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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 March 31, 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
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APACHE MEDICAL SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 23-2476415
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1650 Tysons Boulevard, McLean, Virginia 22102
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(Address of principal executive offices) (Zip Code)
(703) 847-1400
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(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
--- ---
7,343,176
---------
(Number of shares of common stock, $.01 par value per share, outstanding
as of May 1, 1999)
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APACHE MEDICAL SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations (unaudited) for the Three
Months Ended March 31, 1999 and 1998
Consolidated Balance Sheets for the Three Months Ended March
31, 1999 (unaudited) and Year Ended December 31, 1998
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Three Months Ended March 31, 1999 (unaudited)
and Year Ended December 31, 1998
Consolidated Statements of Cash Flows (unaudited) for the Three
Months Ended March 31, 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>
1999 1998
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<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue $ 3,309 $ 3,472
Expenses:
Cost of goods sold 261 910
Research and development 251 426
Selling, general and administrative 2,426 2,286
---------- -----------
Total expenses 2,938 3,622
Income (Loss) from Operations 371 (150)
Other income (expense):
Interest income 93 154
Interest expense (9) (9)
Other, net 1 -
---------- -----------
Total other income (expense) 85 145
Net Income (Loss) $ 456 $ (5)
========== ===========
Basic and diluted net income (loss) per share $ 0.06 $ (0.00)
========== ===========
Weighted average number of shares used for
calculation of net income (loss) per share 7,338 7,282
========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------------- --------------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,450 $ 5,532
Short-term investments 549 1,000
Accounts receivable, net 2,827 2,972
Prepaid expenses and other 638 749
----------------- --------------------
TOTAL CURRENT ASSETS 10,464 10,253
Other trade receivables, net of current maturities 4
Furniture and equipment 3,592 3,589
Less accumulated depreciation and amortization (2,843) (2,704)
----------------- --------------------
749 885
Capitalized Software Costs, net 566 506
Intangible assets, net 465 494
----------------- --------------------
TOTAL ASSETS $ 12,244 $ 12,142
================= ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 838 $ 1,129
Accrued expenses 2,918 3,667
Deferred revenue 3,895 3,158
Current maturities of long term obligations 175 180
----------------- --------------------
TOTAL CURRENT LIABILITIES 7,826 8,134
Deferred rent benefit 47 62
Maturities of long term obligations, net of current maturities 165 206
----------------- --------------------
TOTAL LIABILITIES 8,038 8,402
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized shares, 30,000,000
at March 31, 1999 and December 31, 1998: issued and outstanding
shares, 7,343,176 at March 31, 1999 and 7,330,473 at
December 31, 1998. 73 73
Additional paid-in capital 45,780 45,770
Accumulated deficit (41,647) (42,103)
----------------- --------------------
TOTAL STOCKHOLDERS' EQUITY 4,206 3,740
----------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,244 $ 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)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------
(in thousands, except share data) SHARES AMOUNT
---------------- --------------
<S> <C> <C>
BALANCE, JANUARY 1, 1997 7,238,922 72
Issuance of common stock options - -
Exercise of common stock options 10,490 -
Issuance of common stock under Employee Stock Purchase Plan 18,344 1
Net Income (Loss) - -
----------------- --------------
BALANCE AT DECEMBER 31, 1997 7,267,756 73
Issuance of common stock under Employee Stock Purchase Plan 62,717 -
Net Income (Loss) - -
----------------------------------
BALANCE AT DECEMBER 31,1998 7,330,473 73
Issuance of common stock under Employee Stock Purchase Plan 12,703 -
Net Income (Loss)
----------------------------------
BALANCE AT MARCH 31, 1999 (UNAUDITED) 7,343,176 $73
==================================
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
(in thousands, except share data) CAPITAL DEFICIT TOTAL
----------------- ---------------- ------------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997 45,325 (22,992) 22,405
Issuance of common stock options 291 - 291
Exercise of common stock options 30 - 30
Issuance of common stock under Employee Stock Purchase Plan 57 - 58
Net Income (Loss) - (15,918) (15,918)
----------------- ---------------- ------------------
BALANCE AT DECEMBER 31, 1997 45,703 (38,910) 6,866
Issuance of common stock under Employee Stock Purchase Plan 67 - 67
Net Income (Loss) - (3,193) (3,193)
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BALANCE AT DECEMBER 31, 1998 45,770 (42,103) 3,740
Issuance of common stock under Employee Stock Purchase Plan 10 - 10
Net Income (Loss) 456 456
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BALANCE AT MARCH 31, 1999 (UNAUDITED) $45,780 ($41,647) $4,206
=========================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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APACHE MEDICAL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
31-MAR-99 31-MAR-98
------------------------------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 456 $ (5)
Adjustments to reconcile net income (loss) to net cash
from (used in) operating activities:
Depreciation and amortization 206 180
Provision for doubtful accounts 616 30
Changes in operating assets and liabilities:
Accounts receivable (427) (2,220)
Other trade receivables 13 13
Other current assets 59 78
Accounts payable and accrued expenses (1,040) (434)
Deferred rent (15) (12)
Deferred revenue 736 1,241
--------------- ---------------
NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES 604 (1,129)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs (98) -
Purchase of furniture and equipment (4) (93)
Decrease in short-term investments 451 998
--------------- ---------------
NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES 349 905
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (4) (4)
Principal payments on borrowings (41) (42)
Proceeds from issuance of common stock under employee stock purchase
plan 10 14
--------------- ---------------
NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES (35) (32)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 918 (256)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,532 5,634
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,450 $ 5,378
=============== ===============
SUPPLEMENTAL INFORMATION:
Cash payments for interest $ 12 10
=============== ===============
</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 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 loss per share includes no dilution and is computed by
dividing net loss available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted 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 loss per share
as their effect would be anti-dilutive. Diluted net 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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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 MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUE. Revenue for the quarter ended March 31, 1999 decreased 5% to $3.3
million from $3.5 million in the prior year period. This decrease is related to
a decrease in revenue from Professional Services, primarily in Health Outcomes
Research and Clinical Consulting, offset in part by increases in Systems
revenue.
COST OF GOODS SOLD. Cost of goods sold for the quarter ended March 31, 1999
decreased 71% to $261,000 from $910,000 in the prior year period. This decrease
was due to a decrease in the cost of goods sold related to the Critical Care
Series ("CCS") migrations. 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 March 31, 1999 increased 6% to $2.4 million from
$2.3 million in the prior year period. This increase was due primarily to an
increase in bad debt expense offset in part by an overall reduction in selling,
general and administrative expenses.
RESEARCH AND DEVELOPMENT. Research and development expenses for the quarter
ended March 31, 1999 decreased 41% to $251,000 from $426,000 in the prior year
period. The decrease was due to an increase in capitalized software development
costs and improvements in productivity in product generation processes that
resulted in decreases in consulting expense, staffing requirements and related
costs. During the three months ended March 31, 1999, capitalized software
development costs were $98,000, compared to zero in the prior year period.
OTHER INCOME (EXPENSE). Other income (expense) decreased from $145,000 for the
quarter ended March 31, 1998 to $85,000 for the quarter ended March 31, 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 software 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
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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 third 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. The Company has completed
renovation and validation activities on modules of the CCS product and has begun
to implement 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 will begin
in May 1999. The HIV Manger product has been renovated and is currently being
validated. Validation is scheduled to be completed in June 1999.
Other software applications products sold by the Company are presently in the
assessment phase. The assessments of these products were completed in December
1998. An action plan is being created for the renovation, validation, and
implementation of changes to deliver Year 2000 ready products by late 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, consisting of
reassessment and renovation started during the third quarter of 1998, is
currently on schedule and in process. The second phase will repeat the process
of ongoing assessment, renovation of problems, and validation of corrections.
Validation of Year 2000 readiness was completed during the first quarter of
1999.
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
$900,000 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 October 1999. The Company has offered
existing clients the ability to migrate to the new CCS product during the next
year on favorable terms. A majority of the clients using the old UNIX version of
the MCMP product have migrated or signed contracts to migrate to the new CCS
product. A few have indicated that
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they intend to discontinue use of the existing product completely, and, like
many participants in the healthcare industry, several are still assessing their
systems and migration options. The Company's ability to perform migrations by
October 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.
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."
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments were $7.0 million as of March 31, 1999 compared
to $6.5 million as of December 31, 1998.
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 1999. Through March 31, 1999, the Company has incurred
cumulative net operating losses of approximately $41.6 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
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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.
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
- ------------------------------------
<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 **
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 2, 1997 +*****
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
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 +*********
11.1 Computation of Earnings (Loss) Per Share *********
27.1 Financial Data Schedule *********
</TABLE>
<TABLE>
<CAPTION>
- --------
<S> <C>
+ Reflects management contract or other compensatory arrangement required
to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K
++ 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)
*** 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)
********* 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 March 31, 1999.
11
<PAGE> 12
<TABLE>
<CAPTION>
- --------
<S> <C>
+ Reflects management contract or other compensatory arrangement required
to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K
++ 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)
*** 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)
********* Filed herewith
</TABLE>
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APACHE MEDICAL SYSTEMS, INC.
Date: May 14, 1999 /s/Peter Gladkin
------------------ -------------------------
Peter Gladkin
President and Chief Executive Officer
/s/Karen C. Miller
-------------------------
Karen C. Miller
Vice President of Finance & Chief Financial
Officer
12
<PAGE> 14
INDEX TO EXHIBTS
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------------------------
<S> <C>
10.20 APACHE Medical Systems, Inc. Employee Stock Option Plan,
Amended and Restated Effective May 12, 1999
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
11.1 Computation of Earnings (Loss) Per Share
27.1 Financial Data Schedule
</TABLE>
13
<PAGE> 1
EXHIBIT 10.20
EMPLOYEE STOCK OPTION PLAN
OF APACHE MEDICAL SYSTEMS, INC.
(Amended and Restated Effective May 12, 1999)
TABLE OF CONTENTS
Section 1. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . .
Section 3. Administration . . . . . . . . . . . . . . . . . . . . . . . .
Section 4. Common Stock Subject to Plan . . . . . . . . . . . . . . . . .
Section 5. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . .
Section 6. Terms and Conditions of Options . . . . . . . . . . . . . . .
Section 7. Treatment of Options Upon Termination . . . . . . . . . . . .
Section 8. Adjustment Provisions . . . . . . . . . . . . . . . . . . . .
Section 9. Term of Plan . . . . . . . . . . . . . . . . . . . . . . . . .
Section 10. Change in Control . . . . . . . . . . . . . . . . . . . . . .
Section 11. General Provisions . . . . . . . . . . . . . . . . . . . . . .
Section 12. Amendment or Discontinuance of the Plan . . . . . . . . . . .
Section 13. Effective Date of Plan . . . . . . . . . . . . . . . . . . . .
<PAGE> 2
Employee Stock Option Plan
of APACHE Medical Systems, Inc.
(Amended and Restated Effective May 12, 1999)
SECTION 1. PURPOSE.
The purpose of the Plan, as hereinafter set forth, is to enable the Company to
attract, retain and reward corporate officers, managerial and other significant
employees, and non-employees (other than non-employee directors) who have an
ongoing consultant or advisor relationship with the Company, by offering such
individuals an opportunity to have a greater proprietary interest in and a
closer identity with the Company and its financial success.
Options granted under this Plan may be Incentive Stock Options or
Nonqualified Stock Options. However, Incentive Stock Options may only be granted
to employees of the Company.
SECTION 2. DEFINITIONS.
BOARD: The Board of Directors of the Company.
Change in Control: The purchase or other acquisition by any person,
entity or group of persons, within the meaning of Sections 13(d) or 14(d) of the
Exchange Act or any comparable successor provisions, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either the outstanding shares of common stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally; the approval by the stockholders of the Company of a reorganization,
merger, or consolidation, in each case, with respect to which persons who were
stockholders of the Company immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 30% of the combined
voting power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding securities; a
liquidation or dissolution of the Company; or of the sale of all or
substantially all of the Company's assets.
CODE: The Internal Revenue Code of 1986, as amended from time to time.
COMMITTEE: The Compensation Committee of the Board (or subcommittee
thereof) or such other committee (or subcommittee thereof) as shall be appointed
by the Board to administer the Plan pursuant to Section 3.
COMMON STOCK: The common stock, $0.01 par value, of the Company or such
other class of shares or other securities as may be applicable pursuant to the
provisions of Section 8.
COMPANY: APACHE Medical Systems, Inc., a Delaware corporation, its
subsidiary or subsidiaries, and any successor thereto.
DISABLED OR DISABILITY: Permanent and total disability, as defined in
Code Section 22(e)(3). A Participant shall not be considered Disabled unless the
Committee determines that the Disability arose prior to such Participant's
termination of employment or, in the case of a non-employee Participant,
<PAGE> 3
prior to the termination of the consulting or advisor relationship between such
Participant and the Company.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder, as such law, rules and regulations may be
amended from time to time.
FAIR MARKET VALUE: The amount determined by the Committee from time to
time, using such good faith valuation methods as it deems appropriate, except
that as long as the Common Stock is traded on NASDAQ or a recognized stock
exchange, it shall mean the average of the highest and lowest quoted selling
prices for the shares on the relevant date, or, if there were no sales on such
date, the weighted average of the means between the highest and the lowest
quoted selling prices on the nearest day before and the nearest day after the
relevant date, as prescribed by Treasury Regulation Section 20.2031-2(b)(2), as
reported in the Wall Street Journal or a similar publication selected by the
Committee.
INCENTIVE STOCK OPTION: An Option that is intended to qualify as an
"incentive stock option" under Code Section 422.
NONQUALIFIED STOCK OPTION: An Option that is not an Incentive Stock
Option.
OPTION: An option to purchase shares of Common Stock granted to a
Participant pursuant to Section 6.
PARTICIPANT: An employee of the Company (including any employee who is a
member of the Board) or any non-employee consultant or advisor to the Company
whose participation in the Plan is determined by the Committee to be in the best
interest of the Company.
PLAN: The Employee Stock Option Plan of APACHE Medical Systems, Inc., as
amended from time to time.
SECTION 3. ADMINISTRATION.
(a) COMMITTEE. The Plan shall be administered by the Committee. To the
extent required to comply with the relevant provisions of Rule 16b-3 under the
Exchange Act, each member of the Committee shall qualify as a "non-employee
director," as defined in Rule 16b-3 or in any successor definition adopted by
the Securities and Exchange Commission.
(b) AUTHORITY OF THE COMMITTEE. The Committee shall have the authority to
approve individuals for participation; to construe and interpret the Plan; to
establish, amend or waive rules and regulations for its administration; and to
accelerate the exercisability of any Option or the termination of any
restriction under any Option. Options may be subject to such provisions as the
Committee shall deem advisable, and may be amended by the Committee from time to
time; provided that no such amendment may adversely affect the rights of the
holder of an Option without such holder's consent.
(c) POWERS OF THE COMMITTEE. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan and may rely upon any opinion received from any such counsel or consultant
and any computation received from any such consultant or agent.
(d) INDEMNIFICATION. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option awarded under it. To the maximum extent permitted by applicable law, each
member of the Committee shall be indemnified and held harmless by the Company
against any cost or expense (including legal fees) or liability (including any
sum paid in settlement of a claim with the approval of the Company) arising out
of any act or
<PAGE> 4
omission to act in connection with the Plan unless arising out of such member's
own fraud or bad faith. Such indemnification shall be in addition to any rights
of indemnification the members may have as members of the Board or under the
by-laws of the Company.
SECTION 4. COMMON STOCK SUBJECT TO PLAN.
The aggregate shares of Common Stock that may be issued under the Plan
shall not exceed 2,700,000, as adjusted in accordance with the provisions of
Section 8.
In the event of a lapse, expiration, termination, forfeiture or
cancellation of any Option granted under the Plan without the issuance of
shares, the Common Stock subject to or reserved for such Option may be used
again for new grants of Options hereunder; provided that in no event may the
number of shares of Common Stock issued hereunder exceed the total number of
shares reserved for issuance. Any shares of Common Stock withheld or surrendered
to pay withholding taxes pursuant to Section 11(e) or withheld or surrendered in
full or partial payment of the exercise price of an Option pursuant to Section
6(d) shall be added to the aggregate shares of Common Stock available for
issuance.
SECTION 5. ELIGIBILITY.
Options may be granted under the Plan to any employee of the Company,
including employees who are officers and/or members of the Board, whose
participation the Committee determines is in the best interest of the Company
and to any non-employee who is a consultant or advisor to the Company whose
participation the Committee determines is in the best interests of the Company
(collectively, "Participants"). The Committee shall have absolute discretion to
determine, within the limits of the express provisions of the Plan, those
Participants to whom and the time or times at which Options shall be granted.
The Committee shall also determine, within the limits of the express provisions
of the Plan, the number of shares to be subject to each Option, the duration of
each Option, the exercise price under each Option, the time or times within
which (during the term of the Option) all or portions of each Option may become
vested and exercisable, and whether an Option shall be an Incentive Stock
Option, a Nonqualified Stock Option or a combination thereof. In making such
determination, the Committee may take into account the nature of the services
rendered by the Participant, his or her present and potential contributions to
the Company's success and such other factors as the Committee in its discretion
shall deem relevant.
Notwithstanding the foregoing, no Incentive Stock Option shall be granted
to any Participant who is not an employee of the Company and no non-employee
member of the Board shall be eligible to receive any new Option grant hereunder.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under the Plan shall be evidenced by an agreement, in
a form approved by the Committee, which shall be subject to the following
express terms and conditions and to such other terms and conditions as the
Committee may deem appropriate:
(a) OPTION PERIOD. Each Option agreement shall specify the period for
which the Option thereunder is granted (which, in the case of Incentive Stock
Options, shall not exceed ten years from the date of grant) and shall provide
that the Option shall expire at the end of such period.
<PAGE> 5
(b) EXERCISE PRICE. The per share exercise price of each Option shall be
determined by the Committee at the time the Option is granted, and, in the case
of Incentive Stock Options, shall not be less than the Fair Market Value of
Common Stock on the date the Option is granted.
(c) VESTING OF OPTIONS. No part of any Option may be exercised until the
Participant shall have satisfied the vesting conditions (i.e., such as remaining
in the employ of the Company for a certain period of time), if any, as the
Committee may specify in the applicable Option agreement. Subject to the
provisions of Section 6(e), any Option may be exercised, to the extent
exercisable by its terms, at such time or times as may be determined by the
Committee.
(d) PAYMENT. The exercise price of an Option shall be paid in full at the
time of exercise (i) in cash, (ii) through the surrender of previously-acquired
shares of Common Stock having a Fair Market Value equal to the exercise price of
the Option, (iii) through the withholding by the Company (at the election of the
Participant) of shares of Common Stock having a Fair Market Value equal to the
exercise price or (iv) by a combination of (i), (ii) and (iii).
(e) OTHER RULES APPLICABLE TO INCENTIVE STOCK OPTIONS.
(i) GRANT PERIOD. Consistent with Section 9, an Incentive Stock
Option must be granted within ten years of the date this Plan is adopted
(i.e., the Effective Date, as defined in Section 13) or the date the Plan
is approved by the stockholders of the Company, whichever is earlier.
(ii) TEN PERCENT OWNER. If a Participant, on the date that an
Incentive Stock Option is granted, owns, directly or indirectly, within
the meaning of Section 424(d) of the Code, stock representing more than
10% of the voting power of all classes of stock of the Company, then the
exercise price per share shall in no instance be less than 110% of the
Fair Market Value per share of Common Stock at the time the Incentive
Stock Option is granted, and no Incentive Stock Option shall be
exercisable by such Participant after the expiration of five years from
the date it is granted.
(iii) EMPLOYEE STATUS. To retain favorable Incentive Stock Option
tax treatment, the Option holder must at all times from the date the
Option is granted through a date that is no more than three months prior
to the date it is exercised (or no more than one year prior to the date
it is exercised, where the Participant's termination of employment is due
to death or Disability) remain an employee of the Company. For this
purpose, authorized leaves of absence shall not be deemed to sever the
employment relationship.
(iv) LIMITATIONS ON DISPOSITIONS. To retain favorable Incentive
Stock Option tax treatment, Common Stock received upon the exercise of an
Incentive Stock Option may not be disposed of prior to the later of two
years from the date the Incentive Stock Option is granted or one year
from the date the shares of Common Stock are transferred to the
Participant upon exercise of the Incentive Stock Option.
(v) VALUE OF SHARES. The aggregate Fair Market Value (determined at
the date of grant) of the Incentive Stock Options exercisable for the
first time by a Participant during any calendar year shall not exceed
$100,000 or any other limit imposed by the Code.
SECTION 7. TREATMENT OF OPTIONS UPON TERMINATION.
(a) TERMINATION DUE TO DISABILITY OR DEATH. Upon the termination of
employment of an employee Participant or upon the termination of the consulting
or advisor relationship of a non-employee Participant by reason of Disability or
death, such Participant's Options shall become or remain fully vested and shall
be exercisable by such Participant (or, in the case of death, by his or her
<PAGE> 6
estate) for not later than the earlier of one year after the termination date or
the expiration of the term of the Options.
(b) TERMINATION OTHER THAN FOR CAUSE. Except as otherwise determined by
the Committee in its sole discretion and set forth in the relevant grant
agreement, upon the termination of employment of an employee Participant or upon
the termination of the consulting or advisor relationship of a non-employee
Participant for any reason other than for Cause (as defined in Section 7(c)),
Disability or death, such Participant's Options (to the extent vested prior to
such termination) may be exercised by such Participant during the ninety-day
period commencing on the date of termination, but not later than the expiration
of the term of the Options. If a Participant dies during such ninety-day period,
his or her estate may exercise the Options (to the extent such Options were
vested and exercisable prior to death), but not later than the earlier of one
year after the date of death or the expiration of the term of the Options.
Notwithstanding the foregoing, to retain favorable Incentive Stock Option tax
treatment, Incentive Stock Options must be exercised within three months of the
Participant's termination of employment.
(c) TERMINATION FOR CAUSE. Upon termination of the employment of an
employee Participant or upon the termination of the consulting or advisor
relationship of a non-employee Participant for Cause (as defined below), the
Participant's right to exercise his or her options shall terminate at the time
notice of termination is given by the Company to such Participant. For purposes
of this provision, substantial cause shall include:
(i) The commission of an action against or in derogation of the
interests of the Company which constitutes an act of fraud, dishonesty or
moral turpitude or which, if proven in a court of law, would constitute a
violation of a criminal code or similar law;
(ii) A material breach of any material duty or obligation imposed
upon the Participant by the Company;
(iii) Divulging the Company's confidential information; or
(iv) The performance of any similar action that the Committee, in
its sole discretion, may deem to be sufficiently injurious to the
interests of the Company so as to constitute substantial cause for
termination.
SECTION 8. ADJUSTMENT PROVISIONS.
In the event of a stock split, stock dividend, recapitalization,
reclassification or combination of shares, merger, sale of assets or similar
event, the Committee shall adjust equitably (a) the number and class of shares
or other securities that are reserved for issuance under the Plan, (b) the
number and class of shares or other securities that are subject to outstanding
Options, and (c) the appropriate Fair Market Value and other price
determinations applicable to Options. The Committee shall make all
determinations under this Section 8, and all such determinations shall be
conclusive and binding.
SECTION 9. TERM OF PLAN.
The Plan shall be deemed adopted and shall become effective on the date
it is approved by the stockholders of the Company and shall continue until April
1, 2006, or, if earlier, upon termination of the Plan by the Board or until no
Common Stock remains available for issuance under Section 4.
SECTION 10. CHANGE IN CONTROL.
Except as otherwise determined by the Committee in its sole discretion,
and set forth in the relevant grant agreement, in the event of a Change in
Control, all outstanding Options shall fully vest in
<PAGE> 7
each Participant. The Committee, in its discretion, may also provide in any
Option agreement for adjustment of certain terms of such Option upon the
occurrence of a Change in Control.
SECTION 11. GENERAL PROVISIONS.
(a) EMPLOYMENT. Nothing in the Plan or in any related instrument shall
confer upon any employee Participant or other employee any right to continue in
the employ of the Company or shall affect the right of the Company to terminate
the employment of any employee Participant or other employee with or without
cause.
(b) LEGALITY OF ISSUANCE OF SHARES. No Common Stock shall be issued
pursuant to the exercise of an Option unless and until all legal requirements
applicable to such issuance have been satisfied.
(c) OWNERSHIP OF COMMON STOCK ALLOCATED TO PLAN. No Participant
(individually or as a member of a group), and no beneficiary or other person
claiming under or through such Participant, shall have any right, title or
interest in or to any Common Stock allocated or reserved for purposes of the
Plan or subject to any Option, except as to shares of Common Stock, if any, as
shall have been issued to such Participant or beneficiary.
(d) GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware.
(e) WITHHOLDING OF TAXES. The Company may withhold, or allow a
Participant to remit to the Company, any Federal, state or local taxes required
by law to be withheld with respect to any event giving rise to income tax
liability with respect to an Option. In order to satisfy all or any portion of
such income tax liability, a Participant may elect to surrender Common Stock
previously acquired by the Participant or to have the Company withhold Common
Stock that would otherwise have been issued to the Participant pursuant to the
exercise of an Option, the number of shares of such withheld or surrendered
Common Stock to be sufficient to satisfy all or a portion of the income tax
liability that arises upon the event giving rise to income tax liability with
respect to an Option.
(f) TRANSFERABILITY OF OPTIONS. Except as otherwise determined by the
Committee in its sole discretion, and set forth in the relevant grant agreement,
Options shall be nonassignable and nontransferable by the Participant other than
by will or the laws of descent and distribution. During a Participant's
lifetime, Options shall be exercisable only by the Participant or the
Participant's agent, attorney-in-fact or guardian, or by a transferee permitted
by the relevant grant agreement. Incentive Stock Options shall be nonassignable
and nontransferable by the Participant other than by will or the laws of descent
and distribution, and shall be exercisable during the Participant's lifetime
only by the Participant or the Participant's agent, attorney-in-fact or
guardian.
SECTION 12. AMENDMENT OR DISCONTINUANCE OF THE PLAN.
The Board, acting by a majority of its members, without further action on
the part of the stockholders, may from time to time alter, amend or suspend the
Plan or any Option granted hereunder or may at any time terminate the Plan;
provided, however, that the Board may not materially increase the number of
shares of Common Stock subject to the Plan (except as provided in Section 8
hereof); and provided further that no such action shall materially and adversely
affect any outstanding Options without the consent of the respective
Participants.
<PAGE> 8
SECTION 13. EFFECTIVE DATE OF THE PLAN.
The Plan as adopted by the Board and approved by stockholders was
originally effective as of November 8, 1990 and amended and restated as of April
1, 1996, May 1, 1997, December 31, 1997, February 23, 1998 and January 1, 1999.
The Plan was further amended and restated effective May 12, 1999 (the
"Effective Date").
<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into this 28th day of
April, 1998, by and between Violet Shaffer (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 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 January 1, 1998 and ending on December 31, 1998 ("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 Vice President
- - Marketing 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 her 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 One Hundred Twenty-Eight
Thousand Seven Hundred Fifty dollars ($128,750.00) per annum. Salary shall be
payable in twenty four (24) equal bimonthly 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.
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 her position, tenure,
compensation, age, health and other qualifications make her 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 her
<PAGE> 2
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 three (3) weeks paid vacation or in
accordance with the Company's vacation policy applicable to Executive Staff,
whichever is greater.
5. Stock Options. All stock options currently extended to Executive are
hereby cancelled. Executive is eligible for new stock options 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 she incurs in connection with performing her 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 her employment with the Company and for the duration of the
Severance Period, as defined herein, regardless of the reason for her
termination, she 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 purposes of this
Agreement, "Severance Period" shall be defined as the period of time for which
Executive receives a continuation of her 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 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 she shall be entitled
to her 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 her of her obligations under Section 7.
-2-
<PAGE> 3
(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 vested stock
options, which may be exercised during the Severance Period as defined in this
Agreement, and continuation of her salary and Company-provided health insurance
benefits for six (6) months and, at the sole discretion of the Board of
Directors, may be provided a continuation of such benefits and salary for up to
an additional 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
her of her obligations under Section 7.
(c) Material Change in Responsibility. During the term of this
Agreement, Executive may terminate her employment with the Company and this
Agreement upon thirty (30) 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 her 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 30-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
during the Severance Period as defined in this Agreement, and continuation of
her salary and Company-provided health insurance benefits for six (6) months
and, at the sole discretion of the Board of Directors, may be provided a
continuation of such benefits and salary for up to an additional six (6) months.
Termination of Executive pursuant to this Section 8(c) shall not relieve
Executive of her 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 to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than thirty percent (30%) of the combined ironing 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 her position or a
voluntary termination as a result of a
-3-
<PAGE> 4
material change in responsibility pursuant to Section 8(c) or transfer of
Executive to a location outside of a 50-mile radius of her permanent residence,
Executive shad be entitled to all vested stock options, which may be exercised
during the Severance Period as defined in this Agreement, and continuation of
her 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, Section 8, 9, 10, 11, and 12. Termination pursuant to this Section 9
shall not relieve Executive of her obligations under Section 7.
10. Disability. If, prior to expiration or termination of the Employment
Term, Executive becomes unable to perform her duties by reason 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 six months salary to Executive. As used
in this Section, "disability" means the inability of the Executive to engage in
also 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.
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:
-------------------
-------------------
-------------------
-------------------
If to the Company:
Counsel
APACHE Medical Systems, Inc.
1650 Tysons Boulevard
Suite 300
McLean, VA 22102-3915
Telecopy: (703) 749-7963
and/or at such other addresses as may be designated by notice given in
accordance with the provisions hereof.
-4-
<PAGE> 5
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 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 provision 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.
-5-
<PAGE> 6
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 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 she 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 is connection with any
action or proceeding arising out of or relating to this Agreement for all
disputes not resolved pursuant to Section 17.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
------------------------------
Violet Shaffer
APACHE MEDICAL SYSTEMS, INC
By:
---------------------------
Name:
----------------------
Title:
---------------------
-6-
<PAGE> 7
Exhibit 1
APACHE MEDICAL SYSTEMS, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (this "Agreement"), dated as of
January 2, 1998 (the "Grant Date"), is by and between APACHE Medical Systems,
Inc., a Delaware corporation (the "Corporation"), and Violet L. Shaffer (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
$1.28 per Share.
2. Vesting and Expiration. The option rights of the Optionee will be
exercisable until January 2, 2008, provided that they have vested. 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 (to the
extent vested prior to the notice of termination) shall be and 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 date Optionee
receives notice of termination. 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 material duty or obligation
imposed upon the Optionee 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 be sufficiently injurious to the interests of the Corporation so as to
constitute substantial cause for termination.
(b) If the Optionee's employment with the Corporation is terminated
for any reason other than for cause, death or disability (as defined below), the
outstanding portion of the Option (to the extent vested prior to such
termination) shall become fully exercisable and shall remain exercisable until
the first to occur of (i) the expiration date referred to in Section 2, and (ii)
the expiration of the Severance Period (as defined below), 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 Severance 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
<PAGE> 8
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. For purposes of this Section 3, "Severance Period"
shall be defined as the period of time for which Optionee receives a
continuation of his or her salary and Corporation-provided health insurance
benefits or, in the case of Optionee's resignation that is not occasioned by a
Material Change in Responsibility which for purposes of this Agreement means a
material change in his or her duties or authority or by a Change in Control as
defined by Section 9, six months. Notwithstanding the foregoing, to retain
favorable treatment as incentive stock options (the "Incentive Stock Options")
under Section 422 of the Internal Revenue Code of 1986, as amended from time to
time, or subsequent comparable statute (the "Code"), Incentive Stock Options
must be exercised within three months of the Optionee's termination of
employment.
4. Limitation on Exercisability. Notwithstanding any other provision
hereof (including, without limitation, Sections 8 and 9, 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, shall not have a fair market value
(determined as of the respective Grant Dates of such options) in excess of
$100,000.
5. 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 the Plan) 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.
6. 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, as-
-2-
<PAGE> 9
signment 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 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.
7. 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.
8. 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 8, 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.
9. Acceleration of Exercisability. Notwithstanding the provisions of
Section 2, the Option shall become, and until the expiration dates 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> 10
10. 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.
(g) Reservation of Shares; Certain Costs. The Corporation shall keep
available sufficient authorized but unissued Shares needed to satisfy the
requirements of this Agree-
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<PAGE> 11
ment. 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.
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.
----------------------------------
By: Thomas W. Hodson
Title: Acting Chief Executive
Officer and Chairman of the
Board of Directors
----------------------------------
Violet L. Shaffer
-5-
<PAGE> 12
EXHIBIT A
Vesting
The Option shall vest subject to the Corporation's performance and with
the passage of time as follows:
1. Quarterly Performance During 1998. The Option shall vest as to as many
as 25% of the Shares purchasable under the Option depending on satisfaction of
revenue and net income (loss) targets as follows:
<TABLE>
<CAPTION>
Number of Shares Vesting Number of Shares Vesting if
Vesting Date/End of if Revenue Target for Net Income/(Loss) Target for
Quarter Quarter is Met Quarter is Met
- ---------------------- ---------------------------- --------------------------------
<S> <C> <C>
March 31, 1998 The first 2,500 Shares The first 2,500 Shares
(12.5% of total grant) (12.5% of total grant)
June 30, 1998 An additional 2,500 An additional 2,500 Shares
Shares (12.5% of total (12.5% of total grant)
grant)
September 30, 1998 An additional 2,500 Shares An additional 2,500 Shares
(12.5% of total (12.5% of total grant)
grant)
December 31, 1998 An additional 2,500 Shares An additional 2,500 Shares
(12.5% of total (12.5% of total grant)
grant)
</TABLE>
The quarterly revenue and net income (loss) targets referred to above as
follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter 1998 Quarter 1998 Quarter 1998 Quarter 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $3,609,687 $4,263,156 $3,934,372 $4,194,427
Net Income/Loss ($433,412) $50,717 ($212,457) $117,446
</TABLE>
2. Annual Performance for 1998. To the extent the Option does not vest in
its entirety as provided in paragraph 1 above, the Option shall vest if 1998
revenues are at least $12.0 million and the Corporation reports a loss of not
more than $500,000 for 1998.
3. Five-Year Vesting. To the extent the Option does not vest as provided
in paragraphs 1 and 2 above, the Option shall vest on January 2, 2003 if the
Optionee is continuously employed by the Corporation until that date.
<PAGE> 1
EXHIBIT 10.27
APACHE MEDICAL SYSTEMS, INC.
NON-EMPLOYEE DIRECTOR
SUPPLEMENTAL STOCK OPTION PLAN
Amended and Restated May 12, 1999
<PAGE> 2
APACHE MEDICAL SYSTEMS, INC.
NON-EMPLOYEE DIRECTOR
SUPPLEMENTAL STOCK OPTION PLAN
Amended and Restated May 12, 1999
SECTION 1. Purpose.
The purpose of the Plan, as hereinafter set forth, is to enable the Company
to attract, retain and reward qualified non-employee directors by offering them
an opportunity to have a greater proprietary interest in and a closer identity
with the Company and its financial success. By permitting Options to be granted
on a discretionary basis, the Plan gives the Company more flexibility to address
special situations than is possible under the existing APACHE Medical Systems,
Inc. Non-Employee Director Stock Option Plan. The Plan is intended to apply to
the supplemental grant of an Option to purchase 16,700 shares of Common Stock to
each non-employee director by the Board on January 26, 1999.
Options granted under this Plan shall be nonqualified stock options.
SECTION 2. Definitions
Board: The Board of Directors of the Company.
Change in Control: The purchase or other acquisition by any person, entity
or group of persons, within the meaning of section 13(d) or 14(d) of the
Exchange Act or any comparable successor provisions, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either the outstanding shares of common stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally; the approval by the stockholders of the Company of a reorganization,
merger, or consolidation in each case, with respect to which persons who were
stockholders of the Company immediately prior to such reorganization, merger or
consolidation do not immediately thereafter, own more than 30% of the combined
voting power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding securities; a
liquidation or dissolution of the Company; or of the sale of all or
substantially all of the Company's assets.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Committee: A committee composed of at least two Non-Employee Directors,
within the meaning of Rule 16b-3(b)(3) of the Securities and Exchange
Commission, who are responsible for the administration of the Plan in accordance
with Section 3. Members of the Committee shall be designated by the Chairman of
the Board and shall include the Chairman of the Board if that is consistent with
the preceding sentence.
Common Stock: The common stock, $0.01 par value, of the Company or such
other class of shares or other securities as may be applicable pursuant to the
provisions of Section 8.
Company: APACHE Medical Systems, Inc., a Delaware corporation, its
subsidiary or subsidiaries, and any successor thereto.
Disabled or Disability: Permanent and total disability, as defined in Code
Section 22(e)(3). A Participant shall not be considered Disabled unless the
Committee determines that the Disability arose prior to such Participant's
termination of membership on the Board.
Exchange Act: The Securities Exchange Act of 1934, as amended from time to
time.
Fair Market Value: The amount determined by the Committee from time to
time, using such good faith valuation methods as it deems appropriate, except
that as long as the Common Stock is traded on NASDAQ or a recognized stock
exchange, it shall mean the average of the highest and lowest quoted selling
prices for the shares on the relevant date, or, if there were no sales on such
date, the weighted average of the means between the highest and the lowest
quoted selling prices on the nearest day before and the nearest day after
<PAGE> 3
the relevant date, as prescribed by Treasury Regulation Section 20.2031-2(b)(2),
as reported in The Wall Street Journal or a similar publication selected by the
Committee.
Option: A nonqualified stock option to purchase shares of Common Stock
granted to a Participant pursuant to Section 6.
Participant: Any non-employee member of the Board.
Plan: The APACHE Medical Systems, Inc. Non-Employee Director Supplemental
Stock Option Plan, as amended from time to time.
SECTION 3. Administration.
(a) Committee. The Plan shall be administered by the Committee.
(b) Authority of the Committee. The Committee shall have the authority to
construe and interpret the Plan and to establish, amend or waive rules and
regulations for its administration. Subject to the limitations of the express
provisions of the Plan, Options may be subject to such provisions as the
Committee shall deem advisable, and may be amended by the Committee from time to
time; provided that no such amendment may adversely affect the rights of the
holder of an Option without such holder's consent.
(c) Powers of the Committee. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the administration of the
Plan and may rely upon any opinion received from any such counsel or consultant
and any computation received from any such consultant or agent.
(d) Indemnification. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option awarded under it. To the maximum extent permitted by applicable law, each
member of the Committee shall be indemnified and held harmless by the Company
against any cost or expense (including legal fees) or liability (including any
sum paid in settlement of a claim with the approval of the Company) arising out
of any act or omission to act in connection with the Plan unless arising out of
such member's own fraud or bad faith. Such indemnification shall be in addition
to any rights of indemnification the members may have as members of the Board or
under the by-laws of the Company.
(e) Authority of the Board. In addition to the authority otherwise
expressly granted to the Board under the Plan, the Board at its discretion may
carry out any of the functions of the Committee as set forth in the Plan, in
which capacity the Board and the members thereof shall have all of the
authority, powers and rights of the Committee and the members thereof as set
forth in the Plan.
SECTION 4. Common Stock Subject to Plan.
The aggregate shares of Common Stock that may be issued under the Plan
shall not exceed 120,000, as adjusted in accordance with the provisions of
Section 8.
In the event of a lapse, expiration, termination, forfeiture or
cancellation of any Option granted under the Plan without the issuance of
shares, the Common Stock subject to or reserved for such Option may be used
again for new grants of Options hereunder; provided that in no event may the
number of shares of Common Stock issued hereunder exceed the total number of
shares reserved for issuance. Any shares of Common Stock withheld or surrendered
to pay withholding taxes pursuant to Section 11(e) or withheld or surrendered in
full or partial payment of the exercise price of an Option pursuant to Section
6(d) shall be added to the aggregate shares of Common Stock available for
issuance.
SECTION 5. Eligibility.
Options shall be granted under the Plan solely to individuals who are
non-employee members of the Board on the date of grant ("Participants").
<PAGE> 4
SECTION 6. Terms and Conditions of Options.
Each Option granted under the Plan shall be evidenced by an agreement, in a
form approved by the Committee, which shall be subject to the following terms
and conditions and to such other terms and conditions as the Committee may deem
appropriate that are not inconsistent with the provisions of the Plan:
(a) Timing of Option Grants and Number of Underlying Shares. Options
shall be granted to such Participants as the Committee may designate at
such time or times as the Committee may determine. Each Option agreement
shall designate the number of shares of common Stock to which they pertain.
(b) Exercise Price. The per share exercise price of each Option
granted under the Plan shall be no less than 100% of the Fair Market Value
per share of Common Stock at the date the Option is granted.
(c) Vesting of Options. Each Option agreement shall specify the
manner in which the Option shall vest.
(d) Option Period. Each Option agreement shall specify the period for
which the Option thereunder is granted and shall provide that the Option
shall expire at the end of such period.
(e) Payment. The exercise price of an Option shall be paid in full at
the time of exercise (i) in cash, (ii) through the surrender of
previously-acquired shares of Common Stock having a Fair Market Value equal
to the exercise price of the Option, (iii) through the withholding by the
Company (at the election of the Participant) of shares of Common Stock
having a Fair Market Value equal to the exercise price or (iv) by a
combination of (i), (ii) and (iii).
SECTION 7. Treatment of Options Upon Termination.
(a) Termination due to Disability or Death. Upon the termination of a
Participant's membership on the Board by reason of Disability or death, such
Participant's Options shall become or remain fully vested and shall be
exercisable by such Participant (or, in the case of death, by his or her estate)
for not later than the earlier of one year after the termination date or the
expiration of the term of the Options.
(b) Termination Other than for Cause. Upon the termination of a
Participant's membership on the Board or for any reason other than for Cause (as
defined in Section 7(c)), Disability or death, such Participant's Options (to
the extent vested prior to such termination) may be exercised by such
Participant during the three-month period commencing on the date of termination,
but not later than the expiration of the term of the Options. If a Participant
dies during such three month period, his or her estate may exercise the Options
(to the extent such Options were vested and exercisable prior to death), but not
later than the earlier of one year after the date or the expiration of the term
of the Options.
(c) Termination for Cause. Upon termination of a Participant's membership
on the Board for Cause (as defined below), the Participant's right to exercise
his or her Options shall terminate at the time notice of termination is given by
the Company to such Participant. For purposes of this provision, substantial
cause shall include:
(i) The commission of an action against or in derogation of the
interests of the Company which constitutes an act of fraud, dishonesty or
moral turpitude or which, if proven in a court of law, would constitute a
violation of a criminal code or similar law;
(ii) A material breach of any material duty or obligation imposed upon
the Participant by the Company;
(iii) Divulging the Company's information; or
(iv) The performance of any similar action that the Committee, in its
sole discretion, may deem to be sufficiently injurious to the interests of
the Company so as to constitute substantial cause for termination.
<PAGE> 5
SECTION 8. Adjustment Provisions.
In the event of a stock split, stock dividend, recapitalization,
reclassification or combination of shares, merger, sale of assets or similar
event, the Committee shall adjust equitably (a) the number and class of shares
or other securities that are reserved for issuance under the Plan, (b) the
number and class of shares or other securities that are subject to outstanding
Options, and (c) the appropriate Fair Market Value and other price
determinations applicable to Options. The Committee shall make all
determinations under this Section 8, and all such determinations shall be
conclusive and binding.
SECTION 9. Term of Plan.
The Plan shall continue until terminated by the Board or until no Common
Stock remains available for issuance under Section 4, whichever occurs first.
SECTION 10. Change in Control.
In the event of a Change in Control, all outstanding Options shall fully
vest in each Participant.
SECTION 11. General Provisions.
(a) Board Membership. Nothing in the Plan or in any related instrument
shall confer upon any Participant any right to continue as a member of the Board
or shall affect the right of the Company to terminate the Board membership of
any Participant with or without cause.
(b) Legality of Issuance of Shares. No Common Stock shall be issued
pursuant to the exercise of an Option unless and until all legal requirements
applicable to such issuances have been satisfied.
(c) Ownership of Common Stock Allocated to Plan. No Participant
(individually or as a member of a group), and no beneficiary or other person
claiming under or through such Participant, shall have any right, title or
interest in or to any Common Stock allocated or reserved for purposes of the
Plan or subject to any Option, except as to shares of Common Stock, if any, as
shall have been issued to such Participant or beneficiary.
(d) Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Virginia.
(e) Withholding of Taxes. The Company may withhold, or allow a Participant
to remit to the Company, any Federal, state or local taxes required by law to be
withheld with respect to any event giving rise to income tax liability with
respect to an Option. In order to satisfy all or any portion of such income tax
liability, a Participant may elect to surrender Common Stock that would
otherwise have been issued to the Participant pursuant to the exercise of an
Option, the number of shares of such withheld or surrendered Common Stock to be
sufficient to satisfy all or a portion of the income tax liability that arises
upon the event giving rise to income tax liability with respect to an Option.
(f) Nontransferability. During the lifetime of a Participant, any Option
granted to him or her shall be exercisable only by him or her by his or her
guardian or legal representative. No Option shall be assignable or transferable,
except by will or by laws of descent and distribution, and no option shall be
subjected to any encumbrance, pledge or charge of any nature.
SECTION 12. Amendment or Discontinuance of the Plan.
The Board, acting by a majority of its members, without further action on
the part of the stockholders, may from time to time alter, amend or suspend the
Plan or any Option granted hereunder or may at any time terminate the Plan;
provided, however, that the Board may not take any action that would cause the
Plan to fail to comply with Rule 16b-3(b)(3) of the Securities and Exchange
Commission or any other applicable law or any applicable exchange requirements;
and provided further that no such action shall materially and adversely affect
any outstanding Options without consent of the respective Participants.
<PAGE> 6
SECTION 13. Effective Date of Plan.
The Plan is effective on January 1, 1999; provided that it shall be
submitted for approval by the holders of a majority of the outstanding shares of
Common Stock of the Company within 12 months thereafter, and Options granted
prior to such stockholder approval shall become null and void if such
stockholder approval is not obtained. The Plan is intended to apply to the
supplemental grant of an Option to purchase 16,700 shares of Common Stock to
each non-employee director by the Board on January 26, 1999. The Plan was
amended and restated effective May 12, 1999.
<PAGE> 7
FORM OF STOCK OPTION AGREEMENT
Participant Name: [insert full name of Participant]
APACHE Medical Systems, Inc.
Stock Option Agreement
You (the "Optionee") have been granted an option (the "Option") to purchase
shares of common stock of APACHE Medical Systems, Inc. under the APACHE Medical
Systems, Inc. Non-Employee Director Supplemental Stock Option Plan (the "Plan").
The Plan is subject to shareholder approval. The Option is subject to the terms
and conditions set forth below and in the Plan.
1. Number of Shares:
2. Date of Grant:
3. Exercise Price Per Share:
4. Vesting: vests ratably over five years plus provisions for
acceleration on change in control as set forth in the Plan
5. Termination Date: none other than as set forth in the Plan
6. Option Period: ten years
By signing this agreement, the Optionee accepts the Option subject to the
terms and conditions of the Plan and this Agreement.
<TABLE>
<S> <C>
OPTIONEE: WITNESS:
- --------------------------------------------- ---------------------------------------------
(Signature) (Signature)
</TABLE>
APACHE Medical Systems, Inc., by its duly-authorized officer agrees that
the Option, as hereby amended, is granted under the terms and conditions of the
Plan and this agreement.
<TABLE>
<S> <C>
ATTEST: APACHE MEDICAL SYSTEMS, INC.:
By: By:
------------------------------------------ ------------------------------------------
(Signature) (Signature)
</TABLE>
<PAGE> 1
EXHIBIT 11.1-COMPUTATION OF EARNINGS (LOSS) PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
---------------- ------------------
<S> <C> <C>
Income applicable to common shares:
Net Income (Loss) $ 456 $ (5)
---------------- ------------------
Income (Loss) applicable to common shares $456 $(5)
================ ==================
Weighted average number of common shares outstanding 7,338 7,282
Weighted average common shares 7,338 7,282
================ ==================
Income (Loss) per common share $ 0.06 $ (0.00)
================ ==================
</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
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,450
<SECURITIES> 549
<RECEIVABLES> 3,958
<ALLOWANCES> 1,131
<INVENTORY> 0
<CURRENT-ASSETS> 10,464
<PP&E> 3,592
<DEPRECIATION> 2,843
<TOTAL-ASSETS> 12,244
<CURRENT-LIABILITIES> 7,826
<BONDS> 69
0
0
<COMMON> 73
<OTHER-SE> 4,206
<TOTAL-LIABILITY-AND-EQUITY> 12,244
<SALES> 3,309
<TOTAL-REVENUES> 3,309
<CGS> 261
<TOTAL-COSTS> 261
<OTHER-EXPENSES> 2,677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> 456
<INCOME-TAX> 0
<INCOME-CONTINUING> 456
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 456
<EPS-PRIMARY> $0.06
<EPS-DILUTED> $0.06
</TABLE>
