-----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, BqsEAO6qdrPNkxvLPITzWh6hMmOAxZCI94FsDiEnZ1edzvlu25i0HrhPlGMFkpfg VBf75vJykJsaNv6B7ISV3w== 0000950135-98-004859.txt : 19980821 0000950135-98-004859.hdr.sgml : 19980821 ACCESSION NUMBER: 0000950135-98-004859 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980820 SROS: NASD 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: 98694723 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 PACE MEDICAL, INC. 1 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 June 30, 1998 ----------------------------- 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 02154 -------------------------------------------------- (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 August 13, 1998. 3,390,870 shares of Common Stock, par value $.01 per share 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. a) Consolidated Condensed Balance Sheets b) Consolidated Condensed Statements of Income c) Consolidated Condensed Statements of Cash Flows d) Notes to Consolidated Condensed Financial Statements - 2 - 3 PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1998 DECEMBER 31, 1997 ------------- ----------------- (Unaudited) (See note below) ASSETS - ------ Current assets: Cash and cash equivalents $ 1,170,797 $ 1,318,652 Accounts receivable 401,877 416,897 Inventories: Raw materials 309,124 235,464 Work-in-process 195,320 77,061 Finished goods 132,747 117,815 ----------- ----------- 637,191 430,340 Other current assets 50,301 43,208 ----------- ----------- Total current assets 2,260,166 2,209,097 Plant and equipment, net 46,508 41,681 Other assets 38,607 41,080 ----------- ----------- TOTAL ASSETS $ 2,345,281 $ 2,291,858 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 168,319 $ 129,509 Due to officer 9,845 7,110 Accrued expenses 14,393 26,619 ----------- ----------- Total current liabilities 192,557 163,238 ----------- ----------- Shareholders' equity: Common stock 34,009 34,009 Additional paid-in capital 3,147,151 3,147,151 Cumulative translation adjustment 100,865 102,899 Accumulated deficit (1,119,614) (1,155,439) ----------- ----------- 2,162,411 2,128,620 ----------- ----------- Less Treasury Stock, at Cost (9,687) 0 ----------- ----------- Total Shareholders' Equity 2,152,724 2,128,620 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,345,281 $ 2,291,858 =========== ===========
Note: The balance sheet at December 31, 1997 has been taken from the audited financial statements at that date. See accompanying notes to consolidated condensed financial statements. - 3 - 4 PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
For the three months For the six months ended June 30 ended June 30 ---------------------- ------------------------- 1998 1997 1998 1997 -------- -------- -------- ---------- Net Sales $477,971 $683,373 $757,899 $1,145,214 Cost of sales 185,869 329,238 293,685 568,363 -------- -------- -------- ---------- 292,102 354,135 464,214 576,851 Other operating expenses 272,489 191,183 451,830 347,123 -------- -------- -------- ---------- Income from operations 19,613 162,952 12,384 229,728 Other income 12,264 10,338 23,441 20,054 -------- -------- -------- ---------- Net income $ 31,877 $173,290 $ 35,825 $ 249,782 ======== ======== ======== ========== Net income per share: Basic $.01 $.05 $.01 $.07 ==== ==== ==== ==== Diluted $.00 $.05 $.01 $.07 ==== ==== ==== ====
See accompanying notes to consolidated condensed financial statements. - 4 - 5 PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED ---------------------------- JUNE 30 ---------------------------- 1998 1997 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 35,825 $ 249,782 Adjustments to reconcile net income to net cash (Used in) provided by operating activities: Depreciation and amortization 7,743 53 Change in assets and liabilities, net: (169,743) (89,511) ---------- ---------- Net cash (used in) provided by operating activities (126,175) 160,324 CASH FLOWS FROM INVESTING ACTIVITIES - Purchases of property and equipment (11,993) (35,247) CASH FLOW FROM FINANCING ACTIVITIES - Purchase of treasury stock (9,687) (0) ---------- ---------- NET INCREASE IN CASH AND $ (147,855) $ 125,077 CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $1,318,652 $1,029,666 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,770,797 $1,154,743 ========== ==========
See accompanying notes to consolidated condensed financial statements. - 5 - 6 PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY NOTES TO CONSOLIDATED CONDENSED 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 June 30, 1998 and the results of their operations for the three and six months ended June 30, 1998 and June 30, 1997 and their cash flows for the six months ended June 30, 1998 and June 30, 1997. 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 June 30, 1998 or 1997. Cost of sales for such periods was calculated primarily using standard cost methods. 4. The results of operations for the three and six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the full year. 5. The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" for purposes of presenting basic and diluted net income per share and has restated all periods presented to conform to the new presentation. The denominator used to determine basic net income 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. For the three months ended June 30, 1998 Income Shares Per Share (Numerator) (Denominator) Amount Net Income $31,877 Weighted-average shares outstanding - 3,390,850 ------- --------- Basic net income per share $31,877 3,390,850 $0.01 ===== Effect of dilutive securities - 96,505 ------- --------- Diluted net income per share $31,877 3,487,355 $0.00 ======= ========= ===== - 6 - 7 For the three months ended June 30, 1997 Income Shares Per Share (Numerator) (Denominator) Amount Net Income $173,290 Weighted-average shares outstanding - 3,400,850 -------- --------- Basic net income per share $173,290 3,400,850 $0.05 ===== Effect of dilutive securities - 166,053 -------- --------- Diluted net income per share $173,290 3,566,903 $0.05 ======== ========= ===== For the six months ended June 30, 1998 Income Shares Per Share (Numerator) (Denominator) Amount Net Income $35,825 Weighted-average shares outstanding - 3,395,517 ------- --------- Basic net income per share $35,825 3,395,517 $0.01 ===== Effect of dilutive securities - 90,883 ------- --------- Diluted net income per share $35,825 3,486,400 $0.01 ======= ========= ===== For the six months ended June 30, 1997 Income Shares Per Share (Numerator) (Denominator) Amount Net Income $249,782 Weighted-average shares outstanding - 3,400,850 -------- --------- Basic net income per share $249,782 3,400,850 $0.07 ===== Effect of dilutive securities - 177,488 -------- --------- Diluted net income per share $249,782 3,578,388 $0.07 ======== ========= ===== 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 and six months ended June 30, 1998 and 1997 is as follows: - 7 - 8
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ----------------------- 1998 1997 1998 1997 ------- -------- ------- -------- Net Income $31,877 $173,290 $35,825 $249,782 Currency Translation Adjustment 9,689 8,492 (2,034) (15,283) ------- -------- ------- -------- Total $41,566 $181,782 $33,791 $234,499 ======= ======== ======= ========
7. The Company has entered into a three-year employment agreement with its Chairman that provides for annual compensation of $125,000 - The agreement expires in June, 2001. - 8 - 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. PACE MEDICAL, INC. AND WHOLLY-OWNED SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION As of June 30, 1998, the Company had cash and cash equivalents of $1,170,797 and working capital of $2,067,609. Working capital has increased slightly since December 31, 1997 owing to the profitable operations of the Company over the first half of the year. The Company's cash position has decreased somewhat over December 31, 1997 because of increased inventory as a result of lower than expected sales. The Company expects to maintain a sound financial base for the balance of fiscal 1998. 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 JUNE 30, 1998 VERSUS THREE MONTHS ENDED JUNE 30, 1997 Sales in the second quarter of 1998 decreased 30% from the sales posted in the second quarter of 1997. The decrease in sales reflects a decrease in OEM sales to a distributor. The Company's margins in the second quarter increased over those seen in 1997 (from 51% in 1997 to 61% in 1998). This occurred due to a change in the product mix. It should be noted that pricing is continuing to remain firm on all products. Operating expenses were higher in the three months ended June 30, 1998 versus the three months ended June 30, 1997 due to increased advertising and marketing and ISO 9001 certification related expenditures. Management anticipates some increase in its operating expenditures during the balance of 1998. This level will also suffice to maintain the Company's research and development efforts in developing new products in the temporary pacing field. No tax provision was recorded for the three months ended June 30, 1998 owing to the Company's ability to use net operating loss carryforwards in both the U.S. and - 9 - 10 U.K. Net income for the quarter was $31,877 or $.01 per share. This is substantially lower than that seen in the second quarter of 1997 and reflects the decrease in OEM sales. FINANCIAL RESULTS - SIX MONTHS ENDED JUNE 30, 1998 VERSUS SIX MONTHS ENDED JUNE 30, 1997 Sales in the six months ended June 30, 1998 decreased from the amount posted in the six months ended in June 30, 1997. This decrease is attributable to the Company's decrease in OEM sales to a distributor. The Company's margins for the year-to-date period are slightly more than those of last year. This occurred due to a change in the product mix. Operating expenses were higher for the six months ended June 30, 1998 versus the six months ended June 30, 1997 due to increased advertising and marketing and ISO 9001 certification related expenditures. Management anticipates some increase in its operating expenditures during the balance of 1998. This level will also suffice to maintain the Company's research and development efforts in developing new products in the temporary pacing field. No tax provision was recorded for the six months ended June 30, 1998 owing to the Company's ability to use net operating loss carryforwards in both the U.S. and U.K. Net income for the six months was $ 35,825 or $.01 per share, representing a decrease of 86% from the comparable period in 1997. This is a substantial reduction from the earnings in the first six months of 1997 and is attributable to the factors described above. - 10 - 11 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, government regulation, competition and general economic conditions. - 11 - 12 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders held on May 21, 1998, the following members were elected to the Board of Directors: - -------------------------------------------------------------------------------- Votes Votes For Withheld - -------------------------------------------------------------------------------- Ralph E. Hanson 2,963,229 14,000 George F. Harrington 2,963,229 14,000 Derrick Ebden 2,963,229 14,000 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.1. Employment Agreement with Ralph Hanson 10.2 Non Qualified Stock Option Agreement with Drusilla F. Hays 27. Financial Data Schedule (b) Reports on Form 8-K: None - 12 - 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PACE MEDICAL, INC. -------------------------------- (Registrant) Date: August 19, 1998 /s/ Ralph E. Hanson --------------- -------------------------------- Ralph E. Hanson, President and Chief Executive Officer (principal executive officer) Date: August 19, 1998 /s/ Ralph E. Hanson --------------- ------------------------------- Ralph E. Hanson, Chief Financial Officer (principal financial officer) - 13 - EX-10.1 2 EMPLOYMENT AGREEMENT 1 Exhibit 10.1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated as of June 1, 1998 by and between PACE MEDICAL, INC., a Massachusetts corporation with a usual place of business at 391 Totten Pond Road, Waltham, Massachusetts (the "Company"), and RALPH E. HANSON of Arlington, Massachusetts (the "Employee"). WHEREAS, the Company wishes to assure itself of the Employee's services in the capacity and during the periods specified herein; and WHEREAS, the Employee wishes to enter into an Employment Agreement with the Company upon the terms and conditions set forth herein; NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto do hereby mutually agree as follows: 1. The Company hereby employs the Employee and the Employee hereby accepts employment by the Company for the period June 1, 1998 through May 31, 2001, subject to the terms and conditions hereinafter set forth. 2. The Employee will serve the Company as its President and Chief Executive Officer. Nothing contained herein shall limit the right of the Employee to engage in personal investments and other activities to the extent they do not interfere with the Employee's performance under this Agreement. The Company shall have no interest in any of the benefits generated by any of said investments or other activities. 3. For the services to be rendered by the Employee under this Agreement, the Company shall pay to the Employee such rate of salary as shall be fixed, from time to time, by the Board of Directors of the Company, but in no event less than One Hundred Twenty-five Thousand Dollars ($125,000.00) per year payable in equal installments, such installments to be paid monthly or more frequently. The Employee shall be entitled to such fringe benefits as are generally made available to employees of the Company and shall be entitled to reimbursement of all reasonable out-of-pocket expenses actually incurred by him on behalf of the Company. 4. During the Employee's period of employment, or at any time thereafter, he will not reveal to any person unless authorized in writing by the Company, or use against the best interests of the Company any information concerning the Company's inventions, trade secrets, processes and in general any of its business affairs of a confidential nature. 5. The Employee will disclose to the Company all inventions, discoveries, 2 and improvements which he may make during his employment by the Company, whether during working hours or at any other time, and he will, on demand, assign to the Company all of his interests and do any acts which the Company may consider necessary to secure to it or to its successors or assigns any and all rights relating to such inventions, discoveries, and improvements, including patents in the United States and foreign countries. 6. The Employee agrees that so long as he is employed by the Company and for a period of six months thereafter, he will not in the United States or Canada, engage in any competitive activities (as hereafter defined) with the Company, or any successor or assign of the Company, nor will he own or control an interest (other than as a holder of a non-controlling investment in a company whose securities are listed on a national stock exchange or quoted in the Nasdaq National Market) in any entity which engages or will engage in such competitive activities. As used herein, "competitive activities" shall mean the manufacturer, sale or service of (a) cardiac pacers or (b) any other product or product line manufactured by the Company, sales from which other product or product line constitute 25% or more of the gross revenues of the Company during its current or any of its preceding two fiscal years. It is expressly covenanted and agreed that in the event of breach by the Employee of any of the covenants herein contained damage suffered by the Company will be extremely difficult to ascertain and the remedy at law for any breach or threatened breach will be by its nature inadequate; therefore, in the event of breach, in addition to such other remedies which may be provided by law, the Company (or any successor to the Company) shall be entitled to injunctive and other appropriate equitable relief and shall be entitled to the same in any court of competent jurisdiction. 7. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their heirs, successors and assigns including without limitation any successor who acquires all or substantially all of the assets of the Company. IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the day and year first above written. PACE MEDICAL, INC. By /s/ Drusilla F. Hays --------------------------------- Drusilla F. Hays, Vice President /s/ Ralph E. Hanson --------------------------------- Ralph E. Hanson - Employee - 2 - EX-10.2 3 NON-QUALIFIED STOCK OPTION AGREEMENT 1 Exhibit 10.2 10,000 SHARES PACE MEDICAL, INC. NON-QUALIFIED STOCK OPTION AGREEMENT NON-QUALIFIED STOCK OPTION AGREEMENT dated as of May 1, 1998 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 $.75 per share up to but not exceeding in the aggregate Ten Thousand (10,000) 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. 2 (b) Upon any one exercise of the option granted hereby, the Optionee or her 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 - 2 - 3 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 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 - 3 - 4 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 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 or her 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 - 4 - 5 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. 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 her death) by the Optionee's personal representative or by the person or persons - 5 - 6 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. 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 her. 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 - 6 - 7 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 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 - 7 - 8 (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 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 - 8 - 9 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 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, - 9 - 10 postage prepaid, addressed as follows: To the Corporation (Attention to the Clerk), at its principal office at 391 Totten Pond Road, Waltham, Massachusetts 02154, 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 her 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. 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 her hand and seal, all on the day and year first above written. PACE MEDICAL, INC. By /s/ Ralph E. Hanson ------------------------------- Ralph E. Hanson, President /s/ Drusilla F. Hays ------------------------------- Drusilla F. Hays - Optionee - 10 - EX-27 4 FINANCIAL DATA SCHEDULE
5 US DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1 1,170,797 0 401,877 0 637,191 2,260,116 295,785 249,277 2,345,281 192,557 0 0 0 34,009 2,118,715 2,345,281 757,899 757,899 293,685 293,685 451,830 0 0 35,825 0 35,825 0 0 0 35,825 .01 .01
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