-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FmwKYCXNkeQawLK+tVzs1T7Z2JTAFEVp6oKpVqATbgyqQqym7zzz5abGSPtbHQcy MXtkFnOG9SW88yEJ9LGM8A== 0000891618-98-002369.txt : 19980515 0000891618-98-002369.hdr.sgml : 19980515 ACCESSION NUMBER: 0000891618-98-002369 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LASERSCOPE CENTRAL INDEX KEY: 0000851737 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 770049527 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18053 FILM NUMBER: 98619238 BUSINESS ADDRESS: STREET 1: 3052 ORCHARD DR CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089430636 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1998 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-Q (Mark One) X Quarterly report pursuant to Section 13 or 15(d) of the Securities ----- Exchange Act of 1934 For the quarterly period ended March 31, 1998 or Transition report pursuant to Section 13 or 15(d) of the Securities ----- Exchange Act of 1934 For the transition period from ______ to ______ Commission file number 0-18053 LASERSCOPE (Exact name of Registrant as specified in its charter) CALIFORNIA 77-0049527 (State of Incorporation) (I.R.S. Employer Identification No.) 3052 ORCHARD DRIVE, SAN JOSE, CALIFORNIA 95134-2011 (Address of principal executive offices) Registrant's telephone number: (408) 943-0636 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of Registrant's common stock issued and outstanding as of April 30, 1998 was 12,373,071. 2 TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION 3 Item 1. Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Results of Operations 8 Liquidity and Capital Resources 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II. OTHER INFORMATION 12 Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Defaults upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Items 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 12
2 3 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: LASERSCOPE CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31, (thousands) 1998 1997 - ---------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 1,384 $ 2,465 Accounts receivable, net 14,578 13,960 Inventories 19,420 18,656 Other current assets 994 1,017 -------- -------- Total current assets 36,376 36,098 Property and equipment, net 4,970 5,183 Developed technology and other intangibles, net 5,111 5,339 Other assets 662 686 -------- -------- Total assets $ 47,119 $ 47,306 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,545 $ 6,071 Accrued compensation 1,927 1,710 Short-term bank loans 3,920 3,107 Other current liabilities 4,398 4,897 -------- -------- Total current liabilities 15,790 15,785 Obligations under capital leases 230 274 Mortgages and other long-term loans 2,903 2,970 -------- -------- Total long-term liabilities 3,133 3,244 Commitments and contingencies Minority interest 215 160 Shareholders' equity: Common stock 51,008 50,939 Accumulated deficit (22,061) (21,831) Accumulated other comprehensive income (591) (616) Notes receivable from shareholders (375) (375) -------- -------- Total shareholders' equity 27,981 28,117 -------- -------- Total liabilities and shareholders' equity $ 47,119 $ 47,306 ======== ========
See notes to condensed consolidated financial statements 3 4 LASERSCOPE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, (thousands except per share amounts) 1998 1997 - ------------------------------------------------------------------------------------ Net revenues $ 13,591 $ 15,763 Cost of sales 7,021 8,687 -------- -------- Gross margin 6,570 7,076 Operating expenses: Research and development 1,331 670 Selling, general and administrative 5,345 5,401 -------- -------- 6,676 6,071 Operating income (loss) (106) 1,005 Interest income (expense) and other, net 40 (26) -------- -------- Income (loss) before income taxes and minority interest (66) 979 Provision for income taxes 109 98 -------- -------- Income (loss) before minority interest (175) 881 Minority interest 55 -- -------- -------- Net income (loss) $ (230) $ 881 ======== ======== Basic and diluted net income (loss) per share $ (0.02) $ 0.07 ======== ======== Shares used in basic per share calculations 12,356 12,010 ======== ======== Shares used in diluted per share calculations 12,356 13,041 ======== ========
See notes to condensed consolidated financial statements 4 5 LASERSCOPE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, (thousands) 1998 1997 - --------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (230) $ 881 Adjustments to reconcile net income to cash used by operating activities: Depreciation and amortization 745 500 Increase (decrease) from changes in: Accounts receivable (618) (1,958) Inventories (764) (603) Other current assets 23 (41) Other assets -- 100 Accounts payable (526) (770) Accrued compensation 217 (641) Other current liabilities (499) 246 Minority interest 55 -- ------- ------- Cash used by operating activities (1,597) (2,286) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (280) (1,635) Other 25 (228) ------- ------- Cash used by investing activities (255) (1,863) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on obligations under capital leases (44) (14) Proceeds from the sale of common stock under stock plans 69 1,320 Proceeds from bank loans 813 2,300 Repayment of bank loans (67) (1,300) ------- ------- Cash provided by financing activities 771 2,306 ------- ------- Decrease in cash and cash equivalents (1,081) (1,843) Cash and cash equivalents, beginning of period 2,465 3,917 ------- ------- Cash and cash equivalents, end of period $ 1,384 $ 2,074 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 88 $ 43 Income taxes $ 3 $ 42
See notes to condensed consolidated financial statements 5 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: 1. The accompanying condensed consolidated financial statements include Laserscope (the "Company") and its wholly and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated. While the financial information in this report is unaudited, in the opinion of management, all adjustments (which included only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated have been recorded. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 1997 included in the Company's annual report on Form 10-K for the year ended December 31, 1997. The results of operations for the three month period ended March 31, 1998 are not necessarily indicative of the results expected for the full year. 2. Inventory was comprised of the following (in thousands):
MARCH 31, DECEMBER 31, 1998 1997 ------------------------- Sub-assemblies and purchased parts $14,177 $13,098 Finished goods 5,243 5,558 ------- ------- $19,420 $18,656 ======= =======
3. Basic net income (loss) per share is calculated using the weighted average of common stock outstanding. Diluted net income per share is calculated using the weighted average of common stock outstanding plus dilutive common equivalent shares from stock options (1,031,000 shares at March 31, 1997). All per share amounts for all periods presented have been restated to conform to SFAS 128 requirements. 4. The Company considers cash equivalents to be short-term financial instruments that are readily convertible to cash, subject to no more than insignificant interest rate risk and that have original maturities of three months or less. At March 31, 1998 and December 31, 1997 the Company's cash equivalents were in the form of institutional money market accounts and totaled $0.4 million and $1.3 million, respectively. At March 31, 1998 and December 31, 1997 the Company had no investments in debt or equity securities. 5. As of January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of the Statement had no impact the Company's net income or shareholders' equity. SFAS 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. Total comprehensive income (loss) during the quarters ended March 31, 1998 and 1997 was $(205,000) and $653,000, respectively. 6. As of January 1, 1998, the Company adopted Statement of Financial Accounting Standard's No. 131 "Disclosures about Segments of an Enterprise and Related Information " (SFAS 131). SFAS 131 will change the way companies report selected segment information in annual financial statements and requires those companies to report selected segment information in interim financial reports to shareholders. The Company has not reached a conclusion as to the appropriate segments, if any, it will be required to report to comply with SFAS 131. 6 7 7. In June 1997 the Company completed the acquisition of a majority interest in NWL Laser-Technologie GmbH. ("NWL"). The Company accounted for the acquisition as a purchase. Accordingly, the operating results of NWL are included in the Company's consolidated results of operations for the period ended March 31, 1998, however, are not included in the Company's consolidated results of operations for the period ended March 31, 1997. The minority interest reported in the financial statements represents minority shareholders' proportional interest in the net assets and operating results of the NWL subsidiary. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Except for the historical information contained in this Quarterly Report on Form 10-Q, the matters discussed herein are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements are subject to certain risks and uncertainties that could cause the actual results to differ materially from those projected. Factors that could cause actual results to differ materially include, but are not limited to, the risks associated with the acquisitions of Heraeus Surgical, Inc. ("HSI") and NWL Laser-Technologie, GmbH ("NWL"), including the integration of the operations and assets acquired and the assumption of the liabilities assumed by Laserscope, the timing of orders and shipments, the Company's ability to balance its inventory and production schedules, the timely development, clearance by the F.D.A. and other regulatory agencies and market acceptance of new products and surgical/therapeutic procedures, the impact of competitive products and pricing, the Company's ability to raise capital on terms acceptable to the Company, or at all, the Company's ability to expand further into international markets, and public policy relating to health care reform in the United States and other countries. The Company desires to continue expansion of its operations outside of the United States and to enter additional international markets, requiring significant management attention and financial resources and further subjecting the Company to the risks of operating internationally. These risks include unexpected changes in regulatory requirements, delays resulting from difficulty in obtaining export licenses for certain technology, customs, tariffs and other barriers and restrictions, and the burdens of complying with a variety of foreign laws. While only seven percent of the Company's revenues were attributable to sales in Asia during the quarter ended March 31, 1998 compared to ten percent during the year ended December 31, 1997, the recent economic instability in certain Asian countries could adversely affect the Company's business, financial condition and operating results. The Company is also subject to general geopolitical risks in connection with its international operations, such as political and economic instability and changes in diplomatic and trade relationships. The Company cannot predict whether quotas, duties, taxes or other charges or restrictions will be imposed by the United States, Japan, countries in the European Union or other countries upon the import or export of the Company's products in the future, or what effect any such actions would have on its business, financial condition or results of operations. In addition, fluctuations in currency exchange rates may negatively impact the Company's ability to compete in terms of price against products denominated in local currencies. In addition, there can be no assurance that regulatory, geopolitical and other factors will not adversely impact the Company's operations in the future or require the Company to modify its current business practices. Many currently installed computer systems and software products are coded to accept only two digit entries in the date field. Beginning in the year 2000, these date fields need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, in 7 8 approximately two years, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. Significant uncertainty exists concerning the potential effects associated with such compliance. Any Year 2000 compliance problem to either the Company, its suppliers, its service providers or its customers could result in a material adverse effect on the Company's financial condition and operating results. Other risks are detailed from time to time in the Company's press releases and other public disclosure filings with the U.S. Securities and Exchange Commission (SEC), copies of which are available upon request from the Company. The forward-looking statements included herein speak only as of the date hereof. The Company assumes no obligation to update any forward-looking statements included herein. RESULTS OF OPERATIONS: The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in Part I -- Item 1 of this Quarterly Report and the audited financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 1997 contained in the Company's Annual Report on Form 10-K. Net revenues for the quarter ended March 31, 1998 were $13.6 million, a decrease of approximately 14% from net revenues of $15.8 million in the corresponding quarter of 1997. Net revenues decreased during the first quarter of 1998 compared to the first quarter of 1997 due to lower shipments of the Company's laser systems, disposable supplies, instrumentation and AMS products and lower sales of services. These decreases were offset partially by increased revenues from shipments of products and sales of services acquired in the acquisition of a majority interest in NWL completed in June 1997. Revenues from the sales of laser systems were approximately 49% of total net revenues during the quarter ended March 31, 1998 compared to approximately 44% of total net revenues during the same period in 1997. In dollars, these revenues decreased approximately 4% which reflects a combination of lower unit shipments and higher average unit prices. The lower unit shipments are the net result of decreased shipments of the Company's KTP Surgical Laser Systems and CO2 laser systems partially offset by shipments of laser products acquired in the acquisition of a majority interest in NWL. The higher average unit prices are the combined result of higher shipments of PDT laser systems to hospitals and lower shipments of Aura office laser units in the United States as well as decreased shipments to independent international distributors in Asia. The Company believes that the lower demand for it office laser products and CO2 laser systems in the United States and the economic downturn in Asia may continue to impact negatively its revenues in these regions for the next several quarters. Revenues from the sales of the Company's Ascent Medical System ("AMS") products were approximately 15% of total net revenues during the quarter ended March 31, 1998 compared to approximately 18% of total net revenues in the corresponding period in 1997. In dollars, these revenues decreased approximately 31%. The Company believes that the decrease is partially attributable to its withdrawal from the operating room table business in late 1997. Shipments of operating room tables contributed approximately $0.3 million to revenues during the quarter ended March 31, 1997. In addition, the Company believes that lower orders of AMS products and delays in construction projects in which the AMS products have been 8 9 ordered negatively impacted shipments of these products during the quarter ended March 31, 1998 relative to the corresponding period in 1997. The Company believes that sales of AMS products during 1998 will be lower than in 1997 due to the Company's withdrawal from the operating room table market. Additionally, the Company believes that construction schedules will continue to affect orders and shipments of AMS products during 1998, and as a result, revenues will vary from quarter to quarter. Revenues from the sales of disposable supplies, instrumentation and services comprised approximately 37% of total net revenues during the quarter ended March 31, 1998, compared to approximately 38% of total net revenues in the corresponding period in 1997. In dollars, these revenues decreased approximately 17%. The decreases are due to the combination of decreased shipments of scanning devices sold as accessories to the Aura office laser system, lower shipments of disposable supplies and lower sales of services. The Company expects that revenues from sales of disposable supplies, instrumentation and service will depend principally upon the Company's ability to increase its installed base of systems and to promote and develop surgical procedures which use its laser systems, instrumentation and disposable supplies. The Company believes that continued acceptance of lasers in aesthetic surgery, dermatology, urology and ear, nose and throat surgery, is important to its business. In addition, the Company believes the adoption of photodynamic therapy by medical practitioners also will be important to its business. The Company continues to invest in the development of new products for emerging surgical applications while educating surgeons in the U.S. and internationally to encourage the adoption of such new applications. Through the acquisition of HSI, the Company expanded its product offering to include non-laser operating room equipment. The acceptance of this equipment by hospitals will be critical to the success of this product line. Finally, penetration of the international market, although increasing, has been limited and the Company continues to view expansion of international sales as important to the Company's success. International revenues accounted for approximately 37% of total net revenues in each of the quarters ended March 31, 1998 and March 31, 1997. Gross margin as a percentage of net revenues for the quarter ended March 31, 1998 was 48%, compared to 45% for the corresponding quarter in 1997. The increase is due in part to lower revenues generated from sales of AMS products. These products generally generate lower gross margins than the Company's other product lines. In addition, a lower proportion of revenues from sales to independent international distributors were generated during the first quarter of 1998 than in the corresponding quarter of 1997. These revenues generally generate lower gross margins than those generated by revenues from sales through the Company's direct sales force. The Company expects that gross margin as a percentage of revenues for the remainder of 1998 may vary from quarter to quarter as it continues to balance production volumes and inventory levels with product demand and as product and distribution mix varies. Research and development expenses are the result of activities related to the development of new laser, instrumentation and disposable products and the enhancement of the Company's existing products. In the first quarter of 1998 amounts spent in research and development increased approximately 99% compared to the corresponding quarter of 1997. As a percentage of net revenues these expenses were approximately 10% and 4% in the quarters ended March 31, 1998 and March 31, 1997, respectively. The increase in spending is due to a combination of increased spending in product development and incremental research and 9 10 development spending by NWL. The Company expects that amounts spent in research and development to remain at similarly high levels during the remainder of 1998. Selling, general and administrative expenses decreased approximately 1% in the quarter ended March 31, 1998 compared to the corresponding quarter of 1997. As a percentage of revenue these expenses increased from approximately 34% in the first quarter of 1997 to approximately 39% in the first quarter of 1998. The decrease in spending is the net result of NWL administrative expenses that arose from the majority interest acquisition offset by lower spending in sales commissions and administrative expenses in the United States. The increase as a percentage of net revenues is due to the decrease in net revenues without a corresponding decrease in spending. The Company expects these amounts to remain at similarly high levels during the remainder of 1998 as the Company continues to invest in international expansion, marketing programs and educational support. During the quarter ended March 31, 1998 the Company recorded an income tax provision of $0.1 million due to profits reported by NWL in Germany. During the same period in 1997 the Company recorded an income tax provision representing an effective tax rate of 10% which is below the combined federal and state statutory rates due to the utilization of available net operating loss carryforwards. LIQUIDITY AND CAPITAL RESOURCES: Total assets and liabilities as of March 31, 1998 were $47.1 million and $18.9 million respectively, compared to assets and liabilities of $47.3 million and $19.0 million at December 31, 1997. Working capital increased $0.3 million from $20.3 million at December 31, 1997 to $20.6 million at March 31, 1998, while cash and cash equivalents decreased $1.1 million during the period. The net decrease in cash and cash equivalents was due principally to cash used by operating activities of $1.6 million partially offset by increased short-term bank borrowings of $0.8 million. Cash used by operating activities was the combined result of a net loss of $0.2 million, increases in inventory and accounts receivable totaling $0.8 million and $0.6 million, respectively and reductions in accounts payable and other current liabilities of $0.5 million and $0.5 million, respectively. These uses were partially offset by depreciation and amortization of $0.7 million, a reduction in accrued compensation of $0.2 million, and an increase to minority interest of $0.1 million. Cash used by investing activities primarily consisted of capital expenditures of $0.3 million. Cash provided by financing activities primarily consisted of net increases in bank loans of $0.8 million. The Company has in place a $5.0 million revolving bank line of credit that expires in November 1998 under which the collateral provisions allowed for approximately $4.7 million in borrowings and under which $3.0 million in borrowings were outstanding at March 31, 1998. In addition, NWL has in place various bank lines totaling approximately $3.0 million that expire in 1999 and under which $2.5 million in borrowings were outstanding at March 31, 1998. The Company anticipates that future changes in cash and working capital will be dependent on a number of factors including management's ability to manage effectively non-cash assets such as inventory and accounts receivable. At March 31, 1998, the Company's inventories consisted of $19.4 million and were comprised of $14.2 million of sub-assemblies and purchased parts and $5.2 million of finished goods. This represents a 4% increase from 10 11 inventories at December 31, 1997 which consisted of $18.7 million, comprised of $13.1 million of sub-assemblies and purchased parts and $5.6 million of finished goods. The Company competes in a competitive industry where technological changes and acceptance of new and alternative procedures by its customers is rapid. Management's ability to anticipate and adapt to these changes will significantly affect the Company's investment in inventory and the potential for inventory valuation adjustments. In addition, the level of profitability of the Company will have a significant impact on cash resources. From time to time, the Company may also consider the acquisition of, or evaluate investments in, certain products and businesses complementary to the Company's business. Any such acquisition or investment may require additional capital resources. The Company financed the HSI and NWL acquisitions using its existing cash resources. While the Company believes its remaining cash resources will be sufficient to fund its operating needs for the next twelve months, additional financing either through its bank lines of credit or otherwise will be required for the Company's currently envisioned long term needs. There can be no assurance that such additional financing will be available on terms acceptable to the Company, or at all. YEAR 2000 The Company has developed a plan to modify its information technology to recognize the year 2000 and has begun converting critical data processing systems. The Company currently expects the project to be substantially complete by early 1999 and to cost approximately $250,000. This estimate includes internal costs, but excludes the costs to upgrade and replace systems in the normal course of business. The Company currently does not expect this project to have a significant effect on operations and continues to implement systems with strategic value though some projects may be delayed due to resource constraints. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable 11 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a party to a number of legal proceedings arising in the ordinary course of business. While it is not feasible to predict or determine the outcome of the actions brought against it, the Company believes that the ultimate resolution of these claims will not ultimately have a material adverse effect on its financial position or results of operations. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER ITEMS Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed herewith (numbered in accordance with Item 601 of Regulation S-K):
Exhibit Number Description - ------ ----------- 10.14 Form of Laserscope Management Continuity Agreement, as amended. 27.1 Financial Data Schedule
(b) Reports on Form 8-K: None 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. LASERSCOPE Registrant /s/ Dennis LaLumandiere ---------------------------------------------- Dennis LaLumandiere Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer) Date: May 14, 1998 12 13 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 10.14 Form of Laserscope Management Continuity Agreement, as amended. 27.1 Financial Data Schedule
EX-10.14 2 FORM OF CONTINUITY AGREEMENT, AS AMENDED 1 EXHIBIT 10.14 MANAGEMENT CONTINUITY AGREEMENT This Management Continuity Agreement (the "Agreement") is made and entered into effect as of April 6, 1998, by and between _____________ (the "Employee") and Laserscope, a California 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 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 shareholders 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 believe that it is in the best interest of the Company and its shareholders 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 herein contained, 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 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, benefits, damages, awards or compensation other than as provided by this Agreement, or as may otherwise be available in accordance with the Company's established employee plans and written policies at the time of termination. The terms of this Agreement shall terminate upon the earlier of (I) the date that all obligations of the parties hereunder have been satisfied, (ii) two years after the new effective date, or (iii) twenty-four (24) months after a Change of 2 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. Change of Control/Stock Options. Immediately upon the effective date of the Change of Control, each stock option granted for the Company's securities held by the Employee shall become immediately vested and shall be exercisable in full in accordance with the provisions of the option agreement and plan pursuant to which such option was granted. Upon the immediate vesting of such stock options, the Employee will have the right (subject to any limitations imposed by Section 16 of the Securities Exchange Act of 1934 or other applicable securities laws and the California Corporations Code and only to the extent permitted by the terms of the applicable option plan) to deliver a promissory note with a two (2) year term, at the prime rate of interest determined as of the date of payment of the exercise price for such options. The delivered note will be non-recourse, and the Company or its successor will look solely to the pledged shares for repayment. 3. Severance Benefits (a) Termination Following A Change of Control. Subject to Section 5 below, if the Employee's employment with the Company is terminated at any time within 24 months 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 Company's then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination. (ii) Involuntary Termination. If the Employee's employment is terminated within 12 months of the Change of Control as a result of Involuntary Termination other than for Cause, the Employee shall be entitled to receive 12 months severance payments (the "Severance Period") from the date of the Employee's termination. If the Employee's employment is terminated after 12 months but within 24 months after the Change of Control, the Employee shall be entitled to receive 9 months severance payments (the "Severance Period") from the date of the Employee's termination. The Employee's severance payments shall be equal to the salary which the Employee was receiving immediately prior to the Change of Control plus a 25% bonus for Executive Committee members and 45% for the CEO shall be paid during the Severance Period in accordance with the Company's standard payroll practices or, at 2 3 the Employee's election, shall be paid to the Employee in lump sum within ten (10) days of the Employee's termination date. Such election shall not affect the length of the Severance Period nor the provision of benefits within the Severance Period. In addition, during the Severance Period, the Employee shall be provided with benefits substantially identical to those to which the Employee was entitled immediately prior to the Change of Control. (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 benefits plans and policies in effect on the date of termination. (b) Termination Apart from Change of Control. In the event the Employee's employment terminates for any reason prior to the 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 Company's then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination. 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 shareholders 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 3 4 a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of April 4, 1996, 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) material breach of any material terms of this Agreement, (ii) conviction of a felony, (iii) fraud, (iv) repeated unexplained or unjustified absence, (v) willful breach of fiduciary duty under applicable laws, this Agreement or Company policies first in effect prior to the occurrence of a Change in Control or (vi) gross negligence or willful misconduct 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. (c) Involuntary Termination. "Involuntary Termination" will include the Employee's voluntary termination, upon 30 days prior written notice to the Company, following (i) a material reduction in job responsibilities inconsistent with the Employee's position with the Company and the Employee's prior responsibilities, i.e., parent company versus subsidiary level or type responsibility, or (ii) relocation to a facility or location more than 50 miles from the Company's current location, or (iii) reduction in salary. 5. Limitation on Payments.To the extent that any of the payments or benefits provided for in this Agreement or otherwise payable 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. 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 n 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 insure to the benefit of, and be enforceable by, the Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 4 5 7. 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. 8. 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 bye 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 law 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 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 therefore to carry out, insofar as may be valid and enforceable, the intent and purpose of the invalid or unenforceable term or provision. 5 6 (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 a 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 the 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. LASERSCOPE By: _________________________ By:__________________________ (Title) (Employee) 6 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS MAR-31-1998 MAR-31-1998 1,384 0 15,378 800 19,420 36,376 15,863 10,893 47,119 15,790 0 0 0 51,008 (23,027) 47,119 61,349 13,591 7,021 7,021 6,676 0 (40) (66) 109 (230) 0 0 0 (230) (.02) (.02)
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