-----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, NL21iFdL1rFn9R32v15wS7GNRNVQ6KCGtd4Z54KdvpLU7U64Ia/mTKPOAnUgZ7m1 T4in397jVJuUwa52ubmN5w== 0000891618-00-002829.txt : 20000516 0000891618-00-002829.hdr.sgml : 20000516 ACCESSION NUMBER: 0000891618-00-002829 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 632027 BUSINESS ADDRESS: STREET 1: 3052 ORCHARD DR CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089430636 10-Q 1 FORM 10-Q FOR PERIOD ENDED 3/31/00 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, 2000 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 or Other Jurisdiction (I.R.S. Employer Identification No.) of Incorporation or Organization) 3052 ORCHARD DRIVE, SAN JOSE, CALIFORNIA 95134-2011 (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (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, 2000 was 15,408,744 2 TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION 3 Item 1. Financial Statements 3 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 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART II. OTHER INFORMATION 13 Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: LASERSCOPE CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31, (thousands) 2000 1999 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 2,876 $ 1,449 Accounts receivable, net 7,432 9,500 Receivable from the sale of NWL 3,829 - Inventories 6,756 10,052 Other current assets 1,220 1,281 -------- -------- Total current assets 22,113 22,282 Property and equipment, net 2,802 3,949 Developed technology and other intangibles, net 15 2,598 Other assets 339 127 -------- -------- Total assets $ 25,269 $ 28,956 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,658 $ 3,412 Accrued compensation 1,236 1,453 Short-term bank loans 2,683 7,361 Other current liabilities 2,951 3,250 -------- -------- Total current liabilities 8,528 15,476 Convertible subordinated debentures 3,000 - Obligations under capital leases 534 534 Mortgages and other long-term loans - 862 -------- -------- Total long-term liabilities 3,534 1,396 Commitments and contingencies Minority interest - 37 Shareholders' equity: Common stock 53,982 52,467 Accumulated deficit (39,552) (39,200) Accumulated other comprehensive income (1,047) (1,027) Notes receivable from shareholders (176) (193) -------- -------- Total shareholders' equity 13,207 12,047 -------- -------- Total liabilities and shareholders' equity $ 25,269 $ 28,956 ======== ========
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) 2000 1999 -------- -------- Net revenues $ 8,628 $ 11,866 Cost of sales 4,759 6,356 -------- -------- Gross margin 3,869 5,510 Operating expenses: Research and development 866 1,383 Selling, general and administrative 3,288 4,622 -------- -------- 4,154 6,005 Operating loss (285) (495) Interest income (expense) and other, net (67) (12) -------- -------- Loss before income taxes and minority interest (352) (507) Provision for income taxes - 96 -------- -------- Loss before minority interest (352) (603) Minority interest - 36 -------- -------- Net loss $ (352) $ (639) ======== ======== Basic and diluted net loss per share $ (0.02) $ (0.05) ======== ======== Shares used in basic and diluted per share calculations 15,128 12,532 ======== ========
See Notes to Condensed Consolidated Financial Statements 4 5 LASERSCOPE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, (thousands) 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (352) $ (639) Adjustments to reconcile net income to cash used by operating activities: Depreciation and amortization 488 674 Increase (decrease) from changes in: Accounts receivable (410) (659) Inventories 782 1,137 Other current assets (64) 29 Other assets - - Accounts payable (524) (1,293) Accrued compensation (217) 366 Other current liabilities 135 295 Repayment of shareholder note 17 - Minority interest - 36 -------- -------- Cash used by operating activities (145) (54) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (181) (498) NWL acquisition - (750) Other (125) 109 -------- -------- Cash used by investing activities (306) (1,139) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on obligations under capital leases (83) (66) Cash transferred to Wavelight in NWL sale (296) - Proceeds from the sale of common stock under stock plans 472 - Proceeds from the sale of common stock in private placement(1) 731 - Proceeds from the issuance of convertible subordinated debentures(1) 2,692 - Proceeds from bank loans 9,517 2,567 Repayment of bank loans (11,155) (703) -------- -------- Cash provided by financing activities 1,878 1,798 -------- -------- Increase in cash and cash equivalents 1,427 605 Cash and cash equivalents, beginning of period 1,449 1,456 -------- -------- Cash and cash equivalents, end of period $ 2,876 $ 2,061 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 137 $ 90 Income taxes $ 17 $ 2 Non-cash reduction in assets relating to NWL sale $ 8,949 $ - Non-cash reduction in liabilities relating to NWL sale $ 5,415 $ -
- ------------- (1) Net of issuance costs 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 include 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, 1999 included in the Company's annual report on Form 10-K for the year ended December 31, 1999. The results of operations for the three month period ended March 31, 2000 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, 2000 1999 -------- -------- Sub-assemblies and purchased parts $ 4,852 $ 7,013 Finished goods 1,904 3,039 -------- -------- $ 6,756 $ 10,052 ======== ========
3. Basic net 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 and warrants. Options to purchase approximately 3,092,000 and 2,621,000 shares of common stock were outstanding at March 31, 2000 and 1999, respectively and warrants to purchase approximately 459,000 shares of common stock were outstanding at March 31, 2000. The stock options and warrants outstanding were not included in the computation of diluted earnings (loss) per share because the Company reported losses for the periods that ended at these dates and, therefore, the effect would be anti-dilutive. 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, 2000 the Company's cash equivalents were in the form of institutional money market accounts and totaled $0.5 million. The Company had no cash equivalents at December 31, 1999. At March 31, 2000 and December 31, 1999, the Company had no investments in debt or equity securities. 5. Total comprehensive loss during the quarters ended March 31, 2000 and 1999 consisted of (in thousands):
THREE MONTHS ENDED MARCH 31, 2000 1999 ------- ------ Net loss $(352) $(639) Translation adjustments (125) 109 ------ ----- Comprehensive loss $(477) $(530) ====== =====
6. During all periods presented, the Company conducted its business predominantly within one industry segment: the medical systems business. 6 7 7. On February 18, 2000, the Company signed an agreement with Wavelight Laser Technologie AG (`Wavelight") to sell its interest in NWL Laser Technologie GmbH ("NWL"). The sale, which was approved by Wavelight's shareholders on March 31, 2000, has an effective date of January 1, 2000. As part of the transaction, NWL will continue to distribute Laserscope's products in all countries covered by NWL's current distribution channels. The details of the transaction are as follows (in thousands): Assets and liabilities sold: Cash $ 296 Accounts receivable 2,477 Inventory 2,514 Other current assets 329 Property, plant & equipment 857 Licenses & intangible assets 2,707 Accounts payable & accruals (1,255) Income taxes payable (323) Short-term bank loans (3,040) Long-term bank loans (863) Minority interest & other (37) ------ 3,662 Proceeds: Due May 2000 3,429 In escrow until 2001 400 ------- Total 3,829 ------ Net Gain $ 167 ======
Laserscope will defer recognition of the gain until the funds held in escrow are paid to the Company. 8. On January 14, 2000, Laserscope completed the second and final closing of a private placement of common stock. In the transaction, the company issued 995,000 shares to accredited investors in exchange for proceeds (net of offering expenses) of $731,000. As part of the transaction, the Company also issued 218,875 five year warrants to purchase Laserscope common stock at a price of $1.25 to the placement agent. 9. On February 11, 2000, the Company issued $3,000,000 of 8% Convertible Subordinated Debentures with a schedule maturity in 2007 to affiliates of the Renaissance Capital Group. The debentures are convertible into common stock of the Company at a conversion price of $1.25 per share subject to adjustment in certain events. Laserscope may redeem the debentures at any time at 101% of par value in certain events. The debentures contain a mandatory principal payment feature whereby the Company is required to pay monthly principal installments equaling ten dollars per thousand dollars of the remaining principal amount beginning February 11, 2002. As part of the transaction, the Company also issued 218,875 five year warrants to purchase Laserscope common stock at a price of $1.50 to the placement agent. 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 7 8 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 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, Laserscope'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. Laserscope intends 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. 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 Laserscope'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 affect the Company's ability to compete in terms of price against products denominated in local currencies. There can be no assurance that regulatory, geopolitical and other factors will not adversely affect the Laserscope's operations in the future or require Laserscope to modify its current business practices. Other risks are detailed from time to time in Laserscope'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. Laserscope 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 contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and the Management's Discussion and Analysis of Financial Condition and Results of Operations contained therein. Net revenues for the quarter ended March 31, 2000 were $8.6 million, a decrease of approximately 28% from net revenues of $11.9 million in the corresponding quarter of 1999. The decrease in net revenues during the first quarter of 1999 compared to the first quarter of 1999 is due primarily to the Company discontinuing sales of NWL products and services, (15%), and, to a lesser extent, lower sales of Laserscope lasers, (13%). Sales of NWL products and services contributed revenues of approximately $1.8 million during the first quarter of 1999. Laserscope sold NWL effective January 1, 2000 but retained distribution of the Company's products through NWL in Germany. 8 9 Revenues from the sales of laser systems were approximately 50% of total net revenues during the quarter ended March 31, 2000, compared to approximately 60% of total net revenues during the same period in 1999. In dollars, these revenues decreased approximately 39% which reflects the discontinued sale of NWL lasers and lower average unit prices for Laserscope lasers. The lower average unit prices primarily reflect a higher mix of aesthetic lasers sold in the United States and Europe in the first quarter of 2000 compared to the first quarter of 1999. The Company expects that its revenue mix trends in all geographic markets will continue to shift toward lower-priced office-based aesthetic lasers. Revenues from the sales of disposable supplies and instrumentation comprised approximately 33% of total net revenues during the quarter ended March 31, 2000, compared to approximately 26% of total net revenues in the corresponding period in 1999. In dollars, these revenues decreased approximately 9%. The decrease is due principally to the discontinued sales of NWL instrumentation. Sales of Laserscope disposable supplies and instrumentation remained at approximately the same dollar level during the first quarter of 2000 compared to the first quarter of 1999. The Company believes that sales of laser equipment in the United States, which have trended towards lower-priced office lasers for aesthetic procedures and away from lasers to be used in the hospital for non-aesthetic procedures, has resulted in lower sales of disposable supplies and instrumentation. Office lasers used in aesthetic procedures, although carrying one-time sales of instrumentation, generally do not create a stream of sales of disposable supplies. The Company expects revenues from the sales of instrumentation and disposable supplies to depend on the Laserscope's ability to develop and promote surgical procedures that use these products and to increase its installed base of systems. Laserscope's service revenues during the quarter ended March 31, 2000 were 8% lower than service revenues during the corresponding quarter of 1999. This decrease is principally attributable to the discontinued sale of NWL services, partially offset by higher domestic revenues as a result of increased service contract revenues. The Company believes that future revenues depend on increases to the installed base of lasers as well as the acceptance of its service contracts by its customers. The Company believes that acceptance of lasers in aesthetic surgery, dermatology, urology and ear, nose and throat surgery will continue to be important to its business. In addition, the Company expects that the adoption of photodynamic therapy by medical practitioners will be important. The Company continues to invest in developing new instrumentation for emerging surgical applications and in educating surgeons in the United States and internationally to encourage the adoption of such new applications. Gross margin as a percentage of net revenues for the quarter ended March 31, 2000 was 45%, compared to 46% for the corresponding quarter in 1999. The decrease is primarily attributable to product mix shifts toward lower margin lasers in the United States and Europe. Laserscope expects that gross margin as a percentage of revenues for the remainder of 2000 may vary from quarter to quarter 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 Laserscope's existing products. In the first quarter of 2000, amounts spent in research and development decreased approximately 37% compared to the corresponding quarter of 1999. As a percentage of net revenues, these expenses were approximately 10% and 12% in the quarters ended March 31, 2000 and March 31, 1999, respectively. The decrease in spending is due to 9 10 decreased laser product development activity in the United States, and to a lesser extent the elimination of NWL research and development expenses. The Company expects that amounts spent in research and development will remain at similar levels during the remainder of 2000. Selling, general and administrative expenses decreased approximately 29% in the quarter ended March 31, 2000, compared to the corresponding quarter of 1999. As a percentage of revenue, these expenses were approximately 38% in the first quarter of 2000 and 39% in the first quarter of 1999. The decrease in spending is principally due to expense reduction programs instituted by Laserscope in third quarter of 1999 and, to a lesser extent, the elimination of NWL selling, general and administrative expenses. The Company expects amounts spent in selling, general and administrative expenses to remain to increase during the remainder of 2000 as variable selling and marketing expenses increase. 10 11 LIQUIDITY AND CAPITAL RESOURCES: Total assets and liabilities as of March 31, 2000 were $25.3 million and $12.1 million respectively, compared to assets and liabilities of $29.0 million and $16.9 million at December 31, 1999. Working capital increased $6.8 million from $6.8 million at December 31, 1999 to $13.6 million at March 31, 2000, while cash and cash equivalents increased $1.4 million during the period. The net increase in cash and cash equivalents was due principally to financing activities. Cash used by operating activities totaled $0.1 million. This was the combined result of the following uses: Net loss - $0.4 million; reductions in accounts payable - $0.5 million; reductions in accrued compensation - $0.2 million; increased accounts receivable - $0.4 million and increased other current assets - - $0.1 million. These uses were offset partially by in the following: reductions in inventory - $0.8 million; depreciation and amortization- $0.5 million; and increased other current liabilities - $0.1 million. Cash used by investing activities consisted of capital expenditures of $0.2 million and other comprehensive income of $0.1 million. Cash provided by financing activities totaled $1.9 million and consisted of net proceeds from the sale of convertible debentures - $2.7 million; net proceeds from the private placement of common stock - $0.7 million; and proceeds from the sale of common stock under stock plans $0.5 million. These sources were off set by the following uses: reductions in short-term bank borrowings - $1.6 million; cash sold in the sale of NWL - $0.3 million and payments on obligations under capital leases $0.1 million. The Company has in place a $6.0 million asset based line of credit based on the Company's eligible accounts receivable and inventory which expires in September 2000. At March 31, 2000, the Company had approximately $2.8 million in collateral available against the $2.7 million outstanding and was in compliance with all financial covenants. Laserscope anticipates that future changes in cash and working capital will depend on a number of factors, including, but not limited to, management's ability to effectively manage non-cash assets such as inventory and accounts receivable. 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. Historically, a source of liquidity for the Company has been the sale of common stock under stock plans, principally employee stock option and stock purchase plans. To the extent that the market price of the common stock discourages the exercise of stock options, this source of liquidity may be unavailable. At March 31, 2000, options to purchase approximately 3.1 million shares of Laserscope's common stock were outstanding, of which approximately 1.4 million were exercisable at a weighted average exercise price of $2.17. Finally, the level of profitability of the Company will have a significant effect 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 has historically financed acquisitions using its existing cash resources. While the Company believes its existing 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. 11 12 There also can be no assurance that any additional financing will be available on terms acceptable to the Company, or at all. In addition, future equity financings could result in dilution to the Company's shareholders, and future debt financings could result in certain financial and operational restrictions. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to a variety of risks, including changes in interest rates affecting the return on its investments, outstanding debt balances and foreign currency fluctuations. In the normal course of business, the Company employs established policies and procedures to manage its exposure to fluctuations in interest rates and foreign currency values. INTEREST RATE RISK The Company's exposure to market rate risk for changes in interest rates relates primarily to the Company's investment and debt portfolios. The Company has not used derivative financial instruments in its investment or debt portfolios. The Company invests its excess cash in money market funds and commercial paper. The Company's debt financing consist of convertible debentures and bank loans requiring either fixed or variable rate interest payments. Investments in and borrowings under both fixed-rate and floating-rate interest-earning instruments carry a degree of interest rate risk. On the investment side, fixed-rate securities may have their fair market value adversely affected due to a rise in interest rates, while floating-rate securities may produce less income than expected if interest rates fall. In addition, the Company's future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. On the debt side, borrowings that require fixed-rate interest payments require greater than current market rate interest payments if interest rates fall, while floating rate borrowings may require greater interest payments if interest rates rise. Additionally, the Company's future interest expense may be greater than expected due to changes in interest rates. FOREIGN CURRENCY RISK International revenues were 41% of total revenues in the quarter ended March 31, 2000, compared to 48% of total revenues during the comparable period in 1999. International sales are made through international distributors and wholly- and majority-owned subsidiaries with payments to the Company typically denominated in the local currencies of the United Kingdom and France, and in U.S. dollars in the rest of the world. The Company's international business is subject to risks typical of an international business, including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, the Company's future results could be materially adversely affected by changes in these or other factors. The effect of foreign exchange rate fluctuations on the Company in the quarters ended March 31, 2000 and 1999 was not material, and the Company does not engage in hedging transactions for speculative or trading purposes. 12 13 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. In 1997, a medical malpractice and product liability suit was filed against a hospital, two physicians and Laserscope relating to a laser manufactured by Heraeus Surgical, Inc. which was acquired by Laserscope in August 1996. On May 12, 2000, the parties in the case agreed to binding arbitration under which the maximum award to the plaintiff would be within the Company's insurance policy limits. 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's Management Continuity agreement as amended. 27 Financial Data Schedule
(b) Reports on Form 8-K: Report on Form 8-K (the "Form 8-K") filed February 10, 2000. The Form 8-K announced the consummation of the Company's private placement of common shares which netted the Company approximately $1.8 million in proceeds. Report on Form 8-K (the "Form 8-K") filed March 1, 2000. The Form 8-K announced the consummation of the Company's private placement of convertible subordinated debentures which netted the company approximately $2.9 million in proceeds. 13 14 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 15, 2000 14 15 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 10.14 Form of Laserscope's Management Continuity agreement as amended. 27 Financial Data Schedule
EX-10.14 2 EXHIBIT 10.14 1 EXHIBIT 10.14 MANAGEMENT CONTINUITY AGREEMENT This Management Continuity Agreement (the "Agreement") is made and entered into effect as of April 6, 2000, 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 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 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. 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. 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) EX-27 3 EXHIBIT 27
5 1,000 3-MOS DEC-31-2000 MAR-31-2000 2,876 0 8,146 714 6,756 22,113 17,346 14,544 25,269 8,528 3,000 0 0 53,982 (40,775) 25,269 8,628 8,628 4,759 4,759 4,154 0 67 (352) 0 (352) 0 0 0 (352) (.02) (.02)
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