-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vh8zPjt2J+1l99KwIHWgNbEsZe5T20Ca3P84dwBd6LD327hDcoCy4y8UJB1SlgKI qIbEQ+Q4kNgqpmCm6yOBvA== 0000912057-01-516956.txt : 20010522 0000912057-01-516956.hdr.sgml : 20010522 ACCESSION NUMBER: 0000912057-01-516956 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010521 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACE MEDICAL INC CENTRAL INDEX KEY: 0000814057 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 042867416 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-16257 FILM NUMBER: 1644228 BUSINESS ADDRESS: STREET 1: 391 TOTTEN POND RD CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6178905656 MAIL ADDRESS: STREET 1: 391 TOTTEN POND ROAD CITY: WALTHAM STATE: MA ZIP: 02154 10QSB 1 a2050082z10qsb.txt FORM 10-QSB FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 2001 ------------------ 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 0-16257 ---------------------------------- PACE MEDICAL, INC. ------------------------------------------------- (Exact name of small business issuer as specified in its charter) MASSACHUSETTS 04-2867416 ----------------------------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 391 TOTTEN POND ROAD, WALTHAM, MASSACHUSETTS 02451 -------------------------------------------------- (Address of principal executive offices ) (781) 890-5656 -------------- (Issuer's telephone number, including area code) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | | Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 12, 2001. 3,354,870 shares of Common Stock, par value $.01 per share PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. a) Condensed Consolidated Balance Sheets b) Condensed Consolidated Income Statements c) Condensed Consolidated Statements of Cash Flows d) Notes to Condensed Consolidated Financial Statements -2- PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 DECEMBER 31, 2000 -------------- ----------------- (Unaudited) (See note below) ASSETS Current assets: Cash and cash equivalents $ 1,191,175 $ 1,252,352 Accounts receivable 344,333 264,873 Inventories: Raw materials 337,951 242,965 Work-in-process 118,617 147,547 Finished goods 133,688 214,966 ----------- ----------- 590,256 605,478 Other current assets 10,180 23,820 ----------- ----------- Total current assets 2,135,944 2,146,523 Plant and equipment, net 47,046 50,652 Other assets 120,412 121,051 ----------- ----------- TOTAL ASSETS $ 2,303,402 $ 2,318,226 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 157,500 $ 117,304 Accrued expenses 15,267 65,397 ----------- ----------- Total current liabilities 172,767 182,701 ----------- ----------- Shareholders' equity: Common stock, $.01 par value, 5,000,000 shares authorized, 3,400,870 issued 34,009 34,009 Additional paid-in capital 3,147,151 3,147,151 Cumulative translation adjustment (7,441) 32,725 Accumulated deficit (1,011,337) (1,046,613) ----------- ----------- 2,162,382 2,167,272 ----------- ----------- Less: Treasury Stock, at Cost, 46,000 shares (31,747) (31,747) ----------- ----------- Total Shareholders' Equity 2,130,635 2,135,525 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,303,402 $ 2,318,226 =========== ===========
Note: The balance sheet at December 31, 2000 has been taken from the audited financial statements at that date. See accompanying notes to condensed consolidated financial statements. -3- PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31 -------------------- 2001 2000 ---- ---- Net Sales $394,471 $440,208 Cost of sales 195,229 179,476 -------- -------- 199,242 260,732 Other operating expenses 177,198 190,580 -------- -------- Income from operations 22,044 70,152 Other income 13,232 14,835 -------- -------- Net income $ 35,276 $ 84,987 ======== ======== Net income per share: Basic $ .01 $ .03 ======== ======== Diluted $ .01 $ .02 ======== ========
See accompanying notes to condensed consolidated financial statements. -4- PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31 ------------------ 2001 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 35,276 $ 84,987 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 4,283 3,918 Change in assets and liabilities, net: (98,199) (83,457) ----------- ----------- Net cash (used in) provided by operating activities (58,640) 5,448 CASH FLOWS FROM INVESTING ACTIVITIES - Purchases of property and equipment (2,537) (63,719) CASH FLOW FROM FINANCING ACTIVITIES - -- -- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (61,177) (58,271) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 1,252,352 $ 1,513,514 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,191,175 $ 1,455,243 =========== ===========
See accompanying notes to condensed consolidated financial statements. -5- PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying unaudited consolidated financial statements and these notes have been condensed and do not contain all disclosures required by generally accepted accounting principles. See notes to audited consolidated financial statements contained in the Company's annual report. 2. In the opinion of the Company, the accompanying unaudited condensed financial statements contain all adjustments, all of which are normal and recurring, necessary to present fairly the financial position of the Company and its wholly-owned subsidiary as of March 31, 2001 and the results of their operations for the three months ended March 31, 2001 and March 31, 2000 and their cash flows for the three months ended March 31, 2001 and March 31, 2000. 3. The Company prepares its financial information using the same accounting principles as for its annual financial statements except that no physical inventories were taken during either of the periods ended March 31, 2001 or 2000. Cost of sales for such periods was calculated primarily using standard cost methods. 4. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results to be expected for the full year. 5. The denominator used to determine basic net income (loss) per share includes the weighted average common shares outstanding during the quarter. The denominator used to determine diluted net income per share includes the shares used in the calculation of basic net income per share plus the weighted average options outstanding during the period using the treasury-stock method. -6-
THREE MONTHS ENDED MARCH 31 ------------------ 2001 2000 ---- ---- Net Income $ 35,276 $ 84,987 ========== ========== Weighted-average shares outstanding 3,354,870 3,375,870 Effect of dilutive securities 27,629 101,957 ---------- ---------- Total shares 3,382,499 3,477,827 ========== ========== Basic net income per share $ 0.01 $ 0.03 ========== ========== Diluted net income per share $ 0.01 $ 0.02 ========== ==========
6. The Company has adopted the provisions of SFAS No. 130," Reporting Comprehensive Income". Comprehensive income includes net income and foreign currency translation adjustments. Comprehensive income for the three months ended March 31, 2001 and 2000 is as follows:
THREE MONTHS ENDED MARCH 31, ------------------ 2001 2000 ---- ---- Net Income $ 35,276 $ 84,987 Currency Translation Adjustment (40,166) (10,279) -------- -------- Total $ (4,890) $ 74,708 ======== ========
-7- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FINANCIAL CONDITION As of March 31, 2001, the Company had cash and cash equivalents of $1,191,175 and working capital of $1,963,177. The working capital at March 31, 2001 was essentially the same as at December 31, 2000. The Company expects to maintain a sound financial base for the balance of fiscal 2001. Management continues to believe that the current level of working capital, coupled with the flexibility of the Company's cost structure, should suffice to ensure that on-going operations are financed adequately. FINANCIAL RESULTS -- THREE MONTHS ENDED MARCH 31, 2001 VERSUS THREE MONTHS ENDED MARCH 31, 2000 Sales in the first quarter of 2001 decreased 10% from the sales posted in the first quarter of 2000. The decrease in sales was due to a decrease in our OEM business. The Company's margins in the first quarter were lower than those seen in 2000 (59% in 2000 and 50% in 2001). The decrease was primarily due to higher fixed costs combined with a slowdown in production caused by component shortages. Operating expenses were lower in the three months ended March 31, 2001 versus the three months ended March 31, 2000, principally due to the pound weakening against the dollar relative to the first quarter of 2000. Management anticipates some increase in its operating expenditures during the balance of 2001. No tax provision was recorded for the three months ended March 31, 2001 owing to the Company's ability to use net operating loss carryforwards in both the U.S. and United Kingdom. Net income for the quarter was $35,276 or $.01 per share in contrast to $84,987 or $0.03 per share in the first quarter of 2000. -8- FACTORS THAT MAY AFFECT FUTURE RESULTS From time to time, information provided by the Company or statements made by its employees may contain "forward-looking" information which involves risks and uncertainties. In particular, statements contained in this report which are not historical facts (including but not limited to the Company's expectations regarding business strategy, pricing, anticipated operating results, operating expenses and anticipated working capital) may be "forward-looking" statements. The Company's actual results may differ from those stated in any forward-looking statements. Factors that may cause such differences include, but are not limited to, risks associated with the introduction of new products, development of markets for new products offered by the Company, the Company's relationships with distributors and OEM's, the economic health of such OEM's, government regulation, competition and general economic conditions. -9- PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.1 Non-qualified Stock Option Agreement dated January 3, 2001 with Ralph E. Hanson 10.2 Non-qualified Stock Option Agreement dated January 3, 2001 with Derrick Ebden 10.3 Non-qualified Stock Option Agreement dated January 3, 2001 with George F. Harrington 10.4 Non-qualified Stock Option Agreement dated January 3, 2001 with Drusilla F. Hays (b) Reports on Form 8-K: None -10- 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. PACE MEDICAL, INC. -------------------------- (Registrant) Date: MAY 17, 2001 /s/ RALPH E. HANSON --------------- ----------------------------------- Ralph E. Hanson, President and Chief Executive Officer (principal executive officer) Date: MAY 17, 2001 /s/ RALPH E. HANSON --------------- ----------------------------------- Ralph E. Hanson, Chief Financial Officer (principal financial officer) EX-10.1 2 a2050082zex-10_1.txt EXHIBIT 10.1 Exhibit 10.1 100,000 SHARES PACE MEDICAL, INC. NON-QUALIFIED STOCK OPTION AGREEMENT NON-QUALIFIED STOCK OPTION AGREEMENT dated as of January 3, 2001 by and between PACE MEDICAL, INC., a Massachusetts corporation (hereinafter called the "Corporation"), and RALPH E. HANSON (hereinafter called the "Optionee"). WHEREAS, the Corporation desires to afford the Optionee the opportunity to purchase shares of its Common Stock; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereby mutually covenant and agree as follows: 1. GRANT OF OPTION. Subject to the terms and conditions set forth herein, the Corporation grants to the Optionee the right and option to purchase from the Corporation at a price of $0.32 per share up to but not exceeding in the aggregate One Hundred Thousand (100,000) shares of the Corporation's Common Stock, par value $.01 per share (the "Common Stock"). 2. TERM. This Agreement and the option granted hereby shall terminate five (5) years from the date hereof but shall be subject to earlier termination as herein provided. Upon termination, the option granted hereby shall thereupon expire and thereafter shall not be exercisable. 3. EXERCISE OF OPTION. (a) The option hereby granted may be exercised at any time or from time to time in whole or in part during the term hereof. (b) Upon any one exercise of the option granted hereby, the Optionee or his legal representative may purchase all or any part of the shares of Common Stock as to which such option is then exercisable, provided however, that no less than one hundred (100) shares may be purchased upon any one exercise of such option unless the number of shares purchased at such time is the total number of shares in respect of which such option is then exercisable. (c) The option hereby granted shall be exercised by the Optionee delivering to the Clerk of the Corporation, from time to time, on any business day, written notice specifying the number of shares the Optionee then desires to purchase, together with cash or a certified or bank cashier's check to the order of the Corporation for an amount in United States dollars equal to the option price of such shares. (d) Upon each such exercise, a certificate representing the number of shares purchased shall be issued in the name of the person or persons exercising the option granted hereby and delivered to the Optionee. 4. RESTRICTIONS ON ISSUANCE OF SHARES. (a) Notwithstanding the provisions of Section 2 hereof, the Corporation may delay the issuance of shares covered by the exercise of the option granted hereby and the delivery of a certificate for such shares until (i) one of the following conditions shall be satisfied: (A) the shares with respect to which the option granted hereby has been exercised are at the time of the issuance of such shares effectively registered under the Securities Act of 1933 as now in force or hereafter amended; or 2 (B) a no-action letter in respect to the issuance of such shares shall have been obtained by the Corporation from the Securities and Exchange Commission; or (C) counsel for the Corporation shall have given an opinion, which opinion shall not be unreasonably conditioned or withheld, that such shares are exempt from registration under the Securities Act of 1933 as now in force or hereafter amended; and (ii) one of the following conditions shall be satisfied: (A) approval shall have been obtained from such federal and state governmental agencies, other than the Securities and Exchange Commission, as may be required under any applicable law, rule or regulation; or (B) counsel for the Corporation shall have given an opinion, which opinion shall not be unreasonably conditioned or withheld, that no such approval is required. (b) It is intended that all exercises of the option granted hereby shall be effective, and the Corporation shall use its best efforts to bring about compliance with the above conditions within a reasonable time, except that the Corporation shall be under no obligation to cause a registration statement or a post-effective amendment to any registration statement to be prepared at its expense or to comply with Regulation A or any other exemption under the Securities Act of 1933 as now in force or hereafter amended, solely for the purpose of covering the issuance of shares in respect of which the option granted hereby may be exercised. Therefore, the Optionee shall not be entitled to any rights in any shares of Common Stock to be issued under the option granted hereby until delivery of a certificate therefor by the Corporation. 5. PURCHASE FOR INVESTMENT. (a) Unless the shares to be issued upon exercise of the option granted hereby have been effectively registered under the Securities Act of 3 1933 as now in force or hereafter amended, the Corporation shall be under no obligation to issue any shares covered by such option unless the person who exercises such option, in whole or in part, shall give a written representation to the Corporation satisfactory in form and scope to the Corporation's counsel and upon which, in the opinion of such counsel the Corporation may reasonably rely, that he/she is acquiring the shares issued to him pursuant to such exercise of such option as an investment and not with a view to, or for sale in connection with, the distribution of any such shares. (b) The certificate for each share of Common Stock issued pursuant to such exercise of the option granted hereby may bear a reference to the investment representation made in accordance with this Section 5 and to the fact that no registration statement has been filed with the Securities and Exchange Commission in respect to such shares. (c) In the event that the Corporation shall nevertheless, deem it necessary or desirable to register under the Securities Act of 1933 or other applicable statutes any shares with respect to which the option granted hereby shall have been exercised, or to qualify any such shares for exemption from the Securities Act of 1933 or other applicable statutes, then the Corporation shall take such action at its own expense and may require from the Optionee such information in writing for use in any registration statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for such purpose and may require reasonable indemnity to the Corporation and its officers and directors from such holder against all losses, claims, damages, and liabilities arising from such use of the information so furnished and caused by any untrue statement of any material fact therein or caused by the omission 4 to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. 6. TERMINATION OF BUSINESS RELATIONSHIP. (a) The option hereby granted shall terminate and be of no force or effect in the event the Optionee ceases to serve as an employee, consultant, officer or director of the Corporation or any subsidiary of the Corporation (such service is described herein as maintaining or being involved in a "Business Relationship with the Corporation") for any reason, provided however, that in the event of the termination of the Optionee's employment such option may be exercised (to the extent exercisable by the Optionee at the date of such termination) at any time within three (3) months after the date of such termination, but in any event not later than five (5) years from the date hereof and provided further, however, that if the termination of the Optionee's Business Relationship with the Corporation shall result from the Optionee's death, such option may be exercised (to the extent exercisable by the Optionee at the date of his death) by the Optionee's personal representative or by the person or persons to whom such option shall have been transferred by will or by the laws of descent and distribution, at any time within three (3) months after the date of the Optionee's death but in any event not later than five (5) years from the date hereof. (b) As used herein, the term "subsidiary" shall mean any present or future corporation which would be a "subsidiary corporation" of the Corporation, as the term is defined in Section 424 of the Internal Revenue Code of 1986. (c) Whenever the word "Optionee" is used in any provision of this Agreement under circumstances where the provision should logically be construed to 5 apply to the estate, personal representative, or beneficiary to whom this option may be transferred by will or by the laws of descent and distribution, it shall be deemed to include such person. 7. ASSIGNABILITY. The option granted hereby is not assignable or transferable by the Optionee otherwise than by will or the laws of descent and distribution and is exercisable during the Optionee's lifetime only by him. No assignment or transfer of such option, or of the right represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except by will or the laws of descent and distribution, shall vest in the assignee or transferee any interest or right herein whatsoever, and immediately upon any attempt to assign or transfer such option the same shall terminate and be of no force or effect. 8. LIMITATION ON RIGHTS. (a) The Optionee shall not be deemed for any purpose to be a shareholder of the Corporation with respect to any shares as to which the option granted hereby shall not have been exercised and payment and issuance made as herein provided. Nothing herein shall confer on the Optionee any right to continue in the employ of the Corporation or its subsidiaries, nor affect the right of the Corporation or its subsidiaries to terminate the Optionee's employment at any time without liability to the Corporation. (b) The existence of the option granted hereby shall not affect in any way the right or power of the Corporation or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Corporation's capital structure or its business, or any merger or consolidation of the Corporation, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or 6 convertible into, or otherwise affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. (a) The shares with respect to which the option granted hereby is granted are shares of the Common Stock as constituted on the date of this Agreement, but if and whenever, prior to the delivery by the Corporation of all of the shares of Common Stock with respect to which this option is granted, the Corporation shall effect a subdivision or consolidation of shares, or other capital readjustment, or the payment of a stock dividend, or other increase or decrease of the number of shares of Common Stock outstanding, without receiving compensation therefor in money, services or property, then (i) in the event of any increase in the number of such shares outstanding, the number of shares of Common Stock then remaining subject to option hereunder shall be proportionately increased (except that any fraction of a share resulting from any such adjustment shall be excluded from the operation of this Agreement), and the cash consideration payable per share shall be proportionately reduced, and (ii) in the event of a reduction in the number of such shares outstanding, the number of shares of Common Stock then remaining subject to option hereunder shall be proportionately reduced (except that any fractional shares resulting from any such adjustment shall be excluded from the operation of this Agreement), and the cash consideration payable per share shall be proportionately increased. (b) In the event of (i) any merger of one or more other corporations with the Corporation or any consolidation of the Corporation and one or more other corporations in which the Corporation is not the surviving or resulting corporation or (ii) 7 any merger of one or more other corporations with the Corporation or any consolidation of the Corporation and one or more other corporations in which the Corporation shall be the surviving or resulting corporation and the then issued and outstanding shares of Common Stock shall be converted into and/or exchanged for cash and/or any securities of any other corporation, then, in any such case and without the need for any further action by the Corporation or its stockholders, this Agreement and the option granted hereby shall terminate as of the effective time of the merger or consolidation and thereupon be of no force or effect, and the holder hereof shall, at no additional cost, be entitled solely to receive (at such effective time and otherwise in the form and manner provided by the terms of the agreement of merger or consolidation) an amount of the consideration payable under the terms of such agreement equal to the excess of (i) the aggregate consideration (valued in accordance with the terms thereof) to which the holder hereof would have been entitled pursuant to the terms of such agreement if, immediately prior to such effective time, the holder hereof had been the holder of record of a number of shares of Common Stock equal to the aggregate number of shares of Common Stock as to which this Agreement was exercisable immediately prior to such effective time over (ii) the aggregate exercise price payable hereunder with respect to such number of shares. In the event of any other merger or consolidation in which the Corporation is the surviving or resulting corporation, this Agreement and the option granted hereby shall remain in full force and effect in accordance with its terms. In the event of any dissolution or liquidation of the Corporation, this Agreement and the option granted hereby shall terminate and thereupon be of no force or effect. 8 10. MISCELLANEOUS. (a) This Agreement is the sole and only agreement between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a subsequent written agreement duly executed by the parties hereto. (b) The Corporation shall at all times during the term of the option granted hereby reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of such option. (c) Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be delivered personally or by mail, postage prepaid, addressed as follows: To the Corporation (Attention to the Clerk), at its principal office at 391 Totten Pond Road, Waltham, Massachusetts 02451, or at such other address as the Corporation, by notice to the Optionee, may designate in writing from time to time; and to the Optionee at his address as the Optionee, by notice to the Clerk of the Corporation, may designate in writing from time to time. (d) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 9 IN WITNESS WHEREOF, the Corporation has caused this Non-Qualified Stock Option Agreement to be executed by its duly-authorized officer, and the Optionee has hereunto set his hand and seal, all on the day and year first above written. PACE MEDICAL, INC. By -------------------------------------- Ralph E. Hanson, President -------------------------------------- Ralph E. Hanson--Optionee 10 EX-10.2 3 a2050082zex-10_2.txt EXHIBIT 10.2 Exhibit 10.2 50,000 SHARES PACE MEDICAL, INC. NON-QUALIFIED STOCK OPTION AGREEMENT NON-QUALIFIED STOCK OPTION AGREEMENT dated as of January 3, 2001 by and between PACE MEDICAL, INC., a Massachusetts corporation (hereinafter called the "Corporation"), and DERRICK EBDEN (hereinafter called the "Optionee"). WHEREAS, the Corporation desires to afford the Optionee the opportunity to purchase shares of its Common Stock; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereby mutually covenant and agree as follows: 1. GRANT OF OPTION. Subject to the terms and conditions set forth herein, the Corporation grants to the Optionee the right and option to purchase from the Corporation at a price of $0.32 per share up to but not exceeding in the aggregate Fifty Thousand (50,000) shares of the Corporation's Common Stock, par value $.01 per share (the "Common Stock"). 2. TERM. This Agreement and the option granted hereby shall terminate five (5) years from the date hereof but shall be subject to earlier termination as herein provided. Upon termination, the option granted hereby shall thereupon expire and thereafter shall not be exercisable. 3. EXERCISE OF OPTION. (a) The option hereby granted may be exercised at any time or from time to time in whole or in part during the term hereof. (b) Upon any one exercise of the option granted hereby, the Optionee or his legal representative may purchase all or any part of the shares of Common Stock as to which such option is then exercisable, provided however, that no less than one hundred (100) shares may be purchased upon any one exercise of such option unless the number of shares purchased at such time is the total number of shares in respect of which such option is then exercisable. (c) The option hereby granted shall be exercised by the Optionee delivering to the Clerk of the Corporation, from time to time, on any business day, written notice specifying the number of shares the Optionee then desires to purchase, together with cash or a certified or bank cashier's check to the order of the Corporation for an amount in United States dollars equal to the option price of such shares. (d) Upon each such exercise, a certificate representing the number of shares purchased shall be issued in the name of the person or persons exercising the option granted hereby and delivered to the Optionee. 4. RESTRICTIONS ON ISSUANCE OF SHARES. (a) Notwithstanding the provisions of Section 2 hereof, the Corporation may delay the issuance of shares covered by the exercise of the option granted hereby and the delivery of a certificate for such shares until (i) one of the following conditions shall be satisfied: (A) the shares with respect to which the option granted hereby has been exercised are at the time of the issuance of such shares effectively registered under the Securities Act of 1933 as now in force or hereafter amended; or 2 (B) a no-action letter in respect to the issuance of such shares shall have been obtained by the Corporation from the Securities and Exchange Commission; or (C) counsel for the Corporation shall have given an opinion, which opinion shall not be unreasonably conditioned or withheld, that such shares are exempt from registration under the Securities Act of 1933 as now in force or hereafter amended; and (ii) one of the following conditions shall be satisfied: (A) approval shall have been obtained from such federal and state governmental agencies, other than the Securities and Exchange Commission, as may be required under any applicable law, rule or regulation; or (B) counsel for the Corporation shall have given an opinion, which opinion shall not be unreasonably conditioned or withheld, that no such approval is required. (b) It is intended that all exercises of the option granted hereby shall be effective, and the Corporation shall use its best efforts to bring about compliance with the above conditions within a reasonable time, except that the Corporation shall be under no obligation to cause a registration statement or a post-effective amendment to any registration statement to be prepared at its expense or to comply with Regulation A or any other exemption under the Securities Act of 1933 as now in force or hereafter amended, solely for the purpose of covering the issuance of shares in respect of which the option granted hereby may be exercised. Therefore, the Optionee shall not be entitled to any rights in any shares of Common Stock to be issued under the option granted hereby until delivery of a certificate therefor by the Corporation. 5. PURCHASE FOR INVESTMENT. (a) Unless the shares to be issued upon exercise of the option granted hereby have been effectively registered under the Securities Act of 3 1933 as now in force or hereafter amended, the Corporation shall be under no obligation to issue any shares covered by such option unless the person who exercises such option, in whole or in part, shall give a written representation to the Corporation satisfactory in form and scope to the Corporation's counsel and upon which, in the opinion of such counsel the Corporation may reasonably rely, that he/she is acquiring the shares issued to him pursuant to such exercise of such option as an investment and not with a view to, or for sale in connection with, the distribution of any such shares. (b) The certificate for each share of Common Stock issued pursuant to such exercise of the option granted hereby may bear a reference to the investment representation made in accordance with this Section 5 and to the fact that no registration statement has been filed with the Securities and Exchange Commission in respect to such shares. (c) In the event that the Corporation shall nevertheless, deem it necessary or desirable to register under the Securities Act of 1933 or other applicable statutes any shares with respect to which the option granted hereby shall have been exercised, or to qualify any such shares for exemption from the Securities Act of 1933 or other applicable statutes, then the Corporation shall take such action at its own expense and may require from the Optionee such information in writing for use in any registration statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for such purpose and may require reasonable indemnity to the Corporation and its officers and directors from such holder against all losses, claims, damages, and liabilities arising from such use of the information so furnished and caused by any untrue statement of any material fact therein or caused by the omission 4 to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. 6. TERMINATION OF BUSINESS RELATIONSHIP. (a) The option hereby granted shall terminate and be of no force or effect in the event the Optionee ceases to serve as an employee, consultant, officer or director of the Corporation or any subsidiary of the Corporation (such service is described herein as maintaining or being involved in a "Business Relationship with the Corporation") for any reason, provided however, that in the event of the termination of the Optionee's employment such option may be exercised (to the extent exercisable by the Optionee at the date of such termination) at any time within three (3) months after the date of such termination, but in any event not later than five (5) years from the date hereof and provided further, however, that if the termination of the Optionee's Business Relationship with the Corporation shall result from the Optionee's death, such option may be exercised (to the extent exercisable by the Optionee at the date of his death) by the Optionee's personal representative or by the person or persons to whom such option shall have been transferred by will or by the laws of descent and distribution, at any time within three (3) months after the date of the Optionee's death but in any event not later than five (5) years from the date hereof. (b) As used herein, the term "subsidiary" shall mean any present or future corporation which would be a "subsidiary corporation" of the Corporation, as the term is defined in Section 424 of the Internal Revenue Code of 1986. (c) Whenever the word "Optionee" is used in any provision of this Agreement under circumstances where the provision should logically be construed to 5 apply to the estate, personal representative, or beneficiary to whom this option may be transferred by will or by the laws of descent and distribution, it shall be deemed to include such person. 7. ASSIGNABILITY. The option granted hereby is not assignable or transferable by the Optionee otherwise than by will or the laws of descent and distribution and is exercisable during the Optionee's lifetime only by him. No assignment or transfer of such option, or of the right represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except by will or the laws of descent and distribution, shall vest in the assignee or transferee any interest or right herein whatsoever, and immediately upon any attempt to assign or transfer such option the same shall terminate and be of no force or effect. 8. LIMITATION ON RIGHTS. (a) The Optionee shall not be deemed for any purpose to be a shareholder of the Corporation with respect to any shares as to which the option granted hereby shall not have been exercised and payment and issuance made as herein provided. Nothing herein shall confer on the Optionee any right to continue in the employ of the Corporation or its subsidiaries, nor affect the right of the Corporation or its subsidiaries to terminate the Optionee's employment at any time without liability to the Corporation. (b) The existence of the option granted hereby shall not affect in any way the right or power of the Corporation or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Corporation's capital structure or its business, or any merger or consolidation of the Corporation, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or 6 convertible into, or otherwise affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. (a) The shares with respect to which the option granted hereby is granted are shares of the Common Stock as constituted on the date of this Agreement, but if and whenever, prior to the delivery by the Corporation of all of the shares of Common Stock with respect to which this option is granted, the Corporation shall effect a subdivision or consolidation of shares, or other capital readjustment, or the payment of a stock dividend, or other increase or decrease of the number of shares of Common Stock outstanding, without receiving compensation therefor in money, services or property, then (i) in the event of any increase in the number of such shares outstanding, the number of shares of Common Stock then remaining subject to option hereunder shall be proportionately increased (except that any fraction of a share resulting from any such adjustment shall be excluded from the operation of this Agreement), and the cash consideration payable per share shall be proportionately reduced, and (ii) in the event of a reduction in the number of such shares outstanding, the number of shares of Common Stock then remaining subject to option hereunder shall be proportionately reduced (except that any fractional shares resulting from any such adjustment shall be excluded from the operation of this Agreement), and the cash consideration payable per share shall be proportionately increased. (b) In the event of (i) any merger of one or more other corporations with the Corporation or any consolidation of the Corporation and one or more other corporations in which the Corporation is not the surviving or resulting corporation or (ii) 7 any merger of one or more other corporations with the Corporation or any consolidation of the Corporation and one or more other corporations in which the Corporation shall be the surviving or resulting corporation and the then issued and outstanding shares of Common Stock shall be converted into and/or exchanged for cash and/or any securities of any other corporation, then, in any such case and without the need for any further action by the Corporation or its stockholders, this Agreement and the option granted hereby shall terminate as of the effective time of the merger or consolidation and thereupon be of no force or effect, and the holder hereof shall, at no additional cost, be entitled solely to receive (at such effective time and otherwise in the form and manner provided by the terms of the agreement of merger or consolidation) an amount of the consideration payable under the terms of such agreement equal to the excess of (i) the aggregate consideration (valued in accordance with the terms thereof) to which the holder hereof would have been entitled pursuant to the terms of such agreement if, immediately prior to such effective time, the holder hereof had been the holder of record of a number of shares of Common Stock equal to the aggregate number of shares of Common Stock as to which this Agreement was exercisable immediately prior to such effective time over (ii) the aggregate exercise price payable hereunder with respect to such number of shares. In the event of any other merger or consolidation in which the Corporation is the surviving or resulting corporation, this Agreement and the option granted hereby shall remain in full force and effect in accordance with its terms. In the event of any dissolution or liquidation of the Corporation, this Agreement and the option granted hereby shall terminate and thereupon be of no force or effect. 8 10. MISCELLANEOUS. (a) This Agreement is the sole and only agreement between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a subsequent written agreement duly executed by the parties hereto. (b) The Corporation shall at all times during the term of the option granted hereby reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of such option. (c) Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be delivered personally or by mail, postage prepaid, addressed as follows: To the Corporation (Attention to the Clerk), at its principal office at 391 Totten Pond Road, Waltham, Massachusetts 02451, or at such other address as the Corporation, by notice to the Optionee, may designate in writing from time to time; and to the Optionee at his address as the Optionee, by notice to the Clerk of the Corporation, may designate in writing from time to time. (d) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 9 IN WITNESS WHEREOF, the Corporation has caused this Non-Qualified Stock Option Agreement to be executed by its duly-authorized officer, and the Optionee has hereunto set his hand and seal, all on the day and year first above written. PACE MEDICAL, INC. By -------------------------------------- Ralph E. Hanson, President -------------------------------------- Derrick Ebden--Optionee 10 EX-10.3 4 a2050082zex-10_3.txt EXHIBIT 10.3 Exhibit 10.3 50,000 SHARES PACE MEDICAL, INC. NON-QUALIFIED STOCK OPTION AGREEMENT NON-QUALIFIED STOCK OPTION AGREEMENT dated as of January 3, 2001 by and between PACE MEDICAL, INC., a Massachusetts corporation (hereinafter called the "Corporation"), and GEORGE F. HARRINGTON (hereinafter called the "Optionee"). WHEREAS, the Corporation desires to afford the Optionee the opportunity to purchase shares of its Common Stock; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereby mutually covenant and agree as follows: 1. GRANT OF OPTION. Subject to the terms and conditions set forth herein, the Corporation grants to the Optionee the right and option to purchase from the Corporation at a price of $0.32 per share up to but not exceeding in the aggregate Fifty Thousand (50,000) shares of the Corporation's Common Stock, par value $.01 per share (the "Common Stock"). 2. TERM. This Agreement and the option granted hereby shall terminate five (5) years from the date hereof but shall be subject to earlier termination as herein provided. Upon termination, the option granted hereby shall thereupon expire and thereafter shall not be exercisable. 3. EXERCISE OF OPTION. (a) The option hereby granted may be exercised at any time or from time to time in whole or in part during the term hereof. (b) Upon any one exercise of the option granted hereby, the Optionee or his legal representative may purchase all or any part of the shares of Common Stock as to which such option is then exercisable, provided however, that no less than one hundred (100) shares may be purchased upon any one exercise of such option unless the number of shares purchased at such time is the total number of shares in respect of which such option is then exercisable. (c) The option hereby granted shall be exercised by the Optionee delivering to the Clerk of the Corporation, from time to time, on any business day, written notice specifying the number of shares the Optionee then desires to purchase, together with cash or a certified or bank cashier's check to the order of the Corporation for an amount in United States dollars equal to the option price of such shares. (d) Upon each such exercise, a certificate representing the number of shares purchased shall be issued in the name of the person or persons exercising the option granted hereby and delivered to the Optionee. 4. RESTRICTIONS ON ISSUANCE OF SHARES. (a) Notwithstanding the provisions of Section 2 hereof, the Corporation may delay the issuance of shares covered by the exercise of the option granted hereby and the delivery of a certificate for such shares until (i) one of the following conditions shall be satisfied: (A) the shares with respect to which the option granted hereby has been exercised are at the time of the issuance of such shares effectively registered under the Securities Act of 1933 as now in force or hereafter amended; or 2 (B) a no-action letter in respect to the issuance of such shares shall have been obtained by the Corporation from the Securities and Exchange Commission; or (C) counsel for the Corporation shall have given an opinion, which opinion shall not be unreasonably conditioned or withheld, that such shares are exempt from registration under the Securities Act of 1933 as now in force or hereafter amended; and (ii) one of the following conditions shall be satisfied: (A) approval shall have been obtained from such federal and state governmental agencies, other than the Securities and Exchange Commission, as may be required under any applicable law, rule or regulation; or (B) counsel for the Corporation shall have given an opinion, which opinion shall not be unreasonably conditioned or withheld, that no such approval is required. (b) It is intended that all exercises of the option granted hereby shall be effective, and the Corporation shall use its best efforts to bring about compliance with the above conditions within a reasonable time, except that the Corporation shall be under no obligation to cause a registration statement or a post-effective amendment to any registration statement to be prepared at its expense or to comply with Regulation A or any other exemption under the Securities Act of 1933 as now in force or hereafter amended, solely for the purpose of covering the issuance of shares in respect of which the option granted hereby may be exercised. Therefore, the Optionee shall not be entitled to any rights in any shares of Common Stock to be issued under the option granted hereby until delivery of a certificate therefor by the Corporation. 5. PURCHASE FOR INVESTMENT. (a) Unless the shares to be issued upon exercise of the option granted hereby have been effectively registered under the Securities Act of 3 1933 as now in force or hereafter amended, the Corporation shall be under no obligation to issue any shares covered by such option unless the person who exercises such option, in whole or in part, shall give a written representation to the Corporation satisfactory in form and scope to the Corporation's counsel and upon which, in the opinion of such counsel the Corporation may reasonably rely, that he/she is acquiring the shares issued to him pursuant to such exercise of such option as an investment and not with a view to, or for sale in connection with, the distribution of any such shares. (b) The certificate for each share of Common Stock issued pursuant to such exercise of the option granted hereby may bear a reference to the investment representation made in accordance with this Section 5 and to the fact that no registration statement has been filed with the Securities and Exchange Commission in respect to such shares. (c) In the event that the Corporation shall nevertheless, deem it necessary or desirable to register under the Securities Act of 1933 or other applicable statutes any shares with respect to which the option granted hereby shall have been exercised, or to qualify any such shares for exemption from the Securities Act of 1933 or other applicable statutes, then the Corporation shall take such action at its own expense and may require from the Optionee such information in writing for use in any registration statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for such purpose and may require reasonable indemnity to the Corporation and its officers and directors from such holder against all losses, claims, damages, and liabilities arising from such use of the information so furnished and caused by any untrue statement of any material fact therein or caused by the omission 4 to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. 6. TERMINATION OF BUSINESS RELATIONSHIP. (a) The option hereby granted shall terminate and be of no force or effect in the event the Optionee ceases to serve as an employee, consultant, officer or director of the Corporation or any subsidiary of the Corporation (such service is described herein as maintaining or being involved in a "Business Relationship with the Corporation") for any reason, provided however, that in the event of the termination of the Optionee's employment such option may be exercised (to the extent exercisable by the Optionee at the date of such termination) at any time within three (3) months after the date of such termination, but in any event not later than five (5) years from the date hereof and provided further, however, that if the termination of the Optionee's Business Relationship with the Corporation shall result from the Optionee's death, such option may be exercised (to the extent exercisable by the Optionee at the date of his death) by the Optionee's personal representative or by the person or persons to whom such option shall have been transferred by will or by the laws of descent and distribution, at any time within three (3) months after the date of the Optionee's death but in any event not later than five (5) years from the date hereof. (b) As used herein, the term "subsidiary" shall mean any present or future corporation which would be a "subsidiary corporation" of the Corporation, as the term is defined in Section 424 of the Internal Revenue Code of 1986. (c) Whenever the word "Optionee" is used in any provision of this Agreement under circumstances where the provision should logically be construed to 5 apply to the estate, personal representative, or beneficiary to whom this option may be transferred by will or by the laws of descent and distribution, it shall be deemed to include such person. 7. ASSIGNABILITY. The option granted hereby is not assignable or transferable by the Optionee otherwise than by will or the laws of descent and distribution and is exercisable during the Optionee's lifetime only by him. No assignment or transfer of such option, or of the right represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except by will or the laws of descent and distribution, shall vest in the assignee or transferee any interest or right herein whatsoever, and immediately upon any attempt to assign or transfer such option the same shall terminate and be of no force or effect. 8. LIMITATION ON RIGHTS. (a) The Optionee shall not be deemed for any purpose to be a shareholder of the Corporation with respect to any shares as to which the option granted hereby shall not have been exercised and payment and issuance made as herein provided. Nothing herein shall confer on the Optionee any right to continue in the employ of the Corporation or its subsidiaries, nor affect the right of the Corporation or its subsidiaries to terminate the Optionee's employment at any time without liability to the Corporation. (b) The existence of the option granted hereby shall not affect in any way the right or power of the Corporation or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Corporation's capital structure or its business, or any merger or consolidation of the Corporation, or any issue of bonds, debentures, preferred or prior preference stocks ahead of 6 or convertible into, or otherwise affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. (a) The shares with respect to which the option granted hereby is granted are shares of the Common Stock as constituted on the date of this Agreement, but if and whenever, prior to the delivery by the Corporation of all of the shares of Common Stock with respect to which this option is granted, the Corporation shall effect a subdivision or consolidation of shares, or other capital readjustment, or the payment of a stock dividend, or other increase or decrease of the number of shares of Common Stock outstanding, without receiving compensation therefor in money, services or property, then (i) in the event of any increase in the number of such shares outstanding, the number of shares of Common Stock then remaining subject to option hereunder shall be proportionately increased (except that any fraction of a share resulting from any such adjustment shall be excluded from the operation of this Agreement), and the cash consideration payable per share shall be proportionately reduced, and (ii) in the event of a reduction in the number of such shares outstanding, the number of shares of Common Stock then remaining subject to option hereunder shall be proportionately reduced (except that any fractional shares resulting from any such adjustment shall be excluded from the operation of this Agreement), and the cash consideration payable per share shall be proportionately increased. (b) In the event of (i) any merger of one or more other corporations with the Corporation or any consolidation of the Corporation and one or more other corporations in which the Corporation is not the surviving or resulting corporation or (ii) 7 any merger of one or more other corporations with the Corporation or any consolidation of the Corporation and one or more other corporations in which the Corporation shall be the surviving or resulting corporation and the then issued and outstanding shares of Common Stock shall be converted into and/or exchanged for cash and/or any securities of any other corporation, then, in any such case and without the need for any further action by the Corporation or its stockholders, this Agreement and the option granted hereby shall terminate as of the effective time of the merger or consolidation and thereupon be of no force or effect, and the holder hereof shall, at no additional cost, be entitled solely to receive (at such effective time and otherwise in the form and manner provided by the terms of the agreement of merger or consolidation) an amount of the consideration payable under the terms of such agreement equal to the excess of (i) the aggregate consideration (valued in accordance with the terms thereof) to which the holder hereof would have been entitled pursuant to the terms of such agreement if, immediately prior to such effective time, the holder hereof had been the holder of record of a number of shares of Common Stock equal to the aggregate number of shares of Common Stock as to which this Agreement was exercisable immediately prior to such effective time over (ii) the aggregate exercise price payable hereunder with respect to such number of shares. In the event of any other merger or consolidation in which the Corporation is the surviving or resulting corporation, this Agreement and the option granted hereby shall remain in full force and effect in accordance with its terms. In the event of any dissolution or liquidation of the Corporation, this Agreement and the option granted hereby shall terminate and thereupon be of no force or effect. 8 10. MISCELLANEOUS. (a) This Agreement is the sole and only agreement between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a subsequent written agreement duly executed by the parties hereto. (b) The Corporation shall at all times during the term of the option granted hereby reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of such option. (c) Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be delivered personally or by mail, postage prepaid, addressed as follows: To the Corporation (Attention to the Clerk), at its principal office at 391 Totten Pond Road, Waltham, Massachusetts 02451, or at such other address as the Corporation, by notice to the Optionee, may designate in writing from time to time; and to the Optionee at his address as the Optionee, by notice to the Clerk of the Corporation, may designate in writing from time to time. (d) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 9 IN WITNESS WHEREOF, the Corporation has caused this Non-Qualified Stock Option Agreement to be executed by its duly-authorized officer, and the Optionee has hereunto set his hand and seal, all on the day and year first above written. PACE MEDICAL, INC. By -------------------------------------- Ralph E. Hanson, President -------------------------------------- George F. Harrington--Optionee 10 EX-10.4 5 a2050082zex-10_4.txt EXHIBIT 10.4 Exhibit 10.4 50,000 SHARES PACE MEDICAL, INC. NON-QUALIFIED STOCK OPTION AGREEMENT NON-QUALIFIED STOCK OPTION AGREEMENT dated as of January 3, 2001 by and between PACE MEDICAL, INC., a Massachusetts corporation (hereinafter called the "Corporation"), and DRUSILLA F. HAYS (hereinafter called the "Optionee"). WHEREAS, the Corporation desires to afford the Optionee the opportunity to purchase shares of its Common Stock; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereby mutually covenant and agree as follows: 1. GRANT OF OPTION. Subject to the terms and conditions set forth herein, the Corporation grants to the Optionee the right and option to purchase from the Corporation at a price of $0.32 per share up to but not exceeding in the aggregate Fifty Thousand (50,000) shares of the Corporation's Common Stock, par value $.01 per share (the "Common Stock"). 2. TERM. This Agreement and the option granted hereby shall terminate five (5) years from the date hereof but shall be subject to earlier termination as herein provided. Upon termination, the option granted hereby shall thereupon expire and thereafter shall not be exercisable. 3. EXERCISE OF OPTION. (a) The option hereby granted may be exercised at any time or from time to time in whole or in part during the term hereof. (b) Upon any one exercise of the option granted hereby, the Optionee or his legal representative may purchase all or any part of the shares of Common Stock as to which such option is then exercisable, provided however, that no less than one hundred (100) shares may be purchased upon any one exercise of such option unless the number of shares purchased at such time is the total number of shares in respect of which such option is then exercisable. (c) The option hereby granted shall be exercised by the Optionee delivering to the Clerk of the Corporation, from time to time, on any business day, written notice specifying the number of shares the Optionee then desires to purchase, together with cash or a certified or bank cashier's check to the order of the Corporation for an amount in United States dollars equal to the option price of such shares. (d) Upon each such exercise, a certificate representing the number of shares purchased shall be issued in the name of the person or persons exercising the option granted hereby and delivered to the Optionee. 4. RESTRICTIONS ON ISSUANCE OF SHARES. (a) Notwithstanding the provisions of Section 2 hereof, the Corporation may delay the issuance of shares covered by the exercise of the option granted hereby and the delivery of a certificate for such shares until (i) one of the following conditions shall be satisfied: (A) the shares with respect to which the option granted hereby has been exercised are at the time of the issuance of such shares effectively registered under the Securities Act of 1933 as now in force or hereafter amended; or (B) a no-action letter in respect to the issuance of such shares shall have been obtained by the Corporation from the Securities and Exchange Commission; or (C) counsel for the Corporation shall have given an opinion, which opinion shall not be unreasonably conditioned or 2 withheld, that such shares are exempt from registration under the Securities Act of 1933 as now in force or hereafter amended; and (ii) one of the following conditions shall be satisfied: (A) approval shall have been obtained from such federal and state governmental agencies, other than the Securities and Exchange Commission, as may be required under any applicable law, rule or regulation; or (B) counsel for the Corporation shall have given an opinion, which opinion shall not be unreasonably conditioned or withheld, that no such approval is required. (b) It is intended that all exercises of the option granted hereby shall be effective, and the Corporation shall use its best efforts to bring about compliance with the above conditions within a reasonable time, except that the Corporation shall be under no obligation to cause a registration statement or a post-effective amendment to any registration statement to be prepared at its expense or to comply with Regulation A or any other exemption under the Securities Act of 1933 as now in force or hereafter amended, solely for the purpose of covering the issuance of shares in respect of which the option granted hereby may be exercised. Therefore, the Optionee shall not be entitled to any rights in any shares of Common Stock to be issued under the option granted hereby until delivery of a certificate therefor by the Corporation. 5. PURCHASE FOR INVESTMENT. (a) Unless the shares to be issued upon exercise of the option granted hereby have been effectively registered under the Securities Act of 1933 as now in force or hereafter amended, the Corporation shall be under no obligation to issue any shares covered by such option unless the person who exercises such option, in whole or in part, shall give a written representation to the Corporation 3 satisfactory in form and scope to the Corporation's counsel and upon which, in the opinion of such counsel the Corporation may reasonably rely, that he/she is acquiring the shares issued to him pursuant to such exercise of such option as an investment and not with a view to, or for sale in connection with, the distribution of any such shares. (b) The certificate for each share of Common Stock issued pursuant to such exercise of the option granted hereby may bear a reference to the investment representation made in accordance with this Section 5 and to the fact that no registration statement has been filed with the Securities and Exchange Commission in respect to such shares. (c) In the event that the Corporation shall nevertheless, deem it necessary or desirable to register under the Securities Act of 1933 or other applicable statutes any shares with respect to which the option granted hereby shall have been exercised, or to qualify any such shares for exemption from the Securities Act of 1933 or other applicable statutes, then the Corporation shall take such action at its own expense and may require from the Optionee such information in writing for use in any registration statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for such purpose and may require reasonable indemnity to the Corporation and its officers and directors from such holder against all losses, claims, damages, and liabilities arising from such use of the information so furnished and caused by any untrue statement of any material fact therein or caused by the omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. 4 6. TERMINATION OF BUSINESS RELATIONSHIP. (a) The option hereby granted shall terminate and be of no force or effect in the event the Optionee ceases to serve as an employee, consultant, officer or director of the Corporation or any subsidiary of the Corporation (such service is described herein as maintaining or being involved in a "Business Relationship with the Corporation") for any reason, provided however, that in the event of the termination of the Optionee's employment such option may be exercised (to the extent exercisable by the Optionee at the date of such termination) at any time within three (3) months after the date of such termination, but in any event not later than five (5) years from the date hereof and provided further, however, that if the termination of the Optionee's Business Relationship with the Corporation shall result from the Optionee's death, such option may be exercised (to the extent exercisable by the Optionee at the date of his death) by the Optionee's personal representative or by the person or persons to whom such option shall have been transferred by will or by the laws of descent and distribution, at any time within three (3) months after the date of the Optionee's death but in any event not later than five (5) years from the date hereof. (b) As used herein, the term "subsidiary" shall mean any present or future corporation which would be a "subsidiary corporation" of the Corporation, as the term is defined in Section 424 of the Internal Revenue Code of 1986. (c) Whenever the word "Optionee" is used in any provision of this Agreement under circumstances where the provision should logically be construed to apply to the estate, personal representative, or beneficiary to whom this option may be transferred by will or by the laws of descent and distribution, it shall be deemed to include such person. 5 7. ASSIGNABILITY. The option granted hereby is not assignable or transferable by the Optionee otherwise than by will or the laws of descent and distribution and is exercisable during the Optionee's lifetime only by him. No assignment or transfer of such option, or of the right represented thereby, whether voluntary or involuntary, by operation of law or otherwise, except by will or the laws of descent and distribution, shall vest in the assignee or transferee any interest or right herein whatsoever, and immediately upon any attempt to assign or transfer such option the same shall terminate and be of no force or effect. 8. LIMITATION ON RIGHTS. (a) The Optionee shall not be deemed for any purpose to be a shareholder of the Corporation with respect to any shares as to which the option granted hereby shall not have been exercised and payment and issuance made as herein provided. Nothing herein shall confer on the Optionee any right to continue in the employ of the Corporation or its subsidiaries, nor affect the right of the Corporation or its subsidiaries to terminate the Optionee's employment at any time without liability to the Corporation. (b) The existence of the option granted hereby shall not affect in any way the right or power of the Corporation or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Corporation's capital structure or its business, or any merger or consolidation of the Corporation, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or convertible into, or otherwise affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of 6 its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. (a) The shares with respect to which the option granted hereby is granted are shares of the Common Stock as constituted on the date of this Agreement, but if and whenever, prior to the delivery by the Corporation of all of the shares of Common Stock with respect to which this option is granted, the Corporation shall effect a subdivision or consolidation of shares, or other capital readjustment, or the payment of a stock dividend, or other increase or decrease of the number of shares of Common Stock outstanding, without receiving compensation therefor in money, services or property, then (i) in the event of any increase in the number of such shares outstanding, the number of shares of Common Stock then remaining subject to option hereunder shall be proportionately increased (except that any fraction of a share resulting from any such adjustment shall be excluded from the operation of this Agreement), and the cash consideration payable per share shall be proportionately reduced, and (ii) in the event of a reduction in the number of such shares outstanding, the number of shares of Common Stock then remaining subject to option hereunder shall be proportionately reduced (except that any fractional shares resulting from any such adjustment shall be excluded from the operation of this Agreement), and the cash consideration payable per share shall be proportionately increased. (b) In the event of (i) any merger of one or more other corporations with the Corporation or any consolidation of the Corporation and one or more other corporations in which the Corporation is not the surviving or resulting corporation or (ii) any merger of one or more other corporations with the Corporation or any consolidation of the Corporation and one or more other corporations in which the Corporation shall be 7 the surviving or resulting corporation and the then issued and outstanding shares of Common Stock shall be converted into and/or exchanged for cash and/or any securities of any other corporation, then, in any such case and without the need for any further action by the Corporation or its stockholders, this Agreement and the option granted hereby shall terminate as of the effective time of the merger or consolidation and thereupon be of no force or effect, and the holder hereof shall, at no additional cost, be entitled solely to receive (at such effective time and otherwise in the form and manner provided by the terms of the agreement of merger or consolidation) an amount of the consideration payable under the terms of such agreement equal to the excess of (i) the aggregate consideration (valued in accordance with the terms thereof) to which the holder hereof would have been entitled pursuant to the terms of such agreement if, immediately prior to such effective time, the holder hereof had been the holder of record of a number of shares of Common Stock equal to the aggregate number of shares of Common Stock as to which this Agreement was exercisable immediately prior to such effective time over (ii) the aggregate exercise price payable hereunder with respect to such number of shares. In the event of any other merger or consolidation in which the Corporation is the surviving or resulting corporation, this Agreement and the option granted hereby shall remain in full force and effect in accordance with its terms. In the event of any dissolution or liquidation of the Corporation, this Agreement and the option granted hereby shall terminate and thereupon be of no force or effect. 10. MISCELLANEOUS. (a) This Agreement is the sole and only agreement between the parties hereto with respect to the subject matter hereof and may not be 8 modified or amended except by a subsequent written agreement duly executed by the parties hereto. (b) The Corporation shall at all times during the term of the option granted hereby reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of such option. (c) Any notice which either party hereto may be required or permitted to give to the other shall be in writing, and may be delivered personally or by mail, postage prepaid, addressed as follows: To the Corporation (Attention to the Clerk), at its principal office at 391 Totten Pond Road, Waltham, Massachusetts 02451, or at such other address as the Corporation, by notice to the Optionee, may designate in writing from time to time; and to the Optionee at his address as the Optionee, by notice to the Clerk of the Corporation, may designate in writing from time to time. (d) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 9 IN WITNESS WHEREOF, the Corporation has caused this Non-Qualified Stock Option Agreement to be executed by its duly-authorized officer, and the Optionee has hereunto set his hand and seal, all on the day and year first above written. PACE MEDICAL, INC. By ------------------------------------- Ralph E. Hanson, President ------------------------------------- Drusilla F. Hays--Optionee 10 -----END PRIVACY-ENHANCED MESSAGE-----