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Exhibit 1
APACHE MEDICAL SYSTEMS, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (this "Agreement"), dated as of
April 17, 1998 (the "Grant Date"), is by and between APACHE Medical Systems,
Inc., a Delaware corporation (the "Corporation"), and ▇▇▇▇▇ ▇▇▇▇▇▇▇ (the
"Optionee"), a consultant to the Corporation.
1. Grant of Option. Subject to the provisions of the APACHE Medical
Systems, Inc. Employee Stock Option Plan (the "Plan") and this Agreement, the
Corporation hereby grants to the Optionee the right and option (the "Option") to
purchase from the Corporation an aggregate of 500,000 shares of the
Corporation's common stock, par value $0.01 per share (the "Shares"), at an
exercise price of $2.506 per Share, provided that on or before July 1, 1998 the
Optionee executes a written agreement to serve as President and Chief Executive
Officer of the Corporation.
2. Vesting and Expiration. The option rights of the Optionee will be
exercisable until July 1, 2008, provided that they have vested and, except as
otherwise expressly provided in this Agreement, the Optionee is employed by or
is a consultant to the Corporation. The Option shall vest as provided on Exhibit
A hereto.
3. Exercise Following Termination of Employment. If the Optionee ceases
to be a consultant to or an employee of the Corporation, the outstanding portion
of the Option shall be exercisable only in accordance with the following
provisions:
(a) If the Optionee's consultancy or employment with the
Corporation is terminated for "cause" (as defined below), the outstanding
portion of the Option, whether or not vested, shall terminate at the time notice
of termination is effective. As used herein, "cause" means the Optionee's (i)
commission of an action against or in derogation of the interests of the
Corporation which constitutes an act of fraud, dishonesty or moral turpitude or
which, if proven in a court of law, would constitute a violation of a criminal
code or similar law; (ii) material breach of any material duty or obligation
imposed upon the Optionee by the Corporation; or (iii) divulging the
Corporation's confidential information.
(b) If the Optionee's consultancy or employment with the
Corporation is terminated for any reason other than for cause (as defined
above), death or disability (as defined below), the outstanding portion of the
Option (to the extent vested prior to such termination) shall remain exercisable
until the first to occur of (i) the expiration date referred to in Section 2,
and (ii) the expiration of three months from the effective date of termination,
provided that if the Optionee ceases to be a consultant or employed by the
Corporation by reason of death or disability, the period referred to in this
clause (ii) shall be one year following the date the Optionee ceases to be a
consultant or an employee of the Corporation. If the Optionee dies during such
three-month period
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referred to in clause (ii), his or her estate may exercise the Option (to the
extent such Option was vested and exercisable prior to death), but not later
than the earlier of one year after the date of death or the expiration of the
term of the Option. As used herein, "disability" means the inability of the
Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or has lasted or can be expected to last for a continuous period
of not less than 12 months.
4. Acceleration Following Termination Other Than for Cause. In the event
Optionee's consultancy or employment is terminated other than for cause, any
Shares as to which the Option has not vested on the effective date of
termination that would have vested during the nine (9) months after the
effective date of Optionee's termination will be accelerated to, and vest on,
the effective date of Optionee's termination date.
5. Limitation on Exercisability. Notwithstanding any other provision
hereof (including, without limitation, Sections 4, 9 and 10, the Shares that may
be purchased for the first time during any calendar year pursuant to the Option,
together with any other options issued to the Optionee by the Corporation
intended to be incentive stock options (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended from time to time, or subsequent
comparable statute (the "Code")), shall not have a fair market value (determined
as of the respective Grant Dates of such options) in excess of $100,000.
6. Exercise. The Option may be exercised by delivering to the
Corporation at its principal offices a written notice, signed by a person
entitled to exercise the Option, of the election to exercise the Option and
stating the number of Shares to be purchased. Such notice shall be accompanied
by the payment of the full exercise price of the Shares to be purchased. Upon
payment in accordance with the Plan and within the time period specified by the
Corporation of the amount, if any, required to be withheld for Federal, state
and local tax purposes on account of the exercise of the Option, the Option
shall be deemed exercised as of the date the Corporation received such notice.
The Corporation may withhold, or allow the Optionee to remit to the Corporation,
any Federal, state or local taxes required by law to be withheld with respect to
any event giving rise to income tax liability with respect to the Option. In
order to satisfy all or any portion of such income tax liability, the Optionee
may elect to surrender Shares previously acquired by the Optionee or to have the
Corporation withhold Shares that would otherwise have been issued to the
Optionee pursuant to the exercise of the Option, the number of such withheld or
surrendered Shares to be sufficient to satisfy all or a portion of the income
tax liability that arises upon the event giving rise to income tax liability
with respect to the Option. Payment of the full exercise price shall be in the
form of cash, shares of capital stock of the Corporation having a fair market
value (as defined in the Plan) on the date of exercise equal to the full
exercise price, or by any combination of cash and shares of such capital stock.
Upon the proper exercise of the Option, subject to the other provisions of this
Agreement, the Corporation shall issue in the name of the person exercising the
Option, and deliver to such person, a certificate or certificates for the Shares
purchased.
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7. Nontransferability of Option. The Option shall not be transferable by
the Optionee except by will or the laws of descent and distribution. Without
limiting the generality of the foregoing, the Option shall not be sold,
transferred except as aforesaid, assigned, pledged or otherwise encumbered or
disposed of, shall not be assignable by operation of law, and shall not be
subject to execution, attachment or similar process. Any attempted sale,
transfer, pledge, assignment or other encumbrance or disposition of the Option
contrary to the provisions hereof, or the levy of any execution, attachment or
similar process upon the Option, shall be null and void and without effect.
During the lifetime of the Optionee, the Option may be exercised only by the
Optionee or the Optionee's agent, attorney-in-fact or guardian. Following the
death of the Optionee, the Option may be exercised by the Optionee's beneficiary
or estate to the extent permitted by Section 3.
8. Notice of Transfer of Shares. The Optionee may not transfer or
otherwise dispose of any Shares purchased upon the exercise of the Option before
the expiration of (a) two years from the Grant Date or (b) one year after the
exercise of the Option with respect to such Shares, whichever occurs later,
without first giving written notice to the Secretary of the Corporation.
9. Adjustments Upon Reorganization or Changes in Capitalization. In the
event of a stock split, stock dividend, recapitalization, reclassification or
combination of shares, merger, sale of assets or similar event, the Compensation
Committee of the Board of Directors shall adjust equitably (a) the number and
class of Shares or other securities that are reserved for issuance under the
Option, (b) the number and class of Shares or other securities that are subject
to the Option, and (c) the appropriate Fair Market Value and other price
determinations applicable to the Option. The Compensation Committee of the Board
of Directors shall make all determinations under this Section 9, and all such
determinations shall be conclusive and binding. As used herein, "Fair Market
Value" means the amount determined by the Compensation Committee of the Board of
Directors from time to time, using such good faith valuation methods as it deems
appropriate, except that as long as the Shares are traded on NASDAQ or a
recognized stock exchange, it shall mean the average of the highest and lowest
quoted selling prices for the Shares on the relevant date, or, if there were no
sales on such date, the weighted average of the means between the highest and
the lowest quoted selling prices on the nearest day before and the nearest day
after the relevant date, as prescribed by Treasury Regulation Section
20.2031-2(b)(2), as reported in The Wall Street Journal or a similar publication
selected by the Compensation Committee of the Board of Directors.
10. Acceleration of Exercisability. Except as stated in Exhibit A hereto
with respect to Tranches (D) and (E) and notwithstanding the provisions of
Section 2, the Option shall immediately vest, and until the expiration date
specified in Section 2 shall remain, exercisable as to all of the Shares
forthwith upon the occurrence of any Change in Control of the Corporation. As
used herein, "Change in Control" means the purchase or other acquisition by any
person, entity or group of persons, within the meaning of Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") or any
comparable successor provisions, of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either
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the outstanding Shares or the combined voting power of the Corporation's then
outstanding voting securities entitled to vote generally; the approval by the
stockholders of the Corporation of a reorganization, merger, or consolidation,
in each case, with respect to which persons who were stockholders of the
Corporation immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 30% of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
merged or consolidated Corporation's then outstanding securities; a liquidation
or dissolution of the Corporation; or of the sale of all or substantially all of
the Corporation's assets.
11. Miscellaneous.
(a) Notices. Any notice hereunder shall be in writing, and
delivered or sent by first-class U.S. mail, postage prepaid, addressed to:
(i) if to the Corporation, at:
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and
(ii) if to Optionee, at:
Post ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
subject to the right of either party, by written notice hereunder, to designate
at any time hereafter some other address.
(b) Compliance with Law and Regulations. The Option and the
obligation of the Corporation to sell and deliver Shares hereunder shall be
subject to all applicable Federal and state laws, rules and regulations and to
such approvals by any government or regulatory agency as may be required.
Notwithstanding any other provision of this Agreement, the Option may not be
exercised if its exercise, or the receipt of Shares pursuant thereto, would be
contrary to applicable law.
(c) No Rights as Stockholder. The Optionee shall have no rights
as a stockholder with respect to any Shares subject to the Option prior to the
date of issuance to the Optionee of a certificate or certificates for such
Shares.
(d) No Employment Rights. Nothing in the Plan, this Agreement or
the grant of an Option shall confer upon the Optionee any rights to continued
employment with the Corporation or shall interfere with the right of the
Corporation to terminate the Optionee's employment with the Corporation.
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(e) Section 83(b) Election. If the Optionee elects, in accordance
with Section 83(b) of the Code, to recognize ordinary income in the year in
which the Option is granted, the Optionee shall furnish to the Corporation a
copy of a completed and signed election form and shall pay (or make arrangements
satisfactory to the Corporation to pay) to the Corporation, within sixty (60)
days after the Grant Date, any Federal, state and local taxes required to be
withheld with respect to the Option.
(f) Withholding. The Corporation shall, to the extent permitted
by law, have the right to deduct from any payment of any kind otherwise due to
the Optionee any Federal, state and local taxes required by law to be withheld
or collected with respect to the Option.
(g) Reservation of Shares; Certain Costs. The Corporation shall
keep available sufficient authorized but unissued Shares needed to satisfy the
requirements of this Agreement. The Corporation shall pay any original issue tax
that may be due upon the issuance of Shares pursuant to the Option and all other
costs incurred by the Corporation in issuing such Shares.
(h) Employment by Affiliates. For the purpose of this Agreement,
employment by a parent or subsidiary of, or a successor to, the Corporation
shall be considered employment by the Corporation. "Parent" and "subsidiary" as
used herein shall have the meaning of "parent" and "subsidiary corporation,"
respectively, as defined in Section 424 of the Code.
(i) Plan Governs. The Optionee hereby acknowledges receipt of a
copy of the Plan and agrees to be bound by its terms, all of which are
incorporated herein by reference. The Plan shall govern in the event of any
conflict between this Agreement and the Plan.
(j) Choice of Law. This Agreement shall be construed in
accordance with and be governed by the laws of the State of Delaware.
(k) Counterparts. This Agreement may be executed in two
counterparts each of which shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
APACHE MEDICAL SYSTEMS, INC.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman and Acting Chief Executive
Officer
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇, Optionee
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EXHIBIT A
Vesting
The Option shall vest subject to the Corporation's performance and with
the passage of time as follows:
1. Immediate and Annual Vesting. The Option shall vest depending on time
and satisfaction of Earnings* targets as follows:
Tranche Number of Shares Vesting Date
------- ---------------- ------------
Immediate 40,000 upon start date (July 1, 1998)
(A) 80,000 1st Anniversary (July 1, 1999)
(B) 80,000 2nd Anniversary (July 1, 2000)
(C)** 100,000 3rd Anniversary (July 1, 2001)
(D)** 100,000 4th Anniversary (July 1, 2002)
(E)** 100,000 5th Anniversary (July 1, 2003)
"Earnings" in all cases is defined as earnings before interest and taxes as
reported by the Corporation plus any agreed upon nonrecurring charges or
writedowns as long as these relate to pre-July 1, 1998 assets or activities.
**In order for the Option to vest as to these Shares, the Corporation must
report positive Earnings* for any consecutive four-quarter period (the "Earnings
Requirement"). If the Corporation does not meet such Earnings Requirement, then
the vesting of that Tranche shall be delayed until the Earnings Requirement is
met or the Vesting Date occurs.
2. Accelerated Vesting. At the discretion of the Board of Directors,
vesting may be accelerated if both Earnings* and stock price performance targets
are satisfied, but not necessarily simultaneously, as follows:
Tranche Earnings Target AND Stock Price Target
------- --------------- ------------------
(A) any two consecutive quarters Closing price of $6 or
in which the Corporation higher for 20 consecutive
reports positive Earnings trading days
(B) any four consecutive Closing price of $9 or
quarters in which the higher for 30 consecutive
Corporation reports positive trading days
Earnings
(C) Earnings* greater than $1.0 Closing price of $12 or
million for any four higher for 60 consecutive
consecutive quarters of trading days
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Earnings as reported in the
Company's Form 10-K and
Forms 10-Q filed with the
Securities and Exchange
Commission
(D)*** Earnings* greater than $3.0 Closing price of $15 or
million for any four higher for 60 consecutive
consecutive quarters of trading days
Earnings as reported in the
Company's Form 10-K and
Forms 10-Q filed with the
Securities and Exchange
Commission
(E)*** Earnings* greater than $4.0 Closing price of $18 or
million for any four higher for 60 consecutive
consecutive quarters of trading days
Earnings as reported in the
Company's Form 10-K and
Forms 10-Q filed with the
Securities and Exchange
Commission
***Notwithstanding Section 10 of the Agreement, unless the Board of Directors
decides otherwise, Tranches (D) and (E) will not vest in case of Change in
Control prior to July 1, 2000, unless the consideration to the Corporation's
stockholders exceeds $15 per Share. All per Share price data referred to in
Section 2 of this Exhibit A shall be adjusted in accordance with Section 9 of
the Agreement.