8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 21, 2005
Commission File Number: 000-18053

LASERSCOPE

(Exact name of Registrant as specified in its charter)

CALIFORNIA
(State or other jurisdiction of
Incorporation or organization) 77-0049527
(I.R.S. Employer Identification No.)

3070 ORCHARD DRIVE
SAN JOSE, CA 95134-2011
(Address of principal executive offices)

(408) 943-0636
(Registrant’s telephone number, including area code)

NOT APPLICABLE
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 1.01. Entry into a Material Definitive Agreement.
	Item 9.01. Financial Statements and Exhibits.
SIGNATURE
EXHIBIT INDEX
EXHIBIT 10.1

Item 1.01. Entry into a Material Definitive Agreement.

1. 2006 Incentive Compensation Plan

On December 21, 2005, the Compensation Committee of the Board of Directors (the “Board”) of Laserscope (the “Company”) approved the terms of the Company’s 2006 Incentive Compensation Plan (the “Plan”) for fiscal year 2006, which provides for the payment of incentive cash bonuses to all Company employees including the Company’s executive officers, based on achievement of individual and Company performance objectives. Under the Plan, if the Company’s actual performance exceeds its financial performance goals for each quarter and after payment of specified cash incentive bonus payments to other Company employees, the Company’s executive officers are eligible to receive cash incentive bonus payments within a defined range, paid on a quarterly and year-end basis.

Quarterly Bonuses. The Plan provides that once the Company meets certain target earnings goals for a given quarter, an amount equal to the Company’s earnings in excess of such target (the “Quarterly Over Plan Amount”) is reserved in certain employee bonus pools up to a specified amount (currently estimated to be approximately $365,000 per quarter) for payment of quarterly cash bonuses to each non-executive employee, one half of which may be distributed to each non-executive employee based upon assessment of individual performance and one-half of which is paid on a non-discretionary basis. After payment of quarterly cash bonuses to non-executive employees, remaining amounts from the Quarterly Over Plan Amount are reserved in an executive bonus pool up to a specified amount (currently estimated to be approximately $285,000 per quarter) to pay to each of the Company’s executive officers, including the Company’s Chief Executive Officer (the “CEO”), a quarterly cash bonus of up to 50% of such executive’s base salary for the applicable quarter, one half of which is paid on a non-discretionary basis and one half of which may be distributed based on assessment of individual performance, as determined by the CEO. The CEO’s quarterly bonus is paid in the same manner as other executive officers except that the performance assessment related to the discretionary portion of the quarterly bonus is made by the Compensation Committee. In the event that a Quarterly Over Plan Amount is not available or is insufficient to make the specified cash bonus payments in a given quarter, such shortfalls may be paid in subsequent quarters in 2006 to the extent that the applicable Quarterly Over Plan Amount exceeds the amount necessary to pay specified cash bonus payments earned for that quarter.

Year-End Bonus: The Plan provides that once the Company exceeds the year-end target earnings goal, which is the sum of quarterly earnings goals, and all quarterly bonuses earned under the Plan have been paid, then an amount equal to 15% of earnings in excess of such target (the “Annual Over Plan Amount”), will be reserved in an employee bonus pool to be paid to Company employees, including its executives officers, in the same proportion as the total quarterly bonuses were earned by such individual employees.

Other Bonuses: Sales Vice Presidents are eligible for additional quarterly bonuses (currently estimated to be up to $50,000 per quarter in the aggregate) if the Company achieves or exceeds profit margin goals set by the CEO. Additional bonuses may be granted at the CEO’s discretion, subject to specified maximums.

2. 2006 Director Compensation Plan

On December 21, 2005, the Compensation Committee of the Board approved the Company’s arrangements for the cash compensation of the non-management members of the Board of Directors for 2006. In 2006, each non-management Board member (other than the Chairman of the Board), will be paid an annual retainer of $20,000 and $500 for attendance at each Board meeting. The Chairman of the Board will be paid an annual retainer of $27,500 and $2,000 for attendance at each Board meeting. In addition, the Chairman of each Committee of the Board will each be paid a supplemental annual retainer of $5,000. All Board compensation is paid quarterly, as earned.

3. Acceleration of Stock Option Vesting

On December 21, 2005, the Compensation Committee of the Board voted to accelerate the vesting of 438,200 “out-of-the-money” stock options, including 209,475 “out-of-the-money” stock options previously granted to non-executive officer employees and the following “out-of-the-money” stock options previously granted to executive officers and directors:

	Number of			Original Full
Name	Options		Exercise Price*	Vesting Date(s)
Ken Arnold		8,125	$30.01		3/4/2009
Ken Arnold		5,000	$29.50		9/9/2009
James Baumgardt		3,750	$31.20		12/10/2008
Derek Bertocci		43,750	$34.40		6/10/2009
Lloyd Diamond		25,000	$29.50		9/9/2009
Elisha Finney		20,000	$30.85		8/10/2009
Van Frazier		8,100	$30.01		3/4/2009
Van Frazier		5,000	$29.50		9/9/2009
Peter Hadrovic		15,000	$31.20		12/10/2008
Peter Hadrovic		5,000	$29.50		9/9/2009
Dennis LaLumandiere		8,125	$30.01		3/4/2009
Dennis LaLumandiere		5,000	$29.50		9/9/2009
Robert Mann		8,125	$30.01		3/4/2009
Robert Mann		5,000	$29.50		9/9/2009
Robert Mathews		8,125	$30.01		3/4/2009
Robert Mathews		5,000	$29.50		9/9/2009
Kester Nahen		8,125	$30.01		3/4/2009
Kester Nahen		5,000	$29.50		9/9/2009
Rodney Perkins		3,750	$31.20		12/10/2008
Robert Pressley		3,750	$31.20		12/10/2008
Robert Pearson		3,750	$31.20		12/10/2008
Eric Reuter		16,250	$30.01		3/4/2009
Eric Reuter		10,000	$29.50		9/9/2009
Total		228,725	$29.50 - $34.40

The primary purpose of the accelerated vesting of the “out-of-the-money” stock options referenced above is to eliminate future stock-based employee compensation expense the Company would otherwise recognize in its consolidated statement of operations with respect to these accelerated options once FASB Statement No. 123R (Share-Based Payment) becomes effective. Because these options have exercise prices substantially in excess of the Company’s current stock price which was $23.10 as of the close of market on December 21, 2005, as reported by the Nasdaq National Market, the Company believes that these options have limited economic value and may not be offering sufficient incentive to the non-executive officer employees, executive officers and directors when compared to the potential future compensation expense that would have been attributable to the options. The estimated maximum future expense that is

eliminated is approximately $7.9 million. In addition to the accounting effects of such acceleration, the Company believes that the accelerated vesting may have a positive effect on morale and retention. The Company is considering alternative equity compensation programs for its employees, executive officers and directors in 2006.

4. Stock Option Grants to Officers and Directors

On December 21, the Board’s Compensation Committee granted 15,000 stock options to each of the Board’s independent directors (Jim Baumgardt, Elisha Finney, Robert Pearson, Rodney Perkins, M.D. and Robert Pressley), 20,000 stock options to Allan Danto, Vice President of President, Global Sales and Marketing – Aesthetics, and 15,000 stock options to Peter Hadrovic, Vice President, Legal Affairs and General Counsel. The stock options vest and become exercisable at a rate of 1/8 of the total number of option shares six months following the date of grant and 1/48 of the option shares per month thereafter. The stock options have a term of ten years. The stock options granted to members of the Company’s Board provide for full acceleration of vesting of all unvested option shares upon the occurrence of both (i) a change of control of the Company and (ii) such director’s Board service is terminated as a result of such change in control. The option exercise price is $23.10, the closing price of our stock on the Nasdaq National Market on the date of grant.

5. Management Continuity Agreement

On December 21, the Board of Directors approved a form of Management Continuity Agreement to be entered into with each of the Company’s executive officers on or before March 3, 2005 to supersede the Management Continuity Agreement currently in effect. A copy of the form of Management Continuity Agreement is attached to this current report on Form 8-K and is incorporated by reference herein.

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits

10.1 Form of Management Continuity Agreement

Statements contained in this Current Report that are not historical facts and other information provided by the Company and its employees from time to time may contain certain forward-looking information, as defined by (i) the Private Securities Litigation Reform Act of 1995 (the “Reform Act”) and (ii) releases by the SEC. These statements include those relating to estimated bonuses that may be paid pursuant to the Company’s 2006 Incentive Compensation Plan, the estimated reduction in compensation expense required to be recognized under FASB Statement No. 123R, the accounting treatment for the acceleration and the effect upon employees. Actual results could differ materially from those suggested in such forward-looking statements due to the risk factors identified below and other factors including, without limitation, the possibility that subsequent pronouncements or interpretations of FASB Statement No. 123R may alter the accounting treatment of stock options, uncertainties related to the introduction of new

technologies competitive to our products and the degree to which our current and new products are accepted by customers, which could affect the level of demand for our products; reductions in government and private insurance reimbursement of hospitals and physicians for health care costs which may negatively impact hospitals and physicians decisions to purchase our products reducing adoption rates and sales growth; and risks that patents and licenses that we hold may be challenged, invalidated or circumvented or that we may become the subject of intellectual property litigation. In addition, see the Risk Factors described in Laserscope’s most recent Quarterly Report on Form 10-Q and Annual Report on Form 10-K. Copies of Laserscope’s public disclosure filings with the SEC, including the most recent Annual Report on Form 10-K and the most recent Forms 10-Q are available at the company’s website at www.laserscope.com or at www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to release publicly the results of any revisions to any forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LASERSCOPE (Registrant)
Date: December 28, 2005	By:	/s/ Peter Hadrovic
		Peter Hadrovic
		Vice President, Legal Affairs and General Counsel

EXHIBIT INDEX

Exhibit No.	Description
10.1	Form of Management Continuity Agreement

EX-10.1

Exhibit 10.1 

FORM OF MANAGEMENT CONTINUITY AGREEMENT

     This Management Continuity Agreement (the “Agreement”) is made and entered into effect as of December 21, 2005, 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 believes 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 effective date, or (iii) twenty-four (24) months after a Change of Control. A termination of the terms of this Agreement pursuant to the preceding sentence shall be effective for all purposes, except that such termination shall not affect the payment or provision of compensation or benefits on account of a termination of employment occurring prior to the termination of the terms of this Agreement.

2.

Change of Control/Stock Options and other deferred compensation. 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. In addition, Employee’s interest in any other current or future Company deferred compensation or equity incentive plans, whether securities, cash or other instrument, shall become immediately and fully vested in accordance with any such plan.

3.

Severance Benefits

(a) Termination Following A Change of Control. Subject to Sections 5 and 6 below, if the Employee’s employment with the Company is terminated at any time within 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 18 months [24 months for CFO and General Counsel] [2.99 years for CEO] of base pay as 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 12 months [2.99 years for CEO] of base pay as 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 bonus equal to 40% of base pay for Executive Committee members and 50% of base pay for the CEO shall be paid during the Severance Period in accordance with the Company’s standard payroll practices or, at the Employee’s election, shall be paid to the Employee in lump sum within ten (10) days of the Employee’s termination date. Election for payment method will be made at least five business days before the termination, otherwise payment will be made as lump sum as described in the preceding sentence. Such election shall not affect the length of the Severance Period nor the provision of health insurance benefits within the Severance Period. In addition, during the Severance Period, the Employee shall be provided with health

	insurance 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 a Change of Control, then the Employee shall not be entitled to receive any severance payments under this Agreement. The Employee’s benefits will be terminated under the 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 a majority of the directors are Incumbent Directors. “Incumbent Directors” shall mean directors who either (A) are directors of the Company as of December 21, 2005, 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.	Reformation. It is the parties’ intent that no payment made or to be made hereunder shall be subject to the provisions of Code Section 409A(a)(1)(B). Accordingly, notwithstanding any payment date or schedule specified above, the parties agree to work expeditiously to amend this Agreement to conform to their intent as set forth in this Section 6.
7.	Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation, or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of the Employee’s rights hereunder shall inure to the benefit of, and be enforceable by, the Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
8.	Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to the Employee shall be addressed to the Employee at the home address which the Employee most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate

	headquarters, and all notices shall be directed to the attention of its Secretary.
9.	Miscellaneous Provisions.

(a)	No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor, except as otherwise provided in this Agreement, shall any such payment be reduced by any earnings that the Employee may receive from any other source.
(b)	Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver, or discharge is agreed to in writing and signed 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.
(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.
(l)	Further amendments. To the extent that any of the payments or benefits provided for in this Agreement or otherwise payable to the Employee, or the structure or contents of this Agreement would cause the imposition of penalties and additional taxes under Section 409A of the Internal Revenue Code, and any regulations (proposed or final) issued thereunder, the Company shall amend this Agreement to achieve the intended benefits for the Employee to the maximum extent possible.

     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)