-----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, Bvh1QTWNNlIxFB38+BIVC3gNoW9pH4YTmzOSOofOZ+/KQxWUYavXf+ISdf60V2sD Uv1zs4W0C29xQS9q/oUpiQ== 0000950131-99-002017.txt : 19990403 0000950131-99-002017.hdr.sgml : 19990403 ACCESSION NUMBER: 0000950131-99-002017 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDCARE TECHNOLOGIES INC CENTRAL INDEX KEY: 0001002422 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 870429962 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-28790 FILM NUMBER: 99583574 BUSINESS ADDRESS: STREET 1: 1515 WEST 22ND STREET STREET 2: STE 101 CITY: OAK BROOK STATE: IL ZIP: 60523 BUSINESS PHONE: 8006113388 MAIL ADDRESS: STREET 1: 400 BURRARD STREET STREET 2: SUITE 1408 CITY: VANCOUVER STATE: A1 ZIP: 00000 10KSB 1 FORM 10KSB - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1998 Commission file number 000-28790 ---------------- MEDCARE TECHNOLOGIES, INC. (Name of small business issuer as specified in its charter) DELAWARE 87-0429962 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1515 West 22nd Street, Suite 1210 60523 Oak Brook, Illinois (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (888) 479-7900 Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Common Stock, $.001 par value, listed on the NASDAQ SmallCap Market Indicate by check mark whether the registrant: (1) has filed all reports required 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 for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] Revenues for last fiscal year were $786,586 Aggregate market value of Common Stock, $0.001 par value, held by non- affiliates of the registrant as of March 25, 1999: $47,965,518. Number of shares of Common Stock, $0.001 par value, outstanding as of March 25, 1999: 7,831,105. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for the 1999 Annual Meeting of Shareholders (to be filed with the Commission within 120 days after the registrant's fiscal year end) is hereby incorporated by reference into Part III of this Form 10-KSB. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 TABLE OF CONTENTS
Page ---- PART I Item 1.Business........................................................... 3 Item 2.Properties......................................................... 10 Item 3.Legal Proceedings.................................................. 10 Item 4.Submissions of Matters to a Vote of Security Holders............... 10 PART II Item 5.Market for the Registrants' Common Equity and Related Stockholder Matters.................................................................. 11 Item 6.Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 11 Item 7.Financial Statements............................................... 15 Item 8.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 27 PART III Item 9.Directors and Executive Officers of the Registrant................. 27 Item 10.Executive Compensation............................................ 27 Item 11.Security Ownership of Certain Beneficial Owners and Management.... 27 Item 12.Certain Relationships and Related Transactions.................... 27 PART IV Item 13.Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 27
2 PART I Item 1. Business Except for the historical information contained herein, the discussion in this Annual Report on Form 10-KSB contains certain forward-looking statements that involve risk and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this document should be read as being applicable to all related forward- looking statements wherever they appear in this document. The Company's actual results could differ materially from those discussed here. Factors that could cause differences include those discussed below in "Risk Factors", as well as those discussed elsewhere herein. THE COMPANY MedCare Technologies, Corporation is the operating subsidiary that is wholly owned by Medcare Technologies, Inc. Medcare Technologies, Inc. ("MedCare" or the "Company") believes it is the leading source of conservative incontinence treatment support services in the country. The Company believes it has achieved this leadership position based on its relationships with over 300 physicians currently utilizing the MedCare Program (as defined below). The Company was originally incorporated in the state of Utah in 1986. In 1996, a migratory merger was completed changing the Company's domicile to Delaware. In 1995, the Company acquired the MedCare Program and began offering the program to doctors in 1996. The Company did not generate any revenues until 1997 and launched the program nationally in 1998. DESCRIPTION OF BUSINESS During 1998, the Company engaged in only one type of business, the offering of the MedCare Program, as described below. On January 21, 1999, the Company formed a new, wholly owned subsidiary of the Company, Medcareonline.com, Inc. In January 1999, the Company, through Medcareonline.com, Inc., announced its intention to offer a comprehensive healthcare portal offering adult gender specific health information. The Medcare Program The "MedCare Program" is a discrete package of equipment, software and services developed by MedCare to assist physicians in providing non- pharmaceutical, non-invasive treatment to patients suffering from urinary incontinence ("UI") and other pelvic disorders, including pelvic pain, chronic constipation, fecal incontinence and disordered defecation. The MedCare Program is used by physicians to support a treatment plan based primarily on behavioral modification techniques such as electromyography ("EMG") biofeedback, pelvic floor muscle exercise, and bladder and bowel retraining. Utilizing the MedCare Program, physicians help patients activate and strengthen the various sensory response mechanisms that maintain bladder and bowel control. Therapy is provided through computerized instrumental EMG biofeedback and is based on operant conditioning strategies whereby specific physiological responses are progressively shaped, strengthened and coordinated. 3 UI is the involuntary loss of bladder control and represents a significant cause of disability and dependence. Incontinence is one of the most prevalent, yet severely unrecognized problems in health care today (1). And as society ages, the physical, emotional and financial costs to those suffering and their caregivers, as well as the health care system, is expected to increase dramatically. Despite the prevalence of incontinence, the Company believes it is widely under diagnosed and under reported primarily because of the social stigma attached to UI. Many individuals are either too ashamed or too embarrassed to report the problem to their doctor or to a health care professional (2), (3). Instead, the Company believes a large number of people prematurely turn to the use of absorbent materials and supportive aids without having their condition properly diagnosed and treated. In March 1996, the US. Department of Health and Human Services published a Clinical Practice Guideline which estimated that UI affects approximately 13 million Americans (of which 85% are women) at an annual cost of $16 billion. Incontinence is a symptom rather than a disease. UI can be caused from a variety of pathologic, anatomic and physiological factors including: damage to pelvic muscles from pregnancy, spina bifida, spinal injury, bladder infections, drug side effects, multiple sclerosis, Parkinson's disease, stroke, diabetes, age-related changes in lower urinary tract, obesity and surgery (hysterectomy, cesarean section or prostatectomy) that may damage the bladder or urinary tract. Effectiveness of EMG Biofeedback Over the years, the value and effectiveness of neuromuscular reeducation therapy and behavioral techniques in conjunction with developments in technology has resulted in increased awareness of the benefits of such a program. In the December 16, 1998 issue of the Journal of the American Medical Association, a study entitled "Behavioral vs. Drug Treatment for Urge Urinary Incontinence in Older Women" was published. This study concluded that behavioral therapy was more effective than drugs in treating UI. A group of scientists studied 197 women between the ages of 55 to 92 over an eight week period. Patients undergoing behavioral therapy reported an 81% reduction in incontinence episodes, compared to a 69% decrease for those taking drug therapy (oxybutynin), and a 39% decline for those on a placebo. Further, 76% of patients assigned to both drug and placebo therapy wanted to change to another treatment, versus only 14% of the patients receiving behavioral therapy. Utilization of the MedCare Program The MedCare Program is used by physicians in private office, clinic or hospital settings. The Company believes it can continue to grow by contracting with more physician practices in the future. As of March 18, 1999, the Company had 78 contracted MedCare program sites. These sites are located in the following cities: Norman, OK (Dr. Michael M. Blue), Anderson, SC (Dr. Bill Hinnat), Athens, GA (Dr. Mark Ellsion), Augusta, GA (2) (Dr. Goldsmith and Dr. Harry Oldman), Birmingham, AL (Dr. William Johnson), Roswell, GA (Dr. Omar Eubanks), Warner Robins, GA (Dr. F. Marshall Parker), Savannah, GA (Dr. David Ostman), Glen Cove, NY (Dr. Eric Hochberg), Greensburg, PA (Dr. James Mayo), Jersey City, NJ (Dr. Anthony Mangia), Mine Hill, NJ (Dr. Marc Colton), Natick, MA (Dr. Emmanuel Friedman), New York, NY (Dr. Robert - -------- (1) Urinary Incontinence Guideline Panel. "Urinary Incontinence in Adults: Clinical Practice Guidelines." AHCPR Pub-9-9-0038. Rockville, MD: Agency for Health Care Policy & Research; PHS, HHS: March 1992. (2) Legace, EA, et al. "Prevalence and severity of urinary incontinence in ambulatory adults: an UPRNet study." J Fram Pract 35,610-4: 1993 June. (3) Wallace, K. "Female pelvic floor functions, dysfunctions, and behavioral approaches to treatment." Clinics in Urinary Incontinence. 4 Gluck), Stamford, CT (Dr. Jonathan Waxberg), Yonkers, NY (Dr. Stanley Boczko), Alexandria, VA (Dr. Roger Weiderhorn), Baltimore, MD (2) (Dr. Marcella Ronneburg), Fayetteville, NC (Dr. Garrett Franzoni), Owings Mills, MD (2) (Dr. Sanford Siegel), Shelby, NC (Dr. Shem Blackley), Newport News, VA (Dr. Peter Han), Jacksonville, NC (Dr. Robert Kell), Wilmington, NC (Dr. John Cashman), Fremont, CA (Dr. Scott Kramer), Kirkland, WA (Dr. John Paul Isabell), Los Gatos, CA (2) (Dr. Anthony Damore and Dr. Robert Panvini), Reno, Nevada (Dr. Angelo Kanellos), San Mateo, CA (Dr. Hessell), Concord, CA (Dr. Nigro), Walnut Creek, CA (Dr. Nigro), San Francisco, CA (Dr. David A. Ronk), Beverly Hills, CA (Dr. Sherman Bruckner), Fullerton, CA (Dr. Nicholas Thanos), Los Angeles, CA (Dr. William Barba), Mission Viejo, CA (Dr. Marc Winter), Laguna Hills, CA (Dr. Marc Winter), Orange, CA (Dr. Arthur Goldstein), Newport Beach, CA (Dr. Arthur Goldstein), Rancho Mirage, CA (Dr. Sheldon Barroff), Oceanside, CA (Dr. Bradley Frasier), Downey, CA (Dr. Msihal), Tarzana, CA (Dr. Richard Leff), Palm Beach, CA (Dr. E. Jacome), San Rapeal, CA (Dr. John Hessell), Dallas, TX (Dr. Brian Feagins), Fort Worth, TX (Dr. A.E. Thurman), Kingwood, TX (Dr. Robert Rosen), Scottsdale, AZ (Dr. Mary Ellen Shannon), San Anthonio, TX (2) (Dr. Tristan Castaneda and Dr. Robert Schorlemer), Oklahoma City, OK (Dr. Sam Little), Elyria, OH (Dr. J. Patrick Spirank), Findlay, OH (Dr. Prem Agrawal), Fridley, MN (Dr. J. Randolph Beahrs), Huntington, WV (Dr. Larry Caserta), Indianapolis, IN (Dr. Sally Bradley), Maplewood, MN (Dr. Ingrid Wilbrand- Cowley), Terre Haute, IN (Dr. Douglas Claybrook), Toledo, OH (Drs. Haselhuhn and Seal), Dayton, OH (Dr. Daniel Miller), St. Paul, MN (Dr. Siegel), Batavia, IL (Dr. John Zito, Jr.), Bloomington, IL (Dr. Vicken Chalian), Buffalo Grove, IL (Dr. Randall Kahan), Chicago, IL (Dr. Maura Brennan), Elgin, IL (Dr. James I. Pinto), Galesburg, IL (Dr. Jeffrey Koszczuk), Joliet, IL (Dr. Gregory Lewis), Lake Forest, IL (Dr. David Schewitz), Kirkwood, MO (Dr. N. Saha), Wentzville, MO (Dr. Stan Hanks), Cordova, TN (Dr. Yari Walzer), Castro Valley, CA (Dr. N.V. Bulusa) Marketing of the MedCare Program MedCare's marketing and sales strategy is designed to promote general awareness of incontinence and that an effective treatment program is readily available. The majority of the Company's advertising consists of a combination of brochures, print ads, direct mail, radio, TV, doctor referrals, seminars and general public relations within a defined area. The Program Management Agreement Each physician or practice (a "Practice") that contracts with MedCare to utilize the MedCare Program signs a Program Management Agreement which defines the terms and conditions of the relationship. The Practice has exclusive authority and responsibility for professional supervision and judgements required in the diagnosis of patients and in the selection and performance of procedures for the benefit of the Practice's patients. MedCare provides various support and administrative services and assistance in operating the Program, but is not a provider or supplier of medical or professional services. MedCare leases the equipment and supports personnel to the Practice and trains the support personnel to assist the Practice, operate the equipment and educate all the patients. The Practice has the right to approve or disapprove the support personnel provided by MedCare and must supervise all activities of the support personnel. The Practice agrees to engage MedCare on an exclusive basis as manager of the Practice's programs for the treatment of the patient conditions using behavioral and biofeedback techniques. The Practice is required to provide, at its own expense, an area of sufficient space for the performance of the MedCare Program. Governmental Regulation Issues Concerning the Program Management Agreement Under the Company's Program Management Agreement, MedCare is not a provider of health care services. MedCare merely supplies personnel, equipment and proprietary techniques to providers of health care. The physicians or medical groups that contract with MedCare are the providers of services to their own patients. MedCare simply manages the incontinence treatment programs in the physicians' offices. The Company is subject to the Federal Anti-Kickback Statute but does not believe that an applicable government authority would find the parties' performance of their duties and obligations under the Program Management Agreement to violate this statute. 5 Competitive Treatment Options for Incontinence To the best of the Company's knowledge, the only direct competitors to the MedCare Program are a number of small incontinence clinics, or ancillary programs, offered by doctors, hospitals or therapists, scattered across North America that use a combination of currently available non-invasive alternative treatment options to treat UI patients. While it is believed that most of these clinics have limited financial strength for adequate marketing and advertising, the Company expects better financed and more sophisticated competition to emerge in the future. Some currently available alternatives for the treatment of urinary incontinence include absorbent products and diapers, surgery, indwelling catheters, implanting devices, injectable materials, electrical stimulation, mechanical devices, and drugs. Environmental Matters The Company believes it conducts its business in compliance with all environmental laws presently applicable to its facilities. To date, there have been no expenses incurred by the Company related to environmental issues. Intellectual Property and Other Proprietary Rights The Company's ability to compete and expand effectively will depend, in part, on its ability to develop and maintain certain proprietary aspects of its treatment program for bladder and bowel incontinence and its business and marketing models and strategies. The Company relies on an unpatented treatment protocol, and there can be no assurances that others may not independently develop the same or similar program or otherwise obtain access to the Company's unpatented protocols. There can be no assurance that any confidentiality agreements between the Company and its employees will provide meaningful protection for the Company's trade secrets, know-how or other information in the event of any unauthorized use or disclosure of such trade secrets, know-how or other proprietary information. While certain proprietary aspects of MedCare's clinical and business protocols remain an important part of the business, the Company believes its long term success as a business will depend primarily upon its high quality clinical outcomes and service, continued business development and marketing skills. Employees At December 31, 1998, the Company employed 52 full time and no part-time persons. To the best of the Company's knowledge, none of the Company's officers or directors is bound by restrictive covenants from prior employers. None of the Company's employees are represented by labor unions or other collective bargaining groups. The Company considers its relationship with its employees to be excellent. Medcareonline.com Medcareonline.com will offer wide ranging direct-to-consumer health information, such as health travel advisory, health news, symposiums, medical journals and publications, and extensive research and web based services for physicians. Part of the Company's strategy is to increase site content, features and services, including adding an online health magazine and advertising on traditional and non-traditional media. In addition, the Company plans to add e-commerce, which will eventually include a wide range of health related products and services. Medcareonline.com also plans to offer free web hosting and home page services for physicians, specifically targeting male and female health specialties. In addition to information on the location of their office, hours of operation, profiles of doctors and services offered, Medcareonline.com will also allow physicians to easily customize content on their websites, send and retrieve e-mail, conduct e-commerce and allow patients to interact on various health topics in "disease and condition" specific chat rooms. As of December 31, 1998, the Company had not generated any revenues nor incurred any expenses related to Medcareonline.com. 6 Competitive Business Conditions for Medcareonline.com The market for internet services and internet advertising is intensely competitive. There are no substantial barriers to entry in these markets and Medcareonline.com expects competition to intensify. The Company believes that the number of companies relying on fees from internet based advertising has increased substantially during the past year. The Company believes the main competitive factors in this market are brand recognition, user base, performance, ease of use, variety of value-added services, features and quality of support. Many of Medcareonline.com's existing competitors, as well as a number of potential new competitors, have longer operating histories in the internet market, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than Medcareonline.com. Such competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential employees, distribution partners, advertisers and content providers. Further, these competitors may develop internet search and retrieval services or other online services that are equal or superior to those of Medcareonline.com or that achieve greater market acceptance than Medcareonline.com. Medcareonline.com will also compete with traditional advertising media, such as print, radio and television, for a share of advertisers' total advertising budgets. If advertisers do not perceive internet advertising to be as effective as traditional media, Medcareonline.com's business may be adversely affected. RISK FACTORS No Market Studies In formulating its business plan, the Company has relied on the judgment of its officers, directors and consultants. No formal independent market studies concerning the demand for the Company's proposed services have been conducted, nor are any planned. Lack of Operating History Although the Company was organized in 1986, it did not become active until 1995 and has been continually developing its MedCare Program since that time. Since the Company has not proven the essential elements of profitable operations, investors bear the risk of complete loss of their investment in the event the Company's business plan is unsuccessful. In addition, the business model for Medcareonline.com is evolving and relies substantially upon the sale of products and advertising on the Internet, which is a developing industry. The Company has only limited experience in managing the clinics and internet business and is expanding its operations, which may or may not provide profits to the Company. The Company had no revenues in 1995 or 1996 and $91,802 in 1997. In 1998, the Company had revenues of $786,586. The Company has also not been profitable, having an accumulated loss of $2,721,918 in 1997, which increased to an accumulated loss of $6,491,871 in 1998. The Company's business must be considered in light of the risks, expenses and problems frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets. The Company may not be able to succeed in addressing such risks. Resale of Securities May Negatively Affect Funding Attempts and Cause Dilution Some of the Company's securities are currently being registered for resale with the SEC on Form SB-2. In addition, there are securities, options and warrants outstanding that are not subject to the Form SB-2 registration statement. In total, if all the securities, options, warrants and employee stock options, including those not subject to the current Form SB-2 registration statement, were to be exercised, it would result in 10,797,813 shares outstanding. This will have the effect of causing a dilution of the share price of the Common Stock. The shares being registered may cause the Company to receive funds as a result of the exercise of the options and warrants at a price less than the current market price of the Common Stock. This will result in downward pressure on the price of the Common Stock. If the price of the Common Stock is reduced, some potential financiers will either wait to see what effect the shares will have on the market or offer funding at rates unacceptable to the Company. 7 Continued Control by Existing Management The Company's management currently owns a substantial stake in the Company's outstanding Common Stock. Many of the shares of Common Stock will be issued as a result of the exercise of options, warrants and other instruments and will provide that management will obtain additional shares in the Common Stock of the Company. Accordingly, new shareholders will lack an effective vote with respect to the election of directors and other corporate matters. Dividends The Company's Board of Directors presently intends to cause the Company to follow a policy of retaining earnings, if any, for the purpose of increasing the net worth and reserves of the Company. Therefore, there can be no assurance that any holder of Common Stock will receive any cash, stock or other dividends on his shares of Common Stock. Future dividends on Common Stock, if any, will depend on future earnings, financing requirements and other factors. Since its inception, the Company has paid no dividends to shareholders. Dependence on Executive Officers The Company is highly dependent on the services of its officers. Attracting and retaining qualified personnel is critical to the Company's business plan. No assurances can be given that the Company will be able to retain or attract such qualified personnel or agents. Should the Company be unable to attract and retain the qualified personnel necessary, the ability of the Company to implement its business plan successfully would be limited. Nasdaq Eligibility and Maintenance Under the current rules for initial Nasdaq SmallCap Market listing, a company must have at least $4,000,000 in total assets, at least $2,000,000 in stockholders' equity, and a minimum bid price of $3.00 per share. For continued listing, a company must maintain at least $2,000,000 in total assets, at least $1,000,000 in stockholders' equity and a minimum bid price of $1.00 per share. The Company's Nasdaq SmallCap Market application was accepted on July 15, 1998 and the Company began trading on that market on July 20, 1998. If the Company should experience losses from operations, it may be unable to maintain the standards for continued listing and the listed securities could be subject to delisting from Nasdaq Small Cap Market Trading. Trading in the securities would thereafter be conducted in the over-the- counter market on an electronic bulletin board established for securities that do not meet the listing requirements or in what are commonly referred to as the "pink sheets." As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the price of, the Company's securities. Risk of Low-Priced Stocks If the Company's securities were delisted from Nasdaq Small Cap Market and no other exclusion from the definition of a "penny stock" under applicable Securities and Exchange Commission regulations were available, such securities would be subject to the penny stock rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally defined as investors with net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with a spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase and must have received the purchaser's written consent to the transaction prior to sale. Adverse Effect of Shares Eligible for Future Sale Substantially all of the 7,831,105 outstanding shares of Common Stock of the Company are freely tradable, without restriction or registration under the Securities Act (other than the sale volume restrictions of Rule 144 applicable to shares held beneficially by persons who may be deemed to be affiliates of the Company). The 8 Company's directors, officers and family members of the officers and directors are under no lockup letters or other form of restriction on the sale of their securities. Following the registration for resale of certain of the Company's securities, an additional 2,661,364 shares will be available for sale by the affiliates and other persons. This is an estimate of the maximum number of shares to be resold. Any sale of these securities could have a detrimental effect on existing shareholders. Reimbursement and Related Matters In both the United States and elsewhere, sales of health care products and services are dependent, in part, on the availability of reimbursement from third parties, such as government and private insurance plans. In the United States and in certain foreign countries, third-party reimbursement is currently generally available for certain procedures, such as surgery and biofeedback training by EMG application, and generally unavailable for patient management products such as diapers, pads, and urethral plugs. While the Company's treatment program is currently covered by third party payers, there can be no assurances that such coverage will remain in effect in the future. Regulation by Federal and State Government The business of the Company is heavily regulated at a federal and state level. Legislation relating to the manner in which patients receive treatment is being enacted on a continuous basis. This legislation may have a negative effect on the way the Company does business in ways that cannot be predicted by the Company. This poses a serious risk to the viability of the programs of the Company and whether or not the Company can do business in the future. Should legislation be enacted negative to the programs of the Company it could cause the business of the Company to terminate. Potential Fluctuations in Quarterly Results The Company's operating results have varied on a quarterly basis during its limited operating history, and the Company expects to experience significant fluctuation in future quarterly operating results. Such fluctuations have been and may in the future be caused by numerous factors, many of which are outside of the Company's control. The Company believes that period to period comparisons of its results of operations will not necessarily be meaningful and should not be relied upon as an indication of future performance. Also, it is likely that in some future quarter or quarters, MedCare's operating results will be below the expectations of public market analysts and investors. In such an event, the price of MedCare's Common Stock would be materially and adversely affected. Medcareonline.com Medcareonline.com will operate in a new and rapidly evolving market. Medcareonline.com's business may be adversely affected if usage of the internet or other online services does not continue to grow. The internet as an advertising medium has not been available for a sufficient period of time to gauge its effectiveness as compared with traditional advertising media. Therefore, the internet is an unproven medium for advertising-supported services. Accordingly, Medcareonline.com's future operating results will depend substantially upon the increased use of the internet for information, publication, distribution and commerce and the emergence of the internet as an effective advertising medium. Medcareonline.com's ability to generate significant advertising revenues will also depend on, among other things, the development of a large base of users of Medcareonline.com's services possessing demographic characteristics attractive to advertisers, the ability of Medcareonline.com to accurately measure its user base and the ability of Medcareonline.com to develop or acquire effective advertising delivery and measurement systems. Many of Medcareonline.com's potential advertisers have only limited experience with the internet as an advertising medium, have not yet devoted a significant portion of their advertising expenditures to internet based advertising, and may not find advertising to be effective for promoting their products and services relative to traditional print and broadcast media. The adoption of internet advertising, particularly by those entities that have historically relied upon traditional media 9 for advertising, requires the acceptance of a new way of conducting business and exchanging information. Entities that already have invested substantial resources in other methods of conducting business may be reluctant to adopt a new strategy that may limit or compete with their existing efforts. The market for internet advertising may not continue to emerge or become sustainable. If the market fails to develop or develops more slowly than expected, Medcareonline.com's business may be materially and adversely affected. No standards have been widely accepted for the measurement of the effectiveness of internet based advertising and there can be no assurance that such standards will develop sufficiently to support the internet as an effective advertising medium. In addition, there is intense competition in the sale of advertising on the internet, resulting in a wide range of rates quoted and a variety of pricing models. This makes it difficult to project future levels of revenues and rates. As a result of these risks, Medcareonline.com may not succeed in generating significant future advertising revenues from internet based advertising. The failure to do so may have a material adverse affect on the Company's business. In addition, Medcareonline.com will be dependent on its ability to generate a high volume of traffic to its website. Accordingly, the performance of the website is critical to MedCare's reputation, its ability to attract advertisers, and to achieve market acceptance of Medcareonline.com. Any system failure that causes interruptions in the availability or that increases response time of Medcareonline.com's services could reduce user satisfaction and traffic to the website, and if sustained or repeated, would reduce the attractiveness of Medcareonline.com to advertisers and consumers. Item 2: Properties The Company's principal office is located at 1515 West 22nd Street, Suite 1210, Oak Brook, Illinois, 60521. This office is 2400 square feet and is subleased for $5,100 per month, plus operating expenses of approximately $400 per month, for one year, with an option to renew every year for 5 years. The Company also leases 1,500 square feet of office space located in Vancouver, British Columbia for $2,000 per month, plus operating expenses of approximately $200 per month. This space has been leased for a period of one year, with an option to renew for a second year. The Company does not purchase or lease property on behalf of its MedCare Program participants. Instead, the Company typically enters into a Practice Management Agreement with a physician in order to manage the incontinence portion of their practice, that calls for the Company to provide trained support personnel, electromyography equipment and a comprehensive policy and procedures manual. The physician is required to provide a dedicated examining room, typically 10' x 10' or larger in size, at no charge and for the duration of the agreement, usually for a five year term. Item 3: Legal Proceedings The Company is not involved in any pending legal proceedings other than various claims and lawsuits arising in the normal course of business. The Company's management does not believe that any such claims or lawsuits will have a material adverse effect on its financial statements. Item 4: Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of the security holders in the fourth quarter of 1998. 10 PART II Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters (a) Market Information The Company's Common Stock is listed on the Nasdaq Small Cap Market under the symbol "MCAR". The following table sets forth the high and low sale prices for the periods indicated:
High Low -------- ------ First Quarter 1997....................................... $8.25 $6.75 Second Quarter 1997...................................... $8.0625 $6.25 Third Quarter 1997....................................... $9.25 $6.875 Fourth Quarter 1997...................................... $8.125 $7.625 First Quarter 1998....................................... $9.375 $7.375 Second Quarter 1998...................................... $11.25 $9.00 Third Quarter 1998....................................... $9.31 $6.00 Fourth Quarter 1998...................................... $7.4375 $4.875
(b) Holders As of March 25, 1999 there were approximately 350 stockholders of record of the Company's Common Stock. (c) Dividend Policy The Company has never paid a dividend and does not anticipate paying any dividends in the foreseeable future. It is the present policy of the Board of Directors to retain the Company's earnings, if any, for the development of the Company's business. Item 6: Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements and notes thereto included in Item 7 of this Form 10-KSB. Except for the historical information contained herein, the discussion in this Annual Report on Form 10-KSB contains certain forward-looking statements that involve risk and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. The Company's actual results could differ materially from those discussed here. Factors that could cause differences include those discussed below in "Risk Factors", as well as discussed elsewhere herein. Overview The "MedCare Program" is a discrete package of equipment, software and services developed by MedCare to assist physicians in providing non- pharmaceutical, non-invasive treatment to patients suffering from urinary incontinence ("UI") and other pelvic disorders, including pelvic pain, chronic constipation, fecal incontinence and disordered defecation. The MedCare Program is used by physicians to support a treatment plan based primarily on behavioral modification techniques such as electromyography ("EMG") biofeedback, pelvic floor muscle exercise, and bladder and bowel retaining. Utilizing the MedCare Program, physicians help patients activate and strengthen the various sensory response mechanisms that maintain bladder and bowel control. Therapy is provided through computerized instrumental EMG biofeedback and is based on operant conditioning strategies whereby specific physiological responses are progressively shaped, strengthened and coordinated. To date, MedCare has not received significant revenues due to the early stage nature of the Company's business and has incurred ongoing operating losses due to costs related to research, business development, management and staff recruitment, establishing training systems and providing ongoing training, development of advertising and marketing programs, and other costs associated with establishing corporate infrastructure necessary for contracting with additional physicians for utilization of the MedCare Program on a national basis. Although planned principal operations have commenced, substantial revenues have yet to be realized. 11 Results of Operations Revenues. The Company had revenues of $786,586, $91,802 and $0 for the years ended December 31, 1998, 1997 and 1996 respectively. During 1998, the Company changed the profile of the type of physician practices it would contract with from single physician practice offices to multi physician practice offices. Existing offices that were not profitable and no longer met the profile were closed. As of December 31, 1998, the Company operated at 25 sites and is expecting to begin operating at its remaining contracted sites during the first half of 1999. To date, the Company has not relied on any revenues for funding. During the next several years, the Company expects to derive the majority of its potential revenues from the commencement of operations of the MedCare Program at additional sites in the United States, and possibly select foreign markets. In addition, during 1999, the Company expects to begin generating revenue from the sale of advertising from its new wholly-owned subsidiary, Medcareonline.com. As of December 31, 1998, there have been no revenues or expenses related to Mecareonline.com. General and Administrative Expenses. During 1998, the Company incurred $4,689,400 in general and administrative expenses, an increase of 209% over 1997 expenses of $1,515,459. During 1996, the Company incurred expenses of $452,037. The Company experienced a $.52 per share loss for the year ended December 31, 1998, versus a $.21 per share loss for the year ended December 31, 1997 and a $.08 per share loss for the year ended December 31, 1996. This increase is primarily attributable to costs associated with the development of advertising and marketing programs, public relations, hiring and training expenses of clinical and managerial personnel, travel, legal and accounting, and ongoing general operating expenses. Interest Income. Interest income was $162,109, $119,146 and $2,801 for the years ended December 31, 1998, 1997 and 1996, respectively. Interest earned in the future will be dependent on Company funding cycles and prevailing interest rates. Provision for Income Taxes. As of December 31, 1998, the Company's accumulated deficit was $6,491,871, and as a result, there has been no provision for income taxes to date. The Company has net operating losses that will expire beginning with the year 2002 in the amount of $5,050,407 unless utilized by the Company. Liquidity and Capital Resources At December 31, 1998, the Company had a cash balance of $2,826,086, compared to a cash balance of $3,440,791 at December 31, 1997 and $219,775 at December 31, 1996. During 1998, the Company used $3,381,600 of net cash from operating activities as compared to $1,373,592 of net cash used in 1997. The increase in the net cash used in operating activities was due mainly to the increase in the general and administrative expenses explained above. Net cash used in investing activities was $315,335 for 1998, compared to net cash used of $33,642 in 1997. The increase in the net cash used in investing activities was due to the purchase of additional computer and medical equipment to support the expansion of operations during 1998. Net cash provided by financing activities was $3,082,230 for 1998, compared to net cash provided of $4,628,250 in 1997. The Company has financed its operations primarily through private placements of Common Shares, Preferred Shares and the exercise of stock options as described below. During fiscal 1998, 200,000 warrants to purchase Common Stock were exercised at $6 per share, or $1,200,000. In addition, on November 6, 1998, the Company issued 300,000 shares of its common stock at $5.00 per share to Lyons Capital Corporation, a Bermuda corporation, with a warrant to purchase an additional 300,000 shares at $5.00 per share pursuant to an offering made under Rule 506 promulgated under the Securities of 1933, as amended ("Rule 506"). The warrant is exercisable until October 14, 2004. The proceeds were used for working capital and expansion of operations. 12 On February 1, 1997, pursuant to Rule 506, for 176,000 shares of Common Stock were offered at a price of $6.25 per share, for a total offering of $1,100,000. This offering was completed on February 4, 1997. The proceeds were used for working capital and expansion of operations. On July 7, 1997, pursuant to Rule 506, 300,000 shares of Common Stock were offered at $6.00 per share, plus 300,000 warrants exercisable at $6.00 per warrant until July 7, 2002, for a total offering of $1,800,000. This offering was completed on July 30, 1997 and the proceeds used for working capital and expansion of the MedCare Program. On June 20, 1997, pursuant to Rule 506, the Company began offering for sale Series A Preferred Stock of the Company and for $10,000 per share, in minimum subscription amounts of at least ten shares ($100,000) and increments of five shares in excess thereof. The offering closed on July 8, 1997 with the minimum offering of $1,650,000 placed. The proceeds were used for working capital and expansion of operations. The Preferred Stock was accompanied by warrants to purchase a total of 258,302 shares of Common Stock of the Company at an exercise price of $7.346 per share ("conversion warrants"). In addition, the purchasers of the preferred stock also received preferred stock warrants to purchase an equal amount of preferred stock under the same terms as the original offering. In conjunction with this offering, an Escrow Agreement was entered into with Swartz Investments LLC, a Georgia limited liability company, as Placement Agent and with First Union National Bank of Georgia as Escrow Agent. At this time, the Company also filed a Certificate of Designation with the State of Delaware that designated 1,000 shares of the Company's one million shares of authorized preferred stock to be Series A Preferred Stock. This stock has an eight percent (8%) per annum accretion rate. No dividend rights have been granted to this stock. The conversion terms outlined in the Certificate of Designation state that holders of the Series A Preferred Stock can convert their stock using the following formula per share of Series A Preferred Stock: (.08)(N/365)(10,000) + 10,000 Conversion Price At December 31, 1998, the Conversion Price is determined as the lesser of $7.346 or 80% of the average closing bid price of the Company's Common Stock for the five trading days immediately preceding the date of conversion. The Company also has the right to redeem the Series A Preferred Stock upon receipt of notice of conversion at various rates, depending on the length of time since issuance. Of the original 258,302 conversion warrants that were issued, 36,755 shares were forfeited due to the early conversion of preferred shares. In addition, Swartz Investments exercised all but 6,500 of its warrants utilizing the cashless exercise option resulting in 8,990 shares being issued. The remaining conversion warrants are still outstanding. In June of 1998, the preferred stock investors converted 165 preferred warrants into preferred stock. Upon conversion of the preferred warrants, the investors and the Company deposited into an escrow account the proceeds of $1,650,000 and the related preferred stock pending final approval of the Company's registration statement. In addition, the Company and the investors entered into an agreement which provided for the investors to receive three month warrants at an exercise price of $7.346 per share and to forfeit any rights to additional preferred warrants, nine month warrants, 12 month warrants and 15 month warrants. Of the original four investors who participated in the escrow agreement, three withdrew their proceeds of $1,400,000 and forfeited the related preferred stock and warrants. The forfeited preferred stock and related warrants were canceled. The remaining investor, Concordia Partners, released its investment of $250,000 to the Company and received 25 shares of new preferred stock and 11,344 warrants exercisable three months after their issuance date at an exercise price of $7.346 per share. In total, as of December 31, 1998, there were 50 preferred shares outstanding, all of which are owned by Concordia Partners. 13 The Company's future funding requirements will depend on numerous factors, including the Company's ability to establish and operate profitably current and future MedCare Program locations, recruiting and training qualified management and clinical personnel, competing against any potential technological advances in the treatment of UI and other afflictions of the pelvic floor area, and the Company's ability to compete against better capitalized corporations who offer alternative or similar treatment options for urinary incontinence and other afflictions of the pelvic floor area. Year 2000 The Year 2000 issue arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with 20 instead of 19. If not corrected, many computer applications could fail or create erroneous results. Management has initiated a comprehensive program to prepare the company's systems for the year 2000. The Company is actively engaged in testing and fixing applications to ensure they are Year 2000 ready. The Company does not separately track the internal costs incurred for the Year 2000 project but such costs are principally the related payroll costs for certain corporate staff. The Company currently does not expect remediation costs to be material nor does it expect any significant interruption to its operations because of Year 2000 problems. The Company is in the process of contacting all third parties with which it has significant relationships, to determine the extent to which the Company could be vulnerable to failure by any of them to obtain Year 2000 compliance. Some of the Company's major suppliers and financial institutions have confirmed that they anticipate being Year 2000 compliant on or before December 31, 1999, although many have only indicated that they have Year 2000 readiness programs. To date, the Company is not aware of any significant third parties with a Year 2000 issue that could materially impact the Company's operations, liquidity or capital resources. However, the company has no means of ensuring that third parties will be Year 2000 ready and the potential effect of third- party non-compliance is currently not determinable. The Company has devoted and will continue to devote the resources necessary to ensure that all Year 2000 issues are properly addressed. However, there can be no assurance that all Year 2000 problems are detected. Further, there can be no assurance that the Company's assessment of its third-party relationships will be accurate. Some of the potential scenarios that could occur include (1) corruption of data in the Company's internal systems and (2) failure of government and insurance companies' reimbursement programs. If any of these situations were to occur, the Company's operations could be temporarily interrupted. The Company intends to develop Year 2000 contingency plans for continuing operations in the event such problems arise. 14 Item 7: Financial Statements INDEPENDENT AUDITORS REPORT Board of Directors MedCare Technologies, Inc. and Subsidiaries Oak Brook, Illinois 60521 We have audited the consolidated balance sheet of MedCare Technologies, Inc. and Subsidiaries, (the Company), as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 1998 and 1997, and the consolidated results of their operations and their consolidated cash flows for the years then ended, in conformity with generally accepted accounting principles. Clancy and Co., P.L.L.C. Phoenix, Arizona March 2, 1999 15 MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1998 and 1997
ASSETS 1998 1997 ------ ----------- ----------- Current Assets Cash............................................... $ 2,826,086 $ 3,440,791 Accounts Receivable, net of Allowance for Doubtful Accounts of $45,165 and $0........................ 271,240 67,530 Prepaid Expenses................................... 0 43,569 ----------- ----------- Total Current Assets............................. 3,097,326 3,551,890 Property and Equipment, Net (Note 3)............... 283,630 33,526 Intangible Assets--the MedCare Program, net of Accumulated Amortization of $68 and $0............ 932 1,000 ----------- ----------- Total Assets..................................... $ 3,381,888 $ 3,586,416 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities.................................. Accounts Payable and Other Accrued Liabilities..... $ 469,743 $ 15,796 Notes Payable--Related Parties..................... 0 1,000 ----------- ----------- Total Current Liabilities........................ 469,743 16,796 Stockholders' Equity Preferred Stock $.25 Par Value, Authorized 1,000,000; Issued and outstanding, 50 and 165 Convertible Series A at December 31, 1998 and 1997.............................................. 12 41 Common Stock--$0.001 Par Value Authorized 100,000,000; Issued and outstanding, 7,825,105 and 6,992,185 Shares at December 31, 1998 and 1997.... 7,825 6,992 Additional Paid in Capital......................... 9,396,179 6,284,505 Retained Earnings (Deficit)........................ (6,491,871) (2,721,918) ----------- ----------- Total Stockholder' Equity........................ 2,912,145 3,569,620 ----------- ----------- Total Liabilities and Equity..................... $ 3,381,888 $ 3,586,416 =========== ===========
The accompanying notes are an integral part of these financial statements. 16 MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS For the Years Ended December 31, 1998 and 1997
Year Ended Year Ended December December 31, 1998 31, 1997 ----------- ----------- Revenues............................................. $ 786,586 $ 91,802 General and Administrative Expenses.................. 4,689,400 1,515,459 ----------- ----------- Operating Loss....................................... (3,902,814) (1,423,657) Other Income (Expense) Interest Income.................................... 162,109 119,146 Loss From Discontinued Operations.................. 0 (4,489) Gain on Sale of Subsidiary......................... 0 15,770 ----------- ----------- Total Other Income (Expense)..................... 162,109 130,427 ----------- ----------- Net Loss............................................. (3,740,705) (1,293,230) Less: Preferred Deemed Dividends..................... (29,248) (247,712) ----------- ----------- New Loss Available to Common Stockholders............ $(3,769,953) $(1,540,942) =========== =========== Earnings Per Common Share and Common Share Equivalents......................................... $ (0.52) $ (0.21) Weighted Number of Common Shares Outstanding......... 7,302,387 7,270,185
The accompanying notes are an integral part of these financial statements. 17 MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 1998 and 1997
Preferred Stock Common Stock Additional Retained ------------- ----------------- Paid In Earnings Shares Amount Shares Amount Capital (Deficit) Total ------ ------ --------- ------- ---------- ----------- ---------- Balance, December 31, 1996................... 0 0 6,445,185 $ 6,445 $1,372,631 $(1,169,693) $ 209,383 Recovery of Write Off of Excess of Liabilities over Assets on Sale of Manon Consulting, Ltd.. (11,283) (11,283) Issuance of Common Stock Under 1996 Stock Option Plan at $4.50 Per Share Through December 31, 1997................... 17,000 17 76,483 76,500 Issuance of Common Stock Under 1995 Stock Option Plan at $3.00 Per Share Through December 31, 1997................... 54,000 54 161,946 162,000 Issuance of Common Stock Under a Private Placement Dated March 25, 1997, at $6.25 Per Share.................. 176,000 176 1,099,824 1,100,000 Issuance of Preferred Stock Under a Private Placement Dated July 8, 1997, at $10,000 Per Share.................. 165 41 1,649,959 1,650,000 Less cost of Private Placement.............. (123,750) (123,750) Periodic Imputed Cost of Preferred Stock Issued on July 8, 1997........ 247,712 247,712 Issuance of Common Stock Under a Private Placement Dated July 7, 1997, at $6.00 Per Share.................. 300,000 300 1,799,700 1,800,000 Net Loss Available to Common Stockholders for the Year Ended December 31, 1997............... (1,540,942) (1,540,942) --- --- --------- ------- ---------- ----------- ---------- Balance, December 31, 1997................... 165 41 6,992,185 6,992 6,284,505 (2,721,918) 3,569,620 Issuance of Common Stock For Prior Year Consulting Agreement... 6,000 6 (6) 0 Issuance of Common Stock For Prior Period Error. 1,194 1 (1) 0 Issuance of Common Stock For Warrants Exercised on March 31, 1998, at $6.00 Per Share........ 200,000 200 1,199,800 1,200,000 Issuance of Common Stock at $7.346 in an Exercise of Cashless Warrants............... 8,990 9 (9) 0 Placement of Preferred Stock in Escrow at $10,000 Per Share Per Offering Dated June 1998................... 165 41 1,649,959 1,650,000 Issuance of Common Stock Under 1995 Stock Option Plan at $3.00 Per Share.................. 0 0 34,000 34 101,966 102,000 Issuance of Common Stock Under 1996 Stock Option Plan at $4.50 Per Share.................. 0 0 10,000 10 44,990 45,000 Preferred Deemed Dividend............... 29,248 29,248 Net Loss Available to Common Stockholders for the Year Ended December 31, 1998............... (3,769,953) (3,769,953) --- --- --------- ------- ---------- ----------- ---------- Balance, December 31, 1998................... 50 $12 7,825,105 $ 7,825 $9,396,179 $(6,491,871) $2,912,145 === === ========= ======= ========== =========== ==========
The accompanying notes are an integral part of these financial statements. 18 MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS For the Years Ended December 31, 1998 and 1997
Year Ended Year Ended December December 31, 1998 31, 1997 ----------- ----------- Cash Flows From Operating Activities Net Loss........................................... $(3,769,953) $(1,540,942) Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities Preferred Deemed Dividends....................... 29,248 247,712 Depreciation and Amortization.................... 65,300 9,546 Net Assets of Manon Consulting, Ltd.............. 0 (11,281) Changes in Assets and Liabilities (Increase) Decrease in Accounts Receivable..... (203,710) (39,935) (Increase) Decrease in Prepaid Expenses........ 43,569 (34,697) Increase (Decrease) in Accounts Payable and Other Accrued Liabilities..................... 453,946 (3,995) ----------- ----------- Total Adjustments............................ 388,353 167,350 ----------- ----------- Net Cash Used In Operating Activities........ (3,381,600) (1,373,592) ----------- ----------- Cash Flows From Investing Activities Purchase of Property and Equipment................. (315,335) (33,642) ----------- ----------- Net Cash Used In Investing Activities........ (315,335) (33,642) ----------- ----------- Cash Flows From Financing Activities Proceeds From Sale of Common Stock................. 2,847,000 3,138,500 Proceeds From the Sale of Preferred Stock.......... 250,000 1,650,000 Offering Costs..................................... (13,770) (123,750) Advances (Repayments) Notes Payable................ (1,000) (24,000) Advances (Repayments) To Officers.................. 0 (12,500) ----------- ----------- Net Cash Provided By Financing Activities.... 3,082,230 4,628,250 ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents..... (614,705) 3,221,016 Cash and Cash Equivalents, Beginning of Year......... 3,440,791 219,775 ----------- ----------- Cash and Cash Equivalents, End of Year............... $ 2,826,086 $ 3,440,791 =========== =========== Supplemental Information: Cash paid for: Interest......................................... $ 0 $ 0 =========== =========== Income taxes..................................... $ 0 $ 0 =========== ===========
The accompanying notes are an integral part of these financial statements. 19 MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 and 1997 Note 1--Organization MedCare Technologies, Inc. (the Company), a Delaware Corporation, has an authorized capital of 101,000,000 shares of which 100,000,000 shares are common stock with a par value of $.001 and 1,000,000 shares are preferred stock with a par value of $.25 per share. The Company has developed The Medcare Program, a nonsurgical, nondrug, noninvasive and cost-effective treatment program for urinary and rectal incontinence, and other pelvic disorders, utilizing behavioral and biofeedback techniques such as electromyography, designed to activate and strengthen the various sensory response mechanisms that maintain bladder and bowel control. The Company engages in a Program Management Agreement with each Practice, which is defined as a physician or group of physicians, involved on a regular basis in the diagnosis, evaluation and treatment of urinary and rectal incontinence, as well as other pelvic dysfunction. The agreements have various expiration dates, typically run for a period of three (3) to five (5) years, and may be terminated upon the occurrence of certain conditions as set forth in the agreement. Each Practice also agrees to sign a Confidentiality and Noncompetition Agreement as a condition precedent to the performance by the Company of its obligations. Note 2--Significant Accounting Policies A. Method of Accounting The Company's financial statements are prepared using the accrual method of accounting. B. Cash and Cash Equivalents The Company considers all highly liquid debt instruments with a maturity of three months or less to be cash and cash equivalents. C. Concentration of Credit Risk The Company maintains cash balances in excess of $100,000 at a local bank. The balance is insured by the Federal Deposit Insurance Corporation up to $100,000. The Company also maintains U.S. Dollar cash balances in Canadian banks, that are not insured. D. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Medcare Technologies, Corporation. All material intercompany transactions have been eliminated in consolidation. E. Property and Equipment Property and equipment, stated at cost, is depreciated under the straight- line method over their estimated useful lives ranging from three to seven years. 20 MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS--(Continued) F. Revenue Recognition Revenues are recognized at time of performance of services. The Company agrees to provide on an exclusive basis equipment, personnel and administrative services to the Practice in connection with the Practice's establishment and operation of the Program. Each Practice agrees to pay the Company a management fee for each patient visit to the Practice during which a patient receives services under the Program. The Company invoices the Practice for the management fee each calendar month, which is due in full, within forty-five (45) to sixty (60) days of the date of such invoice. G. Use of Estimates Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the financial statements. H. Income Taxes The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes." Under SFAS 109, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. See Note 10. I. Per Share of Common Stock Basic earnings or loss per share has been computed based on the weighted average number of common shares and common share equivalents outstanding. All earnings or loss per share amounts in the financial statements are basic earnings or loss per share, as defined by SFAS No. 128, "Earnings Per Share." Diluted earnings or loss per share does not differ materially from basic earnings or loss per share for all periods presented. The number of shares used in computing earnings (loss) per common share at December 31, 1998 and 1997 was 7,302,387 and 7,270,185, respectively. J. Stock-Based Compensation The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation cost for stock options, if any, is measured as the excess of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. SFAS No. 123, "Accounting for Stock-Based Compensation," established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. The Company has elected to remain on its current method of accounting as described above, and has adopted the disclosure requirements of SFAS No. 123, effective January 1997. See Note 6. K. Business Segment Information The Company implemented SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," on January 1, 1998. The Company operates in one industry segment, that being the treatment of urinary and rectal incontinence, and all of the activity flows through the Company's subsidiary. There were no material amounts of sales or transfers among geographic areas or major customers within the United States. 21 MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS--(Continued) L. Presentation Certain accounts from prior years have been reclassified to conform with the current year's presentation. M. Pending Accounting Pronouncements It is anticipated that current pending accounting pronouncements will not have an adverse impact on the financial statements of the Company. Note 3--Property and Equipment Property and equipment consists of the following at December 31:
1998 1997 -------- --------- Office Equipment...................................... $ 11,930 $ 9,541 Computer Equipment.................................... 164,931 11,528 Medical Equipment..................................... 127,315 29,799 Computer Software..................................... 48,832 0 Building Improvements................................. 11,695 0 Furniture............................................. 1,500 0 -------- --------- Total................................................. 366,203 50,868 Less Accumulated Depreciation......................... (82,573) (17,342) -------- --------- Net Book Value........................................ $283,630 $ 33,526 ======== =========
Depreciation charged to expense during the years ended December 31, 1998 and 1997 was $65,231 and $9,546, respectively. Note 4--Long-Lived Assets--The MedCare Program On August 14, 1995, the Company acquired the rights to The MedCare Program, a urinary incontinence procedure in exchange for 2,000,000 shares of its common stock. The transaction was accounted for in accordance with the process for valuation of intangible assets as described in Statement No. 17 of the Accounting Principles Board. The Company intends to amortize the cost of the system over 15 years, based on Management's estimated useful life of the protocol, beginning with the first year in which commercial sales occur. Management reassesses annually the estimated useful life. Such amortization will result in charges against earnings of $68 per year for each of the years. Amortization expense charged to operations during the years ended December 31, 1998, was $68. Note 5--Notes Payable--Related Party During the year ended December 31, 1997, an Officer of the Company advanced the Company $1,000, which was due on demand and with no interest rate currently applicable. The Company repaid this loan in March 1998. Note 6--Stock Options The Company has five stock option plans that provide for the granting of stock options to officers and key employees. The objectives of these plans include attracting and retaining the best personnel, providing for additional performance incentives, and promoting the success of the Company by providing employees the opportunity to acquire common stock. Options outstanding under the Company's five stock option plans have been granted at prices which are either equal to or above the market value of the stock on the date of grant and expire at various dates after the grant date. 22 MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS--(Continued) The status of the Company's stock option plans is summarized below as of December 31:
Number of Option Shares Price --------- ----------- Outstanding at December 31, 1995 ................. 500,000 $3.00 Granted Under the 1996 Stock Option Plan ......... 300,000 4.50 Exercised Under the 1995 Stock Option Plan........ (36,000) 3.00 Exercised Under the 1996 Stock Option Plan........ (3,000) 4.50 --------- ----------- Options Outstanding at December 31, 1996.......... 761,000 3.00-4.50 Granted Under the 1997 Stock Option Plan.......... 200,000 4.50 Granted Under the 1997 Stock Option Plan.......... 300,000 6.50 Exercised Under the 1995 Stock Option Plan........ (54,000) 3.00 Exercised Under the 1996 Stock Option Plan........ (17,000) 4.50 --------- ----------- Options Outstanding at December 31, 1997.......... 1,190,000 3.00-6.50 Exercised Under the 1995 Stock Option Plan........ (34,000) 3.00 Exercised Under the 1996 Stock Option Plan........ (10,000) 4.50 Granted Under the 1998 Stock Option Plan.......... 500,000 6.50-9.25 Granted Under the 1999 Stock Option Plan.......... 200,000 6.00-9.25 --------- ----------- Options Outstanding at December 31, 1998.......... 1,846,000 $3.00-$6.50 ========= ===========
The Company accounts for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation cost for stock options is recognized for stock options awards granted at or above fair market value. Had compensation expense for the Company's stock-based compensation plans been determined under SFAS No. 123, based on the fair market value at the grant dates, the Company's pro forma net loss and pro forma net loss per share would have been reflected as follows:
1998 1997 ---------- ---------- Net Loss As reported..................................... $3,769,953 $1,540,942 Pro forma....................................... $5,145,919 $2,728,965 Net Loss Per Share As reported..................................... $ (0.52) $ (0.21) Pro forma....................................... $ (0.70) $ (0.38)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumption used for those options granted in 1998 and 1997, respectively: dividend yield of 0%, expected volatility of 58% and 47%, risk-free interest rates of 5% and 5%, and expected lives of 8 and 8 years. Note 7--Stock Warrants In July, 1997, the Company offered 300,000 shares of common stock at $6.00 each, along with an additional 300,000 common stock purchase warrants at $6.00 each, exercisable until July 7, 2002. In March 1998, 200,000 warrants to purchase shares of common stock were exercised at $6.00 per share, or $1,200,000. In November 1998, the Company issued through a Rule 506 Regulation D Private Placement, 300,000 shares of restricted common stock at $5.00 per share, or $1,500,000, and granted 300,000 common stock purchase warrants exercisable at $5.00 until October 14, 2004. 23 MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS--(Continued) Note 8--Preferred Stock--Series A On June 20, 1997, the Company began offering for sale a Regulation D offering under Rule 506. This offering was for the Series A Preferred Stock of the Company and was sold for $10,000 per share, in minimum subscription amounts of at lease ten shares ($100,000) and in increments of five shares in excess thereof. The total offering was for $3,000,000, with a minimum of $1,650,000. The offering closed on July 8, 1997, with the minimum offering placed. The preferred stock was accompanied by warrants to purchase a number of shares of common stock of the Company equal to 33 1/3% multiplied by the aggregate purchase price of the Subscriber's preferred stock outstanding on each of nine, twelve and fifteen months following the closing date of the offering, divided by the Fixed Conversion Price as herein defined. The Series A Preferred Shareholder is entitled to convert, subject to the Company's right of redemption, if the conversion price is less than the Fixed Conversion Price at the time of receipt of a notice of conversion. The conversion price is equal to the lesser of 115% of the average Closing Bid Price for five trading days ending on June 6, 1997, which is $7.346 (The Fixed Conversion Price) or a discount, ranging from 10% to 20% over a 12 months period beginning July 8, 1997, of the average Closing Bid Price for five trading days immediately preceding the Date of Conversion divided into the original purchase price of the preferred stock, plus an 8% per annum accretion rate equal to the period that has passed since the closing date. During the year ended December 31, 1998, 140 shares of preferred stock were converted to 272,736 shares of common stock at various prices per share. In addition, 25 shares of preferred stock were issued to an investor at $10,000 per share in accordance with the terms of the original offering. Note 9--Discontinued Operations of a Business Segment On January 1, 1997, the Company sold Manon Consulting, LTD at book value. No revenues or expenses are included in the consolidated financial statements for the year ended December 31, 1997. The Company reported a gain on the transaction of $15,770. Note 10--Income Taxes There is no current or deferred tax expense for the years ended December 31, 1998 and 1997, due to the Company's loss position. The benefits of timing differences have not been previously recorded. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company's ability to generate taxable income within the net operating loss carryforward period. Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes. The income tax effect of temporary differences comprising the deferred tax assets and deferred tax liabilities on the accompanying consolidated balance sheet is a result of the following:
1998 1997 ---------- -------- Deferred Taxes NOL Carryforwards................................. $1,767,643 $628,462 Organization Costs................................ 195,563 198,974 Accrued Expenses.................................. 93,163 0 Depreciation...................................... (3,519) 1,156 ---------- -------- Total........................................... $2,052,850 $828,592 Valuation Allowance................................. (2,052,850) (828,592) ---------- -------- Net Deferred Tax Assets......................... $ 0 $ 0 ========== ========
24 MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS--(Continued) A reconciliation between the statutory federal income tax rate (35%) and the effective rate of income tax expense for each of the years during the period ended December 31 follows:
1998 1997 ----- ----- Statutory Federal Income Tax Rate......................... (35.0)% (35.0)% Accretion of Preferred Stock Dividend..................... 0.3% 5.6% Other..................................................... 0.1% 0.5% Increase in Valuation Allowance........................... 34.6% 28.9% ----- ----- Effective Income Tax Rate................................. 0.0% 0.0%
The Company has available net operating loss carryforwards of $5,050,407 for tax purposes to offset future taxable income. The net operating loss carryforwards expire as follows: 2002.......................... $ 316 2003.......................... 1,030 2004.......................... 21,707 2005.......................... 10,201 2011.......................... 447,758 2012.......................... 1,314,593 2013.......................... 3,254,802 ---------- $5,050,407 ==========
Note 11--Commitments and Contingencies Operating Leases--The company leases office space and office equipment under various noncancelable operating lease agreements which expire through 2003. The Company has a second office located in Vancouver, Canada, which is owned by one of the Company's directors, and is leased to the Company for $2,000 per month. There is an option to renew for an additional year. Rental expense charged to operations during the years ended December 31, 1998 and 1997 was approximately $90,000 and $24,000, respectively. Future minimum payments under noncancelable operating leases are as follows: 1999............................. $66,082 2000............................. $67,544 2001............................. $66,486 2002............................. $67,107 2003............................. $ 5,602
Employment Agreements--The Company has employment and stock option agreements with its President and Chief Executive Officer. The employment agreement provides for the officer to earn a minimum of $150,000 annually. Effective January 1, 1999, the officer shall earn a minimum of $200,000 annually through January 1, 2000. The officer is also eligible for an annual bonus for each fiscal year of the Company during the term based on performance standards as the Board or compensation committee designates. The officer shall also receive monthly an automobile allowance of five hundred ($500) per month. The stock option agreement grants the officer (a) an option to acquire five hundred thousand (500,000) shares at an exercise price per share of $6.50, 300,000 of which have vested, and (b) an option to acquire one hundred thousand (100,000) shares at an exercise price per share of $6.00, which have vested. The options granted shall terminate on July 1, 2005. 25 MEDCARE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS--(Concluded) Note 12--MedCare Program Sites The following program site locations were operating as of December 31, 1998: Norman, Oklahoma; Buffalo Grove, Illinois; Raleigh, North Carolina; Stamford, Connecticut; Kankakee, Illinois; Shelby, North Carolina; Kingwood, Texas; Mine Hill, New Jersey; Toledo, Ohio; Natick, Massachusetts; Fremont, California; Findlay, Ohio; Roswell, Georgia; Newport News, Virginia; Dallas, Texas; Owings Mills, Maryland; New York, New York; Baltimore, Maryland; Fayetteville, North Carolina; San Antonio, Texas; Alexandria, Virginia; Augusta, Georgia; Wentzville, Maryland; Amherst, Ohio; and Scottsdale, Arizona. 26 Item 8: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None PART III Item 9: Directors and Executive Officers of the Registrant The information required by this Item is included in the Company's definitive proxy statement for its 1999 Annual Meeting of Shareholders ("Proxy Statement") and is hereby incorporated herein by reference. Item 10: Executive Compensation The information required by this Item is included in the Company's Proxy Statement and is hereby incorporated herein by reference. Item 11: Security Ownership of Certain Beneficial Owners and Management The information required by this Item is included in the Company's Proxy Statement and is hereby incorporated herein by reference. Item 12: Certain Relationships and Related Transactions The information required by this Item is included in the Company's Proxy Statement and is hereby incorporated herein by reference. PART IV Item 13: Exhibits and Reports on Form 8-K The exhibits listed in the accompanying index to exhibits are filed as part of this Annual Report on Form 10KSB. Reports on Form 8-K: On October 7, 1998, the Company filed a Form 8-K to disclose the resignation of Kundan S. Rayat as Secretary, Treasurer and a Director of the Company and Valerie Boeldt- Umbright as a Director of the Company. Greg Wujek was then elected to the Board of Directors and was named the new Secretary and Treasurer. In addition, Harmel S. Rayat resigned as the CEO of the Company and Jeff Aronin was elected to replace him. On November 19, 1998, the Company filed a Form 8-K to disclose that it had issued 300,000 shares of its common stock at $5.00 per share to Lyons Capital Corp., a Bermuda corporation, with a warrant to purchase an additional 300,000 shares at $5.00 per share as an offering pursuant to Regulation D, Rule 506. The warrant is exercisable until October 14, 2004. On February 7, 1999, the Company filed a Form 8-K to disclose that it had formed a new wholly owned subsidiary of the Company, Medcareonline.com, Inc. 27 SIGNATURES Pursuant to the requirements of Sections 13 or 15 (d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on this 25th day of March, 1999. MedCare Technologies, Inc. /s/ Jeff Aronin By___________________________________ Jeff Aronin CEO and President /s/ Alan Jagiello By: _________________________________ Alan Jagiello CFO Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Jeff Aronin CEO and President March 25, 1999 ____________________________________ Jeff Aronin /s/ Alan Jagiello CFO March 25, 1999 ____________________________________ Alan Jagiello
28 EXHIBIT INDEX
Exhibit Number Exhibit Description ------- ------------------- 3a. Articles of Incorporation of Medcare Technologies, Inc. as amended to date. (Incorporated by reference to Exhibit 1 to Medcare Technologies Form 10-KSB for the year ended December 31, 1997) 3b. By-Laws of Medcare Technologies, Inc. (Incorporated by reference to Exhibit 2 to Medcare Technologies Form 10-KSB for the year ended December 31, 1997). 4a. * Certificate of Designation 4b. * Subscription Agreement 4c. * Nine-Month Warrant 4d. * Twelve-Month Warrant 4e. * Fifteen-Month Warrant 4f. * Preferred Warrants 4g. * Registration Rights 4h. * Instructions to Transfer Agent 4i. * Agreement and Amendment 4j. * Agreement and Amendment for Queensway Financial Holdings Ltd. 4k. * Three-Month Warrant 4l. * Swartz Warrant 4m. * Escrow Agreement 4n. * Exhibit A to Escrow Agreement 10a. * 1995 Stock Option Plan 10b. * 1996 Stock Option Plan 10c. * 1997 Stock Option Plan 10d. 1998 Stock Option Plan 10e. 1999 Stock Option Plan 10f. Employment and Stock Agreement, dated as of December 9, 1998 between Medcare Technologies, Inc. and Jeffrey S. Aronin 10g. Sublease dated as of December 31, 1997 between Medcare Technologies, Inc. and Delta Dental Plans Association 21. Subsidiaries of the Registrant 27. Financial Data Schedule
*--Incorporated by reference to Medcare Technologies Form SB-2, File number 333-41611 29 EX-10.(D) 2 1998 STOCK OPTION PLAN EXHIBITS EXHIBIT 10d. 1998 INCENTIVE STOCK OPTION PLAN AND 1998 NONSTATUTORY STOCK OPTION PLAN 1. Names and Purposes of the Plans. This Plan document is intended to implement and govern two separate Stock Option Plans of MedCare Technologies, Inc., a Delaware corporation (the "Company"): the 1998 Incentive Stock Option Plan ("Plan A") and the 1998 Nonstatutory Stock Option Plan ("Plan B") (collectively the "Plans"). Plan A provides for the granting of options that are intended to qualify as incentive stock options ("Incentive Stock Options") within the meaning of Section 422(b) of the Internal Revenue Code, as amended. Plan B provides for the granting of options that are not intended to so qualify. Unless specified otherwise, all the provisions of this Plan document relate equally to both Plan A and Plan B, which Plans are condensed into one Plan document solely for purposes of administrative convenience and are not intended to constitute tandem plans. The purposes of the Plans are (a) to attract and retain the best available people for positions of substantial responsibility, and (b) to provide additional incentive to the Employees of the Company (and its future parents and subsidiaries, if any) and to promote the success of the Company's business. 2. Definitions. For purposes of the Plans, the following terms will have the respective meanings indicated: (a) "Board" shall mean the Board of Directors of the Company; (b) "Code" shall mean the Internal Revenue Code of 1986, as amended; (c) "Common Stock" shall mean the Class A common stock of the Company; (d) "Company" shall mean MedCare Technologies, Inc., a Delaware corporation; (e) "Committee" shall mean the committee appointed by the Board in accordance with Paragraph 3(a) of this Plan document, if one is appointed; (f) "Employee" shall mean any person, including an officer or director, who is an employee (within the meaning of Section 422 of the Code) of the Company, any parent, any subsidiary or any successors to any of the foregoing; (g) "Incentive Option" shall mean an incentive stock option as defined in Section 422(b) of the Code; (h) "Non-Statutory Option" shall mean an option which does not qualify as an Incentive Option; (i) "Option" shall mean a stock option granted pursuant to the Plan, whether an Incentive Option or a Non-Statutory Option; (j) "Option Agreement" shall mean an agreement substantially in the form attached hereto as Exhibit A or the form attached hereto as Exhibit B, or such other form or forms as the Board (subject to the terms and conditions of the Plans) may from time to time approve, evidencing an Option; (k) "Option Grant Date" shall mean the date on which an Option is granted by the Board; (l) "Optioned Stock" shall mean the Common Stock subject to an Option granted pursuant to a Plan; (m) "Optionee" shall mean an Employee or other Eligible Person who receives an Option; (n) "Outstanding Incentive Option" shall mean any Incentive Stock Option which has not yet been exercised in full or has not yet expired by lapse of time; (o) "Parent" shall mean a "parent corporation" as defined in Section 424(e) of the Code; (p) "Plan A" shall mean the 1998 Incentive Stock Option Plan; (q) "Plan B" shall mean the 1998 Non-Statutory Stock Option Plan; (r) "Predecessor Corporation" shall mean a corporation which is a party to a transaction described in Code Section 424(a) (or which would be so described if a substitution or assumption under such section had been effected) with the Company, a Parent, a Subsidiary or a predecessor corporation of any such corporations. (s) "Share" shall mean a share of the Common Stock, as adjusted in accordance with Section 13 of this Plan document; (t) "Stock Purchase Agreement" shall mean an agreement substantially in the form attached hereto as Exhibit D or such other form or forms as the Board (subject to the terms and conditions of this Plan) may from time to time approve, which is to be executed as a condition of purchasing Optioned Stock upon exercise of an Option as provided in a Plan; and, (u) "Subsidiary" shall mean a subsidiary corporation as defined in Section 424(f) of the Code. 3. Administration of Plan. (a) Procedure. The Plans shall be administered by the Board. The Board may appoint a Committee consisting of not less than two (2) members of the Board to administer one or both of the Plans on behalf of the Board, subject to such terms and conditions as the Board may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members of the Committee, and thereafter, directly administer the Plans. Any references herein to the Board shall refer to the Committee, if one is appointed, to the extent of the Committee's authority. (b) Limitations on Members of Board. Members of the Board who are either eligible for options or have been granted Options may vote on any matters affecting the administration of the Plans or the grant of any Options pursuant to the Plans; except that no such member shall act in connection with an Option to himself or herself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to Options of such member. (c) Powers of the Board. Subject to the provisions of the Plan the Board shall have the authority, in its discretion, to make all determinations necessary or advisable for the administration of the Plans, including without limitation: (i) to determine, upon review of relevant information, the then fair market value per share of the Common Stock; (ii) to determine the exercise price of the Options to be granted, subject to the provisions of Paragraph 8 of this Plan document; (iii) to determine the Employees to whom, and the time or times at which, Options shall be granted, and the number of shares of Optioned Stock to be represented by each Option; (iv) to determine whether Options granted hereunder shall be granted under Plan A as Incentive Options or Plan B as Non-statutory Options; (v) to prescribe, amend and rescind rules and regulations relating to the Plans; (vi) to determine the terms and provisions of each Option granted under the Plans (which need not be identical) and to modify or amend each Option (with or without consent of the Optionee, if necessary); (vii) to accelerate the exercise date of any Option; (viii) to construe and interpret the Plans, the Option Agreements, Stock Purchase Agreements and any other agreements provided for hereunder; and (ix) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Board or to take such other actions as may be necessary or advisable with respect to the Company's rights pursuant to the Option, Stock Purchase Agreement or other agreement approved hereunder. (d) Effect of the Board's or Committee's Decision. All decisions, determinations and interpretations of the Board or the Committee shall be final and binding on all Optionees and any other proper holders of any Options granted under the Plan. 4. Stock Subject to the Plan. Subject to the provisions of Section 13 of this Plan document, the maximum aggregate number of shares which may be optioned under these Plans is 500,000 shares of authorized Common Stock. This constitutes an absolute cumulative limitation on the total number of shares that may be optioned under Plan A and Plan B and, therefore, at any particular date the maximum aggregate number of shares which may be optioned under Plan A is equal to 500,000 minus the number of shares previously optioned under Plan A and Plan B; and the maximum aggregate number of shares which may be optioned under Plan B is equal to 500,000 minus the number of shares which have been previously optioned under Plan A or Plan B. All shares to be optioned under either Plan A or Plan B may be either authorized but unissued shares or shares held in the treasury. Shares of Common Stock that (a) are repurchased by the Company after issuance hereunder pursuant to the exercise of an Option or (b) are not purchased by the Optionee prior to the expiration of the applicable Option Period (as described hereinbelow) shall again become available to be covered by Options to be issued hereunder and shall not, as of the effective date of such repurchase or expiration, be counted as having been previously optioned for purposes of the above-described maximum number of shares which may be optioned hereunder. 5. Eligibility. Options under Plan A may be granted to any Employee who is designated by the Board in its discretion. NonEmployees, including directors of the Company or any Parent or Subsidiary, who are not regular employees of the Company, are not eligible to receive Options under Plan A. Options under Plan B may be granted to any Employee, any Non-Employee director of Company or any Parent or Subsidiary, and any consultant or independent contractors who provide valuable services to the Company (or its Parent or Subsidiary), all as designated by the Board in its discretion. An Optionee who has been granted an Option may, if otherwise eligible, be granted an additional Option or Options. Options may be granted to one or more persons without being granted to other eligible persons, as the Board may deem fit. 6. Term of the Plan. Plan A shall become effective immediately upon the earlier to occur of its adoption by the Board or its approval by vote of a majority of the outstanding shares of the Company entitled to vote on the adoption of such Plan. Plan B shall become effective immediately upon its adoption by the Board. Each Plan shall continue in effect until December 31, 2005 unless sooner terminated under Sections 15 or 18 of this Plan document. No Option may be granted under a Plan after its expiration. 7. Option Period. Each Option granted pursuant to either Plan shall be evidenced by an Option Agreement. Each Option shall expire and all rights thereunder shall end at the expiration of such period (which shall in no event be more than ten (10) years) after the Option Grant Date as shall be fixed by the Board, subject in all cases to earlier expiration as provided in Section 11 of this Plan document. Notwithstanding the foregoing, the term of each Incentive Option granted to an Employee who, at the time the Incentive Option is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary (determined as required by the Code as applied to Incentive Options) shall not be more than five (5) years from the Option Grant Date. 8. Option Price and Consideration. (a) Price. The per share Option price for the Shares to be issued pursuant to an Option granted under either Plan shall be such price as is determined by the Board in its sole discretion. Notwithstanding the foregoing, with respect to Incentive Options granted under Plan A: (i) such price shall in no event be less than one hundred percent (100%) of the fair market value per Share of the Company's Common Stock on the Option Grant Date, as determined by the Board; and (ii) in the case of an Incentive Option granted to an Employee who, at the time the Option is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent, Subsidiary or Predecessor Corporation (determined as required by the Code as applied to Incentive Options), the per share Option price shall be at least one hundred ten percent (110%) of the fair market value as of the Option Grant Date, as determined by the Board. The fair market value shall be determined by the Board in its sole discretion, exercised in good faith; provided, however, that where there is a public market for the Common Stock, the fair market value per share shall be the mean of the reported bid and asked price for the Common Stock on the date of the grant, or, in the event the Common Stock is listed on a stock exchange, the fair market value per share shall be the closing price on the exchange as of the date of grant of the Option. (b) Form of Consideration. The form of consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Board and may consist of cash, promissory notes, or the surrender of shares of Common Stock having a fair market value on the date of surrender equal to the purchase price of the Shares as to which said Option shall be exercised, a combination thereof, or such other consideration and method of payment for the issuance of Shares as is permitted under applicable law. (c) Promissory Notes. If the consideration for the exercise of an Option is a promissory note, such note shall be a full recourse promissory note executed by the Optionee. If the option is an Incentive Option under Plan A, such note shall bear interest at a per annum rate which is not less than the greater of (i) the applicable "test rate" described in Treasury Regs. Section 1.4831(d) in effect on the date of exercise or (ii) a fair market interest rate, as determined by the Board in its good faith discretion. If a promissory note is given as consideration, the Company may retain the Shares purchased upon exercise of the Option in escrow as security for payment of the promissory note. (d) Surrendered Common Stock. If the consideration for the exercise of an Option is the surrender of previously acquired and owned shares of common stock of the Company, the Optionee will be required to make representations and warranties satisfactory to the Company regarding the Optionee's title to the shares used to effect the purchase, including without limitation, representations and warranties that the Optionee has good and marketable title to such shares free and clear of any and all liens, encumbrances, charges, equities, claims, security interests, options or restrictions and has full power to deliver such shares without obtaining the consent or approval of any person or governmental authority other than those which have already given consent or approval in a form satisfactory to the Company. The value of the shares used to effect the purchase shall be the fair market value of those shares as determined by the Board in its sole discretion, exercised in good faith. 9. Limit on Value of Optioned Stock Issued Under Plan A. The aggregate fair market value (determined as of the Option Grant Date of each Option) of the Shares with respect to which Incentive Options are exercisable for the first time by the Optionee during any calendar year under Plan A and all other incentive stock option plans of the Company, any Parent or Subsidiary, or any Predecessor Corporation of any such corporation shall not exceed One Hundred Thousand Dollars ($100,000.00), as determined pursuant to Section 422(d) of the Code. 10. Exercise of Option. (a) General Terms. Any Option granted hereunder shall be exercisable at such times and under such conditions as may be determined by the Board which conditions may include performance criteria with respect to the Company and/or the Optionee or provisions for vesting over a period of time conditioned upon continued employment and shall include the contemporaneous execution of a Stock Purchase Agreement in a form approved by the Board and as shall be permissible under the terms of the Plan. In all events, in order to exercise an Option hereunder the Optionee shall execute a Stock Purchase Agreement in a form approved by the Board and shall deliver the required (or permitted) exercise consideration to the Company. As a condition to the exercise of an Option, the Board may require the Optionee pursuant to the Option Agreement to agree to restrictions on the sale or other transfer of ownership of the Common Stock acquired by an Optionee or to sell such Shares to the Company upon termination of employment. (b) Partial Exercise. An Option may be exercised in accordance with the provisions of either Plan as to all or any portion of the Shares then exercisable under an Option, from time to time during the term of the Option. An Option may not be exercised for a fraction of a Share. (c) Time of Exercise. An Option shall be deemed to be exercised when the Company has received at its principal business office: (i) written notice of such exercise in accordance with the terms of the Option Agreement and given by the person entitled to exercise the Option; (ii) full payment for the Shares with respect to which the Option is exercised; (iii) the executed Stock Purchase Agreement if required; and (iv) any other representations or agreements required by the terms of this Plan or the Option Agreement. Full payment may consist of such consideration as is authorized by the Board as provided hereunder. (d) No Rights as Shareholder Until Exercise. Until this Option is properly exercised hereunder and the Company receives full payment for the Shares with respect to which the Option is exercised, no right to receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Option is properly exercised and payment in full is received, except as provided in Section 13 of this Plan document. (e) Issuance of Share Certificates. As soon as practicable after any proper exercise of an Option in accordance with the provisions of this Plan document and payment in full for the exercised Shares, the Company shall, without transfer or issue tax to the Optionee, deliver to the Optionee at the principal business office of the Company, or such other place as shall be mutually acceptable, a certificate or certificates representing the Shares of Common Stock as to which the Option has been exercised. The time of issuance and delivery of the certificates) representing the Shares of Common Stock may be postponed by the Company for such period as may be required for it, with reasonable diligence, to comply with any applicable listing requirements of any national or regional securities exchange and any law or regulation applicable to the issuance and delivery of such Shares. (f) Reduction of Shares Upon Exercise. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. 11. Termination of Employment. (a) General. If an Optionee ceases to be an Employee for any reason then, except as provided in Paragraph 11(a) or 11(b) hereof, any Option of the Optionee, whether vested or non-vested, and if issued under Plan A or Plan B, shall terminate as of the date of termination of employment. (b) Death or Disability. If Optionee dies or becomes disabled (within the meaning of Code Section 422 and the rules and regulations thereunder) then, within the earlier of thirty (30) days (or such other period of time not exceeding six (6) months as set forth in the Option Agreement) following the date of such death or disability and the time the Option expires by its terms, the Optionee or such person or persons to whm the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution, may exercise the Option to the extent it was vested and exercisable on the date of death or disability. 12. Non-transferability of Options. The Options and any rights and privileges granted under any Option Agreement are not transferable by the Optionee, either voluntarily or by operation of law, otherwise than by will and the laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. 13. Adjustments Upon Changes in Capitalization. (a) Reorganizations, Recapitalization, Etc. If the outstanding shares of Common Stock of the Company are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend (but only on Common Stock), stock split, reverse stock split or other similar transaction, or, if any other increase or decrease occurs in the number of Shares of Common Stock of the Company without the receipt of consideration by the Company, then an appropriate and proportional adjustment shall be made in (i) the number and kind of shares of stock covered by each outstanding Option, (ii) the number and kind of shares of stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted (or which have been returned to the Plan upon cancellation of an Option), and (iii) the exercise price per share of stock covered by each such outstanding Option. The granting of stock options or bonuses to Employees of the Company and the conversion of any convertible securities of the Company shall not be deemed to have been "effected without the receipt of consideration." Notwithstanding the foregoing, no adjustment need be made under this paragraph if, upon the advice of counsel, the Board determines that such adjustment may result in federal taxable income to the holders of Options or Common Stock or other classes of the Company's securities. (b) Dissolution, Liquidation, Etc. Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon a sale (or exchange through merger) of substantially all the property or more than fifty percent (50%) of the then outstanding stock of the Company to another corporation, the Plan shall terminate, and any Option theretofore granted hereunder shall terminate. Notwithstanding the foregoing, the Board may provide in writing in connection with, or in contemplation of, such transaction for any, all or none of the following alternatives (separately or in combination): (i) for all or a portion of the Options theretofore granted to become immediately exercisable; (ii) for the assumption by the successor corporation of the Options theretofore granted or the substitution by such corporation for such Options of new options covering the stock of the successor corporation, or a Parent or Subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; or (iii) for the continuance of the Plan by such successor corporation in which event the Plan and the Options theretofore granted shall continue in the manner and under the terms so provided. (c) No Fractional Shares. No fractional shares of the Common Stock shall be issuable on account of any action under this Paragraph 13, and the aggregate number of shares into which Shares then covered by an Option, when changed as the result of such action, shall be reduced to the largest number of whole Shares resulting from such action. Notwithstanding the foregoing, the Board, in its sole discretion, may determine to issue scrip certificates, in respect to any fractional shares, which scrip certificates, in such event, shall be in a form and have such terms and conditions as the Board in its discretion shall prescribe. (d) Binding Effect of Board Determinations. All adjustments under this Paragraph 13 shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. (e) No Other Adjustments. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares of Common Stock subject to the Plan or any Options. 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time and from time to time suspend or terminate either Plan. The Board may also amend or revise either Plan from time to time in such respects as the Board may deem advisable, except that, without approval of the holders of the majority of the outstanding shares of the Company's Common Stock, no such revision or amendment shall amend Plan A or Plan B so as to: (i) Increase the number of Shares subject to Plan A or Plan B other than in connection with an adjustment under Section 13 of this Plan document; (ii) Permit the granting of Incentive Options to anyone other than as provided in Paragraph 5; (iii) Remove the administration of Plan A or Plan B from the Board; (iv) Extend the term of Plan A or Plan B beyond that provided in Paragraph 6 hereof; (v) Extend the term of any Incentive Option beyond the maximum term set forth in Paragraph 7; (vi) Permit the granting of Incentive Options which would not qualify as Incentive Stock Options; or (vii) Decrease the per share option price required with respect to Incentive Options under Paragraph 8(a) hereof. (b) Effect of Termination. Except as otherwise provided in Section 13, without the written consent of the Optionee, any such termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if the Plan had not been terminated. 15. Conditions Upon Issuance of Shares. Options granted under either Plan are conditioned upon the Company obtaining any required permit, or exemption from the qualification or registration provisions of any applicable state securities law and other appropriate governmental agencies, authorizing the Company to issue such Options and Optioned Stock upon terms and conditions acceptable to the Company. Shares shall not be issued with respect to an Option granted under either Plan unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Board may require the person exercising such Option to execute an agreement approved by the Board, and may require the person exercising such Option to make any representation and warranty to the Company as may, in the judgment of counsel to the Company, be required under applicable laws or regulations. 16. Reservation of Shares. During the term of the Plans, the Company will at all times reserve and keep available the number of Shares as shall be sufficient to satisfy the requirements of the Plans. During the term of the Plans, the Company will use its best efforts to seek to obtain from appropriate regulatory agencies any requisite authorization in order to issue and sell such number of Shares of its Common Stock as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain from any such regulatory agency the requisite authorization(s) deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, or the inability of the Company to confirm to its satisfaction that any issuance and sale of any Shares hereunder will meet applicable legal requirements, shall relieve the Company of any liability in respect to the non-issuance or sale of such Shares as to which such requisite authority shall not have been obtained. 17. Taxes, Fees, Expenses and Withholding of Taxes. (a) Issue and Transfer Taxes. The Company shall pay all original issue and transfer taxes (but not income taxes, if any) with respect to the grant of Options and the issue and transfer of Shares pursuant to the exercise of such Options, and all other fees and expenses necessarily incurred by the Company in connection therewith, and will use its best efforts to comply with all laws and regulations which, in the opinion of counsel for the Company, shall be applicable thereto. (b) Withholding. The grant of Options hereunder and the issuance of Shares of Common Stock pursuant to the exercise of such Options are conditioned upon the Company's reservation of the right to withhold, in accordance with any applicable law, from any compensation payable to the Optionee any taxes required to be withheld by federal, state or local law as a result of the grant or exercise of such Option or the sale of the Shares issued upon exercise of the Option. 18. Shareholder Approval of Plan A and Plan B. Continuance of Plan A and Plan B and the effectiveness of any Option granted under such Plan shall be subject to approval by the holders of the outstanding voting stock of the Company in accordance with applicable law within twelve (12) months before or after the date Plan A and Plan B is adopted by the Board. Any Options granted under Plan A and Plan B prior to obtaining such shareholder approval shall be granted upon the conditions that the Options so granted: (i) shall not be exercisable prior to such approval and (ii) shall become null and void ab initio if such shareholder approval is not obtained. 19. Liability of Company. The Company, its Parent or any Subsidiary which is in existence or hereafter comes into existence, will not be liable to an Optionee granted an Incentive Option or other person if it is determined for any reason by the Internal Revenue Service or any court having jurisdiction that any Incentive Options granted hereunder are not Incentive Stock Options. 20. Notices. Any notice to be given to the Company pursuant to the provisions of the Plans shall be addressed to the Company in care of its Secretary at its principal office, and any notice to be given to an Optionee shall be delivered personally or addressed to such Optionee at the address given beneath such Optionee's signature on such Optionee's Stock Option Agreement, or at such other address as such Employee (or any transferee) upon the transfer of the Optioned Stock may hereafter designate in writing to the Company. Any such notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, registered or certified, and deposited, postage and registry or certification fee prepaid, in a post office or branch post office regularly maintained by the United States Postal Service. It shall be the obligation of each Optionee and each transferee holding Shares purchased upon exercise of an Option to provide the Secretary of the Company, by letter mailed as provided hereinabove, with written notice of such person's direct mailing address. 21. No Enlargement of Employee Rights. This Plan is purely voluntary on the part of the Company, and the continuance of the Plan shall not be deemed to constitute a contract between the Company and any Employee, or to be consideration for or a condition of the employment of any Employee. Nothing contained in this Plan shall be deemed to give any Employee the right to be retained in the employ of the Company, its Parent, Subsidiary or a successor corporation, or to interfere with the right of the Company or any such corporations to discharge or retire any Employee thereof at any time. No Employee shall have any right to or interest in Options authorized hereunder prior to the grant of such Option to such employee, and upon such grant he or she shall have only such rights and interests as are expressly provided herein, subject, however, to all applicable provisions of the Company's Certificate of Incorporation, as the same may be amended from time to time. 22. Legends on Certificates. (a) Federal Law. Unless an appropriate registration statement is filed pursuant to the Federal Securities Act of 1933, as amended, with respect to the Options and Shares issuable under the Plans, each certificate representing such Options and Shares shall be endorsed on its face with a legend substantially as follows: "THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." (b) State Legend. If required by applicable state authorities each certificate representing the Options and Shares issuable under the Plans shall be endorsedon its face with any legends required by such authorization. (c) Additional Legends. Each certificate representing the Options and Shares issuable under the Plans shall also contain legends as are set forth in any Stock Purchase Agreement or other agreement the execution of which is a condition to the exercise of an Option under this Plan. In addition, each Option Agreement shall be endorsed with a legend substantially as follows: "THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAYBE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS OPTION." 23. Availability of Plan. A copy of the Plans shall be delivered to the Secretary of the Company and shall be shown by him to any eligible person making reasonable inquiry concerning it. 24. Invalid Provisions. In the event that any provision of the Plans is found to be invalid or otherwise unenforceable under any applicable law, such invalidity or unenforceability shall not be construed as rendering any other provisions contained herein as invalid or unenforceable, and all such other provisions shall be given full force and effect to the same extent as though the invalid or unenforceable provision was not contained herein. 25. Applicable Law. These Plans shall be governed and construed in accordance with the laws of the State of Delaware applicable to contracts executed, and to be fully performed, in Delaware. IN WITNESS WHEREOF, pursuant to the due authorization and adoption of these Plans by the Board on , 199__, the Company has caused these Plans to be duly executed by its duly authorized officers, effective as of , 199__. MedCare Technologies, Inc. a Delaware corporation By: ----------------------------------- Title: President EXHIBIT "A" PLAN A THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS OPTION. INCENTIVE STOCK OPTION AGREEMENT AGREEMENT made as of the __________ day of _____________, 19__, by and between Medcare Technologies, Inc. a Delaware corporation (hereinafter called "Company") and____________ (hereinafter called "Optionee"). RECITALS A. The Board of Directors of the Company has adopted the Company's 1998 Incentive Stock Option Plan (the "Plan") for the purpose of attracting and retaining the services of selected key employees (including officers and employee directors), who contribute to the financial success of the Company or its parent or subsidiary corporations. B. Optionee is a key member of the Company or its parent or subsidiary corporations, and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Company's grant of a stock option to the Optionee. C. The granted option is intended to be an incentive stock option ("Incentive Option") within the meaning of Section 422 of the Internal Revenue Code. NOW, THEREFORE, it is hereby agreed as follows: 1. Grant of Option. Subject to and upon the terms and conditions set forth in this Agreement, there is hereby granted to Optionee, as of the date of this Agreement (the "Grant Date"), a stock option to purchase up to ______ shares of the Company's Common Stock (the "Optioned Shares") from time to time during the option term at the option price of $____ per share. 2. Plan. The options granted hereunder are in all instances subject to the terms and conditions of the Plan. In the event of any conflict between this Agreement and the Plan, the provisions of the Plan shall control. Optionee acknowledges receipt of a copy of the Plan and hereby accepts this option subject to all of the terms and conditions of the Plan. Optionee agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan. 3. Option Term. This option shall have a maximum term of five (5) years measured from the Grant Date and shall accordingly expire at the close of business on ________, 19__ (the "Expiration Date"), unless sooner terminated in accordance with Paragraph 7, 9(a) or 20. 4. Option Nontransferable; Exception. This option shall be neither transferable nor assignable by Optionee, either voluntarily or involuntarily, other than by will or by the laws of descent and distribution and may be exercised, during Optionee's lifetime, only by Optionee. 5. Condition Precedent to Exercise. This option may not be exercised in whole or in part at any time prior to the time the Company has satisfied the following condition precedent: __________. In the event the foregoing condition precedent has not been satisfied prior to the Expiration Date or prior to this option's earlier termination in accordance with Paragraph 7, 9(a) or 20, then this option shall terminate and cease to be outstanding. 6. Dates of Exercise. This option may not be exercised in whole or in part at any time prior to the time it is approved by the Company's shareholders in accordance with Paragraph 20. Provided such shareholder approval is obtained and the condition precedent to exercise set forth in Paragraph 5 has been satisfied, this option shall become exercisable for 100% of the Optioned Shares one (1) year from the Grant Date, provided that in no event may options for more than One Hundred Thousand Dollars ($100,000) of Optioned Shares, calculated at the exercise price, become exercisable for the first time in any calendar year. Once exercisable, options shall remain so exercisable until the expiration or sooner termination of the option term under Paragraph 7 or Paragraph 9(a) of this Agreement. In no event, however, shall this option be exercisable for any fractional shares. 7. Accelerated Termination of Option Term. The option term specified in Paragraph 3 shall terminate (and this option shall cease to be exercisable) prior to the Expiration Date should one of the following provisions become applicable: (i) Except as otherwise provided in subparagraphs (ii) and (iii) below, should Optionee cease to be an Employee of the Company for any reason at any time during the option term, any option of the Optionee, whether vested or non-vested, and if issued under Plan A, shall terminate as of the date of termination of employment. (ii) Should Optionee die while this option is outstanding, then the executors or administrators of Optionee's estate or Optionee's heirs or legatees (as the case may be) shall have the right to exercise this option for the number of shares (if any) for which the option is exercisable on the date of the optionee's death. Such right shall lapse and this option shall cease to be exercisable upon the earlier of (i) six (6) months from the date of the optionee's death or (ii) the Expiration Date. (iii) Should Optionee become permanently disabled and cease by reason thereof to be an Employee of the Company at any time during the option term, then Optionee shall have a period of six (6) months (commencing with the date of such cessation of Employee status) during which to exercise this option; provided, however, that in no event shall this option be exercisable at any time after the Expiration Date. Optionee shall be deemed to be permanently disabled if Optionee is, by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of not less than twelve (12) months, unable to perform his/her usual duties for the Company or its Parent or Subsidiary corporations. Upon the expiration of the limited period of exercisability or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding. (iv) For purposes of this Paragraph 7 and for all other purposes under this Agreement, Optionee shall be deemed to be an Employee of the Company and to continue in the Company's employ for so long as Optionee remains an Employee of the Company or one or more of its parent or subsidiary corporations as such terms are defined in the Plan. 8. Adjustment in Option Shares (a) In the event any change is made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, combination of shares, or other change affecting the outstanding Common Stock as a class without receipt of consideration (as set forth in the Plan), then appropriate adjustments will be made to (i) the total number of Optioned Shares subject to this option and (h) the option price payable per share in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder. (b) If the Company is the surviving entity in any merger or other business combination, then this option, if outstanding under the Plan immediately after such merger or other business combination shall be appropriately adjusted to apply and pertain to the number and class of securities to which Optionee immediately prior to such merger of other business combination would have been entitled to receive in the consummation of such merger or other business combination. 9. Special Termination of Option. (a) In the event of one or more of the following transactions (a "Corporate Transaction"): (i) a merger or acquisition in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company; or (iii) any other corporate reorganization or business combination in which fifty percent (50%) or more of the Company's outstanding voting stock is transferred, or exchanged through merger, to different holders in a single transaction or a series of related transactions; then this option shall terminate upon the consummation of such Corporate Transaction and cease to be exercisable, unless it is expressly assumed by the successor corporation or parent thereof. The Company shall Corporate Transaction. The Company can give no assurance that the options shall be assu provide Optionee with at least thirty (30) days prior written notice of the specified date for the med by the successor corporation or its parent company and it may occur that some options outstanding under the Plan will be assumed while these options are terminated. (b) In the event of a Corporate Transaction, the Company may, at its option, accelerate the vesting schedule contained in Section 6 hereof, but shall have no obligation to do so. The Company shall have the right to accelerate other options outstanding under the Plan or any other plan, even if it does not accelerate the options of Optionee hereunder. (c) This Agreement shall not in any way affect the right of the Company to make changes in its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 10. Privilege of Stock Ownership. The holder of this option shall not have any of the rights of a shareholder with respect to the Optioned Shares until such individual shall have exercised the option and paid the option price in accordance with this Agreement. 11. Manner of Exercising Option. (a) In order to exercise this option with respect to all or any part of the Optioned Shares for which this option is at the time exercisable, Optionee (or in the case of exercise after Optionee's death, Optionee's executor, administrator, heir or legatee, as the case may be) must take the following actions: (i) Execute and deliver to the Secretary of the Company a stock purchase agreement in substantially the form of Exhibit D to this Agreement (the "Purchase Agreement"); (ii) Pay the aggregate option price for the purchased shares in cash, unless another form of consideration is permitted as described in Exhibit C, if any, attached hereto or by the Board at the time of exercise. (b) This option shall be deemed to have been exercised with respect to the number of Optioned Shares specified in the Purchase Agreement at such time as the executed Purchase Agreement for such shares shall have been delivered to the Company and all other conditions of this Section have been fulfilled. Payment of the option price shall immediately become due and shall accompany the Purchase Agreement. As soon thereafter as practical, the Company shall mail or deliver to Optionee or to the other person or persons exercising this option a certificate or certificates representing the shares so purchased and paid for. 12. Compliance with Laws and Regulations. (a) The exercise of this option and the issuance of Optioned Shares upon such exercise shall be subject to compliance by the Company and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange on which shares of the Company's Common Stock may be listed at the time of such exercise and issuance. (b) In connection with the exercise of this option, Optionee shall execute and deliver to the Company such representations in writing as may be requested by the Company in order for it to comply with the applicable requirements of federal and state securities laws. 13. Successors and Assigns. Except to the extent otherwise provided in Paragraph 4 or 9(a), the provisions of this Agreement shall insure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of Optionee and the successors and assigns of the Company. 14. Liability of Company. (a) If the Optioned Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of Common Stock which may without shareholder approval be issued under the Plan, then this option shall be void with respect to such excess shares unless shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under the Plan is obtained in accordance with the provisions of Section 18 of the Plan. (b) The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option without the imposition of requirements unacceptable to the Company in its reasonable discretion shall relieve the Company of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained. The Company, however, shall use its best efforts to obtain all such approvals. (c) Neither the Company nor any Parent, Subsidiary or successor corporation will have any liability to Optionee or any other person if it is determined for any reason that any options granted hereunder are not Incentive Stock Options. 15. No Employment Contract. Except to the extent the terms of any written employment contract between the Company and Optionee may expressly provide otherwise, the Company (or any parent or subsidiary corporation of the Company employing Optionee) shall be under no obligation to continue the employment of Optionee for any period of specific duration and may terminate Optionee's status as an Employee at any time, with or without cause. 16. Notices. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Company in care of its Secretary at its corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee's signature line on this Agreement. All notices shall be deemed to have been given or delivered upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified. 17. Loans or Guarantees. The Company may, in its absolute discretion and without any obligation to do so, assist Optionee in the exercise of this option by (i) authorizing the extension of a loan to Optionee from the Company, (ii) permitting Optionee to pay the option price for the purchased Common Stock in installments over a period of years, or (iii) authorizing a guarantee by the Company of a third party loan to Optionee. The terms of any loan, installment method of payment or guarantee (including the interest rate, the Collateral requirements and terms of repayment) shall be established by the Company in its sole discretion. 18. Construction. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the Plan. All decisions of the Company with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option. 19. Governing Law. The interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Delaware. 20. Shareholder Approval. The grant of this option is subject to approval of the Plan by the Company's shareholders within twelve (12) months after the adoption of the Plan by the Board of Directors, and this option may not be exercised in whole or in part until such shareholder approval is obtained. In the event that such shareholder approval is not obtained, then this option shall thereupon terminate and Optionee shall have no further rights to acquire any Optioned Shares hereunder. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate on its behalf by its duly authorized officer and Optionee has also executed this Agreement in duplicate, all as of the day and year indicated above. MedCare Technologies, Inc. a Delaware corporation By: ---------------------------------- Title: ------------------------------- - ---------------------------- , Optionee - ------------- Address: ------------------- ------------------- ------------- EXHIBIT B Other Forms of Acceptable Consideration [If no forms are listed hereon, cash shall be the only acceptable form of consideration for the exercise of the options.] ------------- "EXHIBIT B" PLAN B THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION TATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS OPTION. NON-STATUTORY STOCK OPTION AGREEMENT AGREEMENT made as of the ____ day of __________, 199__, by and between MedCare Technologies, Inc, a Delaware corporation (hereinafter called "Company"), and ___________ (hereinafter called "Optionee"). RECITALS A. The Board of Directors of the Company has adopted the Company's 1998 Non-Statutory Stock Option Plan (the "Plan") for the purpose of attracting and retaining the services of selected key employees (including officers and employee directors) and others (collectively, "Eligible Persons"), who contribute to the financial success of the Company or its parent or subsidiary corporations. B. Optionee is an Eligible Person and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Company's grant of a stock option to Optionee. C. The granted option is not intended to be an incentive stock option ("Incentive Option") within the meaning of Section 422 of the Internal Revenue Code, but is rather a non-statutory option. NOW, THEREFORE, it is hereby agreed as follows: 1. Grant of Option. Subject to and upon the terms and conditions set forth in this Agreement, there is hereby granted to Optionee, as of the date of this Agreement (the "Grant Date"), a stock option to purchase up to __________ shares of the Company's Common Stock (the "Optioned Shares") from time to time during the option term at the option price of $_______ per share. 2. Plan. The options granted hereunder are in all instances subject to the terms and conditions of the Plan. In the event of any conflict between this Agreement and the Plan, the provisions of the Plan shall control. Optionee acknowledges receipt of a copy of the Plan and hereby accepts this option subject to all of the terms and conditions of the Plan. Optionee agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan. 3. Option Term. This option shall have a maximum term of years measured from the Grant Date and shall accordingly expire at the close of business on ___________, 199__ (the "Expiration Date"), unless sooner terminated in accordance with Paragraph 6 or 8(a). 4. Option Nontransferable; Exception. This option shall be neither transferable nor assignable by Optionee, either voluntarily or involuntarily, other than by will or by the laws of descent and distribution and may be exercised, during Optionee's lifetime, only by Optionee. 5. Dates of Exercise. This option shall be exercisable as follows: ________. Once exercisable, options shall remain so exercisable until the expiration or sooner termination of the option term under Paragraph 6 or Paragraph 8(a) of this Agreement. In no event, however, shall this option be exercisable for any fractional shares. 6. Accelerated Termination of Option Term. The option term specified in Paragraph 3 shall terminate (and this option shall cease to be exercisable) prior to the Expiration Date should one of the following provisions become applicable: (i) (i) Except as otherwise provided in subparagraphs (ii) and (iii) below, should Optionee cease to be an Employee of the Company for any reason at any time during the option term, any option of the Optionee, whether vested or non-vested, and if issued under Plan B, shall terminate as of the date of termination of employment. (ii) Should Optionee die while this option is outstanding, then the executors or administrators of Optionee's estate or Optionee's heirs or legatees (as the case may be) shall have the right to exercise this option for the number of shares (if any) for which the option is exercisable on the date of the optionee's death. Such right shall lapse and this option shall cease to be exercisable upon the earlier of (i) six (6) months from the date of the optionee's death or (ii) the Expiration Date. (iii) Should Optionee become permanently disabled and cease by reason thereof to be an Employee of the Company at any time during the option term, then Optionee shall have a period of six (6) months (commencing with the date of such cessation of Employee status) during which to exercise this option; provided, however, that in no event shall this option be exercisable at any time after the Expiration Date. Optionee shall be deemed to be permanently disabled if Optionee is, by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of not less than twelve (12) months, unable to perform his/her usual duties for the Company or its Parent or Subsidiary corporations. Upon the expiration of the limited period of exercisability or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding. (iv) For purposes of this Paragraph 6 and for all other purposes under this Agreement, if Optionee is an Employee, Optionee shall be deemed to be an Employee of the Company and to continue in the Company's employ for so long as Optionee remains an Employee of the Company or one or more of its parent or subsidiary corporations as such terms are defined in the Plan. For purposes of this Paragraph 6 and for all other purposes under this Agreement, if Optionee is not an Employee, but is eligible because Optionee is a director, consultant or contractor of Company or a parent or subsidiary corporation, Optionee shall be deemed to be an Eligible Person for so long as Optionee remains a director, consultant or contractor of the Company or one or more of its parent or subsidiary corporations as such terms are defined in the Plan. 7. Adjustment in Option Shares. (a) In the event any change is made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, combination of shares, or other change affecting the outstanding Common Stock as a class without receipt of consideration (as set forth in the Plan), then appropriate adjustments will be made to (i) the total number of Optioned Shares subject to this option and (ii) the option price payable per share in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder. (b) If the Company is the surviving entity in any merger or other business combination, then this option, if outstanding under the Plan immediately after such merger or other business combination shall be appropriately adjusted to apply and pertain to the number and class of securities to which Optionee immediately prior to such merger or other business combination would have been entitled to receive in the consummation of such merger or other business combination. 8. Special Termination of Option. (a) In the event of one or more of the following transactions (a "Corporate Transaction"): (i) a merger or acquisition in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company; or (iii) any other corporate reorganization or business combination in which fifty percent (50%) or more of the Company's outstanding voting stock is transferred, or exchanged through merger, to different holders in a single transaction or a series of related transactions; then this option shall terminate upon the consummation of such Corporate Transaction and cease to be exercisable, unless it is expressly assumed by the successor corporation or parent thereof. The Company shall provide Optionee with at least thirty (30) days prior written notice of the specified date for the Corporate Transaction. The Company can give no assurance that the options shall be assumed by the successor corporation or its parent company and it may occur that some options outstanding under the Plan will be assumed while these options are terminated. (b) In the event of a Corporate Transaction, the Company may, at its option, accelerate the vesting schedule contained in Section 5 hereof, but shall have no obligation to do so. The Company shall have the right to accelerate other options outstanding under the Plan or any other plan, even if it does not accelerate the options of Optionee hereunder. (c) This Agreement shall not in any way affect the right of the Company to make changes in its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 9. Privilege of Stock Ownership. The holder of this option shall not have any of the rights of a shareholder with respect to the Optioned Shares until such individual shall have exercised the option and paid the option price in accordance with this Agreement. 10. Manner of Exercising Option. (a) In order to exercise this option with respect to all or any part of the Optioned Shares for which this option is at the time exercisable, Optionee (or in the case of exercise after Optionee's death, Optionee's executor, administrator, heir or legatee, as the case may be) must take the following actions: (i) Execute and deliver to the Secretary of the Company a stock purchase agreement in substantially the form of Exhibit "D" to this Agreement (the "Stock Purchase Agreement"); (ii) Pay the aggregate option price for the purchased shares in cash, unless another form of consideration is permited as described in Exhibit C, if any, attached hereto or by the Board at the time of exercise. (b) This option shall be deemed to have been exercised with respect to the number of Optioned Shares specified in the Purchase Agreement at such time as the executed Purchase Agreement for such shares shall have been delivered to the Company and all other conditions of this Section have been fulfilled. Payment of the option price shall immediately become due and shall accompany the Purchase Agreement. As soon thereafter as practical, the Company shall mail or deliver to Optionee or to the other person or persons exercising this option a certificate or certificates representing the shares so purchased and paid for. 11. Compliance With Laws and Regulations. (a) The exercise of this option and the issuance of Optioned Shares upon such exercise shall be subject to compliance by the Company and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange on which shares of the Company's Common Stock may be listed at the time of such exercise and issuance. (b) In connection with the exercise of this option, Optionee shall execute and deliver to the Company such representations in writing as may be requested by the Company in order for it to comply with the applicable requirements of federal and state securities laws. 12. Successors and Assigns. Except to the extent otherwise provided in Paragraph 4 or 8(a), the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of Optionee and the successors and assigns of the Company. 13. Liability of Company. (a) If the Optioned Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of Common Stock which may without shareholder approval be issued under the Plan, then this option shall be void with respect to such excess shares unless shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under the Plan is obtained in accordance with the provisions of Section 18 of the Plan. (b) The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option without the imposition of requirements unacceptable to the Company in its reasonable discretion shall relieve the Company of any liability with respect to the nonissuance or sale of the Common Stock as to which such approval shall not have been obtained. The Company, however, shall use its best efforts to obtain all such approvals. 14. No Employment Contract. Except to the extent the terms of any written employment contract between the Company and Optionee may expressly provide otherwise, the Company (or any parent or subsidiary corporation of the Company employing Optionee) shall be under no obligation to continue the employment of Optionee for any period of specific duration and may terminate Optionee's status as an Employee at any time, with or without cause. 15. Notices. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Company in care of its Secretary at its corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee's signature line on this Agreement. All notices shall be deemed to have been given or delivered upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified. 16. Withholding. Optionee acknowledges that, upon any exercise of this option, the Company shall have the right to require Optionee topay to the Company an amount equal to the amount the Company is required to withhold as a result of such exercise for federal and state income tax purposes. 17. Loans or Guarantees. The Company may, in its absolute discretion and without any obligation to do so, assist Optionee in the exercise of this option by (i) authorizing the extension of a loan to Optionee from the Company, (ii) permitting Optionee to pay the option price for the purchased Common Stock in installments over a period of years, or (iii) authorizing a guarantee by the Company of a third party loan to Optionee. The terms of any loan, installment method of payment or guarantee (including the interest rate, the Collateral requirements and terms of repayment) shall be established by the Company in its sole discretion. 18. Construction. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the express terms and provisions of the Plan. All decisions of the Company with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option. 19. Governing Law. The interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Delaware. 20. REPURCHASE R1GHTS. OPTIONEE HEREBY AGREES THAT ALL OPTIONED SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE COMPANY AND ITS ASSIGNS TO REPURCHASE SUCH SHARES IN ACCORDANCE WITH THE TERMS AND CONDITIONS SPECIFIED IN THE PURCHASE AGREEMENT, IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate on its behalf by its duly authorized officer and Optionee has also executed this Agreement in duplicate, all as of the day and year indicated above. MedCare Technologies, Inc. a Delaware corporation By: -------------------------------- Title: President - ------------------------- OPTIONEE: Address: EXHIBIT C Other Forms of Acceptable Consideration [If no forms are listed hereon, cash shall be the only acceptable form of consideration for the exercise of the options.] EXHIBIT "D" STOCK PURCHASE AGREEMENT This Agreement is made as of this_____ day of _____________199__, by and among MedCare Technologies, Inc, a Delaware corporation ("Corporation"), and_____________, the holder of a stock option under the Corporation's 1998 Stock Option Plan ("Optionee"). 1. EXERCISE OF OPTION 1.1 Exercise. Optionee hereby purchases shares of Class A Common Stock of the Corporation ("Purchased Shares") pursuant to that certain option ("Option") granted Optionee on ________ , 199__ under the Corporation's 1998 Stock Option Plan ("Plan") to purchase up to ___________ shares of the Corporation's Common Stock at an option price of $ _____per share ("Option Price"). 1.2 Payment. Concurrently with the delivery of this Agreement to the Secretary of the Corporation, Optionee shall pay the Option Price for the Purchased Shares in accordance with the provisions of the agreement between the Corporation and Optionee evidencing the Option ("Option Agreement") and shall deliver whatever additional documents may be required by the Option Agreement as a condition for exercise. 2. INVESTMENT REPRESENTATIONS 2.1 Investment Intent. Optionee hereby warrants and represents that Optionee is acquiring the Purchased Shares for Optionee's own account and not with a view to their resale or distribution and that Optionee is prepared to hold the Purchased Shares for an indefinite period and has no present intention to sell, distribute or grant any participating interests in the Purchase Shares. Optionee hereby acknowledges the fact that the Purchased Shares have not been registered under the Securities Act of 1933, as amended (the "1933 Act"), and that the Corporation is issuing the Purchased Shares to Optionee in reliance on the representations made by Optionee herein. 2.2 Restricted Securities. Optionee hereby confirms that Optionee has been informed that the Purchased Shares may not be resold or transferred unless the Purchased Shares are first registered under the Federal securities laws or unless an exemption from such registration is available. Accordingly, Optionee hereby acknowledges that Optionee is prepared to hold the Purchased Shares for an indefinite period and that Optionee is aware that Rule 144 of the Securities and Exchange Commission issued under the 1933 Act is not presently available to exempt the sale of the Purchased Shares from the registration requirements of the 1933 Act. Should Rule 144 subsequently become available, Optionee is aware that any sale of the Purchased Shares effected pursuant to the Rule may, depending upon the status of Optionee as an ttaffiliate" or "non-affiliate" under the Rule, be made only in limited amounts in accordance with the provisions of the Rule, and that in no event may any Purchased Shares be sold pursuant to the Rule until Optionee has held the Purchased Shares for the requisite holding period following payment in cash of the Option Price for the Purchased Shares. 2.3 Optionee Knowledge. Optionee represents and warrants that he or she has a preexisting business or personal relationship with the officers and directors of the Corporation, that he or she is aware of the business affairs and financial condition of the Corporation and that he or she has such knowledge and experience in business and financial matters with respect to companies in business similar to the Corporation to enable him or her to evaluate the risks of the prospective investment and to make an informed investment decision with respect thereto. Optionee further represents and warrants that the Corporation has made available to Optionee the opportunity to ask questions and receive answers from the Corporation concerning the terms and conditions of the issuance of the Purchased Shares and that he or she could be reasonably assumed to have the capacity to protect his or her own interests in connection with such investment. 2.4 Speculative Investment. Optionee represents and warrants that he or she realizes that his or her purchase of the Purchased Shares will be a speculative investment and that he or she is able, without impairing his or her financial condition, to hold the Purchased Shares for an indefinite period of time and to suffer a complete loss of his or her investment. Optionee represents and warrants that he or she is aware and fully understands the implications of the restrictions upon transfer imposed by the Plan and therefore on the Purchased Shares. 2.5 Restrictive Legends. In order to reflect the restrictions on disposition of the Purchased Shares, the stock certificates for the Purchased Shares will be endorsed with the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREUNDER OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. 3. MISCELLANEOUS PROVISIONS 3.1 Optionee Undertaking. Optionee hereby agrees to take whatever additional action and execute whatever additional documents the Corporation may in its judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either the Optionee or the Purchased Shares pursuant to the express provisions of this Agreement. 3.2 Agreement Is Entire Contract. This Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. This Agreement is made pursuant to the provisions of the Plan and shall in all respects be construed in conformity with the express terms and provisions of the Plan. 3.3 Governing Law. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 3.4 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 3.5 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and the Optionee and the Optionee's legal representatives, heirs, legatees, distributees, assigns and transfer by operation of law, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms and conditions hereof. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above. MedCare Technologies, Inc. a Delaware corporation By: ----------------------------- Title: President - --------------------------- OPTIONEE: Address: EX-10.(E) 3 1999 STOCK OPTION PLAN EXHIBIT 10e. 1999 INCENTIVE STOCK OPTION PLAN AND 1999 NONSTATUTORY STOCK OPTION PLAN 1. Names and Purposes of the Plans. This Plan document is intended to implement and govern two separate Stock Option Plans of MedCare Technologies, Inc., a Delaware corporation (the "Company"): the 1999 Incentive Stock Option Plan ("Plan A") and the 1999 Nonstatutory Stock Option Plan ("Plan B") (collectively the "Plans"). Plan A provides for the granting of options that are intended to qualify as incentive stock options ("Incentive Stock Options") within the meaning of Section 422(b) of the Internal Revenue Code, as amended. Plan B provides for the granting of options that are not intended to so qualify. Unless specified otherwise, all the provisions of this Plan document relate equally to both Plan A and Plan B, which Plans are condensed into one Plan document solely for purposes of administrative convenience and are not intended to constitute tandem plans. The purposes of the Plans are (a) to attract and retain the best available people for positions of substantial responsibility, and (b) to provide additional incentive to the Employees of the Company (and its future parents and subsidiaries, if any) and to promote the success of the Company's business. 2. Definitions. For purposes of the Plans, the following terms will have the respective meanings indicated: (a) "Board" shall mean the Board of Directors of the Company; (b) "Code" shall mean the Internal Revenue Code of 1986, as amended; (c) "Common Stock" shall mean the Class A common stock of the Company; (d) "Company" shall mean Medcare Technologies, Inc., a Delaware corporation; (e) "Committee" shall mean the committee appointed by the Board in accordance with Paragraph 3(a) of this Plan document, if one is appointed; (f) "Employee" shall mean any person, including an officer or director, who is an employee (within the meaning of Section 422 of the Code) of the Company, any parent, any subsidiary or any successors to any of the foregoing; (g) "Incentive Option" shall mean an incentive stock option as defined in Section 422(b) of the Code; (h) "Non-Statutory Option" shall mean an option which does not qualify as an Incentive Option; (i) "Option" shall mean a stock option granted pursuant to the Plan, whether an Incentive Option or a Non-Statutory Option; (j) "Option Agreement" shall mean an agreement substantially in the form attached hereto as Exhibit A or the form attached hereto as Exhibit B, or such other form or forms as the Board (subject to the terms and conditions of the Plans) may from time to time approve, evidencing an Option; (k) "Option Grant Date" shall mean the date on which an Option is granted by the Board; (l) "Optioned Stock" shall mean the Common Stock subject to an Option granted pursuant to a Plan; (m) "Optionee" shall mean an Employee or other Eligible Person who receives an Option; (n) "Outstanding Incentive Option" shall mean any Incentive Stock Option which has not yet been exercised in full or has not yet expired by lapse of time; (o) "Parent" shall mean a "parent corporation" as defined in Section 424(e) of the Code; (p) "Plan A" shall mean the 1999 Incentive Stock Option Plan; (q) "Plan B" shall mean the 1999 Non-Statutory Stock Option Plan; (r) "Predecessor Corporation" shall mean a corporation which is a party to a transaction described in Code Section 424(a) (or which would be so described if a substitution or assumption under such section had been effected) with the Company, a Parent, a Subsidiary or a predecessor corporation of any such corporations. (s) "Share" shall mean a share of the Common Stock, as adjusted in accordance with Section 13 of this Plan document; (t) "Stock Purchase Agreement" shall mean an agreement substantially in the form attached hereto as Exhibit D or such other form or forms as the Board (subject to the terms and conditions of this Plan) may from time to time approve, which is to be executed as a condition of purchasing Optioned Stock upon exercise of an Option as provided in a Plan; and, (u) "Subsidiary" shall mean a subsidiary corporation as defined in Section 424(f) of the Code. 3. Administration of Plan. (a) Procedure. The Plans shall be administered by the Board. The Board may appoint a Committee consisting of not less than two (2) members of the Board to administer one or both of the Plans on behalf of the Board, subject to such terms and conditions as the Board may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members of the Committee, and thereafter, directly administer the Plans. Any references herein to the Board shall refer to the Committee, if one is appointed, to the extent of the Committee's authority. (b) Limitations on Members of Board. Members of the Board who are either eligible for options or have been granted Options may vote on any matters affecting the administration of the Plans or the grant of any Options pursuant to the Plans; except that no such member shall act in connection with an Option to himself or herself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to Options of such member. (c) Powers of the Board. Subject to the provisions of the Plan the Board shall have the authority, in its discretion, to make all determinations necessary or advisable for the administration of the Plans, including without limitation: (i) to determine, upon review of relevant information, the then fair market value per share of the Common Stock; (ii) to determine the exercise price of the Options to be granted, subject to the provisions of Paragraph 8 of this Plan document; (iii) to determine the Employees to whom, and the time or times at which, Options shall be granted, and the number of shares of Optioned Stock to be represented by each Option; (iv) to determine whether Options granted hereunder shall be granted under Plan A as Incentive Options or Plan B as Non-statutory Options; (v) to prescribe, amend and rescind rules and regulations relating to the Plans; (vi) to determine the terms and provisions of each Option granted under the Plans (which need not be identical) and to modify or amend each Option (with or without consent of the Optionee, if necessary); (vii) to accelerate the exercise date of any Option; (viii) to construe and interpret the Plans, the Option Agreements, Stock Purchase Agreements and any other agreements provided for hereunder; and (ix) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Board or to take such other actions as may be necessary or advisable with respect to the Company's rights pursuant to the Option, Stock Purchase Agreement or other agreement approved hereunder. (d) Effect of the Board's or Committee's Decision. All decisions, determinations and interpretations of the Board or the Committee shall be final and binding on all Optionees and any other proper holders of any Options granted under the Plan. 4. Stock Subject to the Plan. Subject to the provisions of Section 13of this Plan document, the maximum aggregate number of shares which may be optioned under these Plans is 200,000 shares of authorized Common Stock. This constitutes an absolute cumulative limitation on the total number of shares that may be optioned under Plan A and Plan B and, therefore, at any particular date the maximum aggregate number of shares which may be optioned under Plan A is equal to 200,000 minus the number of shares previously optioned under Plan A and Plan B; and the maximum aggregate number of shares which may be optioned under Plan B is equal to 200,000 minus the number of shares which have been previously optioned under Plan A or Plan B. All shares to be optioned under either Plan A or Plan B may be either authorized but unissued shares or shares held in the treasury. Shares of Common Stock that (a) are repurchased by the Company after issuance hereunder pursuant to the exercise of an Option or (b) are not purchased by the Optionee prior to the expiration of the applicable Option Period (as described hereinbelow) shall again become available to be covered by Options to be issued hereunder and shall not, as of the effective date of such repurchase or expiration, be counted as having been previously optioned for purposes of the above-described maximum number of shares which may be optioned hereunder. 5. Eligibility. Options under Plan A may be granted to any Employee who is designated by the Board in its discretion. NonEmployees, including directors of the Company or any Parent or Subsidiary, who are not regular employees of the Company, are not eligible to receive Options under Plan A. Options under Plan B may be granted to any Employee, any Non-Employee director of Company or any Parent or Subsidiary, and any consultant or independent contractors who provide valuable services to the Company (or its Parent or Subsidiary), all as designated by the Board in its discretion. An Optionee who has been granted an Option may, if otherwise eligible, be granted an additional Option or Options. Options may be granted to one or more persons without being granted to other eligible persons, as the Board may deem fit. 6. Term of the Plan. Plan A shall become effective immediately upon the earlier to occur of its adoption by the Board or its approval by vote of a majority of the outstanding shares of the Company entitled to vote on the adoption of such Plan. Plan B shall become effective immediately upon its adoption by the Board. Each Plan shall continue in effect until December 31, 2009 unless sooner terminated under Sections 15 or 18 of this Plan document. No Option may be granted under a Plan after its expiration. 7. Option Period. Each Option granted pursuant to either Plan shall be evidenced by an Option Agreement. Each Option shall expire and all rights thereunder shall end at the expiration of such period (which shall in no event be more than ten (10) years) after the Option Grant Date as shall be fixed by the Board, subject in all cases to earlier expiration as provided in Section 11 of this Plan document. Notwithstanding the foregoing, the term of each Incentive Option granted to an Employee who, at the time the Incentive Option is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary (determined as required by the Code as applied to Incentive Options) shall not be more than five (5) years from the Option Grant Date. 8. Option Price and Consideration. (a) Price. The per share Option price for the Shares to be issued pursuant to an Option granted under either Plan shall be such price as is determined by the Board in its sole discretion. Notwithstanding the foregoing, with respect to Incentive Options granted under Plan A: (i) such price shall in no event be less than one hundred percent (100%) of the fair market value per Share of the Company's Common Stock on the Option Grant Date, as determined by the Board; and (ii) in the case of an Incentive Option granted to an Employee who, at the time the Option is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent, Subsidiary or Predecessor Corporation (determined as required by the Code as applied to Incentive Options), the per share Option price shall be at least one hundred ten percent (110%) of the fair market value as of the Option Grant Date, as determined by the Board. The fair market value shall be determined by the Board in its sole discretion, exercised in good faith; provided, however, that where there is a public market for the Common Stock, the fair market value per share shall be the mean of the reported bid and asked price for the Common Stock on the date of the grant, or, in the event the Common Stock is listed on a stock exchange, the fair market value per share shall be the closing price on the exchange as of the date of grant of the Option. (b) Form of Consideration. The form of consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Board and may consist of cash, promissory notes, or the surrender of shares of Common Stock having a fair market value on the date of surrender equal to the purchase price of the Shares as to which said Option shall be exercised, a combination thereof, or such other consideration and method of payment for the issuance of Shares as is permitted under applicable law. (c) Promissory Notes. If the consideration for the exercise of an Option is a promissory note, such note shall be a full recourse promissory note executed by the Optionee. If the option is an Incentive Option under Plan A, such note shall bear interest at a per annum rate which is not less than the greater of (i) the applicable "test rate" described in Treasury Regs. Section 1.4831(d) in effect on the date of exercise or (ii) a fair market interest rate, as determined by the Board in its good faith discretion. If a promissory note is given as consideration, the Company may retain the Shares purchased upon exercise of the Option in escrow as security for payment of the promissory note. (d) Surrendered Common Stock. If the consideration for the exercise of an Option is the surrender of previously acquired and owned shares of common stock of the Company, the Optionee will be required to make representations and warranties satisfactory to the Company regarding the Optionee's title to the shares used to effect the purchase, including without limitation, representations and warranties that the Optionee has good and marketable title to such shares free and clear of any and all liens, encumbrances, charges, equities, claims, security interests, options or restrictions and has full power to deliver such shares without obtaining the consent or approval of any person or governmental authority other than those which have already given consent or approval in a form satisfactory to the Company. The value of the shares used to effect the purchase shall be the fair market value of those shares as determined by the Board in its sole discretion, exercised in good faith. 9. Limit on Value of Optioned Stock Issued Under Plan A. The aggregate fair market value (determined as of the Option Grant Date of each Option) of the Shares with respect to which Incentive Options are exercisable for the first time by the Optionee during any calendar year under Plan A and all other incentive stock option plans of the Company, any Parent or Subsidiary, or any Predecessor Corporation of any such corporation shall not exceed One Hundred Thousand Dollars ($100,000.00), as determined pursuant to Section 422(d) of the Code. 10. Exercise of Option. (a) General Terms. Any Option granted hereunder shall be exercisable at such times and under such conditions as may be determined by the Board which conditions may include performance criteria with respect to the Company and/or the Optionee or provisions for vesting over a period of time conditioned upon continued employment and shall include the contemporaneous execution of a Stock Purchase Agreement in a form approved by the Board and as shall be permissible under the terms of the Plan. In all events, in order to exercise an Option hereunder the Optionee shall execute a Stock Purchase Agreement in a form approved by the Board and shall deliver the required (or permitted) exercise consideration to the Company. As a condition to the exercise of an Option, the Board may require the Optionee pursuant to the Option Agreement to agree to restrictions on the sale or other transfer of ownership of the Common Stock acquired by an Optionee or to sell such Shares to the Company upon termination of employment. (b) Partial Exercise. An Option may be exercised in accordance with the provisions of either Plan as to all or any portion of the Shares then exercisable under an Option, from time to time during the term of the Option. An Option may not be exercised for a fraction of a Share. (c) Time of Exercise. An Option shall be deemed to be exercised when the Company has received at its principal business office: (i) written notice of such exercise in accordance with the terms of the Option Agreement and given by the person entitled to exercise the Option; (ii) full payment for the Shares with respect to which the Option is exercised; (iii) the executed Stock Purchase Agreement if required; and (iv) any other representations or agreements required by the terms of this Plan or the Option Agreement. Full payment may consist of such consideration as is authorized by the Board as provided hereunder. (d) No Rights as Shareholder Until Exercise. Until this Option is properly exercised hereunder and the Company receives full payment for the Shares with respect to which the Option is exercised, no right to receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Option is properly exercised and payment in full is received, except as provided in Section 13 of this Plan document. (e) Issuance of Share Certificates. As soon as practicable after any proper exercise of an Option in accordance with the provisions of this Plan document and payment in full for the exercised Shares, the Company shall, without transfer or issue tax to the Optionee, deliver to the Optionee at the principal business office of the Company, or such other place as shall be mutually acceptable, a certificate or certificates representing the Shares of Common Stock as to which the Option has been exercised. The time of issuance and delivery of the certificates) representing the Shares of Common Stock may be postponed by the Company for such period as may be required for it, with reasonable diligence, to comply with any applicable listing requirements of any national or regional securities exchange and any law or regulation applicable to the issuance and delivery of such Shares. (f) Reduction of Shares Upon Exercise. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. 11. Termination of Employment. (a) General. If an Optionee ceases to be an Employee for any reason then, except as provided in Paragraph 11(a) or 11(b) hereof, any Option of the Optionee, whether vested or non-vested, and if issued under Plan A or Plan B, shall terminate as of the date of termination of employment. (b) Death or Disability. If Optionee dies or becomes disabled (within the meaning of Code Section 422 and the rules and regulations thereunder) then, within the earlier of thirty (30) days (or such other period of time not exceeding six (6) months as set forth in the Option Agreement) following the date of such death or disability and the time the Option expires by its terms, the Optionee or such person or persons to whm the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution, may exercise the Option to the extent it was vested and exercisable on the date of death or disability. 12. Non-transferability of Options. The Options and any rights and privileges granted under any Option Agreement are not transferable by the Optionee, either voluntarily or by operation of law, otherwise than by will and the laws of descent and distribution and shall be exercisable during Optionee's lifetime only by Optionee. 13. Adjustments Upon Changes in Capitalization. (a) Reorganizations, Recapitalization, Etc. If the outstanding shares of Common Stock of the Company are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend (but only on Common Stock), stock split, reverse stock split or other similar transaction, or, if any other increase or decrease occurs in the number of Shares of Common Stock of the Company without the receipt of consideration by the Company, then an appropriate and proportional adjustment shall be made in (i) the number and kind of shares of stock covered by each outstanding Option, (ii) the number and kind of shares of stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted (or which have been returned to the Plan upon cancellation of an Option), and (iii) the exercise price per share of stock covered by each such outstanding Option. The granting of stock options or bonuses to Employees of the Company and the conversion of any convertible securities of the Company shall not be deemed to have been "effected without the receipt of consideration." Notwithstanding the foregoing, no adjustment need be made under this paragraph if, upon the advice of counsel, the Board determines that such adjustment may result in federal taxable income to the holders of Options or Common Stock or other classes of the Company's securities. (b) Dissolution, Liquidation, Etc. Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon a sale (or exchange through merger) of substantially all the property or more than fifty percent (50%) of the then outstanding stock of the Company to another corporation, the Plan shall terminate, and any Option theretofore granted hereunder shall terminate. Notwithstanding the foregoing, the Board may provide in writing in connection with, or in contemplation of, such transaction for any, all or none of the following alternatives (separately or in combination): (i) for all or a portion of the Options theretofore granted to become immediately exercisable; (ii) for the assumption by the successor corporation of the Options theretofore granted or the substitution by such corporation for such Options of new options covering the stock of the successor corporation, or a Parent or Subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; or (iii) for the continuance of the Plan by such successor corporation in which event the Plan and the Options theretofore granted shall continue in the manner and under the terms so provided. (c) No Fractional Shares. No fractional shares of the Common Stock shall be issuable on account of any action under this Paragraph 13, and the aggregate number of shares into which Shares then covered by an Option, when changed as the result of such action, shall be reduced to the largest number of whole Shares resulting from such action. Notwithstanding the foregoing, the Board, in its sole discretion, may determine to issue scrip certificates, in respect to any fractional shares, which scrip certificates, in such event, shall be in a form and have such terms and conditions as the Board in its discretion shall prescribe. (d) Binding Effect of Board Determinations. All adjustments under this Paragraph 13 shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. (e) No Other Adjustments. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares of Common Stock subject to the Plan or any Options. 14. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time and from time to time suspend or terminate either Plan. The Board may also amend or revise either Plan from time to time in such respects as the Board may deem advisable, except that, without approval of the holders of the majority of the outstanding shares of the Company's Common Stock, no such revision or amendment shall amend Plan A or Plan B so as to: (i) Increase the number of Shares subject to Plan A or Plan B other than in connection with an adjustment under Section 13 of this Plan document; (ii) Permit the granting of Incentive Options to anyone other than as provided in Paragraph 5; (iii) Remove the administration of Plan A or Plan B from the Board; (iv) Extend the term of Plan A or Plan B beyond that provided in Paragraph 6 hereof; (v) Extend the term of any Incentive Option beyond the maximum term set forth in Paragraph 7; (vi) Permit the granting of Incentive Options which would not qualify as Incentive Stock Options; or (vii) Decrease the per share option price required with respect to Incentive Options under Paragraph 8(a) hereof. (b) Effect of Termination. Except as otherwise provided in Section 13, without the written consent of the Optionee, any such termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if the Plan had not been terminated. 15. Conditions Upon Issuance of Shares. Options granted under either Plan are conditioned upon the Company obtaining any required permit, or exemption from the qualification or registration provisions of any applicable state securities law and other appropriate governmental agencies, authorizing the Company to issue such Options and Optioned Stock upon terms and conditions acceptable to the Company. Shares shall not be issued with respect to an Option granted under either Plan unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Board may require the person exercising such Option to execute an agreement approved by the Board, and may require the person exercising such Option to make any representation and warranty to the Company as may, in the judgment of counsel to the Company, be required under applicable laws or regulations. 16. Reservation of Shares. During the term of the Plans, the Company will at all times reserve and keep available the number of Shares as shall be sufficient to satisfy the requirements of the Plans. During the term of the Plans, the Company will use its best efforts to seek to obtain from appropriate regulatory agencies any requisite authorization in order to issue and sell such number of Shares of its Common Stock as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain from any such regulatory agency the requisite authorization(s) deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, or the inability of the Company to confirm to its satisfaction that any issuance and sale of any Shares hereunder will meet applicable legal requirements, shall relieve the Company of any liability in respect to the non-issuance or sale of such Shares as to which such requisite authority shall not have been obtained. 17. Taxes, Fees, Expenses and Withholding of Taxes. (a) Issue and Transfer Taxes. The Company shall pay all original issue and transfer taxes (but not income taxes, if any) with respect to the grant of Options and the issue and transfer of Shares pursuant to the exercise of such Options, and all other fees and expenses necessarily incurred by the Company in connection therewith, and will use its best efforts to comply with all laws and regulations which, in the opinion of counsel for the Company, shall be applicable thereto. (b) Withholding. The grant of Options hereunder and the issuance of Shares of Common Stock pursuant to the exercise of such Options are conditioned upon the Company's reservation of the right to withhold, in accordance with any applicable law, from any compensation payable to the Optionee any taxes required to be withheld by federal, state or local law as a result of the grant or exercise of such Option or the sale of the Shares issued upon exercise of the Option. 18. Shareholder Approval of Plan A and Plan B. Continuance of Plan A and Plan B and the effectiveness of any Option granted under such Plan shall be subject to approval by the holders of the outstanding voting stock of the Company in accordance with applicable law within twelve (12) months before or after the date Plan A and Plan B is adopted by the Board. Any Options granted under Plan A and Plan B prior to obtaining such shareholder approval shall be granted upon the conditions that the Options so granted: (i) shall not be exercisable prior to such approval and (ii) shall become null and void ab initio if such shareholder approval is not obtained. 19. Liability of Company. The Company, its Parent or any Subsidiary which is in existence or hereafter comes into existence, will not be liable to an Optionee granted an Incentive Option or other person if it is determined for any reason by the Internal Revenue Service or any court having jurisdiction that any Incentive Options granted hereunder are not Incentive Stock Options. 20. Notices. Any notice to be given to the Company pursuant to the provisions of the Plans shall be addressed to the Company in care of its Secretary at its principal office, and any notice to be given to an Optionee shall be delivered personally or addressed to such Optionee at the address given beneath such Optionee's signature on such Optionee's Stock Option Agreement, or at such other address as such Employee (or any transferee) upon the transfer of the Optioned Stock may hereafter designate in writing to the Company. Any such notice shall be deemed duly given when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, registered or certified, and deposited, postage and registry or certification fee prepaid, in a post office or branch post office regularly maintained by the United States Postal Service. It shall be the obligation of each Optionee and each transferee holding Shares purchased upon exercise of an Option to provide the Secretary of the Company, by letter mailed as provided hereinabove, with written notice of such person's direct mailing address. 21. No Enlargement of Employee Rights. This Plan is purely voluntary on the part of the Company, and the continuance of the Plan shall not be deemed to constitute a contract between the Company and any Employee, or to be consideration for or a condition of the employment of any Employee. Nothing contained in this Plan shall be deemed to give any Employee the right to be retained in the employ of the Company, its Parent, Subsidiary or a successor corporation, or to interfere with the right of the Company or any such corporations to discharge or retire any Employee thereof at any time. No Employee shall have any right to or interest in Options authorized hereunder prior to the grant of such Option to such employee, and upon such grant he or she shall have only such rights and interests as are expressly provided herein, subject, however, to all applicable provisions of the Company's Certificate of Incorporation, as the same may be amended from time to time. 22. Legends on Certificates. (a) Federal Law. Unless an appropriate registration statement is filed pursuant to the Federal Securities Act of 1933, as amended, with respect to the Options and Shares issuable under the Plans, each certificate representing such Options and Shares shall be endorsed on its face with a legend substantially as follows: "THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." (b) State Legend. If required by applicable state authorities each certificate representing the Options and Shares issuable under the Plans shall be endorsed its face with any legends required by such authorization. (c) Additional Legends. Each certificate representing the Options and Shares issuable under the Plans shall also contain legends as are set forth in any Stock Purchase Agreement or other agreement the execution of which is a condition to the exercise of an Option under this Plan. In addition, each Option Agreement shall be endorsed with a legend substantially as follows: "THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAYBE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS OPTION." 23. Availability of Plan. A copy of the Plans shall be delivered to the Secretary of the Company and shall be shown by him to any eligible person making reasonable inquiry concerning it. 24. Invalid Provisions. In the event that any provision of the Plans is found to be invalid or otherwise unenforcable under any applicable law, such invalidity or unenforceability shall not be construed as rendering any other provisions contained herein as invalid or unenforceable, and all such other provisions shall be given full force and effect to the same extent as though the invalid or unenforceable provision was not contained herein. 25. Applicable Law. These Plans shall be governed and construed in accordance with the laws of the State of Delaware applicable to contracts executed, and to be fully performed, in Delaware. IN WITNESS WHEREOF, pursuant to the due authorization and adoption of these Plans by the Board on , 199__, the Company has caused these Plans to be duly executed by its duly authorized officers, effective as of , 199__. MedCare Technologies, Inc. a Delaware corporation By: -------------------------------- Title: President EXHIBIT "A" PLAN A THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS OPTION. INCENTIVE STOCK OPTION AGREEMENT AGREEMENT made as of the __________ day of _____________, 19__, by and between Medcare Technologies, Inc. a Delaware corporation (hereinafter called "Company") and____________ (hereinafter called "Optionee"). RECITALS A. The Board of Directors of the Company has adopted the Company's 1999 Incentive Stock Option Plan (the "Plan") for the purpose of attracting and retaining the services of selected key employees (including officers and employee directors), who contribute to the financial success of the Company or its parent or subsidiary corporations. B. Optionee is a key member of the Company or its parent or subsidiary corporations, and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Company's grant of a stock option to the Optionee. C. The granted option is intended to be an incentive stock option ("Incentive Option") within the meaning of Section 422 of the Internal Revenue Code. NOW, THEREFORE, it is hereby agreed as follows: 1. Grant of Option. Subject to and upon the terms and conditions set forth in this Agreement, there is hereby granted to Optionee, as of the date of this Agreement (the "Grant Date"), a stock option to purchase up to ______ shares of the Company's Common Stock (the "Optioned Shares") from time to time during the option term at the option price of $____ per share. 2. Plan. The options granted hereunder are in all instances subject to the terms and conditions of the Plan. In the event of any conflict between this Agreement and the Plan, the provisions of the Plan shall control. Optionee acknowledges receipt of a copy of the Plan and hereby accepts this option subject to all of the terms and conditions of the Plan. Optionee agrees to accept as binding, conclusinve and final all decisions or interpretations of the Board upon any questions arising under the Plan. 3. Option Term. This option shall have a maximum term of five (5) years measured from the Grant Date and shall accordingly expire at the close of business on ________, 19__ (the "Expiration Date"), unless sooner terminated in accordance with Paragraph 7, 9(a) or 20. 4. Option Nontransferable; Exception. This option shall be neither transferable nor assignable by Optionee, either voluntarily or involuntarily, other than by will or by the laws of descent and distribution and may be exercised, during Optionee's lifetime, only by Optionee. 5. Condition Precedent to Exercise. This option may not be exercised in whole or in part at any time prior to the time the Company has satisfied the following condition precedent: __________. In the event the foregoing condition precedent has not been satisfied prior to the Expiration Date or prior to this option's earlier termination in accordance with Paragraph 7, 9(a) or 20, then this option shall terminate and cease to be outstanding. 6. Dates of Exercise. This option may not be exercised in whole or in part at any time prior to the time it is approved by the Company's shareholders in accordance with Paragraph 20. Provided such shareholder approval is obtained and the condition precedent to exercise set forth in Paragraph 5 has been satisfied, this option shall become exercisable for 100% of the Optioned Shares one (1) year from the Grant Date, provided that in no event may options for more than One Hundred Thousand Dollars ($100,000) of Optioned Shares, calculated at the exercise price, become exercisable for the first time in any calendar year. Once exercisable, options shall remain so exercisable until the expiration or sooner termination of the option term under Paragraph 7 or Paragraph 9(a) of this Agreement. In no event, however, shall this option be exercisable for any fractional shares. 7. Accelerated Termination of Option Term. The option term specified in Paragraph 3 shall terminate (and this option shall cease to be exercisable) prior to the Expiration Date should one of the following provisions become applicable: (i) Except as otherwise provided in subparagraphs (ii) and (iii) below, should Optionee cease to be an Employee of the Company for any reason at any time during the option term, any option of the Optionee, whether vested or non-vested, and if issued under Plan A, shall terminate as of the date of termination of employment. (ii) Should Optionee die while this option is outstanding, then the executors or administrators of Optionee's estate or Optionee's heirs or legatees (as the case may be) shall have the right to exercise this option for the number of shares (if any) for which the option is exercisable on the date of the optionee's death. Such right shall lapse and this option shall cease to be exercisable upon the earlier of (i) six (6) months from the date of the optionee's death or (ii) the Expiration Date. (iii) Should Optionee become permanently disabled and cease by reason thereof to be an Employee of the Company at any time during the option term, then Optionee shall have a period of six (6) months (commencing with the date of such cessation of Employee status) during which to exercise this option; provided, however, that in no event shall this option be exercisable at any time after the Expiration Date. Optionee shall be deemed to be permanently disabled if Optionee is, by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of not less than twelve (12) months, unable to perform his/her usual duties for the Company or its Parent or Subsidiary corporations. Upon the expiration of the limited period of exercisability or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding. (iv) For purposes of this Paragraph 7 and for all other purposes under this Agreement, Optionee shall be deemed to be an Employee of the Company and to continue in the Company's employ for so long as Optionee remains an Employee of the Company or one or more of its parent or subsidiary corporations as such terms are defined in the Plan. 8. Adjustment in Option Shares (a) In the event any change is made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, combination of shares, or other change affecting the outstanding Common Stock as a class without receipt of consideration (as set forth in the Plan), then appropriate adjustments will be made to (i) the total number of Optioned Shares subject to this option and (h) the option price payable per share in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder. (b) If the Company is the surviving entity in any merger or other business combination, then this option, if outstanding under the Plan immediately after such merger or other business combination shall be appropriately adjusted to apply and pertain to the number and class of securities to which Optionee immediately prior to such merger of other business combination would have been entitled to receive in the consummation of such merger or other business combination. 9. Special Termination of Option. (a) In the event of one or more of the following transactions (a "Corporate Transaction"): (i) a merger or acquisition in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company; or (iii) any other corporate reorganization or business combination in which fifty percent (50%) or more of the Company's outstanding voting stock is transferred, or exchanged through merger, to different holders in a single transaction or a series of related transactions; then this option shall terminate upon the consummation of such Corporate Transaction and cease to be exercisable, unless it is expressly assumed by the successor corporation or parent thereof. The Company shall Corporate Transaction. The Company can give no assurance that the options shall be assu provide Optionee with at least thirty (30) days prior written notice of the specified date for the med by the successor corporation or its parent company and it may occur that some options outstanding under the Plan will be assumed while these options are terminated. (b) In the event of a Corporate Transaction, the Company may, at its option, accelerate the vesting schedule contained in Section 6 hereof, but shall have no obligation to do so. The Company shall have the right to accelerate other options outstanding under the Plan or any other plan, even if it does not accelerate the options of Optionee hereunder. (c) This Agreement shall not in any way affect the right of the Company to make changes in its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 10. Privilege of Stock Ownership. The holder of this option shall not have any of the rights of a shareholder with respect to the Optioned Shares until such individual shall have exercised the option and paid the option price in accordance with this Agreement. 11. Manner of Exercising Option. (a) In order to exercise this option with respect to all or any part of the Optioned Shares for which this option is at the time exercisable, Optionee (or in the case of exercise after Optionee's death, Optionee's executor, administrator, heir or legatee, as the case may be) must take the following actions: (i) Execute and deliver to the Secretary of the Company a stock purchase agreement in substantially the form of Exhibit D to this Agreement (the "Purchase Agreement"); (ii) Pay the aggregate option price for the purchased shares in cash, unless another form of consideration is permitted as described in Exhibit C, if any, attached hereto or by the Board at the time of exercise. (b) This option shall be deemed to have been exercised with respect to the number of Optioned Shares specified in the Purchase Agreement at such time as the executed Purchase Agreement for such shares shall have been delivered to the Company and all other conditions of this Section have been fulfilled. Payment of the option price shall immediately become due and shall accompany the Purchase Agreement. As soon thereafter as practical, the Company shall mail or deliver to Optionee or to the other person or persons exercising this option a certificate or certificates representing the shares so purchased and paid for. 12. Compliance with Laws and Regulations. (a) The exercise of this option and the issuance of Optioned Shares upon such exercise shall be subject to compliance by the Company and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange on which shares of the Company's Common Stock may be listed at the time of such exercise and issuance. (b) In connection with the exercise of this option, Optionee shall execute and deliver to the Company such representations in writing as may be requested by the Company in order for it to comply with the applicable requirements of federal and state securities laws. 13. Successors and Assigns. Except to the extent otherwise provided in Paragraph 4 or 9(a), the provisions of this Agreement shall insure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of Optionee and the successors and assigns of the Company. 14. Liability of Company. (a) If the Optioned Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of Common Stock which may without shareholder approval be issued under the Plan, then this option shall be void with respect to such excess shares unless shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under the Plan is obtained in accordance with the provisions of Section 18 of the Plan. (b) The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option without the imposition of requirements unacceptable to the Company in its reasonable discretion shall relieve the Company of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained. The Company, however, shall use its best efforts to obtain all such approvals. (c) Neither the Company nor any Parent, Subsidiary or successor corporation will have any liability to Optionee or any other person if it is determined for any reason that any options granted hereunder are not Incentive Stock Options. 15. No Employment Contract. Except to the extent the terms of any written employment contract between the Company and Optionee may expressly provide otherwise, the Company (or any parent or subsidiary corporation of the Company employing Optionee) shall be under no obligation to continue the employment of Optionee for any period of specific duration and may terminate Optionee's status as an Employee at any time, with or without cause. 16. Notices. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Company in care of its Secretary at its corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee's signature line on this Agreement. All notices shall be deemed to have been given or delivered upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified. 17. Loans or Guarantees. The Company may, in its absolute discretion and without any obligation to do so, assist Optionee in the exercise of this option by (i) authorizing the extension of a loan to Optionee from the Company, (ii) permitting Optionee to pay the option price for the purchased Common Stock in installments over a period of years, or (iii) authorizing a guarantee by the Company of a third party loan to Optionee. The terms of any loan, installment method of payment or guarantee (including the interest rate, the Collateral requirements and terms of repayment) shall be established by the Company in its sole discretion. 18. Construction. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the Plan. All decisions of the Company with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option. 19. Governing Law. The interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Delaware. 20. Shareholder Approval. The grant of this option is subject to approval of the Plan by the Company's shareholders within twelve (12) months after the adoption of the Plan by the Board of Directors, and this option may not be exercised in whole or in part until such shareholder approval is obtained. In the event that such shareholder approval is not obtained, then this option shall thereupon terminate and Optionee shall have no further rights to acquire any Optioned Shares hereunder. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate on its behalf by its duly authorized officer and Optionee has also executed this Agreement in duplicate, all as of the day and year indicated above. Medcare Technologies, Inc. a Delaware corporation By: ---------------------------------- Title: ------------------------------- - ---------------------------- , Optionee - ------------- Address: ------------------- ------------------- EXHIBIT B Other Forms of Acceptable Consideration [If no forms are listed hereon, cash shall be the only acceptable form of consideration for the exercise of the options.] ----------------- "EXHIBIT B" PLAN B THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SALE, TRANSFER OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION TATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY, TO BE ENTERED INTO BETWEEN OPTIONEE AND THE COMPANY AS A CONDITION TO EXERCISE OF THIS OPTION. NON-STATUTORY STOCK OPTION AGREEMENT AGREEMENT made as of the ____ day of __________, 199__, by and between MedCare Technologies, Inc, a Delaware corporation (hereinafter called "Company"), and ___________ (hereinafter called "Optionee"). RECITALS A. The Board of Directors of the Company has adopted the Company's 1999 Non- Statutory Stock Option Plan (the "Plan") for the purpose of attracting and retaining the services of selected key employees (including officers and employee directors) and others (collectively, "Eligible Persons"), who contribute to the financial success of the Company or its parent or subsidiary corporations. B. Optionee is an Eligible Person and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Company's grant of a stock option to Optionee. C. The granted option is not intended to be an incentive stock option ("Incentive Option") within the meaning of Section 422 of the Internal Revenue Code, but is rather a non-statutory option. NOW, THEREFORE, it is hereby agreed as follows: 1. Grant of Option. Subject to and upon the terms and conditions set forth in this Agreement, there is hereby granted to Optionee, as of the date of this Agreement (the "Grant Date"), a stock option to purchase up to __________ shares of the Company's Common Stock (the "Optioned Shares") from time to time during the option term at the option price of $_______ per share. 2. Plan. The options granted hereunder are in all instances subject to the terms and conditions of the Plan. In the event of any conflict between this Agreement and the Plan, the provisions of the Plan shall control. Optionee acknowledges receipt of a copy of the Plan and hereby accepts this option subject to all of the terms and conditions of the Plan. Optionee agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan. 3. Option Term. This option shall have a maximum term of years measured from the Grant Date and shall accordingly expire at the close of business on ___________, 199__ (the "Expiration Date"), unless sooner terminated in accordance with Paragraph 6 or 8(a). 4. Option Nontransferable; Exception. This option shall be neither transferable nor assignable by Optionee, either voluntarily or involuntarily, other than by will or by the laws of descent and distribution and may be exercised, during Optionee's lifetime, only by Optionee. 5. Dates of Exercise. This option shall be exercisable as follows: ________. Once exercisable, options shall remain so exercisable until the expiration or sooner termination of the option term under Paragraph 6 or Paragraph 8(a) of this Agreement. In no event, however, shall this option be exercisable for any fractional shares. 6. Accelerated Termination of Option Term. The option term specified in Paragraph 3 shall terminate (and this option shall cease to be exercisable) prior to the Expiration Date should one of the following provisions become applicable: (i) (i) Except as otherwise provided in subparagraphs (ii) and (iii) below, should Optionee cease to be an Employee of the Company for any reason at any time during the option term, any option of the Optionee, whether vested or non-vested, and if issued under Plan B, shall terminate as of the date of termination of employment. (ii) Should Optionee die while this option is outstanding, then the executors or administrators of Optionee's estate or Optionee's heirs or legatees (as the case may be) shall have the right to exercise this option for the number of shares (if any) for which the option is exercisable on the date of the optionee's death. Such right shall lapse and this option shall cease to be exercisable upon the earlier of (i) six (6) months from the date of the optionee's death or (ii) the Expiration Date. (iii) Should Optionee become permanently disabled and cease by reason thereof to be an Employee of the Company at any time during the option term, then Optionee shall have a period of six (6) months (commencing with the date of such cessation of Employee status) during which to exercise this option; provided, however, that in no event shall this option be exercisable at any time after the Expiration Date. Optionee shall be deemed to be permanently disabled if Optionee is, by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of not less than twelve (12) months, unable to perform his/her usual duties for the Company or its Parent or Subsidiary corporations. Upon the expiration of the limited period of exercisability or (if earlier) upon the Expiration Date, this option shall terminate and cease to be outstanding. (iv) For purposes of this Paragraph 6 and for all other purposes under this Agreement, if Optionee is an Employee, Optionee shall be deemed to be an Employee of the Company and to continue in the Company's employ for so long as Optionee remains an Employee of the Company or one or more of its parent or subsidiary corporations as such terms are defined in the Plan. For purposes of this Paragraph 6 and for all other purposes under this Agreement, if Optionee is not an Employee, but is eligible because Optionee is a director, consultant or contractor of Company or a parent or subsidiary corporation, Optionee shall be deemed to be an Eligible Person for so long as Optionee remains a director, consultant or contractor of the Company or one or more of its parent or subsidiary corporations as such terms are defined in the Plan. 7. Adjustment in Option Shares. (a) In the event any change is made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, combination of shares, or other change affecting the outstanding Common Stock as a class without receipt of consideration (as set forth in the Plan), then appropriate adjustments will be made to (i) the total number of Optioned Shares subject to this option and (ii) the option price payable per share in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder. (b) If the Company is the surviving entity in any merger or other business combination, then this option, if outstanding under the Plan immediately after such merger or other business combination shall be appropriately adjusted to apply and pertain to the number and class of securities to which Optionee immediately prior to such merger or other business combination would have been entitled to receive in the consummation of such merger or other business combination. 8. Special Termination of Option. (a) In the event of one or more of the following transactions (a "Corporate Transaction"): (i) a merger or acquisition in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company; or (iii) any other corporate reorganization or business combination in which fifty percent (50%) or more of the Company's outstanding voting stock is transferred, or exchanged through merger, to different holders in a single transaction or a series of related transactions; then this option shall terminate upon the consummation of such Corporate Transaction and cease to be exercisable, unless it is expressly assumed by the successor corporation or parent thereof. The Company shall provide Optionee with at least thirty (30) days prior written notice of the specified date for the Corporate Transaction. The Company can give no assurance that the options shall be assumed by the successor corporation or its parent company and it may occur that some options outstanding under the Plan will be assumed while these options are terminated. (b) In the event of a Corporate Transaction, the Company may, at its option, accelerate the vesting schedule contained in Section 5 hereof, but shall have no obligation to do so. The Company shall have the right to accelerate other options outstanding under the Plan or any other plan, even if it does not accelerate the options of Optionee hereunder. (c) This Agreement shall not in any way affect the right of the Company to make changes in its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 9. Privilege of Stock Ownership. The holder of this option shall not have any of the rights of a shareholder with respect to the Optioned Shares until such individual shall have exercised the option and paid the option price in accordance with this Agreement. 10. Manner of Exercising Option. (a) In order to exercise this option with respect to all or any part of the Optioned Shares for which this option is at the time exercisable, Optionee (or in the case of exercise after Optionee's death, Optionee's executor, administrator, heir or legatee, as the case may be) must take the following actions: (i) Execute and deliver to the Secretary of the Company a stock purchase agreement in substantially the form of Exhibit "D" to this Agreement (the "Stock Purchase Agreement"); (ii) Pay the aggregate option price for the purchased shares in cash, unless another form of consideration is permitted as described in Exhibit C, if any, attached hereto or by the Board at the time of exercise. (b) This option shall be deemed to have been exercised with respect to the number of Optioned Shares specified in the Purchase Agreement at such time as the executed Purchase Agreement for such shares shall have been delivered to the Company and all other conditions of this Section have been fulfilled. Payment of the option price shall immediately become due and shall accompany the Purchase Agreement. As soon thereafter as practical, the Company shall mail or deliver to Optionee or to the other person or persons exercising this option a certificate or certificates representing the shares so purchased and paid for. 11. Compliance With Laws and Regulations. (a) The exercise of this option and the issuance of Optioned Shares upon such exercise shall be subject to compliance by the Company and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange on which shares of the Company's Common Stock may be listed at the time of such exercise and issuance. (b) In connection with the exercise of this option, Optionee shall execute and deliver to the Company such representations in writing as may be requested by the Company in order for it to comply with the applicable requirements of federal and state securities laws. 12. Successors and Assigns. Except to the extent otherwise provided in Paragraph 4 or 8(a), the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of Optionee and the successors and assigns of the Company. 13. Liability of Company. (a) If the Optioned Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of Common Stock which may without shareholder approval be issued under the Plan, then this option shall be void with respect to such excess shares unless shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under the Plan is obtained in accordance with the provisions of Section 18 of the Plan. (b) The inability of the Company to obtain approval from any regulatory body having authority deemed by the Company to be necessary to the lawful issuance and sale of any Common Stock pursuant to this option without the imposition of requirements unacceptable to the Company in its reasonable discretion shall relieve the Company of any liability with respect to the nonissuance or sale of the Common Stock as to which such approval shall not have been obtained. The Company, however, shall use its best efforts to obtain all such approvals. 14. No Employment Contract. Except to the extent the terms of any written employment contract between the Company and Optionee may expressly provide otherwise, the Company (or any parent or subsidiary corporation of the Company employing Optionee) shall be under no obligation to continue the employment of Optionee for any period of specific duration and may terminate Optionee's status as an Employee at any time, with or without cause. 15. Notices. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Company in care of its Secretary at its corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee's signature line on this Agreement. All notices shall be deemed to have been given or delivered upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified. 16. Withholding. Optionee acknowledges that, upon any exercise of this option, the Company shall have the right to require Optionee topay to the Company an amount equal to the amount the Company is required to withhold as a result of such exercise for federal and state income tax purposes. 17. Loans or Guarantees. The Company may, in its absolute discretion and without any obligation to do so, assist Optionee in the exercise of this option by (i) authorizing the extension of a loan to Optionee from the Company, (ii) permitting Optionee to pay the option price for the purchased Common Stock in installments over a period of years, or (iii) authorizing a guarantee by the Company of a third party loan to Optionee. The terms of any loan, installment method of payment or guarantee (including the interest rate, the Collateral requirements and terms of repayment) shall be established by the Company in its sole discretion. 18. Construction. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the express terms and provisions of the Plan. All decisions of the Company with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this option. 19. Governing Law. The interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Delaware. 20. REPURCHASE R1GHTS. OPTIONEE HEREBY AGREES THAT ALL OPTIONED SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE COMPANY AND ITS ASSIGNS TO REPURCHASE SUCH SHARES IN ACCORDANCE WITH THE TERMS AND CONDITIONS SPECIFIED IN THE PURCHASE AGREEMENT, IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate on its behalf by its duly authorized officer and Optionee has also executed this Agreement in duplicate, all as of the day and year indicated above. MedCare Technologies, Inc. a Delaware corporation By: ----------------------------- Title: President - --------------------- OPTIONEE: Address: EXHIBIT C Other Forms of Acceptable Consideration [If no forms are listed hereon, cash shall be the only acceptable form of consideration for the exercise of the options.] EXHIBIT "D" STOCK PURCHASE AGREEMENT This Agreement is made as of this_____ day of _____________199__, by and among MedCare Technologies, Inc, a Delaware corporation ("Corporation"), and_____________, the holder of a stock option under the Corporation's 199__ Stock Option Plan ("Optionee"). 1. EXERCISE OF OPTION 1.1 Exercise. Optionee hereby purchases shares of Class A Common Stock of the Corporation ("Purchased Shares") pursuant to that certain option ("Option") granted Optionee on ________ , 1997 under the Corporation's 1999 Stock Option Plan ("Plan") to purchase up to ___________ shares of the Corporation's Common Stock at an option price of $ _____per share ("Option Price"). 1.2 Payment. Concurrently with the delivery of this Agreement to the Secretary of the Corporation, Optionee shall pay the Option Price for the Purchased Shares in accordance with the provisions of the agreement between the Corporation and Optionee evidencing the Option ("Option Agreement") and shall deliver whatever additional documents may be required by the Option Agreement as a condition for exercise. 2. INVESTMENT REPRESENTATIONS 2.1 Investment Intent. Optionee hereby warrants and represents that Optionee is acquiring the Purchased Shares for Optionee's own account and not with a view to their resale or distribution and that Optionee is prepared to hold the Purchased Shares for an indefinite period and has no present intention to sell, distribute or grant any participating interests in the Purchase Shares. Optionee hereby acknowledges the fact that the Purchased Shares have not been registered under the Securities Act of 1933, as amended (the "1933 Act"), and that the Corporation is issuing the Purchased Shares to Optionee in reliance on the representations made by Optionee herein. 2.2 Restricted Securities. Optionee hereby confirms that Optionee has been informed that the Purchased Shares may not be resold or transferred unless the Purchased Shares are first registered under the Federal securities laws or unless an exemption from such registration is available. Accordingly, Optionee hereby acknowledges that Optionee is prepared to hold the Purchased Shares for an indefinite period and that Optionee is aware that Rule 144 of the Securities and Exchange Commission issued under the 1933 Act is not presently available to exempt the sale of the Purchased Shares from the registration requirements of the 1933 Act. Should Rule 144 subsequently become available, Optionee is aware that any sale of the Purchased Shares effected pursuant to the Rule may, depending upon the status of Optionee as an ttaffiliate" or "non-affiliate" under the Rule, be made only in limited amounts in accordance with the provisions of the Rule, and that in no event may any Purchased Shares be sold pursuant to the Rule until Optionee has held the Purchased Shares for the requisite holding period following payment in cash of the Option Price for the Purchased Shares. 2.3 Optionee Knowledge. Optionee represents and warrants that he or she has a preexisting business or personal relationship with the officers and directors of the Corporation, that he or she is aware of the business affairs and financial condition of the Corporation and that he or she has such knowledge and experience in business and financial matters with respect to companies in business similar to the Corporation to enable him or her to evaluate the risks of the prospective investment and to make an informed investment decision with respect thereto. Optionee further represents and warrants that the Corporation has made available to Optionee the opportunity to ask questions and receive answers from the Corporation concerning the terms and conditions of the issuance of the Purchased Shares and that he or she could be reasonably assumed to have the capacity to protect his or her own interests in connection with such investment. 2.4 Speculative Investment. Optionee represents and warrants that he or she realizes that his or her purchase of the Purchased Shares will be a speculative investment and that he or she is able, without impairing his or her financial condition, to hold the Purchased Shares for an indefinite period of time and to suffer a complete loss of his or her investment. Optionee represents and warrants that he or she is aware and fully understands the implications of the restrictions upon transfer imposed by the Plan and therefore on the Purchased Shares. 2.5 Restrictive Legends. In order to reflect the restrictions on disposition of the Purchased Shares, the stock certificates for the Purchased Shares will be endorsed with the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREUNDER OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. 3. MISCELLANEOUS PROVISIONS 3.1 Optionee Undertaking. Optionee hereby agrees to take whatever additional action and execute whatever additional documents the Corporation may in its judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either the Optionee or the Purchased Shares pursuant to the express provisions of this Agreement. 3.2 Agreement Is Entire Contract. This Agreement constitutes the entire contract between the parties hereto with regard to the subject matter hereof. This Agreement is made pursuant to the provisions of the Plan and shall in all respects be construed in conformity with the express terms and provisions of the Plan. 3.3 Governing Law. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 3.4 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 3.5 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and the Optionee and the Optionee's legal representatives, heirs, legatees, distributees, assigns and transfer by operation of law, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms and conditions hereof. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first indicated above. MedCare Technologies, Inc. a Delaware corporation By: ----------------------------- Title: President - --------------------------- OPTIONEE: Address: EX-10.(F) 4 EMPLOYMENT & STOCK AGREEMENT Exhibit 10f. EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of December 9, 1998, is between MedCare Technologies, Inc., a Delaware corporation (the "Company"), and Jeffrey S. Aronin, an Illinois resident ("Executive"). RECITALS -------- A. The Company desires to continue to employ Executive as its President and Chief Executive Officer, on the terms set forth in this Agreement. B. Executive desires to be so employed by Company. AGREEMENTS ---------- In consideration of the foregoing recitals and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. EMPLOYMENT. 1.1. Term. The Company agrees to employ Executive as its President and Chief Executive Officer, and Executive agrees to accept such employment, for the period commencing on the date hereof and ending on the second anniversary of the date hereof, unless earlier terminated pursuant to Section 3 (the "Term"); provided, however, that, except as otherwise provided in Section 3, the Term shall be automatically extended for successive one-year periods commencing with the second anniversary hereof, unless the Company or Executive delivers to the other party written notice specifying such party's intent not to extend or re- extend the Term for an additional one-year period, which notice shall be delivered at least thirty (30) days prior to the expiration of the Term or any one-year extension thereof, as applicable. 1.2. Duties. During the Term, Executive shall perform such duties and functions as are customarily performed by the chief executive officer of a company the size and nature of the Company, including the duties and functions consistent with the positions of President and Chief Executive Officer as are from time to time assigned to him by the Board of Directors of Company (the "Board"). Executive shall have the powers necessary to perform his duties, and shall be provided such supporting services, staff, secretarial and other assistance, office space and accoutrements as shall be reasonably necessary and appropriate in light of such duties. 1.3. Place of Performance. Executive shall perform his services hereunder at the headquarters of the Company, except for travel reasonably required to conduct Company business. 1.4. Vacations. Executive shall be entitled to such paid vacation time as the Company customarily provides from time to time to its executives (but in no event less than three (3) weeks per year), to be taken in accordance with its then-current employment policy regarding such vacation time. Executive shall also be entitled to all paid holidays given by the Company to its employees. 2. COMPENSATION. 2.1. Base Salary. As compensation for services rendered hereunder, Executive shall receive an annual base salary ("Base Salary") of not less than One Hundred Fifty Thousand Dollars ($150,000); provided however, that effective January 1, 1999, Executive shall receive an annual Base Salary of not less than Two Hundred Thousand Dollars ($200,000), such Base Salary to (a) accrue on a daily basis based on a three hundred sixty-five (365) day year, and (b) be paid in accordance with the Company's customary payroll practices but in no event less frequently than monthly. Such Base Salary shall be reviewed by the Board no less frequently than semi-annually, beginning as of January 1, 2000, with a view to making such increases as the board, in its discretion, deems appropriate. any increase in base salary granted by the Board shall in no way limit or reduce any other obligation of the Company hereunder. 2.2. Annual Bonuses. In addition to the Base Salary payable pursuant to Section 2.1, Executive shall be eligible for an annual bonus ("Bonus") for each Fiscal Year of the Company ("Fiscal Year") during the Term. The annual Bonus shall be based on such performance standards as the Board or compensation committee designated by the Board may establish, shall accrue one-half on the last day of the sixth month and one-half on the last day of the twelfth month of the Company's Fiscal Year, and shall be payable to Executive in accordance with the Company's then-current bonus program applicable with respect to its employees (but in all events no later than the date upon which the Company is required to file its annual report with the United States Securities and Exchange Commission). 2.3. Welfare and Retirement Benefits. In addition to the foregoing, the Company shall pay one hundred percent (100%) of the premiums for medical, life and dental insurance for Executive and Executive's dependents. In addition, Executive shall be eligible to participate in any and all benefit plans maintained by the Company for its employees in accordance with the terms of such plans as from time to time in effect and applicable to employees of the Company. 2.4. Other Benefits. Executive will receive payment for all business related organizational or association memberships designated by Executive, in accordance with the Company's then current practices. 2.5. Auto Allowance. Executive shall receive monthly an automobile allowance of five hundred ($500) per month, which allowance shall be includible in Executive's compensation and subject to applicable federal and state withholding taxes. 2.6. Disability Insurance. The Company shall maintain, and pay the premiums of, a long-term disability insurance policy for the benefit of Executive (the "Disability Policy") which provides Executive, in the event of his disability, an annual amount equal to at least seventy percent (70%) of this then-current compensation (including for such purposes an amount equal to his bonus for the immediately preceding Fiscal Year). The amount of such policy shall be reviewed by the Board no less frequently than bi-annually, beginning on the second anniversary hereof, with a view to making such increases in the amount of such policy as are required to comply with this Section 2.6. The Disability Policy shall, by its terms, permit the Company to assign to Executive (or permit Executive otherwise to continue) such policy following the termination of his employment with the Company for any reason. The Company shall take all actions necessary to assign the Disability Policy to Executive upon the termination of Executive's employment with the Company. 2.7. Expenses. The Company shall reimburse Executive promptly for all ordinary and necessary travel and other business expenses incurred by him in connection with his duties hereunder (including reimbursement for business use of his home telephone, home facsimile and cellular telephone), provided that Executive properly accounts therefor in accordance with Company policy. 3. TERMINATION. 3.1. Death. Unless Executive's employment has terminated sooner pursuant to Section 3, Executive's employment shall terminate on the date of his death. 3.2. Termination by the Company for Cause. The Company may terminate Executive's employment for cause. for purposes hereof, "cause" shall mean (i) Executive's conviction of, guilty plea concerning, or written or video-taped confession of fraud, theft, embezzlement or similar malfeasance, (ii) Executive's commission of embezzlement of Company funds (provided that the Company has substantial proof of such embezzlement) or (iii) a material breach of Executive's obligations under this Agreement. Notwithstanding the foregoing, the Company's right to terminate Executive's employment for cause is conditioned upon (a) a majority vote of the Board, after reasonable investigation and deliberation, to terminate Executive's employment for Cause and (b) thirty (30) days' prior written notice of the Company's intention to terminate Executive, which notice sets forth that or those conditions constituting Cause for termination. Executive shall have thirty (30) days following his receipt of such notice to eliminate the basis for Cause to the reasonable satisfaction of the Board. If Executive does not so eliminate the basis for Cause, the Company may terminate Executive's employment hereunder upon notice to Executive specifying the Date of Termination (as hereinafter defined), which date shall be no earlier than three (3) days from the date of such notice. 3.3. Termination by the Company Without Cause. The Company may terminate Executive's employment at any time without Cause by providing notice of such intention which notice specifies the Date of Termination. 3.4. Termination by Executive for Good Reason. Executive shall be entitled to terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following circumstances (without the prior written consent of Executive): (a) the requirement that Executive report to any officer, consultant or committee other than the Board, it being the intent of the parties that Executive shall never be required to report to anyone other than the Board or a formal committee thereof; (b) the removal of any of Executive's titles specified in Section 1.1; (c) a redelegation of any of Executive's material duties to other Company officers, employees, consultants or committees; (d) the failure of the Company to maintain and to continue Executive's participation in its benefit plans as in effect from time to time on a basis substantially equivalent to that level of participation applicable to other senior employees of the Company; (e) a material breach of the Company's obligations under this Agreement or any written agreement to which Executive and the Company are a party; (f) the removal of, or failure to elect or re-elect, Executive as a director of the Company; or (g) a Change of Control (as hereinafter defined). For purposes of this Agreement, a "Change of Control" shall be deemed to have occurred if, at any time after the date hereof, any of the following occurs: A. the Company sells or otherwise disposes of all or substantially all of its assets, other than to Executive; B. the Company participates in a merger or consolidation and, immediately following the consummation of such merger or consolidation, the Company's stockholders prior to such merger or consolidation do not own fifty percent (50%) or more of the voting shares of stock of the surviving or successor corporation, unless more than fifty percent (50%) of the voting shares of stock of the surviving or successor corporation are owned by Executive; or C. any person or entity, including a "person" as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (but excluding Executive or other current officers or directors of the Company) becomes the beneficial owner of fifty (50%) or more of the combined voting power of the Company's voting securities. In connection with the termination of his employment for good reason, Executive shall give the Company prior written notice of the occurrences or events giving rise to such Good Reason, which written notice shall set forth a Date of Termination not earlier than thirty (30) days subsequent to the date of such notice; provided, that prior to the Date of Termination, the Company may (except in the case of termination for Good Reason due to a Change of Control) eliminate, to the reasonable satisfaction of Executive, the occurrences or events giving rise to Executive's Good Reason. Notwithstanding the foregoing, Executive shall have the right to terminate his employment for Good Reason (a) in the case of a Change of Control, for the one (1) year period following such Change of Control, and (b) in the case of Good Reason other than a Change of Control, for the six (6) month period following the events giving rise to such Good Reason. 3.5. Termination Upon Disability. The Company may terminate Executive's employment by reason of disability. For purposes of this Agreement, "Disability" shall mean Executive's inability, as determined by a physician mutually agreed to by Executive and the Company, to perform, on a full-time basis, the duties of the President and Chief Executive Officer due to his physical or mental illness, accident or injury, which condition shall exist for sixty (60) or more business days within five (5) consecutive months. If the Company elects to terminate Executive's employment for Disability, it shall give Executive written notice thereof setting forth that election and the date of termination. 3.6. Notice and Date of Termination. Any termination of the Executive's employment hereunder by the Company or Executive shall be communicated by written notice of termination to the other party hereto in accordance with Section 7.4 hereof. as used herein, the term "Date of Termination" shall mean the date specified in the notice of termination (which shall be not less than thirty (30) days from the date such notice of termination is given unless otherwise expressly provided herein). 4. PAYMENTS UPON OR AFTER TERMINATION. 4.1. Accrued Compensation. Upon the termination of his employment with the Company for any reason, Executive shall receive any and all compensation remaining accrued and unpaid as of the Date of Termination, including Base Salary and Bonus through the Date of Termination. The Company shall provide Executive with all profit-sharing, pension, life, disability, accident, health insurance, and other employee benefit and fringe benefit plans and programs through the Date of Termination in accordance with the terms and provisions of such plans and programs as are in effect as of the date that any notice of termination is given. 4.2. Termination Upon Death. In addition to the Company's obligations under Section 4.1 hereof, if, at the time of Executive's death, Company maintains health insurance for members of Executive's immediate family, the Company shall maintain such health insurance in full force and effect for a period of at least one (1) year from the date of Executive's death (which shall not reduce the minimum length of time that the Company is obligated to provide health insurance to Executive's immediate family under Section 4980(b) of the Internal Revenue Code of 1986, as amended (the "Code")). 4.3. Termination for Cause. Except with respect to the Company's obligations under Section 4.1 hereof, if Executive's employment with the Company is terminated for Cause, the Company shall have no further obligations to Executive under this Agreement. 4.4. Termination by Company Without Cause, Termination at Disability or Termination by Executive for Good Reason. In addition to the Company's obligations under Section 4.1 hereof, in the event that either (a) Executive's employment is terminated by the Company and such termination is not in accordance with Section 3.2 hereof or (b) Executive's employment is terminated by reason of Disability or for Good Reason, the Company shall pay Executive, within thirty (30) days of the Date of Termination, an amount equal to the sum of (i) two (2) years Base Salary at his then-current annual Base Salary plus (ii) two (2) times the average of the two (2) most recent Bonuses paid to Executive. In addition, for the two (2) year period following the Date of Termination, the Company shall pay, or reimburse Executive for, (i) any and all the premiums necessary to maintain in full force and effect health insurance for the benefit of Executive and members of his immediate family (which payment shall not reduce the minimum length of time that the Company is obligated to provide health insurance to Executive and Executive's immediate family under Code Section 4980(B)) and (ii) any and all premiums necessary to maintain in full force and effect the Disability Policy. In the event that Executive shall terminate his employment for Good Reason based on a Change of Control, then in addition to the Company's obligations under this Section 4.4, the Company shall, notwithstanding any agreement or plan to the contrary, fully vest and remove all conditional obligations to receive, all options or other equity-based awards granted Executive by the Company. If it is determined, in the opinion of the Company's independent accountants, in consultation with the Company's independent counsel, that any amounts payable to Executive by the Company under this Agreement, or any other plan or Agreement under which Executive participates or is a party, would constitute an "Excess Parachute Payment" within the meaning of Code Section 280G and be subject to the excise tax imposed by Code Section 4999 (the "Excise Tax"), the Company shall, on the Date of Termination, pay to Executive an amount equal to the amount of such Excise Tax, all federal, state and local income or other taxes payable by Executive thereon (the "Tax Amount"), plus an additional amount equal to the additional federal, state and local taxes applicable as a result of the payment of the tax amount to Executive. If at a later date, the Internal Revenue Service assesses a deficiency against Executive for Excise Tax which is greater than that which was determined at the time such amounts were paid, the Company shall pay to Executive the amount of such unreimbursed Excise Tax plus any interest, penalties and professional fees or expenses, incurred by Executive as a result of such assessment, including all additional taxes (as determined upon a "grossed up" basis) with respect to any such additional amount. In making the foregoing determinations, the Company shall use the highest marginal federal and state tax rates applicable to individuals residing in the state in which the Company's principal place of business is located. Further, the Company shall withhold from any amounts paid under this Agreement the amount of any Excise Tax or other federal, state or local taxes then required to be withheld. Computations with respect to the amounts payable under this subparagraph shall be made by the Company's independent accountants, in consultation with the Company's independent legal counsel. The Company shall pay all accounting and legal counsel fees and expenses related to the determination of any such amounts. 4.5. Other Termination by Executive. If Executive shall terminate his employment for any reason other than Good Reason, the Company shall have no further obligations to Executive under this Agreement (other than the Company's obligations under Section 4.1 hereof). 4.6. Disclaimer of Mitigation Duty. Executive shall not be required to mitigate the amount of any payment provided for or referred to in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for or referred to in this Section 4 be reduced by any compensation earned by Executive as a result of employment by another employer, by retirement benefits, or be offset against any amount claimed to be owed by Executive to the Company or otherwise. 4.7. Other Benefits. In addition to all other amounts payable to Executive under this Section 4, Executive shall be entitled to receive all benefits payable to Executive under any plans or agreements relating to retirement or other benefits in accordance with the terms and provisions thereof. 5. STOCK OPTIONS. 5.1. Stock Options. As of the date hereof, the Company has granted Executive the following stock options (a) an option to purchase 500,000 shares at $6.50 per share, 300,000 of which options are vested as of the date hereof and (b) an additional option to purchase 100,000 shares at $6.00, all of which options are vested as of the date hereof. 5.2. Sale of Company Shares. So long as Executive is employed by the Company the Executive agrees that, without the written consent of the Company (which consent shall not be unreasonably withheld), Executive shall not sell Common Stock of the Company which stock represents more than one and a half percent (1.5%) of the outstanding shares (on a fully diluted basis) of Common Stock of the Company during any fiscal quarter of the Company; provided however, to the extent that Executive does not, during any fiscal quarter, sell one and a half percent (1.5%) of the outstanding Common Stock of the Company, then, in addition to any shares that Executive may otherwise sell pursuant to the foregoing, Executive may, in subsequent fiscal quarters, sell Common Stock of the Company representing at least that number of shares of Company Common Stock equal to such shortfall. 6. BOARD OF DIRECTORS. (a) The Company agrees that at all times during the term, the Company shall slate Executive for election as a member of the Board. (b) In the event that at any time, or from time to time, during the Term, the Board establishes an executive or similar committee of the Board, the Company agrees that such committee will not have more than three members and Executive will be a member of such committee. (c) In the event that at any time, or from time to time, during the term, the Board establishes a nominating or similar committee of the board, the Company agrees that Executive will be a member of such committee. 7. MISCELLANEOUS. 7.1. Successors and Assigns: Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform this Agreement if no such succession had occurred. (b) This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amounts remain unpaid hereunder, including any amounts which would be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's spouse or if Executive does not have a living spouse at such time, to Executive's estate. (c) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns; provided, however, that the duties of Executive hereunder are personal to Executive and may not be delegated by him. 7.2. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois. 7.3. Waivers. The waiver by either party hereto of any right hereunder or of any failure to perform or other breach by the other party hereto shall not be deemed a waiver of any other right hereunder or of any other failure or breach by the other party hereto, whether of the same or a similar nature or otherwise. no waiver shall be deemed to have occurred unless set forth in a writing executed by or on behalf of the waiving party. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically so waived. 7.4. Notices. All notices and communications that are required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when delivered personally, upon mailing by registered or certified mail, postage prepaid, return receipt requested, or upon delivery to a reputable overnight courier as follows: If to the Company, to: MedCare Technologies, Inc. 1515 22nd Avenue Suite 1210 Oak Brook, IL 60523 Attention: Chairman If to Executive, to: Mr. Jeffrey S. Aronin 1658 N. Bissell Chicago, Illinois 60614 or to such other address as may be specified in a notice given by one party to the other party hereunder. 7.5. Severability. If, for any reason, any term or provision of this Agreement is held to be invalid or unenforceable, all other valid terms and provisions hereof shall remain in full force and effect, and all of the terms and provisions of this Agreement shall be deemed to be severable in nature. 7.6. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute but one and the same instrument. 7.7. Legal Fees and Expenses. It is the intent of the Company that Executive shall not be required to incur any expenses associated with the enforcement of his rights under this Agreement by litigation, or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to executive hereunder. Accordingly, if the Company has failed to comply with any of its obligations under this Agreement, or in the event that the Company or any other person takes any action to declare this agreement void or unenforceable, in whole or in part, or institutes any litigation designed to deny, or to recover from, Executive any benefits intended to be provided to Executive hereunder, the Company irrevocably authorizes Executive from time to time to retain counsel of his choice, at the expense of the Company as hereinafter provided, to represent Executive in connection with the initiation or defense of any litigation, arbitration or other legal action, whether by or against the Company or any director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. The Company shall advance to Executive within thirty (30) days after each written request therefor any and all attorneys' and related fees and expenses actually incurred by Executive in any such proceeding or otherwise as a result of the Company's failure to perform this Agreement or any provision hereof or as a result of the Company or any other person contesting the validity or reasonableness of this Agreement. Without limiting the generality of the foregoing, if any amount is not paid by the Company hereunder when due, including, but not limited to, any amount of salary, bonus, fees or expenses, the amount thereof shall bear interest from the due date thereof until paid in full at ten percent (10%) per annum. Executive agrees that he will reimburse the Company for all attorneys' and related fees and expenses received by Executive from the Company under the provisions of this Section 7.7 in the event and only to the extent that it shall be ultimately determined that the Company has not failed to comply with any of its obligations under this Agreement, and each amount to be reimbursed hereunder shall bear interest from the date of receipt by Executive thereof until paid to the Company in full at ten percent (10%) per annum. 7.8. INDEMNIFICATION. (a) The Company shall provide, at its expense, the Executive (including his heirs, personal representatives, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy which policy covers any and all claims against Executive arising from or out of the period which includes the Term. (b) In addition to the insurance coverage provided for in paragraph (a) of this Section 7.8, the Company shall hold harmless and indemnify the Executive (and his heirs, executors and administrators) to the fullest extent permitted under applicable law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been an officer of the Company (whether or not he continues to be an officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys' fees and the cost of reasonable settlements. (c) In the event that the Executive becomes a party, or is threatened to be made a party, to any action, suit or proceeding for which the Company has agreed to provide insurance coverage or indemnification under this Section 7.8, the Company shall, to the fullest extent permitted under applicable law, advance all expenses (including reasonable attorneys' fees), judgments, fines and amounts paid in settlement (collectively "expenses") incurred by the Executive in connection with the investigation, defense, settlement, or appeal of any threatened, pending or completed action, suit or proceeding, subject to receipt by the Company of a written undertaking from the Executive (i) to reimburse the Company for all expenses actually paid by the Company to or on behalf of the Executive in the event it shall be ultimately determined that the Executive is not entitled to indemnification by the Company for such expenses and (ii) to assign to the Company all rights of the Executive to indemnification, under any policy of directors' and officers' liability insurance or otherwise, to the extent of the amount of expenses actually paid by the Company to or on behalf of the Executive. 7.9. Amendment: Survival. This Agreement may be amended or canceled by mutual agreement of the parties in writing without the consent of any other person and, so long as Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. the provisions of Sections 4 and 7 survive the termination or expiration of this Agreement. 7.10. Entire Agreement. This Agreement, constitutes the entire agreement between the parties respecting his employment with the Company and supersedes all prior oral or written understandings between the parties relating to Executive's employment, including the June 26, 1997 employment agreement between the parties; provided, however, that this Agreement shall not supersede any prior written agreement between the parties concerning any equity-based award made by the Company to Executive. 7.11. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. The parties hereto have executed this Agreement on the date and year first above written. MEDCARE TECHNOLOGIES, INC., a Delaware corporation By: --------------------- ----------------------- Title: Jeffrey S. Aronin ------------------ EX-10.(G) 5 SUBLEASE DATED AS OF DECEMBER 31, 1997 EXHIBIT 10g SUBLEASE -------- THIS SUBLEASE ("Sublease") is made and entered into as of December 31, 1997, by and between DELTA DENTAL PLANS ASSOCIATION, an Illinois not-for-profit corporation ("Sublessor") and MEDCARE TECHNOLOGIES, INC., a Delaware corporation ("Sublessee"). RECITALS: --------- THE PARTIES ENTER into this Sublease on the basis of the following facts, intentions and understandings: A. Sublessor is the tenant of certain office space consisting of approximately 11,992 rentable square feet which is a portion of the twelfth (12th) floor and designated as Suite 1200 (the "Leased Premises") as shown on Exhibit A attached hereto in the building located at 1515 West 22nd Street, Oak Brook, Illinois (the "Building"), pursuant to that certain Lease Agreement by and between WHOBT Real Estate Limited Partnership (as successor-in-interest to The Equitable Life Assurance Society of the United States) ("Landlord") and Sublessor dated as of June 22, 1995 (the "Lease"). B. Sublessee desires to sublease from Sublessor, and Sublessor desires to sublease to Sublessee, upon the term and conditions hereinafter set forth, that portion of the Leased Premises containing approximately 2,923 rentable square feet and commonly known as Suite 1210 (the "Subleased Premises") as shown on Exhibit A. NOW, THEREFORE, in consideration of the rents herein agreed to be paid to Sublessor, and the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Sublease. Sublessor hereby agrees to lease the Subleased Premises to Sublessee and Sublessee agrees to lease the Subleased Premises from Sublessor on the conditions hereinafter set forth. 2. Sublease Subject to Lease. (a) Sublessee acknowledges that all rights which it is hereby acquiring in and to the Subleased Premises are ultimately derived from the Lease and that the rights, terms and conditions of this Sublease are in all respects subject to all the terms and conditions set forth in the Lease and all such terms and conditions of the Lease are incorporated herein as terms and conditions of this Sublease, except as excluded in Paragraph 2(b) below. Sublessee agrees to assume, observe and be bound by each and every covenant, condition and provision contained in the Lease, as same may be modified hereby, insofar as any such covenant, condition or provision affects the Subleased Premises or Sublessee's use thereof, as though all such covenants, conditions and provisions were set forth in full in this Sublease. For purposes of this Sublease, any reference in the Lease to "Landlord" shall be deemed to refer to Sublessor and any reference to "Tenant" shall be deemed to refer to Sublessee and any reference in the Lease to "Premises" shall be deemed to refer to the Subleased Premises. Notwithstanding anything to the contrary contained herein, it is further agreed that in the event the Lease shall terminate for any reason, this Sublease and all rights of Sublessee in and to the Subleased Premises shall terminate on the date the Lease is terminated. Sublessee acknowledges that it has received a true copy of the Lease and that it has reviewed and is familiar with the terms of the Lease. (b) The terms and provisions of the following sections and portions of the Lease are not incorporated into this Sublease: the Introductory Article, Articles 1-3, 4(a)(ii), 6, 7(b), second paragraph of 9(a), 17, 18, 22, 25, 26, 29(i), (j), (k) and (v), 30, 32 and 33; Exhibits B, E and H; and the Guaranty. 3. Term. (a) Initial Term. The term ("Term") of this Sublease shall commence on February 1, 1998 (the "Commencement Date") and shall terminate on January 31, 2003 (the "Termination Date"), unless sooner terminated or extended as set forth herein. (b) Renewal Qption. Subject to Sublessor's right to terminate the Lease as provided in Article 33(c) of the Lease, provided that no default is existing under this Sublease at the time the option to renew described below (the "Renewal Option") is exercised or at the commencement of any Renewal Term (hereinafter defined), Sublessee shall have the right to extend the Term for one (1) additional two (2) year and ten (10) month period (the "Renewal Term"). The option to extend for the Renewal Term shall be exercised, if at all, by written notice from Sublessee to Sublessor ("Sublessee's Renewal Notice") given not later than February 1, 2002. In the event Sublessee fails strictly to comply with the procedure for exercise of the Renewal Option, Sublessee shall have no further right to extend the Term. The lease of the Subleased Premises during the Renewal Term shall be upon the same terms and conditions as are contained in the Sublease, as amended hereby, except as hereinafter provided: (i) The Base Rent (as hereinafter defined) for the Renewal Term shall be as follows: Monthly Installment Period Annual Base Rent Base Rent ------ ---------------- ------------------- February 1, 2003 - January 31, 2004 $68,690.52 $5,724.21 February 1, 2004 - January 31, 2005 70,152.00 5,846.00 February 1, 2005 - November 30, 2005 71,613.48 5,967.79 (ii) Sublessor shall have no obligation to make improvements, decorations, repairs, alterations, or additions to the Subleased Premises as a condition to Sublessee's obligation to pay Base Rent or Additional Rent (as hereinafter defined) for the Renewal Term. -2- (c) Sublessor hereby agrees that in the event Sublessor exercises the Cancellation Option as provided in Article 33(c) of the Lease, Sublessor shall provide Sublessee with written notice thereof on or before January 1, 2002. 4. Rent. (a) Base Rent. Sublessee agrees to pay to Sublessor monthly in advance, beginning on the Commencement Date and continuing on the first day of each month thereafter for the balance of the Term of this Sublease, rent ("Base Rent") for the Subleased Premises, in the following amounts: Monthly Installment Period Annual Base Rent of Base Rent ------ ---------------- ------------------- February 1, 1998 - January 31, 1999 $61,383.00 $5,115.25 February 1, 1999 - January 31, 2000 62,844.48 5,237.04 February 1, 2000 - January 31, 2001 64,305.96 5,358.83 February 1, 2001 - January 31, 2002 65,767.56 5,480.63 February 1, 2002 - January 31, 2003 67,229.04 5,602.42 All Base Rent and other payments payable by Sublessee hereunder shall be paid in lawful money of the United States to Sublessor at such place as Sublessor shall from time to time designate, without any prior demand therefor and without any deduction or offset whatsoever. Sublessee hereby agrees to pay the first monthly installment of Base Rent and Additional Rent upon Sublessee's execution of this Sublease. Any installment of Base Rent or Additional Rent not paid when due shall bear interest at the Default Rate (as defined in the Lease) from the date when due until the date paid. (b) Additional Rent. In addition to Base Rent, Sublessee agrees to pay Sublessor as "Additional Rent" under this Sublease an amount equal to "Sublessee's Proportionate Share" of the amount, if any, by which the Taxes and Operating Expenses Sublessor is required to pay to Landlord pursuant to Article 4 of the Lease for each calendar year during the Term of this Sublease exceed Sublessee's Proportionate Share of the amount of Taxes and Operating Expenses paid by Sublessor for the calendar year 1998. For purposes hereof, Sublessee's Proportionate Share shall mean 24.37%, being the percentage calculated by dividing the rentable area contained in the Subleased Premises (being 2,923) by the rentable area of the Leased Premises (11,992). The monthly installment of Additional Rent Sublessee shall pay hereunder shall be determined based upon Sublessor's estimate of the amount Sublessor is required to pay to Landlord; such Additional Rent is subject to adjustment based upon the actual amounts Sublessor is required to pay to Landlord under the Lease for any applicable calendar year. Except for Additional Rent as described in this Paragraph 4(b), Sublessee, shall not be required to pay any "Additional Rent" as such term may otherwise be defined in the Lease. -3- 5. Use of the Subleased Premises. Sublessee shall use and occupy the Subleased Premises for general office purposes only, and for no other use or purpose. Sublessee shall not use or occupy the Subleased Premises or permit the use or occupancy of the Subleased Premises for any purpose or in any manner which (i) is unlawful or in violation of any applicable legal or governmental requirement, ordinance or rule; (ii) may be dangerous to persons or property; (iii) may invalidate or increase the amount of premiums for any policy of insurance affecting the Building; (iv) may create a nuisance, disturb any other tenant of the Building or injure the reputation of the Building; (v) may interfere with the operation of the Building or the maintenance of same as a first-class office building; or (vi) may violate any of Sublessee's other obligations under this Sublease. 6. Condition of Subleased Premises. (a) Sublessee accepts the Subleased Premises in its "AS-IS, WHERE- LOCATED" condition. No promise of Sublessor to alter, remodel, improve, repair, decorate or clean the Subleased Premises or any part thereof, and no representation respecting the condition of the Subleased Premises has been made to Sublessee by Sublessor, except that Sublessor, at its sole cost and expense, shall (i) construct and complete the improvements set forth in the plans and specifications prepared by Lieber Architects, Inc. dated December 5, 1997 commonly known as Project No. 7005.1, and (ii) shampoo the carpet throughout the Subleased Premises. (b) Sublessee shall not make or install any additions, renovations, alterations, improvements or changes in or to the Subleased Premises, including the walls, floors, ceilings and fixtures located therein, without first obtaining the prior written consent of Sublessor in each instance, which approval shall not be unreasonably withheld but shall be conditioned upon (i) Sublessor first obtaining Landlord's prior written consent in each instance pursuant to the terms of the Lease, (ii) Sublessee's compliance with any applicable provisions of the Lease, and (iii) the satisfaction of any other reasonable conditions or restrictions that Sublessor deems appropriate. All work done by or for Sublessee with respect to the Subleased Premises, including any removal and/or restoration required at the expiration or termination of this Sublease, shall be at Sublessee's sole cost and expense. (c) Sublessor agrees to pay a sum ("Sublessor's Allowance") up to Eight Thousand Seven Hundred Sixty-Nine and 00/100 Dollars ($8,769.00) toward the cost of any improvements Sublessee desires to complete for a reception area in the Subleased Premises (the "Reception Area Improvements"). Any costs incurred by Sublessee in connection with the Reception Area Improvements in excess of Sublessor's Allowance shall be paid by Sublessee. Any such alterations and improvements shall be constructed in accordance with the provisions of Paragraph 6(b) above. Provided that no default exists under the Sublease (beyond any applicable notice and cure periods), Sublessor shall disburse the Sublessor's Allowance to Sublessee within thirty (30) days following written request from Sublessee, which request shall be accompanied by such paid invoices and other supporting documentation as Sublessor may reasonably require, including (if applicable), but not limited to, general contractors' sworn affidavits and partial or final waivers of Lien, as the case may be, in form and substance reasonably satisfactory to Sublessor. In the event the cost of the Reception Area Improvements -4- does not exceed Sublessor's Allowance, any excess thereof shall be applied and credited against the rent due hereunder following February 28, 1998. 7. Repairs and Maintenance. Throughout the Term, Sublessee shall, at its sole cost and expense, keep and maintain the Subleased Premises and every part thereof, in good order, condition and repair. All damage or injury to the Subleased Premises which is caused by Sublessee or any of its employees, agents or visitors shall be promptly repaired by Sublessee, at its sole cost and expense. Sublessor shall have the right to make any repairs to the Subleased Premises which Sublessee does not make within a reasonable time after receiving notice in writing from Sublessor of the necessity for such repairs, and Sublessee shall pay to Sublessor upon demand all out-of-pocket costs and expenses of such repairs. Upon the expiration or termination of this Sublease or the termination of Sublessee's right to possession hereunder, Sublessee shall surrender the Subleased Premises in as good condition as they are in at the commencement of the Term hereof, ordinary wear and tear and damage caused by fire or other casualty excepted, failing which Sublessor may restore the Subleased Premises to such condition and Sublessee shall pay the out-of-pocket expense to Sublessor of doing so on demand. 8. Services and Utilities. (a) Sublessee acknowledges that, certain utilities and building services as set forth in the Lease are to be furnished by Landlord, and Sublessor agrees to make such utilities and building services available to Sublessee to the same extent that they are provided by Landlord with respect to the Subleased Premises; provided, however, that Sublessor shall not have any liability or responsibility to Sublessee for the quality of such utilities or services or for any interruption, failure or disruption in the availability of such utilities or services, except if such interruption, failure or disruption is caused by the gross negligence or willful misconduct of Sublessor, its employees or agents then the Provisions of Article 7(c) of the Lease shall be applicable. Any additional sums due to Landlord as a result of additional services rendered to or on behalf of Sublessee shall be the responsibility of Sublessee and are deemed additional rent hereunder. (b) Sublessor and Sublessee hereby acknowledge that the Subleased Premises are not separately metered. Sublessee hereby agrees to pay to Sublessor on a monthly basis, as additional rent, an amount equal to $243.58 (i.e., $1.00 per rentable square foot of the Subleased Premises per year) for Sublessee's use of electricity in connection with the Subleased Premises, which use shall not exceed normal office usage of electricity for lights and convenience outlets. In the event Sublessee's use of electricity exceeds normal office usage, Sublessee shall pay to Sublessor such increased usage costs as reasonably determined by Sublessor. (c) Nothing contained in this Sublease shall be deemed to provide Sublessee with any specific rights with respect to Sublessor's telephone equipment, other than that Sublessor, at Sublessee's sole cost and expense, shall provide Sublessee with access to Sublessor's telephone switch. Any costs incurred by Sublessee in connection with telephone usage at the Subleased Premises shall be paid by Sublessee directly to the telephone utility providing any such service. -5- 9. Waiver of Certain Sublessee Claims, Indemnity by Sublessee. To the extent not expressly prohibited by law or caused by the negligence or willful misconduct of Sublessor, its officers, directors, shareholders, partners, agents or employees, Sublessee releases Sublessor and its beneficiaries, their respective partners, the managing and leasing agents for the Building, and the respective officers, directors, shareholders, partners, agents and employees of each of them from and waives all loss, cost, expense, liabilities and claims for damages (including reasonable attorneys' fees) to person or property sustained by Sublessee, or its invitees, licensees and employees, or by any other person, resulting, directly or indirectly, from any fire or other casualty, cause, existing or future condition, defect, matter or thing in or about the Building or any part thereof, or from any equipment or appurtenance therein, or from any accident in or about the Building or the Land, or from any act or neglect of any tenant, Sublessor or other person in the Building or any part thereof or of any other person, including Landlord, their beneficiaries, their partners, the managing and leasing agents for the Building, or any of their officers, directors, shareholders, partners, agents or employees. This Paragraph 9 shall apply especially, but not exclusively, to damage caused by water, snow, frost, steam, excessive heat or cold, sewerage, gas, odors or noise, or the bursting or leaking of pipes or plumbing fixtures, broken glass, sprinkling or air conditioning devices or equipment, or flooding of basements, and shall apply without distinction as to the person whose act or neglect was responsible for the damage and whether the damage was due to any of the acts specifically enumerated above, or from any other thing or circumstance, whether of a like nature or of a wholly different nature. If any damage to any equipment or appurtenance therein, whether belonging to Sublessor or Landlord or to other tenants or persons in the Building, results from any act or neglect of Sublessee, Sublessee shall be liable therefor, and Sublessor may, at its option, repair such damage and Sublessee shall, upon demand by Sublessor, reimburse Sublessor for the expense to Sublessor of such repairs and damages in excess of amounts, if any, paid to Sublessor under insurance covering such damages. All personal property belonging to Sublessee or any person in the Subleased Premises shall be there at the risk of Sublessee or other person only and Sublessor and Landlord and their beneficiaries and their agents shall not be liable for damage thereto or theft or misappropriation thereof. To the extent not expressly prohibited by law or caused by the negligence or willful misconduct of Sublessor, its officers, directors, shareholders, partners, agents or employees, Sublessee agrees to hold Sublessor and its beneficiaries, their respective partners, the managing and leasing agents for the Building, and the respective officers, directors, shareholders, partners, agents and employees of each of them harmless and to indemnify each of them against claims and liabilities, including reasonable attorneys' fees, for injuries to all persons and damage to or theft or misappropriation or loss of property occurring in or about the Subleased Premises, or arising from Sublessee's occupancy of the Subleased Premises or the conduct of its business or from any activity, work, or thing done, permitted or suffered by Sublessee in or about the Subleased Premises or from any breach or default on the part of Sublessee in the performance of any covenant or agreement on the part of Sublessee to be performed pursuant to the term of this Sublease, or due to any other act or omission of Sublessee, its agents, contractors, invitees, subtenants, licensees or employees. Sublessor shall indemnify Sublessee and hold Sublessee, its partners, officers, directors, shareholders, agents and employees harmless from and against all loss, cost, expense, damage, claims and liabilities, including reasonable attorneys' fees, -6- arising out of the failure of Sublessor to perform any covenant or agreement on the part of Sublessor to be performed pursuant to the terms of this Sublease or the Lease. 10. Assignment and Subletting. (a) Without the prior written approval of Sublessor (which approval shall not be unreasonably withheld or delayed) and Landlord, Sublessee shall not assign, pledge or encumber this Sublease or any interest herein, or further sublease the Subleased Premises or any part thereof, or permit anyone other than Sublessee's officers and employees to use the Subleased Premises. Any attempted assignment, pledge or hypothecation of this Sublease or any attempted subletting of the Subleased Premises without Sublessor's prior written approval shall be void and, at the option of Sublessor, shall terminate this Sublease. (b) The rights of Sublessor under Article 15(c) of the Lease shall not be applicable in the event Sublessee subleases all or a portion of the Subleased Premises to an Affiliate (as defined in Article 15[a] of the Lease and as such definition is applicable to Sublessee) or assigns this Sublease to an Affiliate. 11. Successors and Assigns. Subject to the restrictions on assignment and subletting by Sublessee, this Sublease shall be binding upon and shall inure to the benefit of the parties hereto, their successors, assigns and legal representatives. 12. Default. The following shall constitute a default by Sublessee hereunder: (i) the failure by Sublessee to pay, within five (5) days after notice of such failure, any rental or other payment required to be paid by Sublessee hereunder; (ii) the failure by Sublessee to observe or perform any covenant, obligation or condition required to be performed or observed by Sublessee hereunder and the continuation of such failure for a period of thirty (30) days after notice thereof from Sublessor, unless with respect to any default that cannot be cured within such thirty (30) day period, Sublessee in good faith and promptly after receipt of such notice commences to cure such default within such thirty (30) day period and thereafter continues to diligently and reasonably prosecute all action necessary to cure such default and complete such cure within a total of an additional sixty (60) days after such initial thirty (30) day cure period subject to Force Majeure Events; (iii) the leasehold interest of Sublessee being levied upon under execution or being attached by process of law, which lien shall not be released or discharged or bonded or otherwise insured over to Sublessor's reasonable satisfaction within twenty (20) days from the date of filing thereof; or (iv) the filing by or against Sublessee of any petition for bankruptcy or reorganization or any petition for similar relief under any state or Federal bankruptcy or similar law, of, with respect to any petition filed against Sublessee, such action is not vacated or stayed pending appeal within ninety (90) days. In the event of any such default by Sublessee, Sublessor shall have the right to terminate this Sublease, to recover immediate possession of the Subleased Premises, and to remove all personal property of Sublessee from the Subleased Premises at Sublessee's cost and expense. In addition, in the event of any default by Sublessee hereunder, Sublessor shall be entitled to recover all damages permitted by law (including, without limitation, attorneys' fees, costs and expenses) and to enforce all remedies available to Sublessor at law or in equity. All rights, powers and remedies of Sublessor shall be cumulative and the exercise of one or more of its rights or remedies shall not impair Sublessor's right to exercise any other right or remedy, either concurrently or at any later time. -7- Sublessee shall not cause or permit anything to be done which would constitute a default or breach of Sublessor's obligations as tenant under the Lease, including, without limitation, any breach or default which would cause the Lease to be terminated or forfeited by reason of any right of termination or forfeiture reserved or vested in the Landlord under the Lease. 13. Access. At reasonable hours during the Term, Sublessor and its officers, employees and representatives, and the Landlord and its officers, employees and representatives, shall have the right to enter the Subleased Premises, upon reasonable verbal notice to Sublessee under the circumstances (except in the case of an emergency or for the supplying of janitorial services when no such notice shall be required), for reasonable purposes, including inspection, furnishing janitorial services, or the making of repairs and for alterations or additions to any portion of the Building outside the Subleased Premises. 14. Damage to Subleased Premises. In the event of any damage to or destruction to the Subleased Premises, the provisions of the Lease shall be applicable. 15. Condemnation. If the Subleased Premises are condemned or taken by any governmental authority under the power of eminent domain, the provisions of the Lease shall be applicable. 16. Holding Over. Sublessee will, at the termination of this Sublease by lapse of time or otherwise, yield up immediate possession of the Subleased Premises to Sublessor and Landlord. If Sublessee retains possession of the Subleased Premises or any part thereof after such termination, then Sublessee shall pay to Sublessor (i) during the initial thirty (30) days of any such holding over 150% of the Base Rent and 150% of the Additional Rent herein provided and thereafter, 200% of the Base Rent and 200% of the Additional Rent herein provided for each month Sublessor retains possession of the Subleased Premises or portion thereof, and (ii) all damages, consequential as well as direct, sustained by Sublessor by reason of such retention of possession. The provisions of this Paragraph 16 do not exclude Sublessor's or Landlord's rights of re-entry, or any other right, hereunder or under the Lease or at law or in equity. 17. Estoppel Certificates. Sublessee agrees, at any time and from time to time, upon not less than five (5) business days' prior written notice by Sublessor, to execute, acknowledge and deliver to Sublessor and Landlord a statement in writing (i) certifying that this Sublease is unmodified and in full force and effect (or if there have been modifications, that the Sublease is in full force and effect as modified and stating the modifications); (ii) stating the dates to which the rent and any other charges hereunder have been paid by Sublessee, (iii) stating whether or not, to the best knowledge of Sublessee, Sublessor is in default in the performance of any covenant, agreement or condition contained in this Sublease, and if so, specifying the nature of such default; and (iv) stating the address to which notices to Sublessee are to be sent. Any such statement delivered to Sublessee may be relied upon by any owner of the Subleased Premises or the land upon which it is situated, any prospective purchaser of the Subleased Premises, any mortgagee or prospective mortgagee, or any prospective assignee of any such mortgage. -8- 18. Sublessee's Insurance. Throughout the Term hereof, Sublessee shall obtain and maintain insurance as required by the Lease. Said insurance shall name Sublessor and the Landlord as additional insureds thereunder, and shall contain an endorsement that such policy shall remain in full force and effect notwithstanding that the insured has waived its right of action against any party prior to the occurrence of a loss. If requested by Sublessor, Sublessee shall provide Sublessor receipts evidencing payment of premiums for such insurance. Such policy shall contain an endorsement providing it cannot be cancelled without thirty (30) days' prior written notice being given to Sublessor. Sublessor and Sublessee agree to have all fire and extended coverage and material damage insurance which may be carried by either of them endorsed with a clause providing that any release from liability of or waiver of claim for recovery from the other party entered into in writing by the insured thereunder prior to any loss or damage shall not affect the validity of said policy or the right of the insured to recover thereunder and providing further that the insurer waives all rights of subrogation which such insurer might have against the other party. Without limiting any release or waiver of liability or recovery contained in any other Paragraph of this Sublease or of the Lease but rather in confirmation and furtherance thereof, each of the parties hereto waive all claims for recovery from the other party for any loss or damage to any of its property insured under valid and collectible insurance policies to the extent of any recovery collectible under such insurance policies or any recovery which would have been so collectible had such party obtained and maintained insurance coverage in accordance with the terms of Article 11 of the Lease. 19. Real Estate Brokers. Each party represents that it has not dealt with any brokers in connection with this Sublease other than The John Buck Company, as Sublessor's agent, and Insignia/FC&S, as Sublessee's agent, and that insofar as each party knows no other broker negotiated this Sublease or is entitled to any commission in connection herewith. Sublessor and Sublessee agrees to indemnify, defend and hold each other and their respective partners, employees, agents, officers and partners harmless from and against any claims resulting from a breach of the foregoing representation. 20. Covenant Against Liens. Sublessee covenants and agrees not to suffer or permit any lien of mechanics or materialmen to be placed upon or against the Subleased Premises, the Building, or the land or against Sublessee's subleasehold interest in the Subleased Premises and, in case of any such lien attaching, to immediately pay and remove same. Sublessee has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by any act of Sublessee, operation of law or otherwise, to attach to or be placed upon the Subleased Premises, the Building or the land and any and all liens and encumbrances created by Sublessee shall attach only to Sublessee's interest in the Subleased Premises. If any such liens so attach and Sublessee fails to pay and remove same within ten (10) days following receipt of written notice from Sublessor, Sublessor, at its election, may pay and satisfy the same and in such event the sums so paid by Sublessor, with interest from the date of payment at the rate set forth in Article 29(b) of the Lease for amounts owed Sublessor by Sublessee, shall be deemed to be additional rent due and payable by Sublessee at once without notice or demand. 21. Rules and Regulations. This Sublease is subject to all the Rules and Regulations listed in Exhibit D attached to the Lease. Sublessee acknowledges receipt of a copy of said Exhibit and hereby agrees to observe all such Rules and Regulations. -9- 22. General Provisions. (a) Whenever Sublessee proposes to take any action which would require Sublessor to obtain the consent of the Landlord under the terms of the Lease, for purposes of this Sublease such action shall require the consent of Sublessor and Landlord. (b) The waiver by Sublessor of a breach of any covenant, obligation or condition set forth herein shall not be deemed to be a waiver of any subsequent breach of the same or of any other covenant, obligation or condition of this Sublease. (c) This Sublease shall be governed by and construed in accordance with the laws of the State of Illinois. (d) This Sublease constitutes the entire agreement between the parties hereto and may not be modified except by a written instrument executed by both parties hereto. (e) If any provision of this Sublease is declared invalid or unenforceable, the remainder hereof shall continue in full force and effect. (f) All notices required or permitted to be given to Sublessee hereunder shall be to the attention of Mr. Jeff Aronin, President and delivered in person or by a nationally recognized overnight courier, or by U.S. mail, postage prepaid, certified or registered mail, return receipt requested, to the Subleased Premises or to such other address as Sublessee shall from time to time designate in writing. All notices required or permitted to be given to Sublessor hereunder shall be delivered in person or by a nationally recognized overnight courier, or by U.S. mail, postage prepaid, certified or registered mail, return receipt requested, to Delta Dental Plans Association, 1515 West 22nd Street, Suite 1200, Oak Brook, Illinois 60521, Attention: President and Chief Executive Officer or to such other address as Sublessor shall from time to time designate in writing. All notices shall be deemed given upon delivery or refusal to accept delivery. (g) Paragraph headings are used herein solely for the convenience of reference and are not to be construed as a part of this Sublease. (h) This Sublease may be executed in one (1) or more counterparts, each of which shall constitute an original but all of which together shall constitute one and the same instrument. (i) Time is of the essence of this Sublease. (j) In the event of an action in order to enforce any term, covenant or condition of this Sublease, the prevailing party shall be entitled to recover from the non-prevailing party the costs and expenses of such action, including attorneys' fees to be set by the court in such action. (k) The rights and obligations of Sublessor and Sublesses under this Sublease are contingent upon Sublessor obtaining the written consent of Landlord to this Sublease. -10- 23. Parking. Sublessor shall provide Sublessee with two (2) reserved parking spaces during the Term of this Sublease, as designated by Sublessor. Sublessee shall pay to Sublessor the prevailing market rate for such reserved parking spaces as determined by Landlord, which rate is currently $30.00 per month per reserved parking space. Sublessee's use of the reserved parking spaces and any unreserved parking spaces shall be subject to any rules and regulations of Landlord applicable to such parking. 24. Security Deposit. As security for the faithful and prompt performance of its obligations hereunder, Sublessee hereby deposits with Sublessor cash or an unconditional irrevocable letter of credit in favor of Sublessor (the "Security Deposit"), which may be drawn upon in full or in part, from an institution and in form acceptable to Landlord in the amount of $25,000.00, subject to reduction on the (i) first anniversary of the Commencement Date to $17,500.00, (ii) second anniversary of the Commencement Date to $10,000.00, and (iii) third anniversary of the Commencement Date to $7,500.00, provided that Sublessee is not in default under the terms of this Sublease and provided that no event has occurred that upon the passage of time or the giving of notice, would result in Sublessee being in default hereunder. The Security Deposit shall serve as security for the prompt, full and faithful performance by Sublessee of each and every provision of this Sublease and of all obligations of Sublessee hereunder. In the event that the letter of credit is not for a period extending through February 29, 2004 (or, if Sublessee exercises the Renewal Option, the letter of credit shall be extended through December 31, 2005), Sublessee shall renew such letter of credit or provide Sublessor with a replacement letter of credit, from an institution and in form acceptable to Sublessor, at least thirty (30) days prior to the expiration of the current letter of credit. In the event that Sublessee does not renew the letter of credit or provide a replacement letter of credit within such time period, Sublessor may draw upon the letter of credit and hold such funds in accordance with the terms of this Paragraph 24. (a) If Sublessee fails to perform any of its obligations hereunder (beyond any applicable notice and cure periods), Sublessor may draw on the letter of credit or apply the cash deposit (as the case may be), in fall or in part as damages for Sublessee's default under Paragraph 12, or for the payment of (i) any Base Rent, Additional Rent or other sums of money which Sublessee may not have paid when due, (ii) any sum expended by Sublessor on Sublessee's behalf in accordance with the provisions of this Sublease, or (iii) any sum which Sublessor may expend or be required to expend by reason of Sublessee's default, including, without limitation, any damage or deficiency in or from the reletting of the Subleased Premises as provided in Paragraph 12. The use, application or retention of the Security Deposit, or any portion thereof, by Sublessor shall not prevent Sublessor from exercising any other right or remedy provided by this Sublease or by law (it being intended that Sublessor shall not first be required to proceed against the Security Deposit) and shall not operate as a limitation on any recovery to which Sublessor may otherwise be entitled. If any portion of the Security Deposit is used, applied or retained by Sublessor for the purposes set forth above, Sublessee agrees, within ten (10) days after the written demand therefor is made by Sublessor, to deposit cash with Sublessor in an amount sufficient to restore the Security Deposit to its original amount. (b) If Sublessee has not defaulted hereunder and Sublessor has not applied the Security Deposit to cure a default, or if Sublessor has applied said Security Deposit to cure a default and Sublessee has replenished the same, then said Security Deposit, or such remaining -11- portion thereof, shall be returned to Sublessee, without interest, after the last to occur of thirty (30) days following (i) the expiration or termination of the Term, or (ii) any later date after which Sublessee has vacated the Subleased Premises. Said deposit shall not be deemed an advance payment of rent or measure of Sublessor's damages for any default hereunder by Sublessee. In the absence of evidence satisfactory to Sublessor of any permitted assignment of the right to receive the Security Deposit, or of the remaining balance thereof, Sublessor may return the same to the original sublessee, regardless of one or more assignments of Sublessee's interest in this Sublease or the Security Deposit. In such event, upon the return of the Security Deposit or the remaining balance thereof to the original sublessee, Sublessor shall be completely relieved of liability under this Paragraph 24 or otherwise with respect to the Security Deposit. 25. Signage. Pursuant to the Consent to Sublease executed by the Sublessee, Sublessor and Landlord in connection with this Sublease, Landlord has agreed that Sublessee shall have the right, at its sole cost and expense, to have Sublessee's name and location identified with building standard identification (i) upon the directory board located in the lobby of the Building, and (ii) in the elevator lobby on the floor the Subleased Premises is located. 26. Furniture. Sublessor shall transfer to Sublessee all of Sublessor's right, title and interest in and to any furniture located in the Subleased Premises as set forth in Exhibit B attached hereto (collectively, the "Furniture"), free and clear of any rights, claim or encumbrances of others, for a sum equal to Four Thousand Five Hundred and 00/100 Dollars ($4,500.00), which sum shall be paid to Sublessor in three (3) installments of $1,500.00 each as follows: (i) the first installment shall be paid to Sublessor upon execution by Sublessee of this Sublease, (ii) the second installment shall be paid to Sublessor on or before July 1, 2000, and (iii) the third installment shall be paid to Sublessor on or before January 1, 2003. Following Sublessee's payment of the final installment to Sublessor, this Paragraph 26 shall act as a bill of sale for the Furniture and no other documentation shall be required therefor. 27. Expansion Opportunities. Subject to Sublessor's desire to exercise any expansion option or right of first offer provided to it under the Lease, Sublessor shall reasonably cooperate with Sublessee to encourage Landlord to lease directly to Sublessee any space offered to Sublessor for such expansion purposes which Sublessor does not desire to lease from Landlord for its own purposes. With respect to the Option Space described in Article 33(b) of the Lease, Sublessor shall provide Sublessee with written notice on or before September 1, 1999 of whether or not it intends to exercise its option to lease such space from Landlord. In the event that Sublessee leases directly from Landlord or subleases any other space in the Building, Sublessee shall be deemed to have exercised the Renewal Option hereunder. 28. Additional Provisions. (a) For the purpose of this Sublease, the reference to "Exhibit E" in the Lease shall be deemed to mean Exhibit A of this Sublease. (b) The supervisory and administrative fee set forth in Article 9(b) of the Lease shall only be payable to Landlord; accordingly, Sublessor shall not be entitled to a supervisory and administrative fee in connection with additions, alterations, improvements or -12- repairs that Sublessee may make in the Subleased Premises in accordance with the terms of this Sublease. (c) Sublessor covenants and agrees that from and after the date hereof and during the Term hereof, Sublessor shall perform all its duties and obligations and comply in all respects with the requirements of the Lease and not take any action or enter into any agreements that might cause or result in any termination of the Lease or may be in conflict with Sublessor's obligations under this Sublease. (d) In the event of any inconsistency or conflict between the terms and provisions of this Sublease and the Lease, the terms and provisions of this Sublease shall control. (e) Capitalized terms not otherwise defined herein shall have the same meaning in this Sublease as defined in the Lease. (f) As of the date hereof, Sublessor hereby represents and warrants to Sublessee as follows: (i) Status. The Lease is in full force and effect. (ii) Rent. All rents and other amounts (including additional rents and other charges) reserved or required under the Lease have been paid to the extent they were payable prior to the date hereof; and, throughout the Term of this Sublease, Sublessor shall pay or cause to be paid all Rent and Additional Rent under the terms of the Lease on or before the due date thereof. (iii) No Default. Sublessor is not in default under the Lease and to the best of Sublessor's knowledge, there is no existing default by Landlord under the Lease. (g) Sublessor covenants that so long as Sublessee keeps, observes and performs all of the terms, conditions, provisions and agreements herein contained on the part of Sublessee to be kept, observed and performed, including, without limitation, payment of Base Rent and Additional Rent, Sublessee shall during the Term hereof peaceably and quietly hold the Subleased Premises, subject to the Lease and subject to the terms, covenants, conditions, provisions and agreements hereof, free from hinderance by any other party. -13- IN WITNESS WHEREOF, the parties hereto have executed this Sublease as of the day and year first above written. SUBLESSOR: DELTA DENTAL PLANS ASSOCIATION, an Illinois not-for-profit corporation By: /s/ Kim E. Volk ------------------ Name: Kim Volk ---------------- Title: President & CEO --------------- SUBLESSEE: MEDCARE TECHNOLOGIES, INC., a Delaware corporation By: /s/ Jeff Aronin ------------------- Name: Jeffrey Aronin ------------------ Title: President ----------------- -14- EXHIBIT A SUBLEASED PREMISES [FLOOR PLAN ARTWORK OF TWELFTH FLOOR APPEARS HERE] EXHIBIT B Furniture Kimball Conference Table 48" x 96" w/glass table top 1 Conference room chair, swivel-tilt, mechanical adjustment (color: knoll classic boucle) 8 Kimball wood veneer work station - footprint worksurfaces, adjustable keyboard, credenza and drawers 2 Kimball collage guest chair, royal on mahogany 8 Kimball era - high back, multi-task chair 3 Kimball wood veneer work station - footprint worksurfaces, adjustable keyboard and drawers 1 Kimball workstation - including work surfaces, adjustable keyboard drawers & overheads - laminate/metal 8 Kimball era - low back dedicated task chairs 8 Harpers lateral file w/common top 36" W x 18" x 27" H 5 Harpers lateral file w/common top 42" W x 18 x 27" H 5 U-line small refrigerator 1 Merillar overhead cabinets and drawers N/A EX-21 6 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21. MEDCARE TECHNOLOGIES, INC. SUBSIDIARIES MEDCARE TECHNOLOGIES, CORPORATION MEDCAREONLINE.COM, INC. EX-27 7 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from 1998 Form 10KSB and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 2,826,086 0 271,240 45,165 0 0 283,630 65,231 3,381,888 469,743 0 0 12 7,825 2,904,308 3,381,888 786,586 786,586 0 4,687,400 29,248 0 (162,109) (3,769,953) 0 (3,769,953) 0 0 0 (3,769,953) (.52) (.52)
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