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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 March 31, 2000
[ ] 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
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: (650) 802-7240
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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 March 31, 2000, 9,684,872 shares of the Registrant's Common Stock were
outstanding.
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<PAGE>
<TABLE>
CONCEPTUS, INC.
FORM 10-Q For the Quarter Ended March 31, 2000
INDEX
<CAPTION>
Page
<S> <C> <C>
Facing sheet 1
Index 2
Part I. Financial Information
Item 1. a) Consolidated balance sheets at March 31, 2000 and December 31, 1999 3
b) Consolidated statements of operations for the three month periods ended March 31,
2000 and March 31, 1999 4
c) Consolidated statements of cash flows for the three month periods ended March 31,
2000 and March 31, 1999. 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
Signature 12
Index to Exhibits 13
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
Conceptus, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
<CAPTION>
March 31, 2000 December 31, 1999
(Unaudited) (Note 1)
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents 5,854 3,494
Short-term investments 3,282 7,275
Accounts receivable, net of allowance for doubtful accounts
of $579 at March 31, 2000 and December 31, 1999 23 18
Other current assets 174 94
-------- --------
Total current assets 9,333 10,881
Property and equipment, net 811 845
Other assets 182 177
-------- --------
Total assets $ 10,326 $ 11,903
======== ========
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 395 $ 130
Clinical trial accruals 268 259
Accrued compensation 202 235
Other accrued liabilities 81 130
Current portion of deferred revenue 97 97
-------- --------
Total current liabilities 1,043 851
Long-term portion of deferred revenue 113 138
Commitments
Stockholders' equity:
Common stock, $0.003 par value, 30,000,000 shares authorized, 63,624 63,609
9,684,872 and 9,661,731 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively
Accumulated deficit (54,454) (52,695)
-------- --------
Total stockholders' equity 9,170 10,914
-------- --------
$ 10,326 $ 11,903
======== ========
<FN>
See accompanying notes
</FN>
</TABLE>
3
<PAGE>
Conceptus, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
March 31,
----------------------
2000 1999
------- -------
Net Sales $ -- $ 30
Cost of Sales -- 40
------- -------
Gross profit (loss) -- (10)
Operating expenses:
Research and development 1,568 738
Selling, general and administrative 822 552
------- -------
Total operating expenses 2,390 1,290
------- -------
Operating loss (2,390) (1,300)
Recovery of legal defense costs 453 --
Interest and other income, net 178 218
------- -------
Net loss $(1,759) $(1,082)
======= =======
Basic and diluted net loss per share $ (0.18) $ (0.11)
======= =======
Shares used in computing basic and diluted
net loss per share 9,680 9,620
======= =======
See accompanying notes
4
<PAGE>
Conceptus, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
March 31,
----------------------
2000 1999
-------- ---------
Cash flows used in operating activities
Net loss $ (1,759) $ (1,082)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 135 178
Amortization of deferred compensation -- 24
Recognition of deferred revenue (25) (24)
Changes in operating assets and liabilities
Accounts receivable (5) 121
Other current assets (80) (200)
Account payable 265 29
Clinical trial accruals 9 --
Accrued compensation (33) (43)
Other accrued liabilities (49) (33)
-------- --------
Net cash used in operating activities (1,542) (1,030)
-------- --------
Cash flows used in investing activities
Maturities of investments 3,993 1,630
Capital expenditures (101) --
Change in other assets (5) 5
-------- --------
Net cash provided by investing activities 3,887 1,635
-------- --------
Cash flows provided by financing activities
Proceeds from issuance of common stock 15 --
-------- --------
Net cash provided by financing activities 15 --
-------- --------
Net increase in cash and cash equivalents 2,360 605
Cash and cash equivalents at beginning of period 3,494 11,503
-------- --------
Cash and cash equivalents at end of period $ 5,854 $ 12,108
======== ========
See accompanying notes
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 March 31, 2000 and
the consolidated statements of operations and cash flows for the three month
periods ended March 31, 2000 and 1999 have been prepared by Conceptus, Inc.
("Conceptus" or the "Company"), without audit. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations, and cash flows at
March 31, 2000, and for all periods presented, have been made.
Although the Company believes that the disclosures in these
consolidated 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"). The balance sheet at December 31, 1999 has been
derived from the audited financial statements at that date. 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, 1999. The results of operations for the three months ended March 31, 2000
may not necessarily be indicative of the operating results for the full 2000
fiscal year.
Litigation Cost Recovery
In March 2000, the Company received $453,000 from its Directors' and
Officers' liability insurance policy for recovery of legal defense costs in
connection with a sexual harassment lawsuit filed against the Company in
December 1997. The payment was recorded as other income.
Computation of Net Loss Per Share
Basic net loss per share is computed using the weighted average number
of common shares outstanding during the period. Diluted net loss per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during each period. Under the requirements for
calculating basic net loss per share, the effect of potentially dilutive
securities such as stock options is excluded. Basic and diluted net loss per
share are equivalent for all periods presented due to the Company's net loss
position.
Comprehensive Income
During the first quarter of 2000 and 1999, total comprehensive loss
approximates net loss as unrealized gains and losses were immaterial.
6
<PAGE>
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 risk factors set forth in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999,
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 inception on September 18, 1992, Conceptus has been primarily
engaged in the design, development and marketing of innovative interventional
medical devices for use in reproductive medicine. The Company's focus is to
develop the STOPTM non-surgical permanent contraception device for women. STOP
is designed to be a less-invasive, safer and less costly alternative to surgical
sterilization, more commonly known as tubal ligation. Data from the United
Nations estimate that 30% of worldwide reproductive couples using contraception
rely on surgical tubal sterilization. A survey performed by the Centers for
Disease Control, indicates that surgical tubal sterilization is the number one
form of contraception in the United States, and 35% of women aged 35 - 44 have
had a surgical tubal sterilization. An estimated 800,000 surgical tubal
ligations are performed annually in the U.S., of which 92% are performed in a
hospital or surgi-center and require general anesthesia.
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 and to conduct research and product development.
In March 2000, Conceptus received approval from the Food & Drug
Administration ("FDA") to commence a pivotal trial of the STOP device. The
pivotal trial will be conducted in 10 - 20 clinical sites in the U.S.,
Australia, and Europe and Conceptus plans to commence the pivotal trial in the
first half of 2000. The pre-market portion of the pivotal trial will study 400
women with bilateral placement of STOP devices through twelve months of
effectiveness testing. Conceptus believes the pre-market portion of the trial
may be completed in 2002 and FDA approval to market the STOP device in the U.S.
may be obtained in 2003. Prior to FDA approval, however, the Company plans to
market STOP in certain international markets upon clearance from local
governmental bodies.
The Company has demonstrated the feasibility of the STOP device in a
Phase II study of safety and preliminary effectiveness. As of March 31, 2000,
there are 133 women with proven fertility who have had successful placement of
STOP devices. During the first three months after placement the clinical
protocol requires use of alternative contraception. After three months, women
begin to rely on STOP for contraception and as of March 31, 2000, no pregnancies
have been reported in 710 woman-months of effectiveness testing.
STOP is designed to be a non-surgical alternative to tubal
sterilization that can be performed in an office setting without general
anesthesia and with minimal patient discomfort. To support the
7
<PAGE>
feasibility of an office based placement, Conceptus is collecting data in its
Phase II trial regarding the time required to complete the procedure, the use of
analgesia and/or anesthesia, patient tolerance of the procedure and patient
tolerance to wearing the devices. In the Phase II trial, 94% of the procedures
were performed without general anesthesia, and 99% of patients have reported
"good" to "excellent" tolerance of the procedure. Post procedure discomfort was
reported in 78% of patients. Further analysis of this post procedure discomfort
revealed that 56% of patients reported resolution of pain within one day, and
100% of patients reported resolution of discomfort within 14 days. Additionally,
Conceptus has gathered data from its Phase II trial that suggests the STOP
device does not significantly alter menstruation patterns.
Adverse events have occurred in about 6% of Phase II cases which
Conceptus believes were a result of technical failures and investigator learning
curve. Conceptus believes these types of events are typical of early stage
clinical trials and that the potential of improper placements can be reduced to
an insignificant level through physician training and design evolution.
The mechanism of contraception is a combination of: (a) a tissue
response which occludes the fallopian tube, and (b) transformation of the
fallopian tube architecture to an environment that does not support conception.
Interim results from the Company's on-going histology study provides evidence
that tissue response to the STOP device is occlusive in nature and should
provide for long-term anchoring as well as pregnancy prevention. Additionally,
the histology study demonstrates that the tissue reaction is predictable and
localized to the STOP device.
The Company's current products, the ERA and FUTURA Resectoscope
Sleeves, the STARRT Falloposcopy system and the TTAC products have produced
limited revenues since approval by the FDA and are not actively marketed. The
Company continues to consider various licensing and/or distribution strategies
to market these products, but does not intend to expend significant resources on
further product development nor marketing activities on these products.
Future revenues and results of operations may fluctuate significantly
from quarter to quarter and will depend upon, among other factors, the ability
to attract marketing partners and out-source manufacturing, the rate at which
the Company establishes its domestic and international distribution network, the
timing and size of distributor purchases, actions relating to regulatory and
reimbursement matters, the extent to which the Company's products gain market
acceptance, the progress of clinical trials and the introduction of competitive
products for diagnosis and treatment of the female reproductive system.
8
<PAGE>
Results of Operations - Three Months Ended March 31, 2000 and 1999
Sales decreased $30,000 to zero for the three months ended March 31,
2000 from the same period in the prior year. In 1999, Conceptus ceased all
marketing and distribution of the TTAC, STARRT and ERA and FUTURA products to
focus solely on the STOP product, which contributed to the elimination of
revenue for the three months ended March 31, 2000. The Company expects revenues
to remain immaterial in 2000 as it continues to seek regulatory approval of the
STOP device in various countries.
Cost of sales decreased $40,000 to zero for the three months ended
March 31, 2000 for the same period in the prior year. The decrease is due to the
Company ceasing all marketing and distribution of the TTAC, STARRT and ERA and
FUTURA products to focus solely on the STOP product.
Research and development ("R&D") expenses, which include clinical and
regulatory expenses, increased to $1,568,000 for the three months ended March
31, 2000, from $738,000 for the same period in the prior year. The 112% increase
is primarily due to Phase II clinical trials, ongoing pre-hysterectomy studies
and scale up of the Company's pilot manufacturing operations to develop an
ergonomic delivery system.
Selling, general and administrative ("SG&A") expenses increased to
$822,000 for the three months ended March 31, 2000, from $552,000 for the same
period in the prior year. The 49% increase is primarily due to increased
administrative costs required to support growth in clinical and pilot
manufacturing activities for the pivotal trial. Additionally, the Company has
formed a marketing function to perform market research, develop distribution
channels, and establish reimbursement strategies in preparation of a market
introduction of STOP in certain international markets in early 2001.
In March 2000, the Company received $453,000 from its Directors' and
Officers' insurance policy for legal defense costs reimbursement in connection
with a sexual harassment lawsuit filed against the Company in December 1997. The
Company and all defendants were subsequently found not guilty on all charges and
no appeals have been filed by the plaintiff. The receipt was recorded as other
income.
Interest and other income decreased to $178,000 for the three months
ended March 31, 2000, from $218,000 for the same period in the prior year. The
decrease is a result of lower average invested cash balances due to the usage of
cash for operations. Interest expense for the three months ended March 31, 2000
and 1999 were immaterial.
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 its STOP device,
and since 1996, the ERA and FUTURA product lines. The Company has generated only
limited revenues and has only limited experience in manufacturing, marketing or
selling its products in commercial quantities. The Company has experienced
significant operating losses since inception and, as of March 31, 2000, had an
accumulated deficit of $54.5 million. The Company expects its operating losses
to continue for at least the next several years as it continues to expend
substantial resources in research and product development and funding clinical
trials in support of its STOP device. 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.
9
<PAGE>
Liquidity and Capital Resources
At March 31, 2000, Conceptus had cash, cash equivalents and investments
of $9.1 million, compared with $10.7 million at December 31, 1999. The decrease
is due to $1.6 million used in operating and investing activities in support of
the STOP contraception product.
Conceptus believes that its existing capital resources will be
sufficient to complete enrollment in the STOP pivotal trial but does not
currently have sufficient capital resources to fund completion of the pivotal
trial nor the funds to successfully commercialize the STOP product. 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, execution and implementation of partnering arrangements,
the receipt of and the time required to obtain regulatory clearances and
approvals, and the resources devoted to developing, manufacturing and marketing
the Company's products. Accordingly, the Company will require additional
financing and therefore, may in the future seek to raise additional funds
through bank facilities, debt or equity offerings or other sources of capital.
Furthermore, any additional equity financing may be dilutive to stockholders,
and debt financing, if available, may involve restrictive convenants. 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
The Company's cash balances in excess of short-term operating needs are invested
in highly liquid short-term government securities and high quality commercial
paper. Due to the short-term and high quality nature of these instruments, the
Company believes these financial instruments are exposed to a low level of
interest rate risk.
10
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
There are no material pending or threatened legal proceedings against
the Company. The Company from time to time is involved in routine legal matters
incident to its business. While management currently believes the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position, results of operations, or liquidity of the
Company, the ultimate outcome of any litigation is uncertain.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.31 1993 Stock Plan as amended April 27, 2000
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
11
<PAGE>
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/ OLIVER BROUSE
-------------------------------------------------
Oliver Brouse
Principal Accounting Director
Date: May 15, 2000
12
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
10.31 1993 Stock Plan as amended April 27, 2000
27 Financial Data Schedule
13
Exhibit A
CONCEPTUS, INC.
1993 STOCK PLAN
(AMENDED AND RESTATED APRIL 27, 2000)
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract and
retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees and Consultants of the Company and
its Subsidiaries and to promote the success of the Company's business. Options
granted under the Plan may be incentive stock options (as defined under Section
422 of the Code) or non-statutory stock options, as determined by the
Administrator at the time of grant of an option and subject to the applicable
provisions of Section 422 of the Code, as amended, and the regulations
promulgated thereunder. Stock purchase rights may also be granted under the
Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees appointed
pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means the Committee appointed by the Board of Directors
in accordance with paragraph (a) of Section 4 of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means Conceptus, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, who is engaged
by the Company or any Parent or Subsidiary to render services and is compensated
for such services, and any director of the Company whether compensated for such
services or not provided that if and in the event the Company registers any
class of any equity security pursuant to the Exchange Act, the term Consultant
shall thereafter not include directors who are not compensated for their
services or are paid only a director's fee by the Company.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Administrator, provided that such leave is for a period
of not more than ninety (90) days, unless reemployment upon the expiration of
such leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) in the case of
transfers between locations of the Company or between the Company, its
Subsidiaries or its successor.
For purposes of this Plan, a change in status from Employee to a
<PAGE>
Consultant or from a Consultant to an Employee will not constitute an
interruption of Continuous Status as an Employee or Consultant.
(i) "EMPLOYEE" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock 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, its Fair Market Value shall be the closing sales
price for such stock as quoted on such system on the date of determination (or
the closing bid, if no sales were reported, as quoted on such exchange or system
on that day) as reported in The Wall Street Journal or such other source as the
Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(m) "NAMED EXECUTIVE" shall mean any individual who, on the last day of
the Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four highest compensated officers of the
Company (other than the chief executive officer). Such officer status shall be
determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTIONED STOCK" means the Common Stock subject to an Option or a
Stock Purchase Right.
<PAGE>
(r) "OPTIONEE" means an Employee or Consultant who receives an Option
or Stock Purchase Right.
(s) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(t) "PLAN" means this 1993 Stock Plan.
(u) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 11 below.
(v) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act as
the same may be amended from time to time, or any successor provision.
(w) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 below.
(x) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 11 below.
(y) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 3,075,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) COMPOSITION OF ADMINISTRATOR.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3,
and by the legal requirements relating to the administration of incentive stock
option plans, if any, of applicable securities laws and the Code (collectively,
the "APPLICABLE LAWS"), grants under the Plan may (but need not) be made by
different administrative bodies with respect to Directors, Officers who are not
directors and Employees who are neither Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With
respect to grants of Options or Stock Purchase Rights to Employees who are also
officers or directors of the Company, the Plan shall be administered by (A) the
Board if the Board may administer the Plan in compliance with Rule 16b-3 and
Section 162(m) of the Code as it applies so as to qualify grants of Options or
Stock Purchase Rights to Named Executives as performance-based compensation, or
(B) a Committee designated by the Board to make grants under the Plan, which
Committee shall be constituted in such a manner as to permit grants under the
Plan to comply with Rule 16b-3 to qualify grants of Options
<PAGE>
and Stock Purchase Rights as
performance-based compensation under Section 162(m) of the Code and otherwise
so as to satisfy the Applicable Laws.
(iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER
EMPLOYEES. With respect to grants of Options or Stock Purchase Rights to
Employees or Consultants who are neither directors nor officers of the Company,
the Plan shall be administered by (A) the Board or (B) a Committee designated by
the Board, which Committee shall be constituted in such a manner as to satisfy
the Applicable Laws.
(iv) GENERAL. If a Committee has been appointed pursuant to
subsection (ii) or (iii) of this Section 4(a), such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws and, in the case of a Committee
appointed under subsection (ii) to the extent permitted by Rule 16b-3 and to the
extent required under Section 162(m) of the Code to qualify grants of Options or
Stock Purchase Rights to Named Executives as performance-based compensation.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
and in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
<PAGE>
covered by such Option shall have declined since the date the Option was
granted; and
(ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options or Stock Purchase Rights.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be granted
to Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if he is otherwise eligible, be granted additional Options
or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his or her right or the Company's right to
terminate his or her employment or consulting relationship at any time, with or
without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the shareholders of
the Company as described in Section 19 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 15 of the
Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
<PAGE>
8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as provided in
this Plan, the maximum number of Shares which may be subject to options granted
to any one Employee under this Plan for any fiscal year of the Company shall be
800,000.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option.
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company, the per Share
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of such
Option, is a Named Executive of the Company, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of the
grant.
(B) granted to any person other than a Named Executive, the
per Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6) delivery
of a properly executed exercise notice together with such other documentation as
the Administrator and the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale or loan proceeds
required to pay the exercise price, (7) by delivering an irrevocable
subscription agreement for the Shares which irrevocably obligates the option
holder to take and pay for the Shares
<PAGE>
not more than twelve months after the date of delivery of the subscription
agreement, (8) any combination of the foregoing methods of payment, (9) or such
other consideration and method of payment for the issuance of Shares to the
extent permitted under Applicable Laws. In making its determination as to the
type of consideration to accept, the Board shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
10. Exercise of Option.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF EMPLOYMENT. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee with the
Company, such Optionee may, but only within such period of time as is determined
by the Board, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option and not exceeding three (3) months
after the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
his Option to the extent that Optionee was entitled to exercise it at the date
of such termination. To the extent that Optionee was not entitled to exercise
the Option at the date of such termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(c) DISABILITY OF OPTIONEE.
(i) Notwithstanding the provisions of Section 10(b) above, in
<PAGE>
the event of termination of an Optionee's consulting relationship or Continuous
Status as an Employee as a result of his or her total and permanent disability
(within the meaning of Section 22(e)(3) of the Code), Optionee may, but only
within twelve (12) months from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(ii) In the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee as a result of a disability
which does not fall within the meaning of total and permanent disability (as set
forth in Section 22(e)(3) of the Code), Optionee may, but only within six (6)
months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. However, to the extent that such Optionee fails
to exercise an Option which is an Incentive Stock Option ("ISO") (within the
meaning of Section 422 of the Code) within three (3) months of the date of
termination, the Option will not qualify for ISO treatment under the Code. To
the extent that Optionee was not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within six months (6) from the date of termination, the Option shall
terminate.
(d) 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 (but in no event later than the expiration date 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. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) RULE 16b-3. Options granted to persons subject to Section 16(b) of
the Exchange Act must comply with Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
<PAGE>
12. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
(b) REPURCHASE OPTION. Unless the Administrator determines otherwise,
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but at a minimum rate of 20% per year.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
13. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option, or the Shares to be issued in connection with the Stock Purchase Right,
if any, that number of Shares having a Fair Market Value equal to the amount
required to be withheld. The Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").
<PAGE>
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;
and
(c) all elections shall be subject to the consent or disapproval of the
Administrator.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, the maximum number of shares of Common Stock for which options
may be granted to any employee under Section 8 of the Plan, as well as the price
per share of Common Stock covered by each such outstanding Option or Stock
Purchase Right, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
<PAGE>
(c) MERGER OR SALE OF ASSETS. In the event of a merger of the Company
with or into another corporation or the sale of all or substantially all of the
assets of the Company, the Option or Stock Purchase Right shall be assumed or an
equivalent option or right shall be substituted by such successor corporation or
a parent or subsidiary of such successor corporation. In the event the Option or
Stock Purchase Right is not assumed or substituted, the Optionee or Stock
Purchase Right holder shall have the right to exercise the Option or Stock
Purchase Right as to all of the Optioned Stock or Restricted Stock, including
Shares as to which the Option would not otherwise be exercisable, and any
Restricted Stock held by a purchaser shall be released from the Company's
repurchase option.
15. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
16. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter,
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 162(m) and 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
17. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
<PAGE>
18. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
19. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Board shall approve from time to time.
20. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
21. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide, to
each Optionee and to each individual who acquired Shares pursuant to the Plan,
during the period such Optionee or purchaser has one or more Options or Stock
Purchase Rights outstanding, and, in the case of an individual who acquired
Shares pursuant to the Plan, during the period such individual owns such Shares,
copies of all annual reports. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information.
<TABLE> <S> <C>
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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<SECURITIES> 3,282
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<CURRENT-ASSETS> 9,333
<PP&E> 3,095
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0
0
<COMMON> 63,624
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<TOTAL-COSTS> 2,390
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