<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ------- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - -------- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
-------- --------
COMMISSION FILE NUMBER 0-19975
BIOCIRCUITS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3088884
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1324 CHESAPEAKE TERRACE
SUNNYVALE, CALIFORNIA 94089
(Address of principal (Zip Code)
executive offices)
(408) 745-1961
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
At April 30, 1996, Registrant had 4,273,233 shares of Common Stock issued and
outstanding.
1
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BIOCIRCUITS CORPORATION
INDEX
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements and Notes
Balance sheets (unaudited) - March 31, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . 3
Statements of operations (unaudited) - three
months ended March 31, 1996 and 1995 and the
period from March 7, 1989 (inception) through
March 31, 1996. . . . . . . . . . . . . . . . . . . . . . . 4
Statements of cash flows (unaudited) - three
months ended March 31, 1996 and 1995 and the
period from March 7, 1989 (inception) through
March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements (unaudited) . . . . . . . . . 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 8
PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . $ 9,152 $ 6,028
Short-term investments . . . . . . . . . . . . . . . . . . . . . -- 605
Prepaid expenses and other current assets. . . . . . . . . . . . 471 544
Prepaid inventory. . . . . . . . . . . . . . . . . . . . . . . . 597 418
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . 102 93
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 10,322 7,688
Property and equipment, net of accumulated depreciation and
amortization of $1,384 ($1,298 in 1995). . . . . . . . . . . . . 1,078 975
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . 387 479
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 125
------- -------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,912 9,267
------- -------
------- -------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $1,127 $547
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . 158 205
Accrued compensation and related expenses. . . . . . . . . . . . 210 198
Current portion of capital lease obligations . . . . . . . . . . 458 547
------- -------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 1,953 1,497
Long-term portion of capital lease obligations . . . . . . . . . . . 135 114
Long-term convertible debt . . . . . . . . . . . . . . . . . . . . . 3,656 3,593
Stockholders' equity:
Preferred stock, $0.001 par value, 40,000,000 shares
authorized, issuable in series:Series A convertible,
30,000,000 shares designated, 15,300,490 shares
issued and outstanding (12,999,000 shares outstanding
at December 31, 1995), aggregate liquidation
preference of $.55 per share. . . . . . . . . . . . . . . . 9,685 6,320
Common stock, $0.001 par value, 70,000,000 shares authorized,
4,273,233 shares issued and outstanding (3,673,390 shares
issued and outstanding at December 31, 1995). . . . . . . . 37,748 35,172
Deficit accumulated during the development stage . . . . . . . . (41,062) (37,200)
Notes receivable secured by common stock . . . . . . . . . . . . (99) (99)
Deferred compensation and other. . . . . . . . . . . . . . . . . (104) (130)
------- -------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 6,168 4,063
------- -------
$11,912 $ 9,267
------- -------
------- -------
</TABLE>
See accompanying notes
3
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BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED MARCH 7, 1989
MARCH 31, (INCEPTION) THROUGH
----------
1996 1995 MARCH 31, 1996
---- ---- --------------
<S> <C> <C> <C>
REVENUES:
Product Sales . . . . . . . . . . . . . $45 $--- $45
OPERATING COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . 307 --- 307
Research and development. . . . . . . . 2,353 1,202 29,629
Sales, general and administrative . . . 1,250 559 12,112
--------- --------- ---------
. . . . . . . . . . . . . . . . . . . . 3,910 1,761 42,048
Loss from operations . . . . . . . . . . . . (3,865) (1,761) (42,003)
Interest and dividend income . . . . . . . . 92 54 2,095
Interest and other expense . . . . . . . . . (89) (23) (1,154)
--------- --------- ---------
Net loss . . . . . . . . . . . . . . . . . . $ (3,862) $ (1,730) $ (41,062)
--------- --------- ---------
--------- --------- ---------
Net loss per share. . . . . . . . . . . . . . . $(0.99) $ (0.69)
--------- ---------
--------- ---------
Shares used in computing net loss per share . . 3,902 2,503
--------- ---------
--------- ---------
</TABLE>
See accompanying notes
4
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BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED PERIOD FROM
MARCH 31, MARCH 7, 1989
-------------------- (INCEPTION) THROUGH
1996 1995 MARCH 31, 1996
---- ---- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . $ (3,862) $ (1,730) $ (41,062)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . 114 98 3,170
Other . . . . . . . . . . . . . . . . . . . . . . . --- --- 78
Changes in:
Prepaid Inventory . . . . . . . . . . . . . . . . (179) (543) (597)
Inventory . . . . . . . . . . . . . . . . . . . . (69) --- (69)
Other current assets. . . . . . . . . . . . . . . 133 72 (481)
Other assets. . . . . . . . . . . . . . . . . . . --- -- (69)
Other current liabilities . . . . . . . . . . . . 544 12 1,492
-------- -------- --------
Net cash used in operating activities. . . . . . (3,319) (2,091) (37,538)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment. . . . . . . . . . . (92) (8) (1,345)
Short-term investments purchased. . . . . . . . . . . . --- --- (30,337)
Short-term investments sold/redeemed. . . . . . . . . . 602 1,000 30,344
Restricted cash . . . . . . . . . . . . . . . . . . . . 93 626 (512)
-------- -------- --------
Net cash provided by (used in) investing activities 603 1,618 (1,850)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock, net of issuance costs. . . 5,938 --- 25,015
Issuance of common stock, net of issuance costs . . . . 4 10 21,773
Issuance of long-term debt. . . . . . . . . . . . . . . 62 --- 5,011
Payments on long-term obligations . . . . . . . . . . . (164) (111) (3,259)
-------- -------- --------
Net cash provided by (used in) financing activities 5,840 (101) 48,540
-------- -------- --------
Net increase (decrease) in cash and cash equivalents . . . 3,124 (574) 9,152
Cash and cash equivalents, beginning of period . . . . . . 6,028 1,601 ---
-------- -------- --------
Cash and cash equivalents, end of period . . . . . . . . . $9,152 $1,027 $9,152
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes
5
<PAGE>
BIOCIRCUITS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. NATURE OF BUSINESS AND FINANCING
Biocircuits Corporation (a development stage company) (the "Company") was
incorporated in Delaware on March 7, 1989. The Company is engaged in
developing and commercializing new immunodiagnostic testing systems.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's first sale and
shipment of its IOS system occurred in March 1996. The Company has
incurred a loss in each period since its inception. At March 31, 1996, the
Company's accumulated deficit was $41,062,000. Biocircuits expects to
incur additional losses over the next several years.
The Company expects that existing capital resources will be used primarily
for the continued launch of the IOS system and development of additional
tests for the IOS system.
Additional funds will be required in 1996 to carry the Company beyond the
initial sales of the IOS system. The Company's ability to continue
operations will be dependent upon its ability to obtain additional funds
from existing investors, new investors or corporate partners. The Company
is pursuing all options, but there can be no assurance the Company will be
successful. If not successful in obtaining financing, the Company's
business will be materially and adversely affected.
The Company believes that maintaining its listing on the Nasdaq National
Market System ("Nasdaq") is critical to its ability to raise additional
funds as well as to provide liquidity to investors. If the outstanding
warrants which expire on May 31, 1996 are exercised in full, the Company
would receive approximately $1.4 million (assuming current market prices
for the Company's Common Stock and the outstanding 1995 Warrants
exercisable at $.60 per share are exercised on a net basis), which the
Company estimates would satisfy the Company's cash requirements through
year end 1996. In such case, the Company should remain in compliance with
Nasdaq listing requirements until the end of third quarter 1996.
Thereafter, the Company will be required to generate sufficient revenues or
raise additional capital to maintain Nasdaq requirements. If less than
approximately 80 percent of the outstanding warrants expiring on May 31,
1996 are exercised based on current market prices or if the market prices
at the time of the warrant exercises are materially lower than the current
market price, the Company could fail to remain in compliance with Nasdaq
listing requirements at the end of second quarter 1996. If the warrants
issued in June 1995 (which expire on December 18, 1996) are exercised in
full for cash, in addition to the May warrants being exercised in full, the
Company would receive an aggregate amount of $4.0 million, which the
Company estimates would satisfy the Company's cash requirements through
first quarter 1997. However, there can be no assurance that any of the
remaining warrants will be exercised or that the 1995 Warrants, which
contain a net exercise provision, will be exercised for cash.
In future periods, the Company expects to incur substantial additional
costs, including costs related to ongoing research and development
activities, either alone or in collaboration with strategic partners,
clinical trials, expansion of manufacturing, development of manufacturing
capabilities, obtaining regulatory approvals and establishing sales,
marketing and distribution capabilities. The Company's long-term capital
requirements will depend on numerous factors, including the success of the
Company's products and the rate of increase in product revenue, the
progress of the Company's research and development, the timing and cost of
obtaining regulatory approvals, the costs associated with patents and other
intellectual property rights, the levels of resources devoted to the
development of manufacturing and
6
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marketing capabilities, and establishment of potential collaborative
partnerships. The rate of increase in product revenue will significantly
influence the financing requirements and cannot be predicted nor can
there be any assurance that it will occur according to the Company's
expectations. The Company intends to seek additional funding through
various means, including public or private financings. Other methods of
financing, including working capital financing for accounts receivable
and lease financing for the acquisition of capital equipment, may be
utilized if available on attractive terms. The Company also will attempt
to obtain funds through arrangements with strategic partners or others
that will require the Company to relinquish additional rights to certain
of its technologies, products or marketing territories in exchange for
funding. If adequate funds are not available from these sources, the
Company will be required to curtail its operations significantly. No
assurance can be given that any additional financing will be available or,
if available, that it will be available on acceptable terms.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1995.
Net loss per share is computed on the basis of the weighted average number
of common shares outstanding. Common stock equivalent shares are excluded
from the computation as their effect is anti-dilutive.
Following is supplemental pro forma earnings per share, calculated giving
effect to the conversion of the outstanding convertible preferred stock on
an if converted basis (in thousands, except per share data):
THREE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
--------- --------
Net loss as reported. . . . . . . . . . . . . . $ (3,862) $ (1,730)
--------- --------
--------- --------
Shares used in computing net
loss per share as reported. . . . . . . . . 3,902 2,503
Adjustment to include outstanding convertible
preferred stock previously excluded
as it is anti-dilutive. . . . . . . . . . . 3,366 ---
--------- --------
Shares used in computing pro forma net
loss per share. . . . . . . . . . . . . . . 7,268 2,503
--------- --------
Pro forma net loss per share. . . . . . . . . . $ (0.53) $ (0.69)
--------- --------
--------- --------
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION AND IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995.
RESULTS OF OPERATIONS
The Company has incurred a loss in each period since its inception. At March 31,
1996, the Company's accumulated deficit was $41.1 million. Biocircuits expects
to incur additional losses over the next several years. The Company expects that
currently available funds will be used primarily for the continued launch of the
IOS point-of-care system and development of additional tests for the IOS
point-of-care system. The losses may vary from period to period, including from
quarter to quarter, and are generally expected to increase, due to the recent
launch of the Company's IOS point-of-care system. Accordingly, the Company
believes that quarter-to-quarter results are not a useful indicator of the
Company's performance.
In June 1995, the Company closed a convertible Preferred Stock and warrant unit
private placement that consisted of the sale of 17,399,000 units at $0.50 per
unit. Proceeds to the Company were approximately $8.5 million, net of issuance
costs. A unit consisted of one share of Series A Preferred Stock and one
warrant to purchase approximately .60 shares of Series A Preferred Stock at
$0.60 per share (the "1995 Warrants"). Series A Preferred Stock converts to
Common Stock at the rate of four shares of Series A Preferred Stock to one share
of Common Stock.
In January 1996, as a result of the August 1995 transaction with Beckman
Instruments, Inc. ("Beckman"), the Company amended outstanding 1995 Warrants to
purchase 2,666,514 shares of Series A Preferred Stock and closed a private
placement pursuant to which the Company issued new warrants (the "1996
Warrants") to purchase 2,852,998 shares of Series A Preferred Stock. One half
of the amended 1995 Warrants and one half of the 1996 Warrants are exercisable
at a purchase price of 70% of the current market price upon exercise and expire
on May 31, 1996. The remaining one half of the amended 1995 Warrants and 1996
Warrants were subject to automatic exercise at a purchase price of $1.46 per
share (Common Stock equivalent price of $5.84 per share) upon the Company's
shipment of the first ten IOS instruments and accompanying cartridges, which
occurred in March 1996. After the January 1996 amendment of the 1995 Warrants,
1995 Warrants to purchase approximately 4.9 million shares of Series A Preferred
Stock remained outstanding at a purchase price of $0.60 per share, expiring on
December 18, 1996.
The Company's first sale and shipment of its IOS system occurred in March 1996,
with cartridges capable of performing the T4 and T Uptake tests. The Company
does not expect to realize any significant revenue until at least the second
half of 1996. The selling process typically requires the Company's sales force
to work closely with distributors, generate qualified physician leads and
perform demonstrations of the IOS system in physicians' offices. The Company
has established marketing programs for the IOS system and expects to continue to
develop additional marketing programs in the future. The selling process can be
time-consuming and there can be no assurance that the Company will be successful
in marketing the IOS system, that the rate of sales growth will meet
expectations or that the marketing programs of the Company will achieve the
desired results.
In order for the Company to have success in penetrating the point-of-care
immunodiagnostic market, the Company will need to expand its menu of tests
beyond the T4 and T Uptake tests. On April 23, 1996, the
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Company filed a 510(k) pre-market notification with the Food and Drug
Administration ("FDA") for marketing clearance of its Thyroid Stimulating
Hormone ("TSH") test to diagnose and manage thyroid function. On May 8,
1996, the Company filed a 510(k) pre-market notification with the FDA for
marketing clearance for the Company's qualitative serum pregnancy test.
The Company currently is developing a quantitative hCG test to track progress
of early pregnancies. The Company expects to file a 510(k) pre-market
notification on this test with the FDA in the second quarter 1996. However,
in the past, the Company has experienced delays in completing the development
of new tests. The Company has commenced development of a Prostate Specific
Antigen ("PSA") test for management of prostate cancer patients and a digoxin
test for monitoring the therapeutic usage of this drug in the treatment of
heart disease. The Company currently plans to begin development of additional
tests by year end 1996. There can be no assurance that the Company will be
successful in expanding its menu of tests and according to schedule, obtaining
regulatory approvals or that the Company will be ready to begin selling
cartridges for new tests upon receipt of FDA clearance for such tests.
In 1995, the Company entered into agreements with Nalge Nunc International, Inc.
("Nunc") to manufacture the plastic components of its disposable test
cartridges. Under the terms of the agreement, Nunc has the exclusive right to
supply the plastic components for the test cartridges for all sales in North
America. The Company is entirely dependent on Nunc as the sole source for the
plastic components and the molding thereof and Nunc relies upon a single tool
for the molding of the plastic components. There can be no assurance that Nunc
will be able to deliver the required quantities of test cartridge components on
schedule or at costs acceptable to the Company.
The Company's near term cartridge manufacturing milestones include: improving
manufacturing efficiencies and cartridge design, expanding mold and cartridge
manufacturing capacity as both the test menu and test manufacturing volume
expand, initiating manufacturing automation efforts and manufacturing the
cartridge at the Company's targeted cost. There can be no assurance that the
Company will be successful in achieving these milestones or that these
milestones will be achieved on a timely basis.
Pursuant to an agreement entered into in December 1992, KMC Systems, Inc.
("Kollsman") is the exclusive North American supplier of the IOS instrument.
This agreement with Kollsman contains certain minimum purchase requirements and
expires three years from the date of first commercial production, subject to
certain rights of earlier termination. The initial instrument transfer price
payable to Kollsman by the Company was substantially higher than any previous
projection received from Kollsman in the past. In April 1996, the Company and
Kollsman executed a letter agreement to amend the 1992 agreement (the "Letter
Agreement"), pursuant to which Kollsman will be the exclusive supplier of the
IOS instrument through 1997, the minimum purchase requirements were eliminated
and the Company and Kollsman agreed to an acceptable transfer price to be paid
through 1997, the revised term of the agreement. Also pursuant to the Letter
Agreement, the Company agreed to issue Kollsman a warrant to purchase 250,000
shares of Common Stock, subject to an increase of 50,000 shares under certain
circumstances. The warrant expires at year end 1997, subject to certain
extension rights, and has an exercise price of $7.00 per share. The Company is
entirely dependent on Kollsman as the sole source of production of its IOS
instruments. Kollsman, in turn, relies upon sole-source suppliers for certain
components. Failure of Kollsman's suppliers to deliver the required quantities
on a timely basis and at commercially reasonable prices, or Kollsman's failure
to deliver the IOS instruments to the Company on a timely basis or at
commercially reasonable costs could materially adversely affect the Company.
Certain design changes to the IOS instrument have been required since the first
sale and shipment of the IOS system. The Company believes that these changes,
which are not atypical upon the launch of a new product, will successfully be
completed in May 1996. Any significant delay in incorporating these changes may
delay shipments of the IOS instrument. There can be no assurance that
additional design changes may not be required in the future.
The Company has experienced delays from Kollsman in the past, resulting in
delays in the development of the TSH, qualitative serum pregnancy and
quantitative hCG tests and delays in the introduction of the IOS system and
initial tests. In addition, Kollsman did not deliver the Company's requested
number of GMP instruments in the first quarter 1996, thereby limiting sales
potential in the quarter and creating a backlog of shipments as of March 31,
1996. This backlog has been filled and the related revenues will be recorded in
the second quarter of
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1996. There can be no assurance that similar delays will not be encountered in
the future. In the event that shipments are delayed and orders for the IOS
point-of-care system become significantly backlogged, the delay could have a
material adverse impact on the Company.
FIRST QUARTER FY 1996 COMPARED TO FIRST QUARTER FY 1995
Following the Company's March 1996 launch of the IOS system, the Company
received $96,000 in orders through the remainder of the quarter. Revenue in the
first quarter totaled $45,000, with a $51,000 backlog existing at the end of the
quarter. This backlog has been filled and the related revenues will be recorded
in the second quarter of 1996.
Total operating costs and expenses increased from $1,761,000 in the first
quarter of 1995 to $3,910,000 in the first quarter of 1996, an increase
of $2,149,000, or 122%.
The Company recorded $307,000 of cost of sales in the first quarter of 1996, in
connection with the Company's first shipment of product. These costs consisted
primarily of manufacturing overhead and startup costs associated with the
production of revenue generating product.
Research and development expenses increased from $1,202,000 in the first quarter
of 1995 to $2,353,000 in the first quarter of 1996, an increase of $1,151,000 or
96%. This increase was due primarily to increased outside services, primarily
Kollsman, and general operating expenses.
Sales, general and administrative expenses increased from $559,000 in the first
quarter of 1995 to $1,250,000 in the first quarter of 1996, an increase of
$691,000 or 124%. This increase was due primarily to the increased sales and
marketing expenses resulting from the launch of the IOS point-of-care system and
general operating expenses.
Net other income and expense decreased from $31,000 in the first quarter of 1995
to $3,000 in the first quarter of 1996, a decrease of $28,000 or 90%. Interest
income increased from $54,000 in the first quarter of 1995 to $92,000 in the
first quarter of 1996, an increase of $38,000 or 70%. The increase was due to
increased cash balances arising from funds received from the 1995 and 1996
private placements and from Beckman, offset by losses, purchases of property and
equipment and payments on long-term obligations. Interest and other expense
increased from $23,000 in the first quarter of 1995 to $89,000 in the first
quarter of 1996, an increase of $66,000 or 287%. Interest expense results from
the Company's long-term debt and capital leases related to its property and
equipment.
Net loss increased from $1,730,000 or $0.69 per share in the first quarter of
1995 to $3,862,000 or $0.99 per share in the first quarter of 1996, an increase
of $2,132,000 or 123%.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations primarily through sales of
Common and Preferred Stock, interest income on the cash balances available after
such financings, long term debt and capital asset lease financings. Since its
inception through March 31, 1996, the Company raised a total of approximately
$49.9 million in the sale of Common and Preferred Stock.
The Company's cash and cash equivalents and short-term investments were $9.15
million as of March 31, 1996, compared to $6.63 million at the end of 1995. The
increase was due primarily to the receipt of approximately $6.0 million in gross
proceeds from the exercise of warrants (including approximately $4.0 million
from the automatic exercise of outstanding warrants to purchase Series A
Preferred Stock and approximately $2.0 million from the early exercise of the
remaining amended 1995 Warrants, 1995 Warrants and 1996 Warrants), offset by
losses in the first quarter of 1996. The Company believes that its existing
capital resources will be adequate to
10
<PAGE>
satisfy its requirements into the fourth quarter of 1996, assuming no exercise
of outstanding warrants. The Company expects that existing capital resources
will be used primarily for the continued launch of the IOS system and
development of additional tests for the IOS system.
The Company's accounts payable increased from $547,000 on December 31, 1995 to
approximately $1.1 million on March 31, 1996, an increase of $580,000. This was
due primarily to the delay in payment of approximately $600,000 for non-
recurring outside services. The Company expects to complete this payment in
second quarter 1996.
Additional funds will be required in 1996 to carry the Company beyond the
initial sales of the IOS system. The Company's ability to continue operations
will be dependent upon its ability to obtain additional funds from existing
investors, new investors or corporate partners. The Company is pursuing all
options, but there can be no assurance the Company will be successful. If not
successful in obtaining financing, the Company's business will be materially and
adversely affected.
The Company believes that maintaining its listing on the Nasdaq National Market
System ("Nasdaq") is critical to its ability to raise additional funds as well
as to provide liquidity to investors. If the outstanding warrants which expire
on May 31, 1996 are exercised in full, the Company would receive approximately
$1.4 million (assuming current market prices for the Company's Common Stock and
the outstanding 1995 Warrants exercisable at $.60 per share are exercised on a
net basis), which the Company estimates would satisfy the Company's cash
requirements through year end 1996. In such case, the Company should remain in
compliance with Nasdaq listing requirements until the end of third quarter 1996.
Thereafter, the Company will be required to generate sufficient revenues or
raise additional capital to maintain Nasdaq requirements. If less than
approximately 80 percent of the outstanding warrants expiring on May 31, 1996
are exercised based on current market prices or if the market prices at the time
of the warrant exercises are materially lower than the current market price, the
Company could fail to remain in compliance with Nasdaq listing requirements at
the end of second quarter 1996. If the warrants issued in June 1995 (which
expire on December 18, 1996) are exercised in full for cash, in addition to the
May warrants being exercised in full, the Company would receive an aggregate
amount of $4.0 million, which the Company estimates would satisfy the Company's
cash requirements through first quarter 1997. However, there can be no
assurance that any of the remaining warrants will be exercised or that the 1995
Warrants, which contain a net exercise provision, will be exercised for cash.
In future periods, the Company expects to incur substantial additional costs,
including costs related to ongoing research and development activities, either
alone or in collaboration with strategic partners, clinical trials, expansion of
manufacturing, development of manufacturing capabilities, obtaining regulatory
approvals and establishing sales, marketing and distribution capabilities. The
Company's long-term capital requirements will depend on numerous factors,
including the success of the Company's products and the rate of increase in
product revenue, the progress of the Company's research and development, the
timing and cost of obtaining regulatory approvals, the costs associated with
patents and other intellectual property rights, the levels of resources devoted
to the development of manufacturing and marketing capabilities, and
establishment of potential collaborative partnerships. The rate of increase in
product revenue will significantly influence the financing requirements and
cannot be predicted nor can there be any assurance that it will occur according
to the Company's expectations. The Company intends to seek additional funding
through various means, including public or private financings. Other methods of
financing, including working capital financing for accounts receivable and lease
financing for the acquisition of capital equipment, may be utilized if available
on attractive terms. The Company also will attempt to obtain funds through
arrangements with strategic partners or others that will require the Company to
relinquish additional rights to certain of its technologies, products or
marketing territories in exchange for funding. If adequate funds are not
available from these sources, the Company will be required to curtail its
operations significantly. No assurance can be given that any additional
financing will be available or, if available, that it will be available on
acceptable terms.
11
<PAGE>
BIOCIRCUITS CORPORATION
PART II: OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of
the Registrant (2)
3.1(i) Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant
3.2 Amended and Restated Bylaws of the Registrant(1)
*10.21 Restated 1992 Non-Employee Directors Stock Option Plan
*10.22 Dual Stock Option Plan
27.1 Financial Data Schedule
----------------------------------------
* Compensatory Plan
(1) Incorporated by reference to identically numbered
exhibit filed with the Registrant's Registration
Statement on Form S-1 (No. 33-46587), as amended, which
became effective May 13, 1992.
(2) Incorporated by reference to identically numbered
exhibit filed with the Registrant's Registration
Statement on Form S-3 (No. 33-93736), as amended, which
became effective August 8, 1995.
b) Reports on Form 8-K
None
12
<PAGE>
BIOCIRCUITS CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOCIRCUITS CORPORATION
Date: May 14, 1996
By: /s/ Donald Hawthorne
------------------------------
Donald Hawthorne
Vice President, Chief Financial
Officer and Secretary (Duly
Authorized Officer and Principal
Financial and Accounting Officer)
13
<PAGE>
EXHIBIT 3.1 (i)
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION OF
BIOCIRCUITS CORPORATION
BIOCIRCUITS CORPORATION, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: The name of this Corporation is Biocircuits Corporation (the
"Corporation").
SECOND: The date on which the Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware is March 7, 1989. A Restated
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on September 7, 1989. A Restated Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on September 4, 1990.
A Restated Certificate of Incorporation was filed with the Secretary of State of
the State of Delaware on May 23, 1991. A Restated Certificate of Incorporation
was filed with the Secretary of State of the State of Delaware on March 18,
1992. An Amended and Restated Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on May 21, 1992. A Restated
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on June 15, 1995.
THIRD: The Board of Directors of the Corporation, acting in accordance
with the provisions of Section 141(f) and 242 of the General Corporation Law of
the State of Delaware, adopted resolutions to amend the Restated Certificate of
Incorporation by adding a Section 1(c) in its entirety to Article V, as follows:
"(C) Effective at the time of the filing with the Secretary of State
of the State of Delaware of this Certificate of Amendment to the Corporation's
Restated Certificate of Incorporation (the "Effective Time"), each four (4)
shares of the Corporation's Common Stock, par value $0.001 per share, issued and
outstanding or held in treasury at the Effective Time shall, automatically and
without any action on the part of the respective holders thereof, be
reclassified into one (1) share of Common Stock, par value $0.001 per share, of
the Corporation (the "reverse stock-split"). No fractional shares will be
issued and, in lieu thereof, any holder of less than one share of Common Stock
shall be entitled to receive cash for such holder's fractional share based on
the closing price per share of the Common Stock on the Nasdaq National Market on
the effective date of the reverse stock-split."
<PAGE>
IN WITNESS WHEREOF, Biocircuits Corporation has caused this Certificate of
Amendment to be signed by its Chief Executive Officer this 28th day of December,
1995.
BIOCIRCUITS CORPORATION
/s/ John Kaiser
---------------------------------
John Kaiser
Chief Executive Officer
<PAGE>
EXHIBIT 10.21
BIOCIRCUITS CORPORATION
RESTATED 1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
(Restated to reflect the one-for-two stock split and the one-for-four
stock split effected by the Company on March 13, 1992 and
December 29, 1995, respectively)
Adopted by the Board of Directors March 13, 1992
Approved by the Stockholders April 22, 1992
Amended by the Board of Directors December 13, 1994
Amended by the Board of Directors April 3, 1995
Approved by the Stockholders June 15, 1995
Amended by the Board of Directors October 15, 1995
Amended by the Board of Directors March 26, 1996
Approved by the Stockholders _________, 1996
1. PURPOSE.
(a) The purpose of the 1992 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of Biocircuits
Corporation, a Delaware corporation (the "Company"), who is not otherwise an
employee of the Company or of any Affiliate of the Company (each such person
being hereafter referred to as a "Non-Employee Director") will be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
1.
<PAGE>
(d) The Company intends that the options issued under the Plan not be
incentive stock options as that term is used in Section 422 of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To construe and interpret the Plan and options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any option agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(2) To amend the Plan as provided in paragraph 11.
(3) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board.
2.
<PAGE>
The Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate one hundred thirteen thousand
seven hundred fifty (113,750) shares of the Company's common stock. If any
option granted under the Plan shall for any reason expire or otherwise terminate
without having been exercised in full, the stock not purchased under such option
shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Upon the date of the approval of the Plan by the Board (the
"Adoption Date"), each person who is then a Non-Employee Director of the Company
and who has not previously been granted options to purchase shares of common
stock of the Company shall be granted an option to purchase one thousand two
hundred fifty (1,250) shares of common stock of the Company at an exercise price
of $4.00 per share pursuant to such other terms and conditions set forth herein.
(b) Each person who is, after the Adoption Date, elected for the first
time to be a Non-Employee Director of the Company shall, upon the date of his
initial election to be a Non-
3.
<PAGE>
Employee Director by the Board or stockholders of the Company, be granted an
option to purchase three thousand seven hundred fifty (3,750) shares of common
stock of the Company on the terms and conditions set forth herein.
(c) On November 1, 1995, and on each November 1 thereafter, commencing
with November 1, 1996, each person who is then a Non-Employee Director of the
Company and has been a Non-Employee Director of the Company for at least one
year automatically shall be granted an option to purchase five thousand (5,000)
shares of common stock of the Company on the terms and conditions set forth
herein.
6. OPTION PROVISIONS.
Each option shall contain the following terms and conditions:
(a) No option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) The exercise price of each option granted pursuant to Sections 5(b)
and 5(c) shall be eighty-five percent (85%) of the fair market value of the
stock subject to such option on the date such option is granted.
(c) The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations, either
(1) in cash at the time the option is exercised, or (2) by delivery to the
Company of shares of common stock of the Company that have been held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at the fair market value on the date of exercise, or (3) by a
combination of such methods of payment.
4.
<PAGE>
(d) An option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person or by his or her
guardian or legal representative.
(e) An option shall vest with respect to each optionee in three (3)
equal annual installments commencing on the date one year after the date of
grant of the option, provided that the optionee has, during the entire period
prior to such vesting date, continuously served as a Non-Employee Director or as
an employee of or consultant to the Company or any Affiliate of the Company,
whereupon such option shall become fully exercisable in accordance with its
terms with respect to that portion of the shares represented by that
installment.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (1) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then-currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii), as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then-applicable securities laws.
5.
<PAGE>
(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the Plan
shall constitute general funds of the Company.
6.
<PAGE>
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate or shall affect any right of the Company, its
Board or stockholders or any Affiliate to terminate the service of any Non-
Employee Director with or without cause.
(c) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(d) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or an affiliate of such Non-Employee Director, or to
evidence the removal of any restrictions on transfer, that such Non-Employee
Director make arrangements satisfactory to the Company to insure that the amount
of any federal or other withholding tax required to be withheld with respect to
such sale or transfer, or such removal or lapse, is made available to the
Company for timely payment of such tax.
7.
<PAGE>
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then the time during which such options
may be exercised shall be accelerated and the options terminated if not
exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan,
provided, however, that the Board shall not amend the plan more than once every
six months, with respect to the provisions of the plan which relate to the
amount, price and timing of grants, other than to comport with changes in the
Code, the Employee Retirement Income Security Act, or the rules thereunder.
Except as provided in paragraph 10 relating to adjustments upon changes in
8.
<PAGE>
stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for options under the
Plan;
(2) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to comply with the requirements of Rule 16b-3 promulgated
under the Exchange Act); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be altered or impaired by such amendment of the Plan
unless (i) the Company requests the consent of the person to whom the option was
granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on February 1, 2002. No options may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the option was granted.
9.
<PAGE>
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board of
Directors, subject to the condition subsequent that the Plan is approved by the
stockholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
10.
<PAGE>
EXHIBIT 10.22
BIOCIRCUITS CORPORATION
DUAL STOCK OPTION PLAN
Adopted by the Sole Director May 1, 1989
Amended by the Board of Directors October 5, 1989
Approved by the Stockholders April 25, 1990
Amended by the Board of Directors February 28, 1991
Approved by the Stockholders May 22, 1991
Amended by the Board of Directors September 12, 1991
Amended by the Board of Directors March 13, 1992
Approved by the Stockholders April 22, 1992
Amended by the Board of Directors February 12, 1993
Amended by the Board of Directors April 3, 1995
Approved by the Stockholders June 15, 1995
Amended by the Board of Directors March 26, 1996
Approved by the Stockholders _________, 1996
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees of and Consultants to the Company, and its Affiliates, may be given an
opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees of or Consultants to the Company, to secure and
retain the services of new Employees and Consultants, and to provide incentives
for such persons to exert maximum efforts for the success of the Company.
(c) The Company intends that the Options issued under the Plan shall, in
the discretion of the Board or any Committee or Disinterested Directors
Committee to which responsibility for administration of the Plan has been
delegated pursuant to subsection 3(c), be either Incentive Stock Options or
Nonstatutory Stock Options. All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and
in such form as issued pursuant to section 6, and a separate certificate or
certificates will be issued for shares purchased on exercise of each type of
Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
1.
<PAGE>
(b) "DISINTERESTED DIRECTORS COMMITTEE" means a committee of members of
the Board of Directors who are "Disinterested Persons" appointed by the Board in
accordance with subsection 3(c) of the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(f) "COMPANY" means Biocircuits Corporation, a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render services and who is compensated for such
services, provided that the term "Consultant" shall not include Directors who
are paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the
employment or consulting relationship is not interrupted or terminated by the
Company or any Affiliate. The Board, in its sole discretion, may determine
whether Continuous Status as an Employee or Consultant shall be considered
interrupted in the case of: (i) any leave of absence approved by the Board,
including sick leave, military leave, or any other personal leave; provided,
however, that for purposes of Incentive Stock Options, any such leave may not
exceed ninety (90) days, unless reemployment upon the expiration of such leave
is guaranteed by contract (including certain Company policies) or statute; or
(ii) transfers between locations of the Company or between the Company,
Affiliates or its successor.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "DISINTERESTED PERSON" means a Director: (i) who was not during the
one year prior to service as an administrator of the Plan granted or awarded
equity securities pursuant to the Plan or any other plan of the Company or any
of its affiliates entitling the participants therein to acquire equity
securities of the Company or any of its affiliates except as permitted by
Rule 16b-3(c)(2)(i); or (ii) who is otherwise considered to be a "disinterested
person" in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.
(l) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
2.
<PAGE>
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reporting in the Wall Street Journal or such
other source as the Board deems reliable;
(ii) If the common stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the high bid and high asked
prices for the common stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(iii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(q) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "OPTIONED STOCK" means the common stock of the Company subject to an
Option.
(u) "OPTIONEE" means an Employee or Consultant who holds an outstanding
Option.
(v) "PLAN" means this Dual Stock Option Plan.
3.
<PAGE>
(w) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee or Disinterested Directors
Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how the Option shall be
granted; whether the Option will be an Incentive Stock Option or a Nonstatutory
Stock Option; the provisions of each Option granted (which need not be
identical), including the time or times such Option may be exercised in whole or
in part; and the number of shares for which an Option shall be granted to each
such person.
(2) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(3) To amend the Plan as provided in Section 11.
(c) The Board may delegate administration of the Plan with respect to
Employees and Consultants who are not Directors of the Company to a committee
composed of not fewer than two (2) members (the "Committee") and with respect to
Employees and Consultants who are Directors of the Company to any committee
composed of not fewer than two (2) members (the "Disinterested Directors
Committee"), all of the members of which Committee shall be Disinterested
Persons, as defined by the provisions of subsection 3(d). If administration is
delegated to a Committee or Disinterested Directors Committee, the Committee or
Disinterested Directors Committee, shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee or
Disinterested Directors Committee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee or Disinterested
Directors Committee at any time and revest in the Board the administration of
the Plan. Additionally, prior to the date of the first registration of an
equity security of the Company under Section 12 of the Exchange Act, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to any person or persons and the term
"Committee" or Disinterested Directors Committee shall apply to any person or
persons to whom such authority has been delegated.
4.
<PAGE>
(d) Any requirement that an administrator of the Plan be a Disinterested
Person shall not apply (i) prior to the date of the first registration of an
equity security of the Company under Section 12 of the Exchange Act, or (ii) if
the Board or the Committee or Disinterested Directors Committee expressly
declares that such requirement shall not apply. Any Disinterested Person shall
otherwise comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate one million six hundred seventy-five thousand
(1,675,000) shares of the Company's common stock. If any Option shall for any
reason expire or otherwise terminate without having been exercised in full, the
stock not purchased under such Option shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees or Consultants.
(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Options may be granted, or in the determination of the
number of shares which may be covered by Options granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to an
Disinterested Directors Committee which consists solely of Disinterested
Persons; or (ii) the Plan otherwise complies with the requirements of Rule
16b-3. The Board shall otherwise comply with the requirements of Rule 16b-3.
This subsection 5(b) shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or Disinterested Directors Committee
expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Option if, at the
time of grant, such person owns (or is deemed to own pursuant to Section 424(d)
of the Code) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any of its Affiliates
unless the exercise price of such Option is at least one hundred ten percent
(110%) of the Fair Market Value of such stock at the date of grant and the
Option is not exercisable after the expiration of five (5) years from the date
of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but
5.
<PAGE>
each Option shall include (through incorporation of provisions hereof by
reference in the Option or otherwise) the substance of each of the following
provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the fair market value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the fair market value of the stock subject to the Option on the date the
Option is granted.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the option is exercised, or (ii) at
the discretion of the Board or the Committee or Disinterested Directors
Committee, either at the time of the grant or exercise of the Option, (A) by
delivery to the Company of other common stock of the Company, (B) according to a
deferred payment or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other common stock of the Company) with
the person to whom the Option is granted or to whom the Option is transferred
pursuant to subsection 6(d), or (C) in any other form of legal consideration
that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act, or the rules thereunder (a
"QDRO"), and shall be exercisable during the lifetime of the person to whom the
Option is granted only by such person or any transferee pursuant to a QDRO.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. During the remainder of the term of the Option (if its term extends
beyond the end of the installment periods), the option may be exercised from
time to time with respect to any shares then remaining subject to the Option.
The provisions of this subsection 6(e) are subject to any
6.
<PAGE>
Option provisions governing the minimum number of shares as to which an Option
may be exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, or
any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. These requirements, and any assurances given
pursuant to such requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws.
(g) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the event
an Optionee's Continuous Status as an Employee or Consultant terminates (other
than upon the Optionee's death or Disability), the Optionee may exercise his or
her Option, but only within such period of time as is determined by the Board,
and only to the extent that the Optionee was entitled to exercise it at the date
of termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the case of an Incentive Stock
Option, the Board shall determine such period of time (in no event to exceed
ninety (90) days from the date of termination) when the Option is granted. If,
at the date of termination, the Optionee is not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified in the Option Agreement, the Option
shall terminate, and the shares covered by such Option shall revert to the Plan.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option, but only within twelve
(12) months from the date of such termination (or such shorter period specified
in the Option Agreement), and only to the extent that the Optionee was entitled
to exercise it at the date of such termination (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement).
If, at the date of termination, the Optionee is not entitled to exercise his or
her entire Option, the shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified herein, the Option shall terminate,
and the shares covered by such Option shall revert to the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (or such shorter
7.
<PAGE>
period specified in the Option Agreement) (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement), by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent the Optionee was
entitled to exercise the Option at the date of death. If, at the time of death,
the Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee or Consultant to
exercise the Option as to any part or all of the shares subject to the Option
prior to the full vesting of the Option. Any unvested shares so purchased may
be subject to a repurchase right in favor of the Company or to any other
restriction the Board determines to be appropriate.
(k) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2)
authorizing the Company to withhold shares from the shares of the common stock
otherwise issuable to the participant as a result of the exercise of the Option;
or (3) delivering to the Company owned and unencumbered shares of the common
stock of the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep available at
all times the number of shares of stock required to satisfy such Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
8.
<PAGE>
9. MISCELLANEOUS.
(a) Neither an Optionee nor any person to whom an option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(b) Throughout the term of any Option, the Company shall deliver to the
holder of such Option, not later than one hundred twenty (120) days after the
close of each of the Company's fiscal years during the Option term, such
financial and other information regarding the Company as comprises the annual
report to the stockholders of the Company provided for in the bylaws of the
Company.
(c) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee or Consultant or Optionee any
right to continue in the employ of the Company or any Affiliate (or to continue
acting as a Consultant) or shall affect the right of the Company or any
Affiliate to terminate the employment or consulting relationship of any Employee
or Consultant or Optionee with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Option (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the Plan and outstanding Options will be appropriately
adjusted in the class(es) and maximum number of shares subject to the Plan and
the class(es) and number of shares and price per share of stock subject to
outstanding options.
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation or (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or otherwise
then to the extent permitted by applicable law: (i) any surviving corporation
shall assume any Options outstanding under the Plan or shall substitute similar
Options for those outstanding under the Plan, or (ii) such Options shall
continue in full force and effect. In the event any surviving corporation
refuses to assume or continue such Options, or to substitute similar options for
those outstanding under the Plan, then, such Options shall be terminated if
9.
<PAGE>
not exercised prior to such event. In the event of a dissolution or liquidation
of the Company, any Options outstanding under the Plan shall terminate if not
exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for options under the
Plan;
(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(c) Rights and obligations under any Option granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on April 30, 1999. No Options may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Options
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders
10.
<PAGE>
of the Company, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.
11.
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<PAGE>
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