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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10-K
(MARK ONE)
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE FISCAL YEAR ENDED JULY 3, 1999.
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________.
COMMISSION FILE NUMBER 0-14742
------------------------
CANDELA CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-2477008
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
530 BOSTON POST ROAD 01778
WAYLAND, MASSACHUSETTS (Zip code)
(Address of principal executive
offices)
</TABLE>
Registrant's telephone number, including area code: (508) 358-7400
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
COMMON STOCK PURCHASE WARRANTS
(Title of Class)
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 _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the Common Stock, $.01 par value, of the
registrant held by non-affiliates of the registrant as of October 15, 1999
(computed based on the closing price of $12.8125 of such stock on The Nasdaq
National Market on October 15, 1999) was $61,703,629.
As of October 15, 1999, 7,248,503 shares of the registrant's Common Stock,
$.01 par value, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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<PAGE>
The undersigned registrant hereby amends the following items of its Annual
Report on Form 10-K as set forth on the pages attached hereto:
2
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PART I
ITEM 3. LEGAL PROCEEDINGS
On March 5, 1999, New Star Lasers, Inc. and its subsidiary Laser
Aesthetics, Inc. filed a complaint in the U.S. District Court for the Eastern
District of California against The Regents of the University of California (the
"Regents"), the Beckman Laser Institute and Medical Clinic ("Beckman") and
Candela. In the complaint, New Star Lasers sought a declaration that its
technology does not infringe the Regents' patent pertaining to dynamic cooling
technology to which we are a licensee, or in the alternative that the patent is
invalid and not infringed by the plaintiff's technology. The complaint also
included various tort claims against us and contract-related claims against the
Regents and Beckman. The complaint asserted that we interfered with the
licensing of the dynamic cooling technology to the plaintiffs. The complaint
sought unspecified general, special, punitive and exemplary damages plus costs
and attorneys' fees against Candela as well as the "disgorgement" of any benefit
received by Candela as a result of the alleged receipt of any of New Star
Lasers' trade secrets from Beckman and the Regents. We intend to defend this
matter vigorously. Both Candela and the Regents moved to dismiss the complaint.
On August 27, 1999, the court granted in part both Candela's and the Regents'
motion, but gave New Star Lasers permission to file an amended complaint. On
October 25, 1999, New Star Lasers filed a second amended complaint, to which our
response is due on or about November 15, 1999. We believe that an adverse
outcome of New Star Lasers' tort claims against Candela will not have a material
adverse effect on our operations and financial condition. However, if New Star
Lasers were to obtain a declaration that the Regents' patent under which the DCD
was developed is invalid or unenforceable, Candela's rights to the DCD
technology pursuant to the license agreement could no longer be exclusive, which
could adversely impact our operations and financial condition. The Regents have
requested that we indemnify them in connection with this litigation pursuant to
the license agreement between the Regents and Candela. We have rejected this
request.
By letter dated September 17, 1999, The Regents purported to give Candela
notice of alleged default under the parties' exclusive license agreement, as
amended ("the Agreement") on the grounds (1) that Candela has failed to make
necessary royalty payments to The Regents pursuant to the Agreement; and
(2) that Candela has not complied with its sublicensing obligations under the
Agreement. The Regents informed Candela that it has sixty days in which to cure
the alleged defaults. Candela maintains and has informed The Regents that it is
in full compliance with each of the terms of the Agreement, including with
respect to its royalty payments to The Regents and its sublicensing efforts. On
September 28, 1999, Candela commenced an arbitration before the American
Arbitration Association against the Regents in which it seeks a declaration
through arbitration that it is not in default of any of its obligations under
the Agreement. We believe that an adverse outcome of the arbitration with The
Regents could have a material adverse effect on our operations and financial
condition, including losing its rights to the DCD technology and/or being
required to pay substantially higher royalty payments to the Regents for the use
of DCD technology.
From time to time, the Company is a party to various legal proceedings
incidental to its business. The Company believes that none of such other
presently pending legal proceedings will have a material adverse effect upon its
financial position, results of operation, or liquidity.
3
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------------------------------
<S> <C> <C>
Gerard E. Puorro............................. 52 President, Chief Executive
Officer and Director
Kenneth D. Roberts........................... 66 Chairman of the Board of
Directors
Theodore G. Johnson.......................... 67 Director
Douglas W. Scott............................. 53 Director
Richard J. Cleveland, M.D. .................. 67 Director
Nancy Nager, R.N., B.S.N., M.S.N. ........... 48 Director
</TABLE>
MR. PUORRO was appointed a Director of the Company in September 1991.
Mr. Puorro has been President and Chief Executive Officer of the Company since
April 1993. From April 1989 until April 1993, Mr. Puorro was Senior Vice
President and Chief Financial Officer of the Company. Mr. Puorro was elected
Treasurer in April 1991 and Chief Operating Officer in December 1992. Prior to
joining the Company and since 1982, he was Vice President and Controller at
Massachusetts Computer Corporation, a manufacturer of micro-supercomputers.
Mr. Puorro became acting Chief Executive Officer of Candela Skin Care
Centers, Inc. in June 1997.
MR. ROBERTS has been a Director of the Company since August 1989 and
Chairman of the Board of Directors since November 1991. From November 1992 to
June 1995, Mr. Roberts was employed on a part-time basis as Vice President and
Chief Financial Officer of Foster Miller, Inc., an engineering services company.
Since December 1988, he has been an independent management consultant. From
July 1986 to December 1988, Mr. Roberts was Vice President, Treasurer and Chief
Financial Officer of Massachusetts Computer Corporation, a manufacturer of
micro-supercomputers. Prior to that time and for many years, he was Senior Vice
President and Treasurer of Dynatech Corporation, a provider of diversified high
technology products and services.
MR. JOHNSON has been a Director of the Company since February 1988. From
1983 until 1991, he managed his own venture capital and consulting business,
Prelude Management, Inc. Since that time, he has been an active venture investor
and director of a number of companies. Prior to that and for twenty-five years,
he was a Vice President at Digital Equipment Company. Mr. Johnson is currently a
Director of Kronos, Inc., Gensym, Inc., and a number of private companies
including Enrollment Collaborative, Inc., a computer-based college application
service.
MR. SCOTT has been a Director of the Company since September 1991. Since
1985, Mr. Scott has been a partner with Phildius, Kenyon & Scott, a health care
consulting and investment firm. Mr. Scott is currently President, Chief
Operating Officer, and a Director of Avitar, Inc., a publicly held health care
company. Mr. Scott also served as Chief Executive Officer of Avitar from
December 1989 through April 1991.
DR. CLEVELAND was appointed a Director of the Company in April 1994. He has
been Professor of Surgery at Tufts University School of Medicine since 1972. In
1986, he was appointed the Andrews Professor of Surgery at the same institution.
From 1975 to 1993, Dr. Cleveland was Chairman of the Department of Surgery and
Surgeon-in-Chief at the New England Medical Center and a member of the staff of
several hospitals in the Boston area. He is presently Secretary-Treasurer of the
American Board of Thoracic Surgery and has held numerous positions in a variety
of other professional associations.
MS. NAGER was appointed a Director of the Company in February 1999. From
1990 until the present, Ms. Nager has been the Principal and CEO of Specialized
Health Management, Inc., a
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privately held behavioral health care corporation. Ms. Nager also founded and
directs Specialized HomeCare, Inc., Specialized Billing Services, Inc. and
Seniorlink, an information, referral and resource corporation. Prior to that,
Ms. Nager was the Chief Operating Officer of Charles River Hospital, a private
psychiatric facility in Wellesley, where she previously held a number of
positions in nursing and administration from 1976 through 1990. Ms. Nager also
provided corporate consulting to the hospital's parent company Community Care
Systems, Inc. from 1990 through 1992.
Information regarding the Company's executive officers is contained in
Part I of the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission (the "SEC") on September 30, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC"). Such persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Each of Messrs. Hsia, Kelley and Wilber failed to timely file a Statement of
Beneficial Ownership of Securities on Form 4 for a single transaction. Each of
Messrs. Hsia, Kelley and Wilber failed to timely file an Annual Statement of
Beneficial Ownership of Securities on Form 5 for two transactions. Each of
Messrs. Hsia, Kelley and Wilber, failed to timely file an Annual Statement of
Beneficial Ownership of Securities on Form 5 for a single transaction. The
foregoing information is based solely on the Company's review of the copies of
such forms received by it or written representations from certain reporting
persons that no Forms 4 or 5 were required to be filed.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive an annual retainer of
$4,000 and a fee of $1000 per regularly scheduled meeting of the Board of
Directors or committee meeting thereof if held separately. Directors are also
reimbursed for out-of-pocket expenses incurred in connection with the
performance of their duties as a director.
On May 10, 1990, the Board of Directors of the Company adopted the 1990
Non-Employee Director Plan, which was approved by the Company's shareholders on
November 13, 1990. The 1990 Non-Employee Director Plan provides for the issuance
of options for the purchase of up to 60,000 shares of the Company's Common
Stock. Under this plan, each member of the Company's Board of Directors who is
neither an employee nor officer of the Company receives a one-time grant of an
option to purchase 10,000 shares of Common Stock at an exercise price equal to
the fair market value on the date of grant. The options generally become
exercisable in equal amounts over a period of four years from the date of grant,
expire seven years after the date of grant and are nontransferable. Including
cancellations, options for the purchase of 66,500 shares have been granted at a
range of exercise prices from $3.25 to $14.50 per share. Upon shareholder
approval of the 1993 Non-Employee Director Stock Option Plan, the Board of
Directors terminated the granting of options under the 1990 Non-Employee
Director Stock Option Plan.
On June 2, 1993, the Board of Directors of the Company adopted the 1993
Non-Employee Director Stock Option Plan, which was approved by the Company's
shareholders on November 18, 1993. The 1993 Non-Employee Director Plan provides
for the issuance of options for the purchase of up to 80,000 shares of the
Company's Common Stock. Under this Plan, each member of the Company's Board of
Directors who is neither an employee nor an officer of the Company receives a
onetime grant
5
<PAGE>
of an option to purchase 10,000 shares of Common Stock at an exercise price
equal to the fair market value on the date of grant. The options generally
become exercisable in equal amounts over a period of two years from the date of
grant, expire ten years after the date of grant and are nontransferable. To
date, options for the purchase of 60,000 shares have been granted at exercise
prices ranging from $1.625 to $8.00 per share.
On December 24, 1996, Dr. Cleveland, a director of the Company, was granted
non-statutory options to purchase 20,000 shares of the common stock of Candela
Skin Care Centers, Inc., a subsidiary of the Company, at an exercise price of
$1.00. These non-statutory options were granted pursuant to the terms of the
Candela Skin Care Centers, Inc. 1996 Incentive and Non-Statutory Stock Option
Plan, have a term of 10 years from the date of grant and become exercisable over
a four-year period. On August 21, 1997, options granted under the CSCC Plan were
converted to options in Candela Corporation at the rate of 0.21053 Candela
Corporation options for each CSCC option. Mr. Cleveland realized options for
4,211 Candela Corporation as a result of this conversion.
On August 14, 1997, Non-Qualified Options to purchase 10,000 shares of the
Company's Common Stock were granted to each of Theodore G. Johnson, Kenneth D.
Roberts, Richard J. Cleveland, Douglas W. Scott and Robert E. Dornbush, at an
exercise price of $4.688 per share, such price being the market price of the
Common Stock on the date of the grant. These Non-Qualified Options were granted
pursuant to the Company's 1989 Stock Plan (the "Plan") and vest in equal 50%
amounts on each of the first and second anniversaries of the date of the grant,
provided that each such optionee continues to serve as a director of the
Corporation on such anniversary date.
On August 21, 1997, Candela granted Richard J. Cleveland options to purchase
4,000 shares at $7.00 per share. These options ]are fully vested and have a term
of ten years.]
On September 30, 1998, Non-Qualified Options to purchase 5,000 shares of our
common stock were granted to each of Theodore G. Johnson, Kenneth D. Roberts,
Richard J. Cleveland, Douglas W. Scott and Robert E. Dornbush, at an exercise
price of $3.63 per share, such price being the market price of the common stock
on the date of the grant. These Non-Qualified Options were granted outside of a
plan and vest in equal 50% amounts on each of the first and second anniversaries
of the date of the grant, provided that each such optionee continues to serve as
a director of Candela on such anniversary date.
On January 12, 1999, Non-Qualified Options to purchase 5,000 shares of our
common stock were granted to each of Theodore G. Johnson, Kenneth D. Roberts,
Richard J. Cleveland, Douglas W. Scott and Robert E. Dornbush, at an exercise
price of $7.00 per share, such price being the market price of the common stock
on the date of the grant. These Non-Qualified Options were granted pursuant to
our 1998 Stock Plan and are fully vested.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation paid or accrued by the Company for services rendered to the
Company, in all capacities, for the year ended July 3, 1999 by its Chief
Executive Officer (the "CEO") and the four other most highly paid executive
officers of the Company, in each case whose total salary and bonus exceeded
$100,000 during the year ended July 3, 1999 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
----------------------------- ---------------
FISCAL OTHER ANNUAL AWARDS(2) ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) COMPENSATION($) OPTIONS/SARS(#) COMPENSATION($)
- --------------------------- -------- --------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Gerard E. Puorro............ 1999 243,284 375,912(9) 20,000 5,471(5)
Chief Executive Officer, 1998 237,500 114,885(3) 10,527(4) 4,972(5)
President and Director 1997 209,792 15,000(3) 100,000(4) 3,046(5)
James C. Hsia, Ph.D......... 1999 208,201 261,160(9) 30,000 4,229(8)
Senior Vice President, 1998 155,000 105,188(6) 33,000(7) 2,942(8)
Research 1997 141,689 -- 20,000(7) 2,935(8)
William D. Spies............ 1999 169,505 277,094(9) 60,000 3,324(10)
Senior Vice President of 1998 -- -- -- --
Marketing, Sales and 1997 -- -- -- --
Service
William B. Kelley........... 1999 187,186 261,160(9) 10,000 3,025(11)
Vice President, North 1998 163,942 65,188(9) -- 2,443(11)
American Sales and Service 1997 156,988 -- 25,000 2,401(11)
Jay D. Caplan............... 1999 139,532 232,670(9) 30,000 2,573(13)
Vice President, Operations 1998 130,000 54,674(9) 5,000 2,100(13)
1997 120,000 -- 20,000(12) 1,920(13)
</TABLE>
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(1) Excludes perquisites and other personal benefits, the aggregate annual
amount of which for each officer was less than the lesser of $50,000 or 10%
of the total salary and bonus reported for the named executive officer.
(2) The Company did not grant any restricted stock awards or stock appreciation
rights ("SARs") or make any long-term incentive plan pay-outs during the
fiscal years ended July 3, 1999, June 27, 1998 or June 28, 1997.
(3) Fiscal years 1998 and 1997, each includes $15,000 for debt forgiveness.
Fiscal 1998 also includes incentive bonus of $99,885.
(4) Options granted in fiscal 1996 for the purchase of 50,000 shares in Candela
Skin Care Centers, Inc., a subsidiary of the Company, were converted to
10,527 during the fiscal year ended June 27, 1998. All rights and interests
in options granted in fiscal 1997 to purchase 100,000 shares at $7.50 per
share were forfeited during fiscal 1998.
(5) For fiscal 1999, includes $2,750 in matching contributions by the Company
pursuant to the Company's 401(k) Plan, $1,275 in life insurance premiums
paid by the Company for the benefit of Mr. Puorro, and $1,446 for a Company
provided automobile. For fiscal 1998, includes $2,375 in matching
contributions by the Company pursuant to the Company's 401(k) Plan, $766 in
life insurance premiums paid by the Company for the benefit of Mr. Puorro,
and $1,831 for a Company provided automobile. For fiscal 1997, includes
$2,320 in matching contributions by the
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Company pursuant to the Company's 401(k) Plan and $726 in life insurance
premiums paid by the Company for the benefit of Mr. Puorro.
(6) Includes $65,188 incentive bonus approved by Board of Directors, based on
Company results for second half of Fiscal 1998. Additionally, includes an
Inventor's Bonus of $40,000 which was awarded to Dr. Hsia in fiscal 1998 for
recognition of his involvement with the GentleLase-TM-.
(7) During fiscal 1998 options granted in fiscal 1991 to purchase 8,000 shares
of stock at $8.75 and options granted in fiscal 1992 to purchase 25,000
shares of stock were repriced at $3.25 per share. All rights and interests
in options granted in fiscal 1996 to purchase 15,000 shares at $9.875 per
share and options granted in fiscal 1997 to purchase 20,000 shares at $7.50
were forfeited during fiscal 1998.
(8) For fiscal 1999, includes $3,574 in matching contributions by the Company
pursuant to the Company's 401(k) Plan and $655 in life insurance premiums
paid by the Company for the benefit of Dr. Hsia. For fiscal 1998, includes
$2,144 in matching contributions by the Company pursuant to the Company's
401(k) Plan and $798 in life insurance premiums paid by the Company for the
benefit of Dr. Hsia. For fiscal 1997, includes $2,175 in matching
contributions by the Company pursuant to the Company's 401(k) Plan and $760
in life insurance premiums paid by the Company for the benefit of Dr. Hsia.
(9) Incentive bonus approved by Board of Directors, based on Company results for
Fiscal 1999.
(10) For fiscal 1999, includes $2,744 in matching contributions by the Company
pursuant to the Company's 401(k) Plan and $580 in life insurance premiums
paid by the Company for the benefit of Mr. Spies.
(11) For fiscal 1999, includes $2,788 in matching contributions by the Company
pursuant to the Company's 401(k) Plan and $237 in life insurance premiums
paid by the Company for the benefit of Mr. Kelley. For fiscal 1998, includes
$2,325 in matching contributions by the Company pursuant to the Company's
401(k) Plan and $118 in life insurance premiums paid by the Company for the
benefit of Mr. Kelley. For fiscal 1997, includes $2,291 in matching
contributions by the Company pursuant to the Company's 401(k) Plan and $110
in life insurance premiums paid by the Company for the benefit of
Mr. Kelley.
(12) All rights and interests in options granted in fiscal 1997 to purchase
20,000 shares at $7.50 were forfeited during fiscal 1998.
(13) For fiscal 1999, includes $2,382 in matching contributions by the Company
pursuant to the Company's 401(k) Plan and $191 in life insurance premiums
paid by the Company for the benefit of Mr. Caplan. For fiscal 1998, includes
$1,950 in matching contributions by the Company pursuant to the Company's
401(k) Plan and $150 in life insurance premiums paid by the Company for the
benefit of Mr. Caplan. For fiscal 1997, includes $1,771 in matching
contributions by the Company pursuant to the Company's 401(k) Plan and $149
in life insurance premiums paid by the Company for the benefit of
Mr. Caplan.
8
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OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth grants of stock options pursuant to the
Company's 1989 and 1998 Stock Plans during the fiscal year ended July 3, 1999 to
the Named Executive Officers listed in the Summary Compensation Table above:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTIONS(1)
------------------------------------------------------- -------------------
PERCENT OF
TOTAL OPTIONS/
GRANTED TO EXERCISE OF
OPTION EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ----------- -------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gerard E. Puorro.............. 20,000 7.66% 7.00 1/11/09 88,045 223,124
James C. Hsia, Ph.D........... 20,000 11.49% 3.625 9/29/08 45,595 115,546
10,000 7.00 1/11/09 44,023 111,562
William D. Spies.............. 50,000 22.99% 3.438 7/28/08 108,107 273,964
10,000 7.00 1/11/09 44,023 111,562
William B. Kelley............. 10,000 3.83% 7.00 1/11/09 44,023 111,562
Jay D. Caplan................. 20,000 11.49% 3.625 9/29/08 45,595 115,562
10,000 7.00 1/11/09 44,023 115,546
</TABLE>
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(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%) on
the Company's Common Stock, as the case may be, over the term of the
options. These numbers are calculated based on rules promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price growth. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the timing of such
exercise and the future performance of the Company's Common Stock. There can
be no assurance that the rates of appreciation assumed in this table can be
achieved or that the amounts reflected will be received by the individuals.
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OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table sets forth information with respect to options to
purchase (1) the Company's Common Stock granted under the 1987 Stock Option
Plan, 1989 Stock Plan, and 1998 Stock Option Plan, and (2) shares of the
Company's subsidiary, Candela Skin Care Centers, Inc. including (i) the number
of shares purchased upon exercise of options in the most recent fiscal year,
(ii) the net value realized upon such exercise, (iii) the number of unexercised
options outstanding at July 3, 1999, and (iv) the value of such unexercised
options at July 3, 1999:
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
JULY 3, 1999 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED REALIZED AT JULY 3, 1999 (#) AT JULY 3, 1999 ($)(2)
ON EXERCISE VALUE --------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerard E. Puorro............ 5,000 -- 185,527 20,000 2,626,900 205,000
James C. Hsia, Ph.D......... -- -- 73,000 30,000 1,007,625 375,000
William D. Spies............ -- -- -- 60,000 -- 793,100
William B. Kelley........... 9,000 56,250 25,500 16,250 329,406 163,438
Jay Caplan.................. -- -- 5,775 33,750 78,960 422,108
</TABLE>
- ------------------------
(1) Named Executive Officers will receive cash only if and when they sell the
securities issued upon exercise of the options and the amount of cash
received by such individuals is dependent on the value of such securities at
the time of such sale, if any.
(2) Value is based on the difference between option grant price and the fair
market value at 1999 fiscal year end ($17.25 per share as quoted on the
NASDAQ Stock Market at the close of trading on July 2, 1999) multiplied by
the number of shares underlying the option.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee, which consisted of Mr. Scott and Dr. Cleveland during
fiscal 1999. Both members of the Compensation Committee are non-employee
directors. Pursuant to the authority delegated by the Board of Director's the
Compensation Committee each year sets the compensation of the Chief Executive
Officer and reviews and approves the compensation of all other senior officers,
including approval of annual salaries and bonuses as well as the grant of stock
options to officers and employees.
COMPENSATION PHILOSOPHY
The goal of the Company is to attract and retain qualified executives in a
competitive industry. To achieve this goal, the Compensation Committee applies
the philosophy that compensation of executive officers, specifically including
that of the Chief Executive Officer and President, should be linked to revenue
growth, operating results and earnings per share performance.
Under the supervision of the Compensation Committee, the Company has
developed and implemented compensation policies. The Compensation Committee's
executive compensation policies are designed to (i) enhance profitability of the
Company and shareholder value, (ii) integrate compensation with the Company's
annual and long-term performance goals, (iii) reward corporate performance,
(iv) recognize individual initiative, achievement and hard work, and (v) assist
the Company in attracting and retaining qualified executive officers. Currently,
compensation under the
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executive compensation program is comprised of cash compensation in the form of
annual base salary, bonus, and long-term incentive compensation in the form of
stock options.
BASE SALARY
In setting cash compensation for the Chief Executive Officer and reviewing
and approving the cash compensation for all other officers, the Compensation
Committee reviews salaries annually. The Compensation Committee's policy is to
fix base salaries at levels comparable to the amounts paid to senior executives
with comparable qualifications, experience and responsibilities at other
companies of similar size and engaged in a similar business to that of the
Company. In addition, the base salaries take into account the Company's relative
performance as compared to comparable companies.
The salary compensation for the executive officers is based upon their
qualifications, experience and responsibilities, as well as the attainment of
planned objectives. The Chief Executive Officer and President makes
recommendations to the Compensation Committee regarding the planned objectives
and executive compensation levels. The overall plans and operating performance
levels upon which management compensation is based are approved by the
Compensation Committee on an annual basis. During fiscal 1999, the Chief
Executive Officer and President made recommendations for salary increases for
the executive group, and the Compensation Committee approved increases ranging
from 6% to 21% to 7 of the executive officers. These increases reflect the
impact of promotions as well as incentive changes.
BONUS COMPENSATION
In addition to salary compensation, on September 3 and September 8, 1999 the
Compensation Committee recommended the continuation of the Management Incentive
Plan, adopted by the Board of Directors in the previous year, whereby senior
executives recommended by the Chief Executive Officer and approved for inclusion
in the Plan by the Compensation Committee receive bonus compensation based on a
percentage of base salary. Bonuses paid under this Plan were a percentage of
base salary for fiscal 1999 and were based on pre-tax profits, after bonus, for
fiscal 1999 for the device business only.
STOCK OPTIONS
The Compensation Committee relies on incentive compensation in the form of
stock options to retain and motivate executive officers. Incentive compensation
in the form of stock options is designed to provide long-term incentives to
executive officers and other employees, to encourage the executive officers and
other employees to remain with the Company and to enable them to develop and
maintain a stock ownership position in the Company's Common Stock. The Company's
1989 Stock Plan and the 1998 Stock Option Plan, administered by the Compensation
Committee, have been used for the granting of stock options.
Both the 1989 Stock Plan and The 1998 Stock Option Plan permits the
Compensation Committee to administer the granting of stock options to eligible
employees, including executive officers. Options generally become exercisable
based upon a vesting schedule tied to years of future service to the Company.
The value realizable from exercisable options is dependent upon the extent to
which the Company's performance is reflected in the market price of the
Company's Common Stock at any particular point in time. Equity compensation in
the form of stock options is designed to provide long-term incentives to
executive officers and other employees. The Compensation Committee approves the
granting of options in order to motivate these employees to maximize shareholder
value. Generally, options granted to officers and employees vest over 2 or
4 years and expire after a 10-year period, at not less than the fair market
value at the date of grant. As a result of this policy, executives and other
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employees are rewarded economically only to the extent that the shareholders
also benefit through appreciation in the market.
Options granted to employees are based on such factors as individual
initiative, achievement and performance. In administering grants to executives,
the Compensation Committee evaluates each officer's total equity compensation
package. The Compensation Committee generally reviews the option holdings of
each of the executive officers, including vesting and exercise price and the
then current value of such unvested options. The Compensation Committee
considers equity compensation to be an integral part of a competitive executive
compensation package and an important mechanism to align the interests of
management with those of the Company's shareholders. In fiscal 1999, options to
purchase shares of Common Stock were granted to Messrs. Broyer, Caplan,
Costello, Hsia, Kelley, McGrail, Mori, Puorro, Spies and Wilber.
MR. PUORRO'S COMPENSATION
The cash compensation program for the Chief Executive Officer and the
President of the Company is designed to reward performance that enhances
shareholder value. The compensation package is comprised of base pay and stock
options, which is affected by the Company's revenue growth, market share growth,
profitability, and growth in earnings per share. In fiscal 1999, Mr. Puorro's
cash compensation remained at $237,500 per year. The Compensation Committee
believes that Mr. Puorro's compensation has been, and is now, comparable to the
salary of other Chief Executive Officers in other medical equipment companies,
considering the size and rate of profitability of those companies.
The Compensation Committee is satisfied that the executive officers of the
Company are dedicated to achieving significant improvements in the long-term
financial performance of the Company and that the compensation policies and
programs implemented and administered have contributed and will continue to
contribute toward achieving this goal.
This report has been submitted by the members of the Stock Option and
Compensation Committee:
DOUGLAS W. SCOTT
RICHARD J. CLEVELAND, M.D.
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STOCK PERFORMANCE GRAPH
The following graph illustrates a five year comparison of cumulative total
shareholder return among the Company, the NASDAQ National Market Index and the
Company's "Industry Index." The Company selected an index of companies in the
electro-medical equipment industry as its industry group. Accordingly, the
Industry Index reflects the performance of all companies that are included in
the electro-medical equipment industry with 3845 as their Primary Standard
Industrial Classification Code Number. The comparison assumes $100 was invested
on July 1, 1994 (the date of the beginning of the Company's fifth preceding
fiscal year) in the Company's Common Stock and on June 30, 1994 in each of the
foregoing indices and assumes reinvestment of dividends, if any.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CANDELA CORPORATION PEER GROUP S&P 500
<S> <C> <C> <C>
07/01/94 100 100 100
06/30/95 60 164 126
06/28/96 268 234 159
06/27/97 200 288 214
06/26/98 90 378 279
07/02/99 552 512 342
</TABLE>
EMPLOYMENT AGREEMENTS
Candela has entered into severance agreements with each of Messrs. Puorro,
Hsia, Broyer, Kelley, Caplan, Wilber and McGrail. Under our agreements with
Messrs. Hsia, Broyer, Kelley, Caplan, Wilber and McGrail, Candela has agreed to
continue payment of their respective base annual salaries over twelve months in
the event that their services for Candela are terminated for any reason except
for cause or such individuals' resignation. Under our agreement with
Mr. Puorro, in the event that his employment is terminated for any reason, at
either his election or Candela's election other than for just cause, he will be
entitled to receive severance payments equal to his base annual salary for
twelve months and then 50% of his base annual salary for an additional twelve
months. Each of the above named individuals are subject to nonsolicitation and
noncompetition provisions for the period during which he receives severance
payments.
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64
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of October 15, 1999 by
(i) each person known to the Company who beneficially owns 5% or more of the
outstanding shares of its Common Stock, (ii) each director or nominee to become
a director of the Company, (iii) each executive officer identified in the
Summary Compensation Table and (iv) all directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNERS (1) BENEFICIALLY OWNED BENEFICIALLY OWNED
- ----------------------------------------- ------------------ ------------------
<S> <C> <C>
Gerard E. Puorro (2)........................................ 194,452 2.62%
Theodore G. Johnson (3)..................................... 78,849 1.09%
Kenneth D. Roberts (4)...................................... 79,500 1.09%
Douglas W. Scott (5)........................................ 40,000 *
Richard J. Cleveland, M.D. (6).............................. 43,392 *
Nancy Nager, R.N., B.S.N., M.S.N............................ -- --
James C. Hsia, PhD (7)...................................... 104,672 1.50%
William B. Spies (8)........................................ 12,500 *
Jay D. Kaplan (9)........................................... 12,277 *
William B. Kelley (10)...................................... 28,625 *
William D. Witter (11)...................................... 1,790,172 24.46%
153 East 53rd Street
New York, NY 10022
William D. Witter, Inc. (12)................................ 1,790,172 24.46%
153 East 53(rd) Street
New York, NY 10022
All Directors and Executive Officers as a Group
(10 Persons) (13)......................................... 642,438 8.30%
</TABLE>
- ------------------------
(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them. Except as otherwise indicated, the address for
each beneficial owner is 530 Boston Post Road, Wayland, MA 01778. Pursuant
to the rules of the Securities and Exchange Commission the number of shares
of Common Stock deemed outstanding includes, for each person or group
referred to in the table, shares issuable pursuant to options held by the
respective person or group which may be exercised within 60 days after
October 15, 1999.
(2) Includes 185,527 shares issuable pursuant to stock options exercisable
within the 60 day period following October 15, 1999.
(3) Includes 4,000 shares issuable pursuant to stock options exercisable within
the 60 day period following October 15, 1999.
(4) Includes 52,500 shares issuable pursuant to stock options exercisable within
the 60 day period following October 15, 1999. Excludes 3,000 shares held by
a trust for the benefit of one of Mr. Roberts' children as to which
Mr. Roberts disclaims beneficial ownership.
(5) Includes 37,500 shares issuable pursuant to stock options exercisable within
the 60 day period following October 15, 1999.
(6) Includes 40,892 shares issuable pursuant to stock options exercisable within
the 60 day period following October 15, 1999.
14
<PAGE>
(7) Includes 78,000 shares issuable pursuant to stock options exercisable within
the 60 day period following October 15, 1999.
(8) Includes 12,500 shares issuable pursuant to stock options exercisable within
the 60 day period following October 15, 1999.
(9) Includes 12,025 shares issuable pursuant to stock options exercisable within
the 60 day period following October 15, 1999.
(10) Includes 28,625 shares issuable pursuant to stock options exercisable
within the 60 days period following October 15, 1999.
(11) Includes 1,720,172 shares of common stock beneficially owned by Willia D.
Witter, Inc. Includes warrants to purchase 70,000 shares of Common Stock.
Mr. Witter is the President and primary owner of William D. Witter, Inc. and
has the sole power to dispose or to direct the disposition of all of the
shares of common stock which are beneficially owned respectively by
William D. Witter, Inc. and William D. Witter.
(12) Information based in Amendment No. 8 to Schedule 13G dated January 27, 1998
filed with the Security and Exchange Commission. All such shares are also
beneficially owned by William D. Witter, individually, the President and
primary owner of William D. Witter, Inc.
(13) Includes 492,044 shares subject to stock options exercisable within the
60 day period following October 15, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, this 29(th) day of
October, 1999.
<TABLE>
<S> <C> <C>
CANDELA CORPORATION
By: /s/ GERARD E. PUORRO
-----------------------------------------
Gerard E. Puorro
President and Chief Executive Officer
</TABLE>
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following items are filed as part of this report:
(1) EXHIBITS: Except as otherwise noted, the following documents are
incorporated by reference from the Company's Registration Statement on Form S-1
(File Number 333-78339):
<TABLE>
<C> <S>
3.1 Certificate of Incorporation, as amended
3.2(9) By-laws of the Company, as amended and restated
3.3(1) Agreement of Merger between Candela Corporation, Inc., a
Massachusetts corporation, and Candela Laser Corporation, a
Delaware corporation
4.1(6) Form of Rights Agreement dated as of September 4, 1992
between the Company and The First National Bank of Boston,
as Rights Agent, which includes as Exhibit A the Form of
Rights Certificate, and as Exhibit B the Summary of Rights
to Purchase Common Stock.
4.2(11) Certificate of Amendment, dated as of March 25, 1996, by the
Company.
4.3(11) First Amendment to Rights Agreement, dated as of March 25,
1996, between the Company and The First National Bank of
Boston.
4.4 Form of Certificate of Amendment.
4.5 Form of Second Amendment to the Rights Agreement between the
Company and Bank Boston, N.A., as Rights Agent with Exhibits
A and B attached thereto, as approved by the Board of
Directors of the Company on September 30, 1998.
10.1(1) 1985 Incentive Stock Option Plan
10.2 1987 Stock Option Plan
10.2.1(2) 1989 Stock Plan
10.2.2(3) 1990 Employee Stock Purchase Plan
10.2.3(3) 1990 Non-Employee Director Stock Option Plan
10.2.4(7) 1993 Non-Employee Director Stock Option Plan
10.3(7) Lease for premises at 526 Boston Post Road, Wayland,
Massachusetts
10.4(7) Lease for premises at 530 Boston Post Road, Wayland,
Massachusetts
10.5(4) Patent License Agreement between the Company and Patlex
Corporation effective as of July 1, 1988
10.6 License Agreement among the Company, Technomed
International, Inc. and Technomed International S.A. dated
as of December 20, 1990
10.7(5) License Agreement between the Company and Pillco Limited
Partnership effective as of October 1, 1991
10.8(8) Distribution Agreement between the Company and Cryogenic
Technology Limited, dated October 15, 1993
10.9(10) Asset Purchase Agreement between the Company and
Derma-Laser, Limited and Derma-Lase, Inc. dated June 23,
1994.
10.10 Note and Warrant Purchase Agreement, dated as of
October 15, 1998 between the Company, Massachusetts Capital
Resource Company, William D. Witter and Michael D. Witter.
10.10.1 Form of Note delivered by the Company in the aggregate
principal amount of $3,700,000 to Massachusetts Capital
Resource Company, William D. Witter and Michael D. Witter.
10.10.2 Form of Common Stock Purchase Warrant to purchase an
aggregate of 370,000 shares of the Company's Common Stock
delivered to Massachusetts Capital Resource Company,
William D. Witter and Michael D. Witter.
21.* Subsidiaries of the Company
23.* Consent of PricewaterhouseCoopers LLP (Independent
Accountants)
</TABLE>
17
<PAGE>
<TABLE>
<C> <S>
27.* Financial Data Schedule
</TABLE>
- ------------------------
(1) Previously filed as an exhibit to Registration Statement No. 33-54448B and
incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Amended and Restated Annual
Report on Form 10-K for the fiscal year ended June 30, 1988, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1990, and incorporated herein by
reference.
(4) Previously filed as an exhibit to Form 10-Q for the quarter ended
December 29, 1990, and incorporated herein by reference.
(5) Previously filed as an exhibit to Form 10-Q for the quarter ended
September 28, 1991, and incorporated herein by reference.
(6) Previously filed as an exhibit to Form 8-K, dated September 8, 1992, and
incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended July 3, 1993, and incorporated herein by
reference.
(8) Previously filed as an exhibit to Form 10-Q for the quarter ended
January 1, 1994, and incorporated herein by reference.
(9) Previously filed as an exhibit to Form 10-Q for the quarter ended April 2,
1994, and incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended July 2, 1994, and incorporated herein by
reference.
(11) Previously filed as an Exhibit to Form 8-K filed March 25, 1996, and
incorporated by reference herein.
* Filed with Form 10-K on September 30, 1999
(b) There were no reports on Form 8-K filed during the last quarter of fiscal
1999.
18
