<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from______________ to______________
Commission file 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 such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
7,365,189
(Number of shares of common stock, $.01 par value per share, outstanding as
of October 31, 1999)
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APACHE MEDICAL SYSTEMS, INC.
INDEX
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PAGE NO.
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements........................................................................
Consolidated Statements of Operations (unaudited) for the Three
Months and Nine Months Ended September 30, 1999 and 1998...................................
Consolidated Balance Sheets for the Nine Months Ended September
30, 1999 (unaudited) and Year Ended December 31, 1998......................................
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Nine Months Ended September 30, 1999 (unaudited)
and Year Ended December 31, 1998...........................................................
Consolidated Statements of Cash Flows (unaudited) for the Nine
Months Ended September 30, 1999 and 1998...................................................
Notes to Consolidated Financial Statements (unaudited).......................................
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................................
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................
Signatures................................................................................................
Index to Exhibits.........................................................................................
</TABLE>
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PART 1-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR TO DATE
------------------ ------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue $ 2,972 $ 2,153 $ 9,910 $ 7,903
Expenses:
Cost of goods sold 927 1,081 2,407 2,965
Research and development 131 384 582 1,034
Selling, general and administrative 1,630 2,308 5,875 6,615
--------- ---------- ---------- --------
Total expenses 2,688 3,773 8,864 10,614
Income (Loss) from Operations 284 (1,620) 1,046 (2,711)
Other income (expense):
Interest income 73 107 248 394
Interest expense (8) (9) (25) (28)
Other, net - 3 6 3
--------- ---------- ---------- --------
Net Income (Loss) $ 349 $ (1,519) $ 1,275 $ (2,342)
========= ========== ========== ========
Basic and diluted net income (loss) per
share $ 0.05 $ (0.21) $ 0.17 $ (0.32)
========= ========== ========== ========
Weighted average number of shares used
for calculation of net income (loss)
per share 7,361 7,292 7,350 7,292
========= ========== ========== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------- ----------
(in thousands except per share data)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 5,044 $ 5,532
Short-term investments 1,048 1,000
Accounts receivable, net 2,371 2,972
Prepaid expenses and other 609 749
---------- ----------
TOTAL CURRENT ASSETS 9,072 10,253
Other trade receivables, net of current maturities _ 4
Furniture and equipment 3,659 3,589
Less accumulated depreciation and amortization (3,106) (2,704)
---------- ----------
553 885
Capitalized software costs, net 717 506
Intangible assets, net 407 494
---------- ----------
TOTAL ASSETS $ 10,749 $ 12,142
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 919 $ 1,129
Accrued expenses 2,157 3,667
Deferred revenue 2,376 3,158
Current maturities of long term obligations 166 180
---------- ----------
TOTAL CURRENT LIABILITIES 5,618 8,134
Deferred rent benefit 13 62
Maturities of long term obligations, net of current
maturities 72 206
---------- ----------
TOTAL LIABILITIES 5,703 8,402
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized shares, 30,000,000
at September 30, 1999 and December 31, 1998: issued and
outstanding shares, 7,365,189 at September 30, 1999 and
7,330,473 at December 31, 1998. 74 73
Additional paid-in capital 45,800 45,770
Accumulated deficit (40,828) (42,103)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 5,046 3,740
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,749 $ 12,142
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(unaudited)
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<CAPTION>
COMMON STOCK ADDITIONAL
----------------------------- PAID-IN ACCUMULATED
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------------- ----------- -------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 7,238,922 72 45,325 (22,992) 22,405
Issuance of common stock options - - 291 - 291
Exercise of common stock options 10,490 - 30 - 30
Issuance of common stock under Employee
Stock Purchase Plan 18,344 1 57 - 58
Net Income (Loss) - - - (15,918) (15,918)
-------------- ----------- -------------- ----------------- -------------
BALANCE AT DECEMBER 31, 1997 7,267,756 73 45,703 (38,910) 6,866
Issuance of common stock under Employee
Stock Purchase Plan 62,717 - 67 - 67
Net Income (Loss) - - - (3,193) (3,193)
-------------- ----------- -------------- ----------------- -------------
BALANCE AT DECEMBER 31,1998 7,330,473 73 45,770 (42,103) 3,740
Exercise of common stock options 2,600 - 2 - 2
Issuance of common stock under Employee
Stock Purchase Plan 32,116 1 28 - 29
Net Income (Loss) - - - 1,275 1,275
-------------- ----------- -------------- ----------------- -------------
BALANCE AT SEPTEMBER 30, 1999 7,365,189 74 45,800 (40,828) 5,046
============== =========== ============== ================= =============
</TABLE>
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APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
30-SEP-99 30-SEP-98
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (IN THOUSANDS)
<S> <C> <C>
Net income (loss) $ 1,275 $ (2,342)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 632 570
Provision for doubtful accounts 616 30
Changes in operating assets and liabilities:
Accounts receivable (15) (1,487)
Other trade receivables 36 38
Other current assets 107 (453)
Accounts payable and accrued expenses (1,720) (1,270)
Deferred rent (49) (39)
Deferred revenue (782) 581
------------------- ------------------
NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES 100 (4,372)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (354) (374)
Purchase of furniture and equipment (70) (220)
Decrease in short-term investments (48) 4,233
------------------- ------------------
NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES (472) 3,639
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (13) (12)
Principal payments on borrowings (134) (138)
Proceeds from issuance of notes payable - 391
Proceeds from issuance of common stock under employee stock purchase
plan 29 51
Proceeds from issuance of common stock upon exercise of options 2 -
------------------- ------------------
NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES (116) 292
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (488) (441)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,532 5,634
------------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,044 $ 5,193
=================== ==================
SUPPLEMENTAL INFORMATION:
Cash payments for interest $ 8 $ 30
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
by APACHE Medical Systems, Inc. (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, 1998 included in the Company's Form
10-K. Results for interim periods are not necessarily indicative of the results
for any other interim period or for the full fiscal year.
Revenue for sales of systems and products are recognized at delivery.
For systems where services are critical to the functionality of the system,
revenue is recognized using contract accounting. Systems support fees are
recognized ratably over the period of performance. Professional services revenue
is recognized as these services are provided and is generally billed on a time
and material basis. Professional services do not involve significant
customization, modification or production of the licensed software. Amounts
received prior to the performance of service or completion of a milestone are
deferred. Revenue recognized for work performed for which billings have not been
presented to customers is recorded as unbilled.
2. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
The Company has implemented Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") Statement No. 128,
"Earnings Per Share," which requires dual presentation of basic and diluted
earnings per share. Basic income (loss) per share includes no dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
income (loss) per share includes the potential dilution that could occur if
securities or other contracts were exercised or converted into common stock.
Options and warrants outstanding were not included in the computation of diluted
net income (loss) per share as their effect would be anti-dilutive. Diluted net
income (loss) per share and basic earnings per share are identical for all
periods presented.
3. NEW ACCOUNTING PRONOUNCEMENTS
The American Institute of Certified Public Accountants ("AICPA") has
issued Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2")
that supersedes Statement of Position 91-1. SOP 97-2 is effective for revenue
transactions entered into by the Company in fiscal years beginning after
December 31, 1997. The Company has adopted SOP 97-2 and it did not have a
material impact on the financial statements of the Company. In March 1998, AcSEC
issued SOP 98-4, which defers for one year the implementation of certain
provisions of SOP 97-2. The issuance of SOP 98-4 had no effect on the Company.
In December 1998, the AICPA issued SOP 98-9, which extends the deferral date of
implementation of certain provisions of SOP 97-2 to 2000 and amends the method
of revenue recognition in some circumstances. The Company does not anticipate
the adoption of this SOP will have a significant effect on the results of
operations or financial position.
4. STOCKHOLDERS' EQUITY
Stock Options
On March 16, 1999, the Board of Directors adopted a Non-Employee
Director Supplemental Stock Option Plan (the "Supplemental Plan"), to be
effective January 1, 1999 subject to shareholder approval. The Supplemental Plan
provides for the issuance to non-employee directors of options to acquire up to
120,000 shares of the Company's Common Stock. The Supplemental Plan was approved
by the Company's shareholders on May 12, 1999.
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<PAGE> 8
On January 26, 1999, the Board of Directors granted options to acquire
16,700 shares of Common Stock to each non-employee director of the Company as of
such date. The effectiveness of this grant was subject to shareholder approval
of the Supplemental Plan. The exercise price of the options granted on January
26, 1999 was $1.25 per share, which price was above the fair market value of the
Common Stock on the date of grant.
On March 16, 1999, the Board of Directors approved an amendment to the
Employee Stock Option Plan, subject to shareholder approval, to increase the
number of shares of Common Stock which may be issued under the plan from
2,200,000 to 2,700,000. The amendment was approved by the Company's shareholders
on May 12, 1999.
Effective January 4, 1999, the Board of Directors granted an executive
of the Company options to acquire 339,000 shares of Common Stock under the
Employee Stock Option Plan. The exercise price of the options is equal to the
fair market value of the Company's Common Stock on January 4, 1999 or $.5938.
The options are incentive stock options to the extent allowed under the Internal
Revenue Code. 94,000 of the options vest immediately. The remaining options vest
ratably over five years; vesting may be accelerated if certain performance
targets are satisfied during the five year period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUE. Revenue for the quarter ended September 30, 1999 increased 38%
to $3.0 million from $2.2 million in the prior year period. This increase is due
primarily to an increase in Systems revenues from both new and existing
customers. Revenue for the nine months ended September 30, 1999 increased 25%
to $9.9 million from $7.9 million in the prior year period. This increase is
related to an increase in Systems revenues from existing customers offset by a
decrease in Professional Services, primarily Health Outcomes Research and
Strategic Consulting.
COST OF GOODS SOLD. Cost of goods sold for the quarter ended September
30, 1999 decreased 14% to $927,000 from $1.1 million in the prior year period.
This decrease was due primarily to a decrease in the costs associated with
Systems contracts and Professional Services. Cost of goods sold for the nine
months ended September 30, 1999 decreased 19% to $2.4 million from $3.0 million
in the prior year period. During the first half of 1999, improvements in the
Company's implementation process resulted in the reduction of previously
accrued costs related to migration contracts.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the quarter ended September 30, 1999 decreased 29%
to $1.6 million from $2.3 million in the prior year period. Selling, general and
administrative expenses for the nine months ended September 30, 1999 decreased
11% to $5.9 million from $6.6 million. These decreases were due to overall
reductions in selling, general and administrative expenses.
RESEARCH AND DEVELOPMENT. Research and development expenses for the
quarter ended September 30, 1999 decreased 66% to $131,000 from $384,000 in the
prior year period. Research and development expenses for the nine months ended
September 30, 1999 decreased 44% to $582,000 from $1.0 million in the prior
year period. These decreases were due to improvements in productivity in
product generation processes that resulted in decreases in consulting expense,
staffing requirements and related costs. The Company is continuing its
initiative to internet enable its various decision support applications while
cutting other expenses related to peripheral activities. During the nine
months ended September 30, 1999, capitalized software development costs were
$354,000, compared to $374,000 in the prior year period.
OTHER INCOME (EXPENSE). Other income decreased from $101,000 for the
quarter ended September 30, 1998 to $65,000 for the quarter ended September 30,
1999. The decrease is due to a decrease in interest income as a result of a
reduction in cash.
YEAR 2000 READINESS. The Year 2000 computer problem originated from
programmers writing software code that used two digits instead of four to
represent the year. After December 31, 1999, computers and soft-
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<PAGE> 9
ware may incorrectly assume that the year is "1900" rather than "2000." This
could lead to system failures and disruptions to activities and operations. In
addition, the Year 2000 is a leap year, which may further exacerbate incorrect
calculations, functions or system failures. At this time it is difficult to
predict the effects such disruptions could have and the liabilities that any
company may face as a result of these failures. Moreover, companies must not
only consider their own products and computer systems, but also the Year 2000
readiness of any third parties, including principal vendors and customers. The
Company has identified the following five phases to describe its process of
achieving Year 2000 readiness: awareness, assessment, renovation, validation and
implementation.
State of Readiness
The Company became aware in early 1997 of its potential Year 2000
issues and established a Year 2000 team with outside consultants to assess its
Year 2000 issues and develop an overall strategy. In 1997, the Company began an
assessment of its products, and its own information technology ("IT") and non-IT
systems and the Company's vendors to determine whether they are or will be Year
2000 ready. To ensure that the IT and non-IT systems are, or will be, Year 2000
ready, surveys of the Company's products, services and systems were conducted.
These included but were not limited to: audits and analyses of the Company's
internal IT systems including hardware and software; assessment of critical
non-IT systems, including real estate and other embedded technologies; and
surveys of principal vendors as to Year 2000 readiness. The Company identified
several internal IT and non-IT systems that were not Year 2000 ready. These
internal systems have either been replaced with Year 2000 ready systems or will
be upgraded to the Year 2000 ready product. All internal system upgrades are
expected to be completed by the fourth quarter of 1999. The Company has received
written assurances from material principal vendors as to Year 2000 readiness
within that timeframe.
The majority of the Company's efforts regarding Year 2000 readiness
focused on the Company's products, including software applications, operating
systems, relational database management systems, tools and utilities sold to
clients. The assessments indicated that the version of the Company's Medical
Cost Management Program ("MCMP") product, an application using UNIX based
terminals/clients and UNIX based servers requiring stand alone equipment, its
operating system, database releases and relational database management systems,
that was sold to customers prior to 1998, was not Year 2000 ready. The Company
accordingly, has focused its attention on its next generation CCS product. The
Company believes the application, operating systems and relational database
management system release, tools and utilities are Year 2000 ready. The CCS
product also includes new features and enhancements. The CCS product operates on
a PC based client/UNIX server platform, supporting Windows 95/NT/98. The Company
has completed renovation and validation activities on modules of the CCS product
and has implemented completed modules into the CCS product. An independent
consultant has reviewed and validated that the CCS product is Year 2000
compliant.
The assessment is complete for two other software applications that the
Company sold to clients. The Acute Care Voyager+ product has been renovated and
validated by an independent consultant. Shipment of the new product began in May
1999. The HIV Manager product has been renovated. Validation of the product was
completed October 1999.
Other software applications products sold by the Company have been
renovated and where necessary, the changes have been implemented to deliver Year
2000 ready products. Changes were implemented during the third quarter of 1999.
As an integral part of the Company's assessment, independent consulting
firms have been hired to provide additional testing and validation of the
Company's Year 2000 readiness of its software products currently being sold to
its customers. The goals and objectives of this assessment are to: validate that
software and hardware is Year 2000 ready; ensure that applications accurately
store and calculate information based on date fields which contain dates before
and after the Year 2000; ensure that communications software and hardware is
Year 2000 ready; ensure that appropriate stored and archived data will be
consistent with Year 2000 certified software; and engineer a test facility that
will be available to the Company's personnel, as well as its customers, to
verify that such certified systems are in fact Year 2000 ready. This additional
validation and testing has two phases. The first phase consists of reassessment
and renovation. The second phase repeats the process of ongoing assessment,
renovation of problems, and validation of corrections. Initial validation of
Year 2000 readiness was completed during the first quarter of 1999. Additional
validation and testing is in process and on schedule.
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Costs to Address Year 2000 Issues
The calculation of costs incurred to address Year 2000 issues has been
limited to costs to bring the Company's products, and its own IT and non-IT
systems to Year 2000 readiness or to accelerate replacement systems to become
Year 2000 ready. Costs incurred in the normal maintenance of the Company's IT
and non-IT systems are not included. The Company estimates it has incurred
approximately $965,000 to date for Year 2000 assessment, renovation, validation,
and implementation and accelerated development costs, and that total costs
through implementation will be approximately $1.1 million.
Risks of the Company's Year 2000 Issues
As the existing MCMP product operating system and relational database
management system releases could not be confirmed Year 2000 ready, the Company
has decided not to support the MCMP product beyond December 15, 1999. The
Company offered existing clients the ability to migrate to the new CCS product
on favorable terms. A majority of the clients using the old UNIX version of the
MCMP product have migrated to the new CCS product. The remainder have indicated
that they intend to discontinue use of the existing product completely or are
still assessing their systems and migrations options. The Company's ability to
perform migrations by December 15, 1999 is dependent upon the Company's timely
receipt of migration contracts and the technical cooperation of its customers.
The favorable terms and migration services offered to existing customers to
encourage migration to the new CCS product are not expected to have a material
impact on the Company's future operating results or financial position. Because
the Company is not yet aware of the plans of the remaining customers who have
not yet accepted the Company's terms for migration to the new CCS product, the
Company is not yet able to fully evaluate the impact of Year 2000 issues
associated with the UNIX version of the MCMP product. Due to the uncertain
nature of Year 2000 issues and their impact on the industry, the outcome cannot
be predicted at this time. The Company believes that this uncertainty should be
resolved and clarified by the fourth quarter of 1999.
Company's Contingency Plans
At the current time, the Company anticipates that essential products
and IT and non-IT systems will be validated as Year 2000 ready in all material
respects. This belief is based on the progress to date and the assessed degree
of difficulty associated with the remaining phases to achieve Year 2000
readiness, the representations made by vendors and, where possible, testing.
There can be no assurance, however, of complete Year 2000 readiness. Contingency
plans are under development and the Company anticipates that acceptable
alternatives will be available in the event that a contingency arises. These
contingency plans generally anticipate use of alternative vendors for hardware
and operating systems. Nonetheless, it is not possible for the Company to fully
assess the likelihood or magnitude of consequences of Year 2000 issues, should
representations made by vendors prove to be in error.
Potential Impact of Year 2000 on Company's Business
The Company anticipates that virtually all of its customers and
potential customers will be required to evaluate the Year 2000 readiness of
their information technology systems. Some of the Company's customers and
potential customers may incur material costs in connection with this evaluation
and any necessary repairs and replacements. Customers and potential customers
may be required to devote material portions of their information technology
budgets to address their own Year 2000 readiness issues. This could materially
reduce their other information technology purchases in 1999, including their
purchases of the Company's products, particularly as the year 2000 date change
draws closer. The Company cannot quantify at this time the degree to which this
issue may affect the Company's customers, potential customers or its own
business.
Year 2000 Information and Readiness Disclosure Act
This section captioned "Year 2000 Readiness," as well as other
statements herein or otherwise relating to the Year 2000 issues, are "Year 2000
Readiness Disclosures" pursuant to the "Year 2000 Information and Readiness
Disclosure Act."
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LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments were $6.1 million as of September 30,
1999 compared to $6.5 million as of December 31, 1998.
During the third quarter, the Company executed a lease to remain in its
existing headquarter office space. The rental payments under the lease will
increase from approximately $40,000 per month to approximately $54,000 per month
beginning December 1, 1999. The term of the lease is seven years.
The Company anticipates that remaining net proceeds from the initial
public offering and funds generated from operations 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 through the next twelve months. Through September 30, 1999, the
Company has incurred cumulative net operating losses of approximately $40.8
million. There can be no assurance that the Company will be profitable in the
future or that present capital will be sufficient to fund the Company's ongoing
operations. If additional financing is required to fund operations, there can be
no assurance that such financing can be obtained or obtained on terms acceptable
to the Company.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Statements in this filing which are not historical facts are
forward-looking statements under provisions of the Private Securities Litigation
Reform Act of 1995. All forward-looking statements involve risks and
uncertainties. The Company wishes to caution readers that the following
important factors, among others, in some cases have affected, and in the future
could affect the Company's actual results and could cause its actual results in
fiscal 1999 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
Important factors that could cause actual results to differ materially
include but are not limited to the Company's: having sufficient sales and timely
collections to meet cash requirements and achieve profitability; ability to
correctly estimate and address its Year 2000 costs and liabilities; ability to
attract and retain key employees; success of its strategy to concentrate its
product offerings on high-risk, high-cost patients; ability to timely develop
new products and enhance existing products; ability to compete in the
competitive and rapidly evolving healthcare information technology industry;
success of its marketing and consulting efforts and ability to effectively
utilize its direct sales force; ability to protect proprietary information and
to obtain necessary licenses on commercially reasonable terms; ability to comply
with and adopt products and services to potential regulatory changes; and
ability to adapt to economic, political and regulatory conditions affecting the
healthcare industry.
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary from quarter to quarter in the
future. Quarterly revenues and operating results may fluctuate as a result of a
variety of factors, including: the Company's relatively long sales cycle;
variable customer demand for its products and services; changes in the Company's
product mix and the timing and relative prices of product sales; the loss of
customers due to consolidation in the healthcare industry; changes in customer
budgets; investments by the Company in marketing or other corporate resources;
acquisitions of other companies or assets; the timing of new product
introductions and enhancements by the Company and its competitors; changes in
distribution channels; sales and marketing promotional activities and trade
shows; and general economic conditions. Further, due to the relatively fixed
nature of most of the Company's costs, which primarily include personnel costs,
as well as facilities costs, any unanticipated shortfall in revenue in any
fiscal quarter would have an adverse effect on the Company's results of
operations in that quarter. Accordingly, the Company's operating results for any
particular quarterly period may not necessarily be indicative of results for
future periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding the Company's investment securities as it relates
to market risk is not included as the possible effect of such risk is considered
to be immaterial.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following Exhibits are filed herewith and made a part hereof:
<TABLE>
<CAPTION>
Exhibit Number Description
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<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 **
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 **
</TABLE>
- 12 -
<PAGE> 13
<TABLE>
<S> <C>
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 the Company and Gerald E. Bisbee, Jr., Ph.D., dated May 5,
1997 *****
10.18 Employment Agreement by and between the Company and Scott A. Mason, dated June 15, 1999
**********
10.19 Nonqualified Stock Option Agreement between the Company and William A. Knaus, M.D. dated May
29, 1997 *****
10.20 APACHE Medical Systems, Inc. Employee Stock Option Plan, Amended and Restated Effective May 12,
1999 *********
10.21 Form of 1998 Employment Agreement ******
10.22 Form of Nonqualified Director Stock Option Agreement ******
10.23 Employment Agreement by and between Peter Gladkin and the Company, dated May 30, 1998 *******
10.24 Employment Agreement by and between Gina Campbell and the Company, dated August 24,
1998********
10.25 Employment Agreement by and between Karen Miller and the Company, dated September 30, 1998 ********
10.26 Employment Agreement by and between Violet Shaffer and the Company, dated April 28, 1998*********
10.27 APACHE Medical Systems, Inc. Non-Employee Director Supplemental Stock Option Plan *********
10.28 Employment Agreement by and between Sean Seerey and the Company, dated May 11, 1999 **********
11.1 Computation of Earnings (Loss) Per Share **********
27.1 Financial Data Schedule **********
++ Confidential treatment was requested for a portion of this Exhibit
* Incorporated herein by reference to the Company's Report on Form 8-K filed on January 14, 1997
(File No. 0-20805)
** Incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No.
333-04106)
</TABLE>
- 13 -
<PAGE> 14
<TABLE>
<S> <C>
*** Incorporated herein by reference to the Company's Current Report on Form 8-K filed on June 4,
1997 (File No. 0-20805)
**** Incorporated herein by reference to the Company's Report on Form 10-Q for the quarter ended
March 31, 1997 (File No. 0-20805)
***** Incorporated herein by reference to the Company's Report on Form 10-Q for the quarter ended
June 30, 1997 (File No. 0-20805)
****** Incorporated herein by reference to the Company's Report on Form 10-K for the year ended
December 31, 1997 (File No. 0-20805)
******* Incorporated herein by reference to the Company's Report on Form 10-Q for the quarter ended
June 30, 1998 (File No. 0-20805)
******** Incorporated herein by reference to the Company's Report on Form 10-K for the year ended
December 31, 1998 (File No. 0-20805)
********* Incorporated herein by reference to the Company's Report on Form 10-Q for the quarter ended
March 31, 1999 (File No. 0-20805)
********** Filed herewith
</TABLE>
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K during the quarterly period
ended September 30, 1999.
- 14 -
<PAGE> 15
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.
<TABLE>
<CAPTION>
APACHE MEDICAL SYSTEMS, INC.
<S> <C>
Date: November 12, 1999
-----------------
By: /s/Peter Gladkin
-------------------------
Peter Gladkin
President and Chief Executive Officer
By: /s/Karen C. Miller
---------------------------
Karen C. Miller
Vice President of Finance & Chief Financial Officer
</TABLE>
- 15 -
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.18 Employment Agreement by and between the Company and Scott A. Mason, dated June 15,
1999
10.28 Employment Agreement by and between Sean Seerey and the Company, dated May 11, 1999
11.1 Computation of Earnings (Loss) Per Share
27.1 Financial Data Schedule
</TABLE>
- 16 -
<PAGE> 1
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into this June 15,
1999, by and between Scott Mason (the "Executive") and APACHE MEDICAL SYSTEMS,
INC., a Delaware corporation (the "Company").
WHEREAS, the Company considers Executive to be a valued employee with
significant expertise; and
WHEREAS, the Company wishes to retain the continued employment and
maintain existing non-competition, and non-solicitation and severance pay
provisions applicable to Executive in consideration for Executive's agreement to
the terms and conditions set forth herein; and
WHEREAS, Executive desires to continue to be an employee of the Company on
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the promises and mutual agreements
made herein, and intending to be legally bound hereby, the Company and Executive
agree as follows:
1. Employment Term. The Company will continue to employ Executive for a
term commencing on June 15, 1999 and ending on January 31, 2000 ("Employment
Term"). The Employment Term shall be automatically extended for additional
one-year terms, unless Executive or the Company provides ninety (90) days'
advance written notice to the other of its intention not to renew.
2. Employment Duties. Executive will continue to serve as an Executive
Vice President of the Company reporting directly to the Chief Executive Officer
and responsible for compliance with policies and practices of the Company and
keeping within same for the day to day management of National Health Advisors
and shall perform such other duties as may be assigned from time to time by the
Company. Executive 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. (a) Compensation. In exchange for Executive's services under this
Agreement, the Company shall pay Executive as salary $180,250 per annum. Salary
shall be payable in twenty-four (24) equal bi-monthly installments and otherwise
in accordance with the Company's ordinary pay practices. Any payments made to
Executive pursuant to this Section 3 shall be treated as wages for withholding
and employment tax purposes.
1
<PAGE> 2
(b) Performance Bonus. Executive shall be eligible to receive during
the Employment Term an annual performance bonus based on the attainment by
APACHE of annual performance goals referenced in Attachment 1.
The amount of actual payment, if any, shall be based on a
sliding scale and proportional to the level of the performance goals as
determined by the Chief Executive Officer and the Compensation Committee. The
actual bonus will be below, at, or above the target bonus based upon actual
performance achieved by year end as measured against original target
performance.
The target bonus shall be up to $125,000.
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 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 4 weeks paid vacation in
accordance with the general terms of the Company's vacation policy generally
applicable to Executive Staff.
5. Stock Options. Executive will be eligible for regular annual review and
award of stock options on the same basis as other executive management level
staff and according to the terms of the Company's Employee Stock Option Plan and
the Company's Incentive Stock Option Agreement.
6. Other.
(a) 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 current policies regarding business expenses and to the
approval of the Company's Chief Executive Officer.
(b) 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 standard employee benefit programs (e.g.,
disability benefits, life insurance or medical insurance) maintained by the
Company from time to time, subject to the
2
<PAGE> 3
eligibility and participation rules in effect from time to time for such
programs, provided that the Company will not materially reduce the value in the
aggregate of such benefits to Executive.
(c) Executive agrees and acknowledges that APACHE 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.
7. Non-Competition, Non-Solicitation. Executive agrees that throughout the
duration of his employment with the Company and for two years thereafter,
regardless of the reason for his termination, he shall not, either directly or
indirectly: (a) solicit or attempt to secure the Company's existing clients or
customers at the time of Executive's termination, and (b) the Executive shall
not directly or indirectly hire or cause to be hired or contract with or solicit
or recommend for employment any employee of the Company. (c) Executive continues
to be bound by the "Proprietary Information, Inventions, Non--Competition and
Non-Solicitation Agreement" (Attachment 2).
8. Termination.
(a) For Cause. Notwithstanding any other provision of this
Agreement, Executive's employment with the Company and this Agreement may be
terminated by the Company at any time and without notice for cause. For purposes
of this Agreement, "cause" 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; (iv) willful disregard by Executive of instructions of the CEO or the
Board; or (v) performance of any similar action that the CEO and the
Compensation Committee of the Board of Directors, in their sole discretion, may
deem to be sufficiently injurious to the interests of the Corporation so as to
constitute substantial cause for termination. In the event of termination under
this Section 8(a), 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 and any stock options vested as of his termination date. Termination
of Executive pursuant to this Section 8(a) shall not relieve him of his
obligations under Sections 7 and 8(e).
(b) Without Cause. Notwithstanding any other provision of this
Agreement, Executive's employment with the Company and this Agreement may be
terminated by the Company for any reason or for no reason, provided that in the
event of such termination, Executive shall be entitled to all stock options
vested as of his termination date which options may be exercised according to
the terms of the
3
<PAGE> 4
Company's Employee Stock Option Plan and the Company's Incentive Stock Option
Plan and continuation of his salary and Company-provided health insurance
benefits for twelve (12) months. 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 exercise of vested
stock options as per the terms of the Employee Stock Option Agreement.
Termination of Executive pursuant to this Section 8(b) shall not relieve him of
his obligations under Section 7 and 8(e).
(c) Material Change in Responsibility. During the term of this
Agreement, Executive may terminate his employment with the Company and this
Agreement upon ninety (90) days' advance written notice in the event of any
"material change in responsibility." For purposes of this Agreement, a "material
change in responsibility" shall mean a material change in his duties or
authority. Should Executive provide written notice to the Company pursuant to
this Section, the Company may cure the "material change in responsibility"
during the 90-day notice period which cure may not be unreasonably rejected by
Executive. Notice of termination under this Section 8(c) shall be valid only if
received by the Company within 120 days after the "material change in
responsibility" occurred. In the event of termination under this Section 8(c),
Executive shall be entitled to all vested stock options, which may be exercised
according to the terms of the Company's Employee Stock Option Plan and the
Company's Incentive Stock Option Plan, and continuation of his salary and
Company-provided health insurance benefits for twelve (12) months.
(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 the Company. In such
event, Executive shall continue to receive regular payments of the Base Annual
Salary only through the effective date of Executive's termination. The Company
reserves the right to substitute pay in lieu of any part or all of such 90-day
notice period.
(e) Incorporation By Reference. Executive agrees and acknowledges
that he continues to be bound by the terms of the Proprietary Information,
Inventions, Non-Competition and Non-Solicitation Agreement previously signed by
Executive and attached and incorporated by reference in the Merger Agreement as
Attachment 2 ("the Proprietary Information Agreement"). Termination of Executive
pursuant to this Section 8(c) shall not relieve Executive of his obligations
under Sections 7 and 8(e).
9. Termination Due to Change in Control.
(a) Defined. For purposes of this Agreement, a "change in control"
is: (1) 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 thirty percent
(30%) or more of either the outstanding shares of common stock or the combined
voting power of the Company's
4
<PAGE> 5
then outstanding voting securities entitled to vote generally; (2) 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 thirty percent (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; (3) a
liquidation or dissolution of the Company; or (4) the sale of all or
substantially all of the Company's assets.
(b) In the event that a change in control results in either an
involuntary termination of Executive through elimination of his position or a
voluntary termination as a result of a material change in responsibility
pursuant to Section 8(c) or transfer of Executive to a location outside of a
50-mile radius of his permanent residence, Executive shall be entitled to all
vested stock options, which may be exercised during the Severance Period as
defined in this Agreement, and continuation of his salary and Company-provided
health insurance benefits for twelve (12) months.
(c) A "change in control" will not effect or diminish Executive's
rights and obligations under any provision of this Agreement, including, without
limitation, Sections 8, 9, 10, 11, and 12. Termination pursuant to this Section
9 shall not relieve Executive of his obligations under Sections 7 and 8(e).
10. Disability. If, prior to expiration or termination of the Employment
Term, Executive becomes unable to perform his duties by reason of death or
permanent disability, the Company shall have the right to immediately terminate
this Agreement by giving written notice to Executive to that effect. 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 four (4) months during any twelve (12) month period.
11. Notices.
(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:
----------------
----------------
----------------
5
<PAGE> 6
If to the Company:
------------------
Chief Executive Officer
APACHE Medical Systems, Inc.
1650 Tysons Boulevard #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.
12. Confidentiality. In the course of performing duties under this
Agreement, Executive may have access to "Confidential Information," including
but not limited to contracts, contract proposals, proprietary information, trade
secrets, inventions, procedures, processes, financial information, business
records, business plans, and other information of a confidential and proprietary
nature owned by the Company. Executive acknowledges that protection of this
Confidential Information is of critical importance to the Company. To ensure
that such Confidential Information is not disclosed or divulged to other
persons, Executive agrees as follows:
(a) that said Confidential Information is the property of the
Company and is to be held by Executive in trust and solely for the benefit of
the Company;
(b) that Executive shall not disclose or otherwise make available
such Confidential Information to any person or entity without the prior written
consent of the Company, except as necessary for the performance of Executive's
services under this Agreement;
(c) that Executive shall not in any way utilize such Confidential
Information for the gain or advantage of Executive or others or to the detriment
of the Company; and
(d) that upon termination of this Agreement, Executive shall
promptly return any and all such Confidential Information to the Company and
shall continue to abide by the confidentiality provisions of this Section Twelve
(12).
13. Assignment of Agreement. 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).
14. Entire Agreement/Modification of Agreement. This Agreement contains
all of the agreements between the parties with respect to the subject matter
hereof, and
6
<PAGE> 7
this Agreement supersedes all other agreements, oral or written, between the
parties with respect to the subject matter hereof. 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.
15. Severability. 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.
16. Headings. The section headings or titles herein are for convenience of
reference only, shall not be deemed a part of this Agreement, and shall not in
any way affect the meaning or interpretation of this Agreement.
17. Resolution of Disputes. 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 ninety
(90) days of the date the aggrieved party first has knowledge of the event
giving rise to the claim or ninety (90) days following the 120-day period in the
case of a "Material Change in Responsibility" as defined in Section 7, 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 waiving any right he may have to have any dispute decided in court and
by a jury. The losing party will bear the cost of the arbitrator.
18. Applicable Law. This Agreement shall be governed and construed
according to the laws of the Commonwealth of Virginia and, where appropriate,
the United States of America. Executive expressly submits and consents in
advance to the jurisdiction of the federal and state courts of the Commonwealth
of Virginia for all purposes in connection with any action or proceeding arising
out of or relating to this Agreement for all disputes not resolved pursuant to
Section 17.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
/s/ Scott A. Mason
-------------------------------
Scott A. Mason
APACHE MEDICAL SYSTEMS, INC.
By: /s/ Peter Gladkin
----------------------------
Name: Peter Gladkin
Title: President & Chief Executive Officer
8
<PAGE> 9
ATTACHMENT 1
The following is predicated upon your continued fulltime employment
through the end of the initial employment term (Jan. 31, 2000).
1) Cash Bonus
- - During the 1st quarter of 1999 you have already received 60% of your 1998
referenced potential cash Bonus (this is the total earned "1998 bonus").
- - During the 2nd quarter of 1999 you will receive consideration for a cash
advance of up to 1/4 of the total 1999 projected cash bonus earned.
- - During the 3rd quarter of 1999 you will receive a final payment of 40% of
the 1998 cash bonus amount and accept same as full settlement of all prior
bonus issues.
- - The 4th quarter bonus advance amount is zero.
Any 1999 cash bonus earned will be calculated based on an equal
weighting of NHA and APACHE Performance. The APACHE portion will be based on
APACHE's meeting its 1999 revenue and operating profit targets as described in
the "1999 employee bonus plan."
The entire 1999 bonus will be calculated utilizing the following
sliding scale.
BONUS SLIDING SCALE
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
COMBINED ACTUAL PERFORMANCE AS A % OF 1999 0-65% >65% >70% >80% >90% >100%
TARGET.
% POTENTIAL BONUS EARNED ZERO 25% 40% 70% 85% 100%
</TABLE>
The sliding scale will be interpolated at the discretion of the CEO.
/s/ Peter Gladkin /s/ Scott Mason
- --------------------------------- ----------------------------------
Peter Gladkin Scott Mason
President & CEO
APACHE Medical Systems
<PAGE> 10
ATTACHMENT 2
PROPRIETARY INFORMATION, INVENTIONS,
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
This Proprietary Information, Inventions, Non-Competition and
Non-Solicitation Agreement (the "Agreement") is executed as of this 2nd day of
June, 1997, by and between APACHE Medical Systems, Inc., a Delaware corporation
("APACHE"), and its subsidiaries and affiliates, including but, not limited to,
the National Health Advisors Ltd., a Virginia corporation ("NHA") (individually
and collectively, the "Company"), and Scott A. Mason (the "Executive").
WHEREAS, Executive is a primary shareholder and is employed as
President and Managing Partner of NHA; and
WHEREAS, NHA is being merged into and with APACHE and will become a
wholly-owned subsidiary of APACHE pursuant to an Agreement and Plan of Merger
dated on a date even herewith (the "Merger Agreement"), pursuant to which
Executive will realize a significant and substantial personal gain; and
WHEREAS, NHA has been, is, and will be engaged in the highly
competitive business of providing healthcare consulting services to hospitals
and hospital systems in the area of strategic and operational consulting and
other future business initiatives, on a national basis, APACHE has been, is, and
will be engaged in the highly competitive business of developing, selling,
licensing or otherwise merchandising computer programs, databases and related
manuals, service and knowhow for the purpose(s) of: (i) managing the quality and
utilization of patient care or related services using outcomes management
applications; and (ii) assessing and/or predicting mortality and other treatment
outcomes of hospital patients or outpatients; and (iii) recording patient health
factors in connection with predicting their treatment, managing clinical
productivity or containing costs through the use of outcomes management
applications, and other future business initiatives, on a national basis
(collectively the "Business"); and
WHEREAS, the Company wishes to employ Executive pursuant to the terms
and conditions of the Employment Agreement between Executive and APACHE dated on
a date even herewith; and
WHEREAS, a material inducement to APACHE to enter into the Merger
Agreement and to employ Executive is the agreement of Executive to make certain
commitments to engage in and refrain from certain activities as described in
this Agreement, which commitment is necessary to ensure the protection of the
Company's legitimate business interests in the Business, including, but not
limited to, the protection of the goodwill, client and customer relationships
and Confidential Information (as defined in Article 1 of this Agreement) of the
Company.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth in the Merger Agreement, the Employment Agreement and hereinafter, the
parties agree as follows:
<PAGE> 11
ARTICLE 1
CONFIDENTIALITY
1.1 Definition. "Confidential Information" for purposes of this
Agreement shall be defined as all information, knowledge or data relating to the
Business, including, but not limited to, trade secrets; financial information;
technological and engineering data; formulas; production plans and methods;
business applications and techniques; research and development activities;
preferences and identities of clients, customers, vendors, suppliers and
prospective clients, customers, vendors and suppliers; current, prospective and
ongoing business strategies, plans and techniques; computer and other programs,
software, devices, methods, techniques, processes and inventions; compilations
and other materials developed by or on behalf of the Business (whether in
written, graphic, audiovisual, electronic or other media, including computer
software), which has been or may be subject to reasonable efforts to maintain
its confidentiality, is not generally known to the public or by competitors of
the Company, and which derives its value from remaining undisclosed.
Confidential Information also includes information in the above categories of
any client, customer, supplier, vendor or other third party doing business with
the Company, which has been or will be disclosed to the Company in the course of
conduct of the Business. Confidential Information does not include any
information that is in the public domain or otherwise is or becomes publicly
available (other than as a result of a wrongful act of Executive or any owner,
agent or employee of the Company).
1.2 Acknowledgments. Executive acknowledges that by virtue of his
past relationship with NHA and his integral participation in the conduct of
NHA's business, he has been intimately involved with and privy to Confidential
Information of NHA, which is a valuable asset of the Company, and which, if
disclosed or used without authorization, could cause irreparable harm to the
Company. Executive further acknowledges that by virtue of his future employment
relationship with the Company and his integral participation in the conduct of
the Business, he will be intimately involved with and privy to Confidential
Information, which is a valuable asset of the Company and which, if disclosed or
used without authorization, could cause irreparable harm to the Company.
1.3 Agreement Not to Use or Divulge Confidential Information.
Executive acknowledges that all Confidential Information is the exclusive
property of the Company. Executive agrees to hold all Confidential Information
in trust for the benefit of the Company or any third party as described in
Section 1.1 above. Executive further agrees not to use in any manner, during his
employment and at all times thereafter so long as it remains confidential, for
his benefit or for the benefit of any other individual or entity, or divulge or
convey to any other individual or entity, any Confidential Information without
the prior written permission of the Chief Executive Officer of APACHE or his/her
designee (the "CEO"), unless required to do so by legal process; provided that,
before making such disclosure, Executive shall advise the CEO and will cooperate
fully in any legal action the Company may elect to take in order to attempt to
prevent such disclosure.
1.4 Return of Materials. Executive acknowledges that he does not have
and will not acquire any right, title or interest in or to any Confidential
Information or any part thereof as a result of Executive's prior relationship
with NHA, future employment by the Company or otherwise. Executive agrees to
deliver promptly to the Company, upon termination of his employment
-2-
<PAGE> 12
for any reason, all letters, lists, notes, reports, memoranda, documents, data,
computer programs and all other property and materials, and copies thereof,
which were obtained or made by Executive during his employment by the Company or
prior relationship with NHA, which contain or relate in any way to Confidential
Information, and to destroy any electronically stored versions of the foregoing
in Executive's possession or control which are not otherwise in the possession
or control of the Company.
1.5 Disclosure and Assignment of Inventions and Creative Works.
Executive agrees to promptly disclose in writing to the Company all inventions,
ideas, discoveries, formulas, developments, improvements and innovations,
regardless of whether they are patentable (collectively "Inventions"), and all
copyrightable works, including without limitation computer software designs and
programs ("Creative Works"), conceived, made or developed by Executive, whether
solely or together with others, during the period he is employed by the Company
and during the six-month period following the termination of Executive's
employment for any reason. Executive agrees that all Inventions and Creative
Works conceived, made or developed by him, whether during working hours or
otherwise, that: (a) relate directly to the Business of the Company or to its
actual or demonstrably anticipated research or development, or (b) result from
Executive's work for the Company, or (c) involve the use of any equipment,
supplies, facilities, Confidential Information or time of the Company, are the
exclusive property of the Company. Executive hereby assigns and agrees to
assign, all right, title and interest in and to all such Inventions and Creative
Works to the Company. Executive further agrees to perform all reasonable actions
necessary to assist the Company in establishing, confirming and defending its
rights with respect to such Inventions and/or Creative Works. Executive
understands that his obligations under this Agreement do not require him to
assign rights to Inventions or Creative Works which he develops on his own time
without using the Company's equipment, supplies, facilities or Confidential
Information, unless they relate directly to the Business or the Company's actual
or demonstrably anticipated research or development at the time of conception,
or result from any work performed for the Company by Executive.
ARTICLE 2
NON-COMPETITION
2.1 Acknowledgments. Executive acknowledges that the Company's
products and services are highly specialized, that the identity and particular
needs of individual clients, customers, vendors and suppliers are not generally
known to the public or by individuals or entities engaged in the Business, and
the Company has a proprietary and valuable interest in the Confidential
Information. Furthermore, in connection with the limited protection provided by
the covenants contained in this Article 2, Executive acknowledges that his
ability to compete directly or indirectly has been limited only to the extent
necessary to protect the Company's legitimate business interest, and that he is
not thereby precluded from earning a living.
2.2 Non-Competition. As a material inducement to APACHE to enter
into the Merger Agreement, in consideration of the fact that Executive is a
principal owner of the assets and property of NHA and will receive a direct and
substantial benefit as of the closing date of the merger, and in recognition of
Confidential Information to which Executive has been and will be privy by virtue
of his past and future relationship with NHA and the Company, Executive agrees
that, during his employment by the Company and for a period of two (2) years
following the
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termination of his employment for any reason, he will not, directly or
indirectly, by any means or device whatsoever, for himself, or on behalf of or
in conjunction with any person, partnership, corporation, limited liability
company or other entity whatsoever, do any one or more of the following:
2.2.1 solicit, induce, entice, hire or employ, or attempt to
solicit, induce, entice, hire or employ any employee of the Company, so as to
cause or attempt to cause such employee to leave the employ of the Company
and/or to accept employment elsewhere, regardless of whether such other
employment would be competitive with the Business;
2.2.2 own, operate, manage, consult for, be affiliated with,
be employed by, or render services to, any person, partnership, corporation or
other entity whatsoever, which is competitive with the Business, or otherwise
compete with the Business, in a capacity which is the same as or substantially
similar to the capacity in which he serves the Company, in any geographic areas
in the United States where the Company engages in the Business as of the date of
Executive's termination; or
2.2.3 call on, contact, solicit or otherwise seek to deal or
deal with any actual or known potential client, customer, vendor or supplier of
the Company which was an actual or known potential client, customer, vendor or
supplier of the Company during Executive's employment or as of the date of
Executive's termination, whichever may be applicable, for the purpose of
interfering with, disrupting or competing with the Company in the Business.
ARTICLE 3
INSIDER TRADING
3.1 Nondisclosure of Material Information. If, during the term of
Executive's employment, he becomes aware of any material information regarding a
third party by whom the Company is or has been engaged, which has not been made
available to the public for at least one full business day, Executive agrees
that he will not trade, directly or indirectly, in the securities of such third
party, nor directly or indirectly disclose any material information to any other
person or entity who is likely to trade in such third party's securities.
3.2 Material Information. For purposes of this Article 3, information
is considered material if there is a substantial likelihood that an investor
would consider the information to be important in deciding whether to buy, sell
or hold securities of a third party. Accordingly, information will be considered
material regardless of whether it:
3.2.1 is positive or negative;
3.2.2 was received from a source inside the third party or from
a source which is not connected with the third party;
3.2.3 affects the third party, or its business conditions
(financial or otherwise), operations, assets, net worth or prospects (so-called
"inside information") or market price of its securities (so called "market
information"); or
3.2.4 would, in and of itself, determine an investor's
decision.
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3.3 Made Available to the Public. Information will be considered made
available to the public only if it has been:
3.3.1 disclosed in an annual report or quarterly report
distributed or made available by the third party to its security holders;
3.3.2 included in a widely disseminated press release intended
for and made available to the general public; or
3.3.3 widely reported in the media.
ARTICLE 4
MISCELLANEOUS
4.1 Governing Law. Notwithstanding the principles of conflicts of law
of any jurisdiction to the contrary, all terms and provisions of this Agreement
are to be construed and governed by the laws of the State of Virginia, without
regard to the laws of any other jurisdiction, wherein Executive may reside,
where the Company is located or the Business is conducted, or where any
violation of this Agreement occurs. Any suit, action or other legal proceeding
arising out of or relating to this Agreement shall be brought exclusively in the
federal or state courts serving Fairfax County, Virginia, and Executive and the
Company hereby irrevocably consent to personal jurisdiction in the State of
Virginia and to venue in such courts and waive any and all objections to such
jurisdiction and venue.
4.2 Successors and Assigns. This Agreement shall inure to the benefit
of and be enforceable by the Company and, its successors and assigns.
4.3 Waivers. The waiver by the Company of a breach by Executive of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach by Executive.
4.4 Complete Agreement. This Agreement, the Employment Agreement and
the Merger Agreement contain the complete agreement and understanding between
the Company and Executive with respect to the subject matter thereof and hereof,
and supersede and preempt any prior understandings, agreements and
representations between the parties, written or oral, relating to such subject
matter.
4.5 Additional Rights and Causes of Action. This Agreement is in
addition to and does not in any way waive or detract from the rights or causes
of action available to the Company under any statutory or common law.
4.6 Revision. If, at the time of enforcement of this Agreement, a
court holds that the restrictions stated herein are unreasonable because they
are overly broad as to time, geographic area and/or scope of conduct limited
under circumstances then existing, and therefore are unenforceable, the parties
agree that such court shall revise this Agreement by substituting the maximum
time period, geographic area and/or scope deemed reasonable and enforceable
under such circumstances.
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4.7 Enforcement. Executive acknowledges that his breach of any
provision of this Agreement would cause irreparable harm to the Company, and
that money damages would be an inadequate remedy for any such breach. Therefore,
in the event Executive breaches or threatens to breach any provision of this
Agreement, the Company or its successors or assigns, in addition to other rights
and remedies existing in its or their favor, may apply to any court of competent
jurisdiction for specific performance, injunctive and/or other equitable relief
in order to enforce or prevent any violation of this Agreement.
4.8 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, and such invalidity, illegality or unenforceability is not subject
to revision pursuant to Section 4.6 hereof, such invalidity, illegality or
unenforceability will not affect any other provision, but this Agreement will be
reformed, construed and/or enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
4.9 Survival. This Agreement shall survive the termination of
Executive's employment for any reason.
IN WITNESS, WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
APACHE Medical Systems, Inc.
/s/ Scott A. Mason /s/ Peter Gladkin
By:
- ----------------------- -----------------------------
Scott A. Mason Peter Gladkin
Its: Chairman and Chief Executive Officer
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EXHIBIT 10.28
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into this 11th day of
May, 1999, by and between Sean Seerey (the "Executive") and APACHE MEDICAL
SYSTEMS, INC., a Delaware corporation (the "Company").
WHEREAS, the Company considers Executive to be a valued employee with
significant expertise; and
WHEREAS, the Company desires to extend certain stock options and establish
severance pay provisions applicable to Executive in consideration for
Executive's promotion and agreement to the terms and conditions set forth
herein; and
WHEREAS, Executive desires to continue to be an employee of the Company on
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the promises and mutual agreements
made herein, and intending to be legally bound hereby, the Company and Executive
agree as follows:
1. Employment Term. The Company will employ Executive for a term
commencing on May 16, 1999 and ending on May 15, 2000 ("Employment Term"). The
Employment Term shall be automatically extended for additional one-year terms,
unless Executive or the Company provides ninety (90) days' advance notice to the
other of its intention not to renew.
2. Employment Duties. Executive will serve as Vice President, Sales of the
Company and shall perform such duties as may be assigned from time to time by
the Company. Executive 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 $125,000 per annum. Salary
shall be payable in twenty-four (24) equal bi-monthly installments and otherwise
in accordance with the Company's ordinary pay practices. Executive shall also be
eligible for a Performance Bonus, the terms of which are described on the
"Performance Plan" attached to this Agreement as Exhibit 3. Any payments made to
Executive pursuant to this Section 3 shall be treated as wages for withholding
and employment tax purposes.
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,
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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 Executive Staff.
5. Stock Options. Executive is eligible for a new stock option grant in
the amount of 20,000 shares pursuant to the Incentive Stock Option Agreement,
attached as Exhibit 1 to this Agreement, and the Nonstatutory Stock Option
Agreement, attached as Exhibit 2 to this Agreement.
6. 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.
7. Non-Competition, Non-Solicitation. Executive agrees that throughout the
duration of his employment with the Company and for the duration of 12 months
thereafter, regardless of the reason for his termination, he shall not, either
directly or indirectly: (a) solicit or attempt to secure the Company's existing
clients or customers at the time of Executive's termination; and (b) the
Executive shall not hire, contract with or solicit for employment any employee
of the Company. For general purposes of this Agreement, "Severance Period" shall
be defined as the period of time for which Executive receives a continuation of
his salary and Company-provided health insurance benefits or, in the case of
Executive's resignation that is not occasioned by a Material Change in
Responsibility or by a Change in Control as Defined by Sections 8(c) and 9, six
months.
8. Termination.
(a) For Cause. Notwithstanding any other provision of this
Agreement, Executive's employment with the Company and this Agreement may be
terminated by the Company at any time and without notice for cause. For purposes
of this Agreement, "cause" shall mean the Executive's (i) commission of an
action against or in derogation of the interests of the Corporation 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 the
Executive by the Corporation; (iii) divulging the Corporation's confidential
information; or (iv) performance of any similar action that the Compensation
Committee of the Board of Directors, in its sole discretion, may deem to
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be sufficiently injurious to the interests of the Corporation so as to
constitute substantial cause for termination. In the event of termination under
this Section 8(a), 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 and any vested stock options. Termination of Executive pursuant to
this Section 8(a) shall not relieve him of his obligations under Section 7.
(b) Without Cause. Notwithstanding any other provision of this
Agreement, Executive's employment with the Company and this Agreement may be
terminated by the Company for any reason or for no reason, provided that
Executive shall be entitled to all vested stock options, which may be exercised
during the Severance Period as defined by this Agreement, and continuation of
his salary and Company-provided health insurance benefits for six (6) months. 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 and benefits as provided in this Section 8(b). Termination of Executive
pursuant to this Section 8(b) shall not relieve him of his obligations under
Section 7.
(c) Material Change in Responsibility. During the term of this
Agreement, Executive may terminate his employment with the Company and this
Agreement upon ninety (90) days' advance written notice in the event of any
"material change in responsibility." For purposes of this Agreement, a "material
change in responsibility" shall mean a material change in his duties or
authority. Should Executive provide written notice to the Company pursuant to
this Section, the Company may cure the "material change in responsibility"
during the 90-day notice period which cure may not be unreasonably rejected by
Executive. Notice of termination under this Section 8(c) shall be valid only if
received by the Company within 120 days after the "material change in
responsibility" occurred. In the event of termination under this Section 8(c),
Executive shall be entitled to all previously vested stock options, which may be
exercised within 60 days of termination, and continuation of his salary and
Company-provided health insurance benefits for six (6) months. Termination of
Executive pursuant to this Section 8(c) shall not relieve Executive of his
obligations under Section 7.
9. Termination Due to Change in Control.
(a) Defined. For purposes of this Agreement, a "change in control"
is: (1) 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 thirty percent
(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; (2) 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
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to such reorganization, merger or consolidation do not, immediately thereafter,
own more than thirty percent (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; (3) a liquidation or
dissolution of the company; or (4) the sale of all or substantially all of the
Company's assets.
(b) In the event that a change in control results in either an
involuntary termination of Executive through elimination of his position or a
voluntary termination as a result of a material change in responsibility
pursuant to Section 8(c) or transfer of Executive to a location outside of a
50-mile radius of his permanent residence, Executive shall be entitled to all
vested stock options, which may be exercised within sixty (60) days of
termination, continuation of his salary, and Company-provided health insurance
benefits for six (6) months.
(c) A "change in control" will not effect or diminish Executive's
rights and obligations under any provision of this Agreement, including, without
limitation, Sections 8, 9, 10, 11, and 12. Termination pursuant to this Section
9 shall not relieve Executive of his obligations under Section 7.
10. Disability. If, prior to expiration or termination of the Employment
Term, Executive becomes unable to perform his duties by reason of disability,
the Company shall have the right to terminate this Agreement by giving written
notice to Executive to that effect. After giving such notice, the Employment
Term shall terminate with the payment of three months salary to Executive. As
used in this Section, "disability" means the inability of the Executive to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or has lasted or can be expected to last for a continuous period of not
less than six (6) months.
11. Notices.
(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:
----------------
----------------
----------------
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If to Company:
Peter Gladkin
President & Chief Executive Officer
APACHE Medical Systems, Inc.
1650 Tysons Blvd. #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.
12. Confidentiality. In the course of performing duties under this
Agreement, Executive may have access to "Confidential Information," including
but not limited to contracts, contract proposals, proprietary information, trade
secrets, inventions, procedures, processes, financial information, business
records, business plans, and other information of a confidential and proprietary
nature owned by the Company. Executive acknowledges that protection of this
Confidential Information is of critical importance to the Company. To ensure
that such Confidential Information is not disclosed or divulged to other
persons, Executive agrees as follows:
(a) that said Confidential Information is the property of the
Company and is to be held by Executive in trust and solely for the benefit of
the Company;
(b) that Executive shall not disclose or otherwise make available
such confidential Information to any person or entity without the prior written
consent of the Company, except as necessary for the performance of Executive's
services under this Agreement;
(c) that Executive shall not in any way utilize such Confidential
Information for the gain or advantage of Executive or others or to the detriment
of the Company; and
(d) that upon termination of this Agreement, Executive shall
promptly return any and all such Confidential Information to the Company and
shall continue to abide by the confidentiality provisions of this Section Twelve
(12).
13. Assignment of Agreement. 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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14. Entire Agreement/Modification of Agreement. 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. 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.
15. Severability. 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.
16. Headings. The section headings or titles herein are for convenience of
reference only, shall not be deemed a part of this Agreement, and shall not in
any way affect the meaning or interpretation of this Agreement.
17. Resolution of Disputes. 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 writing to the other party within sixty (60)
days of the date the aggrieved party first has knowledge of the event giving
rise to the claim or sixty (60) days following the 120-day period in the case of
a "Material Change in Responsibility" as defined in Section 7, 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 waiving any right he may have to have any dispute decided in court and by
a jury. The losing party will bear the cost of the arbitrator.
18. Applicable Law. This Agreement shall be governed and construed
according to the laws of the Commonwealth of Virginia. Executive expressly
submits and consents in advance to the jurisdiction of the federal and state
courts of the Commonwealth of Virginia for all purposes in connection with any
action or proceeding arising out of or relating to this Agreement for all
disputes not resolved pursuant to Section 17.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
/s/ Sean Seerey
------------------------------
Sean Seerey
APACHE MEDICAL SYSTEMS, INC.
By: /s/ Peter Gladkin
---------------------------
Name: Peter Gladkin
Title: President & Chief Executive Officer
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APACHE MEDICAL SYSTEMS, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (this "Agreement"), dated as of
May 11, 1999 (the "Grant Date"), is by and between APACHE Medical Systems, Inc.,
a Delaware corporation (the "Corporation"), and Sean Seerey (the "Optionee"), a
key employee of the Corporation.
1. Grant of Option. Subject to the provisions of the APACHE Medical
Systems, Inc. Employee Stock Option Plan (the "Plan") and this Agreement, the
Corporation hereby grants to the Optionee the right and option (the "Option") to
purchase from the Corporation an aggregate of 20,000 shares of the Corporation's
common stock, par value $0.01 per share (the "Shares"), at an exercise price of
$1.2300 per Share.
2. Vesting and Expiration. The option rights of the Optionee will be
exercisable until May 13, 2009, provided that they have vested and, except as
otherwise expressly provided in this Agreement, the Optionee is employed by the
Corporation. The Option shall vest as provided on Exhibit A hereto.
3. Exercise Following Termination of Employment. If the Optionee
ceases to be an employee of the Corporation, the outstanding portion of the
Option shall be exercisable only in accordance with the following provisions:
(a) If the Optionee's employment with the Corporation is terminated
for "cause" (as defined below), the outstanding portion of the Option, whether
or not vested, shall terminate at the time notice of termination is effective.
As used herein, "cause" means the Optionee's (i) commission of an action against
or in derogation of the interests of the Corporation 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 lawful material duty or obligation imposed upon the Optionee by
the Corporation; or (iii) divulging the Corporation's confidential information.
(b) If the Optionee's employment with the Corporation is terminated
for any reason other than for cause (as defined above), death or disability (as
defined below), the outstanding portion of the Option (to the extent vested
prior to such termination) shall remain exercisable until the first to occur of
(i) the expiration date referred to in Section 2, and (ii) the expiration of
three months from the effective date of termination, provided that if the
Optionee ceases to be employed by the Corporation by reason of death or
disability, the period referred to in this clause (ii) shall be one year
following the date the Optionee ceases to be an employee of the Corporation. If
the Optionee dies during such three-month period referred to in clause (ii), his
or her estate may exercise the Option (to the extent such Option was 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 Option. As used herein,
"disability" means the inability of the Optionee to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or has lasted or can be
expected to last for a continuous period of not less than 12 months.
<PAGE> 9
4. Acceleration Following Termination Other Than for Cause. In the
event Optionee's employment is terminated other than for cause, any Shares as to
which the Option has not vested on the effective date of termination that would
have vested during the three (3) months after the effective date of Optionee's
termination will be accelerated to, and vest on, the effective date of
Optionee's termination. Any Shares as to which the Option has not vested on the
effective date of termination will be cancelled.
5. Limitation on Exercisability. Notwithstanding any other provision
hereof, including, without limitation, Sections 4, 9 and 10, the Shares that may
be purchased for the first time during any calendar year pursuant to the Option,
together with any other options issued to the Optionee by the Corporation
intended to be incentive stock options (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended from time to time, or subsequent
comparable statute (the "Code")), shall not have a Fair Market Value (as defined
in Section 9 hereof and determined as of the respective Grant Dates of such
options) in excess of $100,000.
6. Exercise. The Option may be exercised by delivering to the
Corporation at its principal offices a written notice, signed by a person
entitled to exercise the Option, of the election to exercise the Option and
stating the number of Shares to be purchased. Such notice shall be accompanied
by the payment of the full exercise price of the Shares to be purchased. Upon
payment in accordance with the Plan and within the time period specified by the
Corporation of the amount, if any, required to be withheld for Federal, state
and local tax purposes on account of the exercise of the Option, the Option
shall be deemed exercised as of the date the Corporation received such notice.
The Corporation may withhold, or allow the Optionee to remit to the Corporation,
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 the Option. In
order to satisfy all or any portion of such income tax liability, the Optionee
may elect to surrender Shares previously acquired by the Optionee or to have the
Corporation withhold Shares that would otherwise have been issued to the
Optionee pursuant to the exercise of the Option, the number of such withheld or
surrendered Shares 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 the Option. Payment of the full exercise price shall be in the
form of cash, shares of capital stock of the Corporation having a Fair Market
Value (as defined in Section 9 hereof) on the date of exercise equal to the full
exercise price, or by any combination of cash and shares of such capital stock.
Upon the proper exercise of the Option, subject to the other provisions of this
Agreement, the Corporation shall issue in the name of the person exercising the
Option, and deliver to such person, a certificate or certificates for the Shares
purchased.
7. Nontransferability of Option. The Option shall not be transferable
by the Optionee except by will or the laws of descent and distribution. Without
limiting the generality of the foregoing, the Option shall not be sold,
transferred except as aforesaid, assigned, pledged or otherwise encumbered or
disposed of, shall not be assignable by operation of law, and shall not be
subject to execution, attachment or similar process. Any attempted sale,
transfer, pledge, assignment or other encumbrance or disposition of the Option
contrary to the provisions hereof, or the levy of any execution, attachment or
similar process upon the Option, shall be null and void and without effect.
During the lifetime of the Optionee, the Option may be exercised only
2
<PAGE> 10
by the Optionee or the Optionee's agent, attorney-in-fact or guardian. Following
the death of the Optionee, the Option may be exercised by the Optionee's
beneficiary or estate to the extent permitted by Section 3.
8. Notice of Transfer of Shares. The Optionee may not transfer or
otherwise dispose of any Shares purchased upon the exercise of the Option before
the expiration of (a) two years from the Grant Date or (b) one year after the
exercise of the Option with respect to such Shares, whichever occurs later,
without first giving written notice to the Secretary of the Corporation.
9. Adjustments Upon Reorganization or Changes in Capitalization. In
the event of a stock split, stock dividend, recapitalization, reclassification
or combination of shares, merger, sale of assets or similar event, the
Compensation Committee of the Board of Directors shall adjust equitably (a) the
number and class of Shares or other securities that are reserved for issuance
under the Option, (b) the number and class of Shares or other securities that
are subject to the Option, and (c) the appropriate Fair Market Value and other
price determinations applicable to the Option. The Compensation Committee of the
Board of Directors shall make all determinations under this Section 9, and all
such determinations shall be conclusive and binding. As used herein, "Fair
Market Value" means the amount determined by the Compensation Committee of the
Board of Directors from time to time, using such good faith valuation methods as
it deems appropriate, except that as long as the Shares are 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 Compensation Committee of the Board of Directors.
10. Acceleration of Exercisability. Notwithstanding the provisions of
Section 2, the Option shall immediately vest, and until the expiration date
specified in Section 2 shall remain, exercisable as to all of the Shares
forthwith upon the occurrence of any Change in Control of the Corporation. As
used herein, "Change in Control" means the purchase or other acquisition by any
person, entity or group of persons, within the meaning of Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (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 or the combined voting power of the Corporation's then
outstanding voting securities entitled to vote generally; the approval by the
stockholders of the Corporation of a reorganization, merger, or consolidation,
in each case, with respect to which persons who were stockholders of the
Corporation 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 Corporation's then outstanding securities; a liquidation
or dissolution of the Corporation; or of the sale of all or substantially all of
the Corporation's assets.
3
<PAGE> 11
11. Miscellaneous.
(a) Notices. Any notice hereunder shall be in writing,
and delivered or sent by first-class U.S. mail, postage prepaid, addressed to:
(i) if to the Corporation, at:
1650 Tysons Boulevard, Suite 300
McLean, Virginia 22102, and
(ii) if to Optionee, at:
---------------------
---------------------
subject to the right of either party, by written notice hereunder, to designate
at any time hereafter some other address.
(b) Compliance with Law and Regulations. The Option and the
obligation of the Corporation to sell and deliver Shares hereunder shall be
subject to all applicable Federal and state laws, rules and regulations and to
such approvals by any government or regulatory agency as may be required.
Notwithstanding any other provision of this Agreement, the Option may not be
exercised if its exercise, or the receipt of Shares pursuant thereto, would be
contrary to applicable law.
(c) No Rights as Stockholder. The Optionee shall have no
rights as a stockholder with respect to any Shares subject to the Option prior
to the date of issuance to the Optionee of a certificate or certificates for
such Shares.
(d) No Employment Rights. Nothing in the Plan, this Agreement
or the grant of an Option shall confer upon the Optionee any rights to continued
employment with the Corporation or shall interfere with the right of the
Corporation to terminate the Optionee's employment with the Corporation.
(e) Section 83(b) Election. If the Optionee elects, in
accordance with Section 83(b) of the Code, to recognize ordinary income in the
year in which the Option is granted, the Optionee shall furnish to the
Corporation a copy of a completed and signed election form and shall pay (or
make arrangements satisfactory to the Corporation to pay) to the Corporation,
within sixty (60) days after the Grant Date, any Federal, state and local taxes
required to be withheld with respect to the Option.
(f) Withholding. The Corporation shall, to the extent
permitted by law, have the right to deduct from any payment of any kind
otherwise due to the Optionee any Federal, state and local taxes required by law
to be withheld or collected with respect to the Option.
4
<PAGE> 12
(g) Reservation of Shares; Certain Costs. The Corporation
shall keep available sufficient authorized but unissued Shares needed to satisfy
the requirements of this Agreement. The Corporation shall pay any original issue
tax that may be due upon the issuance of Shares pursuant to the Option and all
other costs incurred by the Corporation in issuing such Shares.
(h) Employment by Affiliates. For the purpose of this
Agreement, employment by a parent or subsidiary of, or a successor to, the
Corporation shall be considered employment by the Corporation. "Parent" and
"subsidiary" as used herein shall have the meaning of "parent" and "subsidiary
corporation," respectively, as defined in Section 424 of the Code.
(i) Plan Governs. The Optionee hereby acknowledges receipt of
a copy of the Plan and agrees to be bound by its terms, all of which are
incorporated herein by reference. The Plan shall govern in the event of any
conflict between this Agreement and the Plan.
(j) Choice of Law. This Agreement shall be construed in
accordance with and be governed by the laws of the State of Delaware.
(k) Counterparts. This Agreement may be executed in two
counterparts each of which shall constitute one and the same instrument.
5
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
APACHE MEDICAL SYSTEMS, INC.
/s/Peter Gladkin
------------------------
By: Peter Gladkin
Title: President and Chief Executive Officer
/s/ Sean Seerey
-------------------------
Sean Seerey, Optionee
6
<PAGE> 14
EXHIBIT A
May 11, 1999
Sean P. Seerey
Dear Sean:
Pursuant to the terms and conditions of the company's Employee Stock Option Plan
(the "Plan"), you have been granted an Incentive Stock Option to Purchase 20,000
shares (the "Option") of stock as outlined below.
<TABLE>
<S> <C> <C>
Granted To: Sean P. Seerey
Grant Date: May 13, 1999
Options Granted: 20,000
Option Price per Share: $ 1.2300 Total Cost to Exercise: $ 24,688.0000
Expiration Date: May 13, 2009
Vesting Schedule: 20% per year for 5 years
4,000 on 5/13/2000
4,000 on 5/13/2001
4,000 on 5/13/2002
4,000 on 5/13/2003
4,000 on 5/13/2004
</TABLE>
By my signature below, I hereby acknowledge receipt of this Option granted on
the date shown above, which has been issued to me under the terms and conditions
of the Plan. I further acknowledge receipt of the copy of the Plan and agree to
conform to all of the terms and conditions of the Option and the Plan.
Signature: /s/ Sean P. Seerey Date: May 11, 1999
------------------------------------------
Sean P. Seerey
Note: If there are any discrepancies in the name or address shown
above, please make the appropriate corrections on this form.
7
<PAGE> 1
EXHIBIT 11.1-COMPUTATION OF EARNINGS (LOSS) PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
------------------ ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Income applicable to common shares:
Net Income (Loss) $349 $(1,519) $1,275 $(2,342)
------------------ ----------------- ---------------- ----------------
Income (Loss) applicable to
common shares $349 $(1,519) $1,275 $(2,342)
================== ================= ================ ================
Weighted average number of common
shares outstanding 7,361 7,292 7,350 7,292
Weighted average common shares 7,361 7,292 7,350 7,292
================== ================= ================ ================
Income (Loss) per common share $0.05 $(0.21) $0.17 $(0.32)
================== ================= ================ ================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS FILED AS
PART OF THE APACHE MEDICAL SYSTEMS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,044
<SECURITIES> 1,048
<RECEIVABLES> 3,509
<ALLOWANCES> 1,138
<INVENTORY> 0
<CURRENT-ASSETS> 9,072
<PP&E> 3,659
<DEPRECIATION> 3,106
<TOTAL-ASSETS> 10,749
<CURRENT-LIABILITIES> 5,618
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 4,972
<TOTAL-LIABILITY-AND-EQUITY> 10,749
<SALES> 2,972
<TOTAL-REVENUES> 2,972
<CGS> 927
<TOTAL-COSTS> 927
<OTHER-EXPENSES> 1,761
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 349
<INCOME-TAX> 0
<INCOME-CONTINUING> 349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 349
<EPS-BASIC> $0.05
<EPS-DILUTED> $0.05
</TABLE>
