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UNITED STATES
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 FISCAL QUARTER ENDED JUNE 30, 1997
[ ] 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: 0-27596
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CONCEPTUS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3170244
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1021 HOWARD AVENUE
SAN CARLOS, CA 94070
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 802-7240
___________________
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 at least the past 90 days.
Yes X No
--- ---
As of June 30, 1997, 9,440,949 shares of the Registrant's Common Stock
were outstanding.
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CONCEPTUS, INC.
FORM 10-Q For the Quarter Ended June 30, 1997
INDEX
Page
Facing sheet 1
Index 2
Part I. Financial Information
Item 1. a) Consolidated balance sheets at June 30, 1997 and December 31,
1996 3
c) Consolidated statements of operations for the three and six
month periods ended June 30, 1997 and June 30, 1996 4
c) Consolidated statements of cash flows for the three and six
month periods ended June 30, 1997 and June 30, 1996 5
d) Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
Part II. Other Information 11-12
Signature 13
Index to Exhibits 14
2
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONCEPTUS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,594 $ 16,939
Short-term investments 11,096 18,286
Accounts receivable, net 361 105
Inventories 151 182
Other current assets 367 234
--------- ---------
Total current assets 25,569 35,746
Property and equipment, net 1,036 543
Long-term investments 7,884 3,796
Other assets 904 8
--------- ---------
$ 35,393 $ 40,093
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 910 $ 588
Accrued compensation 412 455
Accrued acquisition costs - 1,000
Other accrued liabilities 288 302
Current portion of debt and capital lease obligations 71 119
--------- ---------
Total current liabilities 1,681 2,464
Long-term portion of debt and capital lease obligations 7 34
Commitments
Stockholders' equity:
Common stock, $0.003 par value, 30,000,000 shares authorized, 63,452 61,876
9,440,949 and 9,206,795 shares issued and outstanding at
June 30, 1997 and December 31, 1996, respectively
Stockholder notes receivable (49) (49)
Deferred compensation (451) (559)
Deficit accumulated during the development stage (29,247) (23,673)
--------- ---------
Total stockholders' equity 33,705 37,595
--------- ---------
$ 35,393 $ 40,093
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
CONCEPTUS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 424 $ 105 $ 701 $ 187
Cost of sales 752 235 1,194 394
------- ------- ------- -------
Gross profit (328) (130) (493) (207)
Operating expenses:
Research and development 1,411 915 2,969 1,703
Selling, general and administrative 1,483 1,200 3,048 2,192
------- ------- ------- -------
Total operating expenses 2,894 2,115 6,017 3,895
------- ------- ------- -------
Operating loss (3,222) (2,245) (6,510) (4,102)
Interest and investment income, net 444 616 936 1,008
------- ------- ------- -------
Net loss $(2,778) $(1,629) $(5,574) $(3,094)
------- ------- ------- -------
------- ------- ------- -------
Net loss per share $ (0.30) $ (0.18) $ (0.60) $ (0.41)
------- ------- ------- -------
------- ------- ------- -------
Shares used in computing net loss per share 9,348 9,127 9,287 7,629
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
CONCEPTUS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- --------------------------
1997 1996 1997 1996
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $ (2,778) $ (1,629) $ (5,574) $ (3,094)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 128 76 218 139
Amortization of deferred compensation 239 54 403 111
Changes in operating assets and liabilities:
Accounts receivable (186) (18) (256) (56)
Inventory 225 (87) 31 (41)
Other current assets 639 58 (133) 252
Accounts payable 103 (69) 322 (228)
Accrued compensation (55) (24) (43) (12)
Other accrued liabilities (176) 75 123 314
--------- --------- --------- ---------
Net cash used in operating activities (1,861) (1,564) (4,909) (2,615)
--------- --------- --------- ---------
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES
Purchase of investments (8,963) (22,344) (22,954) (23,297)
Maturities of investments 11,873 184 26,056 2,090
Capital expenditures (558) (113) (711) (188)
Change in other assets (890) 1 (890) 3
--------- --------- --------- ---------
Net cash from/(used in) investing activities 1,462 (22,272) 1,501 (21,392)
--------- --------- --------- ---------
CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES
Proceeds from issuance of common stock 76 45 138 44,073
Principal payments on debt and capital obligations (32) (41) (75) (80)
--------- --------- --------- ---------
Net cash from/(used in) financing activities 44 4 63 43,993
--------- --------- --------- ---------
Net change in cash and cash equivalents (355) (23,832) (3,345) 19,986
Cash and cash equivalents at beginning of period 13,949 46,666 16,939 2,848
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 13,594 $ 22,834 $ 13,594 $ 22,834
--------- --------- --------- ---------
--------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 3 $ 6 $ 7 $ 14
--------- --------- --------- ---------
--------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING INFORMATION
Conversion of preferred stock to common stock $ - $ - $ - $ 16,624
--------- --------- --------- ---------
--------- --------- --------- ---------
Issuance of common stock to Microgyn shareholders $ 1,000 $ - $ 1,000 $ -
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF PREPARATION
The accompanying consolidated balance sheet as of June 30, 1997 and the
consolidated statements of operations and cash flows for the three and six
month periods ended June 30, 1997 and 1996 have been prepared by Conceptus,
Inc. ("Conceptus" or the "Company"), without audit. In the opinion of
management, all adjustments necessary to present fairly the financial
position, results of operations, and cash flows at June 30, 1997, and for all
periods presented, have been made.
Although the Company believes that the disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information and footnote disclosures required by Generally Accepted
Accounting Principles for complete financial statements have been omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). This financial data should be reviewed in conjunction
with the audited financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1996. The results of
operations for the three and six months ended June 30, 1997 may not
necessarily be indicative of the operating results for the full 1997 fiscal
year.
COMPUTATION OF NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
Statement 128 is expected to result in no change to the Company's net loss
per share for the three and six month periods ended June 30, 1997 and 1996,
because antidilutive stock options have been excluded from the current
computation. The impact of Statement 128 on the calculation of fully diluted
earnings per share for these periods is not expected to be material.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with
current year presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited financial statements and notes thereto included in Part I-Item 1 of
this Quarterly Report. In addition, except for the historical statements
contained therein, the following discussion contains forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended. The Company wishes to alert readers that the factors
set forth in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and in the Company's prospectus dated February 1, 1996
under the heading "Risk Factors", as well as other factors, including those
set forth in the following discussion could in the future affect, and in the
past have affected, the Company's actual results and could cause the
Company's results for future periods to differ materially from those
expressed in any forward-looking statements made by or on behalf of the
Company.
OVERVIEW
Since its inception on September 18, 1992, Conceptus has been primarily
engaged in the design, development and marketing of innovative medical
devices that provide minimally invasive devices for reproductive
applications. The Company has a limited history of operations and has
experienced significant operating losses since inception. Operating losses
are expected to continue for at least the next several years as the Company
continues to expend substantial resources to fund clinical trials in support
of regulatory and reimbursement approvals, conduct research and development,
and expand marketing and sales activities.
The Company's primary commercial products, the T-TAC (Transcervical
Tubal Access Catheter) and STARRT (Selective Tubal Assessment to Refine
Reproductive Therapy) Falloposcopy systems have generated limited sales to
date. The Company currently sells its products to international markets
through a limited number of distributors who resell to physicians and
hospitals. Domestically, the Company sells its products through a small
direct sales force and a distributor. In 1996, the Company made adjustments
to the profile of its distributors, resulting in replacement and addition of
new distributors in international markets. Sales to distributors are made on
open credit terms and may include purchase discounts. Sales in 1997 and 1996
consisted primarily of commercial shipments of T-TAC products.
In the fourth quarter of 1996, the Company presented results from the
International Multicenter Study of Falloposcopy of its STARRT Falloposcopy
system. Study data showed that use of the STARRT system altered infertility
diagnosis in the majority of cases versus conventional infertility diagnosis.
The Company is developing a second generation STARRT catheter designed to
improve the performance of the STARRT system.
7
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On November 26, 1996, the Company completed the acquisition of Microgyn,
Inc. ("Microgyn") a privately held medical device company developing products
designed to improve the safety and performance of resectoscope procedures,
including therapeutic hysteroscopy. The Company acquired all of the
outstanding common stock of Microgyn in exchange for $3.0 million in cash on
the acquisition date and $1.0 million in cash or stock (at the option of
Conceptus) payable six months after the acquisition date, plus $752,000 due
to assumption of certain liabilities and related acquisition expenses. In May
1997, the Company satisfied the $1.0 million accrued acquisition cost by
issuing 104,708 shares of common stock. Additional contingent consideration
in cash or stock, at the option of Conceptus, is payable to the former
shareholders of Microgyn based upon meeting certain future milestones. The
Company is continuing product development, clinical and marketing activities,
and is pursuing additional regulatory clearance on products acquired in the
acquisition. The Company recently announced the international launch of the
ERA (Endometrial Resection and Ablation) Resectoscope Sheath, a product
initially developed by Microgyn.
Certain of the Company's products are currently manufactured by certain
original equipment manufacturers while others are manufactured by Conceptus
at its location in San Carlos, California. If the T-TAC, STARRT, and
Hysteroscopy products are successful, the Company expects to increase its
direct manufacturing operations in order to better control product costs and
increase gross margin. Future revenues and results of operations may
fluctuate significantly from quarter to quarter and will depend upon, among
other factors, actions relating to regulatory and reimbursement matters, the
extent to which the Company's products gain market acceptance, the rate at
which the Company establishes its domestic and international distribution
network, the timing and size of distributor purchases, the progress of
clinical trials, and the introduction of competitive products for diagnosis
and treatment of the female reproductive system.
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Sales increased to $424,000 and $701,000 for the three and six months
ended June 30, 1997, respectively, from $105,000 and $187,000 for the same
respective periods in the prior year. The increase is primarily due to
shipments of the Company's T-TAC products to a significant U.S. distributor.
It is anticipated that this distributor will purchase significantly lower
levels of product in the second half of 1997. Domestic sales comprised 87%
and 88% of sales for the three and six month periods ended June 30, 1997,
respectively, compared with 66% and 55% in the prior year periods.
Cost of sales increased to $752,000 and $1,194,000 for the three and six
months ended June 30, 1997, respectively, from $235,000 and $394,000 for same
periods in the prior year. This increase is due to increased unit shipments
in the current period of the Company's T-TAC products, combined with higher
manufacturing overhead due to an increase in headcount and facilities related
expenditures, as well as additional inventory reserves and adjustments.
Research and development ("R&D") expenses, which include clinical and
regulatory expenses, increased to $1,411,000 and $2,969,000 for the three and
six months ended June 30, 1997, respectively, from $915,000 and $1,703,000
for the same respective periods in the prior year. This increase is primarily
due to on-going development activities on products acquired in the
acquisition of Microgyn, an increased number of R&D employees and related
personnel expenses as well as increased expenses associated with supporting
various clinical and regulatory efforts. The Company believes that its
investment in product development is an essential element of its efforts to
establish its competitive
8
<PAGE>
position and to continue the development of future products. Accordingly,
the Company expects to continue to make substantial expenditures on product
development and to increase the dollar amount expended for R&D.
Selling, general and administrative ("SG&A") expenses increased to
$1,483,000 and $3,048,000 for the three and six months ended June 30, 1997,
respectively, from $1,200,000 and $2,192,000 for the same respective periods
in the prior year. This increase is primarily due to an increase in headcount
to support planned internal growth, as well as increased costs of being a
public company. The Company anticipates that the dollar amount expended for
SG&A will continue to increase, primarily due to expenses associated with
increasing the size of the domestic sales force, and introducing and
marketing the Company's products, which will require increased physician
training.
Net interest and other income decreased to $444,000 and $936,000 for the
three and six months ended June 30, 1997, respectively, from $616,000 and
$1,008,000 for the same respective periods in the prior year. The decrease
is due to a lower average invested cash balance as the proceeds of the
Company's initial public offering of common stock on February 1, 1996 have
been utilized during 1996 and 1997. Interest expense for the three and six
months ended June 30, 1997 and the amount for the same respective periods in
the prior year was immaterial.
As a result of the items discussed above, net loss increased to
$2,778,000 and $5,574,000 for the three and six months ended June 30, 1997,
respectively, from $1,629,000 and $3,094,000 for the same respective periods
in 1996.
The Company has a limited history of operations. Since its inception in
September 1992, the Company has been engaged primarily in research and
development of its T-TAC and STARRT Falloposcopy systems and tubal
sterilization products. The Company has generated only limited revenues,
primarily from sales in international markets for clinical trials, and to
domestic and international distributors, and does not have experience in
manufacturing, marketing or selling its products in commercial quantities.
The Company has experienced significant operating losses since inception and,
as of June 30, 1997, had an accumulated deficit of $29.2 million. The
Company expects its operating losses to continue for at least the next
several years as it continues to expend substantial resources in funding
clinical trials in support of regulatory and reimbursement approvals,
expansion of manufacturing, marketing and sales activities and research and
product development or acquisition. Due to the expense and unpredictable
nature of these activities, there can be no assurance that the Company will
achieve or sustain profitability in the future.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's cash expenditures have significantly
exceeded its sales, resulting in an accumulated deficit of $29.2 million at
June 30, 1997. On February 1, 1996, the Company completed an initial public
offering of 3,450,000 shares of its common stock at $14.00 per share for net
proceeds of $44.1 million. Prior to the initial public offering, the Company
funded its operations since incorporation primarily through the private
placement of equity securities, as well as through interest income, equipment
financing and secured loan arrangements. Through December 31, 1996, the
Company raised approximately $16.6 million from the private placement of
equity securities.
9
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At June 30, 1997, Conceptus had cash, cash equivalents and investments
of $32.6 million, compared with $39.0 million at December 31, 1996. The
decrease is due to approximately $5.7 million used in operating activities.
Capital expenditures in the first half of 1997 increased to $710,000 from
$188,000 in the prior year period and is largely due to expenditures for a
new enterprise computer system and expenditures necessary to support the
growth in employees.
Conceptus believes that its existing capital resources will be
sufficient to fund its operations through 1998. However, the Company's
future liquidity and capital requirements will depend upon numerous factors,
including the progress of the Company's clinical research and product
development programs, the receipt of and the time required to obtain
regulatory clearances and approvals, and the resources the Company devotes to
developing, manufacturing and marketing its products. The Company's capital
requirements will also depend on, among other things, the resources required
to hire and develop a direct sales force in the United States, the resources
required to expand manufacturing capacity and facilities requirements and the
extent to which the Company's products generate market acceptance and demand.
In addition, the Company may use its capital resources to acquire products,
technologies or companies. Accordingly, there can be no assurance that the
Company will not require additional financing within this time frame and,
therefore, may in the future seek to raise additional funds through bank
facilities, debt or equity offerings or other sources of capital. Additional
funding may not be available when needed or on terms acceptable to the
Company, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) At the Annual Meeting of Stockholders of the Registrant, held on
May 13, 1997, the stockholders approved the following proposals by the
votes indicated below.
(b) Not applicable.
(c) Voting:
(1) Election of Directors:
NOMINEE FOR WITHHELD
------- --- --------
Richard D. Randall 7,185,442 139,409
Kathryn A. Tunstall 7,185,342 139,509
Sanford Fitch 7,185,342 139,509
Robert F. Kuhling 7,185,442 139,409
Thomas C. McConnell 7,185,442 139,409
Nancy S. Olson 7,185,442 139,409
(2) To approve and ratify the amendments to the Registrant's 1993
Stock Plan to increase the number of shares of Common Stock reserved
for issuance thereunder by 1,000,000 shares to an aggregate of
2,575,000 shares and to implement certain other changes resulting from
applicable law:
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
4,898,130 653,069 4,825 1,763,137
(3) To ratify the appointment of Ernst & Young LLP as the
Registrant's independent auditors for the fiscal year ending
December 31, 1997:
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
7,306,302 1,359 11,450 0
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.18 Change of Control Agreement dated as of May 13, 1997 by
and between Registrant and Kathryn A. Tunstall.
10.19 Change of Control Agreement dated as of May 13, 1997 by
and between Registrant and Sanford Fitch.
10.20 Form of Senior Management Change of Control Agreement.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
One Report on Form 8-K was filed on July 25, 1997 reporting a press
release announcing the commencement of international sales of the ERA
(Endometrial Resection and Ablation) Resectoscope Sheath and a press
release announcing the financial results for the second quarter ended
June 30, 1997, under Item 5 of Form 8-K.
12
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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.
CONCEPTUS, INC.
By: /s/ SANFORD FITCH
--------------------------------------
Sanford Fitch
Senior Vice President
and Chief Financial Officer
(Duly Authorized and Principal Financial
and Accounting Officer)
Date: August 14, 1997
13
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.18 Change of Control Agreement dated as of May 13,
1997 by and between Registrant and Kathryn A.
Tunstall.
10.19 Change of Control Agreement dated as of May 13,
1997 by and between Registrant and Sanford Fitch.
10.20 Form of Senior Management Change of Control
Agreement.
27 Financial Data Schedule
14
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EXHIBIT 10.18
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered
into effective as of May 13, 1997, by and between Kathryn A. Tunstall (the
"Employee") and Conceptus, Inc., a Delaware corporation (the "Company").
RECITALS
A. It is expected that another company or other entity may from time to
time consider the possibility of acquiring the Company or that a change in
control may otherwise occur, with or without the approval of the Company's
Board of Directors (the "Board"). The Board recognizes that such consideration
can be a distraction to the Employee, an executive officer of the Company, and
can cause the Employee to consider alternative employment opportunities. The
Board has determined that it is in the best interests of the Company and its
stockholders to assure that the Company will have the continued dedication and
objectivity of the Employee, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Employee with an incentive to continue his
or her employment with the Company.
C. The Board believes that it is imperative to provide the Employee with
certain benefits upon a Change of Control and, under certain circumstances,
upon termination of the Employee's employment in connection with a Change of
Control, which benefits are intended to provide the Employee with financial
security and provide sufficient income and encouragement to the Employee to
remain with the Company notwithstanding the possibility of a Change of Control.
D. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to
agree to the terms provided in this Agreement.
E. Certain capitalized terms used in the Agreement are defined in
Section 4 below.
In consideration of the mutual covenants contained in this Agreement, and
in consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. AT-WILL EMPLOYMENT. The Company and the Employee acknowledge
that the Employee's employment is and shall continue to be at-will, as
defined under
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applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control,
the Employee shall not be entitled to any payments or benefits, other than as
provided by this Agreement, or as may otherwise be available in accordance
with the terms of the Company's then existing employee plans and written
policies in effect at the time of termination. The terms of this Agreement
shall terminate upon the earlier of (i) the date on which Employee ceases to
be employed as an executive officer of the Company, other than as a result of
an involuntary termination by the Company without Cause (ii) the date that
all obligations of the parties hereunder have been satisfied, or (iii) two
(2) years after a Change of Control. A termination of the terms of this
Agreement pursuant to the preceding sentence shall be effective for all
purposes, except that such termination shall not affect the payment or
provision of compensation or benefits on account of a termination of
employment occurring prior to the termination of the terms of this Agreement.
2. STOCK OPTIONS. Subject to Sections 5 and 6 below, in the event
of a Change of Control and regardless of whether Employee's employment with the
Company is terminated in connection with the Change of Control, each stock
option granted for the Company's securities held by the Employee shall become
fully vested and immediately exercisable on the effective date of the
transaction and shall be exercisable to the extent so vested in accordance with
the provisions of the Stock Option Agreement and Stock Option Plan pursuant to
which such stock option was granted.
3. CHANGE OF CONTROL.
(a) TERMINATION FOLLOWING A CHANGE OF CONTROL. Subject to
Section 5 and 6 below, if the Employee's employment with the Company is
terminated at any time within two (2) years after a Change of Control, then the
Employee shall be entitled to receive severance benefits as follows:
(i) VOLUNTARY RESIGNATION. If the Employee voluntarily
resigns from the Company (other than as an Involuntary Termination (as
defined below) or if the Company terminates the Employee's employment for
Cause (as defined below)), then the Employee shall not be entitled to receive
severance payments. The Employee's benefits will be terminated under the
terms of the Company's then existing benefit plans and policies in accordance
with such plans and policies in effect on the date of termination or as
otherwise determined by the Board of Directors of the Company.
(ii) INVOLUNTARY TERMINATION. If the Employee's
employment is terminated as a result of an Involuntary Termination other than
for Cause, the Employee shall be entitled to receive the following benefits:
(i) severance payments during the period from the date of the Employee's
termination until the date 18 months after the effective date of the
termination (the "Severance Period") equal to the salary which the Employee
was receiving at the time of such termination, which payments shall be paid
during the Severance Period in accordance with the Company's standard payroll
practices; (ii) monthly severance payments during the Severance Period equal
to 1/12th of the Employee's "target bonus" (as defined below) for the fiscal
year in which the termination
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occurs (or for the prior fiscal year if a target bonus has not yet been
determined for the fiscal year in which the termination occurs); (iii)
continuation of all health and life insurance benefits through the end of the
Severance Period substantially identical to those to which the Employee was
entitled immediately prior to the termination, or to those being offered to
officers of the Company, or a successor corporation, if the Company's benefit
programs are changed during the Severance Period; and (iv) outplacement
services with a total value not to exceed $15,000. For purposes of this
Agreement, the term "target bonus" shall mean the Employee's base salary in
effect on the termination date multiplied by that percentage of such base
salary that is prescribed by the Company under its Executive Bonus Program as
the percentage of such base salary payable to the Employee as a bonus if the
Company pays bonuses at one-hundred percent (100%) of its operating plan.
(iii) INVOLUNTARY TERMINATION FOR CAUSE. If the
Employee's employment is terminated for Cause, then the Employee shall not be
entitled to receive severance payments. The Employee's benefits will be
terminated under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination.
(b) TERMINATION APART FROM A CHANGE OF CONTROL. In the event
the Employee's employment terminates for any reason, either prior to the
occurrence of a Change of Control or after the two year period following the
effective date of a Change of Control, then the Employee shall not be
entitled to receive any severance payments under this Agreement. The
Employee's benefits will be terminated under the terms of the Company's then
existing benefit plans and policies in accordance with such plans and
policies in effect on the date of termination or as otherwise determined by
the Board of Directors of the Company.
4. DEFINITION OF TERMS. The following terms referred to in this
Agreement shall have the following meanings:
(a) CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events:
(i) OWNERSHIP. Any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing
twenty percent (20%) or more of the total voting power represented by the
Company's then outstanding voting securities WITHOUT the approval of the
Board of Directors of the Company; or
(ii) MERGER/SALE OF ASSETS. A merger or consolidation
of the Company whether or not approved by the Board of Directors of the
Company, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty
percent (50%) of the total voting power represented by the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the
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<PAGE>
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(iii) CHANGE IN BOARD COMPOSITION. A change in the
composition of the Board of Directors of the Company, as a result of which
fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company
as of May 13, 1997 or (B) are elected, or nominated for election, to the
Board of Directors of the Company with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination
is in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
(b) CAUSE. "Cause" shall mean (i) gross negligence or
willful misconduct in the performance of the Employee's duties to the Company
where such gross negligence or willful misconduct has resulted or is likely
to result in substantial and material damage to the Company or its
subsidiaries, (ii) repeated unexplained or unjustified absence from the
Company, (iii) a material and willful violation of any federal or state law;
(iv) commission of any act of fraud with respect to the Company; or (v)
conviction of a felony or a crime involving moral turpitude causing material
harm to the standing and reputation of the Company, in each case as
determined in good faith by the Board of Directors of the Company.
(c) INVOLUNTARY TERMINATION. "Involuntary Termination" shall
include any termination by the Company other than for Cause and the
Employee's voluntary termination, upon 30 days prior written notice to the
Company, following (i) any reduction of the Employee's base compensation
(other than in connection with a general decrease in base salaries for most
similarly situated employees of the successor corporation); or (ii) the
Employee's refusal to relocate to a location more than 50 miles from the
Company's current location.
5. LIMITATION ON PAYMENTS. To the extent that any of the
payments or benefits provided for in this Agreement to the Employee
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and, but for this
Section 5, would be subject to the excise tax imposed by Section 4999 of the
Code, the Company shall reduce the aggregate amount of such payments and
benefits such that the present value thereof (as determined under the Code
and the applicable regulations) is equal to 2.99 times the Employee's "base
amount" as defined in Section 280G(b)(3) of the Code.
6. CERTAIN BUSINESS COMBINATIONS. In the event it is determined
by the Board, upon consultation with Company management and the Company's
independent auditors, that the enforcement of any Section of this Agreement,
including, but not limited to, Section 2 hereof, which allows for the
acceleration of vesting of option shares upon the effective date of a Change
of Control, would preclude accounting for any proposed business combination
of the Company involving a Change of Control as a pooling of interests, and
the
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<PAGE>
Board otherwise desires to approve such a proposed business transaction which
requires as a condition to the closing of such transaction that it be
accounted for as a pooling of interests, then any such Section of this
Agreement shall be null and void. For purposes of this Section 6, the
Board's determination shall require the unanimous approval of the
non-employee Board members.
7. SUCCESSORS. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agree expressly
to perform the obligations under this Agreement in the same manner and to the
same extent as the Company would be required to perform such obligations in
the absence of a succession. The terms of this Agreement and all of the
Employee's rights hereunder shall inure to the benefit of, and be enforceable
by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
8. NOTICE. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. Mailed notices
to the Employee shall be addressed to the Employee at the home address which
the Employee most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
9. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. The Employee shall not be required
to mitigate the amount of any payment contemplated by this Agreement (whether
by seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that the Employee may receive from any other source.
(b) WAIVER. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge
is agreed to in writing and signed by the Employee and by an authorized
officer of the Company (other than the Employee). No waiver by either party
of any breach of, or of compliance with, any condition or provision of this
Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another time.
(c) WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into
by either party with respect to the subject matter hereof. This Agreement
supersedes any agreement of the same title and concerning similar subject
matter dated prior to the date of this Agreement, and by execution of this
Agreement both parties agree that any such predecessor agreement shall be
deemed null and void.
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<PAGE>
(d) CHOICE OF LAW. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of the State of California without reference to conflict of laws provisions.
(e) SEVERABILITY. If any term or provision of this Agreement
or the application thereof to any circumstance shall, in any jurisdiction and
to any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the
remaining terms and provisions of this Agreement or the application of such
terms and provisions to circumstances other than those as to which it is held
invalid or unenforceable, and a suitable and equitable term or provision
shall be substituted therefor to carry out, insofar as may be valid and
enforceable, the intent and purpose of the invalid or unenforceable term or
provision.
(f) ARBITRATION. Any dispute or controversy arising under or
in connection with this Agreement may be settled at the option of either
party by binding arbitration in the County of Santa Clara, California, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction. Punitive damages shall not be awarded.
(g) LEGAL FEES AND EXPENSES. The parties shall each bear
their own expenses, legal fees and other fees incurred in connection with
this Agreement.
(h) NO ASSIGNMENT OF BENEFITS. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option
or assignment, either by voluntary or involuntary assignment or by operation
of law, including (without limitation) bankruptcy, garnishment, attachment or
other creditor's process, and any action in violation of this subsection (h)
shall be void.
(i) EMPLOYMENT TAXES. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(j) ASSIGNMENT BY COMPANY. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment.
In the case of any such assignment, the term "Company" when used in a section
of this Agreement shall mean the corporation that actually employs the
Employee.
(k) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and
year first above written.
CONCEPTUS, INC. KATHRYN A. TUNSTALL
By: Sanford Fitch /s/ Kathryn A. Tunstall
-------------------------------- --------------------------------
Title: Senior Vice President and Chief Financial Officer
--------------------------------------------------
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<PAGE>
EXHIBIT 10.19
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered
into effective as of May 13, 1997, by and between Sanford Fitch (the
"Employee") and Conceptus, Inc., a Delaware corporation (the "Company").
RECITALS
A. It is expected that another company or other entity may from time
to time consider the possibility of acquiring the Company or that a change in
control may otherwise occur, with or without the approval of the Company's
Board of Directors (the "Board"). The Board recognizes that such
consideration can be a distraction to the Employee, an executive corporate
officer of the Company, and can cause the Employee to consider alternative
employment opportunities. The Board has determined that it is in the best
interests of the Company and its stockholders to assure that the Company will
have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Employee with an incentive to continue
his or her employment with the Company.
C. The Board believes that it is imperative to provide the Employee
with certain benefits upon a Change of Control and, under certain
circumstances, upon termination of the Employee's employment in connection
with a Change of Control, which benefits are intended to provide the Employee
with financial security and provide sufficient income and encouragement to
the Employee to remain with the Company notwithstanding the possibility of a
Change of Control.
D. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to
agree to the terms provided in this Agreement.
E. Certain capitalized terms used in the Agreement are defined in
Section 4 below.
In consideration of the mutual covenants contained in this Agreement,
and in consideration of the continuing employment of Employee by the Company,
the parties agree as follows:
1. AT-WILL EMPLOYMENT. The Company and the Employee acknowledge
that the Employee's employment is and shall continue to be at-will, as defined
under
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<PAGE>
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control,
the Employee shall not be entitled to any payments or benefits, other than as
provided by this Agreement, or as may otherwise be available in accordance
with the terms of the Company's then existing employee plans and written
policies in effect at the time of termination. The terms of this Agreement
shall terminate upon the earlier of (i) the date on which Employee ceases to
be employed as an executive officer of the Company, other than as a result of
an involuntary termination by the Company without Cause (ii) the date that
all obligations of the parties hereunder have been satisfied, or (iii) two
(2) years after a Change of Control. A termination of the terms of this
Agreement pursuant to the preceding sentence shall be effective for all
purposes, except that such termination shall not affect the payment or
provision of compensation or benefits on account of a termination of
employment occurring prior to the termination of the terms of this Agreement.
2. STOCK OPTIONS. Subject to Sections 5 and 6 below, in the
event of a Change of Control and regardless of whether the Employee's
employment with the Company is terminated in connection with the Change of
Control, each stock option granted for the Company's securities held by the
Employee shall become fully vested and immediately exercisable on the
effective date of the transaction and shall be exercisable to the extent so
vested in accordance with the provisions of the Stock Option Agreement and
Stock Option Plan pursuant to which such stock option was granted.
3. CHANGE OF CONTROL.
(a) TERMINATION FOLLOWING A CHANGE OF CONTROL. Subject to
Section 5 and 6 below, if the Employee's employment with the Company is
terminated at any time within two (2) years after a Change of Control, then
the Employee shall be entitled to receive severance benefits as follows:
(i) VOLUNTARY RESIGNATION. If the Employee voluntarily
resigns from the Company (other than as an Involuntary Termination (as
defined below) or if the Company terminates the Employee's employment for
Cause (as defined below)), then the Employee shall not be entitled to receive
severance payments. The Employee's benefits will be terminated under the
terms of the Company's then existing benefit plans and policies in accordance
with such plans and policies in effect on the date of termination or as
otherwise determined by the Board of Directors of the Company.
(ii) INVOLUNTARY TERMINATION. If the Employee's
employment is terminated as a result of an Involuntary Termination other than
for Cause, the Employee shall be entitled to receive the following benefits:
(i) severance payments during the period from the date of the Employee's
termination until the date 12 months after the effective date of the
termination (the "Severance Period") equal to the salary which the Employee
was receiving at the time of such termination, which payments shall be paid
during the Severance Period in accordance with the Company's standard payroll
practices; (ii) monthly severance payments during the Severance Period equal
to 1/12th of the Employee's "target bonus" (as defined below) for the fiscal
year in which the termination
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<PAGE>
occurs (or for the prior fiscal year if a target bonus has not yet been
determined for the fiscal year in which the termination occurs); (iii)
continuation of all health and life insurance benefits through the end of the
Severance Period substantially identical to those to which the Employee was
entitled immediately prior to the termination, or to those being offered to
officers of the Company, or a successor corporation, if the Company's benefit
programs are changed during the Severance Period; and (iv) outplacement
services with a total value not to exceed $15,000. For purposes of this
Agreement, the term "target bonus" shall mean the Employee's base salary in
effect on the termination date multiplied by that percentage of such base
salary that is prescribed by the Company under its Executive Bonus Program as
the percentage of such base salary payable to the Employee as a bonus if the
Company pays bonuses at one-hundred percent (100%) of its operating plan.
(iii) INVOLUNTARY TERMINATION FOR CAUSE. If the
Employee's employment is terminated for Cause, then the Employee shall not be
entitled to receive severance payments. The Employee's benefits will be
terminated under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination.
(b) TERMINATION APART FROM A CHANGE OF CONTROL. In the event
the Employee's employment terminates for any reason, either prior to the
occurrence of a Change of Control or after the two year period following the
effective date of a Change of Control, then the Employee shall not be
entitled to receive any severance payments under this Agreement. The
Employee's benefits will be terminated under the terms of the Company's then
existing benefit plans and policies in accordance with such plans and
policies in effect on the date of termination or as otherwise determined by
the Board of Directors of the Company.
4. DEFINITION OF TERMS. The following terms referred to in this
Agreement shall have the following meanings:
(a) CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events:
(i) OWNERSHIP. Any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing
twenty percent (20%) or more of the total voting power represented by the
Company's then outstanding voting securities WITHOUT the approval of the
Board of Directors of the Company; or
(ii) MERGER/SALE OF ASSETS. A merger or consolidation
of the Company whether or not approved by the Board of Directors of the
Company, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty
percent (50%) of the total voting power represented by the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the
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<PAGE>
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
(iii) CHANGE IN BOARD COMPOSITION. A change in the
composition of the Board of Directors of the Company, as a result of which
fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company
as of May 13, 1997 or (B) are elected, or nominated for election, to the
Board of Directors of the Company with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination
is in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
(b) CAUSE. "Cause" shall mean (i) gross negligence or
willful misconduct in the performance of the Employee's duties to the Company
where such gross negligence or willful misconduct has resulted or is likely
to result in substantial and material damage to the Company or its
subsidiaries, (ii) repeated unexplained or unjustified absence from the
Company, (iii) a material and willful violation of any federal or state law;
(iv) commission of any act of fraud with respect to the Company; or (v)
conviction of a felony or a crime involving moral turpitude causing material
harm to the standing and reputation of the Company, in each case as
determined in good faith by the Board of Directors of the Company.
(c) INVOLUNTARY TERMINATION. "Involuntary Termination" shall
include any termination by the Company other than for Cause and the
Employee's voluntary termination, upon 30 days prior written notice to the
Company, following (i) any reduction of the Employee's base compensation
(other than in connection with a general decrease in base salaries for most
similarly situated employees of the successor corporation); or (ii) the
Employee's refusal to relocate to a location more than 50 miles from the
Company's current location.
5. LIMITATION ON PAYMENTS. To the extent that any of the
payments or benefits provided for in this Agreement to the Employee
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and, but for this
Section 5, would be subject to the excise tax imposed by Section 4999 of the
Code, the Company shall reduce the aggregate amount of such payments and
benefits such that the present value thereof (as determined under the Code
and the applicable regulations) is equal to 2.99 times the Employee's "base
amount" as defined in Section 280G(b)(3) of the Code.
6. CERTAIN BUSINESS COMBINATIONS. In the event it is determined by
the Board, upon consultation with Company management and the Company's
independent auditors, that the enforcement of any Section of this Agreement,
including, but not limited to, Section 2 hereof, which allows for the
acceleration of vesting of option shares upon the effective date of a Change of
Control, would preclude accounting for any proposed business combination of the
Company involving a Change of Control as a pooling of interests, and the
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<PAGE>
Board otherwise desires to approve such a proposed business transaction which
requires as a condition to the closing of such transaction that it be
accounted for as a pooling of interests, then any such Section of this
Agreement shall be null and void. For purposes of this Section 6, the
Board's determination shall require the unanimous approval of the
non-employee Board members.
7. SUCCESSORS. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agree expressly
to perform the obligations under this Agreement in the same manner and to the
same extent as the Company would be required to perform such obligations in
the absence of a succession. The terms of this Agreement and all of the
Employee's rights hereunder shall inure to the benefit of, and be enforceable
by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
8. NOTICE. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. Mailed notices
to the Employee shall be addressed to the Employee at the home address which
the Employee most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
9. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. The Employee shall not be required
to mitigate the amount of any payment contemplated by this Agreement (whether
by seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that the Employee may receive from any other source.
(b) WAIVER. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge
is agreed to in writing and signed by the Employee and by an authorized
officer of the Company (other than the Employee). No waiver by either party
of any breach of, or of compliance with, any condition or provision of this
Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another time.
(c) WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into
by either party with respect to the subject matter hereof. This Agreement
supersedes any agreement of the same title and concerning similar subject
matter dated prior to the date of this Agreement, and by execution of this
Agreement both parties agree that any such predecessor agreement shall be
deemed null and void.
-5-
<PAGE>
(d) CHOICE OF LAW. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of the State of California without reference to conflict of laws provisions.
(e) SEVERABILITY. If any term or provision of this Agreement
or the application thereof to any circumstance shall, in any jurisdiction and
to any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the
remaining terms and provisions of this Agreement or the application of such
terms and provisions to circumstances other than those as to which it is held
invalid or unenforceable, and a suitable and equitable term or provision
shall be substituted therefor to carry out, insofar as may be valid and
enforceable, the intent and purpose of the invalid or unenforceable term or
provision.
(f) ARBITRATION. Any dispute or controversy arising under or
in connection with this Agreement may be settled at the option of either
party by binding arbitration in the County of Santa Clara, California, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction. Punitive damages shall not be awarded.
(g) LEGAL FEES AND EXPENSES. The parties shall each bear
their own expenses, legal fees and other fees incurred in connection with
this Agreement.
(h) NO ASSIGNMENT OF BENEFITS. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option
or assignment, either by voluntary or involuntary assignment or by operation
of law, including (without limitation) bankruptcy, garnishment, attachment or
other creditor's process, and any action in violation of this subsection (h)
shall be void.
(i) EMPLOYMENT TAXES. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(j) ASSIGNMENT BY COMPANY. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment.
In the case of any such assignment, the term "Company" when used in a section
of this Agreement shall mean the corporation that actually employs the
Employee.
(k) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and
year first above written.
CONCEPTUS, INC. SANFORD FITCH
By: Kathryn A. Tunstall /s/ Sanford Fitch
-------------------------------- --------------------------------
Title: President and Chief Executive Officer
----------------------------------------
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<PAGE>
EXHIBIT 10.20
FORM OF SENIOR MANAGEMENT
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered
into effective as of May 13, 1997, by and between Employee (the "Employee")
and Conceptus, Inc., a Delaware corporation (the "Company").
RECITALS
A. It is expected that another company or other entity may from time
to time consider the possibility of acquiring the Company or that a change in
control may otherwise occur, with or without the approval of the Company's
Board of Directors (the "Board"). The Board recognizes that such
consideration can be a distraction to the Employee, an executive officer or
director-level employee of the Company, and can cause the Employee to
consider alternative employment opportunities. The Board has determined that
it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication and objectivity of the
Employee, notwithstanding the possibility, threat or occurrence of a Change
of Control (as defined below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Employee with an incentive to continue
his or her employment with the Company.
C. The Board believes that it is imperative to provide the Employee
with certain benefits upon a Change of Control and, under certain
circumstances, upon termination of the Employee's employment in connection
with a Change of Control, which benefits are intended to provide the Employee
with financial security and provide sufficient income and encouragement to
the Employee to remain with the Company notwithstanding the possibility of a
Change of Control.
D. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to
agree to the terms provided in this Agreement.
E. Certain capitalized terms used in the Agreement are defined in
Section 4 below.
In consideration of the mutual covenants contained in this Agreement,
and in consideration of the continuing employment of Employee by the Company,
the parties agree as follows:
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<PAGE>
1. AT-WILL EMPLOYMENT. The Company and the Employee acknowledge
that the Employee's employment is and shall continue to be at-will, as
defined under applicable law. If the Employee's employment terminates for
any reason, including (without limitation) any termination prior to a Change
of Control, the Employee shall not be entitled to any payments or benefits,
other than as provided by this Agreement, or as may otherwise be available in
accordance with the terms of the Company's then existing employee plans and
written policies in effect at the time of termination. The terms of this
Agreement shall terminate upon the earlier of (i) the date on which Employee
ceases to be employed as an executive officer or director-level employee of
the Company, other than as a result of an involuntary termination by the
Company without Cause (ii) the date that all obligations of the parties
hereunder have been satisfied, or (iii) two (2) years after a Change of
Control. A termination of the terms of this Agreement pursuant to the
preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement.
2. STOCK OPTIONS.
(a) HOSTILE TAKEOVER. Subject to Sections 5 and 6 below, in
the event of a Hostile Takeover and regardless of whether the Employee's
employment with the Company is terminated in connection with the Hostile
Takeover, each stock option granted for the Company's securities (the
"Option") held by the Employee shall become fully vested and immediately
exercisable on the effective date of the transaction and shall be exercisable
to the extent so vested in accordance with the provisions of the Stock Option
Agreement and Stock Option Plan pursuant to which such Option was granted.
(b) CHANGE OF CONTROL. Subject to Sections 5 and 6 below, in
the event of a Change of Control and regardless of whether the Employee's
employment with the Company is terminated in connection with the Change of
Control, each Option held by the Employee shall become vested on the
effective date of the transaction as to fifty percent (50%) of the Option
shares that have not otherwise vested as of such date. The Option shares
that remain unvested as of the effective date of the transaction shall
thereafter vest at the same rate (that is, the same number of shares shall
vest during each vesting period) that was in effect prior to the Change of
Control, and shall accordingly vest over a period that is one-half of the
total vesting period that would otherwise be then remaining under the terms
of the Option Agreement pursuant to which each such Option was granted.
3. CHANGE OF CONTROL.
(a) TERMINATION FOLLOWING A CHANGE OF CONTROL. Subject to
Sections 5 and 6 below, if the Employee's employment with the Company is
terminated at any time within two (2) years after a Change of Control, then
the Employee shall be entitled to receive severance benefits as follows:
(i) VOLUNTARY RESIGNATION. If the Employee voluntarily
resigns from the Company (other than as an Involuntary Termination (as
defined below) or if
-2-
<PAGE>
the Company terminates the Employee's employment for Cause (as defined
below)), then the Employee shall not be entitled to receive severance
payments. The Employee's benefits will be terminated under the Company's
then existing benefit plans and policies in accordance with such plans and
policies in effect on the date of termination or as otherwise determined by
the Board of Directors of the Company.
(ii) INVOLUNTARY TERMINATION. If the Employee's
employment is terminated as a result of an Involuntary Termination other than
for Cause, the Employee shall be entitled to receive the following benefits:
(i) severance payments during the period from the date of the Employee's
termination until the date 12 months after the effective date of the
termination (the "Severance Period") equal to the salary which the Employee
was receiving at the time of such termination, which payments shall be paid
during the Severance Period in accordance with the Company's standard payroll
practices; (ii) monthly severance payments during the Severance Period equal
to 1/12th of the Employee's "target bonus" (as defined below) for the fiscal
year in which the termination occurs (or for the prior fiscal year if a
target bonus has not yet been determined for the fiscal year in which the
termination occurs); (iii) continuation of all health and life insurance
benefits through the end of the Severance Period substantially identical to
those to which the Employee was entitled immediately prior to the
termination, or to those being offered to officers of the Company, or a
successor corporation, if the Company's benefit programs are changed during
the Severance Period; (iv) full and immediate vesting of each unvested Option
held by the Employee on the date of termination so that each such option
shall be exercisable in full on the termination date in accordance with the
provisions of the Option Agreement and Plan pursuant to which such option was
granted; and (v) outplacement services with a total value not to exceed
$15,000. For purposes of this Agreement, the term "target bonus" shall mean
the Employee's base salary in effect on the termination date multiplied by
that percentage of such base salary that is prescribed by the Company under
its Executive Bonus Program as the percentage of such base salary payable to
the Employee as a bonus if the Company pays bonuses at one-hundred percent
(100%) of its operating plan.
(iii) INVOLUNTARY TERMINATION FOR CAUSE. If the
Employee's employment is terminated for Cause, then the Employee shall not be
entitled to receive severance payments. The Employee's benefits will be
terminated under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination.
(b) TERMINATION APART FROM A CHANGE OF CONTROL. In the event
the Employee's employment terminates for any reason, either prior to the
occurrence of a Change of Control or after the two year period following the
effective date of a Change of Control, then the Employee shall not be
entitled to receive any severance payments under this Agreement. The
Employee's benefits will be terminated under the terms of the Company's then
existing benefit plans and policies in accordance with such plans and
policies in effect on the date of termination or as otherwise determined by
the Board of Directors of the Company.
-3-
<PAGE>
4. DEFINITION OF TERMS. The following terms referred to in this
Agreement shall have the following meanings:
(a) CHANGE OF CONTROL. "Change of Control" shall mean the
occurrence of any of the following events:
(i) OWNERSHIP. Any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing
twenty percent (20%) or more of the total voting power represented by the
Company's then outstanding voting securities WITHOUT the approval of the
Board of Directors of the Company; or
(ii) MERGER/SALE OF ASSETS. A merger or consolidation
of the Company whether or not approved by the Board of Directors of the
Company, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty
percent (50%) of the total voting power represented by the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
(iii) CHANGE IN BOARD COMPOSITION. A change in the
composition of the Board of Directors of the Company, as a result of which
fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company
as of May 13, 1997 or (B) are elected, or nominated for election, to the
Board of Directors of the Company with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination
is in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
(b) CAUSE. "Cause" shall mean (i) gross negligence or
willful misconduct in the performance of the Employee's duties to the Company
where such gross negligence or willful misconduct has resulted or is likely
to result in substantial and material damage to the Company or its
subsidiaries, (ii) repeated unexplained or unjustified absence from the
Company, (iii) a material and willful violation of any federal or state law;
(iv) commission of any act of fraud with respect to the Company; or (v)
conviction of a felony or a crime involving moral turpitude causing material
harm to the standing and reputation of the Company, in each case as
determined in good faith by the Board of Directors of the Company.
(c) HOSTILE TAKEOVER. "Hostile Takeover" shall mean a
transaction or series of transactions that results in any Person becoming the
Beneficial Owner, directly or indirectly, of securities of the Company
representing more than 50% of the total voting power
-4-
<PAGE>
represented by the Company's then outstanding voting securities WITHOUT the
approval of the Board of Directors of the Company.
(d) INVOLUNTARY TERMINATION. "Involuntary Termination" shall
include any termination by the Company other than for Cause and the
Employee's voluntary termination, upon 30 days prior written notice to the
Company, following (i) any reduction of the Employee's base compensation
(other than in connection with a general decrease in base salaries for most
similarly situated employees of the successor corporation); or (ii) the
Employee's refusal to relocate to a location more than 50 miles from the
Company's current location.
5. LIMITATION ON PAYMENTS. To the extent that any of the
payments or benefits provided for in this Agreement to the Employee
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and, but for this
Section 5, would be subject to the excise tax imposed by Section 4999 of the
Code, the Company shall reduce the aggregate amount of such payments and
benefits such that the present value thereof (as determined under the Code
and the applicable regulations) is equal to 2.99 times the Employee's "base
amount" as defined in Section 280G(b)(3) of the Code.
6. CERTAIN BUSINESS COMBINATIONS. In the event it is determined
by the Board, upon consultation with Company management and the Company's
independent auditors, that the enforcement of any Section of this Agreement,
including, but not limited to, Section 2 hereof, which allows for the
acceleration of vesting of option shares upon the effective date of a Change
of Control, would preclude accounting for any proposed business combination
of the Company involving a Change of Control as a pooling of interests, and
the Board otherwise desires to approve such a proposed business transaction
which requires as a condition to the closing of such transaction that it be
accounted for as a pooling of interests, then any such Section of this
Agreement shall be null and void. For purposes of this Section 6, the
Board's determination shall require the unanimous approval of the
non-employee Board members.
7. SUCCESSORS. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agree expressly
to perform the obligations under this Agreement in the same manner and to the
same extent as the Company would be required to perform such obligations in
the absence of a succession. The terms of this Agreement and all of the
Employee's rights hereunder shall inure to the benefit of, and be enforceable
by, the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
8. NOTICE. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. Mailed notices to the Employee
shall be addressed to the Employee at the
-5-
<PAGE>
home address which the Employee most recently communicated to the Company in
writing. In the case of the Company, mailed notices shall be addressed to
its corporate headquarters, and all notices shall be directed to the
attention of its Secretary.
9. MISCELLANEOUS PROVISIONS.
(a) NO DUTY TO MITIGATE. The Employee shall not be required
to mitigate the amount of any payment contemplated by this Agreement (whether
by seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that the Employee may receive from any other source.
(b) WAIVER. No provision of this Agreement shall be
modified, waived or discharged unless the modification, waiver or discharge
is agreed to in writing and signed by the Employee and by an authorized
officer of the Company (other than the Employee). No waiver by either party
of any breach of, or of compliance with, any condition or provision of this
Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another time.
(c) WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into
by either party with respect to the subject matter hereof. This Agreement
supersedes any agreement of the same title and concerning similar subject
matter dated prior to the date of this Agreement, and by execution of this
Agreement both parties agree that any such predecessor agreement shall be
deemed null and void.
(d) CHOICE OF LAW. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of the State of California without reference to conflict of laws provisions.
(e) SEVERABILITY. If any term or provision of this Agreement
or the application thereof to any circumstance shall, in any jurisdiction and
to any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the
remaining terms and provisions of this Agreement or the application of such
terms and provisions to circumstances other than those as to which it is held
invalid or unenforceable, and a suitable and equitable term or provision
shall be substituted therefor to carry out, insofar as may be valid and
enforceable, the intent and purpose of the invalid or unenforceable term or
provision.
(f) ARBITRATION. Any dispute or controversy arising under or
in connection with this Agreement may be settled at the option of either
party by binding arbitration in the County of Santa Clara, California, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction. Punitive damages shall not be awarded.
-6-
<PAGE>
(g) LEGAL FEES AND EXPENSES. The parties shall each bear
their own expenses, legal fees and other fees incurred in connection with
this Agreement.
(h) NO ASSIGNMENT OF BENEFITS. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option
or assignment, either by voluntary or involuntary assignment or by operation
of law, including (without limitation) bankruptcy, garnishment, attachment or
other creditor's process, and any action in violation of this subsection (h)
shall be void.
(i) EMPLOYMENT TAXES. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(j) ASSIGNMENT BY COMPANY. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment.
In the case of any such assignment, the term "Company" when used in a section
of this Agreement shall mean the corporation that actually employs the
Employee.
(k) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and
year first above written.
CONCEPTUS, INC. EMPLOYEE
By:
-------------------------------- --------------------------------
Title:
-----------------------------
-7-
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