UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
-----------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to ____________________
Commission File Number: 0-21214
ORTHOLOGIC CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0585310
- --------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2850 S. 36th Street, #16, Phoenix, Arizona 85034
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(602) 437-5520
- --------------------------------------------------------------------------------
(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.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
25,069,346 shares of common stock outstanding as of April 30, 1997
<PAGE>
ORTHOLOGIC CORP.
INDEX
Page No.
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets----------------------------- 1
March 31, 1997 and December 31, 1996
Consolidated Statements of Operation-------------------------------2
Three Months ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows------------------------------3
Three Months ended March 31, 1997 and 1996
Notes to Consolidated Financial Statements-------------------- 4 - 5
Item 2. Management's Discussion and Analysis of Financial---- 6 - 8
Condition and Results of Operations
Part II Other Information
Item 1. Legal Proceedings--------------------------------------- 9
Item 2. Changes in Securities----------------------------------- 9
Item 6. Exhibits and Reports on Form 8-K------------------------ 9
<PAGE>
OrthoLogic Corp.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 11,729,634 $ 13,493,853
Short-term investments 16,642,730 35,306,989
Accounts receivable 32,578,196 26,856,144
Inventory 9,544,447 6,551,382
Prepaids and other current assets 1,944,915 1,194,679
Deferred income taxes 2,568,411 2,401,000
------------- -------------
Total current assets 75,008,333 85,804,047
Furniture, rental fleet and equipment 13,526,994 11,364,295
Accumulated depreciation (3,029,253) (2,282,292)
------------- -------------
Furniture and equipment, net 10,497,741 9,082,003
Intangibles, net 29,794,125 17,846,540
Deposits and other assets 91,045 93,112
Note receivable - Officer 200,000 200,000
------------- -------------
Total Assets $ 115,591,244 $ 113,025,702
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 3,628,786 $ 2,041,943
Loan payable - current portion 500,000 --
Accrued liabilities 8,530,759 8,776,896
------------- -------------
Total current liabilities 12,659,545 10,818,839
Deferred rent and capital lease obligation 300,945 279,929
Loan payable - long term portion 875,000 --
Stockholders' Equity
Common stock 12,533 12,509
Additional paid-in capital 118,944,618 118,832,041
Accumulated deficit (17,201,397) (16,917,616)
------------- -------------
Total stockholders' equity 101,755,754 101,926,934
------------- -------------
Total Liabilities and Stockholders' Equity $ 115,591,244 $ 113,025,702
============= =============
</TABLE>
See notes to consolidated financial statements
Page 1
<PAGE>
OrthoLogic Corp.
Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
------------ ------------
<S> <C> <C>
REVENUES
Net sales $ 9,571,673 $ 6,759,732
Net rentals 7,730,042 --
------------ ------------
Total Revenues 17,301,715 6,759,732
------------ ------------
COST OF REVENUES
Cost of goods sold 2,714,037 1,122,279
Cost of rentals 2,031,331 --
------------ ------------
Total Cost of Revenues 4,745,368 1,122,279
GROSS PROFIT 12,556,347 5,637,453
OPERATING EXPENSES
Selling, general and administrative 12,889,498 4,424,148
Research and development 576,056 551,611
------------ ------------
Total Operating Expenses 13,465,554 4,975,759
------------ ------------
OPERATING INCOME (LOSS) (909,207) 661,694
OTHER INCOME (EXPENSE)
Grant revenue 73,681 49,400
Interest Income 567,836 238,533
Interest expense (5,400) --
------------ ------------
Total Other Income 636,117 287,933
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (273,090) 949,627
Provision for income taxes -- (15,000)
------------ ------------
NET INCOME (LOSS) $ (273,090) $ 934,627
============ ============
NET INCOME (LOSS) PER COMMON SHARE $ (0.01) $ 0.04
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 25,037,890 20,796,198
============ ============
</TABLE>
See notes to consolidated financial statements.
Page 2
<PAGE>
OrthoLogic Corp.
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings (Loss) $ (273,090) $ 934,627
Noncash items:
Depreciation and amortization 1,320,697 79,835
Other (10,692) --
Net change in Other Operating items:
Accounts receivable (826,466) (2,797,352)
Inventory (418,821) (380,204)
Prepaids and other current assets (834,509) (355,463)
Deposits and other assets 2,068 7,200
Accounts payable 39,927 367,075
Accrued liabilities (335,495) 189,036
------------ ------------
Cash Flows used in Operating Activities (1,336,381) (1,955,246)
INVESTING ACTIVITIES
Purchase of fixed assets, net (532,026) (177,889)
Cash paid for acquisitions, net of other effects (18,210,269)
Purchases (Sales) of short term investments 18,664,259 (2,060,305)
Intangible from dealer transactions (462,403) --
------------ ------------
Cash Flows used in Investing Activities (540,439) (2,238,194)
FINANCING ACTIVITIES
Net proceeds from stock option exercises 112,601 475,329
------------ ------------
Cash Flows from Financing Activities 112,601 475,329
Net Decrease in Cash & Cash Equivalents (1,764,219) (3,718,111)
Cash & Cash Equivalents, Beginning of Period 13,493,853 8,830,514
------------ ------------
Cash & Cash Equivalents, End of Period $ 11,729,634 $ 5,112,403
============ ============
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE>
ORTHOLOGIC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statement Presentation
--------------------------------
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and include the accounts of
the Company and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
The consolidated balance sheet as of March 31, 1997, and the consolidated
statements of operations and cash flows for the three months ended March
31, 1997 and 1996 are unaudited however, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of financial position, results of
operations and cash flows. The results of operations for the interim
periods are not necessarily indicative of the results to be expected for
the complete fiscal year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's 1996 Annual Report.
2. Earnings (Loss) Per Share
--------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share", effective for both interim and annual periods ending after
December 15, 1997. This statement specifies the computation, presentation
and disclosure of earnings per share for entities with publicly held
common stock or potential common stock. The Company will provide the
required disclosures in their year-end report. The effect on the Company's
earnings per share disclosure is not material for the periods presented.
3. Preferred Stock Purchase Rights
-------------------------------
On February 25, 1997 the Company declared a dividend distribution of one
Preferred Stock Purchase Right (the "Rights") for each outstanding share
of the Company's common stock, payable March 12, 1997 to holders of record
on that date. The Rights will expire on March 11, 2007.
Each Right will entitle shareholders to buy 1/100 of a share of Series A
Preferred Stock at an exercise price of $25.00.
Initially, no separate Rights certificates will be distributed; the Rights
will trade with the Company's common stock and will not be exercisable
until the earlier of 10 business days following the acquisition of 15% or
more of the Company's common stock by a person or group or 15 business
days following the commencement of a tender offer for 20% or more of the
Company's common stock.
Page 4
<PAGE>
ORTHOLOGIC CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Preferred Stock Purchase Rights (continued)
-------------------------------------------
At the discretion of the Board of Directors of the Company, the Rights can
be redeemed at any time prior to the 10th day following the date the
Rights become exercisable. If the Rights are not redeemed by the Board,
and the Company is acquired, holders of the Rights (other than an
"acquiring person") will be entitled to purchase additional shares of
common stock of either the Company or the acquiring corporation (whichever
survives) at one-half the market price.
4. Acquisitions
------------
On March 3, 1997 and March 12, 1997, the Company acquired certain assets
and assumed certain liabilities of Toronto Medical Corp. (Toronto) and
Danninger Medical Technology, Inc. (DMTI). After paying certain of the
assumed liabilities, the net cash outlay was approximately $7.2 million
for Toronto and $11 million for DMTI. Both acquisitions were accounted
for as a purchase which resulted in goodwill of $4 million for Toronto and
$7.7 million for DMTI. The goodwill is being amortized over 20 years.
Management plans to restructure the operations related to these
acquisitions during the second and third quarter of 1997 including, but
not limited to, closing and/or relocating facilities and terminating or
relocating certain employees. The Restructuring Plan will include the
integration of these acquisitions. Once the estimated costs related to
these activities are determined, they will be accrued and reflected as
additional acquisition costs in the allocation of purchase price.
Had the Toronto and DMTI acquisitions occurred on January 1, 1996,
combined unaudited pro forma results for the three months ended March 31,
1997 and 1996, would have been: net revenues - $20.5 and $11.2 million;
net earnings (loss) - $(336,000) and $348,000; net earnings (loss) per
common share - $(0.01) and $0.02.
The pro forma amounts disclosed above include revenue and net income
derived from product sales to competing independent dealers of orthopaedic
rehabilitation products. Subsequent to the acquisition, the Company
discontinued selling products to these dealers. Excluding the dealer
product sales, combined unaudited pro forma results for the three months
ended March 31, 1997 and 1996, would have been: net revenues- $19.2 and
$9.6 million; net earnings (loss) - $(764,000) and $121,000; net earnings
(loss) per common share - $(0.03) and $0.01.
Page 5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
OrthoLogic has completed three recent acquisitions which affect
the year-to-year comparability of its consolidated financial
position and results of operations: the acquisition of Sutter
Corporation (Sutter) on August 30, 1996 and the acquisition of
certain assets and the assumption of certain liabilities of two
other orthopaedic rehabilitation related companies in March 1997.
Revenues
OrthoLogic's revenue increased 156% from $6.8 million in the first
quarter of 1996 to $17.3 in the first quarter of 1997. The
increase in revenue was due primarily to growth in sales of the
OrthoLogic 1000 product and to first quarter sales in Sutter ($9
million) and the recently acquired operations ($900,000). The
Company believes that revenues for its orthopaedic rehabilitation
products may be seasonal, with the strongest sales occurring in
the fourth quarter.
Gross Profit
Gross profit increased from $5.6 million in the first quarter of
1996 to $12.6 million in the first quarter of 1997. Gross profit
as a percentage of revenue was 73% for the three months ended
March 31, 1997 compared to 83% for the comparable period during
1996. The overall gross profit percentage declined as a result of
the recently acquired orthopaedic rehabilitation operations which
have a lower gross profit percentage than the Company's fracture
healing products.
Selling, General and Administrative Expenses
Selling, general and administrative (S,G&A) expenses for the first
quarter of 1997 were $12.9 million, up $8.5 million from the
comparable 1996 period. The increase from 1996 is due to in part
to the variable costs (commissions, bad debts, and royalties)
associated with the increased revenue. The first quarter of 1997
also included the Sutter S,G&A, which is a significant component
of total S,G&A. During late 1996, the fixed component of S,G&A
increased due to the addition of employees, including salespeople
added to support the Company's transition to a direct sales force,
and other infrastructure required to support the growing and
projected revenue volume.
OrthoLogic is currently consolidating facilities and eliminating
expenses from redundant operations from within the three
businesses that were recently acquired.
Page 6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Research and Development
Research and development (R&D) expenses were $576,000 for the
first quarter of 1997 compared to $552,000 for the comparable 1996
period. The increase in R&D expenses was due to the 1997
acquisitions.
Other Income
Other Income of $636,000 for the first quarter of 1997 consisted
of interest income of $568,000 and grant revenue of $74,000 offset
by interest expense of $5,400. Other income for the comparable
1996 period consisted of interest income of $239,000 and grant
revenue of $49,400. The 138% increase in interest income was due
to the investment of the $74 million in net proceeds from the
Company's April 1996 public offering of common stock. Grant
revenue increased 51% because the Company was participating in two
research grant projects in the first quarter of 1997 compared to
only one project in the first quarter of 1996.
Liquidity and Capital Resources
At March 31, 1997, the Company had cash and investments of $28.4
million compared to $48.8 million at December 31, 1996. Working
capital decreased from $75 million at December 31, 1996 to $62.3
million at March 31, 1997. The decrease in cash and investments is
primarily the result of cash used for acquisitions of $18.2
million. Other uses of cash included $1.4 million for operating
activities and $532,000 for the purchase of fixed assets. In
addition, the Company paid $462,000 to a former independent dealer
for the return of territory rights, rights to hire former
independent dealer sales representatives and convenants not to
compete, as the Company completes its transition to a direct sales
force.
The Company currently believes that cash generated from product
sales and rentals and its available cash resources will be
sufficient to meet it current operating requirements and internal
development and integration initiatives for the foreseeable
future. There can be no assurance, however, that the Company will
not require additional financing in the future. If the Company
were required to obtain additional financing in the future, there
can be no assurance that such sources of capital will be available
on terms favorable to the Company, if at all.
The Company plans to relocate its corporate offices in the fourth
quarter of 1997. No lease has been signed related to this move.
There are currently no other material definitive commitments for
future use of the Company's available cash resources; however,
management continually evaluates opportunities to expand its
operations, which includes internal development of new products
and may include additional acquisitions.
Page 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this document that are not
historical facts, including, without limitation, statements of
future expectations, projections of results of operations and
financial condition, statements of future economic performance and
other forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, are subject to known and
unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to
differ materially from those contemplated in such forward-looking
statements. In addition to the specific matters referred to
herein, important factors which may cause actual results to differ
from those contemplated in such forward-looking statements
include: (i) the results of the Company's efforts to implement its
business strategy; (ii) actions of the Company's competitors and
the Company's ability to respond to such actions; (iii) changes in
governmental regulation, tax rates and similar matters; (iv) other
risks detailed in the Company's other filings with the Commission;
and (v) the costs and results of pending litigation.
Page 8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See the information under the caption "Item 3 Legal Proceedings"
of the Company's 10-K for the fiscal year ended December 31,
1996.
Item 2. Changes in Securities
On February 21, 1997, the Company's Board of Directors declared a
dividend distribution of one Right for each outstanding share of
Common Stock, par value $.0005 per share (a "Common Share"), of
the Company to stockholders of record at the close of business on
March 12, 1997, all as described in detail in the Company's Forms
8-A and 8-K filed with the Securities and Exchange Commission on
March 6, 1997 which are incorporated herein by reference. The
description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and Bank
of New York, as Rights Agent. Except as set forth in the Rights
Agreement, each Right entitles the registered holder to purchase
from the Company one one-hundredth of a share of Series A
Preferred Stock, par value $.0005 per share at a price of $25.00,
subject to adjustment. The Purchase Price shall be paid in cash.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index following the signature page which
is incorporated herein by reference.
(b) Reports on Form 8-K
1) On March 6, 1997, the Company filed a Current
Report on Form 8-K dated February 21, 1997 to
report in Item 5, the Board's declaration of a
dividend distribution of Rights described in
Item 2 above.
2) On March 18, 1997, the Company filed a Current
Report on Form 8-K dated March 3, 1997, to report
in Item 2, the consummation of its acquisition of
substantially all the assets and business and the
assumption of substantially all of the
liabilities of Toronto Medical Corp., an Ontario
corporation, pursuant to a Purchase and Sale
Agreement dated as of December 30, 1996.
3) On March 27, 1997, the Company filed a Current
Report on Form 8-K dated March 12, 1997 to report
in Item 2, the consummation of its acquisition of
certain assets and the assumption of certain
liabilities of each of Danninger Medical
Technology, Inc., a Delaware corporation
("DMTI"), and Danninger Healthcare, Inc., an Ohio
corporation and a wholly-owned subsidiary of DMTI
("DHI, and together with DMTI, "Danninger"),
pursuant to an Asset Purchase Sale Agreement (the
"Agreement") dated March 12, 1997.
Page 9
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Allan M. Weinstein Chairman of the Board of Directors and May 15, 1997
- ---------------------- Chief Executive Officer
Allan M. Weinstein (Principal Executive Officer)
/s/ Allen R. Dunaway Vice-President and Chief Financial Officer May 15, 1997
- -------------------- (Principal Financial and Accounting Officer)
Allen R. Dunaway
</TABLE>
page 10
<PAGE>
ORTHOLOGIC CORP.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Exhibit Incorporated by Filed
No. Description Reference to: Herewith
--- ----------- ------------- --------
<S> <C> <C> <C>
2.1 Stock Purchase Agreement dated August 30, 1996 by Exhibit 2.1 to the Company's Current
and among the Company, Sutter Corporation and Smith Report on Form 8-K filed on September
Laboratories, Inc. 13, 1996
2.2 Purchase and Sale Agreement dated as of December Exhibit 2.1 to the Company's
30, 1996 by and among the Company and Current Report on Form 8-K filed
Toronto Medical Corp., an Ontario on March 18, 1997 ("March 18,
corporation 1997 8-K")
2.3 Amendment to Purchase and Sale Agreement dated as Exhibit 2.2 to March 18, 1997 8-K
of January 13, 1997 by and among the Company and
Toronto Medical Corp., an Ontario corporation
2.4 Second Amendment to Purchase and Sale Agreement Exhibit 2.3 to March 18, 1997 8-K
dated as of March 1, 1997 by and among the Company
and Toronto Medical Corp., an Ontario corporation
2.5 Assignment of Purchase and Sale Agreement dated as Exhibit 2.4 to March 18, 1997 8-K
of March 1, 1997 by and among the Company, Toronto
Medical Orthopaedics Ltd., a Canada corporation and
Toronto Medical Corp., an Ontario corporation
2.6 Asset Purchase Agreement dated March 12, 1997 by Exhibit 2.1 to the Company's
and among the Company, Danninger Medical Current Report on Form 8-K filed
Technology, Inc., a Delaware corporation, on March 27, 1997
and Danninger Healthcare, Inc., an
Ohio corporation
3.1 Composite Certificate of Incorporation of the X
Company, as amended, including Certificate of
Designation in respect of Series A Preferred
Stock
3.2 Bylaws of the Company Exhibit 3.4 to Company's Amendment
No. 2 to Registration Statement on
Form S-1 (No. 33-47569) filed with
the SEC on January 25, 1993 ("January
1993 S-1")
</TABLE>
<PAGE>
ORTHOLOGIC CORP.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 (continued)
<TABLE>
<CAPTION>
Exhibit Incorporated by Filed
No. Description Reference to: Herewith
--- ----------- ------------- --------
<S> <C> <C> <C>
4.1 Articles 5, 9 and 11 of Certificate of Exhibit 3.1 above
Incorporation of the Company
4.2 Articles II and III.2(c)(ii) of Bylaws of the Exhibit 3.4 to January 1993 S-1
Company
4.3 Specimen Common Stock Certificate Exhibit 4.1 to January 1993 S-1
4.4 Stock Option Plan of the Company, as amended and Incorporated by reference to Exhibit
approved by stockholders 99.1 to the Company's Registration
Statement on Form S-8 (No. 333-09785)
filed with the SEC on August 8, 1996
4.5 Stock Purchase Warrant, dated August 18, 1993, Exhibit 4.6 to the Company's Form
issued to CyberLogic, Inc. 10-K for the fiscal year ended
December 31, 1994
4.6 Stock Purchase Warrant, dated September 20, 1995, Exhibit 4.6 to Company's Registration
issued to Registered Consulting Group, Inc. Statement on Form S-1 (No. 33-97438)
filed with the SEC on September 27,
1995
4.7 Stock Purchase Warrant, dated October 15, 1996, Exhibit 4.7 to the Company's Form
issued to Registered Consulting Group, Inc. 10-K for the fiscal year ended
December 31, 1996 ("1996 10-K")
4.8 Rights Agreement dated as of March 4, 1997 Exhibit 4.1 to the Company's
between the Company and Bank of New York, Registration Statement on Form 8-A
and Exhibits A, B and C thereto filed with the SEC on March 6, 1997
10.1 1997 Officer Bonus Plan Exhibit 10.13 to 1996 10-K
10.2 Lease made March 1997 between Toronto Medical Corp. Exhibit 10.34 to 1996 10-K
and Toronto Medical Orthopaedics Ltd.
</TABLE>
<PAGE>
ORTHOLOGIC CORP.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 (continued)
<TABLE>
<CAPTION>
Exhibit Incorporated by Filed
No. Description Reference to: Herewith
--- ----------- ------------- --------
<S> <C> <C> <C>
10.3 Severance Agreement dated February 18, 1997 by and Exhibit 10.39 to 1996 10-K
between George A. Oram, Jr. and the Company
10.4 Employment Agreement by and between Allan M. X
Weinstein and the Company effective as of December
1, 1996
10.5 Employment Agreement by and between Frank P. Magee X
and the Company effective as of December 1, 1996
10.6 Employment Agreement by and between Allen R. X
Dunaway and the Company effective as of December 1,
1996
10.7 Employment Agreement by and between James B. X
Koeneman and the Company effective as of December
1, 1996
10.8 Employment Agreement by and between MaryAnn G. X
Miller and the Company effective as of December 1,
1996
10.9 Employment Agreement by and between Nicholas A. X
Skaff and the Company effective as of December 1,
1996
11 Statement of Computation of Net Income (Loss) per X
Weighted Average Number of Common Shares Outstanding
27 Financial Data Schedule X
</TABLE>
CERTIFICATE OF INCORPORATION
OF
ORTHOLOGIC CORP.
1. Name. The name of the corporation is OrthoLogic Corp.
2. Registered Agent. The name and address of the initial
registered office and registered agent of the Corporation is The Corporation
Trust company, Corporation Trust center, 1209 Orange Street, New Castle County,
Wilmington, Delaware 19801.
3. Purpose. The purpose for which this Corporation is
organized is the transaction of any or all lawful activity for which
corporations may be organized under the General Corporation Law of Delaware, as
it may be amended from time to time.
4. Election of Directors. Elections of directors at an annual
or special meeting of stockholders shall be by written ballot unless the Bylaws
of the Corporation shall otherwise provide. Advance notice of stockholder
nominations for the election of directors shall be given in the manner provided
in the Bylaws of the Corporation.
5. Authorized Capital. The total number of shares of stock
which the Corporation shall have authority to issue is 42,000,000 shares,
consisting of 40,000,000 shares of common stock having a par value of $.0005 per
share (the "Common Stock") and 2,000,000 shares of preferred stock having a par
value of $.0005 per share (the "Preferred Stock").
The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of Article 5, to provide for the issuance
of the shares of Preferred Stock in series, and by filing a certificate pursuant
to the applicable law of the State of Delaware, to establish from time to time
the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which
<PAGE>
date or dates, and the relative rights of priority, if any, of payment of
dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such voting
rights;
(d) Whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors shall
determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(h) Any other relative rights, preferences and limitations of
that series.
6. Classification and Terms of Directors. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors consisting of not less than three directors nor more than nine
directors, the exact number of directors to be determined from time to time by
resolution adopted by the Board of Directors. The directors shall be divided
into three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. The terms of the initial
Class I directors shall terminate on the date of the first annual meeting of
stockholders held after the effective date of this Article 6; the term of the
initial Class II directors shall terminate on the date of the second annual
meeting of stockholders held after the effective date of this Article 6; and the
term of the initial Class III directors shall terminate on the date of the third
annual meeting of stockholders held after the effective date of this Article 6.
At each annual meeting of stockholders beginning with the first annual meeting
held after the effective date of this Article 6, successors to the class of
directors whose term expires at that annual meeting
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<PAGE>
shall be elected for a three-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional directors of any class elected to fill a vacancy resulting from
an increase in such class shall hold office for a term that shall coincide with
the remaining terms of that class, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office. Any
vacancy on the Board of Directors, howsoever resulting (including without
limitation newly created directorships), may be filled by a majority of the
directors then in office, even if less than a quorum, or by a sole remaining
director. Any director elected to fill a vacancy shall hold office for a term
that shall coincide with the term of the class to which such director shall have
been elected.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to Article Five applicable thereto,
and such directors so elected shall not be divided into classes pursuant to this
Article Six unless expressly provided by such terms.
7. Removal of Directors. Subject to the rights, if any, of the holders
of shares of Preferred Stock then outstanding, any or all of the directors of
the Corporation may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of a majority of the outstanding
shares of the Corporation then entitled to vote generally in the election of
directors, considered for purposes of this Article 7 as one class.
8. Director Liability. No director shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law (i) for breach
of the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware
General Corporation Law or (iv) for any transaction from which the
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<PAGE>
director derived an improper personal benefit. No amendment to or repeal of this
Section 8 shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment.
9. Action by Consent of Stockholders. Any action required or permitted
to be taken by the stockholders must be effected at a duly called and noticed
annual or special meeting of such stockholders and may not be effected by any
consent in writing by such stockholders.
10. Compromise of Debts. Whenever a compromise or arrangement is
proposed between this Corporation and its creditors or any class of them and/or
between this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court direct. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
11. Special Voting Requirements.
(a) Except as set forth in Section (b) of this Article 11, the
affirmative vote of the holders of two-thirds of the outstanding stock of the
Corporation entitled to vote shall be required for:
(1) any merger or consolidation to which the Corpora- tion, or
any of its subsidiaries, and an Interested Person (as hereinafter defined) are
parties;
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<PAGE>
(2) any sale or other disposition by the Corporation, or any
of its subsidiaries, of all or substantially all of its assets to an Interested
Person;
(3) any purchase or other acquisition by the Corporation, or
any of its subsidiaries, of all or substantially all of the assets or stock of
an Interested Person; and
(4) any other transaction with an Interested Person which
requires the approval of the stockholders of the Corporation under the GCL, as
in effect from time to time.
(b) The provisions of Section (a) of this Article 11 shall not be
applicable to any transaction described therein if such transaction is approved
by resolution of the Corporation's Board of Directors, provided that a majority
of the members of the Board of Directors voting for the approval of such
transaction are Continuing Directors. The term "Continuing Director" shall mean
any member of the Board of Directors of the Corporation who is not the
Interested Person, and not an affiliate, associate, representative or nominee of
the Interested Person or of such an affiliate or associate that is involved in
the relevant transaction, and (A) was a member of the Board of Directors prior
to the date that the person, firm or corporation, or any group thereof, with
whom such transaction is proposed, became an Interested Person or (B) whose
initial election as a director of the Corporation succeeds a Continuing Director
or is a newly created directorship, and in either case was recommended by a
majority vote of the Continuing Directors then in office.
(c) As used in this Article 11, the term "Interested Person" shall mean
any person, firm or corporation, or any group thereof, acting or intending to
act in concert, including any person directly or indirectly controlling or
controlled by or under direct or indirect common control with such person, firm
or corporation or group, which owns of record or beneficially, directly or
indirectly, five percent (5%) or more of any class of voting securities of the
Corporation.
12. Special Meetings. Special meetings of the stockholders of the
Corporation for any purpose or purposes may be called at any time only by the
President, or the Board of Directors pursuant to a resolution approved by a
majority of the whole Board of Directors, or at the request in writing of
shareholders owning at least 35% of the capital stock issued and outstanding and
entitled to vote. Special meetings of the stockholders may not be called by any
other person or persons. Business transacted at any special meeting of the
stockholders shall be limited to the purposes stated in the notice of such
meeting.
13. Bylaws. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly
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<PAGE>
authorized by majority vote of the whole Board of Directors to adopt, repeal,
alter, amend or rescind the Bylaws of the Corporation. In addition, the Bylaws
of the Corporation may be adopted, repealed, altered, amended, or rescinded by
the affirmative vote of two-thirds of the outstanding stock of the Corporation
entitled to vote thereon; provided, if the Continuing Directors, as defined in
Article 11 shall by a majority vote of such Continuing Directors have adopted a
resolution approving the amendment or repeal proposal and have determined to
recommend it for approval by the holders of stock entitled to vote thereon, then
the vote required shall be the affirmative vote of the holders of at least a
majority of the outstanding shares entitled to vote thereon.
14. Certificate. The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation in
the manner now or hereafter prescribed by statute and the Certificate of
Incorporation, and all rights conferred on stockholders herein are granted
subject to the reservations in Article 14. Provided, however, the affirmative
vote of the holders of at least two-thirds of the voting power of the
outstanding stock of the Corporation entitled to vote thereon, shall be required
to alter, amend, or adopt any provision inconsistent with or repeal Articles 4,
6, 7, 9, 11, 12 and 13 and this Article 14; provided, if the Continuing
Directors, as defined in Article 11 shall by a majority vote of such Continuing
Directors have adopted a resolution approving the amendment or repeal proposal
and have determined to recommend it for approval by the holders of stock
entitled to vote thereon, then the vote required shall be the affirmative vote
of the holders of at least a majority of the outstanding shares entitled to vote
thereon.
6
<PAGE>
ORTHOLOGIC CORP.
CERTIFICATE OF DESIGNATION
in respect of
SERIES A PREFERRED STOCK
----------------------------
Pursuant to Section 151 of the
Delaware General Business Corporation Law
-----------------------------------------
The undersigned, being the Chairman and Chief Executive officer of
OrthoLogic Corp. (the "Corporation"), a corporation organized and existing under
the Delaware General Corporation Law, hereby certifies that, pursuant to the
provisions of Section 151 of the Delaware General Corporation Law, the Board of
Directors of the Corporation duly adopted the following resolution at a meeting
of said Board of Directors duly called and held on February 21, 1997, which
resolution remains in full force and effect as of the date hereof:
RESOLVED, that the Board of Directors of the Corporation,
pursuant to authority expressly vested in it by the provisions of the
Corporation's Amended and Restated Certificate of Incorporation, as
amended (the "Charter"), hereby establishes a series of the Preferred
Stock, par value $.0005 per share, of the Corporation and fixes the
number of shares of such series and the powers, designations,
preferences and relative, participating, optional or other rights of
such series, and the qualifications, limitations or restrictions
thereof, as follows:
The first series of Preferred Stock, par value $.0005 per
share, of the Corporation shall be, and hereby is, designated "Series A
Preferred Stock" (the "Series A Shares"), and the number of shares
constituting such series shall be Three Hundred Thousand (300,000). The
relative rights and preferences of the Series A Shares shall be as
follows:
<PAGE>
Section a. Dividends and Distributions.
(1) Subject to the prior and superior rights of the holders of
any shares of any series of stock ranking prior and superior to the
Series A Shares with respect to dividends, the holders of Series A
Shares, in preference to the holders of Common Stock, par value $.0005
per share, of the Corporation (the "Common Stock") and of any other
junior stock, shall be entitled to receive, when and as declared by the
Board of Directors, out of any funds lawfully available therefor, cash
dividends thereon, payable quarterly, from the date of issuance
thereof, upon the tenth days of January, April, July and October in
each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a Series A Share, in an amount
per share (rounded to the nearest cent) equal to the greater of (a)
$10.00 or (b) subject to the provisions for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends,
and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend or
distribution payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock since the immediately preceding Quarterly
Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any Series A Share. In the
event the Corporation shall at any time after March 12, 1997 (i)
declare any dividend on the Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each
such case the amounts to which holders of Series A Shares were entitled
immediately prior to such event under clause (a) and clause (b) of the
preceding sentence shall be adjusted by multiplying each such amount by
a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(2) The Corporation shall declare a dividend or distribution
on the Series A Shares as provided in paragraph (1) of this Section
immediately after it declares a dividend or.distribution on the Common
Stock (other than a dividend or distribution payable in shares of
Common Stock); provided, however, that, in the event no dividend or
distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per
share on the Series A Shares
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<PAGE>
shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date; and provided further, that nothing contained in this
paragraph (2) shall be construed so as to conflict with any provision
relating to the declaration of dividends contained in the Charter.
(3) Dividends shall begin to accrue and be cumulative on
outstanding Series A Shares from the Quarterly Dividend Payment Date
next preceding the date of issue of such Series A Shares, unless the
date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of Series A
Shares entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the Series A Shares in an amount less than
the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of Series A Shares
entitled to receive payment of a dividend or distribution declared
thereon.
Section b. Redemption. The Series A Shares are not redeemable.
Section c. Liquidation, Dissolution or Winding Up. In the
event of the voluntary or involuntary liquidation of the Corporation the
"preferential amount" that the holders of the Series A Shares shall be entitled
to receive out of the assets of the Corporation shall be $100.00 per share plus
all accrued and unpaid dividends thereon.
(1) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of
stock ranking junior (upon liquidation, dissolution or winding up) to
the Series A Shares unless, prior thereto, the holders of Series A
Shares shall have received $100.00 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation
Preference"). Following the payment of the full amount of the Series A
Liquidation Preference, no additional distributions shall be made to
the holders of Series A Shares unless, prior thereto, the holders of
shares of common stock shall have received an amount per share (the
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<PAGE>
"Common Adjustment") equal to the quotient obtained by dividing (i) the
Series A Liquidation Preference by (ii) 100 (as appropriately adjusted
as set forth in paragraph (3) of this Section c to reflect such events
as stock splits, stock dividends and recapitalizations with respect to
the Common Stock) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Series A
Liquidation Preference and the Common Adjustment in respect of all
outstanding Series A Shares and Common Stock, respectively, holders of
Series A Shares and holders of shares of Common Stock shall receive
their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to one with respect
to the Series A Shares and Common Stock, on a per share basis,
respectively.
(2) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
preferred stock, if any, that rank on a parity with the Series A
Shares, then all such available assets shall be distributed ratably to
the holders of the Series A Shares and the holders of such parity
shares in proportion to their respective liquidation preferences. In
the event, however, that there are not sufficient assets available to
permit payment in full of the Common Adjustment, then any such
remaining assets shall be distributed ratably to the holders of Common
Stock.
(3) In the event the Corporation shall at any time after March
12, 1997 (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares,
then in each such case the Adjustment Number in effect immediately
prior to such event shall be adjusted by multiplying such Adjustment
Number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section d. Sinking Fund. The Preferred Shares shall not be
entitled to the benefit of any sinking fund for the redemption or
purchase of such shares.
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<PAGE>
Section e. Conversion.
(1) Subject to paragraph (2) of this Section e, the Preferred
Shares shall not be convertible.
(2) In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the
Series A Shares shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as
the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock,
then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of Series A Shares shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event, and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
Section f. Voting Rights.
(1) The holders of Series A Shares shall have no voting rights
except as provided by Delaware statutes or by paragraph (2) of this
Section f.
(2) So long as any Series A Shares shall be outstanding, and
in addition to any other approvals or consents required by law, without
the consent of the holders of 66- 2/3% of the Series A Shares
outstanding as of a record date fixed by the Board of Directors, given
either by their affirmative vote at a special meeting called for that
purpose, or, if permitted by law, in writing without a meeting:
(i) The Corporation shall not sell, transfer or lease
all or substantially all the properties and assets of the
Corporation; provided, however, that nothing herein shall
require the consent of the holders of Series A Shares for or
in respect of the creation of any mortgage, pledge, or other
lien upon all or any part of the assets of the Corporation.
5
<PAGE>
(ii) The Corporation shall not effect a merger or
consolidation with any other corporation or corporations
unless as a result of such merger or consolidation and after
giving effect thereto holders of Series A Shares are entitled
to receive a per share amount and type of consideration equal
to 100 times the per share amount and type of consideration
received by holders of shares of Common Stock, or (1) either
(A) the Corporation shall be the surviving corporation or (B)
if the Corporation is not the surviving corporation, the
successor corporation shall be a corporation duly organized
and existing under the laws of any state of the United States
of America or the District of Columbia, and all obligations of
the Corporation with respect to the Series A Shares shall be
assumed by such successor corporation, (2) the Series A Shares
then outstanding shall continue to be outstanding and (3)
there shall be no alteration or change in the designation or
the preferences, relative rights or limitations applicable to
outstanding Series A Shares prejudicial to the holders
thereof.
(iii) The Corporation shall not amend, alter or
repeal any of the provisions of its Certificate of
Incorporation in any manner that adversely affects the
relative rights, preferences or limitations of the Series A
Shares or the holders thereof.
Section g. Certain Restrictions.
(1) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Shares as provided in Section a are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on Series A Shares outstanding shall
have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of stock ranking junior (as to
dividends) to the Series A Shares;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (as
to dividends) with the Series A Shares, except dividends paid
ratably on the Series A Shares and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for
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<PAGE>
consideration shares of any stock ranking junior (as to
dividends) to the Series A Shares; provided, however, that the
Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares
of any stock of the Corporation, ranking junior (as to
dividends) to the Series A Shares; and
(iv) purchase or otherwise acquire for consideration
any Series A Shares, or any shares of stock ranking on a
parity (as to dividends) with the Series A Shares, except in
accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
(2) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (1) of this Section g, purchase or otherwise acquire such
shares at such time and in such manner.
Section h. Fractional Shares. The Corporation may issue
fractions and certificates representing fractions of Series A Shares in integral
multiples of 1/100th of a Series A Share, or in lieu thereof, at the election of
the Board of Directors of the Corporation at the time of the first issue of any
Series A Shares, evidence such fractions by depositary receipts, pursuant to an
appropriate agreement between the Corporation and a depositary selected by it,
provided that such agreement shall provide that the holders of such depositary
receipts shall have all rights, privileges and preferences to which they would
be entitled as beneficial owners of Series A Shares. In the event that
fractional Series A Shares are issued, the holders thereof shall have all the
rights provided herein for holders of full Series A Shares in the proportion
that such fraction bears to a full share.
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<PAGE>
IN TESTIMONY WHEREOF, OrthoLogic Corp. has caused this Certificate of
Designation to be executed and acknowledged by its Chairman of the Board and
Chief Executive Officer, and attested by its Exec. Vice President as of the 5th
day of March, 1997.
ORTHOLOGIC CORP.
By: /s/ Allan M. Weinstein
--------------------------
Name: Allan M. Weinstein
Title: Chairman and Chief
Executive Officer
ATTEST:
/s/ Frank P. Magee
- -----------------------------------
Name: Frank P. Magee
Title: Executive Vice President,
Research and Development
8
EMPLOYMENT AGREEMENT
This Agreement is to be effective, as of December 1, 1996, by and
between OrthoLogic Corp., a Delaware corporation (the "Company"), and Allan M.
Weinstein ("Employee").
RECITALS:
- ---------
A. Employee is presently employed by the Company and both parties wish
to continue and redefine the nature of the employment relationship.
B. The parties wish to set forth in this Agreement the terms and
conditions of such continuing employment.
AGREEMENT:
- ----------
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs Employee to serve in a managerial capacity and
Employee accepts such employment and agrees to perform such reasonable
responsibilities and duties as may be assigned to him from time to time by the
Company's Board of Directors. Initially, Employee's title shall be Chief
Executive Officer, with general responsibility for Company operations. Such
title and duties may be changed from time to time by the Board of Directors (the
"Board"). Employee will report to the Company's Board of Directors. During the
term of Employee's employment pursuant to this Agreement, the Company shall use
its best efforts to maintain Employee as a member of the Board.
2. Term. The term of this Agreement shall be for 25 months beginning on
the effective date. Thereafter this Agreement shall renew automatically for
additional terms of one- year each unless it is terminated pursuant to Section
7.
3. Compensation.
(a) Salary. From the effective date of this Agreement through
December 31, 1996, the Company shall pay Employee a minimum base annual salary,
before deducting all applicable withholdings, of $203,000 per year, payable at
the times and in the manner dictated by the Company's standard payroll policies.
Effective January 1, 1997, and annually thereafter, the minimum base annual
salary shall be reviewed by the Compensation Committee of the Board.
(b) Bonus. Employee shall be eligible to participate in bonus
and incentive programs as determined from time to time by the Board. Any such
bonuses shall be based upon
<PAGE>
the achievement of individual goals and Company performance. Beginning January
1, 1997, the Company shall implement a bonus plan providing a target bonus of
50% of Employee's base salary for achievement of the Board-approved plan.
(c) Stock Options. Employee currently may have options to
purchase shares of the Company's Common Stock. From time to time, the Company
will consider granting to Employee options, or additional options, to purchase
shares of the Company's common stock at the fair market value of such stock on
the date of grant. Any such grant shall have terms that are substantially
consistent with the terms of other grants generally being made to executive
officers of the Company at the time of such grant.
4. Fringe Benefits. In addition to the compensation, bonus and options
as described in Section 3, and any other employee benefit plans (including
without limitation pension, savings and disability plans) generally available to
employees, the Company shall include Employee in any group health insurance plan
and, if eligible, any group retirement plan instituted by the Company. The
manner of implementation of such benefits with respect to such items as
procedures and amounts are discretionary with the Company but shall be
commensurate with Employee's executive capacity. The Company agrees to maintain
term life insurance during the term of this Agreement in an amount equal to two
times Employee's base salary, as it may be adjusted from time to time, with the
beneficiary to be designated by Employee.
5. Vacation. Employee shall be entitled to vacation with pay in
accordance with the Company's vacation policy as in effect from time to time. In
addition, Employee shall be entitled to such holidays as the Company may approve
from time to time.
6. Expenses. The Company shall, upon receipt of appropriate
documentation, reimburse Employee each month for his reasonable travel, lodging,
entertainment, promotion and other ordinary and necessary business expenses
consistent with Company policies. Employee shall also be entitled to an
automobile allowance of $450 per month.
7. Termination.
(a) For Cause. The Company may terminate Employee's employment
for cause upon written notice to Employee stating the facts constituting such
cause, provided that Employee shall have 30 days following such notice to cure
any conduct or act, if curable, alleged to provide grounds for termination for
cause hereunder. In the event of termination for cause, the Company shall be
obligated to pay Employee only the minimum base salary due him through the date
of termination. The written notice shall state the cause for termination. Except
for a termination after a Severance Event as provided in Section 8, cause shall
include neglect of duties, willful failure to abide by instructions or policies
from or set by the Board of Directors, commission of a felony or serious
misdemeanor offense or pleading guilty or nolo contendere to same, Employee's
breach of this Agreement or Employee's breach of any other material obligation
to the Company.
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<PAGE>
(b) Without Cause. The Company may terminate Employee's
employment at any time, immediately and without cause, by giving written notice
to Employee. If the Company terminates Employee without cause and Section 8 does
not apply, it shall continue to pay to Employee his minimum base salary in
effect at the time of termination for a period of one year following the date of
termination, at the time and in the manner dictated by the Company's standard
payroll policies. If the Company terminates Employee's employment and Section 8
applies, Employee shall be entitled to receive the amount described in Section
III of Exhibit A.
(c) Disability. If during the term of this Agreement, Employee
fails to perform his duties hereunder on account of illness or other incapacity
for a period of 45 consecutive days, or for 60 days during any six-month period,
the Company shall have the right to terminate this Agreement without further
obligation hereunder except as otherwise provided in disability plans generally
applicable to executive employees.
(d) Death. If Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and Employee's legal representatives
shall be entitled to receive the base salary due Employee through the last day
of the calendar month in which his death shall have occurred and any other death
benefits generally applicable to executive employees.
8. Termination or Resignation After a Change in Control.
(a) Application of Section 8. The provisions of this Section 8
shall apply if a Change in Control of the Company occurs, and within the
"Transitional Period," as described in Exhibit A to this Agreement, a Severance
Event," also as described in Exhibit A occurs. For purposes of this Agreement,
your Transitional Period shall be a period of 24 months. Exhibit A, also
contains additional terms and conditions governing the rights and duties of
Employee after the occurrence of a Severance Event within the Transitional
Period.
(b) "Change in Control". For purposes of this Agreement
(except to the extent governed or affected by Section 280G of the Internal
Revenue Code of 1986, as amended [the "Code"]), a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Paragraphs
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the
"Exchange Act"]), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing one-third or more of the
total voting power represented by the Company's then outstanding Common Stock,
or (ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning
3
<PAGE>
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the Common Stock of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Common Stock of the surviving entity) at least two-thirds of the total
voting power represented by the Common Stock of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all the Company's
assets.
9. Limitations on Transitional Compensation and Benefits. If the
Transitional Compensation and Benefits payable to Employee under Section 8 plus
any other severance benefits ("Severance Benefits") or any other payments or
benefits received or to be received by Employee from the Company (whether
payable pursuant to the terms of this Agreement or pursuant to any other plan,
agreement or arrangement with the Company or any corporation ["Affiliate"]
affiliated with the Company within the meaning of Section 1504 of the Code, in
the opinion of tax counsel selected by the Company and acceptable to Employee,
constitute "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and the present value of such "parachute payments" equals or exceeds three
times the average of the annual compensation payable to Employee by the Company
(or an Affiliate) and includable in Employee's gross income for federal income
tax purposes for the five calendar years preceding the year in which a change in
ownership or control of the Company occurred ("Base Amount"), if, but only if
Employee so elects in writing, such Severance Benefits shall be reduced to an
amount the present value of which (when combined with the present value of any
other payments or benefits otherwise received or to be received by Employee from
the Company [or an Affiliate] that are deemed "parachute payments") is equal to
2.99 times the Base Amount, notwithstanding any other provision to the contrary
in this Agreement. However, the Severance Benefits shall not be reduced if in
the opinion of such tax counsel, the Severance Benefits (in their full amount or
as partially reduced, as the case may be) plus all other payments or benefits
which constitute "parachute payments" within the meaning of Section 280G(b)(2)
of the Code are reasonable compensation for services actually rendered, within
the meaning of Section 280G (b)(4) of the code, and such payments are deductible
by the Company. The Base Amount shall include every type and form of
compensation includable in Employee's gross income in respect of his employment
by the Company (or an Affiliate), except to the extent otherwise provided in
temporary or final regulations promulgated under Section 280G (b) of the Code.
For purposes of this Section 9, a "change in ownership or control" shall have
the meaning set forth in Section 280G(b) of the Code and any temporary or final
regulations promulgated thereunder. The present value of any non-cash benefit or
any deferred cash payment shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G (d)(3) and (4) of
the Code.
4
<PAGE>
Employee shall have the right to request that the Company obtain a
ruling from the Internal Revenue Service ("Service") as to whether any or all
payments or benefits determined by such tax counsel are, in the view of the
Service, "parachute payments" under Section 280G. If a ruling is sought pursuant
to executive's request, no Severance Benefits payable under this Agreement shall
be made to Employee to the extent they would exceed 2.99 times the Base Amount
until after 15 days from the date of such ruling. For purposes of this Section
9, Employee and the Company agree to be bound by the Service's ruling as to
whether payments constitute "parachute payments" under Section 280G. If the
Service declines, for any reason, to provide the ruling requested, the tax
counsel's opinion provided with respect to what payments or benefits constitute
"parachute payments" shall control, and the period during which the excessive
portion of the Severance Benefits may be deferred shall be extended to a date 15
days from the date of the Service's notice indicating that no ruling would be
forthcoming.
If Section 280G, or any successor statute, is repealed, this Section 9
shall cease to be effective on the effective date of such repeal. The parties to
this Agreement recognize that final regulations under Section 280G of the Code
may affect the amounts that may be paid under this Agreement and agree that,
upon issuance of such final regulations this Agreement may be modified as in
good faith deemed necessary in light of the provisions of such regulations to
achieve the purposes of this Agreement, and that consent to such modifications
shall not be unreasonably withheld.
10. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights and benefits of Employee hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. Upon mutual agreement of the parties, the Company upon reasonable
notice to Employee may transfer Employee to an affiliate of the Company, which
affiliate shall assume the obligations of the Company under this Agreement. This
Agreement shall be assigned automatically to any entity merging with or
acquiring the Company.
11. Amendment. Except for documents regarding the grant of stock
options and an Invention, Confidential Information and Non-Competition
Agreement, this Agreement contains, and its terms constitute, the entire
agreement of the parties and supersedes any prior agreements, including any
Employment Agreements, and it may be amended only by a written document signed
by both parties to this Agreement.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Arizona,
exclusive of the conflict of law provisions thereof, and the parties agree that
any litigation pertaining to this Agreement shall be in courts located in
Maricopa County, Arizona.
13. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceeding against the other party
to enforce any of the terms
5
<PAGE>
hereof, the party prevailing in any such action or other proceeding shall be
paid by the other party its reasonable attorneys' fees as well as court costs
all as determined by the court and not a jury.
14. Notices. All notices, demands, instructions, or requests relating
to this Agreement shall be in writing and, except as otherwise provided herein,
shall be deemed to have been given for all purposes (i) upon personal delivery,
(ii) one day after being sent, when sent by professional overnight courier
service from and to locations within the Continental United States, (iii) five
days after posting when sent by United States registered or certified mail, with
return receipt requested and postage paid, or (iv) on the date of transmission
when sent by facsimile with a hard-copy confirmation; if directed to the person
or entity to which notice is to be given at his or its address set forth in this
Agreement or at any other address such person or entity has designated by
notice.
To the Company: ORTHOLOGIC CORP.
2850 South 36th Street, Suite 16
Phoenix, AZ 85034
Attention: Chief Executive Officer
To Employee: Allan M. Weinstein
3177 E. Sierra Vista Drive
Phoenix, AZ 85016
15. Entire Agreement. This Agreement constitutes the final written
expression of all of the agreements between the parties (except those relating
to Employee's service as a director of the Company), and is a complete and
exclusive statement of those terms. It supersedes all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties or statements made by either party that differ in any way
from the terms of this written Agreement shall be given no force or effect. The
parties specifically represent, each to the other, that there are no additional
or supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing and signed by all parties.
16. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
17. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining provisions
hereof, but the same shall remain in full force and effect as if such invalid or
unenforceable provisions were omitted.
6
<PAGE>
18. Attachments. All attachments or exhibits to this Agreement are
incorporated herein by this reference as though fully set forth herein. In the
event of any conflict, contradiction or ambiguity between the terms and
conditions in this Agreement and any of its attachments, the terms of this
Agreement shall prevail.
19. Interpretation of Agreement. When a reference is made in this
Agreement to an article or section, such reference shall be to an article or
section of this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes," or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."
20. Headings. Headings in this Agreement are for informational purposes
only and shall not be used to construe the intent of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same agreement.
22. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
This Agreement has been executed by the parties as of December 1, 1996.
ORTHOLOGIC CORP.
("Company")
By: /s/ Allan M. Weinstein
-------------------------------------
/s/ Allen R. Dunaway
ALLAN M. WEINSTEIN
("Employee")
By: /s/ Allan M. Weinstein
-------------------------------------
7
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
EXHIBIT "A"
TRANSITIONAL COMPENSATION
I. DEFINITIONS
Except as otherwise defined in either this Exhibit A or the Agreement
to which this Exhibit A is attached, capitalized terms used in this Exhibit A
shall have the meanings set forth below.
A. "Affiliate," means an entity affiliated with the Company.
B. "Agreement," means the Employment Agreement to which this Exhibit A
is attached.
C. "Change in Control." A "Change in Control" shall be deemed to have
occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing one-third or more of the total voting power represented
by the Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Common Stock of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Common Stock of the surviving
entity) at least two-thirds of the total voting power represented by the Common
Stock of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
8
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all the Company's assets.
D. "Change in Control Date" means the effective date of a Change in
Control.
E. "Company" or "the Company," shall mean OrthoLogic Corp., a Delaware
corporation.
F. "Severance Event."
A Severance Event occurs if the Company or an Affiliate
terminates Employee's employment for any reason during
Employee's Transitional Period, except for a termination due
to a felony conviction or Employee's continued and willful
failure to be present and perform Employee's duties or a
termination resulting from the expiration, without renewal, of
Employee's term of employment at the end of the initial term
or any subsequent term.
A Severance Event also occurs if Employee resigns or retires
at a time which is during Employee's Transitional Period and
within 90 days after the Company and its Affiliates have done
any of the following:
1. fail to maintain Employee's base salary at a level
that is equal to the higher of the level in effect
immediately prior to the Change in Control, or the
level to which it has been increased after the Change
of Control; or
2. fail to provide for Employee's participation in (a)
the Company or an Affiliate's annual bonus plan;
stock option or other equity incentive programs; or
group medical, dental, life, disability, retirement,
profit sharing, thrift, nonqualified and deferred
compensation plans, in each case on a basis
comparable to that enjoyed by other employees of the
Company or any of its Affiliates with duties
comparable to those of Employee; or
3. fail to provide vacation and perquisites
substantially equivalent to those provided by the
Company or any of its Affiliates to employees with
comparable duties, and at least as favorable as those
provided immediately before the Change in Control
Date; or
9
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
4. change Employee's duties and responsibilities so that
they are not at least commensurate with those
immediately prior to the Change in Control Date; or
5. change Employee's primary place of employment by more
than 25 miles from Employee's current office location
or more than 10 additional miles from Employee's
primary residence.
G. "Transitional Compensation and Benefits," shall mean the special
compensation and benefits payable upon a Severance Event as provided in Section
III of this Exhibit A.
H. "Transitional Period," means the time period beginning on the Change
in Control Date and ending the number of calendar months thereafter stated in
Section 8 of the Agreement.
II. ELIGIBILITY
Notwithstanding the occurrence of a Severance Event during Employee's
Transitional Period, Employee shall be entitled to the Transitional Compensation
and Benefits only from and after the time Employee executes a Release and
Severance Agreement substantially in the standard form then used by the Company.
III. TRANSITIONAL COMPENSATION AND BENEFITS
A. Transitional Compensation. Employee will receive the greater of (i)
one month of Transitional Compensation for every month (full or partial) from
the date of Employee's Severance Event through the last day of Employee's
Transitional Period; or (ii) the amount described in Section 7(b) of the
Agreement. One month of Transitional Compensation is equal to Employee's base
monthly salary determined as of Employee's Severance Event. This will be the
greater of Employee's annual salary as of the Severance Event, or as of the
Change in Control Date, divided by 12. Solely for purposes of determining the
amount payable upon the occurrence of a Severance Event, the base salary under
Section 7(b) of the Agreement shall be the greater of Employee's annual salary
as of the Severance Event, or as of the Change in Control Date.
Employee's Transitional Compensation will not be subject to reduction
for any earnings Employee may have from other employment following Employee's
Severance Event. However,
10
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
Transitional Compensation is subject to all applicable federal and state
deductions and withholding.
B. When Transitional Compensation and Benefits are Paid
1. Monthly Payments
----------------
Transitional Compensation shall be paid in monthly
installments beginning on the last day of the month
in which the seven-day revocation period following
the date Employee executes Employee's Release and
Severance Agreement has expired.
2. Lump Sum Death Benefit
----------------------
If Employee dies before all of Employee's
Transitional Compensation payments have been made,
the Company will pay a lump sum death benefit equal
to the discounted present value (based on the prime
rate reported in The Wall Street Journal) of unpaid
Transitional Compensation to Employee's designated
beneficiary within 30 days from Employee's date of
death.
C. Other Benefits
1. Salary and Vacation
-------------------
Any earned but unpaid salary or vacation for which
Employee is eligible at the time of Employee's
Severance Event will be paid in a lump sum at the
time of termination of employment, subject to
applicable federal and state withholding.
2. Bonuses
-------
Employee will also receive a pro rata bonus or other
incentive compensation payment for the period in
which Employee's Severance Event occurred. Employee's
bonus will be based on the payout made to comparable
employees and the number of months of employment
Employee have completed in the period. Employee's
bonus payment will
11
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
be made when bonus payouts are made under the Company
bonus or incentive plan.
3. Continuation of Employee Benefits and Stock Options
---------------------------------------------------
Employee's medical, dental, life and disability
benefits (and if applicable, benefits for Employee's
dependents) will continue through Employee's
Transitional Period as if Employee remained actively
employed. Solely for purposes of determining the date
on which options shall expire and become
non-exercisable under applicable option plans,
Employee's employment will be considered to extend
through the Transitional Period; any incentive stock
options shall become nonqualified options to the
extent they remain unexercised more than three months
after the Severance Event.
4. Out-Placement Assistance
------------------------
Upon Employee's Severance Event, the Company will
provide Employee with outplacement counseling and
assistance. Counseling is available from the date of
Employee's Severance Event until Employee is first
employed or providing compensated services; provided,
however, that the Company is not obligated to pay
more than $10,000 for such counseling and assistance.
IV. WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID
No Transitional Compensation Benefits under the Plan will be
paid if Employee:
1. is a party to an employment or severance agreement
with the Company or an Affiliate, other than the
Agreement, that provides payments or other benefits
as a result of termination of employment; or
2. retires or resigns, other than for reasons that
constitute a Severance Event; or
3. takes a leave of absence; or
12
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
4. is offered and refuses or refuses to transfer to
another comparably compensated position with the
Company, an Affiliate, or a successor company (other
than in a circumstance that constitutes a Severance
Event); or
5. refuses to sign a Release and Severance Agreement; or
6. dies prior to a Severance Event.
V. OTHER IMPORTANT INFORMATION
A. How the Coverage Is Provided
Any payment made under the Plan will come from the general
assets of the Company or an Affiliate. No separate fund will
be established.
B. Limited Alienation of Benefits
Employee's benefits in this Plan cannot be claimed by any
person to whom Employee owes a debt and neither Employee nor
Employee's beneficiary may transfer rights to these benefits
to anyone.
13
EMPLOYMENT AGREEMENT
This Agreement is to be effective, as of December 1, 1996, by and
between OrthoLogic Corp., a Delaware corporation (the "Company"), and Frank P.
Magee ("Employee").
RECITALS:
- ---------
A. Employee is presently employed by the Company and both parties wish
to continue and redefine the nature of the employment relationship.
B. The parties wish to set forth in this Agreement the terms and
conditions of such continuing employment.
AGREEMENT:
- ----------
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs Employee to serve in a managerial capacity and
Employee accepts such employment and agrees to perform such reasonable
responsibilities and duties as may be assigned to him from time to time by the
Company's Board of Directors. Initially, Employee's title shall be Executive
Vice President, with general responsibility for Research and Development. Such
title and duties may be changed from time to time by the Board of Directors (the
"Board"). Employee will report to the Company's President and CEO.
2. Term. The term of this Agreement shall be for 25 months beginning on
the effective date. Thereafter this Agreement shall renew automatically for
additional terms of one- year each unless it is terminated pursuant to Section
7.
3. Compensation.
(a) Salary. From the effective date of this Agreement through
December 31, 1996, the Company shall pay Employee a minimum base annual salary,
before deducting all applicable withholdings, of $174,000 per year, payable at
the times and in the manner dictated by the Company's standard payroll policies.
Effective January 1, 1997, and annually thereafter, the minimum base annual
salary shall be reviewed by the Compensation Committee of the Board.
(b) Bonus. Employee shall be eligible to participate in such
bonus and incentive programs as determined from time to time by the Board. Any
bonuses shall be based upon the achievement of individual goals and Company
performance. Beginning January 1,
<PAGE>
1997, the Company shall implement a bonus plan providing a target bonus of 45%
of Employee's base salary for achievement of the Board-approved plan.
(c) Stock Options. Employee currently may have options to
purchase shares of the Company's Common Stock. From time to time, the Company
will consider granting to Employee options, or additional options, to purchase
shares of the Company's common stock at the fair market value of such stock on
the date of grant. Any such grant shall have terms that are substantially
consistent with the terms of other grants generally being made to executive
officers of the Company at the time of such grant.
4. Fringe Benefits. In addition to the compensation, bonus and options
described in Section 3, and any other employee benefit plans (including without
limitation pension, savings and disability plans) generally available to
employees, the Company shall include Employee in any group health insurance plan
and, if eligible, any group retirement plan instituted by the Company. The
manner of implementation of such benefits with respect to such items as
procedures and amounts are discretionary with the Company but shall be
commensurate with Employee's executive capacity.
5. Vacation. Employee shall be entitled to vacation with pay in
accordance with the Company's vacation policy as in effect from time to time. In
addition, Employee shall be entitled to such holidays as the Company may approve
from time to time.
6. Expenses. The Company shall, upon receipt of appropriate
documentation, reimburse Employee each month for his reasonable travel, lodging,
entertainment, promotion and other ordinary and necessary business expenses
consistent with Company policies.
7. Termination.
(a) For Cause. The Company may terminate Employee's employment
for cause upon written notice to Employee stating the facts constituting such
cause, provided that Employee shall have 30 days following such notice to cure
any conduct or act, if curable, alleged to provide grounds for termination for
cause hereunder. In the event of termination for cause, the Company shall be
obligated to pay Employee only the minimum base salary due him through the date
of termination. The written notice shall state the cause for termination. Except
for a termination after a Severance Event as provided in Section 8, cause shall
include neglect of duties, willful failure to abide by instructions or policies
from or set by the Board of Directors, commission of a felony or serious
misdemeanor offense or pleading guilty or nolo contendere to same, Employee's
breach of this Agreement or Employee's breach of any other material obligation
to the Company.
(b) Without Cause. The Company may terminate Employee's
employment at any time, immediately and without cause, by giving written notice
to Employee. If the Company terminates Employee without cause and Section 8 does
not apply, it shall continue to pay to Employee his minimum base salary in
effect at the time of termination for a period of one
2
<PAGE>
year following the date of termination, at the time and in the manner dictated
by the Company's standard payroll policies. If the Company terminates Employee's
employment and Section 8 applies, Employee shall be entitled to receive the
amount described in Section III of Exhibit A.
(c) Disability. If during the term of this Agreement, Employee
fails to perform his duties hereunder on account of illness or other incapacity
for a period of 45 consecutive days, or for 60 days during any six-month period,
the Company shall have the right to terminate this Agreement without further
obligation hereunder except as otherwise provided in disability plans generally
applicable to executive employees.
(d) Death. If Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and Employee's legal representatives
shall be entitled to receive the base salary due Employee through the last day
of the calendar month in which his death shall have occurred and any other death
benefits generally applicable to executive employees.
8. Termination or Resignation After a Change in Control.
(a) Application of Section 8. The provisions of this Section 8
shall apply if a Change in Control of the Company occurs, and within the
"Transitional Period," as described in Exhibit A to this Agreement, a Severance
Event," also as described in Exhibit A occurs. For purposes of this Agreement,
your Transitional Period shall be a period of 18 months. Exhibit A, also
contains additional terms and conditions governing the rights and duties of
Employee after the occurrence of a Severance Event within the Transitional
Period.
(b) "Change in Control". For purposes of this Agreement
(except to the extent governed or affected by Section 280G of the Internal
Revenue Code of 1986, as amended [the "Code"]), a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Paragraphs
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the
"Exchange Act"]), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing one-third or more of the
total voting power represented by the Company's then outstanding Common Stock,
or (ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the Common Stock of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into
3
<PAGE>
Common Stock of the surviving entity) at least two-thirds of the total voting
power represented by the Common Stock of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all the Company's assets.
9. Limitations on Transitional Compensation and Benefits. If the
Transitional Compensation and Benefits payable to Employee under Section 8 plus
any other severance benefits ("Severance Benefits") or any other payments or
benefits received or to be received by Employee from the Company (whether
payable pursuant to the terms of this Agreement or pursuant to any other plan,
agreement or arrangement with the Company or any corporation ["Affiliate"]
affiliated with the Company within the meaning of Section 1504 of the Code, in
the opinion of tax counsel selected by the Company and acceptable to Employee,
constitute "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and the present value of such "parachute payments" equals or exceeds three
times the average of the annual compensation payable to Employee by the Company
(or an Affiliate) and includable in Employee's gross income for federal income
tax purposes for the five calendar years preceding the year in which a change in
ownership or control of the Company occurred ("Base Amount"), if, but only if
Employee so elects in writing, such Severance Benefits shall be reduced to an
amount the present value of which (when combined with the present value of any
other payments or benefits otherwise received or to be received by Employee from
the Company [or an Affiliate] that are deemed "parachute payments") is equal to
2.99 times the Base Amount, notwithstanding any other provision to the contrary
in this Agreement. However, the Severance Benefits shall not be reduced if in
the opinion of such tax counsel, the Severance Benefits (in their full amount or
as partially reduced, as the case may be) plus all other payments or benefits
which constitute "parachute payments" within the meaning of Section 280G(b)(2)
of the Code are reasonable compensation for services actually rendered, within
the meaning of Section 280G (b)(4) of the code, and such payments are deductible
by the Company. The Base Amount shall include every type and form of
compensation includable in Employee's gross income in respect of his employment
by the Company (or an Affiliate), except to the extent otherwise provided in
temporary or final regulations promulgated under Section 280G (b) of the Code.
For purposes of this Section 9, a "change in ownership or control" shall have
the meaning set forth in Section 280G(b) of the Code and any temporary or final
regulations promulgated thereunder. The present value of any non-cash benefit or
any deferred cash payment shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G (d)(3) and (4) of
the Code.
Employee shall have the right to request that the Company obtain a
ruling from the Internal Revenue Service ("Service") as to whether any or all
payments or benefits determined by such tax counsel are, in the view of the
Service, "parachute payments" under Section 280G. If a ruling is sought pursuant
to executive's request, no Severance Benefits payable under this Agreement shall
be made to Employee to the extent they would exceed 2.99 times the Base Amount
until after 15 days from the date of such ruling. For purposes of this Section
9, Employee and the Company agree to be bound by the Service's ruling as to
whether payments
4
<PAGE>
constitute "parachute payments" under Section 280G. If the Service declines, for
any reason, to provide the ruling requested, the tax counsel's opinion provided
with respect to what payments or benefits constitute "parachute payments" shall
control, and the period during which the excessive portion of the Severance
Benefits may be deferred shall be extended to a date 15 days from the date of
the Service's notice indicating that no ruling would be forthcoming.
If Section 280G, or any successor statute, is repealed, this Section 9
shall cease to be effective on the effective date of such repeal. The parties to
this Agreement recognize that final regulations under Section 280G of the Code
may affect the amounts that may be paid under this Agreement and agree that,
upon issuance of such final regulations this Agreement may be modified as in
good faith deemed necessary in light of the provisions of such regulations to
achieve the purposes of this Agreement, and that consent to such modifications
shall not be unreasonably withheld.
10. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights and benefits of Employee hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. Upon mutual agreement of the parties, the Company upon reasonable
notice to Employee may transfer Employee to an affiliate of the Company, which
affiliate shall assume the obligations of the Company under this Agreement. This
Agreement shall be assigned automatically to any entity merging with or
acquiring the Company.
11. Amendment. Except for documents regarding the grant of stock
options and an Invention, Confidential Information and Non-Competition
Agreement, this Agreement contains, and its terms constitute, the entire
agreement of the parties and supersedes any prior agreements, including any
Employment Agreements, and it may be amended only by a written document signed
by both parties to this Agreement.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Arizona,
exclusive of the conflict of law provisions thereof, and the parties agree that
any litigation pertaining to this Agreement shall be in courts located in
Maricopa County, Arizona.
13. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceeding against the other party
to enforce any of the terms hereof, the party prevailing in any such action or
other proceeding shall be paid by the other party its reasonable attorneys' fees
as well as court costs all as determined by the court and not a jury.
14. Notices. All notices, demands, instructions, or requests relating
to this Agreement shall be in writing and, except as otherwise provided herein,
shall be deemed to have been given for all purposes (i) upon personal delivery,
(ii) one day after being sent, when sent by professional overnight courier
service from and to locations within the Continental United States,
5
<PAGE>
(iii) five days after posting when sent by United States registered or certified
mail, with return receipt requested and postage paid, or (iv) on the date of
transmission when sent by facsimile with a hard-copy confirmation; if directed
to the person or entity to which notice is to be given at his or its address set
forth in this Agreement or at any other address such person or entity has
designated by notice.
To the Company: ORTHOLOGIC CORP.
2850 South 36th Street, Suite 16
Phoenix, AZ 85034
Attention: Chief Executive Officer
To Employee: Frank P. Magee
602 Woodriver Drive
Ketchum, ID 83340
15. Entire Agreement. This Agreement constitutes the final written
expression of all of the agreements between the parties (except those relating
to Employee's service as a director of the Company), and is a complete and
exclusive statement of those terms. It supersedes all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties or statements made by either party that differ in any way
from the terms of this written Agreement shall be given no force or effect. The
parties specifically represent, each to the other, that there are no additional
or supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing and signed by all parties.
16. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
17. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining provisions
hereof, but the same shall remain in full force and effect as if such invalid or
unenforceable provisions were omitted.
18. Attachments. All attachments or exhibits to this Agreement are
incorporated herein by this reference as though fully set forth herein. In the
event of any conflict, contradiction or ambiguity between the terms and
conditions in this Agreement and any of its attachments, the terms of this
Agreement shall prevail.
19. Interpretation of Agreement. When a reference is made in this
Agreement to an article or section, such reference shall be to an article or
section of this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only
6
<PAGE>
and shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes," or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
20. Headings. Headings in this Agreement are for informational purposes
only and shall not be used to construe the intent of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same agreement.
22. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
This Agreement has been executed by the parties as of December 1, 1996.
ORTHOLOGIC CORP.
("Company")
By: /s/ Allan M. Weinstein
-------------------------------------
Allan M. Weinstein
Chief Executive Officer
FRANK P. MAGEE
("Employee")
By: /s/ Frank P. Magee
-------------------------------------
7
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
EXHIBIT "A"
TRANSITIONAL COMPENSATION
I. DEFINITIONS
Except as otherwise defined in either this Exhibit A or the Agreement
to which this Exhibit A is attached, capitalized terms used in this Exhibit A
shall have the meanings set forth below.
A. "Affiliate," means an entity affiliated with the Company.
B. "Agreement," means the Employment Agreement to which this Exhibit A
is attached.
C. "Change in Control." A "Change in Control" shall be deemed to have
occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing one-third or more of the total voting power represented
by the Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Common Stock of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Common Stock of the surviving
entity) at least two-thirds of the total voting power represented by the Common
Stock of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of transactions) all or
substantially all the Company's assets.
8
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
D. "Change in Control Date" means the effective date of a Change in
Control.
E. "Company" or "the Company," shall mean OrthoLogic Corp., a Delaware
corporation.
F. "Severance Event."
A Severance Event occurs if the Company or an Affiliate
terminates Employee's employment for any reason during
Employee's Transitional Period, except for a termination due
to a felony conviction or Employee's continued and willful
failure to be present and perform Employee's duties or a
termination resulting from the expiration, without renewal, of
Employee's term of employment at the end of the initial term
or any subsequent term.
A Severance Event also occurs if Employee resigns or retires
at a time which is during Employee's Transitional Period and
within 90 days after the Company and its Affiliates have done
any of the following:
1. fail to maintain Employee's base salary at a level
that is equal to the higher of the level in effect
immediately prior to the Change in Control, or the
level to which it has been increased after the Change
of Control; or
2. fail to provide for Employee's participation in (a)
the Company or an Affiliate's annual bonus plan;
stock option or other equity incentive programs; or
group medical, dental, life, disability, retirement,
profit sharing, thrift, nonqualified and deferred
compensation plans, in each case on a basis
comparable to that enjoyed by other employees of the
Company or any of its Affiliates with duties
comparable to those of Employee; or
3. fail to provide vacation and perquisites
substantially equivalent to those provided by the
Company or any of its Affiliates to employees with
comparable duties, and at least as favorable as those
provided immediately before the Change in Control
Date; or
4. change Employee's duties and responsibilities so that
they are not at least commensurate with those
immediately prior to the Change in Control Date; or
9
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
5. change Employee's primary place of employment by more
than 25 miles from Employee's current office location
or more than 10 additional miles from Employee's
primary residence.
G. "Transitional Compensation and Benefits," shall mean the special
compensation and benefits payable upon a Severance Event as provided in Section
III of this Exhibit A.
H. "Transitional Period," means the time period beginning on the Change
in Control Date and ending the number of calendar months thereafter stated in
Section 8 of the Agreement.
II. ELIGIBILITY
Notwithstanding the occurrence of a Severance Event during Employee's
Transitional Period, Employee shall be entitled to the Transitional Compensation
and Benefits only from and after the time Employee executes a Release and
Severance Agreement substantially in the standard form then used by the Company.
III. TRANSITIONAL COMPENSATION AND BENEFITS
A. Transitional Compensation. Employee will receive the greater of (i)
one month of Transitional Compensation for every month (full or partial) from
the date of Employee's Severance Event through the last day of Employee's
Transitional Period; or (ii) the amount described in Section 7(b) of the
Agreement. One month of Transitional Compensation is equal to Employee's base
monthly salary determined as of Employee's Severance Event. This will be the
greater of Employee's annual salary as of the Severance Event, or as of the
Change in Control Date, divided by 12. Solely for purposes of determining the
amount payable upon the occurrence of a Severance Event, the base salary under
Section 7(b) of the Agreement shall be the greater of Employee's annual salary
as of the Severance Event, or as of the Change in Control Date.
Employee's Transitional Compensation will not be subject to reduction
for any earnings Employee may have from other employment following Employee's
Severance Event. However, Transitional Compensation is subject to all applicable
federal and state deductions and withholding.
10
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
B. When Transitional Compensation and Benefits are Paid
1. Monthly Payments
----------------
Transitional Compensation shall be paid in monthly
installments beginning on the last day of the month
in which the seven-day revocation period following
the date Employee executes Employee's Release and
Severance Agreement has expired.
2. Lump Sum Death Benefit
----------------------
If Employee dies before all of Employee's
Transitional Compensation payments have been made,
the Company will pay a lump sum death benefit equal
to the discounted present value (based on the prime
rate reported in The Wall Street Journal) of unpaid
Transitional Compensation to Employee's designated
beneficiary within 30 days from Employee's date of
death.
C. Other Benefits
1. Salary and Vacation
-------------------
Any earned but unpaid salary or vacation for which
Employee is eligible at the time of Employee's
Severance Event will be paid in a lump sum at the
time of termination of employment, subject to
applicable federal and state withholding.
2. Bonuses
-------
Employee will also receive a pro rata bonus or other
incentive compensation payment for the period in
which Employee's Severance Event occurred. Employee's
bonus will be based on the payout made to comparable
employees and the number of months of employment
Employee have completed in the period. Employee's
bonus payment will be made when bonus payouts are
made under the Company bonus or incentive plan.
11
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
3. Continuation of Employee Benefits and Stock Options
---------------------------------------------------
Employee's medical, dental, life and disability
benefits (and if applicable, benefits for Employee's
dependents) will continue through Employee's
Transitional Period as if Employee remained actively
employed. Solely for purposes of determining the date
on which options shall expire and become
non-exercisable under applicable option plans,
Employee's employment will be considered to extend
through the Transitional Period; any incentive stock
options shall become nonqualified options to the
extent they remain unexercised more than three months
after the Severance Event.
4. Out-Placement Assistance
------------------------
Upon Employee's Severance Event, the Company will
provide Employee with outplacement counseling and
assistance. Counseling is available from the date of
Employee's Severance Event until Employee is first
employed or providing compensated services; provided,
however, that the Company is not obligated to pay
more than $10,000 for such counseling and assistance.
IV. WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID
No Transitional Compensation Benefits under the Plan will be
paid if Employee:
1. is a party to an employment or severance agreement
with the Company or an Affiliate, other than the
Agreement, that provides payments or other benefits
as a result of termination of employment; or
2. retires or resigns, other than for reasons that
constitute a Severance Event; or
3. takes a leave of absence; or
4. is offered and refuses or refuses to transfer to
another comparably compensated position with the
Company, an Affiliate, or a successor company (other
than in a circumstance that constitutes a Severance
Event); or
12
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
5. refuses to sign a Release and Severance Agreement; or
6. dies prior to a Severance Event.
V. OTHER IMPORTANT INFORMATION
A. How the Coverage Is Provided
----------------------------
Any payment made under the Plan will come from the general
assets of the Company or an Affiliate. No separate fund will
be established.
B. Limited Alienation of Benefits
------------------------------
Employee's benefits in this Plan cannot be claimed by any
person to whom Employee owes a debt and neither Employee nor
Employee's beneficiary may transfer rights to these benefits
to anyone.
13
EMPLOYMENT AGREEMENT
This Agreement is to be effective, as of December 1, 1996, by and
between OrthoLogic Corp., a Delaware corporation (the "Company"), and Allen R.
Dunaway ("Employee").
RECITALS:
- ---------
A. Employee is presently employed by the Company and both parties wish
to continue and redefine the nature of the employment relationship.
B. The parties wish to set forth in this Agreement the terms and
conditions of such continuing employment.
AGREEMENT:
- ----------
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs Employee to serve in a managerial capacity and
Employee accepts such employment and agrees to perform such reasonable
responsibilities and duties as may be assigned to him from time to time by the
Company's Board of Directors. Initially, Employee's title shall be Vice
President and Chief Financial Officer, with general responsibility for Finance
and Operations. Such title and duties may be changed from time to time by the
Board of Directors (the "Board"). Employee will report to the Company's
President and CEO.
2. Term. The term of this Agreement shall be for 13 months beginning on
the effective date. Thereafter this Agreement shall renew automatically for
additional terms of one- year each unless it is terminated pursuant to Section
7.
3. Compensation.
(a) Salary. From the effective date of this Agreement through
December 31, 1996, the Company shall pay Employee a minimum base annual salary,
before deducting all applicable withholdings, of $116,000 per year, payable at
the times and in the manner dictated by the Company's standard payroll policies.
Effective January 1, 1997, and annually thereafter, the minimum base annual
salary shall be reviewed by the Compensation Committee of the Board.
(b) Bonus. Employee shall be eligible to participate in such
bonus and incentive programs as determined from time to time by the Board. Any
bonuses shall be based upon the achievement of individual goals and Company
performance. Beginning January 1,
<PAGE>
1997, the Company shall implement a bonus plan providing a target bonus of 40%
of Employee's base salary for achievement of the Board-approved plan.
(c) Stock Options. Employee currently may have options to
purchase shares of the Company's Common Stock. From time to time, the Company
will consider granting to Employee options, or additional options, to purchase
shares of the Company's common stock at the fair market value of such stock on
the date of grant. Any such grant shall have terms that are substantially
consistent with the terms of other grants generally being made to executive
officers of the Company at the time of such grant.
4. Fringe Benefits. In addition to the compensation, bonus and options
described in Section 3, and any other employee benefit plans (including without
limitation pension, savings and disability plans) generally available to
employees, the Company shall include Employee in any group health insurance plan
and, if eligible, any group retirement plan instituted by the Company. The
manner of implementation of such benefits with respect to such items as
procedures and amounts are discretionary with the Company but shall be
commensurate with Employee's executive capacity.
5. Vacation. Employee shall be entitled to vacation with pay in
accordance with the Company's vacation policy as in effect from time to time. In
addition, Employee shall be entitled to such holidays as the Company may approve
from time to time.
6. Expenses. The Company shall, upon receipt of appropriate
documentation, reimburse Employee each month for his reasonable travel, lodging,
entertainment, promotion and other ordinary and necessary business expenses
consistent with Company policies.
7. Termination.
(a) For Cause. The Company may terminate Employee's employment
for cause upon written notice to Employee stating the facts constituting such
cause, provided that Employee shall have 30 days following such notice to cure
any conduct or act, if curable, alleged to provide grounds for termination for
cause hereunder. In the event of termination for cause, the Company shall be
obligated to pay Employee only the minimum base salary due him through the date
of termination. The written notice shall state the cause for termination. Except
for a termination after a Severance Event as provided in Section 8, cause shall
include neglect of duties, willful failure to abide by instructions or policies
from or set by the Board of Directors, commission of a felony or serious
misdemeanor offense or pleading guilty or nolo contendere to same, Employee's
breach of this Agreement or Employee's breach of any other material obligation
to the Company.
(b) Without Cause. The Company may terminate Employee's
employment at any time, immediately and without cause, by giving written notice
to Employee. If the Company terminates Employee without cause and Section 8 does
not apply, it shall continue to pay to Employee his minimum base salary in
effect at the time of termination for a period of one
2
<PAGE>
year following the date of termination, at the time and in the manner dictated
by the Company's standard payroll policies. If the Company terminates Employee's
employment and Section 8 applies, Employee shall be entitled to receive the
amount described in Section III of Exhibit A.
(c) Disability. If during the term of this Agreement, Employee
fails to perform his duties hereunder on account of illness or other incapacity
for a period of 45 consecutive days, or for 60 days during any six-month period,
the Company shall have the right to terminate this Agreement without further
obligation hereunder except as otherwise provided in disability plans generally
applicable to executive employees.
(d) Death. If Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and Employee's legal representatives
shall be entitled to receive the base salary due Employee through the last day
of the calendar month in which his death shall have occurred and any other death
benefits generally applicable to executive employees.
8. Termination or Resignation After a Change in Control.
(a) Application of Section 8. The provisions of this Section 8
shall apply if a Change in Control of the Company occurs, and within the
"Transitional Period," as described in Exhibit A to this Agreement, a Severance
Event," also as described in Exhibit A occurs. For purposes of this Agreement,
your Transitional Period shall be a period of 12 months. Exhibit A, also
contains additional terms and conditions governing the rights and duties of
Employee after the occurrence of a Severance Event within the Transitional
Period.
(b) "Change in Control". For purposes of this Agreement
(except to the extent governed or affected by Section 280G of the Internal
Revenue Code of 1986, as amended [the "Code"]), a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Paragraphs
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the
"Exchange Act"]), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing one-third or more of the
total voting power represented by the Company's then outstanding Common Stock,
or (ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the Common Stock of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into
3
<PAGE>
Common Stock of the surviving entity) at least two-thirds of the total voting
power represented by the Common Stock of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all the Company's assets.
9. Limitations on Transitional Compensation and Benefits. If the
Transitional Compensation and Benefits payable to Employee under Section 8 plus
any other severance benefits ("Severance Benefits") or any other payments or
benefits received or to be received by Employee from the Company (whether
payable pursuant to the terms of this Agreement or pursuant to any other plan,
agreement or arrangement with the Company or any corporation ["Affiliate"]
affiliated with the Company within the meaning of Section 1504 of the Code, in
the opinion of tax counsel selected by the Company and acceptable to Employee,
constitute "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and the present value of such "parachute payments" equals or exceeds three
times the average of the annual compensation payable to Employee by the Company
(or an Affiliate) and includable in Employee's gross income for federal income
tax purposes for the five calendar years preceding the year in which a change in
ownership or control of the Company occurred ("Base Amount"), if, but only if
Employee so elects in writing, such Severance Benefits shall be reduced to an
amount the present value of which (when combined with the present value of any
other payments or benefits otherwise received or to be received by Employee from
the Company [or an Affiliate] that are deemed "parachute payments") is equal to
2.99 times the Base Amount, notwithstanding any other provision to the contrary
in this Agreement. However, the Severance Benefits shall not be reduced if in
the opinion of such tax counsel, the Severance Benefits (in their full amount or
as partially reduced, as the case may be) plus all other payments or benefits
which constitute "parachute payments" within the meaning of Section 280G(b)(2)
of the Code are reasonable compensation for services actually rendered, within
the meaning of Section 280G (b)(4) of the code, and such payments are deductible
by the Company. The Base Amount shall include every type and form of
compensation includable in Employee's gross income in respect of his employment
by the Company (or an Affiliate), except to the extent otherwise provided in
temporary or final regulations promulgated under Section 280G (b) of the Code.
For purposes of this Section 9, a "change in ownership or control" shall have
the meaning set forth in Section 280G(b) of the Code and any temporary or final
regulations promulgated thereunder. The present value of any non-cash benefit or
any deferred cash payment shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G (d)(3) and (4) of
the Code.
Employee shall have the right to request that the Company obtain a
ruling from the Internal Revenue Service ("Service") as to whether any or all
payments or benefits determined by such tax counsel are, in the view of the
Service, "parachute payments" under Section 280G. If a ruling is sought pursuant
to executive's request, no Severance Benefits payable under this Agreement shall
be made to Employee to the extent they would exceed 2.99 times the Base Amount
until after 15 days from the date of such ruling. For purposes of this Section
9, Employee and the Company agree to be bound by the Service's ruling as to
whether payments
4
<PAGE>
constitute "parachute payments" under Section 280G. If the Service declines, for
any reason, to provide the ruling requested, the tax counsel's opinion provided
with respect to what payments or benefits constitute "parachute payments" shall
control, and the period during which the excessive portion of the Severance
Benefits may be deferred shall be extended to a date 15 days from the date of
the Service's notice indicating that no ruling would be forthcoming.
If Section 280G, or any successor statute, is repealed, this Section 9
shall cease to be effective on the effective date of such repeal. The parties to
this Agreement recognize that final regulations under Section 280G of the Code
may affect the amounts that may be paid under this Agreement and agree that,
upon issuance of such final regulations this Agreement may be modified as in
good faith deemed necessary in light of the provisions of such regulations to
achieve the purposes of this Agreement, and that consent to such modifications
shall not be unreasonably withheld.
10. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights and benefits of Employee hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. Upon mutual agreement of the parties, the Company upon reasonable
notice to Employee may transfer Employee to an affiliate of the Company, which
affiliate shall assume the obligations of the Company under this Agreement. This
Agreement shall be assigned automatically to any entity merging with or
acquiring the Company.
11. Amendment. Except for documents regarding the grant of stock
options and an Invention, Confidential Information and Non-Competition
Agreement, this Agreement contains, and its terms constitute, the entire
agreement of the parties and supersedes any prior agreements, including any
Employment Agreements, and it may be amended only by a written document signed
by both parties to this Agreement.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Arizona,
exclusive of the conflict of law provisions thereof, and the parties agree that
any litigation pertaining to this Agreement shall be in courts located in
Maricopa County, Arizona.
13. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceeding against the other party
to enforce any of the terms hereof, the party prevailing in any such action or
other proceeding shall be paid by the other party its reasonable attorneys' fees
as well as court costs all as determined by the court and not a jury.
14. Notices. All notices, demands, instructions, or requests relating
to this Agreement shall be in writing and, except as otherwise provided herein,
shall be deemed to have been given for all purposes (i) upon personal delivery,
(ii) one day after being sent, when sent by professional overnight courier
service from and to locations within the Continental United States,
5
<PAGE>
(iii) five days after posting when sent by United States registered or certified
mail, with return receipt requested and postage paid, or (iv) on the date of
transmission when sent by facsimile with a hard-copy confirmation; if directed
to the person or entity to which notice is to be given at his or its address set
forth in this Agreement or at any other address such person or entity has
designated by notice.
To the Company: ORTHOLOGIC CORP.
2850 South 36th Street, Suite 16
Phoenix, AZ 85034
Attention: Chief Executive Officer
To Employee: Allen R. Dunaway
4612 E. Onyx Avenue
Phoenix, AZ 85028
15. Entire Agreement. This Agreement constitutes the final written
expression of all of the agreements between the parties (except those relating
to Employee's service as a director of the Company), and is a complete and
exclusive statement of those terms. It supersedes all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties or statements made by either party that differ in any way
from the terms of this written Agreement shall be given no force or effect. The
parties specifically represent, each to the other, that there are no additional
or supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing and signed by all parties.
16. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
17. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining provisions
hereof, but the same shall remain in full force and effect as if such invalid or
unenforceable provisions were omitted.
18. Attachments. All attachments or exhibits to this Agreement are
incorporated herein by this reference as though fully set forth herein. In the
event of any conflict, contradiction or ambiguity between the terms and
conditions in this Agreement and any of its attachments, the terms of this
Agreement shall prevail.
19. Interpretation of Agreement. When a reference is made in this
Agreement to an article or section, such reference shall be to an article or
section of this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only
6
<PAGE>
and shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes," or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
20. Headings. Headings in this Agreement are for informational purposes
only and shall not be used to construe the intent of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same agreement.
22. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
This Agreement has been executed by the parties as of December 1, 1996.
ORTHOLOGIC CORP.
("Company")
By: /s/ Allan M. Weinstein
-------------------------------------
Allan M. Weinstein
Chief Executive Officer
ALLEN R. DUNAWAY
("Employee")
By: /s/ Allen R. Dunaway
-------------------------------------
7
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
EXHIBIT "A"
TRANSITIONAL COMPENSATION
I. DEFINITIONS
Except as otherwise defined in either this Exhibit A or the Agreement
to which this Exhibit A is attached, capitalized terms used in this Exhibit A
shall have the meanings set forth below.
A. "Affiliate," means an entity affiliated with the Company.
B. "Agreement," means the Employment Agreement to which this Exhibit A
is attached.
C. "Change in Control." A "Change in Control" shall be deemed to have
occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing one-third or more of the total voting power represented
by the Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Common Stock of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Common Stock of the surviving
entity) at least two-thirds of the total voting power represented by the Common
Stock of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of transactions) all or
substantially all the Company's assets.
8
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
D. "Change in Control Date" means the effective date of a Change in
Control.
E. "Company" or "the Company," shall mean OrthoLogic Corp., a Delaware
corporation.
F. "Severance Event."
A Severance Event occurs if the Company or an Affiliate
terminates Employee's employment for any reason during
Employee's Transitional Period, except for a termination due
to a felony conviction or Employee's continued and willful
failure to be present and perform Employee's duties or a
termination resulting from the expiration, without renewal, of
Employee's term of employment at the end of the initial term
or any subsequent term.
A Severance Event also occurs if Employee resigns or retires
at a time which is during Employee's Transitional Period and
within 90 days after the Company and its Affiliates have done
any of the following:
1. fail to maintain Employee's base salary at a level
that is equal to the higher of the level in effect
immediately prior to the Change in Control, or the
level to which it has been increased after the Change
of Control; or
2. fail to provide for Employee's participation in (a)
the Company or an Affiliate's annual bonus plan;
stock option or other equity incentive programs; or
group medical, dental, life, disability, retirement,
profit sharing, thrift, nonqualified and deferred
compensation plans, in each case on a basis
comparable to that enjoyed by other employees of the
Company or any of its Affiliates with duties
comparable to those of Employee; or
3. fail to provide vacation and perquisites
substantially equivalent to those provided by the
Company or any of its Affiliates to employees with
comparable duties, and at least as favorable as those
provided immediately before the Change in Control
Date; or
4. change Employee's duties and responsibilities so that
they are not at least commensurate with those
immediately prior to the Change in Control Date; or
9
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
5. change Employee's primary place of employment by more
than 25 miles from Employee's current office location
or more than 10 additional miles from Employee's
primary residence.
G. "Transitional Compensation and Benefits," shall mean the special
compensation and benefits payable upon a Severance Event as provided in Section
III of this Exhibit A.
H. "Transitional Period," means the time period beginning on the Change
in Control Date and ending the number of calendar months thereafter stated in
Section 8 of the Agreement.
II. ELIGIBILITY
Notwithstanding the occurrence of a Severance Event during Employee's
Transitional Period, Employee shall be entitled to the Transitional Compensation
and Benefits only from and after the time Employee executes a Release and
Severance Agreement substantially in the standard form then used by the Company.
III. TRANSITIONAL COMPENSATION AND BENEFITS
A. Transitional Compensation. Employee will receive the greater of (i)
one month of Transitional Compensation for every month (full or partial) from
the date of Employee's Severance Event through the last day of Employee's
Transitional Period; or (ii) the amount described in Section 7(b) of the
Agreement. One month of Transitional Compensation is equal to Employee's base
monthly salary determined as of Employee's Severance Event. This will be the
greater of Employee's annual salary as of the Severance Event, or as of the
Change in Control Date, divided by 12. Solely for purposes of determining the
amount payable upon the occurrence of a Severance Event, the base salary under
Section 7(b) of the Agreement shall be the greater of Employee's annual salary
as of the Severance Event, or as of the Change in Control Date.
Employee's Transitional Compensation will not be subject to reduction
for any earnings Employee may have from other employment following Employee's
Severance Event. However, Transitional Compensation is subject to all applicable
federal and state deductions and withholding.
10
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
B. When Transitional Compensation and Benefits are Paid
1. Monthly Payments
----------------
Transitional Compensation shall be paid in monthly
installments beginning on the last day of the month
in which the seven-day revocation period following
the date Employee executes Employee's Release and
Severance Agreement has expired.
2. Lump Sum Death Benefit
----------------------
If Employee dies before all of Employee's
Transitional Compensation payments have been made,
the Company will pay a lump sum death benefit equal
to the discounted present value (based on the prime
rate reported in The Wall Street Journal) of unpaid
Transitional Compensation to Employee's designated
beneficiary within 30 days from Employee's date of
death.
C. Other Benefits
1. Salary and Vacation
-------------------
Any earned but unpaid salary or vacation for which
Employee is eligible at the time of Employee's
Severance Event will be paid in a lump sum at the
time of termination of employment, subject to
applicable federal and state withholding.
2. Bonuses
-------
Employee will also receive a pro rata bonus or other
incentive compensation payment for the period in
which Employee's Severance Event occurred. Employee's
bonus will be based on the payout made to comparable
employees and the number of months of employment
Employee have completed in the period. Employee's
bonus payment will be made when bonus payouts are
made under the Company bonus or incentive plan.
11
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
3. Continuation of Employee Benefits and Stock Options
---------------------------------------------------
Employee's medical, dental, life and disability
benefits (and if applicable, benefits for Employee's
dependents) will continue through Employee's
Transitional Period as if Employee remained actively
employed. Solely for purposes of determining the date
on which options shall expire and become
non-exercisable under applicable option plans,
Employee's employment will be considered to extend
through the Transitional Period; any incentive stock
options shall become nonqualified options to the
extent they remain unexercised more than three months
after the Severance Event.
4. Out-Placement Assistance
------------------------
Upon Employee's Severance Event, the Company will
provide Employee with outplacement counseling and
assistance. Counseling is available from the date of
Employee's Severance Event until Employee is first
employed or providing compensated services; provided,
however, that the Company is not obligated to pay
more than $10,000 for such counseling and assistance.
IV. WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID
No Transitional Compensation Benefits under the Plan will be
paid if Employee:
1. is a party to an employment or severance agreement
with the Company or an Affiliate, other than the
Agreement, that provides payments or other benefits
as a result of termination of employment; or
2. retires or resigns, other than for reasons that
constitute a Severance Event; or
3. takes a leave of absence; or
4. is offered and refuses or refuses to transfer to
another comparably compensated position with the
Company, an Affiliate, or a successor company (other
than in a circumstance that constitutes a Severance
Event); or
12
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
5. refuses to sign a Release and Severance Agreement; or
6. dies prior to a Severance Event.
V. OTHER IMPORTANT INFORMATION
A. How the Coverage Is Provided
----------------------------
Any payment made under the Plan will come from the general
assets of the Company or an Affiliate. No separate fund will
be established.
B. Limited Alienation of Benefits
------------------------------
Employee's benefits in this Plan cannot be claimed by any
person to whom Employee owes a debt and neither Employee nor
Employee's beneficiary may transfer rights to these benefits
to anyone.
13
EMPLOYMENT AGREEMENT
This Agreement is to be effective, as of December 1, 1996, by and
between OrthoLogic Corp., a Delaware corporation (the "Company"), and James B.
Koeneman ("Employee").
RECITALS:
- ---------
A. Employee is presently employed by the Company and both parties wish
to continue and redefine the nature of the employment relationship.
B. The parties wish to set forth in this Agreement the terms and
conditions of such continuing employment.
AGREEMENT:
- ----------
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs Employee to serve in a managerial capacity and
Employee accepts such employment and agrees to perform such reasonable
responsibilities and duties as may be assigned to him from time to time by the
Company's Board of Directors. Initially, Employee's title shall be Vice
President, with general responsibility for Engineering. Such title and duties
may be changed from time to time by the Board of Directors (the "Board").
Employee will report to the Company's President and CEO.
2. Term. The term of this Agreement shall be for 13 months beginning on
the effective date. Thereafter this Agreement shall renew automatically for
additional terms of one- year each unless it is terminated pursuant to Section
7.
3. Compensation.
(a) Salary. From the effective date of this Agreement through
December 31, 1996, the Company shall pay Employee a minimum base annual salary,
before deducting all applicable withholdings, of $116,000 per year, payable at
the times and in the manner dictated by the Company's standard payroll policies.
Effective January 1, 1997, and annually thereafter, the minimum base annual
salary shall be reviewed by the Compensation Committee of the Board.
(b) Bonus. Employee shall be eligible to participate in such
bonus and incentive programs as determined from time to time by the Board. Any
bonuses shall be based upon the achievement of individual goals and Company
performance. Beginning January 1,
<PAGE>
1997, the Company shall implement a bonus plan providing a target bonus of 40%
of Employee's base salary for achievement of the Board-approved plan.
(c) Stock Options. Employee currently may have options to
purchase shares of the Company's Common Stock. From time to time, the Company
will consider granting to Employee options, or additional options, to purchase
shares of the Company's common stock at the fair market value of such stock on
the date of grant. Any such grant shall have terms that are substantially
consistent with the terms of other grants generally being made to executive
officers of the Company at the time of such grant.
4. Fringe Benefits. In addition to the compensation, bonus and options
described in Section 3, and any other employee benefit plans (including without
limitation pension, savings and disability plans) generally available to
employees, the Company shall include Employee in any group health insurance plan
and, if eligible, any group retirement plan instituted by the Company. The
manner of implementation of such benefits with respect to such items as
procedures and amounts are discretionary with the Company but shall be
commensurate with Employee's executive capacity.
5. Vacation. Employee shall be entitled to vacation with pay in
accordance with the Company's vacation policy as in effect from time to time. In
addition, Employee shall be entitled to such holidays as the Company may approve
from time to time.
6. Expenses. The Company shall, upon receipt of appropriate
documentation, reimburse Employee each month for his reasonable travel, lodging,
entertainment, promotion and other ordinary and necessary business expenses
consistent with Company policies.
7. Termination.
(a) For Cause. The Company may terminate Employee's employment
for cause upon written notice to Employee stating the facts constituting such
cause, provided that Employee shall have 30 days following such notice to cure
any conduct or act, if curable, alleged to provide grounds for termination for
cause hereunder. In the event of termination for cause, the Company shall be
obligated to pay Employee only the minimum base salary due him through the date
of termination. The written notice shall state the cause for termination. Except
for a termination after a Severance Event as provided in Section 8, cause shall
include neglect of duties, willful failure to abide by instructions or policies
from or set by the Board of Directors, commission of a felony or serious
misdemeanor offense or pleading guilty or nolo contendere to same, Employee's
breach of this Agreement or Employee's breach of any other material obligation
to the Company.
(b) Without Cause. The Company may terminate Employee's
employment at any time, immediately and without cause, by giving written notice
to Employee. If the Company terminates Employee without cause and Section 8 does
not apply, it shall continue to pay to Employee his minimum base salary in
effect at the time of termination for a period of one
2
<PAGE>
year following the date of termination, at the time and in the manner dictated
by the Company's standard payroll policies. If the Company terminates Employee's
employment and Section 8 applies, Employee shall be entitled to receive the
amount described in Section III of Exhibit A.
(c) Disability. If during the term of this Agreement, Employee
fails to perform his duties hereunder on account of illness or other incapacity
for a period of 45 consecutive days, or for 60 days during any six-month period,
the Company shall have the right to terminate this Agreement without further
obligation hereunder except as otherwise provided in disability plans generally
applicable to executive employees.
(d) Death. If Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and Employee's legal representatives
shall be entitled to receive the base salary due Employee through the last day
of the calendar month in which his death shall have occurred and any other death
benefits generally applicable to executive employees.
8. Termination or Resignation After a Change in Control.
(a) Application of Section 8. The provisions of this Section 8
shall apply if a Change in Control of the Company occurs, and within the
"Transitional Period," as described in Exhibit A to this Agreement, a Severance
Event," also as described in Exhibit A occurs. For purposes of this Agreement,
your Transitional Period shall be a period of 12 months. Exhibit A, also
contains additional terms and conditions governing the rights and duties of
Employee after the occurrence of a Severance Event within the Transitional
Period.
(b) "Change in Control". For purposes of this Agreement
(except to the extent governed or affected by Section 280G of the Internal
Revenue Code of 1986, as amended [the "Code"]), a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Paragraphs
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the
"Exchange Act"]), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing one-third or more of the
total voting power represented by the Company's then outstanding Common Stock,
or (ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the Common Stock of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into
3
<PAGE>
Common Stock of the surviving entity) at least two-thirds of the total voting
power represented by the Common Stock of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all the Company's assets.
9. Limitations on Transitional Compensation and Benefits. If the
Transitional Compensation and Benefits payable to Employee under Section 8 plus
any other severance benefits ("Severance Benefits") or any other payments or
benefits received or to be received by Employee from the Company (whether
payable pursuant to the terms of this Agreement or pursuant to any other plan,
agreement or arrangement with the Company or any corporation ["Affiliate"]
affiliated with the Company within the meaning of Section 1504 of the Code, in
the opinion of tax counsel selected by the Company and acceptable to Employee,
constitute "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and the present value of such "parachute payments" equals or exceeds three
times the average of the annual compensation payable to Employee by the Company
(or an Affiliate) and includable in Employee's gross income for federal income
tax purposes for the five calendar years preceding the year in which a change in
ownership or control of the Company occurred ("Base Amount"), if, but only if
Employee so elects in writing, such Severance Benefits shall be reduced to an
amount the present value of which (when combined with the present value of any
other payments or benefits otherwise received or to be received by Employee from
the Company [or an Affiliate] that are deemed "parachute payments") is equal to
2.99 times the Base Amount, notwithstanding any other provision to the contrary
in this Agreement. However, the Severance Benefits shall not be reduced if in
the opinion of such tax counsel, the Severance Benefits (in their full amount or
as partially reduced, as the case may be) plus all other payments or benefits
which constitute "parachute payments" within the meaning of Section 280G(b)(2)
of the Code are reasonable compensation for services actually rendered, within
the meaning of Section 280G (b)(4) of the code, and such payments are deductible
by the Company. The Base Amount shall include every type and form of
compensation includable in Employee's gross income in respect of his employment
by the Company (or an Affiliate), except to the extent otherwise provided in
temporary or final regulations promulgated under Section 280G (b) of the Code.
For purposes of this Section 9, a "change in ownership or control" shall have
the meaning set forth in Section 280G(b) of the Code and any temporary or final
regulations promulgated thereunder. The present value of any non-cash benefit or
any deferred cash payment shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G (d)(3) and (4) of
the Code.
Employee shall have the right to request that the Company obtain a
ruling from the Internal Revenue Service ("Service") as to whether any or all
payments or benefits determined by such tax counsel are, in the view of the
Service, "parachute payments" under Section 280G. If a ruling is sought pursuant
to executive's request, no Severance Benefits payable under this Agreement shall
be made to Employee to the extent they would exceed 2.99 times the Base Amount
until after 15 days from the date of such ruling. For purposes of this Section
9, Employee and the Company agree to be bound by the Service's ruling as to
whether payments
4
<PAGE>
constitute "parachute payments" under Section 280G. If the Service declines, for
any reason, to provide the ruling requested, the tax counsel's opinion provided
with respect to what payments or benefits constitute "parachute payments" shall
control, and the period during which the excessive portion of the Severance
Benefits may be deferred shall be extended to a date 15 days from the date of
the Service's notice indicating that no ruling would be forthcoming.
If Section 280G, or any successor statute, is repealed, this Section 9
shall cease to be effective on the effective date of such repeal. The parties to
this Agreement recognize that final regulations under Section 280G of the Code
may affect the amounts that may be paid under this Agreement and agree that,
upon issuance of such final regulations this Agreement may be modified as in
good faith deemed necessary in light of the provisions of such regulations to
achieve the purposes of this Agreement, and that consent to such modifications
shall not be unreasonably withheld.
10. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights and benefits of Employee hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. Upon mutual agreement of the parties, the Company upon reasonable
notice to Employee may transfer Employee to an affiliate of the Company, which
affiliate shall assume the obligations of the Company under this Agreement. This
Agreement shall be assigned automatically to any entity merging with or
acquiring the Company.
11. Amendment. Except for documents regarding the grant of stock
options and an Invention, Confidential Information and Non-Competition
Agreement, this Agreement contains, and its terms constitute, the entire
agreement of the parties and supersedes any prior agreements, including any
Employment Agreements, and it may be amended only by a written document signed
by both parties to this Agreement.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Arizona,
exclusive of the conflict of law provisions thereof, and the parties agree that
any litigation pertaining to this Agreement shall be in courts located in
Maricopa County, Arizona.
13. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceeding against the other party
to enforce any of the terms hereof, the party prevailing in any such action or
other proceeding shall be paid by the other party its reasonable attorneys' fees
as well as court costs all as determined by the court and not a jury.
14. Notices. All notices, demands, instructions, or requests relating
to this Agreement shall be in writing and, except as otherwise provided herein,
shall be deemed to have been given for all purposes (i) upon personal delivery,
(ii) one day after being sent, when sent by professional overnight courier
service from and to locations within the Continental United States,
5
<PAGE>
(iii) five days after posting when sent by United States registered or certified
mail, with return receipt requested and postage paid, or (iv) on the date of
transmission when sent by facsimile with a hard-copy confirmation; if directed
to the person or entity to which notice is to be given at his or its address set
forth in this Agreement or at any other address such person or entity has
designated by notice.
To the Company: ORTHOLOGIC CORP.
2850 South 36th Street, Suite 16
Phoenix, AZ 85034
Attention: Chief Executive Officer
To Employee: James B. Koeneman
1760 E. Hale
Mesa, AZ 85203
15. Entire Agreement. This Agreement constitutes the final written
expression of all of the agreements between the parties (except those relating
to Employee's service as a director of the Company), and is a complete and
exclusive statement of those terms. It supersedes all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties or statements made by either party that differ in any way
from the terms of this written Agreement shall be given no force or effect. The
parties specifically represent, each to the other, that there are no additional
or supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing and signed by all parties.
16. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
17. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining provisions
hereof, but the same shall remain in full force and effect as if such invalid or
unenforceable provisions were omitted.
18. Attachments. All attachments or exhibits to this Agreement are
incorporated herein by this reference as though fully set forth herein. In the
event of any conflict, contradiction or ambiguity between the terms and
conditions in this Agreement and any of its attachments, the terms of this
Agreement shall prevail.
19. Interpretation of Agreement. When a reference is made in this
Agreement to an article or section, such reference shall be to an article or
section of this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only
6
<PAGE>
and shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes," or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
20. Headings. Headings in this Agreement are for informational purposes
only and shall not be used to construe the intent of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same agreement.
22. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
This Agreement has been executed by the parties as of December 1, 1996.
ORTHOLOGIC CORP.
("Company")
By: /s/ Allan M. Weinstein
-------------------------------------
Allan M. Weinstein
Chief Executive Officer
JAMES B. KOENEMAN
("Employee")
By: /s/ James B. Koeneman
-------------------------------------
7
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
EXHIBIT "A"
TRANSITIONAL COMPENSATION
I. DEFINITIONS
Except as otherwise defined in either this Exhibit A or the Agreement
to which this Exhibit A is attached, capitalized terms used in this Exhibit A
shall have the meanings set forth below.
A. "Affiliate," means an entity affiliated with the Company.
B. "Agreement," means the Employment Agreement to which this Exhibit A
is attached.
C. "Change in Control." A "Change in Control" shall be deemed to have
occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing one-third or more of the total voting power represented
by the Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Common Stock of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Common Stock of the surviving
entity) at least two-thirds of the total voting power represented by the Common
Stock of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of transactions) all or
substantially all the Company's assets.
8
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
D. "Change in Control Date" means the effective date of a Change in
Control.
E. "Company" or "the Company," shall mean OrthoLogic Corp., a Delaware
corporation.
F. "Severance Event."
A Severance Event occurs if the Company or an Affiliate
terminates Employee's employment for any reason during
Employee's Transitional Period, except for a termination due
to a felony conviction or Employee's continued and willful
failure to be present and perform Employee's duties or a
termination resulting from the expiration, without renewal, of
Employee's term of employment at the end of the initial term
or any subsequent term.
A Severance Event also occurs if Employee resigns or retires
at a time which is during Employee's Transitional Period and
within 90 days after the Company and its Affiliates have done
any of the following:
1. fail to maintain Employee's base salary at a level
that is equal to the higher of the level in effect
immediately prior to the Change in Control, or the
level to which it has been increased after the Change
of Control; or
2. fail to provide for Employee's participation in (a)
the Company or an Affiliate's annual bonus plan;
stock option or other equity incentive programs; or
group medical, dental, life, disability, retirement,
profit sharing, thrift, nonqualified and deferred
compensation plans, in each case on a basis
comparable to that enjoyed by other employees of the
Company or any of its Affiliates with duties
comparable to those of Employee; or
3. fail to provide vacation and perquisites
substantially equivalent to those provided by the
Company or any of its Affiliates to employees with
comparable duties, and at least as favorable as those
provided immediately before the Change in Control
Date; or
4. change Employee's duties and responsibilities so that
they are not at least commensurate with those
immediately prior to the Change in Control Date; or
9
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
5. change Employee's primary place of employment by more
than 25 miles from Employee's current office location
or more than 10 additional miles from Employee's
primary residence.
G. "Transitional Compensation and Benefits," shall mean the special
compensation and benefits payable upon a Severance Event as provided in Section
III of this Exhibit A.
H. "Transitional Period," means the time period beginning on the Change
in Control Date and ending the number of calendar months thereafter stated in
Section 8 of the Agreement.
II. ELIGIBILITY
Notwithstanding the occurrence of a Severance Event during Employee's
Transitional Period, Employee shall be entitled to the Transitional Compensation
and Benefits only from and after the time Employee executes a Release and
Severance Agreement substantially in the standard form then used by the Company.
III. TRANSITIONAL COMPENSATION AND BENEFITS
A. Transitional Compensation. Employee will receive the greater of (i)
one month of Transitional Compensation for every month (full or partial) from
the date of Employee's Severance Event through the last day of Employee's
Transitional Period; or (ii) the amount described in Section 7(b) of the
Agreement. One month of Transitional Compensation is equal to Employee's base
monthly salary determined as of Employee's Severance Event. This will be the
greater of Employee's annual salary as of the Severance Event, or as of the
Change in Control Date, divided by 12. Solely for purposes of determining the
amount payable upon the occurrence of a Severance Event, the base salary under
Section 7(b) of the Agreement shall be the greater of Employee's annual salary
as of the Severance Event, or as of the Change in Control Date.
Employee's Transitional Compensation will not be subject to reduction
for any earnings Employee may have from other employment following Employee's
Severance Event. However, Transitional Compensation is subject to all applicable
federal and state deductions and withholding.
10
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
B. When Transitional Compensation and Benefits are Paid
----------------------------------------------------
1. Monthly Payments
----------------
Transitional Compensation shall be paid in monthly
installments beginning on the last day of the month
in which the seven-day revocation period following
the date Employee executes Employee's Release and
Severance Agreement has expired.
2. Lump Sum Death Benefit
----------------------
If Employee dies before all of Employee's
Transitional Compensation payments have been made,
the Company will pay a lump sum death benefit equal
to the discounted present value (based on the prime
rate reported in The Wall Street Journal) of unpaid
Transitional Compensation to Employee's designated
beneficiary within 30 days from Employee's date of
death.
C. Other Benefits
--------------
1. Salary and Vacation
-------------------
Any earned but unpaid salary or vacation for which
Employee is eligible at the time of Employee's
Severance Event will be paid in a lump sum at the
time of termination of employment, subject to
applicable federal and state withholding.
2. Bonuses
-------
Employee will also receive a pro rata bonus or other
incentive compensation payment for the period in
which Employee's Severance Event occurred. Employee's
bonus will be based on the payout made to comparable
employees and the number of months of employment
Employee have completed in the period. Employee's
bonus payment will be made when bonus payouts are
made under the Company bonus or incentive plan.
11
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
3. Continuation of Employee Benefits and Stock Options
---------------------------------------------------
Employee's medical, dental, life and disability
benefits (and if applicable, benefits for Employee's
dependents) will continue through Employee's
Transitional Period as if Employee remained actively
employed. Solely for purposes of determining the date
on which options shall expire and become
non-exercisable under applicable option plans,
Employee's employment will be considered to extend
through the Transitional Period; any incentive stock
options shall become nonqualified options to the
extent they remain unexercised more than three months
after the Severance Event.
4. Out-Placement Assistance
------------------------
Upon Employee's Severance Event, the Company will
provide Employee with outplacement counseling and
assistance. Counseling is available from the date of
Employee's Severance Event until Employee is first
employed or providing compensated services; provided,
however, that the Company is not obligated to pay
more than $10,000 for such counseling and assistance.
IV. WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID
No Transitional Compensation Benefits under the Plan will be
paid if Employee:
1. is a party to an employment or severance agreement
with the Company or an Affiliate, other than the
Agreement, that provides payments or other benefits
as a result of termination of employment; or
2. retires or resigns, other than for reasons that
constitute a Severance Event; or
3. takes a leave of absence; or
4. is offered and refuses or refuses to transfer to
another comparably compensated position with the
Company, an Affiliate, or a successor company (other
than in a circumstance that constitutes a Severance
Event); or
12
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
5. refuses to sign a Release and Severance Agreement; or
6. dies prior to a Severance Event.
V. OTHER IMPORTANT INFORMATION
A. How the Coverage Is Provided
----------------------------
Any payment made under the Plan will come from the general
assets of the Company or an Affiliate. No separate fund will
be established.
B. Limited Alienation of Benefits
------------------------------
Employee's benefits in this Plan cannot be claimed by any
person to whom Employee owes a debt and neither Employee nor
Employee's beneficiary may transfer rights to these benefits
to anyone.
13
EMPLOYMENT AGREEMENT
This Agreement is to be effective, as of December 1, 1996, by and
between OrthoLogic Corp., a Delaware corporation (the "Company"), and MaryAnn G.
Miller ("Employee").
RECITALS:
- ---------
A. Employee is presently employed by the Company and both parties wish
to continue and redefine the nature of the employment relationship.
B. The parties wish to set forth in this Agreement the terms and
conditions of such continuing employment.
AGREEMENT:
- ----------
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs Employee to serve in a managerial capacity and
Employee accepts such employment and agrees to perform such reasonable
responsibilities and duties as may be assigned to him from time to time by the
Company's Board of Directors. Initially, Employee's title shall be Vice
President, with general responsibility for Human Resources. Such title and
duties may be changed from time to time by the Board of Directors (the "Board").
Employee will report to the Company's President and CEO.
2. Term. The term of this Agreement shall be for 13 months beginning on
the effective date. Thereafter this Agreement shall renew automatically for
additional terms of one- year each unless it is terminated pursuant to Section
7.
3. Compensation.
(a) Salary. From the effective date of this Agreement through
December 31, 1996, the Company shall pay Employee a minimum base annual salary,
before deducting all applicable withholdings, of $105,000 per year, payable at
the times and in the manner dictated by the Company's standard payroll policies.
Effective January 1, 1997, and annually thereafter, the minimum base annual
salary shall be reviewed by the Compensation Committee of the Board.
(b) Bonus. Employee shall be eligible to participate in such
bonus and incentive programs as determined from time to time by the Board. Any
bonuses shall be based upon the achievement of individual goals and Company
performance. Beginning January 1,
<PAGE>
1997, the Company shall implement a bonus plan providing a target bonus of 40%
of Employee's base salary for achievement of the Board-approved plan.
(c) Stock Options. Employee currently may have options to
purchase shares of the Company's Common Stock. From time to time, the Company
will consider granting to Employee options, or additional options, to purchase
shares of the Company's common stock at the fair market value of such stock on
the date of grant. Any such grant shall have terms that are substantially
consistent with the terms of other grants generally being made to executive
officers of the Company at the time of such grant.
4. Fringe Benefits. In addition to the compensation, bonus and options
described in Section 3, and any other employee benefit plans (including without
limitation pension, savings and disability plans) generally available to
employees, the Company shall include Employee in any group health insurance plan
and, if eligible, any group retirement plan instituted by the Company. The
manner of implementation of such benefits with respect to such items as
procedures and amounts are discretionary with the Company but shall be
commensurate with Employee's executive capacity.
5. Vacation. Employee shall be entitled to vacation with pay in
accordance with the Company's vacation policy as in effect from time to time. In
addition, Employee shall be entitled to such holidays as the Company may approve
from time to time.
6. Expenses. The Company shall, upon receipt of appropriate
documentation, reimburse Employee each month for his reasonable travel, lodging,
entertainment, promotion and other ordinary and necessary business expenses
consistent with Company policies.
7. Termination.
(a) For Cause. The Company may terminate this Agreement for
cause upon written notice to Employee stating the facts constituting such cause,
provided that Employee shall have 30 days following such notice to cure any
conduct or act, if curable, alleged to provide grounds for termination for cause
hereunder. In the event of termination for cause, the Company shall be obligated
to pay Employee only the minimum base salary due him through the date of
termination. The written notice shall state the cause for termination. Except
for a termination after a Severance Event as provided in Section 8, cause shall
include neglect of duties, willful failure to abide by instructions or policies
from or set by the Board of Directors, commission of a felony or serious
misdemeanor offense or pleading guilty or nolo contendere to same, Employee's
breach of this Agreement or Employee's breach of any other material obligation
to the Company.
(b) Without Cause. The Company may terminate Employee's
Employment at any time, immediately and without cause, by giving written notice
to Employee. If the Company terminates Employee without cause and Section 8 does
not apply, it shall continue to pay to Employee his minimum base salary in
effect at the time of termination for a period of one
2
<PAGE>
year following the date of termination, at the time and in the manner dictated
by the Company's standard payroll policies. If the Company terminates Employee's
employment and Section 8 applies, Employee shall be entitled to receive the
amount described in Section III of Exhibit A.
(c) Disability. If during the term of this Agreement, Employee
fails to perform his duties hereunder on account of illness or other incapacity
for a period of 45 consecutive days, or for 60 days during any six-month period,
the Company shall have the right to terminate this Agreement without further
obligation hereunder except as otherwise provided in disability plans generally
applicable to executive employees.
(d) Death. If Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and Employee's legal representatives
shall be entitled to receive the base salary due Employee through the last day
of the calendar month in which his death shall have occurred and any other death
benefits generally applicable to executive employees.
8. Termination or Resignation After a Change in Control.
(a) Application of Section 8. The provisions of this Section 8
shall apply if a Change in Control of the Company occurs, and within the
"Transitional Period," as described in Exhibit A to this Agreement, a Severance
Event," also as described in Exhibit A occurs. For purposes of this Agreement,
your Transitional Period shall be a period of 12 months. Exhibit A, also
contains additional terms and conditions governing the rights and duties of
Employee after the occurrence of a Severance Event within the Transitional
Period.
(b) "Change in Control". For purposes of this Agreement
(except to the extent governed or affected by Section 280G of the Internal
Revenue Code of 1986, as amended [the "Code"]), a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Paragraphs
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the
"Exchange Act"]), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing one-third or more of the
total voting power represented by the Company's then outstanding Common Stock,
or (ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the Common Stock of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into
3
<PAGE>
Common Stock of the surviving entity) at least two-thirds of the total voting
power represented by the Common Stock of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all the Company's assets.
9. Limitations on Transitional Compensation and Benefits. If the
Transitional Compensation and Benefits payable to Employee under Section 8 plus
any other severance benefits ("Severance Benefits") or any other payments or
benefits received or to be received by Employee from the Company (whether
payable pursuant to the terms of this Agreement or pursuant to any other plan,
agreement or arrangement with the Company or any corporation ["Affiliate"]
affiliated with the Company within the meaning of Section 1504 of the Code, in
the opinion of tax counsel selected by the Company and acceptable to Employee,
constitute "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and the present value of such "parachute payments" equals or exceeds three
times the average of the annual compensation payable to Employee by the Company
(or an Affiliate) and includable in Employee's gross income for federal income
tax purposes for the five calendar years preceding the year in which a change in
ownership or control of the Company occurred ("Base Amount"), if, but only if
Employee so elects in writing, such Severance Benefits shall be reduced to an
amount the present value of which (when combined with the present value of any
other payments or benefits otherwise received or to be received by Employee from
the Company [or an Affiliate] that are deemed "parachute payments") is equal to
2.99 times the Base Amount, notwithstanding any other provision to the contrary
in this Agreement. However, the Severance Benefits shall not be reduced if in
the opinion of such tax counsel, the Severance Benefits (in their full amount or
as partially reduced, as the case may be) plus all other payments or benefits
which constitute "parachute payments" within the meaning of Section 280G(b)(2)
of the Code are reasonable compensation for services actually rendered, within
the meaning of Section 280G (b)(4) of the code, and such payments are deductible
by the Company. The Base Amount shall include every type and form of
compensation includable in Employee's gross income in respect of his employment
by the Company (or an Affiliate), except to the extent otherwise provided in
temporary or final regulations promulgated under Section 280G (b) of the Code.
For purposes of this Section 9, a "change in ownership or control" shall have
the meaning set forth in Section 280G(b) of the Code and any temporary or final
regulations promulgated thereunder. The present value of any non-cash benefit or
any deferred cash payment shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G (d)(3) and (4) of
the Code.
Employee shall have the right to request that the Company obtain a
ruling from the Internal Revenue Service ("Service") as to whether any or all
payments or benefits determined by such tax counsel are, in the view of the
Service, "parachute payments" under Section 280G. If a ruling is sought pursuant
to executive's request, no Severance Benefits payable under this Agreement shall
be made to Employee to the extent they would exceed 2.99 times the Base Amount
until after 15 days from the date of such ruling. For purposes of this Section
9, Employee and the Company agree to be bound by the Service's ruling as to
whether payments
4
<PAGE>
constitute "parachute payments" under Section 280G. If the Service declines, for
any reason, to provide the ruling requested, the tax counsel's opinion provided
with respect to what payments or benefits constitute "parachute payments" shall
control, and the period during which the excessive portion of the Severance
Benefits may be deferred shall be extended to a date 15 days from the date of
the Service's notice indicating that no ruling would be forthcoming.
If Section 280G, or any successor statute, is repealed, this Section 9
shall cease to be effective on the effective date of such repeal. The parties to
this Agreement recognize that final regulations under Section 280G of the Code
may affect the amounts that may be paid under this Agreement and agree that,
upon issuance of such final regulations this Agreement may be modified as in
good faith deemed necessary in light of the provisions of such regulations to
achieve the purposes of this Agreement, and that consent to such modifications
shall not be unreasonably withheld.
10. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights and benefits of Employee hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. Upon mutual agreement of the parties, the Company upon reasonable
notice to Employee may transfer Employee to an affiliate of the Company, which
affiliate shall assume the obligations of the Company under this Agreement. This
Agreement shall be assigned automatically to any entity merging with or
acquiring the Company.
11. Amendment. Except for documents regarding the grant of stock
options and an Invention, Confidential Information and Non-Competition
Agreement, this Agreement contains, and its terms constitute, the entire
agreement of the parties and supersedes any prior agreements, including any
Employment Agreements, and it may be amended only by a written document signed
by both parties to this Agreement.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Arizona,
exclusive of the conflict of law provisions thereof, and the parties agree that
any litigation pertaining to this Agreement shall be in courts located in
Maricopa County, Arizona.
13. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceeding against the other party
to enforce any of the terms hereof, the party prevailing in any such action or
other proceeding shall be paid by the other party its reasonable attorneys' fees
as well as court costs all as determined by the court and not a jury.
14. Notices. All notices, demands, instructions, or requests relating
to this Agreement shall be in writing and, except as otherwise provided herein,
shall be deemed to have been given for all purposes (i) upon personal delivery,
(ii) one day after being sent, when sent by professional overnight courier
service from and to locations within the Continental United States,
5
<PAGE>
(iii) five days after posting when sent by United States registered or certified
mail, with return receipt requested and postage paid, or (iv) on the date of
transmission when sent by facsimile with a hard-copy confirmation; if directed
to the person or entity to which notice is to be given at his or its address set
forth in this Agreement or at any other address such person or entity has
designated by notice.
To the Company: ORTHOLOGIC CORP.
2850 South 36th Street, Suite 16
Phoenix, AZ 85034
Attention: Chief Executive Officer
To Employee: MaryAnn G. Miller
12090 E. Altadena Drive
Scottsdale, AZ 85259
15. Entire Agreement. This Agreement constitutes the final written
expression of all of the agreements between the parties (except those relating
to Employee's service as a director of the Company), and is a complete and
exclusive statement of those terms. It supersedes all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties or statements made by either party that differ in any way
from the terms of this written Agreement shall be given no force or effect. The
parties specifically represent, each to the other, that there are no additional
or supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing and signed by all parties.
16. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
17. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining provisions
hereof, but the same shall remain in full force and effect as if such invalid or
unenforceable provisions were omitted.
18. Attachments. All attachments or exhibits to this Agreement are
incorporated herein by this reference as though fully set forth herein. In the
event of any conflict, contradiction or ambiguity between the terms and
conditions in this Agreement and any of its attachments, the terms of this
Agreement shall prevail.
19. Interpretation of Agreement. When a reference is made in this
Agreement to an article or section, such reference shall be to an article or
section of this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only
6
<PAGE>
and shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes," or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
20. Headings. Headings in this Agreement are for informational purposes
only and shall not be used to construe the intent of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same agreement.
22. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
This Agreement has been executed by the parties as of December 1, 1996.
ORTHOLOGIC CORP.
("Company")
By: /s/ Allan M. Weinstein
-------------------------------------
Allan M. Weinstein
Chief Executive Officer
MARYANN G. MILLER
("Employee")
By: /s/ Maryann G. Miller
-------------------------------------
7
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
EXHIBIT "A"
TRANSITIONAL COMPENSATION
I. DEFINITIONS
Except as otherwise defined in either this Exhibit A or the Agreement
to which this Exhibit A is attached, capitalized terms used in this Exhibit A
shall have the meanings set forth below.
A. "Affiliate," means an entity affiliated with the Company.
B. "Agreement," means the Employment Agreement to which this Exhibit A
is attached.
C. "Change in Control." A "Change in Control" shall be deemed to have
occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing one-third or more of the total voting power represented
by the Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Common Stock of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Common Stock of the surviving
entity) at least two-thirds of the total voting power represented by the Common
Stock of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of transactions) all or
substantially all the Company's assets.
8
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
D. "Change in Control Date" means the effective date of a Change in
Control.
E. "Company" or "the Company," shall mean OrthoLogic Corp., a Delaware
corporation.
F. "Severance Event."
A Severance Event occurs if the Company or an Affiliate
terminates Employee's employment for any reason during
Employee's Transitional Period, except for a termination due
to a felony conviction or Employee's continued and willful
failure to be present and perform Employee's duties or a
termination resulting from the expiration, without renewal, of
Employee's term of employment at the end of the initial term
or any subsequent term.
A Severance Event also occurs if Employee resigns or retires
at a time which is during Employee's Transitional Period and
within 90 days after the Company and its Affiliates have done
any of the following:
1. fail to maintain Employee's base salary at a level
that is equal to the higher of the level in effect
immediately prior to the Change in Control, or the
level to which it has been increased after the Change
of Control; or
2. fail to provide for Employee's participation in (a)
the Company or an Affiliate's annual bonus plan;
stock option or other equity incentive programs; or
group medical, dental, life, disability, retirement,
profit sharing, thrift, nonqualified and deferred
compensation plans, in each case on a basis
comparable to that enjoyed by other employees of the
Company or any of its Affiliates with duties
comparable to those of Employee; or
3. fail to provide vacation and perquisites
substantially equivalent to those provided by the
Company or any of its Affiliates to employees with
comparable duties, and at least as favorable as those
provided immediately before the Change in Control
Date; or
4. change Employee's duties and responsibilities so that
they are not at least commensurate with those
immediately prior to the Change in Control Date; or
9
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
5. change Employee's primary place of employment by more
than 25 miles from Employee's current office location
or more than 10 additional miles from Employee's
primary residence.
G. "Transitional Compensation and Benefits," shall mean the special
compensation and benefits payable upon a Severance Event as provided in Section
III of this Exhibit A.
H. "Transitional Period," means the time period beginning on the Change
in Control Date and ending the number of calendar months thereafter stated in
Section 8 of the Agreement.
II. ELIGIBILITY
Notwithstanding the occurrence of a Severance Event during Employee's
Transitional Period, Employee shall be entitled to the Transitional Compensation
and Benefits only from and after the time Employee executes a Release and
Severance Agreement substantially in the standard form then used by the Company.
III. TRANSITIONAL COMPENSATION AND BENEFITS
A. Transitional Compensation. Employee will receive the greater of (i)
one month of Transitional Compensation for every month (full or partial) from
the date of Employee's Severance Event through the last day of Employee's
Transitional Period; or (ii) the amount described in Section 7(b) of the
Agreement. One month of Transitional Compensation is equal to Employee's base
monthly salary determined as of Employee's Severance Event. This will be the
greater of Employee's annual salary as of the Severance Event, or as of the
Change in Control Date, divided by 12. Solely for purposes of determining the
amount payable upon the occurrence of a Severance Event, the base salary under
Section 7(b) of the Agreement shall be the greater of Employee's annual salary
as of the Severance Event, or as of the Change in Control Date.
Employee's Transitional Compensation will not be subject to reduction
for any earnings Employee may have from other employment following Employee's
Severance Event. However, Transitional Compensation is subject to all applicable
federal and state deductions and withholding.
10
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
B. When Transitional Compensation and Benefits are Paid
----------------------------------------------------
1. Monthly Payments
----------------
Transitional Compensation shall be paid in monthly
installments beginning on the last day of the month
in which the seven-day revocation period following
the date Employee executes Employee's Release and
Severance Agreement has expired.
2. Lump Sum Death Benefit
----------------------
If Employee dies before all of Employee's
Transitional Compensation payments have been made,
the Company will pay a lump sum death benefit equal
to the discounted present value (based on the prime
rate reported in The Wall Street Journal) of unpaid
Transitional Compensation to Employee's designated
beneficiary within 30 days from Employee's date of
death.
C. Other Benefits
--------------
1. Salary and Vacation
-------------------
Any earned but unpaid salary or vacation for which
Employee is eligible at the time of Employee's
Severance Event will be paid in a lump sum at the
time of termination of employment, subject to
applicable federal and state withholding.
2. Bonuses
-------
Employee will also receive a pro rata bonus or other
incentive compensation payment for the period in
which Employee's Severance Event occurred. Employee's
bonus will be based on the payout made to comparable
employees and the number of months of employment
Employee have completed in the period. Employee's
bonus payment will be made when bonus payouts are
made under the Company bonus or incentive plan.
11
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
3. Continuation of Employee Benefits and Stock Options
---------------------------------------------------
Employee's medical, dental, life and disability
benefits (and if applicable, benefits for Employee's
dependents) will continue through Employee's
Transitional Period as if Employee remained actively
employed. Solely for purposes of determining the date
on which options shall expire and become
non-exercisable under applicable option plans,
Employee's employment will be considered to extend
through the Transitional Period; any incentive stock
options shall become nonqualified options to the
extent they remain unexercised more than three months
after the Severance Event.
4. Out-Placement Assistance
------------------------
Upon Employee's Severance Event, the Company will
provide Employee with outplacement counseling and
assistance. Counseling is available from the date of
Employee's Severance Event until Employee is first
employed or providing compensated services; provided,
however, that the Company is not obligated to pay
more than $10,000 for such counseling and assistance.
IV. WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID
No Transitional Compensation Benefits under the Plan will be
paid if Employee:
1. is a party to an employment or severance agreement
with the Company or an Affiliate, other than the
Agreement, that provides payments or other benefits
as a result of termination of employment; or
2. retires or resigns, other than for reasons that
constitute a Severance Event; or
3. takes a leave of absence; or
4. is offered and refuses or refuses to transfer to
another comparably compensated position with the
Company, an Affiliate, or a successor company (other
than in a circumstance that constitutes a Severance
Event); or
12
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
5. refuses to sign a Release and Severance Agreement; or
6. dies prior to a Severance Event.
V. OTHER IMPORTANT INFORMATION
A. How the Coverage Is Provided
----------------------------
Any payment made under the Plan will come from the general
assets of the Company or an Affiliate. No separate fund will
be established.
B. Limited Alienation of Benefits
------------------------------
Employee's benefits in this Plan cannot be claimed by any
person to whom Employee owes a debt and neither Employee nor
Employee's beneficiary may transfer rights to these benefits
to anyone.
13
EMPLOYMENT AGREEMENT
This Agreement is to be effective, as of December 1, 1996, by and
between OrthoLogic Corp., a Delaware corporation (the "Company"), and Nicholas
A. Skaff ("Employee").
RECITALS:
- ---------
A. Employee is presently employed by the Company and both parties wish
to continue and redefine the nature of the employment relationship.
B. The parties wish to set forth in this Agreement the terms and
conditions of such continuing employment.
AGREEMENT:
- ----------
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs Employee to serve in a managerial capacity and
Employee accepts such employment and agrees to perform such reasonable
responsibilities and duties as may be assigned to him from time to time by the
Company's Board of Directors. Initially, Employee's title shall be Vice
President, with general responsibility for Managed Care. Such title and duties
may be changed from time to time by the Board of Directors (the "Board").
Employee will report to the Company's President and CEO.
2. Term. The term of this Agreement shall be for 13 months beginning on
the effective date. Thereafter this Agreement shall renew automatically for
additional terms of one- year each unless it is terminated pursuant to Section
7.
3. Compensation.
(a) Salary. From the effective date of this Agreement through
December 31, 1996, the Company shall pay Employee a minimum base annual salary,
before deducting all applicable withholdings, of $125,000 per year, payable at
the times and in the manner dictated by the Company's standard payroll policies.
Effective January 1, 1997, and annually thereafter, the minimum base annual
salary shall be reviewed by the Compensation Committee of the Board.
(b) Bonus. Employee shall be eligible to participate in such
bonus and incentive programs as determined from time to time by the Board. Any
bonuses shall be based upon the achievement of individual goals and Company
performance. Beginning January 1, 1997, the Company shall implement a bonus plan
providing a target bonus of 40% of
<PAGE>
Employee's base salary for achievement of the Board-approved plan.
(c) Stock Options. Employee currently may have options to
purchase shares of the Company's Common Stock. From time to time, the Company
will consider granting to Employee options, or additional options, to purchase
shares of the Company's common stock at the fair market value of such stock on
the date of grant. Any such grant shall have terms that are substantially
consistent with the terms of other grants generally being made to executive
officers of the Company at the time of such grant.
4. Fringe Benefits. In addition to the compensation, bonus and options
described in Section 3, and any other employee benefit plans (including without
limitation pension, savings and disability plans) generally available to
employees, the Company shall include Employee in any group health insurance plan
and, if eligible, any group retirement plan instituted by the Company. The
manner of implementation of such benefits with respect to such items as
procedures and amounts are discretionary with the Company but shall be
commensurate with Employee's executive capacity.
5. Vacation. Employee shall be entitled to vacation with pay in
accordance with the Company's vacation policy as in effect from time to time. In
addition, Employee shall be entitled to such holidays as the Company may approve
from time to time.
6. Expenses. The Company shall, upon receipt of appropriate
documentation, reimburse Employee each month for his reasonable travel, lodging,
entertainment, promotion and other ordinary and necessary business expenses
consistent with Company policies.
7. Termination.
(a) For Cause. The Company may terminate Employee's employment
for cause upon written notice to Employee stating the facts constituting such
cause, provided that Employee shall have 30 days following such notice to cure
any conduct or act, if curable, alleged to provide grounds for termination for
cause hereunder. In the event of termination for cause, the Company shall be
obligated to pay Employee only the minimum base salary due him through the date
of termination. The written notice shall state the cause for termination. Except
for a termination after a Severance Event as provided in Section 8, cause shall
include neglect of duties, willful failure to abide by instructions or policies
from or set by the Board of Directors, commission of a felony or serious
misdemeanor offense or pleading guilty or nolo contendere to same, Employee's
breach of this Agreement or Employee's breach of any other material obligation
to the Company.
(b) Without Cause. The Company may terminate Employee's
employment at any time, immediately and without cause, by giving written notice
to Employee. If the Company terminates Employee without cause and Section 8 does
not apply, it shall continue to pay to Employee his minimum base salary in
effect at the time of termination for a period of one year following the date of
termination, at the time and in the manner dictated by the Company's
2
<PAGE>
standard payroll policies. If the Company terminates Employee's employment and
Section 8 applies, Employee shall be entitled to receive the amount described in
Section III of Exhibit A.
(c) Disability. If during the term of this Agreement, Employee
fails to perform his duties hereunder on account of illness or other incapacity
for a period of 45 consecutive days, or for 60 days during any six-month period,
the Company shall have the right to terminate this Agreement without further
obligation hereunder except as otherwise provided in disability plans generally
applicable to executive employees.
(d) Death. If Employee dies during the term of this Agreement,
this Agreement shall terminate immediately, and Employee's legal representatives
shall be entitled to receive the base salary due Employee through the last day
of the calendar month in which his death shall have occurred and any other death
benefits generally applicable to executive employees.
8. Termination or Resignation After a Change in Control.
(a) Application of Section 8. The provisions of this Section 8
shall apply if a Change in Control of the Company occurs, and within the
"Transitional Period," as described in Exhibit A to this Agreement, a Severance
Event," also as described in Exhibit A occurs. For purposes of this Agreement,
your Transitional Period shall be a period of 12 months. Exhibit A, also
contains additional terms and conditions governing the rights and duties of
Employee after the occurrence of a Severance Event within the Transitional
Period.
(b) "Change in Control". For purposes of this Agreement
(except to the extent governed or affected by Section 280G of the Internal
Revenue Code of 1986, as amended [the "Code"]), a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Paragraphs
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended [the
"Exchange Act"]), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing one-third or more of the
total voting power represented by the Company's then outstanding Common Stock,
or (ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the Common Stock of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into Common Stock of the surviving entity) at least two-thirds
of the total voting power represented
3
<PAGE>
by the Common Stock of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all the Company's assets.
9. Limitations on Transitional Compensation and Benefits. If the
Transitional Compensation and Benefits payable to Employee under Section 8 plus
any other severance benefits ("Severance Benefits") or any other payments or
benefits received or to be received by Employee from the Company (whether
payable pursuant to the terms of this Agreement or pursuant to any other plan,
agreement or arrangement with the Company or any corporation ["Affiliate"]
affiliated with the Company within the meaning of Section 1504 of the Code, in
the opinion of tax counsel selected by the Company and acceptable to Employee,
constitute "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and the present value of such "parachute payments" equals or exceeds three
times the average of the annual compensation payable to Employee by the Company
(or an Affiliate) and includable in Employee's gross income for federal income
tax purposes for the five calendar years preceding the year in which a change in
ownership or control of the Company occurred ("Base Amount"), if, but only if
Employee so elects in writing, such Severance Benefits shall be reduced to an
amount the present value of which (when combined with the present value of any
other payments or benefits otherwise received or to be received by Employee from
the Company [or an Affiliate] that are deemed "parachute payments") is equal to
2.99 times the Base Amount, notwithstanding any other provision to the contrary
in this Agreement. However, the Severance Benefits shall not be reduced if in
the opinion of such tax counsel, the Severance Benefits (in their full amount or
as partially reduced, as the case may be) plus all other payments or benefits
which constitute "parachute payments" within the meaning of Section 280G(b)(2)
of the Code are reasonable compensation for services actually rendered, within
the meaning of Section 280G (b)(4) of the code, and such payments are deductible
by the Company. The Base Amount shall include every type and form of
compensation includable in Employee's gross income in respect of his employment
by the Company (or an Affiliate), except to the extent otherwise provided in
temporary or final regulations promulgated under Section 280G (b) of the Code.
For purposes of this Section 9, a "change in ownership or control" shall have
the meaning set forth in Section 280G(b) of the Code and any temporary or final
regulations promulgated thereunder. The present value of any non-cash benefit or
any deferred cash payment shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G (d)(3) and (4) of
the Code.
Employee shall have the right to request that the Company obtain a
ruling from the Internal Revenue Service ("Service") as to whether any or all
payments or benefits determined by such tax counsel are, in the view of the
Service, "parachute payments" under Section 280G. If a ruling is sought pursuant
to executive's request, no Severance Benefits payable under this Agreement shall
be made to Employee to the extent they would exceed 2.99 times the Base Amount
until after 15 days from the date of such ruling. For purposes of this Section
9, Employee and the Company agree to be bound by the Service's ruling as to
whether payments constitute "parachute payments" under Section 280G. If the
Service declines, for any reason,
4
<PAGE>
to provide the ruling requested, the tax counsel's opinion provided with respect
to what payments or benefits constitute "parachute payments" shall control, and
the period during which the excessive portion of the Severance Benefits may be
deferred shall be extended to a date 15 days from the date of the Service's
notice indicating that no ruling would be forthcoming.
If Section 280G, or any successor statute, is repealed, this Section 9
shall cease to be effective on the effective date of such repeal. The parties to
this Agreement recognize that final regulations under Section 280G of the Code
may affect the amounts that may be paid under this Agreement and agree that,
upon issuance of such final regulations this Agreement may be modified as in
good faith deemed necessary in light of the provisions of such regulations to
achieve the purposes of this Agreement, and that consent to such modifications
shall not be unreasonably withheld.
10. Nondelegability of Employee's Rights and Company Assignment Rights.
The obligations, rights and benefits of Employee hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. Upon mutual agreement of the parties, the Company upon reasonable
notice to Employee may transfer Employee to an affiliate of the Company, which
affiliate shall assume the obligations of the Company under this Agreement. This
Agreement shall be assigned automatically to any entity merging with or
acquiring the Company.
11. Amendment. Except for documents regarding the grant of stock
options and an Invention, Confidential Information and Non-Competition
Agreement, this Agreement contains, and its terms constitute, the entire
agreement of the parties and supersedes any prior agreements, including any
Employment Agreements, and it may be amended only by a written document signed
by both parties to this Agreement.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Arizona,
exclusive of the conflict of law provisions thereof, and the parties agree that
any litigation pertaining to this Agreement shall be in courts located in
Maricopa County, Arizona.
13. Attorneys' Fees. If any party finds it necessary to employ legal
counsel or to bring an action at law or other proceeding against the other party
to enforce any of the terms hereof, the party prevailing in any such action or
other proceeding shall be paid by the other party its reasonable attorneys' fees
as well as court costs all as determined by the court and not a jury.
14. Notices. All notices, demands, instructions, or requests relating
to this Agreement shall be in writing and, except as otherwise provided herein,
shall be deemed to have been given for all purposes (i) upon personal delivery,
(ii) one day after being sent, when sent by professional overnight courier
service from and to locations within the Continental United States, (iii) five
days after posting when sent by United States registered or certified mail, with
return
5
<PAGE>
receipt requested and postage paid, or (iv) on the date of transmission when
sent by facsimile with a hard-copy confirmation; if directed to the person or
entity to which notice is to be given at his or its address set forth in this
Agreement or at any other address such person or entity has designated by
notice.
To the Company: ORTHOLOGIC CORP.
2850 South 36th Street, Suite 16
Phoenix, AZ 85034
Attention: Chief Executive Officer
To Employee: Nicholas A. Skaff
14407 N. 67th Street
Scottsdale, AZ 85254
15. Entire Agreement. This Agreement constitutes the final written
expression of all of the agreements between the parties (except those relating
to Employee's service as a director of the Company), and is a complete and
exclusive statement of those terms. It supersedes all understandings and
negotiations concerning the matters specified herein. Any representations,
promises, warranties or statements made by either party that differ in any way
from the terms of this written Agreement shall be given no force or effect. The
parties specifically represent, each to the other, that there are no additional
or supplemental agreements between them related in any way to the matters herein
contained unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon any party
unless made in writing and signed by all parties.
16. Waiver. The waiver by either party of the breach of any covenant or
provision in this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
17. Invalidity of Any Provision. The provisions of this Agreement are
severable, it being the intention of the parties hereto that should any
provisions hereof be invalid or unenforceable, such invalidity or
unenforceability of any provision shall not affect the remaining provisions
hereof, but the same shall remain in full force and effect as if such invalid or
unenforceable provisions were omitted.
18. Attachments. All attachments or exhibits to this Agreement are
incorporated herein by this reference as though fully set forth herein. In the
event of any conflict, contradiction or ambiguity between the terms and
conditions in this Agreement and any of its attachments, the terms of this
Agreement shall prevail.
19. Interpretation of Agreement. When a reference is made in this
Agreement to an article or section, such reference shall be to an article or
section of this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the
6
<PAGE>
words "include," "includes," or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."
20. Headings. Headings in this Agreement are for informational purposes
only and shall not be used to construe the intent of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same agreement.
22. Binding Effect; Benefits. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
successors, executors, administrators and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
This Agreement has been executed by the parties as of December 1, 1996.
ORTHOLOGIC CORP.
("Company")
By: /s/ Allan M. Weinstein
-------------------------------------
Allan M. Weinstein
Chief Executive Officer
NICHOLAS A. SKAFF
("Employee")
By: /s/ Nicholas A. Skaff
-------------------------------------
7
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
EXHIBIT "A"
TRANSITIONAL COMPENSATION
I. DEFINITIONS
Except as otherwise defined in either this Exhibit A or the Agreement
to which this Exhibit A is attached, capitalized terms used in this Exhibit A
shall have the meanings set forth below.
A. "Affiliate," means an entity affiliated with the Company.
B. "Agreement," means the Employment Agreement to which this Exhibit A
is attached.
C. "Change in Control." A "Change in Control" shall be deemed to have
occurred if (i) any "person" (as such term is used in Paragraphs 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended [the "Exchange Act"]), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing one-third or more of the total voting power represented
by the Company's then outstanding Common Stock, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the Common Stock of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Common Stock of the surviving
entity) at least two-thirds of the total voting power represented by the Common
Stock of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of transactions) all or
substantially all the Company's assets.
8
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
D. "Change in Control Date" means the effective date of a Change in
Control.
E. "Company" or "the Company," shall mean OrthoLogic Corp., a Delaware
corporation.
F. "Severance Event."
A Severance Event occurs if the Company or an Affiliate
terminates Employee's employment for any reason during
Employee's Transitional Period, except for a termination due
to a felony conviction or Employee's continued and willful
failure to be present and perform Employee's duties or a
termination resulting from the expiration, without renewal, of
Employee's term of employment at the end of the initial term
or any subsequent term.
A Severance Event also occurs if Employee resigns or retires
at a time which is during Employee's Transitional Period and
within 90 days after the Company and its Affiliates have done
any of the following:
1. fail to maintain Employee's base salary at a level
that is equal to the higher of the level in effect
immediately prior to the Change in Control, or the
level to which it has been increased after the Change
of Control; or
2. fail to provide for Employee's participation in (a)
the Company or an Affiliate's annual bonus plan;
stock option or other equity incentive programs; or
group medical, dental, life, disability, retirement,
profit sharing, thrift, nonqualified and deferred
compensation plans, in each case on a basis
comparable to that enjoyed by other employees of the
Company or any of its Affiliates with duties
comparable to those of Employee; or
3. fail to provide vacation and perquisites
substantially equivalent to those provided by the
Company or any of its Affiliates to employees with
comparable duties, and at least as favorable as those
provided immediately before the Change in Control
Date; or
4. change Employee's duties and responsibilities so that
they are not at least commensurate with those
immediately prior to the Change in Control Date; or
9
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
5. change Employee's primary place of employment by more
than 25 miles from Employee's current office location
or more than 10 additional miles from Employee's
primary residence.
G. "Transitional Compensation and Benefits," shall mean the special
compensation and benefits payable upon a Severance Event as provided in Section
III of this Exhibit A.
H. "Transitional Period," means the time period beginning on the Change
in Control Date and ending the number of calendar months thereafter stated in
Section 8 of the Agreement.
II. ELIGIBILITY
Notwithstanding the occurrence of a Severance Event during Employee's
Transitional Period, Employee shall be entitled to the Transitional Compensation
and Benefits only from and after the time Employee executes a Release and
Severance Agreement substantially in the standard form then used by the Company.
III. TRANSITIONAL COMPENSATION AND BENEFITS
A. Transitional Compensation. Employee will receive the greater of (i)
one month of Transitional Compensation for every month (full or partial) from
the date of Employee's Severance Event through the last day of Employee's
Transitional Period; or (ii) the amount described in Section 7(b) of the
Agreement. One month of Transitional Compensation is equal to Employee's base
monthly salary determined as of Employee's Severance Event. This will be the
greater of Employee's annual salary as of the Severance Event, or as of the
Change in Control Date, divided by 12. Solely for purposes of determining the
amount payable upon the occurrence of a Severance Event, the base salary under
Section 7(b) of the Agreement shall be the greater of Employee's annual salary
as of the Severance Event, or as of the Change in Control Date.
Employee's Transitional Compensation will not be subject to reduction
for any earnings Employee may have from other employment following Employee's
Severance Event. However, Transitional Compensation is subject to all applicable
federal and state deductions and withholding.
10
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
B. When Transitional Compensation and Benefits are Paid
----------------------------------------------------
1. Monthly Payments
----------------
Transitional Compensation shall be paid in monthly
installments beginning on the last day of the month
in which the seven-day revocation period following
the date Employee executes Employee's Release and
Severance Agreement has expired.
2. Lump Sum Death Benefit
----------------------
If Employee dies before all of Employee's
Transitional Compensation payments have been made,
the Company will pay a lump sum death benefit equal
to the discounted present value (based on the prime
rate reported in The Wall Street Journal) of unpaid
Transitional Compensation to Employee's designated
beneficiary within 30 days from Employee's date of
death.
C. Other Benefits
--------------
1. Salary and Vacation
-------------------
Any earned but unpaid salary or vacation for which
Employee is eligible at the time of Employee's
Severance Event will be paid in a lump sum at the
time of termination of employment, subject to
applicable federal and state withholding.
2. Bonuses
-------
Employee will also receive a pro rata bonus or other
incentive compensation payment for the period in
which Employee's Severance Event occurred. Employee's
bonus will be based on the payout made to comparable
employees and the number of months of employment
Employee have completed in the period. Employee's
bonus payment will be made when bonus payouts are
made under the Company bonus or incentive plan.
11
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
3. Continuation of Employee Benefits and Stock Options
---------------------------------------------------
Employee's medical, dental, life and disability
benefits (and if applicable, benefits for Employee's
dependents) will continue through Employee's
Transitional Period as if Employee remained actively
employed. Solely for purposes of determining the date
on which options shall expire and become
non-exercisable under applicable option plans,
Employee's employment will be considered to extend
through the Transitional Period; any incentive stock
options shall become nonqualified options to the
extent they remain unexercised more than three months
after the Severance Event.
4. Out-Placement Assistance
------------------------
Upon Employee's Severance Event, the Company will
provide Employee with outplacement counseling and
assistance. Counseling is available from the date of
Employee's Severance Event until Employee is first
employed or providing compensated services; provided,
however, that the Company is not obligated to pay
more than $10,000 for such counseling and assistance.
IV. WHEN TRANSITIONAL COMPENSATION BENEFITS WILL NOT BE PAID
No Transitional Compensation Benefits under the Plan will be
paid if Employee:
1. is a party to an employment or severance agreement
with the Company or an Affiliate, other than the
Agreement, that provides payments or other benefits
as a result of termination of employment; or
2. retires or resigns, other than for reasons that
constitute a Severance Event; or
3. takes a leave of absence; or
4. is offered and refuses or refuses to transfer to
another comparably compensated position with the
Company, an Affiliate, or a successor company (other
than in a circumstance that constitutes a Severance
Event); or
12
<PAGE>
OrthoLogic Corp.
Employment Agreement
Exhibit A
Transitional Compensation
5. refuses to sign a Release and Severance Agreement; or
6. dies prior to a Severance Event.
V. OTHER IMPORTANT INFORMATION
A. How the Coverage Is Provided
----------------------------
Any payment made under the Plan will come from the general
assets of the Company or an Affiliate. No separate fund will
be established.
B. Limited Alienation of Benefits
------------------------------
Employee's benefits in this Plan cannot be claimed by any
person to whom Employee owes a debt and neither Employee nor
Employee's beneficiary may transfer rights to these benefits
to anyone.
13
ORTHOLOGIC CORP.
STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(In thousands, except per share amounts)
Three Months Ended
March 31,
------------------------
1997 1996 (1)
------------------------
Net income (loss) $ (273) $ 935
Common shares outstanding at end of period 25,069 19,682
Adjustment to reflect weighted average for
shares issued during the period (31) (164)
Adjustment to reflect assumed exercise
of outstanding stock options -- 1,278
----------------------
Weighted average number of common shares
outstanding 25,038 20,796
======================
Net income (loss) per weighted average
number of common shares outstanding $ (0.01) $ 0.04
======================
(1) The share and per share amounts have been adjusted to reflect the
Company's 2-for-1 stock split effected in the form of a 100% stock
dividend in June 1996.
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 11,729,634
<SECURITIES> 16,642,730
<RECEIVABLES> 40,917,042
<ALLOWANCES> (8,338,846)
<INVENTORY> 9,544,447
<CURRENT-ASSETS> 75,008,333
<PP&E> 13,526,994
<DEPRECIATION> (3,029,253)
<TOTAL-ASSETS> 115,591,244
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0
0
<COMMON> 12,533
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<CGS> 2,714,037
<TOTAL-COSTS> 4,745,368
<OTHER-EXPENSES> 13,465,554
<LOSS-PROVISION> 1,683,794
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (273,090)
<INCOME-TAX> 0
<INCOME-CONTINUING> (273,090)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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