SECTION 9. TERM OF PLAN.
The Plan shall be deemed adopted and shall become effective on the
date it is approved by the stockholders of the Company and shall continue until
terminated by the Board or until no Common Stock remains available for issuance
under Section 4, whichever occurs first.
SECTION 10. CHANGE IN CONTROL.
In the event of a Change in Control, all outstanding Options shall
fully vest in each Participant.
SECTION 11. GENERAL PROVISIONS.
(a) Board Membership. Nothing in the Plan or in any related
instrument shall confer upon any Participant any right to continue as a member
of the Board or shall affect the right of the Company to terminate the Board
membership of any Participant with or without cause.
(b) Legality of Issuance of Shares. No Common Stock shall be
issued pursuant to the exercise of an Option unless and until all legal
requirements applicable to such issuance have been satisfied.
(c) Ownership of Common Stock Allocated to Plan. No Participant
(individually or as a member of a group), and no beneficiary or other person
claiming under or through such Participant, shall have any right, title or
interest in or to any Common Stock allocated or reserved for purposes of the
Plan or subject to any Option, except as to shares of Common Stock, if any, as
shall have been issued to such Participant or beneficiary.
(d) Governing Law. The Plan, and all agreements hereunder, shall
be construed in accordance with and governed by the laws of the State of
Virginia.
(e) Withholding of Taxes. The Company may withhold, or allow a
Participant to remit to the Company, any Federal, state or local taxes required
by law to be withheld with respect to any event giving rise to income tax
liability with respect to an Option. In order to satisfy all or any portion of
such income tax liability, a Participant may elect to surrender Common Stock
previously acquired by the Participant or to have the Company withhold
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<PAGE> 8
Common Stock that would otherwise have been issued to the Participant pursuant
to the exercise of an Option, the number of shares of such withheld or
surrendered Common Stock to be sufficient to satisfy all or a portion of the
income tax liability that arises upon the event giving rise to income tax
liability with respect to an Option.
(f) Nontransferability. During the lifetime of a Participant, any
Option granted to him or her shall be exercisable only by him or her or by his
or her guardian or legal representative. No Option shall be assignable or
transferable, except by will or by the laws of descent and distribution, and no
option shall be subjected to any encumbrance, pledge or charge of any nature.
SECTION 12. AMENDMENT OR DISCONTINUANCE OF THE PLAN.
The Board, acting by a majority of its members, without further action
on the part of the stockholders, may from time to time alter, amend or suspend
the Plan or any Option granted hereunder or may at any time terminate the Plan;
provided, however, that the Board may not materially increase the number of
shares of Common Stock subject to the Plan (except as provided in Section 8
hereof); and provided further that no such action shall materially and
adversely affect any outstanding Options without the consent of the respective
Participants.
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan as adopted by the Board and approved by stockholders was
originally effective on April 1, 1996. The Plan is hereby amended and restated
effective May 1, 1997 (the "Effective Date"), subject to approval by the
holders of a majority of the outstanding shares of Common Stock of the Company.
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EXHIBIT 10.5
SECURITY AGREEMENT [CRESTAR LOGO]
This Security Agreement ("Agreement") dated February 11, 1997, is made by APACHE
Medical Systems, Inc. (herein, whether one or more, the "Owner") for the use
and benefit of Crestar Bank, its successors and assigns (the "Bank").
SECURITY AGREEMENT. In order to induce the Bank from time to time to extend or
continue to extend credit to APACHE Medical Systems, Inc., whether one or more
and any combination thereof, (the "Borrower"), the Owner (which may include the
Borrower) hereby grants the Bank a security interest in the collateral and all
proceeds, products, rents and profits thereof and all revenues from the right to
use the collateral described below (the "Collateral") to secure the payment of
all present and future indebtedness of every kind and description, however
evidenced, of the Borrower to the Bank, whether such indebtedness is direct or
indirect, fixed or contingent, liquidated or unliquidated, including any
extensions, modifications or renewals thereof (the "Indebtedness") and to secure
the performance by the Owner of the agreements and warranties contained in this
Agreement.
COLLATERAL. As used in this Agreement, the term Collateral, whether now
existing or acquired in the future, shall mean:
All accounts ("Accounts"), Inventory ("Inventory"), furniture, fixtures and
equipment ("Equipment"), general intangibles ("General Intangibles"),
instruments, documents and chattel paper, including, without limitation, all
goods represented thereby and all goods that may be reclaimed or repossessed
from or returned by account debtors and all proceeds, products, rents and
profits thereof (as all such terms are defined in the Uniform Commercial Code).
REPRESENTATIONS AND WARRANTIES. The Owner represents and warrants to the Bank
as follows:
a) APACHE Medical Systems, Inc. is/are and will continue to be the
absolute owner of the Collateral. There are no other owners or liens
or security interests affecting the Collateral other than the
security interest granted in this Agreement except those previously
disclosed to the Bank in writing by the Owner; if the Owner is acting
in the capacity of trustee, administrator or executor of an estate,
such fact shall be disclosed and evidence of capacity shall be
provided to the Bank;
b) The Owner will defend the Collateral against the claims and demands of
all parties. The Owner will not, without prior written consent of the
Bank, grant any security interest in the Collateral and will keep it
free from any lien, encumbrance or security interest;
c) If applicable to the Collateral pledged, the Owner represents and
warrants that the Collateral never has been, and never will be as long
as this Agreement remains a lien on the Collateral, used for the
generation, collection, manufacture, storage, treatment, disposal,
release or threatened release of any hazardous substance, as those
terms are defined in the Comprehensive Environment Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601, et seq. ("CERCLA"), SuperFund Amendments and Reauthorization Act
("SARA"), applicable state laws, or regulations adopted pursuant to
either of the foregoing. The Owner agrees to comply with any federal,
state or local law, statute, ordinance or regulation, court or
administrative order or decree or private agreement regarding materials
which require special handling in collection, storage, treatment or
disposal because of their impact on the environment ("Environmental
Requirements"). The Owner agrees to indemnify and hold the Bank
harmless against any and all claims, losses and expenses resulting from
a breach of this provision of this Agreement and the Owner will pay or
reimburse the Bank for all costs and expenses for expert opinion or
investigations required or requested by the Bank which, in the Bank's
sole reasonable discretion, are necessary to ensure compliance with
this provision of this Agreement. This obligation to indemnify
shall survive the payment of the indebtedness and the satisfaction of
the Agreement; CWB
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Initials
d) The primary use of the Collateral is and will be: business;
e) If applicable to the type of collateral pledged, the Owner warrants and
represents that all Collateral has been produced in compliance with the
Fair Labor Standards Act or other applicable wage and employee law,
rule, regulation or order, and that no existing or future liability
shall occur as a result. The Owner may contest, in good faith, the
applicability of any such law, rule, regulation or order, including
prosecuting any appeals, so long as the Bank's interest in the
Collateral, in the opinion of the Bank, is not jeopardized thereby;
f) The Owner, if an individual, is above the age of majority and has the
legal capacity to enter into this Agreement;
g) The Owner must notify the Bank in writing at least 30 days prior to any
change of its name, corporate structure or identity;
h) The location of the principal place of business (or home address if an
individual) of APACHE Medical Systems, Inc. in Virginia is the County
of Fairfax. There are no other places of business in this state.
Books of accounts and records are maintained at: 1650 Tysons
Boulevard, #300, McLean, VA 22102.
i) The Collateral will be located at: 1650 Tysons Boulevard, #300,
McLean, VA 22102 and 224 South Michigan Avenue, Suite 300,
Chicago, IL 60604-2507. The Owner will maintain the Collateral in
this/these location(s). The Collateral shall not be moved from the
above locations without the prior written consent of the Bank;
CWB
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Initials
j) All information supplied and statements made to the Bank in any
financial or credit statements or applications are true, correct,
complete, valid and genuine in all material respects;
k) None of the Collateral is being acquired with funds simultaneously
advanced to the Borrower by the Bank.
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l) The corporate Owner is duly organized and existing under the laws of
Delaware; is duly qualified and in good standing as a foreign corporation
in every jurisdiction where such qualification is necessary; the execution
and performance of this Agreement have been duly authorized by action of
its Board of Directors, no action of its shareholders being necessary; the
execution and performance of this Agreement will not violate or contravene
any provisions of law or regulation or its Articles of Incorporation,
Shareholder Agreement, By-Laws or other agreements to which it is a party
or by which it is bound; and that no consent or approval of any
governmental agency or authority is required in making or performing the
obligations under this Agreement.
SECURITIES, INSTRUMENTS, CERTIFICATES OF DEPOSIT, DOCUMENTS, CHATTEL PAPER AND
GENERAL INTANGIBLES
a) The Owner also grants the Bank a security interest in all rights to which
an owner of the Collateral is now or may become entitled by virtue of
owning such Collateral including, without limitation, interest, cash
dividends, stock dividends and stock rights, all of which shall, when
received, and upon request by the Bank, be delivered to the Bank with
written authority to sell, transfer or rehypothecate the same.
b) If the Collateral includes all rights, title and interest in an Estate or
Trust, the security interest shall not apply to any shares of capital
stock of Crestar Financial Corporation or any of its affiliates, or to any
units of participation in the Bank's Common Trust Fund held by the Estate
or Trust, but shall apply to any proceeds from the sale of such stocks and
units or cash dividends thereof.
c) The Owner represents and warrants, as may be applicable, that:
(i) The Owner has good and marketable title to the Collateral. The
Collateral is valid and genuine and represents a bona fide, binding,
legal obligation of the maker, issuer, or grantor, and all signatures
are genuine.
(ii) The Collateral is in full force and effect and is not in default and
no prepayments have been made;
(iii) The Collateral is not represented by a judgment or any other
document not provided to the Bank;
(iv) The Collateral is not subject to any assignment, claim, lien, right
of setoff or security interest of any other party;
(v) Unless otherwise stated, the face amount on the Collateral is the
correct amount acutually and unconditionally due or to become due
according to the terms of the Collateral, and such amount is not
disputed or subject to any setof, credit, deduction or counterclaim;
(vi) With respect to any security on the Collateral, the lien or security
interest represented thereby is not subject to prior claim, lien, or
security interest of any other party, unless otherwise stated
herein, or in the document evidencing such security;
(vii) With respect to the security on the Collateral, it has been properly
perfected by the filing or recording of all necessary financing
statements, deeds of trust or other documents and the payment of all
recording, transfer and other taxes and fees made in the appropriate
public offices.
d) At any time, and from time to time, whether before or after default, except
as specified below, without notice, and at the expense of the Owner, the
Bank in its name or in the name of its nominee or of the Owner, may, but
shall not be obligated to:
(i) After default, notify the obligors on any Collateral to make
payment to the Bank of any or all dividends, interest, principal
payments and other sums now or hereafter payable upon or on account
of the Collateral, may collect the same by legal proceedings or
otherwise, and may perform any contract or endorse in the name of
the Owner any checks, drafts, notes, instruments or other documents
which constitute the Collateral;
(ii) Enter into any extension, reorganization, deposit, merger or
consolidation agreement or any agreement in any way relating to or
affecting the Collateral and in connection therewith may deposit or
surrender control of the Collateral, accept other property in
exchange for the Collateral and do and perform such acts and things
as it may deem proper, and any money or property received in
exchange for the Collateral may be either applied to any
indebtedness or may be held by the Bank pursuant to the provisions
of this Agreement;
(iii) Make any compromise or settlement it deems desirable or proper with
reference to the Collateral:
(iv) Insure, process and preserve the Collateral;
(v) Cause the Collateral to be transferred to its name or the name of
its nominee;
(vi) Exercise as to the Collateral all the rights, powers and remedies
of an owner.
CWB
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Initials
INVENTORY.
a) The Owner agrees to maintain books and records pertaining to the Inventory
in such detail, form and scope as the Bank shall require. The Owner shall
promptly advise the Bank of any substantial changes relating to the type,
quality or quantity of the Inventory or any event which would have a
material effect on the value of the Inventory or on the security interest
granted to the Bank. Upon reasonable notice by the Bank, the Owner shall
assemble and make readily available for inspection and examination all of
the Inventory and all books and records pertaining to the Inventory at any
time;
b) If the Inventory remains in the possession or control of any of the
Owner's agents or processors, the Owner shall notify such agents or
processors of the Bank's security interest, and upon request, instruct
them to hold such Inventory for the Bank's account and subject to the
Bank's instructions;
c) The Owner will prepare and deliver to the Bank, at the Bank's request, a
listing of all Inventory and such information regarding the Inventory as
the Bank may require.
ACCOUNTS.
a) The Owner warrants that each and every Account, now owned or hereafter
acquired is a bona fide existing obligation, valid and enforceable against the
account debt, for goods sold or leased and delivered or services rendered in
the ordinary course of business; it is subject to no dispute, defense or
offset; the Owner has good title to the Account and has full right and power to
grant the Bank a security interest in the Collateral;
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<PAGE> 3
b) The Owner will immediately notify the Bank of any Account to which the
above warranties are or become untrue;
c) The Owner will prepare and deliver to the Bank, at the Bank's request,
a listing and aging of all Accounts and any further schedules or
information that the Bank may require.
d) The Bank shall have the right after default to notify account debtors
of its security interest in the Accounts and require payments to be
made directly to the Bank. The Owner appoints the Bank and any
officer or employee of the Bank, as the Bank may from time to time
designate, as its attorneys-in-fact for the Owner, to sign and endorse
in the name of the Owner, to give notice in the name of the Owner, and
to perform all other actions necessary or desirable at the reasonable
discretion of the Bank to effect these provisions and carry out
the intent of this Agreement, all at the cost and expense of the Owner.
The Owner ratifies and approves all acts of such attorneys-in-fact and
neither the Bank nor any other such attorneys-in-fact will be liable for
any acts of commission or omission nor for any error or judgment or
mistake of fact or law. This power being coupled with an interest is
irrevocable so long as any Account or General Intangible assigned to
the Bank remains unpaid and the Borrower has any Indebtedness to the
Bank. The costs of such collection and enforcement, including
attorneys' fees and out-of-pocket expenses, shall be borne solely by
the Owner whether the same are incurred by the Bank or the Owner.
CWB
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Initials
e) At the option of the Bank, all payments on the Accounts received by the
Owner shall be remitted to the Bank in their original form on the day
of receipt; all notes, checks, drafts and other instruments so received
shall be duly endorsed to the order of the Bank. At the Bank's
election, the payments shall be deposited into a special deposit
account ("Special Account") maintained with the Bank. The Bank may
designate with each such deposit the particular Account upon which
payment was made. The Special Account shall be held by the Bank as
security for the Indebtedness. Prior to depositing payments on the
Accounts into the Special Account, the Owner agrees that it will not
commingle such payments with any of the Owner's funds or property, but
will hold them separate and apart and in trust for the Bank. The Bank
will have the power to withdraw from the Special Account. The Bank may
at any time and from time to time, in its sole discretion, apply any
part of the funds in the Special Account to the Indebtedness whether or
not the same is due. Upon full and final satisfaction of the
Indebtedness plus termination of any commitment to extend additional
funds, the Bank will pay to the Owner any excess funds, whether
received by the Bank as a deposit in the Special Account or as a direct
payment on any of the Indebtedness.
f) If any of the Owner's Accounts arise out of contracts with the United
States or any department, agency, or instrumentality thereof, the Owner
will immediately notify the Bank in writing and execute any
instruments and take any steps required by the Bank in order that all
monies due and to become due under such contracts shall be assigned to
the Bank and in order that proper notice be given under the Federal
Assignment of Claims Act;
g) The Bank shall not be liable and shall suffer no loss on account of
loss or deprivation of any Account due to acts of omissions of the Bank
unless the Bank's conduct is willful and malicious, and the Bank shall
have no duty to take any action to preserve the Collateral or collect
Accounts.
COVENANTS.
a) The Owner shall maintain complete and accurate books of account and
records, and its principal books of account and records, including all
records concerning Accounts and contract rights, shall be kept and
maintained at the place(s) specified above. The Owner shall not move
such books of account and records without giving the Bank at least 30
days prior written notice and executing and delivering to the Bank
financing statements satisfactory to the Bank prior to any such move.
All accounting records and financial reports furnished to the Bank
shall be maintained and prepared in accordance with generally accepted
accounting principles consistently applied. It is specifically agreed
that the Bank shall have and the Owner grants to the Bank a security
interest in all books of account and records of the Owner and the Bank
shall have access to them at any time for inspection, verification,
examination and audit;
b) The Owner shall furnish to the Bank financial and business information
and reports in form and content satisfactory to the Bank as and when
the Bank may from time to time require;
c) The Owner, if a corporation, shall maintain its corporate existence in
good standing and shall not consolidate or merge with or acquire the
stock of any other corporation without the prior written consent
of the Bank. If the Owner is a corporation, the Owner shall, at the
request of the Bank, qualify as a foreign corporation and obtain all
requisite licenses and permits in each jurisdiction where the Owner
does business. The Owner shall not discontinue business, liquidate,
sell, transfer, assign or otherwise dispose of any of its assets,
except with the prior written permission of the Bank, however, that it
may sell in the ordinary course of business and for full consideration,
any product, merchandise or service produced or marketed by it. The
Bank's security interest shall attach to all proceeds of all sales or
dispositions of the Collateral;
d) The Owner shall maintain all of the Collateral in good condition and
repair. The Bank shall have the right to inspect the Collateral at any
reasonable time and shall have the right to obtain such appraisals,
reappraisals, appraisal updates or environment inspections as the Bank,
in its sole discretion, may deem necessary from time to time;
e) The Owner shall at all times keep insurable Collateral insured against
any and all risks, including, without limitation, fire and
other insurance as may be required by the Bank from time to time; and
in amounts as may be satisfactory to the Bank. The Bank shall be named
as Loss Payee on any such insurance policies. Insurance may be
purchased from an insurer of the Owner's choice, except as otherwise
required by law. The Owner shall pay and discharge all taxes,
assessments and charges of every kind prior to the date when such
taxes, assessments or charges shall become delinquent and provide proof
of such payments to the Bank, upon request. However, nothing contained
in this Agreement shall require the Owner to pay any such taxes,
assessments and charges so long as it shall contest its validity in
good faith and shall post any bond or security required by the Bank
against the payment. Upon the failure of the Owner to pay such required
amounts, the Bank, at its option, and at the Owner's expense, may
obtain such insurance or pay such taxes, assessments or charges with
the costs or premiums.
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becoming part of the indebtedness at the option of the Bank, such
amounts may be payable on demand. Any insurance obtained by the Bank,
at its option, may be single or dual interest, protecting its rights,
rights of the Owner or joint rights. Any insurance obtained by the Bank
may provide, at its option, that such insurance will pay the lesser of
the unpaid balance of the indebtedness of the repair or replacement
value of the Collateral. The Owner authorizes the Bank to give effect
to any of these options without prior notice to Owner or further
consent from Owner. No matter which insurance coverage or repayment
options the Bank chooses, the Collateral will secure payment of these
amounts. The Bank may use the proceeds of any insurance obtained by
Owner or by the Bank to repair or replace the Collateral or, if the
Bank elects to do so, to repay part or all of the indebtedness, and the
Borrowers will still be responsible to repay any remaining unpaid
balance of the Indebtedness. Owner assigns to the Bank all amounts
payable under the insurance, include unearned premiums, directing the
insurer to make payment to the Bank, and Owner appoints us
attorney-in-fact to endorse any draft;
f) The Owner will not pledge or grant any interest in any of the
Collateral to anyone except the Bank, or permit any lien or encumbrance
to attach to any of the Collateral, or any levy to be made on the
Collateral, or any financing statement (except financing statements in
favor or the Bank) to be on file against the Collateral;
g) The Owner agrees that it will not permit any return of merchandise, the
sale of which gave rise to any of the Accounts, except in the usual and
regular course of business.
DEFAULT. In addition to any right which the Bank may have to demand payment of
the indebtedness under any other agreement, upon the occurrence of any of the
following events of default, the Bank, at its option, may declare any or all of
the Indebtedness immediately due and payable and may exercise any and all of
the rights and remedies of default of a secured party under the Uniform
Commercial Code and other applicable law and all rights provided herein, all of
which rights and remedies shall, to the full extent permitted by law, be
cumulative.
a) If the Borrower fails to pay when due any Indebtedness or shall
otherwise be in default under any agreement of the Borrower with the
Bank or with Crestar Financial Corporation, or any subsidiary or
affiliate of Crestar Financial Corporation, or any subsidiary or
affiliate of such subsidiary or affiliate (whether now existing or
hereafter organized or acquired); or
b) The failure of the Owner to observe or perform any of the terms or
provisions of this Agreement, or any such default by the Borrower, any
endorser, or any guarantor of any Indebtedness of the Borrower to the
bank (a "Party"); or
c) The breach of any of the Owner's representations or warranties in this
Agreement or any other agreement with the Bank; or
d) The death, dissolution, merger, consolidation or termination of
existence of the Owner or any Party; or
e) The insolvency or inability to pay debts as they mature of the Owner or
any Party, or the application for the appointment of a receiver for any
of them, or the filing of a petition under any provision of the
Bankruptcy Code or other insolvency law, statute or proceeding by or
against any of them, or any assignment for the benefit of creditors by
or against any of them; or
f) The entry of a judgment against the Owner or any Party or the issuance
or service of any attachment, levy or garnishment against the Owner or
any Party or the property of any of them or the repossession or seizure
of property of the Owner or any Party; or
g) Any deterioration or impairment of the Collateral or any part of the
Collateral or any decline or depreciation in the value or market value
of the Collateral (whether actual or reasonably anticipated), which
causes the Collateral, in the judgment of the Bank, to become
unsatisfactory as to character or value; or
h) A determination by the Bank that a material adverse change in the
financial condition of the Owner or any Party has occurred since the
date of this Agreement; or
i) The Owner or any Party commits fraud or makes a material
misrepresentation at any time in connection with this Agreement.
The Bank may require the Owner to assemble the Collateral and make available to
the Bank at a place to be designated by the Bank which is reasonably convenient
to the Bank and the Owner. The Bank may take possession of the Collateral
without a court order. The Owner shall pay to the Bank on demand all legal
expenses and reasonable attorneys' fees, as permitted by applicable law, if the
Bank refers this Agreement to an attorney who is not a salaried employee of the
Bank; appraisal fees and all expenses incurred or paid by the Bank in
protecting and enforcing the rights of the Bank under this Agreement, including
the Bank's right to take possession of the Collateral and its proceeds, and to
hold, prepare for sale, sell and dispose of the Collateral. Any required notice
by the Bank of sale or other disposition on default, when placed in the mail
and addressed to or left at the premises of the Owner, at the address specified
next to the Owner's signature below or such other address of the Owner as may
from time to time be shown on the Bank's records, at least ten days prior to
such action shall constitute reasonable notice to the Owner.
TERM. This Agreement shall be a continuing agreement and shall remain in full
force and effect irrespective of any interruptions in the business relations
of the Borrower with the Bank and shall apply to any ultimate balance which
shall remain due by the Borrower to the Bank: provided, however, that the Owner
may by written notice terminate this Agreement with respect to all Indebtedness
of the Borrower incurred or contracted by the Borrower or acquired by the Bank
after the date on which the notice is personally delivered to or mailed by
registered mail and accepted by the Borrower's lending officer.
EXECUTION BY MORE THAN ONE PARTY. The term "Owner" as used in this Agreement
shall, if this instrument is signed by more than one Party, mean the "Owner and
each of them" and each shall be jointly and severally obligated and liable. If
any Party shall be a partnership, the agreements and obligations on the part of
the Owner shall remain in force and applicable regardless of any changes in the
individuals composing the partnership and the term "Owner" shall include any
altered or successive partnerships and the predecessor partnership and their
partners shall not be released from any obligation or liability.
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WAIVERS BY THE OWNER. The Owner hereby waives (a) notice of acceptance of this
Agreement and of any extensions, modifications or renewals of credit by the Bank
to the Borrower; (b) presentment and demand for payment of the Indebtedness; (c)
protest and notice of dishonor or default to the Owner or to any other Party
with respect to the Indebtedness; (c) all other notices to which the Owner
might otherwise be entitled; and (d) if for business purposes, the benefit of
the Homestead Exemption. The Owner further waives any right to require that any
action be brought against the Borrower or any other Party, to require that
resort be had to any security or to any balance of any deposit account or
credit on the books of the Bank in favor of the Borrower or any other Party.
The Owner further agrees that it shall not be subrogated and will not enforce on
its part or behalf any right of action which the Bank may have against the
Borrower until every Indebtedness secured under this Agreement is paid in full.
NO OBLIGATION TO EXTEND CREDIT. This Agreement shall not be construed to
impose any obligation on the Bank to extend or continue to extend any credit at
any time.
INDEMNIFICATION. The Owner agrees to indemnify and hold harmless the Bank and
its subsidiaries, affiliates, successors, parents, and assigns and their
respective agents, directors, employees, and officers from and against any and
all complaints, claims, defense, demands, actions, bills, causes of action
(including, without limitations, costs and attorneys' fees), and losses of every
nature and kind whatsoever, which may be raised or sustained by any directors,
officers, employees, shareholders, creditors, regulators, successors in
interest, or receivers of the Borrower or any third party as a result of or
arising out of, directly or indirectly, the Bank extending credit as evidenced
by the Indebtedness to the Borrower, and taking the Collateral as security for
the indebtedness, and the Owner further agrees to be liable for any and all
judgments which may be recovered in any such action, claim, proceeding, suit,
or bill, including any compromise or settlement, and defray any and all
expenses, including, without limitation, costs and attorneys' fees, that may be
incurred in or by reason of any actions, claims, proceedings, suits, or bills.
FINANCING STATEMENTS. The Owner will deliver any instruments of further
assignment or assurance that the Bank may from time to time request to carry
out the intent of this Agreement, and will join with the Bank in executing
financing statements and other documents in form satisfactory to the Bank and
pay the cost of filing the same, including all recordation, transfer and other
taxes and fees, continuation statements and any other documents in any public
office deemed advisable by the Bank. The Owner agrees that a carbon,
photographic or other reproduction of a financing statement or this Agreement
shall be sufficient as a financing statement.
SUCCESSOR IN INTEREST. This Agreement shall be binding upon the Owner, its
successors and assigns, and the benefits hereof shall inure to the Bank, its
successors and assigns.
WAIVER BY THE BANK. The Bank may waive any default or remedy any default
without waiving the default remedied or any other prior or subsequent default.
The Bank's failure to exercise any right or take any action under this
Agreement shall not constitute a waiver of that or any other right or action.
WAIVER OF JURY TRIAL. To the extent legally permissible, the Owner waives all
right to trial by jury in any litigation relating to transactions under this
Agreement, whether sounding in contract, tort or otherwise.
GOVERNING LAW. The laws of the Commonwealth of Virginia shall govern the
construction of this Agreement and the rights and duties of the Owner and
Parties.
The undersigned has/have executed or caused this Agreement to be executed under
seal as of the above date.
APACHE Medical Systems, Inc. APACHE Medical Systems, Inc.
1650 Tysons Boulevard, #300
McLean, VA 22102 By: /s/ Brion D. Umidi (Seal)
----------------------------------------
Brion D. Umidi, Chief Financial Officer
Page 5
<PAGE> 6
[CRESTAR LOGO]
COMMERCIAL NOTE
BORROWER: APACHE Medical Systems, Inc.
LOAN AMOUNT: Two Million Dollars and no cents ($2,000,000.00)
BORROWER'S ADDRESS: 1650 Tysons Boulevard, #300
McLean, VA 22102
OFFICER: Christopher W. Bergstrom CWB DATE: February 11, 1997
(initials) ---
ACCOUNT NO: 04300022875599 NOTE NO: 0001 NOTE TYPE: Original Loan
- -------------------------------------------------------------------------------
For Value Received, the undersigned (whether one or more) jointly and severally
promise to pay to the order of Crestar Bank (the "Bank") at any of its
offices, or at such place as the Bank may designate in writing, without offset
and in immediately available funds, the Loan Amount shown above, including or
plus interest, and any other amounts due, upon the terms specified below.
LOAN TYPE AND REPAYMENT TERMS
LOAN TYPE: Revolving Master Borrowing Line
This is an open end revolving line of credit. You may borrow
an aggregate principal amount up to the Loan Amount shown
above outstanding at any one time.
REPAYMENT TERMS: Principal on demand, plus interest, but the undersigned
shall be liable for only so much of the Loan Amount as shall
be equal to the total advanced to or for the undersigned,
or any of them, by the Bank from time to time, less all
payments made by or for the undersigned and applied by the
Bank to principal, plus interest on each such advance, and
any other amounts due all as shown on the Bank's books and
records, which shall be prima facie evidence of the amount
owed. THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT PENALTY.
This Master Borrowing arrangement will terminate upon
written notice from the Bank to the undersigned, or if such
notice is not sooner given, 36 months from the date of this
Note, unless an alternate termination date is indicated in
the "Agreement", as defined below. CWB
------
Initials
THE BANK SHALL HAVE THE RIGHT TO DEMAND PAYMENT AT ANY TIME
EVEN IF AN EVENT OF DEFAULT (AS IDENTIFIED IN THIS NOTE) HAS
NOT OCCURRED.
ADDITIONAL TERMS AND CONDITIONS:
This Note is governed by additional terms and conditions contained in a
Commitment Letter between the undersigned and the Bank dated January 6, 1997,
and any modifications, renewals, extensions or replacements thereof (the
"Agreement"), which is incorporated in this Note by reference. In the event of a
conflict between any term or condition contained in this Note and in the
Agreement, such term or condition of the Agreement shall control.
INTEREST
Accrued interest will be payable on the first day of each month beginning on
March 1, 1997.
Interest will accrue daily on a actual 360 basis (that is, on the actual
number of days elapsed over a year of 360 days).
Each scheduled payment made on this Note will be applied to accrued interest
before it is applied to principal. Interest will accrue from the date of this
Note on the unpaid balance and will continue to accrue after maturity, whether
by acceleration or otherwise, until this Note is paid in full. If this is a
variable rate transaction, the interest rate is prospectively subject to
increase or decrease without prior notice, and if this is a Term-Variable
Payment loan, adjustments in the payment schedule will be made as necessary. If
this is a variable transaction which uses a Crestar Prime Rate as the Index,
the Index is subject to increase or decrease at the sole option of the Bank.
Subject to the above, interest per annum payable on this Note (the "Rate") will
be the "Index" (as defined in this Note) plus a margin of 0.250%. The "Index"
shall be Crestar's Prime Rate, which is the rate established from time to time
by the Bank and recorded in its
- --------------------------------------------------------------------------------
IMPORTANT NOTICE
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A
WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO
OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
- --------------------------------------------------------------------------------
Page 1
<PAGE> 7
Central Credit Administration Division as a reference for fixing the lending
rate on commercial loans. The Index is a reference rate only and does not
necessarily represent the lowest rate of interest charged for such
borrowings. Adjustments to the Rate shall be effective as of the date the Index
changes.
COLLATERAL
Any collateral pledged to the Bank to secure any of the undersigned's existing
or future liabilities to the Bank shall secure this Note. To the extent
permitted by law, each of the undersigned grants to the Bank a security
interest in and a lien upon all deposits or investments maintained by the
undesigned with, and all indebtedness owed to the undesigned by, the Bank or any
of its affiliates.
This Note is also secured by the following collateral and proceeds thereof:
All accounts, inventory, furniture, fixtures and equipment, general
intangibles, instruments, documents and chattel paper now existing or
hereafter acquired and all proceeds and products thereof owned by, and as more
particularly described in a Security Agreement by, APACHE Medical Systems, Inc.
dated this date.
All of this security is referred to collectively as the "Collateral." The
Collateral is security for the payment of this Note and any other liability
(including overdrafts and future advances) of the undersigned to the Bank,
however evidenced, now existing or hereafter incurred, matured or unmatured,
direct or indirect, absolute or contingent, several, joint, or joint and
several, including any extensions, modifications or renewals. The proceeds of
any Collateral may be applied against the liabilities of the undersigned to the
Bank in any order at the option of the Bank. CWB
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Initials
LOAN PURPOSE AND UPDATED FINANCIAL INFORMATION REQUIRED
The undersigned warrant and represent that the loan evidenced by this Note is
being made solely for the purpose of acquiring or carrying on a business,
professional or commercial activity or acquiring real or personal property as an
investment (other than a personal investment) or for carrying on an investment
activity (other than a personal investment activity). The undersigned agree to
provide to the Bank updated financial information, including, but not limited
to, tax returns, current financial statements in form satisfactory to the Bank,
as well as additional information, reports or schedules (financial or
otherwise), all as the Bank may from time to time request.
DEFAULT, ACCELERATION AND SETOFF
Any one of the following will constitute an event of default under the terms of
this Note: (1) the failure to make when due any instalment or other payment,
whether of principal, interest, late charges or other authorized charges due
under this Note, or the failure to pay the amount demanded by the Bank if this
Note is payable on demand; (2) the death, dissolution, merger, acquisition,
consolidation or termination of existence of the undersigned, any guarantor of
the indebtedness of any of the undersigned to the Bank, any endorser, or any
other party to this Note (collectively called a "Party"); (3) the insolvency or
inability to pay debts as they mature of any Party, or the application for the
appointment of a receiver for any Party or the filing of a petition under any
provision of the Bankruptcy Code or other insolvency law, statute or proceeding
by or against any Party or any assignment for the benefit of creditors by or
against any Party; (4) the entry of a judgment greater than $50,000.00 against
any Party or the issuance or service of any attachment, levy or garnishment
greater than $50,000.00 against any Party or the property of any Party, or the
repossession or seizure of property of any Party; (5) a good faith determination
by the Bank that it deems itself insecure or that a material adverse change in
the financial condition of any Party or decline or depreciation in the value or
market value of any Collateral has occurred since the date of this Note or is
reasonably anticipated; (6) the failure of any Party to perform any other
obligation to the Bank under this Note or under any other agreement with the
Bank; (7) the occurrence of an event of default with respect to any existing or
future indebtedness of any Party to the Bank or any other creditor of the Party;
(8) a material change in the ownership, control or management of any Party that
is an entity, unless such change is approved by the Bank in its sole
discretion; (9) if any Party gives notice to the Bank purporting to terminate
its obligations under or with respect to this Note; (10) the sale or transfer by
a Party of all or substantially all of its assets other than in the ordinary
course of business; or (11) any Party commits fraud or makes a material
misrepresentation at any time in connection with this Note. If an event of
default occurs, or in the event of non-payment of this Note in full at maturity,
the entire unpaid balance of this Note will, at the option of the Bank, become
immediately due and payable, without notice or demand. Upon the occurrence of an
event of default, the Bank will be entitled to interest on the unpaid balance at
the stated Rate plus 2.00% (the "Default Rate"), unless otherwise required by
law, until paid in full. To the extent permitted by law, upon default, the Bank
will have the right, in addition to all other remedies permitted by law, to set
off the amount due under this Note or due under any other obligation to the Bank
against any and all accounts, whether checking or savings or otherwise, credits,
money, stocks, bonds or other security or property of any nature on deposit
with, held by, owed by, or in the possession of, the Bank or any of its
affiliates to the credit of or for the account of any Party, without notice to
or consent by any Party. The remedies provided in this Note and any other
agreement between the Bank and any Party are cumulative and not exclusive of any
remedies provided by law. CWB
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Initials
CAPITAL ADEQUACY
Should the Bank, after the date of this Note, determine that the adoption of any
law or regulation regarding capital adequacy, or any change in its
interpretation or administration, has or would have the effect of reducing the
Bank's rate of return under this Note to a level below that which the Bank could
have achieved but for the adoption or change, by an amount which the Bank
considers to be material, then, from time to time, 30 days after written demand
by the Bank, the undersigned shall pay to the Bank such additional amounts as
will compensate the Bank for the reduction. Each demand by the Bank will be made
in good faith and accompanied by a certificate claiming compensation under this
paragraph and stating the amounts to be paid to it and the basis for the
payment.
Page 2
<PAGE> 8
LATE CHARGES AND OTHER AUTHORIZED CHARGES
If any portion of a payment is at least ten (10) days past due, the undersigned
agree to pay a late charge of 5.00% of the amount which is past due. Unless
prohibited by applicable law, the undersigned agree to pay the fee established
by the Bank from time to time for returned checks if a payment is made on this
Note with a check and the check is dishonored for any reason after the second
presentment. In addition, as permitted by applicable law, the undersigned
agree to pay the following: (1) all expenses, including, without limitation,
all court or collection costs, and actual attorneys' fees whether suit be
brought or not, incurred in collecting this Note; (2) all costs incurred in
evaluating, preserving or disposing of any Collateral granted as security for
the payment of this Note, including the cost of any audits, appraisals,
appraisal updates, reappraisals or environmental inspections which the Bank from
time to time in its sole discretion may deem necessary; (3) any premiums for
property insurance purchased on behalf of the undersigned or on behalf of the
owner(s) of the Collateral pursuant to any security instrument relating to the
Collateral; (4) any expenses or costs incurred in defending any claim arising
out of the execution of this Note or the obligation which it evidences, or
otherwise involving the employment by the Bank of attorneys with respect to
this Note and the obligations it evidences; and (5) any other charges permitted
by applicable law. The undersigned agree to pay these authorized charges on
demand or, at the Bank's option, the charges may be added to the unpaid balance
of the Note and will accrue interest at the stated Rate. Upon the occurrence
of an event of default, interest will accrue at the Default Rate. CWB
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Initials
WAIVERS
The undersigned and each other Party waive presentment, demand, protest, notice
of protest and notice of dishonor and waive all exemptions, whether homestead
or otherwise, as to the obligations evidenced by this Note. The undersigned
and each other Party waive any rights to require the Bank to proceed against
any other Party or person or any Collateral before proceeding against the
undersigned or any of them, or any other Party, and agree that without notice
to any Party and without affecting any Party's liability, the Bank, at any time
or times, may grant extensions of the time for payment or other indulgences to
any Party or permit the renewal or modification of this Note, or permit the
substitution, exchange or release of any Collateral for this Note and may add
or release any Party primarily or secondarily liable. The undersigned and each
other Party agree that the Bank may apply all monies made available to it from
any part of the proceeds of the disposition of any Collateral or by exercise of
the right of setoff either to the obligations under this Note or to any other
obligations of any Party to the Bank, as the Bank may elect from time to time.
The undersigned also waive any rights afforded to them by Sections 49-25 and
49-26 of the Code of Virginia of 1950 as amended. TO THE EXTENT LEGALLY
PERMISSIBLE, THE UNDERSIGNED WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LITIGATION
RELATING TO TRANSACTIONS UNDER THIS NOTE, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.
JUDGEMENT BY CONFESSION
The undersigned hereby duly constitute and appoint Susan M. Banks or C.B.
Bohannon or Brian C. Middleton as the true and lawful attorney-in-fact for them
in any or all of their names, place and stead, and upon the occurrence of an
event of default, to confess judgment against them, or any of them, in the
Circuit Court for the County of Fairfax, Virginia, upon this Note and all
amounts owed hereunder, including all costs of collection, actual attorneys'
fees and court costs, hereby ratifying and confirming the acts of said
attorney-in-fact as if done by themselves, expressly waiving benefit of any
homestead or other exemption laws. ANB
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Initials
SEVERABILITY, AMENDMENTS AND NO WAIVER BY BANK
Any provision of this Note which is prohibited or unenforceable will be
ineffective to the extent of the prohibition or unenforceability without
invalidating the remaining provisions of this Note. No amendment,
modification, termination or waiver of any provision of this Note, nor consent
to any departure by the undersigned from any term of this Note, will in any
event be effective unless it is in writing and signed by an authorized employee
of the Bank, and then the waiver or consent will be effective only in the
specific instance and for the specific purpose for which given. If the
interest Rate is tied to an external index and the index becomes unavailable
during the term of this loan, the Bank may designate a substitute index with
notice to the Borrower. No failure or delay on the part of the Bank to
exercise any right, power or remedy under this Note may be construed as a
waiver of the right to exercise the same or any other right at any time.
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<PAGE> 9
LIABILITY, SUCCESSORS AND ASSIGNS AND CHOICE OF LAW
Each of the undersigned shall be jointly and severally obligated and liable on
this Note. This Note shall apply to and bind each of the undersigned's heirs,
personal representatives, successors and assigns and shall inure to the benefit
of the Bank, its successors and assigns. The undersigned agree that certain
material events and occurrences relating to this Note bear a reasonable
relationship to the Commonwealth of Virginia. The validity, terms, performance
and enforcement of this Note shall be governed by applicable federal law and
the internal laws of the Commonwealth of Virginia which are applicable to
agreements which are negotiated, executed, delivered and performed solely in
the Commonwealth of Virginia.
By signing below, the undersigned agree to the terms of this Note and
acknowledge receipt of a loan in the Loan Amount shown above.
APACHE Medical Systems, Inc.
By: /s/ Brion D. Umidi
-------------------------------------- (SEAL)
Brion D. Umidi, Chief Financial Officer
Page 4
<PAGE> 1
EXHIBIT 10.16
LICENSE AGREEMENT
This Agreement between APACHE Medical Systems, Inc. ("APACHE") and the Vermont
Oxford Network, Inc. ("Vermont Oxford") is entered into and effective as of the
24th day of June, 1997.
WHEREAS, Vermont Oxford is a non-profit corporation formed to conduct
scientific research, gather scientific data and maintain databases regarding
the quality, utilization, costs, outcomes and effectiveness of medical
treatments and health care practices for newborn care;
WHEREAS, APACHE is a corporation that has developed and markets certain
benchmark studies, software products and applications consulting services;
WHEREAS, Vermont Oxford desires to provide its members with software which will
facilitate the submission and reporting of data used by Vermont Oxford in its
research and the dissemination of such data;
WHEREAS, Vermont Oxford desires to expand its databases to include a broader
population of patients and data items;
WHEREAS, Vermont Oxford desires for APACHE to develop software which will
promote research into the outcomes and costs of neonatal medical care;
WHEREAS, The parties wish to work together to allow APACHE to incorporate
Vermont Oxford databases and other items into APACHE products and services;
THEREFORE, in consideration of the mutual covenants contained herein, the
parties agree as follows:
1. Definitions
"APACHE Perinatal Software" shall mean software developed by or for APACHE
using the Databases or any extracts, aggregates or derivations thereof and
Properties.
"Consulting Services" shall mean a Perinatal engagement for services in
connection with clinical, administrative, financial and operational issues
related to the delivery, organization and financing of Perinatal care.
"Current Databases" shall mean the following:
(i) Member Network Database - clinical database for infants under 1500 grams
born from 1990 to present;
(ii) Surfactant Trial Database;
(iii) Cost Database - twenty-five hospital cost database for infants under
1500 grams born from January 1993 to September 1994; and
(iv) Under 500 Gram Database.
<PAGE> 2
"Data Sales" shall mean any sales, licenses or granting of the right to use
the Database or any extracts, aggregates, summaries and other derivations from
the Database and shall include any electronic access of the Databases
including, but not limited to, interactive access.
"Databases" shall mean data elements and compilation of data elements in:
i) Current Databases and all updates and extensions thereto created during
the term of this Agreement;
ii) Future Databases related to Perinatal areas created by Vermont Oxford
within the term of this Agreement and all updates and extensions
thereto created during the term of this Agreement, except for databases
developed as part of a Research Project and
iii) future databases related to Perinatal areas developed by Vermont Oxford
within the term of this Agreement as a part of a Research Project if a
commercial opportunity arises and APACHE elects to take advantage of
such opportunity as described in Section 12(c).
"Direct Competitor" shall mean a public or private for-profit company with more
than $5 million in annual sales that develops or markets software or consulting
products and services which relate primarily to decision support, quality
measurement and performance improvement for the medical or healthcare industry.
An example of public companies who are direct competitors are those listed in
APACHE's annual SEC filings.
"Future Databases" shall contain data which is routinely or periodically
collected or made available for routine or periodic collection, including but
not limited to annual surveys of the membership. Future Databases may include
databases for bigger babies, general nursery, mothers and specific research
projects for which APACHE has developed products or services.
"Perinatal" shall refer to neo-natal and obstetric areas.
"Properties" shall mean the following Vermont Oxford items:
i) Vermont Oxford Data Collection Software;
ii) Vermont Oxford Data Collection Forms;
iii) Vermont Oxford Training Materials;
iv) Vermont Oxford Severity-Adjustment Methodologies;
v) Vermont Oxford Data Collection Methodologies and Definitions;
and
vi) Formats for Vermont Oxford Quarterly and Annual Reports.
"Provider Licensees" shall mean licensees of the APACHE Perinatal Software who
are hospitals, hospital groups, integrated delivery systems, physicians or
physician groups.
"Research Project" shall mean a research project conducted by Vermont Oxford
that is fully or partially funded by a third party who is not a Direct
Competitor.
<PAGE> 3
2. Payment Obligations
(a) As compensation for the Databases and Properties described herein,
APACHE shall pay to Vermont Oxford a royalty of $[ ]* bearing interest
at the current six month Treasury Bill rate. The Treasury Bill rate used for
these payments will be adjusted on a semi-annual basis for the payment period.
The payments shall be made in equal consecutive monthly installments over three
years and shall commence on the first day of the month following delivery of
the Databases and shall be due on the first day of each successive month for
the three year period.
(b) During the first three years of the Initial Term of this Agreement,
APACHE shall pay to Vermont Oxford a royalty of [ ]* percent ([ ]*%)
of (i) APACHE Perinatal Software license fees collected by APACHE; (ii) Data
Sales fees collected by APACHE; (iii) the fee for sale or license of any other
product developed by or for APACHE incorporating any of the Databases or any
extracts, aggregates or derivations thereof or Properties, which shall not
include products ancillary to the APACHE Perinatal Software, Data Sales or
Consulting Services (examples include, but are not limited to, training,
installation or support) and (iv) fees collected from sublicensees of the
licenses granted herein.
(c) During the final two years of the Initial Term of this Agreement,
APACHE shall pay to Vermont Oxford a royalty of [ ]* percent ([ ]*%) of
(i) APACHE Perinatal Software license fees collected by APACHE; (ii) Data Sales
fees collected by APACHE; (iii) the fee for sale or license of any other
product developed by or for APACHE incorporating any of the Databases or any
extracts, aggregates or derivations thereof or Properties, which shall not
include products ancillary to the APACHE Perinatal Software, Data Sales or
Consulting Services (examples include, but are not limited to, training,
installation or support) and (iv) fees collected from sublicensees of the
licenses granted herein.
(d) During any Renewal Term, APACHE shall pay to Vermont Oxford a
royalty of [ ]* percent ([ ]*%) of (i) APACHE Perinatal Software
license fees collected by APACHE; (ii) Data Sales fees collected by APACHE;
(iii) the fee for sale or license of any other product developed by or for
APACHE incorporating any of the Databases or any extracts, aggregates or
derivations thereof or Properties, which shall not include products ancillary
to the APACHE Perinatal Software, Data Sales or Consulting Services (examples
include, but are not limited to, training, installation or support) and (iv)
fees collected from sublicensees of the licenses granted herein.
(e) For purposes of calculating the royalty payable to Vermont Oxford,
if any APACHE product or service upon which royalties are payable is bundled
with other products or services in such a manner that the fee upon which the
royalty is to be computed cannot be determined, the royalty shall be based (i)
in the case of a product (including Data Sales) upon the average fee of the
specific type of product when sold individually over the past year and (ii) in
the case of a Consulting Service, a reasonable allocation of the total fee
shall be made to the Consulting Service.
__________________________________
* Confidential portions omitted and filed separately with the Commission.
<PAGE> 4
(f) During the Initial Term and any Renewal Terms, APACHE shall pay to
Vermont Oxford a royalty of [ ]* percent ([ ]*%) of fees for
Consulting Services collected by APACHE. This royalty shall be reviewed
annually by the parties and may be changed by mutual agreement in writing. If
there is not mutual agreement for a change in this royalty, the rate will
remain at [ ]* percent ([ ]*%).
(g) During the Initial Term and any Renewal Term, if APACHE develops a
product or service as a result of a commercial opportunity from a Research
Project as described in Section 12(c) APACHE shall pay to Vermont Oxford the
appropriate royalty as defined in Section 2(b) (except that the royalty shall
be [ ]*%), 2(c) or 2(f) for a period of five (5) years from the date the
APACHE product or service developed from the commercial opportunity enters the
market. The five year period for payment of this royalty may exceed the date
of termination of this Agreement. If this occurs, except as provided in
Section 14(d), the payment obligations shall continue beyond the date of
termination of this Agreement until the five year period has expired. If the
five year period is completed prior to the date of termination of this
Agreement, then the royalty shall continue in accordance with the provisions of
Section 2(d) or 2(f) as appropriate for the remainder of the Renewal Terms of
this Agreement.
(h) During the Initial Term and any Renewal Term, if APACHE develops
a product as a result of the right of first opportunity to develop software not
containing the Databases and Properties as described in Section 7, APACHE shall
pay to Vermont Oxford the appropriate royalty as defined in Section 2(b)
(except that the royalty shall be [ ]*%) or 2(c) for a period of five (5)
years from the date the APACHE product or service enters the market. The five
year period for payment of this royalty may exceed the date of termination of
this Agreement. If this occurs, except as provided in Section 14(d), the
payment obligations shall continue beyond the date of termination of this
Agreement until the five year period has expired. If the five year period is
completed prior to the date of termination of this Agreement, then the royalty
shall continue in accordance with the provisions of Section 2(d) for the
remainder of the Renewal Terms of this Agreement.
(i) Royalties shall be paid to Vermont Oxford on a quarterly basis. The
payment shall be payable to Vermont Oxford thirty (30) days after the end of
the quarter.
(j) Failure by APACHE to make any payment within 30 days of when such
payments are due shall result in the imposition of an interest charge on any
unpaid amount at an annual rate equivalent to the lesser of (i) 1% per month or
(ii) the highest rate allowable by law.
3. License Grants
(a) Vermont Oxford grants to APACHE an exclusive, non-transferable
license to use, including the right to incorporate into APACHE products and
services, modify, enhance, market, distribute and sublicense, the Databases and
Properties. Except as otherwise expressly limited in this Agreement, Vermont
Oxford retains its rights to use the Databases.
__________________________________
* Confidential portions omitted and filed separately with the Commission.
<PAGE> 5
(b) APACHE shall not sublicense or otherwise grant the right to a third
party to use (i) the Databases as a whole or (ii) the raw data or subsets of
the raw data in the Databases.
(c) Subject to the provisions of this Agreement, Vermont Oxford shall
maintain any and all ownership rights with regard to the Databases and updates,
subsets and extracts of and data derived from the Databases and the Properties.
APACHE shall own any and all rights to any material modifications thereof
developed by APACHE, data resulting from material modifications developed by
APACHE and any new risk models or other products or services based on or
derived from the Databases or Properties that are developed by APACHE. The
parties will not contest each other's ownership rights as described in this
Section 3(c).
(d) Vermont Oxford grants to APACHE the right to use the name of Vermont
Oxford for marketing purposes in connection with the Databases that will be
incorporated into APACHE software. All other uses of the Vermont Oxford name
must be approved in writing by Vermont Oxford provided that:
(i) APACHE and Vermont Oxford shall mutually agree upon a
Press Release announcing the relationship;
(ii) APACHE has the ability to say, in the marketplace,
that APACHE has a relationship with Vermont Oxford; and
(iii) Vermont Oxford endorses APACHE as the exclusive provider
of APACHE Perinatal Software and Consulting Services to its
membership.
APACHE acknowledges the ownership of the "Vermont Oxford" and "Vermont Oxford
Network" name and service mark by Vermont Oxford and agrees not to dispute such
ownership. APACHE may not grant to third parties the right to use the "Vermont
Oxford" and "Vermont Oxford Network" name without the written consent of
Vermont Oxford.
4. Delivery, Updates and Database Maintenance
(a) Vermont Oxford shall deliver the Databases and Properties to APACHE
by June 30, 1997.
(b) Vermont Oxford shall deliver Updates to the Databases to APACHE
within forty-five (45) days from the end of each quarter. "Updates" shall mean
updated data for all Databases.
(c) The Databases shall contain all the data elements submitted to
Vermont Oxford by its members, including hospital size, region and teaching
status, with the exception that (i) hospital, patient and physician names will
be replaced by identification codes and (ii) the address will be replaced by a
region code. The region code will represent a geographic area consistent with
the AHA regions with the exception that no region will contain less than ten
(10) hospitals. If a region contains less than ten (10) hospitals, Vermont
Oxford will discuss with APACHE which regions will be combined.
<PAGE> 6
5. Exclusivity
(a) Vermont Oxford shall not independently develop or contract for
development of software incorporating the Databases or Properties except for
software developed for internal purposes and except that Vermont Oxford may
develop software that it determines is necessary or useful as a part of a
Research Project.
(b) Vermont Oxford shall not provide Consulting Services except for
interaction with the Vermont Oxford members to conduct Research Projects.
However, Vermont Oxford may provide Advisory Services to the Vermont Oxford
membership which are not intended to compete with the Consulting Services
provided by APACHE to such members. Advisory Services consist of the following
(i) reasonable responses to Vermont Oxford members to provide advice and
assistance with respect to collection, interpretation and clinical use of the
data; (ii) interaction with the Vermont Oxford members to expedite Vermont
Oxford's responsibilities to build and maintain the Databases; and (iii)
interaction with the Vermont Oxford members to conduct Research Projects.
(c) Vermont Oxford may collaborate with other organizations to
facilitate Research Projects, so long as those organizations are not Direct
Competitors of APACHE.
(d) Vermont Oxford will not provide access to the Databases through the
Internet, unless such access is incorporated into an APACHE product.
(e) No provision of this Agreement is intended to restrict the right of
Vermont Oxford to conduct research and to disseminate the results of such
research to the interested public through publication of articles in scientific
journals, public presentations at symposiums and the like and other similar
activities; provided, however, the foregoing shall not be interpreted to
authorize Vermont Oxford to disclose confidential information of APACHE in
violation of Section 18 of this Agreement.
6. Development
(a) APACHE shall develop the APACHE Perinatal Software, Data Sales and
Consulting Services and any other product developed by or for APACHE
incorporating any of the Databases or any extracts, aggregates or derivations
thereof or Properties, so that the end-user will not be able to identify or
access any patient identifier, hospital identifier or physician identifier from
another hospital, hospital group, integrated delivery system or physician group
unless APACHE has received permission from such other hospital, hospital group,
integrated delivery system or physician group and such hospital, hospital
group, integrated delivery system or physician group provides APACHE with such
identifying information.
(b) APACHE Perinatal Software, Data Sales and Consulting Services will
be developed in accordance with industry standards. APACHE will maintain
quality assurance procedures for the APACHE Perinatal Software.
<PAGE> 7
(c) APACHE will grant to Vermont Oxford a perpetual license to use the
APACHE Perinatal Software for internal purposes so long as Vermont Oxford is
not in breach of the license agreement with respect to such software. APACHE
will provide the software to Vermont Oxford pursuant to an executed license
agreement with APACHE which shall be in the standard form of license agreement
for such software. There shall be no license fee for the APACHE Perinatal
Software. After termination of this Agreement, Vermont Oxford shall pay
support fees to APACHE at a 30% discount from the standard fee charged by
APACHE for the APACHE Perinatal Software.
(d) Obligations for both parties in 1997 shall consist of the following:
(i) For the remainder of 1997, Vermont Oxford and members continue
submitting and processing data as usual;
(ii) Vermont Oxford transmits data files containing databases to
APACHE quarterly/annually;
(iii) By December 1997, APACHE will produce Vermont Oxford member
NICU specific database (which may be an Access database) and reporting/analysis
tool (which may be a Cognos reporting/analysis tool) for each physician group
or hospital purchasing software from APACHE;
(iv) If substantiated by market research, APACHE will develop a
data collection software tool in the 1998 - 1999 timeframe.
(e) APACHE agreements with its clients for products or services directly
involving the Databases, the Vermont Oxford data entry software source code and
the Vermont Oxford risk models delivered as a part of the Properties shall
contain terms protecting the confidentiality of the Databases, the Vermont
Oxford data entry software source code and the Vermont Oxford risk models
delivered as a part of the Properties. Vermont Oxford will be made a third
party beneficiary of such provisions.
(f) APACHE standard support fees are 18% of the license fees. APACHE
anticipates using the same standard support for the APACHE Perinatal Software.
7. Right of First Opportunity for Additional Development
If Vermont Oxford decides that its membership would benefit from development of
a software application which does not contain the Databases and Properties,
then APACHE shall have the right of first opportunity to develop such software.
When Vermont Oxford decides that such software should be developed, Vermont
Oxford shall notify APACHE in writing. APACHE shall then notify Vermont Oxford
in writing within forty-five (45) days of receipt of the written notice from
Vermont Oxford as to whether or not APACHE accepts the opportunity. If APACHE
fails to elect or refuses the opportunity, Vermont Oxford may offer the
opportunity to a third party provided that the third party is not a Direct
Competitor of APACHE
8. Vermont Oxford Membership
(a) APACHE shall require Provider Licensees to be Vermont Oxford
members.
<PAGE> 8
(b) APACHE and Vermont Oxford shall annually meet to discuss concerns of
APACHE, if any, that the amount of the Vermont Oxford membership fee is
prohibiting software sales.
9. Data Collection and Submission
(a) For so long as data submission by the Provider Licensees of data
included in the Member Network Database does not require the merging of two or
more data sources, the data shall be submitted by Provider Licensees to Vermont
Oxford and APACHE shall not collect data directly from the Provider Licensees.
Vermont Oxford shall then deliver the data to APACHE within forty-five (45)
days from the end of the quarter.
(b) If Vermont Oxford does not submit data to APACHE within the time
stated in this Agreement, APACHE may collect data directly from the Provider
Licensees.
(c) Once data submission requires the merging of two or more data
sources, APACHE shall collect data directly from the Provider Licensees.
(d) If APACHE is collecting data directly from Provider Licensees,
APACHE agrees to deliver to Vermont Oxford updates to the Databases within 45
days from the end of each quarter. APACHE agrees to submit these updates in
the data record format described in Section 10 or another usable format as
APACHE deems appropriate.
(e) APACHE shall not collect data from Vermont Oxford members who are
not Provider Licensees for use in updating the Member Network Database.
10. Data Record Format
(a) APACHE will grant to Vermont Oxford a perpetual license, so long as
Vermont Oxford is not in breach of the license agreement with respect to such
software, to the necessary software tool to allow Provider Licensees to
transmit data electronically to Vermont Oxford in the data record format
described in 10(b) which will be in the form of a SAS dataset or any other
mutually agreeable format. APACHE will provide the necessary software tool to
Vermont Oxford pursuant to an executed license agreement with APACHE which
shall be in the standard form of license agreement for such software. There
shall be no license fee. Vermont Oxford shall pay support fees, if any, for
the software tool if the software tool is not developed by APACHE. If the
software tool is an APACHE developed software tool, after termination of this
Agreement, Vermont Oxford shall pay support fees to APACHE at a 30% discount
from the standard fee charged by APACHE.
(b) APACHE and Vermont Oxford shall develop a data record format that
will be jointly owned by the parties with no duty of accounting with respect to
the jointly owned work.
<PAGE> 9
11. Quarterly Status Meetings
Each calendar quarter, at least one officer of APACHE and one officer of
Vermont Oxford shall meet in person for one day at a location to be determined
by the parties.
12. Research Projects
(a) Vermont Oxford plans to conduct Research Projects for the benefit of
its membership and the interested public.
(b) If future databases are developed exclusive of APACHE as a part of a
Research Project then APACHE will not have rights to such databases except as
described below.
(c) If a Perinatal commercial opportunity arises as a result of a
Research Project, then APACHE shall have a right of first opportunity to
utilize the Perinatal commercial opportunity. When Vermont Oxford determines
that a Perinatal commercial opportunity to develop a product or service is
available, Vermont Oxford shall notify APACHE in writing. APACHE shall then
notify Vermont Oxford in writing within forty-five (45) days of receipt of such
written notice from Vermont Oxford as to whether or not APACHE accepts the
opportunity. If APACHE accepts the opportunity and APACHE determines that use
of the databases created as a result of the Research Project is necessary or
useful then, any database created as a result of the Research Project will be
included in the definition and license of Databases. If APACHE does not elect
or refuses the opportunity, Vermont Oxford may offer the opportunity to a third
party provided that the third party is not a Direct Competitor of APACHE.
(d) If APACHE accepts the right of first opportunity as described in
Section 12(c) and if a software prototype is developed as a part of the
Research Project, Vermont Oxford shall notify APACHE in writing of the
development of a software prototype as part of a Research Project which it
desires to sell to APACHE. If APACHE desires to negotiate for the purchase of
such prototype software, it shall notify Vermont Oxford in writing within
forty-five (45) days of receipt of such notice from Vermont Oxford of its
election to do so. If APACHE does not choose to purchase the prototype, this
will not impact APACHE's acceptance of the right of first opportunity as
described in Section 12(c). If APACHE chooses to utilize the right of first
opportunity described in Section 12(c), but not purchase the prototype, Vermont
Oxford agrees it will not offer or sell the software to any other entity. If
APACHE does not elect or refuses the right of first opportunity as described in
Section 12(c), Vermont Oxford may offer the software prototype to a third party
provided that the third party is not a Direct Competitor of APACHE
13. Reporting
(a) Each royalty payment shall be accompanied by a report from APACHE
that lists the number of software licenses and data sales generated during the
calendar quarter and the software license fees and data sales fees received
during such quarter.
<PAGE> 10
(b) Vermont Oxford may audit APACHE's books and records of activities in
connection with this Agreement upon reasonable notice to APACHE for the purpose
of ensuring compliance with the terms and conditions of this Agreement. Any
such inspection or audit shall be conducted no more than annually and in such a
way as to not unreasonably interfere with APACHE's business operations. APACHE
will reimburse Vermont Oxford for the cost of the audit if there are any
unreported or underreported royalties of more than five percent (5%) for any
one year period.
14. Term and Termination.
(a) The term of this Agreement shall commence upon execution of the
Agreement and shall continue for a period of five (5) years unless otherwise
terminated in accordance with this Agreement ("Initial Term").
(b) This agreement shall automatically renew for successive five year
terms (Renewal Terms) which shall commence on the five (5) year anniversary of
the date of execution or renewal of the Agreement and shall continue for a
period of five (5) years. Vermont Oxford may terminate this Agreement at the
end of the Initial Term or any Renewal Term upon six (6) months written notice
to APACHE. During the Renewal Terms, the terms and conditions of this
Agreement shall remain in effect except that APACHE's sole payment obligations
shall be as stated in Sections 2(d), 2(f), 2(g) and 2(h).
(c) The exclusivity of the rights granted hereunder shall automatically
terminate when this Agreement is terminated or expires. Upon termination or
expiration of this Agreement, APACHE shall maintain a perpetual license to use,
including the right to incorporate into APACHE products and services, modify,
enhance, market, distribute and sublicense the Databases and Properties. If
APACHE is in material breach of the terms of (i) Section 18 (Confidentiality)
and has not cured such breach within ten (10) days of receiving written notice
from Vermont Oxford of the breach or (ii) Section 17 (Indemnification) and has
not cured such breach within thirty (30) days of receiving written notice from
Vermont Oxford of the breach or (iii) Section 2(a) (Payment) (other than for a
bona-fide dispute) and has not cured such breach within ninety (90) days of
receiving written notice from Vermont Oxford of the breach then Vermont Oxford
may terminate this Agreement and APACHE shall not maintain the perpetual
license. The termination rights contained herein shall be the only right of
termination for breach which Vermont Oxford shall have.
(d) If Vermont Oxford is in material breach of the terms of (i) Section
18 (Confidentiality) and has not cured such breach within ten (10) days of
receiving written notice from APACHE of the breach, (ii) Section 17
(Indemnification) and has not cured such breach within thirty (30) days of
receiving written notice from APACHE of the breach, (iii) Section 4(a) and 4(b)
(Delivery) and has not cured such breach within thirty (30) days of receiving
written notice from APACHE of the breach, (iv) Sections 15 (a) or 15(e)
(Warranty) and has not cured such breach within thirty (30) days of receiving
written notice from APACHE of the breach or Section 15(d) (Warranty) and has
not cured such breach within ninety (90) days of receiving written notice from
APACHE of the breach and (v) Sections 5 and 3(a) (Exclusivity) and has not
cured such
<PAGE> 11
breach within thirty (30) days of receiving written notice from APACHE of the
breach then APACHE may terminate this Agreement and APACHE shall no longer be
obligated to make payments under Section 2 (Payment) and Vermont Oxford shall
not maintain its licenses described in Sections 6(c) and 10. The termination
rights contained herein shall be the only right of termination for breach which
APACHE shall have.
(e) Except as provided in Sections 14(c) and (d), the provisions of
Section 3 (License Grant), Section 14 (Term and Termination), Section 15
(Warranty), Section 16 (Limitation of Liability), Section 17 (Indemnity),
Sections 6(c) and 10 (Vermont Oxford licenses to software)and Section 18
(Confidentiality) shall survive termination or expiration of this Agreement.
Sections 2(g), 2(h), 2(i) and 2(j) (Royalties) shall survive termination or
expiration of this Agreement, if applicable, for the amount of the five year
payment period remaining. Section 13 (Reporting) shall survive termination or
expiration of this Agreement for a period of eighteen (18) months from the date
the final royalties are due and payable to Vermont Oxford.
(f) If the Agreement is terminated for reasons other than by APACHE
pursuant to Section 14(d) and Vermont Oxford agrees in writing not to compete
with APACHE, APACHE will grant a license to use for bona-fide research purposes
data collected by APACHE from Provider Licensees during the term of the
agreement not to compete.
(g) The parties agree that they will not make untrue disparaging
statements about the other party to Vermont Oxford members, APACHE clients or
others. This provision shall survive termination of this Agreement.
15. Warranty
(a) Vermont Oxford warrants that it has the right to grant the licenses
to APACHE for the Databases and Properties.
(b) Vermont Oxford warrants that to the best of its' knowledge, the
Databases and Properties and the use of the Databases and Properties, in
accordance with the provisions of this Agreement by APACHE or end-users of
products or services incorporating the Databases or Properties, shall not and
does not infringe upon any copyright, trademark or other intellectual property
right of a third party.
(c) Vermont Oxford warrants that the use of the Databases and Properties
by APACHE in accordance with the provisions of this Agreement does not and will
not cause Vermont Oxford to be in breach of any agreement to which it is a
party.
(d) Vermont Oxford warrants that the Databases are, in all material
respects, an accurate and complete compilation of the data received by Vermont
Oxford. With respect to the Current Databases, this warranty shall expire
after eighteen (18) months after the delivery of the Current Databases.
<PAGE> 12
(e) Vermont Oxford warrants that the Databases are not in the public
domain and that Vermont Oxford will safeguard the Databases and not allow them
to fall into the public domain. Vermont Oxford provides no warranty that the
individual data elements have not been placed in the public domain by a third
party. If Vermont Oxford uses databases in the public domain to create (i)
Future Databases or (ii) databases resulting from Research Projects that are
licensed to APACHE under Section 12(c), Vermont Oxford shall not be in breach
of this warranty.
(f) APACHE and Vermont Oxford warrant that they have full power,
authority and capacity, to carry on its business as it is now being conducted,
and to execute and deliver this Agreement and to perform all of its obligations
hereunder.
(g) APACHE warrants that the software and other products it develops
using the Databases and Properties shall not infringe upon any copyright,
trademark or other intellectual property right of a third party.
(h) THE WARRANTIES SET FORTH IN THIS SECTION 15 ARE THE SOLE AND
EXCLUSIVE WARRANTIES MADE BY THE PARTIES WITH RESPECT TO THIS AGREEMENT AND ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY EXPRESSLY
DISCLAIMED.
16. Limitations of Liability and Exclusive Remedy.
NO PARTY SHALL BE RESPONSIBLE TO ANY OTHER PARTY FOR ANY LOST PROFITS,
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING,
TO THE EXTENT PERMITTED BY LAW, PUNITIVE OR EXEMPLARY DAMAGES) IN CONNECTION
WITH THIS AGREEMENT EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.
17. Indemnification
(a) Vermont Oxford shall defend, indemnify and hold APACHE and its
directors, officers, employees and agents harmless from all losses, damages,
costs, and expenses, including without limitation attorneys' fees and court
costs, arising from or in connection with (i) any breach of any representation,
warranty or covenant of Vermont Oxford under this Agreement; (ii) any third
party claim of copyright, patent or trade secret infringement resulting from
APACHE's or its licensees use of the Databases and Properties or (iii) any
third party claim in connection with the Databases or Properties. Vermont
Oxford shall conduct such defense with attorneys selected by it at its expense,
and shall have sole control over the conduct of such defense.
(b) APACHE shall indemnify and hold Vermont Oxford and its directors,
officers, employees and agents harmless from all losses, damages, costs, and
expenses, including without limitation attorneys' fees and court costs, arising
from or in connection with (i) any breach of any representation, warranty or
covenant of APACHE under this Agreement; (ii) any third party claim of
copyright, patent or trade secret infringement resulting from use of APACHE
developed
<PAGE> 13
software other than any third party claim of copyright, patent or trade secret
infringement with respect to the Databases or Properties which shall be the
responsibility of Vermont Oxford as stated above or (iii) any third party claim
with respect to APACHE's products or services other a third party claim with
respect to the Databases or Properties which shall be the responsibility of
Vermont Oxford as stated above. APACHE shall conduct such defense with
attorneys selected by it at its expense, and shall have sole control over the
conduct of such defense.
(c) The indemnified party shall promptly notify the other parties of any
asserted or threatened claims that may be subject to any of the indemnities in
this Section, and shall cooperate with the other parties in conducting the
defense.
18. Confidentiality
(a) "Confidential Information" means all non-public information:
(i) provided from APACHE to or learned from APACHE by Vermont
Oxford and its respective agents, staff or employees in connection
the activities contemplated by this Agreement and any information or
documentation with respect to the products or services of APACHE,
whether in tangible or intangible form, including, without
limitation, all computer programs (whether in source or object
code), flow charts, algorithms, data, databases, rules, templates,
forms, protocols, methodologies, procedures, techniques and
approaches relating to APACHE's products and services and APACHE's
prices, fees and payment terms. The terms and conditions of
this Agreement are also Confidential Information unless disclosure
of the terms is required by law.
(ii) provided from Vermont Oxford to or learned from Vermont
Oxford by APACHE, its agents, staff or employees in connection with
the activities contemplated by this Agreement including but not
limited to (aa) any patient identifiers, individual hospital
identifiers and physician identifiers contained in the Databases and
(bb) methodologies, procedures, techniques and approaches that are
not contained in the Properties. The terms and conditions of this
Agreement are also Confidential Information unless disclosure of the
terms is required by law. Nothing in this Section shall prevent
APACHE from incorporating the Databases or Properties into APACHE
products and services.
(b) Confidential Information shall not include information already known
to a party at the time of disclosure, as shown by the party's records,
information which has been publicly disclosed in a lawful manner, or
information which is rightfully received from a third party in a lawful manner.
Statistical summary results of Patient records that do not reveal individual
patient, hospital or physician identifying information shall not be
Confidential Information.
(c) Each party shall hold in strict confidence and not disclose the
other's Confidential Information to any third party nor use the other party's
Confidential Information except in furtherance of this Agreement. Vermont
Oxford and APACHE shall disclose Confidential Information only to their
respective employees who (i) have signed a confidentiality agreement with
Vermont Oxford or APACHE, respectively and (ii) need to know such Confidential
<PAGE> 14
Information. Each of a party's employees who will require access to the other
party's Confidential Information will sign a confidentiality agreement which
will contain terms and conditions that protect the Confidential Information of
the other party to the same extent that the Confidential Information of the
party, is protected. Each party will provide copies of all such executed
confidentiality agreements upon the other party's request. In the event that
the FDA or other regulatory body or any court requires information from a party
that might reasonably fall within the above definition of the other party's
Confidential Information, the party shall promptly notify the other party in
writing of proposed disclosure and the party, in consultation with the other
party, shall determine the appropriate steps in order to adequately safeguard
the other party's Confidential Information, including, without limitation, in
the case of a proceeding in a court or other tribunal, obtaining a protective
order or providing assistance as reasonably requested by the other party (which
in the case of Vermont Oxford shall include a request by Vermont Oxford on
behalf of a Vermont Oxford member) at the cost of the requesting party.
(d) Each of the parties retains ownership of all right, title and
interest in its Confidential Information.
19. General.
(a) This Agreement, including all other schedules, addenda and exhibits
referenced in this Agreement, contains the entire Agreement between APACHE and
Vermont Oxford concerning the subject matter hereof and supersedes all prior
and contemporaneous proposals, discussions, understandings and all other
agreements or representations, oral and written, between the parties relating
to the subject matter hereof.
(b) All notices required by this Agreement shall be in writing, shall be
effective upon receipt, and shall be delivered by (i) hand, (ii) certified
mail, return receipt requested, (iii) U.S. Express Mail, (iv) overnight courier
service, or (v) facsimile (confirmed by U.S. Express Mail or overnight courier
service) addressed to the other parties at the address or facsimile number set
forth herein, or at such address or facsimile number as to which such party
from time to time may give proper notice to the other party. Notices shall be
deemed to have been received: if hand delivered, when so delivered; five days
after deposit as certified mail; on the date scheduled for delivery if sent by
courier; and on the date shown on the report generated by the sending machine
if sent by facsimile. All notices shall be effective upon receipt or, if
later, deemed receipt.
(c) The parties irrevocably agree that service of process by mail as
provided in Section 19(b) shall be sufficient service for personal jurisdiction
of the party so served.
(d) If any provision of this Agreement or any portion thereof is
declared invalid or unenforceable, such provision shall be limited and
construed so as to make it enforceable consistent with the parties' manifest
intentions or, if such limitation or construction is not possible, such
provision will be deemed stricken from this Agreement. In such event, all
other provisions of this Agreement will remain in full force and effect, unless
such enforcement would result in an injustice or be inconsistent with the
purposes of this Agreement.
<PAGE> 15
(e) This Agreement may be assigned by a party only with the prior
written consent of the other parties, provided that no written consent is
necessary if the assignment is to an entity controlled by, controlling or under
common control with the party making the assignment.
(f) No waiver of any term of this Agreement shall be valid unless in a
writing signed by the party against whom the waiver is sought to be enforced.
The failure of either party at any time to require performance by the other
party of any provision hereof shall not affect in any way the right to require
such performance at any time hereafter.
(g) Nothing in this Agreement is intended to create a relationship
between APACHE and Vermont Oxford other than that of independent contractors
and neither party, nor any of its employees or staff, shall be construed to be
the agent, employee or representative of the other.
(h) This Agreement may not be modified, altered or amended except by a
written instrument executed by the parties.
(i) This Agreement and performance hereunder shall be governed by and
construed in accordance with the laws of Virginia.
(j) The parties acknowledges that a violation of the provisions of this
Agreement relating to the protection of Confidential Information would cause
the other irreparable harm, and agrees that the other party would be entitled
to injunctive relief prohibiting such unauthorized use or distribution, or such
breach, in addition to any other right or remedy they might have in law or
equity.
(k) Each party shall execute and deliver to the other parties such other
documents, including, without limitation, documents of assignment, transfer or
conveyance, and take such other actions as may be reasonably necessary in the
discretion of the requesting party to carry out more effectively the purposes
of this Agreement.
<PAGE> 16
The parties have executed this Agreement by their duly authorized
representatives, effective as of the date of the last to sign as set forth
below.
VERMONT OXFORD NETWORK, INC. APACHE MEDICAL SYSTEMS, INC.
444 South Union Street 1650 Tysons Boulevard
Burlington, VT 05401 Suite 300
McLean, VA 22102
Phone No.: (802) 865-4814 Phone No.: (703) 847-1400
Facsimile No.: (802) 865-9613 Facsimile No.: (703) 847-1401
By: /s/ Jerold F. Lucey By: /s/ Gerald E. Bisbee, Jr.
-------------------------- ------------------------------
Print Name: Jerold F. Lucey Print Name: Gerald E. Bisbee, Jr.
------------------ ----------------------
Title: President Title: Chairman and CEO
----------------------- ----------------------------
Date: 6/24/97 Date: 6/25/97
------------------------ -----------------------------
<PAGE> 17
RELATED SERVICES AGREEMENT
This Agreement between APACHE Medical Systems, Inc. ("APACHE") and the Vermont
Oxford Network, Inc. ("Vermont Oxford") is entered into and effective as of the
24th day of June, 1997.
WHEREAS, Vermont Oxford is a non-profit corporation formed to conduct
scientific research, gather scientific data and maintain databases regarding
the quality, utilization, costs, outcomes and effectiveness of medical
treatments and health care practices for newborn care;
WHEREAS, APACHE is a corporation that has developed and markets certain
benchmark studies, software products and applications consulting services;
WHEREAS, Vermont Oxford desires to provide its members with software which will
facilitate the submission and reporting of data used by Vermont Oxford in its
research and the dissemination of such data;
WHEREAS, Vermont Oxford desires to expand its databases to include a broader
population of patients and data items;
WHEREAS, Vermont Oxford desires for APACHE to develop software which will
promote research into the outcomes and costs of neonatal medical care;
WHEREAS, The parties wish to work together to allow APACHE to incorporate
Vermont Oxford databases and other items into APACHE products and services;
THEREFORE, in consideration of the mutual covenants contained herein, the
parties agree as follows:
1. Definitions
Capitalized terms in this Agreement shall have the same meaning ascribed to
them in the License Agreement between APACHE and Vermont Oxford dated the same
date as this Agreement.
2. Payment Obligations
(a) During the three year term of this Agreement, APACHE shall pay to
Vermont Oxford a royalty of [ ]* percent ([ ]*%) of (i) APACHE Perinatal
Software license fees collected by APACHE; (ii) Data Sales fees collected by
APACHE; (iii) the fee for sale or license of any other product developed by or
for APACHE incorporating any of the Databases or any extracts, aggregates or
derivations thereof or Properties, which shall not include products ancillary
to the APACHE Perinatal Software, Data Sales or Consulting Services (examples
include, but are not
__________________________________
* Confidential portions omitted and filed separately with the Commission.
<PAGE> 18
limited to, training, installation or support) and (iv) fees collected from
sublicensees of the licenses granted herein.
(b) For purposes of calculating the royalty payable to Vermont Oxford,
if any product upon which royalties are payable is bundled with other products
in such a manner that the fee upon which the royalty is to be computed cannot
be determined, the royalty shall be based in the case of a product (including
Data Sales) upon the average fee of the specific type of product when sold
individually over the past year.
(c) Royalties shall be paid to Vermont Oxford on a quarterly basis. The
payment shall be payable to Vermont Oxford thirty (30) days from the end of the
quarter.
(d) Failure by APACHE to make any payment within 30 days of when such
payments are due shall result in the imposition of an interest charge on any
unpaid amount at an annual rate equivalent to the lesser of (i) 1% per month or
(ii) the highest rate allowable by law.
3. Related Research Services
(a) APACHE and Vermont Oxford agree that Vermont Oxford will perform
research and development efforts in conjunction with APACHE ("Related
Services"). The determination of the scope of work for Related Services is
dependent on the joint research to be conducted by the parties. APACHE and
Vermont Oxford will agree in writing on a scope of work for Related Services to
be performed by Vermont Oxford for each six to twelve month period throughout
the three year term of the Agreement. Dr. Horbar of Vermont Oxford shall be
the primary contact and performer of the Related Services. Vermont Oxford will
provide Dr. Horbar with statistical, analytical and administrative support for
performance of Related Services. Each agreed upon scope of work shall be
attached to this Agreement.
(b) Related Services to be conducted by Vermont Oxford in conjunction
with APACHE during the term of the Agreement may include, but not be limited to
the following services:
(i) research and development of the data collection methodology
for collection of data on babies over 1500 grams for the Vermont
Oxford membership and database;
(ii) research and development efforts for a risk adjustment
methodology for babies over 1500 grams for use by the Vermont Oxford
membership;
(iii) development of a product specification plan to satisfy the
software and services needs of the Vermont Oxford membership;
(iv) annual survey of the Vermont Oxford membership regarding
future data needs, software requirements and performance improvement
initiatives for purposes of understanding the needs and requirements
of the Vermont Oxford membership;
(v) develop a methodology and reporting formats for converting
charges reported on UB-92 forms to costs based on the Medicare Cost
Report for use by the Vermont Oxford membership;
(vi) identify the major utilization and quality issues surrounding
neonatal care for purposes of conducting research and designing the
application needs of the Vermont
<PAGE> 19
Oxford membership for potential inclusion in the software to be used
by the Vermont Oxford membership; (vii) research and development
activities regarding a methodology to identify babies at lower risk,
not requiring NICU care and methodologies for managing infants
through the NICU as efficiently as possible for inclusion in software
applications for the Vermont Oxford membership; (viii) in-house and
field testing of software products to ensure satisfactory use by the
Vermont Oxford membership; (ix) research and development efforts
regarding how to include obstetric and peri-natal information into
the software applications for the Vermont Oxford membership; (x)
other activities, as mutually deemed appropriate.
(c) By October 1997, the parties shall begin joint research and
development activities for data collection methodologies for over 1500 gram
babies.
(d) The parties agree that the results of Related Services shall be
jointly owned with no duty of accounting with respect to the jointly owned work
by the parties.
4. Analysis Services
If APACHE requires a sub-group analysis of the Databases which cannot be
performed due to the limitation with respect to hospital code name or region
code that are contained in Section 4(c) of the License Agreement between APACHE
and Vermont Oxford dated the same date as this Agreement, Vermont Oxford will
provide that analysis to APACHE at no charge. This analysis is not required to
be included on a scope of work as described in Section 3.
5. HOT Topics Neonatology Meeting.
Vermont Oxford shall provide for APACHE annual bona-fide opportunities to make
presentations and demonstrate APACHE Perinatal Software to Vermont Oxford
members at the Vermont Oxford Annual Meeting;
6. Reporting
(a) Each royalty payment shall be accompanied by a report from APACHE
that lists the number of software licenses and data sales generated during the
calendar quarter and the software license fees and data sales fees received
during such quarter.
(b) Vermont Oxford may audit APACHE's books and records of activities in
connection with this Agreement upon reasonable notice to APACHE for the purpose
of ensuring compliance with the terms and conditions of this Agreement. Any
such inspection or audit shall be conducted no more than annually and in such a
way as to not unreasonably interfere with APACHE's business operations. APACHE
will reimburse Vermont Oxford for the cost of the audit if there are any
unreported or underreported royalties of more than five percent (5%) for any
one year period.
<PAGE> 20
7. Term and Termination.
(a) The term of this Agreement shall commence upon execution of the
Agreement and shall continue for a period of three (3) years unless otherwise
terminated in accordance with this Agreement.
(b) Either party may terminate this Agreement upon thirty (30) days
written notice to the other party, if the other party has defaulted on any
material obligation or covenant or breached any material representation or
warranty and has not cured such default within the thirty (30) days of
receiving notice of the default or breach.
(c) Either party may terminate this Agreement upon ten (10) days written
notice to the other party, if the other party has defaulted on any obligation
or covenant regarding confidential information and has not cured such default
within the ten (10) days of receiving notice of the default or breach.
(g) The provisions of Section 3(d) (Related Services), Section 7 (Term
and Termination), Section 8 (Warranty), Section 9 (Limitation of Liability),
Section 10 (Indemnity), and Section 11 (Confidentiality) shall survive
termination or expiration of this Agreement. Section 6 (Reporting) shall
survive termination or expiration of this Agreement for a period of eighteen
(18) months from termination or expiration.
8. Warranty
(a) Vermont Oxford warrants that the performance of services for APACHE
does not and will not cause Vermont Oxford to be in breach of any agreement to
which it is a party.
(b) APACHE and Vermont Oxford warrant that they have full power,
authority and capacity, to carry on its business as it is now being conducted,
and to execute and deliver this Agreement and to perform all of its obligations
hereunder.
(c) THE WARRANTIES SET FORTH IN THIS SECTION 8 ARE THE SOLE AND
EXCLUSIVE WARRANTIES MADE BY THE PARTIES WITH RESPECT TO THIS AGREEMENT AND ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED ARE HEREBY EXPRESSLY DISCLAIMED.
9. Limitations of Liability and Exclusive Remedy.
NO PARTY SHALL BE RESPONSIBLE TO ANY OTHER PARTY FOR ANY LOST PROFITS,
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING,
TO THE EXTENT PERMITTED BY LAW, PUNITIVE OR EXEMPLARY DAMAGES) IN CONNECTION
WITH THIS AGREEMENT EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.
<PAGE> 21
10. Indemnification
(a) Vermont Oxford shall defend, indemnify and hold APACHE and its
directors, officers, employees and agents harmless from all losses, damages,
costs, and expenses, including without limitation attorneys' fees and court
costs, arising from or in connection with (i) any breach of any representation,
warranty or covenant of Vermont Oxford under this Agreement or (ii) any third
party claim with respect to the Resulting Services. Vermont Oxford shall
conduct such defense with attorneys selected by it at its expense, and shall
have sole control over the conduct of such defense.
(b) APACHE shall promptly notify Vermont Oxford of any asserted or
threatened claims that may be subject to any of the indemnities in this
Section, and shall cooperate with the other parties in conducting the defense.
11. Confidentiality
(a) "Confidential Information" means all non-public information: (i)
provided from APACHE to or learned from APACHE by Vermont Oxford and
its respective agents, staff or employees in connection the
activities contemplated by this Agreement and any information or
documentation with respect to the products or services of APACHE,
whether in tangible or intangible form, including, without
limitation, all computer programs (whether in source or object
code), flow charts, algorithms, data, databases, rules, templates,
forms, protocols, methodologies, procedures, techniques and
approaches relating to APACHE's products and services and APACHE's
prices, fees and payment terms. The terms and conditions of this
Agreement are also Confidential Information unless disclosure of the
terms is required by law. (ii) provided from Vermont Oxford to or
learned from Vermont Oxford by APACHE, its agents, staff or
employees in connection with the activities contemplated by this
Agreement. The terms and conditions of this Agreement are also
Confidential Information unless disclosure of the terms is required
by law.
(b) Confidential Information shall not include information already known
to a party at the time of disclosure, as shown by the party's records,
information which has been publicly disclosed in a lawful manner, or
information which is rightfully received from a third party in a lawful manner.
(c) Each party shall hold in strict confidence and not disclose the
other's Confidential Information to any third party nor use the other party's
Confidential Information except in furtherance of this Agreement. Vermont
Oxford and APACHE shall disclose Confidential Information only to their
respective employees who (i) have signed a confidentiality agreement with
Vermont Oxford or APACHE, respectively and (ii) need to know such Confidential
Information. Each of a party's employees who will require access to the other
party's Confidential Information will sign a confidentiality agreement which
will contain terms and conditions that protect the Confidential Information of
the other party to the same extent that the
<PAGE> 22
Confidential Information of the party, is protected. Each party will provide
copies of all such executed confidentiality agreements upon the other party's
request. In the event that the FDA or other regulatory body or any court
requires information from a party that might reasonably fall within the above
definition of the other party's Confidential Information, the party shall
promptly notify the other party in writing of proposed disclosure and the
party, in consultation with the other party, shall determine the appropriate
steps in order to adequately safeguard the other party's Confidential
Information, including, without limitation, in the case of a proceeding in a
court or other tribunal, obtaining a protective order or providing assistance
as reasonably requested by the other party (which in the case of Vermont Oxford
shall include a request by a Vermont Oxford on behalf of a Vermont Oxford
member) at the cost of the requesting party.
(d) Each of the parties retains ownership of all right, title and
interest in its Confidential Information.
12. General.
(a) This Agreement, including all other schedules, addenda and exhibits
referenced in this Agreement, contains the entire Agreement between APACHE and
Vermont Oxford concerning the subject matter hereof and supersedes all prior
and contemporaneous proposals, discussions, understandings and all other
agreements or representations, oral and written, between the parties relating
to the subject matter hereof.
(b) All notices required by this Agreement shall be in writing, shall be
effective upon receipt, and shall be delivered by (i) hand, (ii) certified
mail, return receipt requested, (iii) U.S. Express Mail, (iv) overnight courier
service, or (v) facsimile (confirmed by U.S. Express Mail or overnight courier
service) addressed to the other parties at the address or facsimile number set
forth herein, or at such address or facsimile number as to which such party
from time to time may give proper notice to the other party. Notices shall be
deemed to have been received: if hand delivered, when so delivered; five days
after deposit as certified mail; on the date scheduled for delivery if sent by
courier; and on the date shown on the report generated by the sending machine
if sent by facsimile. All notices shall be effective upon receipt or, if
later, deemed receipt.
(c) The parties irrevocably agree that service of process by mail as
provided in Section 12(b) shall be sufficient service for personal jurisdiction
of the party so served.
(d) If any provision of this Agreement or any portion thereof is
declared invalid or unenforceable, such provision shall be limited and
construed so as to make it enforceable consistent with the parties' manifest
intentions or, if such limitation or construction is not possible, such
provision will be deemed stricken from this Agreement. In such event, all
other provisions of this Agreement will remain in full force and effect, unless
such enforcement would result in an injustice or be inconsistent with the
purposes of this Agreement.
<PAGE> 23
(e) This Agreement may be assigned by a party only with the prior
written consent of the other parties, provided that no written consent is
necessary if the assignment is to an entity controlled by, controlling or under
common control with the party making the assignment.
(f) No waiver of any term of this Agreement shall be valid unless in a
writing signed by the party against whom the waiver is sought to be enforced.
The failure of either party at any time to require performance by the other
party of any provision hereof shall not affect in any way the right to require
such performance at any time hereafter.
(g) Nothing in this Agreement is intended to create a relationship
between APACHE and Vermont Oxford other than that of independent contractors
and neither party, nor any of its employees or staff, shall be construed to be
the agent, employee or representative of the other.
(h) This Agreement may not be modified, altered or amended except by a
written instrument executed by the parties.
(i) This Agreement and performance hereunder shall be governed by and
construed in accordance with the laws of Virginia.
(j) The parties acknowledges that a violation of the provisions of this
Agreement relating to the protection of Confidential Information would cause
the other irreparable harm, and agrees that the other party would be entitled
to injunctive relief prohibiting such unauthorized use or distribution, or such
breach, in addition to any other right or remedy they might have in law or
equity.
(k) Each party shall execute and deliver to the other parties such other
documents, including, without limitation, documents of assignment, transfer or
conveyance, and take such other actions as may be reasonably necessary in the
discretion of the requesting party to carry out more effectively the purposes
of this Agreement.
<PAGE> 24
The parties have executed this Agreement by their duly authorized
representatives, effective as of the date of the last to sign as set forth
below.
VERMONT OXFORD NETWORK, INC. APACHE MEDICAL SYSTEMS, INC.
444 South Union Street 1650 Tysons Boulevard
Burlington, VT 05401 Suite 300
McLean, VA 22102
Phone No.: (802) 865-4814 Phone No.: (703) 847-1400
Facsimile No.: (802) 865-9613 Facsimile No.: (703) 847-1401
By: /s/ Jerold F. Lucey By: /s/ Gerald E. Bisbee, Jr.
------------------------------- -------------------------------
Print Name: Jerold F. Lucey Print Name: Gerald E. Bisbee, Jr.
----------------------- ------------------------
Title: President Title: Chairman and CEO
---------------------------- ----------------------------
Date: 6/24/97 Date: 6/25/97
---------------------------- ----------------------------
<PAGE> 25
CONSULTING AGREEMENT
This Agreement between APACHE Medical Systems, Inc. ("APACHE") and
Clinimetrics, Inc. ("Clinimetrics") is entered into and effective as of the
24th day of June, 1997.
WHEREAS, Clinimetrics is a consulting firm specializing in consulting services
related to newborn care;
WHEREAS, APACHE is a corporation that has developed and markets certain
benchmark studies, software products and applications consulting services;
WHEREAS, the parties plan for Clinimetrics to provide consulting services to
APACHE;
THEREFORE, in consideration of the mutual covenants contained herein, the
parties agree as follows:
1. Payment Obligations
(a) As consideration for the services described herein, APACHE shall pay
to Clinimetrics $[ ]* . This amount shall be paid in equal monthly
installments over three years.
(b) APACHE shall reimburse Clinimetrics for its reasonable travel,
lodging and meal expenses in accordance with APACHE's travel policy for
approved travel in connection with this Agreement. Such expenses shall be
reimbursed within thirty (30) days of receipt of expense report
2. Consulting Services
(a) Clinimetrics will provide consulting services to APACHE for
projects determined by APACHE. Clinimetrics will provide these services
twenty-four (24) days per year during the three year term of this Agreement .
Unless Clinimetrics consents, no more than two consecutive days of consulting
services will be provided in any calendar month.
(b) Consulting services will be provided by one of the principles of
Clinimetrics, to include Jerald Lucey, M.D., Jeffrey Horbar, M.D., Roger Soll,
M.D. The specific principle to perform each consulting services shall be
chosen by Clinimetrics.
(c) APACHE and Clinimetrics will agree in writing on a scope of work
for consulting services to be performed by Clinimetrics for each six to twelve
month period throughout the three year term of the Agreement
(c) The consulting services being provided by Clinimetrics include, but
are not limited to, the following:
__________________________________
* Confidential portions omitted and filed separately with the Commission.
<PAGE> 26
(i) consulting regarding the character and needs of the neonatal
market;
(ii) consulting regarding potential marketing strategies and
marketing support, i.e., speaker at regional seminar, prospective
client calls with APACHE to support clinical discussions regarding
the methodology and/or applications, etc., for neonatal products in
North America;
(iii) consulting regarding potential marketing strategies and
marketing support, i.e., speaker at regional seminar, prospective
client calls with APACHE to support clinical discussions regarding
the methodology and/or applications, etc., for neonatal products
worldwide;
(iv) consulting regarding the design of new products and services
for the neonatal market.
(v) direct involvement with APACHE in performing potential
clinical process improvement engagements with a software client
hospital. Upon written notification to APACHE, Clinimetrics may
turn down a particular client project.
3. HOT Topics Neonatology Meeting.
Clinimetrics will obtain for APACHE access to and bona-fide opportunities for
participation and visibility of APACHE at the annual HOT Topics in Neonatology
meeting.
4. Ownership.
The parties agree that APACHE shall be the owner of all right, title and
interest in and to all intellectual property resulting from consulting services
developed in conjunction with this Agreement. Such intellectual property shall
be a work for hire. To the extent that Clinimetrics could claim any right,
title or interest to such intellectual property, such right, title or interest
is hereby assigned to APACHE.
5. Term and Termination.
(a) The term of this Agreement shall commence upon execution of the
Agreement and shall continue for a period of three (3) years unless otherwise
terminated in accordance with this Agreement.
(b) Either party may terminate this Agreement upon thirty (30) days
written notice to the other party, if the other party has defaulted on any
material obligation or covenant or breached any material representation or
warranty and has not cured such default within the thirty (30) days of
receiving notice of the default or breach.
(c) Either party may terminate this Agreement upon ten (10) days written
notice to the other party, if the other party has defaulted on any obligation
or covenant regarding confidential information and has not cured such default
within the ten (10) days of receiving notice of the default or breach.
<PAGE> 27
(d) The provisions of Section 4 (Ownership), Section 5 (Term and
Termination), Section 6 (Warranty), Section 7 (Limitation of Liability),
Section 8 (Indemnity), and Section 9 (Confidentiality) shall survive
termination of this Agreement. If the Agreement is terminated for
Clinimetrics' breach, APACHE is obligated to Clinimetrics only for the monthly
payments through the date of termination. When this Agreement is terminated
due to Clinimetrics' breach, the last payment by APACHE will be prorated for
the portion of the month that elapsed before termination. If Clinimetrics is
not in breach of this Agreement and APACHE breaches this Agreement and has not
cured such breach within sixty (60) days of receiving written notice from
APACHE of the breach, then Clinimetrics may terminate this Agreement and APACHE
shall promptly pay the balance of the $300,000 payment to Clinimetrics.
6. Warranty
APACHE and Clinimetrics each warrant that they have full power, authority and
capacity, to carry on its business as it is now being conducted, and to execute
and deliver this Agreement and to perform all of its obligations hereunder.
7. Limitations of Liability and Exclusive Remedy.
NO PARTY SHALL BE RESPONSIBLE TO ANY OTHER PARTY FOR ANY LOST PROFITS,
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING,
TO THE EXTENT PERMITTED BY LAW, PUNITIVE OR EXEMPLARY DAMAGES) IN CONNECTION
WITH THIS AGREEMENT EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.
8. Indemnification
(a) Clinimetrics shall defend, indemnify and hold APACHE and its
directors, officers, employees and agents harmless from all losses, damages,
costs, and expenses, including without limitation attorneys' fees and court
costs, arising from or in connection with (i) any breach of any representation,
warranty or covenant of Clinimetrics under this Agreement or (ii) any third
party claim arising out of the consulting services provided by Clinimetrics.
Clinimetrics shall conduct such defense with attorneys selected by it at its
expense, and shall have sole control over the conduct of such defense.
(b) APACHE shall promptly notify Vermont Oxford of any asserted or
threatened claims that may be subject to any of the indemnities in this
Section, and shall cooperate with the other parties in conducting the defense.
9. Confidentiality
(a) "Confidential Information" means all non-public information: (i)
provided from APACHE to or learned from APACHE by Clinimetrics and
their respective agents, staff or employees in connection the
activities contemplated by this Agreement and any information or
documentation with respect to the products or
<PAGE> 28
services of APACHE, whether in tangible or intangible form,
including, without limitation, all computer programs (whether in
source or object code), flow charts, algorithms, data,
databases, rules, templates, forms, protocols, methodologies,
procedures, techniques and approaches relating to APACHE's
products and services and APACHE's prices, fees and payment
terms. The terms and conditions of this Agreement are also
Confidential Information unless disclosure of the terms is
required by law.
(ii) provided from Clinimetrics to or learned from Clinimetrics
by APACHE, its agents, staff or employees in connection with the
activities contemplated by this Agreement. The terms and
conditions of this Agreement are also Confidential Information
unless disclosure of the terms is required by law.
(b) Confidential Information shall not include information already known
to a party at the time of disclosure, as shown by the party's records,
information which has been publicly disclosed in a lawful manner, or
information which is rightfully received from a third party in a lawful manner.
(c) Each party shall hold in strict confidence and not disclose the
other's Confidential Information to any third party nor use the other party's
Confidential Information except in furtherance of this Agreement. Clinimetrics
shall disclose Confidential Information only to their respective employees who
(i) have signed a confidentiality agreement with Clinimetrics and (ii) need to
know such Confidential Information. Each of Clinimetrics' employees who will
require access to APACHE's Confidential Information will sign a confidentiality
agreement which will contain terms and conditions that protect the Confidential
Information of APACHE to the same extent that the Confidential Information of
Clinimetrics is protected. Clinimetrics will provide copies of all such
executed confidentiality agreements upon APACHE's request. In the event that
the FDA or other regulatory body or any court requires information from
Clinimetrics that might reasonably fall within the above definition of APACHE's
Confidential Information, Clinimetrics shall notify APACHE in writing at least
ten (10) days prior to the proposed disclosure and APACHE, in consultation with
Clinimetrics, shall determine the appropriate steps in order to adequately
safeguard APACHE's Confidential Information, including, without limitation, in
the case of a proceeding in a court or other tribunal, obtaining a protective
order.
(d) Each of the parties retains ownership of all right, title and
interest in its Confidential Information.
10. Non-Competition.
In partial recognition of the fees paid to Clinimetrics and acknowledgment of
the value of the APACHE Confidential Information being shared with
Clinimetrics, Clinimetrics agrees that, during the term of this Agreement and
for a period of two (2) years following the termination of this Agreement,
Clinimetrics will not, directly or indirectly, by any means or device
whatsoever: consult for, be affiliated with, be employed by, or render
services to, any entity which is a Competitor of APACHE , in any geographic
areas in the United States where the Company engages in the business as of the
date termination of this Agreement.
<PAGE> 29
For purposes of this section, "Competitor" shall mean a public or private
for-profit company with more than $1 million in annual sales that develops or
markets software or consulting products and services which relate primarily to
decision support, quality measurement and performance improvement for the
medical or healthcare industry. An example of public companies who are direct
competitors are those listed in APACHE's annual SEC filings.
11. General.
(a) This Agreement, including all other schedules, addenda and exhibits
referenced in this Agreement, contains the entire Agreement between APACHE and
Clinimetrics concerning the subject matter hereof and supersedes all prior and
contemporaneous proposals, discussions, understandings and all other agreements
or representations, oral and written, between the parties relating to the
subject matter hereof.
(b) All notices required by this Agreement shall be in writing, shall be
effective upon receipt, and shall be delivered by (i) hand, (ii) certified
mail, return receipt requested, (iii) U.S. Express Mail, (iv) overnight courier
service, or (v) facsimile (confirmed by U.S. Express Mail or overnight courier
service) addressed to the other parties at the address or facsimile number set
forth herein, or at such address or facsimile number as to which such party
from time to time may give proper notice to the other party. Notices shall be
deemed to have been received: if hand delivered, when so delivered; five days
after deposit as certified mail; on the date scheduled for delivery if sent by
courier; and on the date shown on the report generated by the sending machine
if sent by facsimile. All notices shall be effective upon receipt or, if
later, deemed receipt.
(c) The parties irrevocably agree that service of process by mail as
provided in Section 11(b) shall be sufficient service for personal jurisdiction
of the party so served.
(d) If any provision of this Agreement or any portion thereof is
declared invalid or unenforceable, such provision shall be limited and
construed so as to make it enforceable consistent with the parties' manifest
intentions or, if such limitation or construction is not possible, such
provision will be deemed stricken from this Agreement. In such event, all
other provisions of this Agreement will remain in full force and effect, unless
such enforcement would result in an injustice or be inconsistent with the
purposes of this Agreement.
(e) This Agreement may be assigned by a party only with the prior
written consent of the other parties, provided that no written consent is
necessary if the assignment is to an entity controlled by, controlling or under
common control with the party making the assignment.
(f) No waiver of any term of this Agreement shall be valid unless in a
writing signed by the party against whom the waiver is sought to be enforced.
The failure of either party at any time to require performance by the other
party of any provision hereof shall not affect in any way the right to require
such performance at any time hereafter.
<PAGE> 30
(g) Nothing in this Agreement is intended to create a relationship
between APACHE and Clinimetrics other than that of independent contractors and
neither party, nor any of its employees or staff, shall be construed to be the
agent, employee or representative of the other.
(h) This Agreement may not be modified, altered or amended except by a
written instrument executed by the parties.
(i) This Agreement and performance hereunder shall be governed by and
construed in accordance with the laws of Virginia.
(j) The parties acknowledges that a violation of the provisions of this
Agreement relating to the protection of Confidential Information would cause
the other irreparable harm, and agrees that the other party would be entitled
to injunctive relief prohibiting such unauthorized use or distribution, or such
breach, in addition to any other right or remedy they might have in law or
equity.
(k) Each party shall execute and deliver to the other parties such other
documents, including, without limitation, documents of assignment, transfer or
conveyance, and take such other actions as may be reasonably necessary in the
discretion of the requesting party to carry out more effectively the purposes
of this Agreement.
The parties have executed this Agreement by their duly authorized
representatives, effective as of the date of the last to sign as set forth
below.
CLINIMETRICS, INC. APACHE MEDICAL SYSTEMS, INC.
1650 Tysons Boulevard
Suite 300
McLean, VA 22102
Phone No.: Phone No.: (703) 847-1400
Facsimile No.: Facsimile No.: (703) 847-1401
By: /s/ Jeffrey D. Horbar By: /s/Gerald E. Bisbee, Jr.
------------------------- -------------------------------
Print Name: Jeffrey D. Horbar Print Name: Gerald E. Bisbee, Jr.
------------------ ------------------------
Title: President Title: Chairman and CEO
------------------ ------------------------
Date: 6/24/97 Date: 6/25/97
------------------- -----------------------
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of May 5, 1997,
by and between GERALD E. BISBEE, JR., PH.D. ("Executive") and APACHE MEDICAL
SYSTEMS, INC., a Delaware corporation ("Company").
1. EMPLOYMENT TERM. The Company will employ Executive for a term
commencing on January 1, 1997 and ending on December 31, 1997 ("Employment
Term"). The Employment Term shall be automatically extended for additional
one-year terms, unless Executive or the Company's Board of Directors ("Board")
provides 90 days' advance written notice to the other of his/its intention not
to renew.
2. EMPLOYMENT DUTIES. Executive will serve as Chief Executive Officer
of the Company and Chairman of the Board subject to the direction and control
of the Board. Executive shall perform such duties as may be assigned from time
to time by the Board, and shall, on a full-time basis, serve the Company
faithfully, diligently and competently and to the best of his ability and in
accordance with this Agreement and applicable law.
3. COMPENSATION. In exchange for Executive's services under this
Agreement, the Company shall pay Executive as salary $205,000 per annum, which
shall be reviewed annually by the Compensation Committee of the Board during
its annual year-end compensation review ("Salary"). Salary shall be payable in
24 equal bi-monthly installments and otherwise in accordance with the Company's
ordinary payment practices. Any payments made to Executive pursuant to this
Section 3 shall be treated as wages for withholding and employment tax
purposes. Executive shall participate in the Company's short-term cash
incentive plan or any successor thereto (the "short-term plan") and any stock
option or stock incentive plan generally available to executives pursuant to
the applicable plan documents.
4. BENEFITS.
(a) Executive shall be entitled during the Employment Term to
participate in such employee benefit plans and programs as are
offered from time to time to employees of the Company to the
extent that his position, tenure, compensation, age, health and
other qualifications make him eligible to participate. The Company
does not promise the adoption or continuance of any particular
plan or program during the Employment Term, and Executive's (and
his dependents') participation in any such plan or program shall
be subject to the provisions, rules, regulations and laws
applicable thereto.
(b) Executive shall be entitled to paid vacation in accordance with
the Company's vacation policy applicable to senior executives.
<PAGE> 2
(c) The Company shall provide directors and officers liability
insurance coverage for Executive, which shall be pursuant to a
"claims arising" policy covering senior executives generally.
(d) The Company shall reimburse Executive for his reasonable legal
expenses in connection with the initial execution of this
Agreement and its termination, as applicable.
5. REIMBURSEMENT OF EXPENSES. Executive shall be entitled to
reimbursement for ordinary, necessary and reasonable out-of-pocket business
expenses which he incurs in connection with performing his duties hereunder.
The reimbursement of all such expenses shall be made upon presentation of
satisfactory evidence of the amounts and nature of such expenses and shall be
subject to the Company's policies regarding business expenses and to the
reasonable approval of the Company's Chief Financial Officer.
6. NON-COMPETITION, NON-SOLICITATION. Executive agrees to
continue to be bound by the terms of his Proprietary Information, Inventions,
Non-Competition and Non-Solicitation Agreement executed on April 19, 1996.
7. TERMINATION FOR CAUSE. Notwithstanding any other provision of
this Agreement, Executive's employment with the Company and this Agreement may
be terminated by the Board (excluding Executive for this purpose) at any time
for Cause which shall include his (i) commission of an action against or in
derogation of the interests of the Company which constitutes an act of fraud,
dishonesty or moral turpitude or which, if proven in a court of law, would
constitute a violation of a criminal code or similar law, (ii) material breach
of any material duty or obligation imposed upon him pursuant to this Agreement,
(iii) breach of his Proprietary Information, Inventions, Non- Competition and
Non-Solicitation Agreement, and (iv) performance of any similar action that the
Board, in its sole discretion, may deem to be sufficiently injurious to the
interests of the Company so as to constitute substantial cause for termination.
If Executive is terminated for Cause as defined in (ii) or (iv) above and if
such Cause could be cured, the Company will give Executive notice of
termination stating the reason therefor and Executive may cure the Cause during
the 30 days following receipt of notice, which cure may not be unreasonably
rejected by the Board. The Company may suspend Executive with pay during the
cure period. In all other cases, Executive's employment with the Company shall
be terminated immediately and Executive may arbitrate pursuant to Section 12(g)
whether or not Cause existed. In the event of termination under this Section
7, the Company's obligations under this Agreement shall cease and, except as
required by applicable law, Executive shall forfeit all rights to receive any
other compensation or benefits under this Agreement, except that he shall be
entitled to his Salary for services performed through the date of such
termination. Without limitation, termination of Executive pursuant to this
Section 7 shall not relieve him of his obligations under Section 6.
8. INVOLUNTARY TERMINATION. During the term of this Agreement,
Executive's employment with the Company and this Agreement may be terminated
for any reason or no reason without Cause by the Board, provided that in the
event of such termination or removal, he
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shall be entitled to continuation of his Salary and Company-provided health
benefits, life insurance and other welfare benefits for 24 months, and to a pro
rata payment of the short-term plan award that he would have been entitled to
receive had he been employed for the entire year in which termination occurs,
with pro-ration based on the number of days employed during such year. Such
award shall be paid to Executive at the time that plan payments for the
applicable calendar year are typically paid to senior executives. If the
Company notifies Executive of its intention not to renew this Agreement as
provided in Section 1, Executive shall be deemed to be terminated by the
Company as of the last day of the Employment Term and Executive shall be
entitled to Salary, benefits and a plan award as provided in this Section.
Without limitation, a termination of Executive pursuant to this Section 8 shall
not relieve him of his obligations under Section 6.
9. DISABILITY. If Executive becomes totally disabled during the
Employment Term, his employment and this Agreement may be terminated by the
Board (excluding Executive for this purpose) as of the date such total
disability is determined. Executive shall be considered to be totally disabled
if he is unable by reason of accident or illness (including mental illness) to
perform the material duties of his regular position with the Company and is not
expected to recover from his disability within a period of six months from the
commencement of the disability. If at any time Executive claims or is claimed
by the Board to be totally disabled, a physician acceptable to both Executive
and the Board (which acceptances shall not be unreasonably withheld) shall be
retained by the Company and shall examine him. Executive shall cooperate fully
with the physician. If the physician determines that Executive is totally
disabled, the physician shall deliver to the Board a certificate certifying
both that Executive is totally disabled and the date upon which the condition
of total disability commenced. The determination of the physician shall be
conclusive. Executive's rights to any compensation and benefits under this
Agreement shall cease upon his total disability, except that he shall be
entitled to continuation of his Salary and Company-provided health benefits,
life insurance and other welfare benefits for 12 months, provided, however,
that any such payments shall be reduced by an amount equal to any payments and
health coverage received by Executive under any employment policy, arrangement
or agreement, disability insurance policy or other benefit plan of the Company
or Social Security. Executive also shall receive the short-term plan award
that he would have been entitled to receive had he been employed for the entire
year in which termination occurs and a pro-rated award for the next following
year based on the number of days during the year for which he received
severance pay; provided that Executive's awards for these two years shall be
limited to the award portion(s) based on Company performance, except that, to
the extent Executive was actively employed during a portion of the first year,
such award shall include the award portion(s) based on individual performance
pro-rated for the time of his active employment. Such awards shall be paid to
Executive at the time that plan payments for the applicable calendar year are
typically paid to senior executives. Any termination by the Board pursuant to
this Section 9 shall be made in accordance with all applicable laws. Without
limitation, a termination of Executive pursuant to this Section 9 shall not
relieve him of his obligations under Section 6.
10. CHANGE IN RESPONSIBILITY. During the term of this Agreement,
Executive may terminate his employment with the Company and this Agreement upon
30 days' advance written
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notice in the event of any Change in Responsibility, which shall include a
material change in his duties or authority, a reduction in Salary or material
change in his benefits, or a similar material change in the terms and
conditions of his employment; provided that the Company may cure the Change in
Responsibility during the 30-day notice period which cure may not be
unreasonably rejected by Executive. In the event that the Company fails to
cure, Executive shall be entitled to continuation of his Salary and
Company-provided health benefits, life insurance and other welfare benefits for
24 months, and to a pro rata payment of the short-term plan award that he would
have been entitled to receive had he been employed for the entire year in which
termination occurs, with proration based on the number of days employed during
such year. Such award shall be paid to Executive at the time that plan
payments for the applicable calendar year are typically paid to senior
executives. Notice of termination under this Section 10 shall be valid only if
received by the Company within 120 days after the Change in Responsibility
occurred. Without limitation, a termination pursuant to this Section 10 shall
not relieve Executive of his obligations under Section 6.
11. CHANGE IN CONTROL.
(a) Executive shall give 90 days' written notice in advance of the
12-month anniversary of a Change in Control as to whether he
will terminate voluntarily as of such anniversary date, such
termination would entitle him to continuation of his Salary
and Company-provided health benefits, life insurance and other
welfare benefits for 24 months, and to a pro rata payment of
the short-term plan award that he would have been entitled to
receive had he been employed for the entire year in which
termination occurs, with pro-ration based on the number of
days employed during such year. Such award shall be paid to
Executive at the time that plan payments for the applicable
calendar year are typically paid to senior executives.
(b) Each outstanding option issued to Executive and any future
option issued to Executive during the term of this Agreement
shall be amended to provide or shall provide, as the case may
be, provisions to the effect that (i) such option shall vest
in full upon a Change in Control, and (ii) to the extent that
Executive receives severance benefits under this Agreement,
the exercise period for the portion of any option vested at
the time of termination of employment shall be extended so
that such option may be exercised during a period of at least
30 months; provided, however, in no event shall the exercise
period be longer than the original option period established
in the option agreement.
(c) A Change in Control is the purchase or other acquisition by
any person, entity or group of persons, within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934
or any comparable successor provisions, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under
such Act) of 30% or more of either the outstanding shares of
common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally;
the approval by the stockholders of the Company of a
reorganization,
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merger or consolidation, in each case, with respect to which
persons who were stockholders of the Company immediately prior
to such reorganization, merger or consolidation do not,
immediately thereafter, own more than 30% of the combined
voting power entitled to vote generally in the election of
directors of the reorganized, merged or consolidated Company's
then outstanding securities; a liquidation or dissolution of
the Company; or the sale of all or substantially all of the
Company's assets.
(d) A Change in Control will not affect or diminish Executive's
rights under any provision of this Agreement, including,
without limitation, Sections 8, 9 and 10. Without limitation,
a termination pursuant to this Section 11 shall not relieve
Executive of his obligations under Section 6.
12. MISCELLANEOUS.
(a) All notices hereunder shall be in writing and shall be deemed
given when delivered in person or when telecopied with hard
copy to follow, or three business days after being deposited
in the United States mail, postage prepaid, registered or
certified mail, or two business days after delivery to a
nationally recognized express courier, expenses prepaid,
addressed as follows:
If to Executive:
Gerald E. Bisbee, Jr., Ph.D.
110 Wellesley Drive
New Canaan, CT 06840
Telecopy: (203) 972-3585
If to the Company:
Counsel
APACHE Medical Systems, Inc.
1650 Tysons Boulevard
Suite 300
McLean, VA 22102-3915
Telecopy: (703) 749-7963
and/or at such other addresses as may be designated by notice
given in accordance with the provisions hereof.
(b) This Agreement shall be binding upon and inure to the benefit
of both parties and their respective heirs, successors and
permitted assigns. No party shall assign this Agreement or
its rights hereunder without the prior written consent of the
other party; provided, however, that the Company shall assign
this Agreement to any person or entity acquiring all or
substantially all of the business of the Company (whether by
sale of stock, sale of assets, merger, consolidation or
otherwise).
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(c) This Agreement contains all of the agreements between the
parties with respect to the subject matter hereof, and this
Agreement supersedes all other agreements, oral or written,
between the parties with respect to the subject matter hereof.
(d) No change or modification of this Agreement shall be valid
unless the same shall be in writing and signed by both
parties. No waiver of any provisions of this Agreement shall
be valid unless in writing and signed by the waiving party.
No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a
continuing waiver, unless so provided in the waiver.
(e) If any provisions of this Agreement (or portions thereof)
shall, for any reason, be considered invalid or unenforceable
by any court of competent jurisdiction, such provisions (or
portions thereof) shall be ineffective only to the extent of
such invalidity or unenforceability, and the remaining
provisions of this Agreement (or portions thereof) shall
nevertheless be valid, enforceable and of full force and
effect. The Company's rights under this Agreement shall not
be exclusive and shall be in addition to all other rights and
remedies available at law or in equity.
(f) The section headings or titles herein are for convenience of
reference only and shall not be deemed a part of this
Agreement.
(g) In the event of a dispute between Executive and the Company
that is not resolved after a good faith effort by the parties,
such dispute will be submitted to arbitration. The
arbitration will be conducted in accordance with the rules of
the American Arbitration Association in effect at the time of
the demand for arbitration and will be held in Washington,
D.C. The arbitrator will be selected from an appropriate list
of qualified arbitrators, permit reasonable discovery, and
make written findings of fact and conclusions of law
reflecting the appropriate substantive law. Either party must
deliver a request for arbitration in writing to the other
party within 60 days of the date the aggrieved party first has
knowledge of the event giving rise to the claim, otherwise the
claim will be considered void and waived. The decision of the
arbitrator will be exclusive, final and binding on Executive
and the Company, and Executive is hereby giving up his right
to have any dispute decided in a court and by a jury.
Executive and the Company will share equally the cost of the
arbitrator.
(h) This Agreement shall be governed and controlled as to
validity, enforcement, interpretation, construction, effect
and in all other respects by the laws of the State of Virginia
applicable to contracts made in that State (other than any
conflict of laws rule which might result in the application of
the laws of any other jurisdiction). Executive expressly
submits and consents in advance to the jurisdiction of the
federal and state courts of the State of Virginia for all
purposes in connection with any action or proceeding arising
out of or relating to this Agreement.
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(i) Any press release concerning termination of Executive's
employment shall be subject to Executive's review at least two
days prior to release. Upon any termination of employment
other than as provided in Section 7, Executive shall be
entitled to retain his personal office and business equipment,
such as his Company-provided computer, cellular phone,
computer printer, facsimile machine, etc.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
GERALD E. BISBEE, JR., PH.D.
/s/ Gerald E. Bisbee, Jr., Ph.D.
--------------------------------------
APACHE MEDICAL SYSTEMS, INC.
/s/ Elizabeth A. Draper
-----------------------------
Elizabeth A. Draper, Secretary
---------------------------------
Name and Title
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EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into this 2nd day of
June, 1997 by and between APACHE Medical Systems, Inc., a Delaware corporation
("APACHE"), and Scott A. Mason (the "Executive").
W I T N E S S E T H:
WHEREAS, Executive is a primary shareholder in and is employed as
President and Managing Partner of National Health Advisors, Ltd., a Virginia
Corporation ("NHA"); and
WHEREAS, NHA is being merged into and with APACHE pursuant to an
Agreement and Plan of Merger dated on date even herewith (the "Merger
Agreement"), pursuant to which Executive will realize a significant and
substantial personal gain; and
WHEREAS, NHA will become a wholly owned subsidiary of APACHE pursuant
to the Merger Agreement; and
WHEREAS, APACHE desires to employ Executive in accordance with the
terms of this Agreement, and Executive desires to be so employed.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, each party having had the opportunity to consult their own legal
counsel, Executive and APACHE agree as follows:
1. Employment. APACHE agrees to employ Executive and Executive
agrees to accept employment pursuant to the terms and conditions of this
Agreement conditional and effective upon the closing of the transactions
described in the Merger Agreement.
2. Duties. APACHE agrees to employ Executive and Executive
accepts employment as the Executive Vice President of APACHE and President of
NHA, upon the terms and subject to the conditions set forth herein. Management
of APACHE, provided Executive continues to perform his duties hereunder, will
use its best efforts to recommend Executive's election to APACHE's Board of
Directors (the "Board") at an appropriate time within 12 months of the
execution of this Agreement. Executive agrees to devote his full and exclusive
professional time, skills and energies to his employment with APACHE and NHA;
provided that Executive may serve as a board member of certain organizations so
long as such service does not conflict or interfere with his performance under
this Agreement. Executive shall perform such duties commensurate with his
position as may be assigned from time to time during the Employment Term (as
defined below) by the Chief Executive Officer of APACHE or his/her designee
(the "CEO") or the Board. Executive shall abide and be bound by APACHE's and
NHA's by-laws and shall perform his duties in compliance with all policies of
APACHE and NHA as in effect from time to time.
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3. Compensation.
(a) Base Annual Salary. During the Employment Term,
APACHE shall pay to Executive a salary of $175,000 per year, which shall be
subject to review annually by the Compensation Committee of the Board (the
"Compensation Committee") during its annual year-end compensation review (the
"Base Annual Salary"). Executive's Base Annual Salary shall be paid in
substantially equal semi-monthly installments on APACHE's regular pay dates,
subject to customary withholding and other employment taxes as required by
applicable law.
(b) Performance Bonus. Executive shall be eligible to
receive during the Employment Term an annual performance bonus based on the
attainment by NHA and APACHE of annual performance goals formulated and
proposed jointly by Executive and the CEO, such performance goals to be
approved or modified in the sole discretion of the Compensation Committee and,
for 1997, shall be formulated and approved within 30-day period following the
date this Agreement is executed. The amount of actual payment, if any, shall
be based on the level of achievement of the performance goals as determined by
the Compensation Committee (e.g., if 90% of the goal is attained, Executive
would receive 90% of the performance bonus). The actual bonus will be below,
at or above the target bonus upon actual performance as measured against target
performance. For 1997, the target bonus shall be a pro rata share of $125,000
based on the number of months Executive is employed by APACHE during 1997.
(c) Stock Options. Executive shall be eligible to
receive stock options for 180,000 shares of common stock under APACHE's
Employee Stock Option Plan (the "Option Plan") or any amendment or successor to
the Option Plan. Such options shall be granted concurrently with the
commencement of Executive's employment hereunder and shall vest on a pro rata
basis during the five-year period following the commencement of such
employment. If Executive's employment terminates pursuant to Paragraph 6(c) or
6(d) within one of the periods following employment commencement identified in
the table below, any and all stock options granted to Executive pursuant to
this Agreement or otherwise shall be exercisable to the extent vested as of his
termination date for the corresponding period indicated below, but no longer
than the termination date of the option as stated in the option agreement.
PERIOD OF EMPLOYMENT OPTION EXERCISE PERIOD
FOLLOWING TERMINATION DATE
More than 1 yr. but less than 2 yrs. 6 months
More than 2 yrs. but less than 3 yrs. 12 months
More than 3 yrs. but less than 4 yrs. 18 months
More than 4 yrs. but less than 5 yrs. 24 months
More than 5 yrs. 30 months
In the event Executive is terminated under Paragraph 6(a), his options shall be
fully vested and exercisable for one year or such longer period pursuant to the
above table, but in no event longer than the termination date of the option as
stated in the option agreement. In the event Executive is terminated under
Paragraph 6(b), his options shall be forfeited as provided in the Option Plan.
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With respect to all options granted under this Paragraph 3(c) and Paragraph 4,
APACHE shall provide Executive with written stock option agreements stating the
requirements of such Paragraphs and the applicable Option Plan terms. By
approval of this Agreement, the Board has approved the modification to the
Option Plan only to the extent required to provide the foregoing special option
terms to Executive, and only with respect to Executive and not APACHE's and/or
NHA's employees generally.
(d) Signing Bonus. APACHE shall pay the Executive a
one-time signing bonus in the amount of $35,000. Such signing bonus shall be
payable as soon as practicable following execution of this Agreement.
4. Expense Reimbursement. Executive will receive reimbursement
for, or APACHE or NHA will pay directly, all reasonable business expenses
incurred by Executive in the performance of his duties hereunder, provided
Executive provides appropriate documentation of such expenses and seeks prior
approval for any extraordinary individual expenditures over $500.
5. Vacation. Subject to Executive's performance of his duties
hereunder, Executive shall earn 4 weeks of paid vacation during each year of
the Employment Term. Executive's entitlement to vacation will otherwise be
subject to APACHE's vacation policy as in effect from time to time.
6. Long Term Incentive Plan. Executive shall be eligible to
receive additional stock options at the end of each calendar/fiscal year
pursuant to APACHE's Long Term Incentive Plan as in effect from time to time
during the Employment Term. The number of options to be granted to Executive
annually during his Employment Term shall be equal to (i) a percentage of his
Base Annual Salary as determined annually by the Compensation Committee during
its annual year-end compensation review, divided by (ii) the market price of
APACHE common stock as of December 21st of the applicable year. For 1997, the
percentage shall be 25%. The exercise price for each option share shall be
equal to the market price of APACHE common stock utilized pursuant to the
preceding sentences in determining the number of option shares. Vesting of
each option grant shall be pursuant to one of the following as determined under
the terms of the Long Term Incentive Plan:
NO VESTING PRIOR TO: 100% VESTING UPON:
3rd Anniversary of Grant 3rd Anniversary of Grant
4th Anniversary of Grant 4th Anniversary of Grant
5th Anniversary of Grant 5th Anniversary of Grant
6th Anniversary of Grant 6th Anniversary of Grant
7th Anniversary of Grant 7th Anniversary of Grant
7. Other Benefits.
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(a) Except as specifically provided herein, Executive
shall be entitled during the Employment Term to participate on the same basis
as all other employees of APACHE in all employee benefit programs (e.g.,
disability benefits, life insurance or medical insurance) maintained by APACHE
from time to time, subject to the eligibility and participation rules in effect
from time to time for such programs, provided that APACHE will not materially
reduce the value in the aggregate of such benefits to Executive.
(b) In addition, Executive shall be entitled during the
Employment Term to participate in a program of elective nonqualified deferred
compensation for senior executives at APACHE that is established and maintained
by APACHE, which program shall allow such executives to elect, in a
tax-advantaged manner, to defer a portion of the salary that they would
otherwise currently receive, and APACHE shall undertake to adopt this program
no later than December 31, 1997.
(c) Executive agrees and acknowledges that APACHE and NHA
shall have no obligation to maintain or continue any of the employee benefit
programs (the "Prior Programs") that were maintained at NHA prior to the
effective date of the Merger Agreement, including any qualified or nonqualified
retirement programs, and that any changes to or terminations of the Prior
Programs shall be made in the sole discretion of APACHE.
8. Employment Term. APACHE will employ Executive for a term
commencing as of the date first written above and ending on the 12- month
anniversary of such date (the "Employment Term"). The Employment Term shall be
automatically extended for additional 12-month terms; provided that Executive's
employment and this Agreement shall be subject to termination at any time after
his employment commences as set forth below.
(a) Death or Disability. This Agreement and Executive's
employment shall be terminated immediately by reason of his death or Permanent
Disability. For purposes of this Agreement, the term "Permanent Disability"
shall mean the inability of Executive to perform his essential job duties for a
period in excess of 6 months during any 12-month period.
(b) Termination for Cause. APACHE may terminate
Executive's employment and this Agreement at any time for "Cause," which for
purposes of this Agreement shall be determined by the Board and shall include
but not be limited to: (i) a material breach of Executive's duties hereunder;
(ii) intentional or grossly negligent misconduct by Executive in connection
with a failure by Executive in the performance of his duties hereunder; (iii)
conviction of Executive of a felony or violation of any law involving moral
turpitude, dishonesty, disloyalty or fraud; or (iv) willful disregard by
Executive of instructions of the CEO or the Board. In the event of such
termination for Cause, APACHE shall have no further obligations to Executive
other than the payment of Executive's earned and accrued Base Annual Salary
through the date of termination.
(c) Termination Without Cause. APACHE may terminate this
Agreement and Executive's employment at any time, for any reason or no reason,
upon 90 days' advance written notice to Executive; provided that in the event
of his termination pursuant to this Section 8(c), Executive shall be entitled
to continuation of his Base Annual Salary and company-provided
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health benefits, life insurance and other welfare benefits (the "Severance
Benefits") for a period of 12 months (including the 90-day notice period), and
to a pro rata payment of the performance bonus award (as determined pursuant to
Paragraph 3(b)) that he would have been entitled to receive had he been
employed for the entire year in which termination occurs, with pro-ration based
on the number of days employed during such year. Such bonus award, if any,
shall be paid to Executive following the calendar year in which termination
occurs. Notwithstanding the above, in the event Executive's employment is
terminated pursuant to this Paragraph 8(c) prior to December 31, 1997,
Executive shall be entitled to Severance Benefits through December 31, 1997 and
for a period of 12 months thereafter, and to a pro rata payment of the
performance bonus award (as determined pursuant to Paragraph 3(b)) that he
would have been entitled to receive had he been employed through December 31,
1997, with proration based on the number of days employed during 1997. Payment
of Executive's Base Annual Salary shall be made in equal installments on dates
corresponding with APACHE's regular pay dates during the months it is payable
pursuant to this Paragraph 8(c).
(d) Termination By Executive. Executive may terminate
his employment and this Agreement at any time prior to the expiration of the
Employment Term for any reason upon 90-days' advance written notice to APACHE.
In such event, Executive shall continue to receive regular payments of the Base
Annual Salary through the effective date of Executive's termination. APACHE
reserves the right to substitute pay in lieu of any part or all of such 90-day
notice period.
9. Incorporation By Reference. Executive agrees and acknowledges
that he is bound by the terms of the Proprietary Information, Inventions,
Non-Competition and Non-Solicitation Agreement signed by Executive simultaneous
with his execution of this Agreement and the Merger Agreement, and attached and
incorporated by reference in the Merger Agreement as Attachment __ ("the
Proprietary Information Agreement").
10. Notices.
(a) Any notice pursuant to this Agreement shall be in
writing and shall be delivered personally or by first class mail, either
registered or certified, with return receipt requested, postage prepaid, and
addressed as follows:
(i) If to APACHE:
APACHE Medical Systems, Inc.
1650 Tysons Boulevard
Suite 300
McLean, Virginia 22102-3915
Attention: Gerald E. Bisbee, Jr., Ph.D.
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(ii) If to Executive:
At such address as Executive may designate by notice
given in accordance with this Paragraph.
or such other address of which either party may from time to time notify the
other party as provided herein.
11. Assignment. This Agreement shall inure to the benefit of and
shall be binding upon the successors and assigns of APACHE. The rights and
obligations of Executive under this Agreement are expressly agreed to be
personal, nonassignable and nontransferable.
12. Entire Agreement; Amendment and Modification. This Agreement,
the Merger Agreement and the Proprietary Information Agreement constitute the
entire understanding of the parties with respect to the subject matter hereof,
and there are no representations, written or oral, warranties, agreements or
commitments between the parties hereto with respect to the employment and
compensation of Executive or any other matter described herein. Except as set
forth herein, no amendment or modification of the terms of this Agreement shall
be binding upon either party unless reduced to writing and signed by Executive
and a duly appointed officer of APACHE.
13. Governing Law. The provisions of this Agreement shall be
construed in accordance with the laws of the State of Virginia and where
appropriate, the United States. Any action regarding this Agreement or
Executive's employment with APACHE shall be brought exclusively in state and
federal courts serving Fairfax County, Virginia, and APACHE and Executive
hereby submit to personal jurisdiction in such courts.
14. Unenforceability/Severability. If any paragraph, term or
provision of this Agreement shall be held to be illegal, unenforceable or in
conflict with any law, such illegality, unenforceability or conflict shall not
invalidate the whole Agreement; instead, such paragraph, term or provision
shall be deemed to be modified or restricted to the maximum extent and in a
manner necessary to render the same valid and enforceable, and this Agreement
shall be construed, interpreted and enforced to the maximum extent permitted by
law. If such paragraph, term or provision cannot be so modified or restricted,
it shall not affect the validity of any other provision herein, and this
Agreement shall be interpreted and enforced as if such paragraph, term or
provision had not been included herein.
IN WITNESS WHEREOF, APACHE and Executive have executed this Agreement
on the day and year first written above.
SCOTT A. MASON APACHE MEDICAL SYSTEMS, INC.
/s/ Scott A. Mason /s/ Gerald E. Bisbee, Jr.
- ------------------- --------------------------
Its Chairman and Chief Executive Officer
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EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of June 16, 1997, by
and between Robert Joseph Sullivan ("Executive") and APACHE Medical Systems,
Inc., a Delaware corporation ("Company").
1. EMPLOYMENT TERM. The Company will employ Executive for a term commencing on
June 16, 1997 and ending on December 31, 1997 ("Employment Term"). The
Employment Term shall be automatically extended for additional one-year
terms, unless Executive or the Company's Board of Directors ("Board) provides
90 days' advance written notice to the other of his/its intention not to
renew.
2. EMPLOYMENT DUTIES. Executive will serve as Vice President, Chief Financial
Officer and Treasurer subject to the direction and control of the Chief
Executive Officer. Executive shall perform such duties as may be assigned
from time to time by the Chief Executive Officer, and shall, on a full-time
basis, serve the Company faithfully, diligently and competently and to the
best of his ability and in accordance with this Agreement and applicable
law.
3. COMPENSATION. In exchange for Executive's services under this Agreement,
the Company shall pay Executive as salary $145,000 per annum, which shall be
reviewed annually by the Compensation Committee of the Board during its
annual year-end compensation review ("Salary"). Salary shall be payable in
24 equal bi-monthly installments and otherwise in accordance with the
Company's ordinary payment practices. Any payments made to Executive
pursuant to this Section 3 shall be treated as wages for withholding and
employment tax purposes. Executive shall participate in the Company's
short-term cash incentive plan or any successor thereto (the "short-term
plan") and any stock option or stock incentive plan generally available to
executives pursuant to the applicable plan documents.
4. BENEFITS
(a) Executive shall be entitled during the Employment Term to participate
in such employee benefit plans and programs as are offered from time
to time to employees of the Company to the extent that his position,
tenure, compensation, age, health and other qualifications make him
eligible to participate. The Company does not promise the adoption
or continuance of any particular plan or program during the
Employment Term, and Executive's (and his dependents') participation
in any such plan or program shall be subject to the provisions,
rules, regulations and laws applicable thereto.
(b) Executive shall be entitled to paid vacation in accordance with the
Company's vacation policy applicable to senior executives.
c) The Company shall provide directors and officers liability insurance
coverage for Executive, which shall be pursuant to a "claims made"
policy covering senior executives generally.
(d) The Company shall reimburse Executive for his reasonable legal
expenses in connection with the initial execution of this Agreement
and its termination, as applicable.
5. REIMBURSEMENT OF EXPENSES. Executive shall be entitled to reimbursement for
ordinary, necessary and reasonable out-of-pocket business expenses which he
incurs in connection with performing his duties hereunder. The
reimbursement of all such expenses shall be made upon presentation of
satisfactory evidence of the amounts and nature of such expenses and shall
be subject to the Company's policies regarding business expenses and to the
reasonable approval of the Company's Chief Executive Officer.
<PAGE> 2
6. NON-COMPETITION, NON-SOLICITATION. Executive agrees to be bound by the
terms of his Proprietary Information, Inventions, Non-Competition and
Non-Solicitation Agreement executed on June 16, 1997.
7. TERMINATION FOR CAUSE. Notwithstanding any other provision of this
Agreement, Executive's employment with the Company and this Agreement may be
terminated by the Board (excluding Executive for this purpose) at any time
for Cause which shall include his (i) commission of an action against or in
derogation of the interests of the Company which constitutes an act of
fraud, dishonesty or moral turpitude or which, if proven in a court of law,
would constitute a violation of a criminal code or similar law, (ii)
material breach of any material duty or obligation imposed upon him pursuant
to this Agreement, (iii) breach of his Proprietary Information, Inventions,
Non-Competition and Non-Solicitation Agreement, and (iv) performance of any
similar action that the Board, in its sole discretion, may deem to be
sufficiently injurious to the interests of the Company so as to constitute
substantial cause for termination. If Executive is terminated for Cause as
defined in (ii) or (iv) above and if such Cause could be cured, the Company
will give Executive notice of termination stating the reason therefore and
Executive may cure the Cause during the 30 days following receipt of notice,
which cure may not be unreasonably rejected by the Board. The Company may
suspend Executive with pay during the cure period. In all other cases,
Executive's employment with the Company shall be terminated immediately and
Executive may arbitrate pursuant to Section 12(g) whether or not Cause
existed. In the event of termination under this Section 7, the Company's
obligations under this Agreement shall cease and, except as required by
applicable law, Executive shall forfeit all rights to receive any other
compensation or benefits under this Agreement, except that he shall be
entitled to his Salary for services performed through the date of such
termination. Without limitation, termination of Executive pursuant to this
Section 7 shall not relieve him of his obligations under Section 6.
8. INVOLUNTARY TERMINATION. During the term of this Agreement, Executive's
employment with the Company and this Agreement may be terminated for any
reason or no reason without Cause by the Board, provided that in the event
of such termination or removal, he shall be entitled to continuation of his
Salary and Company-provided health benefits, life insurance and other
welfare benefits for 24 months, and to a pro rata payment of the short-term
plan award that he would have been entitled to receive had he been employed
for the entire year in which termination occurs, with pro-ration based on
the number of days employed during such year. Such award shall be paid to
Executive at the time that plan payments for the applicable calendar year
are typically paid to senior executives. If the Company notifies Executive
of its intention not to renew this Agreement as provided in Section(1),
Executive shall be deemed to be terminated by the Company as of the last day
of the Employment Term and Executive shall be entitled to Salary, benefits
and a plan award as provided in this Section. Without limitation, a
termination of Executive pursuant to this Section 8 shall not relieve him of
his obligations under Section 6.
9. DISABILITY. If Executive becomes totally disabled during the Employment
Term, his employment and this Agreement may be terminated by the Board
(excluding Executive for this purpose) as of the date such total disability
is determined. Executive shall be considered to be totally disabled if he
is unable by reason of accident or illness (including mental illness) to
perform the material duties of his regular position with the Company and is
not expected to recover from his disability within a period of six months
from the commencement of the disability. If at any time Executive claims or
is claimed by the Board to be totally disabled, a physician acceptable to
both Executive and the Board (which acceptances shall not be unreasonably
withheld) shall be retained by the Company and shall examine him. Executive
shall cooperate fully with the physician. If the physician determines that
Executive is totally disabled, the physician shall deliver to the Board a
certificate certifying both that Executive is totally disabled and the date
upon which the condition of total disability commenced. The determination
of the physician shall be conclusive. Executive's rights to any
compensation and benefits under this Agreement shall cease upon his total
disability, except that he shall be entitled to continuation of his Salary
and Company-provided health benefits, life insurance and other welfare
benefits for 12 months, provided, however, that any such payments shall be
reduced by an amount
<PAGE> 3
equal to any payments and health coverage received by Executive under any
employment policy, arrangement or agreement, disability insurance policy or
other benefit plan of the Company or Social Security. Executive also shall
receive the short-term plan award that he would have been entitled to
receive had he been employed for the entire year in which termination
occurs and a pro-rated award for the next following year based on the
number of days during the year for which he received severance pay;
provided that Executive's awards for these two years shall be limited to
the award portion(s) based on Company performance, except that, to the
extent Executive was actively employed during a portion of the first year,
such award shall include the award portion(s) based on individual
performance pro-rated for the time of his active employment. Such awards
shall be paid to Executive at the time that plan payments for the
applicable calendar year are typically paid to senior executives. Any
termination by the Board pursuant to this Section 9 shall be made in
accordance with all applicable laws. Without limitation, a termination of
Executive pursuant to this Section 9 shall not relieve him of his
obligations under Section 6.
10. CHANGE IN RESPONSIBILITY. During the term of this Agreement, Executive may
terminate his employment with the Company and this Agreement upon 30 days'
advance written notice in the event of any Change in Responsibility, which
shall include a material change in his duties or authority, a reduction in
Salary or material change in his benefits, or a similar material change in
the terms and conditions of his employment; provided that the Company may
cure the Change in Responsibility during the 30-day notice period which
cure may not be unreasonably rejected by Executive. In the event that the
Company fails to cure, Executive shall be entitled to continuation of his
Salary and Company-provided health benefits, life insurance and other
welfare benefits for 24 months, and to a pro rata payment of the short-term
plan award that he would have been entitled to receive had he been employed
for the entire year in which termination occurs, with proration based on
the number of days employed during such year. Such award shall be paid to
Executive at the time that plan payments for the applicable calendar year
are typically paid to senior executives. Notice of termination under this
Section 10 shall be valid only if received by the Company within 120 days
after Change in Responsibility occurred. Without limitation, a termination
pursuant to this Section 10 shall not relieve Executive of his obligations
under Section 6.
11. CHANGE IN CONTROL.
(a) Executive shall give 90 days' written notice in advance of the 12 month
anniversary of a Change in Control as to whether he will terminate
voluntarily as of such anniversary date, such termination would entitle him
to continuation of his Salary and Company-provided health benefits, life
insurance and other welfare benefits for 12 months, and to a pro rata
payment of the short-term plan award that he would have been entitled to
receive had he been employed for the entire year in which termination
occurs, with pro-ration based on the number of days employed during such
year. Such award shall be paid to Executive at the time that plan payments
for the applicable calendar year are typically paid to senior executives.
(b) Each outstanding option issued to Executive and any future option issued to
Executive during the term of this Agreement shall be amended or provide or
shall provide, as the case may be, provisions to the effect that (i) such
option shall vest in full upon a Change in Control, and (ii) to the extent
that Executive receives severance benefits under this Agreement, the
exercise period for the portion of any option vested at the time of
termination of employment shall be extended so that such option may be
exercised during a period of at least 30 months; provided, however, in no
event shall the exercise period be longer than the original option period
established in the option agreement.
c) A Change in Control is the purchase or other acquisition by any person,
entity or group of persons, within the meaning of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934 or any comparable successor provisions,
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
such Act) of 30% or more or either the outstanding shares of common stock
or the combined voting power of the Company's then outstanding voting
securities entitled to vote generally;
<PAGE> 4
the approval by the stockholders of the Company of a reorganization, merger
or consolidation, in each case, with respect to which persons who were
stockholders of the Company immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter, own more than 30%
of the combined voting power entitled to vote generally in the election of
directors of the reorganized, merged or consolidated Company's then
outstanding securities; a liquidation or dissolution of the Company; or the
sale of all or substantially all of the Company's assets.
(d) A Change in Control will not affect or diminish Executive's rights under any
provision of this Agreement, including, without limitation, Sections 8, 9
and 10. Without limitation, a termination pursuant to this Section 11
shall not relieve Executive of his obligations under Section 6.
12. MISCELLANEOUS.
(a) All notices hereunder shall be in writing and shall be deemed given when
delivered in person or when telecopied with hard copy to follow, or three
business days after being deposited in the United States mail, postage
prepaid, registered or certified mail, or two business days after delivery
to a nationally recognized express courier, expenses prepaid, addressed as
follows:
If to Executive:
Robert Joseph Sullivan
10202 Lakestone Pl.
Rockville, MD 20850
Phone: (301) 294-5917
If to the Company:
Counsel
APACHE Medical Systems, Inc.
1650 Tysons Boulevard
Suite 300
McLean, VA 22102-3915
Telecopy: (703) 749-7963
and/or at such other addresses as may be designated by notice given in
accordance with the provisions hereof.
(b) This Agreement shall be binding upon and inure to the benefit of both
parties and their respective heirs, successors and permitted assigns. No
party shall assign this Agreement or its rights hereunder without the prior
written consent of the other party; provided, however, that the Company
shall assign this Agreement to any person or entity acquiring all or
substantially all of the business of the Company (whether by sale of stock,
sale of assets, merger, consolidation or otherwise).
(c) This Agreement contains all of the agreements between the parties with
respect to the subject matter hereof, and this Agreement supersedes all
other agreements, oral or written, between the parties with respect to the
subject matter hereof.
(d) No change or modification of this Agreement shall be valid unless the same
shall be in writing and signed by both parties. No waiver of any
provisions of this Agreement shall be valid unless in writing and signed by
the waiving party. No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing
waiver, unless so provided in the waiver.
(e) If any provisions of this Agreement (or portions thereof) shall, for any
reason, be considered invalid or unenforceable by any court of competent
jurisdiction, such provisions (or portions thereof) shall be ineffective
only to the extent of such invalidity or unenforceability, and the
remaining provisions of
<PAGE> 5
this Agreement (or portions thereof) shall nevertheless be valid,
enforceable and of full force and effect. The Company's rights under this
Agreement shall not be exclusive and shall be in addition to all other
rights and remedies available at law or in equity.
(f) The section headings or titles herein are for convenience of reference only
and shall not be deemed a part of this Agreement.
(g) In the event of a dispute between Executive and the Company that is not
resolved after a good faith effort by the parties, such dispute will be
submitted to arbitration. The arbitration will be conducted in accordance
with the rules of the American Arbitration Association in effect at the
time of the demand for arbitration and will be held in Washington, DC. The
arbitrator will be selected from an appropriate list of qualified
arbitrators, permit reasonable discovery, and make written findings of fact
and conclusions of law reflecting the appropriate substantive law. Either
party must deliver a request for arbitration in writing to the other party
within 60 days of the date the aggrieved party first has knowledge of the
event giving rise to the claim, otherwise the claim will be considered void
and waived. The decision of the arbitrator will be exclusive, final and
binding on Executive and the Company, and Executive is hereby giving up his
right to have any dispute decided in a court and by a jury. Executive and
the Company will share equally the cost of the arbitrator.
(h) This Agreement shall be governed and controlled as to validity,
enforcement, interpretation, construction, effect and in all other respects
by the laws of the State of Virginia applicable to contracts made in that
State (other than conflict of laws rule which might result in the
application of the laws of any other jurisdiction). Executive expressly
submits and consents in advance to the jurisdiction of the federal and
state courts of the State of Virginia for all purposes in connection with
any action or proceeding arising out of or relating to this Agreement.
(j) Any press release concerning termination of Executive's employment shall be
subject to Executive's review at least two days prior to release. Upon any
termination of employment other than as provided in Section 7, Executive
shall be entitled to retain his personal office and business equipment,
such as his Company-provided computer, cellular phone, computer printer,
facsimile machine, etc.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
ROBERT JOSEPH SULLIVAN
/s/ Robert J. Sullivan
--------------------------------------------
Executive
APACHE MEDICAL SYSTEMS, INC.
/s/ Gerald E. Bisbee, Jr.
--------------------------------------------
Chairman and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.20
APACHE MEDICAL SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
APACHE MEDICAL SYSTEMS, INC., a Delaware corporation (the "Company"), hereby
grants to William A. Knaus, M.D. ("Optionee"), an option (the "Option") to
purchase a total of Ten Thousand, Four Hundred and Ninety (10,490) shares (the
"Shares") of Common Stock of the Company, at the price provided herein.
1. Nature of the Option. This Option is a non-statutory option and is not
intended to qualify for any special tax benefits to Optionee.
2. Exercise Price. This exercise price is $6.375 for each share of Common
Stock.
3. Vesting. This Option shall vest on September 30, 1997.
4. Exercise of Option. Subject to Section 6 hereof, this Option shall be
exercisable during its term as follows:
(i) Right to Exercise. This Option may be exercised in one or more
tranches at any time from the date vested through the tenth anniversary hereof.
This Option may not be exercised for a fraction of a share.
(ii) Method of Exercise. This Option shall be exercisable from time to
time by written notice which shall state the number of Shares in respect of
which this Option is being exercised. Such written notice shall be signed by
Optionee or an authorized officer thereof, as the case may be, and shall be
delivered in person or by certified mail to the Secretary of the Company. The
written notice shall be accompanied by payment of the exercise price.
No Shares will be issued pursuant to the exercise of this Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange upon which the Shares may then be
listed.
(iii) Number of Shares Exercisable. Each exercise of this Option hereunder
shall reduce the total number of Shares that may thereafter be purchased under
this Option.
5. Representations. In the event the Shares purchasable pursuant to the
exercise of this Option have not been registered under the Securities Act of
1933, as amended ("Securities Act"), at the time this Option is exercised,
Optionee or an authorized officer thereof, as the case may be, shall,
concurrently with the exercise of all or any portion of this Option, deliver to
the Company his or its Investment Representation Statement in the form attached
hereto as Exhibit 1.
6. Method of Payment. Payment of the exercise price shall be by cash or
check.
<PAGE> 2
7. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule
under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G")
as promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee or an officer thereof, as the
case may be, to make any representation and warranty to the Company as may be
required by any applicable law or regulation.
8. Non-Transferability of Option. This Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of by Optionee in any manner
other than by will or by the laws of descent or distribution and, in the case
of an individual Optionee, may be exercised during the lifetime of Optionee
only by him. The terms of this Option shall be binding upon the executors,
administrators, heirs and successors of Optionee.
9. Stock Split. In the event of a stock split, stock dividend,
recapitalization, reclassification or combination of shares or other similar
event, the number of shares subject to outstanding options, the appropriate
exercise price and other price determinations applicable to the options shall
be adjusted to appropriately reflect such event.
DATE OF GRANT: May 29, 1997
APACHE Medical Systems, Inc.
a Delaware corporation
By: /s/ Gerald E. Bisbee, Jr.
--------------------------
Name: Gerald E. Bisbee, Jr.
---------------------
Title: Chairman and Chief Executive Officer
------------------------------------
Agreed to this 29th day of
May, 1997
William A. Knaus, M.D.
By: /s/ William A. Knaus
-----------------------
-2-
<PAGE> 3
EXHIBIT 1
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: William A. Knaus, M.D.
SELLER: APACHE MEDICAL SYSTEMS, INC.
COMPANY: APACHE MEDICAL SYSTEMS, INC.
SECURITY: COMMON STOCK
AMOUNT: [Number of Shares exercised]
DATE: [Date of exercise]
In connection with the purchase of the above-listed Securities, the Purchaser
represents to the Seller and to the Company, the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired all such information about the Company as I deem
necessary and appropriate to enable me to reach an informed and knowledgeable
decision to acquire the Securities. I am purchasing these Securities for my
own account for investment and not with a view to, or for the resale in
connection with, any "distribution" thereof for purposes of the Securities Act
of 1933, as amended ("Securities Act").
(b) I understand that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of my
investment intent as expressed herein.
(c) I further understand that the Securities may not be sold
publicly and must be held indefinitely unless they are subsequently registered
under the Securities Act or unless an exemption from registration is available.
I am able, without impairing my financial condition, to hold the Securities for
an indefinite period of time and to suffer a complete loss on my investment. I
understand that the Company is under no obligation to me to register the
Securities except as set forth in the Registration Agreement between Optionee
and the Company dated January 6, 1997. In addition, I understand that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel for the Company.
(d) I am familiar with the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, including, among other things: (i)
the availability of certain public information about the Company; (ii) the
resale occurring not less than two years
-3-
<PAGE> 4
after the party has purchased, and made full payment for, within the meaning of
Rule 144, the securities to be sold; and, in the case of an affiliate, or of a
non-affiliate who has held the securities less than three (3) years the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934) and the amount of securities being sold during
any three-month period not exceeding the specified limitations stated therein,
if applicable.
(e) I further understand that at the time I wish to sell the
Securities there may be no public market upon which to make such a sale, and
that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that,
in such event, I would be precluded from selling the Securities under Rule 144
even if the two-year minimum holding period had been satisfied. I understand
that the Company is under no obligation to me to make Rule 144 available.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive,
the Staff of the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available from such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own
risk.
By:
----------------------
William A. Knaus, M.D.
Date:
------------------------
[Date of execution by Optionee]
-4-
<PAGE> 1
APACHE MEDICAL SYSTEMS, INC.
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income applicable to common shares:
Net loss $(4,466) $(641) $(7,638) $(1,529)
Increase in earnings resulting from conversion of convertible debt (1) - 91 - 182
------- ------ ------- -------
Loss applicable to common shares $(4,466) $(550) $(7,638) $(1,347)
======= ====== ======= =======
Weighted average number of common shares outstanding 7,245 1,444 7,242 1,444
Conversion of preferred shares and convertible debt (2) - 3,495 - 3,487
Cheap stock options and warrants (2) - 75 - 75
------- ------ ------- -------
Weighted average common shares 7,245 5,014 7,242 5,006
======= ====== ======= =======
Loss per common share $(0.62) $(0.11) $(1.05) $(0.27)
======= ====== ======= =======
</TABLE>
(1) Assumes the conversion took place January 1, 1996.
(2) Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, all common and common equivalent shares issued during the
twelve-month period prior to the filing of the initial public offering,
even when antidilutive, have been included in the calculation as if they
were outstanding for all periods, using the treasury stock method and the
initial public offering price of $12.00 per share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,773
<SECURITIES> 1,059
<RECEIVABLES> 3,739
<ALLOWANCES> (430)
<INVENTORY> 0
<CURRENT-ASSETS> 18,775
<PP&E> 3,310
<DEPRECIATION> (1,892)
<TOTAL-ASSETS> 22,037
<CURRENT-LIABILITIES> 6,680
<BONDS> 89
0
0
<COMMON> 73
<OTHER-SE> 14,997
<TOTAL-LIABILITY-AND-EQUITY> 22,037
<SALES> 5,518
<TOTAL-REVENUES> 5,518
<CGS> 0
<TOTAL-COSTS> 2,975
<OTHER-EXPENSES> 10,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> (7,638)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,638)
<EPS-PRIMARY> ($1.05)
<EPS-DILUTED> ($1.05)
</TABLE>
