<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
LASERSCOPE
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
LASERSCOPE
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: 100
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: 1/50 of 1% of $14,472,000, the sum
of the respective book values of the Heraeus Surgical, Inc. securities
and other assets acquired by Laserscope as of March 31, 1996. There is
no market for Heraeus Surgical, Inc. securities, and the filing fee,
therefore has been computed pursuant to the second sentence of Rule
0-11(a)(4).
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $14,472,000
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date
of its filing. N/A
(1) Amount Previously Paid: N/A
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: N/A
------------------------------------------------------------------------
(3) Filing Party: N/A
------------------------------------------------------------------------
(4) Date Filed: N/A
------------------------------------------------------------------------
<PAGE> 2
[INSERT LOGO]
LASERSCOPE
3052 ORCHARD DRIVE
SAN JOSE, CALIFORNIA 95134-2011
Dear Shareholder:
A Special Meeting of Shareholders (the "Special Meeting") of Laserscope
will be held at the executive offices of Laserscope, 3052 Orchard Drive, San
Jose, California 95134-2011 on August 29, 1996, at 9:00 a.m. local time.
At the Meeting, you will be asked to consider a proposal to approve the
agreement dated April 23, 1996 (the "Agreement"), between Laserscope and Heraeus
Med GmbH, a corporation organized under the laws of the Federal Republic of
Germany ("HME"), and the transactions and agreements contemplated thereby (the
"Acquisition"), including the issuance by Laserscope of 4,609,345 shares of
Laserscope common stock and the payment of $2 million by Laserscope in exchange
for all of the outstanding capital stock of Heraeus Surgical, Inc., a
wholly-owned subsidiary of HME, and certain assets and liabilities of HME's
laser distribution operations. In addition, you will be asked to consider
proposals to amend Laserscope's 1994 Stock Option Plan to increase the number of
shares of Laserscope common stock reserved for issuance under such plan and to
approve the adoption of the 1995 Directors' Stock Option Plan.
After careful consideration, your Board of Directors has unanimously
approved the Agreement described in the attached material and the transactions
contemplated thereby and has concluded that they are fair to and in the best
interests of Laserscope and its shareholders. Your Board of Directors
unanimously recommends a vote in favor of the Acquisition. Your Board of
Directors also unanimously recommends a vote in favor of the proposals to amend
the 1994 Stock Option Plan and adopt the 1995 Directors' Stock Option Plan.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Proxy Statement relating to the actions to be taken
by Laserscope shareholders at the Special Meeting, a proxy card and Laserscope's
Annual Report on Form 10-K for the year ended December 31, 1995 and Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996. The Proxy Statement
more fully describes the proposed acquisition and includes information about
Laserscope and the purchased assets and assumed liabilities and certain other
matters for consideration at the Special Meeting.
All shareholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy in the enclosed envelope. If you
attend the Special Meeting, you may vote in person if you wish, even if you have
previously returned your proxy. It is important that your shares be represented
and voted at the Special Meeting.
Sincerely,
BENJAMIN L. HOLMES
Chairman of the Board
<PAGE> 3
[INSERT LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 29, 1996
To the Shareholders of Laserscope:
A Special Meeting of Shareholders (the "Special Meeting") of Laserscope, a
California corporation ("Laserscope" or the "Company"), will be held at the
executive offices of Laserscope, 3052 Orchard Drive, San Jose, California, on
August 29, 1996 at 9:00 a.m. local time, for the following purposes:
1. To consider a proposal to approve the agreement dated April 23,
1996 (the "Agreement"), between Laserscope and Heraeus Med GmbH, a
corporation organized under the laws of the Federal Republic of Germany,
and the transactions and agreements contemplated thereby (the
"Acquisition"), including the issuance by Laserscope of 4,609,345 shares of
Laserscope common stock and the payment by Laserscope of $2 million in
exchange for all of the outstanding capital stock of Heraeus Surgical,
Inc., a wholly-owned subsidiary of HME, and certain assets and liabilities
of HME's laser distribution operations.
A vote in favor of approval of the Agreement will also constitute a
vote in favor of each of the foregoing elements of the Acquisition and all
other transactions and agreements set forth in the Agreement for all
purposes. The Agreement is attached as Exhibit A to the accompanying Proxy
Statement.
2. To authorize an amendment to Laserscope's 1994 Stock Option Plan to
increase the number of shares of Laserscope common stock reserved for
issuance thereunder by 975,000 shares.
3. To approve the adoption of Laserscope's 1995 Directors' Stock
Option Plan and the reservation of 300,000 shares of Laserscope common
stock for issuance thereunder.
4. To transact such other business as may properly come before the
Special Meeting or any postponements or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on July 15, 1996, will
be entitled to notice of, and to vote at, the Special Meeting or any
postponement or adjournment thereof. All shareholders are cordially invited to
attend the Special Meeting in person. However, to assure your representation at
the meeting, you are urged to mark, sign, date and return the enclosed proxy
card as promptly as possible in the postage-prepaid envelope enclosed for that
purpose. If you decide to attend the meeting, you may vote in person even if you
have previously returned a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
CRAIG W. JOHNSON
Secretary
San Jose, California
July , 1996
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND MAIL PROMPTLY THE ENCLOSED PROXY IN THE RETURN ENVELOPE SO THAT YOUR SHARES
MAY BE REPRESENTED AT THE MEETING.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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<S> <C>
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS................................... 1
SUMMARY............................................................................... 2
Date, Time and Place of Special Meeting............................................. 2
Purpose of the Special Meeting...................................................... 2
Voting and Proxies.................................................................. 2
The Acquisition..................................................................... 3
Additional Agreements............................................................... 5
Dissenters' Rights.................................................................. 5
Certain Federal Income Tax Considerations........................................... 5
Recommendation of the Board of Directors............................................ 5
VOTING AND PROXIES.................................................................... 6
Date, Time and Place of Special Meeting............................................. 6
Records Date and Share Ownership.................................................... 6
Revocability of Proxies............................................................. 6
Voting, Vote Required and Solicitation.............................................. 6
SELECTED HISTORICAL AND PRO FORMA COMBINED CONDENSED FINANCIAL DATA................... 8
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA.................................. 8
SELECTED LASERSCOPE CONSOLIDATED FINANCIAL DATA....................................... 8
SELECTED CONSOLIDATED FINANCIAL DATA RELATING TO HSI.................................. 9
COMPARATIVE PER SHARE DATA............................................................ 10
PROPOSAL NO. 1 THE ACQUISITION AND RELATED TRANSACTIONS............................... 11
Background.......................................................................... 11
Reasons for the Acquisition......................................................... 12
Laserscope Financial Advisor........................................................ 13
Certain Risks Associated with the Acquisition....................................... 14
Recommendation of the Board of Directors............................................ 19
TERMS OF THE ACQUISITION.............................................................. 19
Effective Time of the Acquisition................................................... 19
Assets and Liabilities to be Acquired............................................... 19
Consideration for the HME Assets.................................................... 19
Certain Covenants................................................................... 20
Indemnification..................................................................... 21
Continuing Liability................................................................ 22
Escrow.............................................................................. 23
Indemnification Shares.............................................................. 23
Registration Rights................................................................. 23
Closing and Conditions to the Acquisition........................................... 24
Fees, Expenses and Taxes............................................................ 24
Appointment of Directors............................................................ 25
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Termination of Agreement............................................................ 25
Additional Agreements............................................................... 25
Dissenters' Rights.................................................................. 26
Certain Federal Income Tax Considerations........................................... 27
Governmental and Regulatory Approvals............................................... 28
Accounting Treatment................................................................ 28
PROPOSAL NO. 2 AMENDMENT TO THE 1994 STOCK OPTION PLAN................................ 29
General............................................................................. 29
Purpose............................................................................. 29
Administration...................................................................... 29
Eligibility......................................................................... 30
Terms of Options.................................................................... 30
Adjustments Upon Changes in Capitalization.......................................... 31
Amendment and Termination........................................................... 32
Federal Income Tax Aspects of the 1994 Option Plan.................................. 32
Required Vote....................................................................... 33
PROPOSAL NO. 3 ADOPTION OF THE 1995 DIRECTORS STOCK OPTION PLAN....................... 34
General............................................................................. 34
Purpose............................................................................. 34
Administration...................................................................... 34
Eligibility......................................................................... 34
Terms of Options.................................................................... 35
Adjustment Upon Changes in Capitalization........................................... 36
Amendment and Termination........................................................... 36
Tax Information..................................................................... 36
Required Vote....................................................................... 37
INFORMATION CONCERNING LASERSCOPE..................................................... 38
Executive Officers of the Company................................................... 38
Executive Compensation.............................................................. 39
TRANSACTIONS WITH MANAGEMENT AND OTHERS............................................... 42
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION........................ 44
Common Stock Ownership of Certain Beneficial Owners and Management.................... 44
Market for the Company's Common Stock and Related Shareholder Matters................. 45
Transfer Agent........................................................................ 45
INFORMATION CONCERNING HSI AND THE LDB................................................ 46
Overview............................................................................ 46
Products............................................................................ 46
Manufacturing....................................................................... 47
Marketing and Sales................................................................. 47
Service and Installation............................................................ 48
Research and Development............................................................ 48
</TABLE>
ii
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Patents and Licenses................................................................ 48
Competition......................................................................... 49
Regulation and Quality Assurance.................................................... 49
Facilities.......................................................................... 49
Hazardous Materials................................................................. 50
Legal Proceedings................................................................... 50
Description of Securities........................................................... 50
Employees........................................................................... 50
Risk Factors........................................................................ 50
HSI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 52
Overview............................................................................ 52
Quarters Ended March 31, 1996 and 1995.............................................. 52
Years Ended December 31, 1995 and 1994.............................................. 53
Years Ended December 31, 1994 and 1993.............................................. 54
Liquidity and Capital Resources..................................................... 54
INCORPORATION BY REFERENCE............................................................ 55
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE
ACT OF 1934......................................................................... 55
SHAREHOLDER PROPOSALS FOR 1997 MEETING................................................ 55
OTHER MATTERS......................................................................... 55
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
INDEX TO EXHIBITS.....................................................................
</TABLE>
iii
<PAGE> 7
LASERSCOPE
3052 ORCHARD DRIVE
SAN JOSE, CALIFORNIA 95134-2011
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
The accompanying proxy is solicited by the Board of Directors of Laserscope
for use at the Special Meeting of Shareholders of Laserscope to be held August
29, 1996 (the "Special Meeting"), and at any postponement or adjournment
thereof, for the purposes set forth in the accompanying Notice of Special
Meeting of Shareholders. The date of this Proxy Statement is July , 1996. This
Proxy Statement and accompanying proxy were first sent to shareholders on or
about July 26, 1996.
Except for the historical information in this Proxy Statement and documents
incorporated herein by reference (collectively, the "Proxy Statement") the
matters discussed herein are forward-looking statements that are subject to
certain risks and uncertainties that could cause the actual results to differ
materially from those projected. Factors that could cause actual results to
differ materially include, but are not limited to, the risks associated with the
proposed acquisition transaction between Laserscope and Heraeus Med GmbH,
including the integration of the assets to be acquired by Laserscope and other
matters described more fully herein, the timing of orders and shipments, the
timely development and market acceptance of new product and surgical procedures,
the impact of competitive products and pricing, the Company's ability to further
expand into international markets, public policy relating to health care reform
in the United States and other countries, approval of its products by government
agencies such as the United States Food and Drug Administration, and other risks
detailed below and included from time to time in the Company's reports filed
with the Securities and Exchange Commission and press releases, copies of which
are available from the Company upon request. The Company assumes no obligation
to update any forward-looking statements contained herein.
References made in this Proxy Statement to "Laserscope," the "Company" or
the "Registrant" refer to Laserscope and its subsidiaries. The following
Laserscope trademarks are mentioned in this Proxy Statement: Laserscope,
Dermastat, KTP/532 and Microbeam, registered trademarks of the Company; and
Endostat, KTP/YAG, Microstat, KTP Disc Kit, Laparostat, SpineStat, ADD, ADDStat,
LDD, Orion, Aura, SmartScan and StarPulse trademarks of the Company. Hexascan is
a trademark of Prein and Partners. Photofrin is a registered trademark of QLT
Phototherapeutics, Inc.
The following trademarks of Heraeus Med GmbH ("HME") and Heraeus Surgical,
Inc. ("HSI") are referred to in this Proxy Statement: HANAULUX, HANAUPORT and
HANAUVISION are registered trademarks of HME; LaserSonics, ULTRALINE and
ILLUMINA are registered trademarks of HSI; PARAGON and HERCULES are trademarks
of HSI. MAQUET is a registered trademark of Stierlen Maquet AG.
<PAGE> 8
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. This summary does not contain a complete statement of
all material features of the proposals to be voted on at the Special Meeting and
is qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement, the Exhibits hereto and the
documents referenced herein, which shareholders are urged to read. The
information set forth in this Proxy Statement concerning Laserscope has been
furnished by Laserscope. The information set forth in this Proxy Statement
concerning HME, HSI and the LDB (each as defined below) has been furnished by
HME.
DATE, TIME AND PLACE OF SPECIAL MEETING
The Special Meeting will be held at the executive offices of Laserscope,
3052 Orchard Drive, San Jose, California 95134-2011, on August 29, 1996 at 9:00
a.m. local time.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the shareholders of Laserscope will be asked to
consider a proposal to approve the agreement dated April 23, 1996 (the
"Agreement"), between Laserscope and Heraeus Med GmbH ("HME"), and the
transactions and agreements contemplated thereby (the "Acquisition"). The
Acquisition is being presented to shareholders as a single unified proposal, and
adoption of the Acquisition by Laserscope's shareholders will constitute
adoption by such shareholders of all transactions and agreements contemplated by
the Agreement, as described more fully below. See "SUMMARY -- The Acquisition,"
"THE ACQUISITION AND RELATED TRANSACTIONS," and Exhibit A.
In addition, shareholders will be asked to consider proposals to: (a)
approve an amendment to Laserscope's 1994 Stock Option Plan to increase the
number of shares of Laserscope common stock reserved for issuance thereunder by
975,000 shares; and (b) adopt Laserscope's 1995 Directors' Stock Option Plan and
the reservation of 300,000 shares of Laserscope common stock for issuance
thereunder. See "AMENDMENT TO THE 1994 STOCK OPTION PLAN" and "ADOPTION OF THE
1995 DIRECTORS' STOCK OPTION PLAN." Shareholders will also consider such other
matters as may properly come before the Special Meeting. See "OTHER MATTERS."
VOTING AND PROXIES
Only shareholders of record at the close of business on July 15, 1996 are
entitled to notice of, and to vote at, the Special Meeting and any postponements
or adjournments thereof. As of that date, there were approximately shares
of common stock of Laserscope issued and outstanding. Each holder of shares of
Laserscope common stock is entitled to one vote for each share of stock held by
him or her on the proposals presented in this Proxy Statement. The presence,
either in person or by properly executed proxy, of a majority of the outstanding
shares of Laserscope, on an as-converted basis, will constitute a quorum, at the
Special Meeting.
Under the California General Corporation Law, the proposal to approve the
Agreement and the Acquisition must be approved by the affirmative vote of a
majority of the outstanding shares of Laserscope's common stock. The proposals
for the Acquisition are not structured so that approval of at least a majority
of Laserscope's unaffiliated shareholders is required for adoption. Certain of
Laserscope's directors and executive officers have advised Laserscope that they
and their affiliates intend to vote all shares of Laserscope held by them,
representing approximately 2% of the outstanding shares of Laserscope's common
stock, in favor of the Acquisition. The affirmative vote of a majority of the
shares represented and voting at the Special Meeting (providing that a quorum is
present), which shares voting affirmatively also constitute a majority of the
required quorum, is required under California law for approval of the amendment
to the 1994 Stock Option Plan and the adoption of 1995 Directors' Stock Option
Plan. See "VOTING AND PROXIES."
2
<PAGE> 9
THE ACQUISITION
Effective Time. Laserscope and HME executed the Agreement on April 23,
1996. The transactions contemplated by the Agreement will take place on the
closing (the "Closing") which shall occur on or before August 31, 1996 (the
"Closing Date").
Assets and Liabilities to be Acquired. The Agreement provides that at the
Closing HME will transfer and Laserscope will acquire all of the outstanding
shares of capital stock of HSI (the "HSI Shares") and certain assets and
liabilities of HME's German laser distribution operations (the "LDB Assets and
Liabilities"), consisting principally of inventory, trade payables and
employee-related liabilities. The HSI Shares and the LDB Assets and Liabilities
are collectively referred to herein as the "HME Assets." The Agreement also
provides that, effective upon the Closing, HME will grant to Laserscope the
right to purchase and resell in the United States certain products for HME. In
addition, Laserscope has agreed to assume any product liability arising after
the Closing, relating to products manufactured or sold by HSI or HME's laser
distribution operations any time before or after the Closing. See "TERMS OF THE
ACQUISITION -- Assets and Liabilities to be Acquired," "-- Indemnification" and
"-- Additional Agreements."
Consideration for the HME Assets. As consideration for the HME Assets,
Laserscope will issue to HME 4,609,345 shares of Laserscope common stock
(500,000 of which will be placed in an escrow account for one year to cover
certain indemnification obligations of HME under the Agreement), and will pay to
HME $2 million in cash.
Additional Rights. At the Closing, Laserscope will grant to HME: the right
to obtain from Laserscope, at any time within four years of the Closing Date, a
nonexclusive worldwide sublicense outside the United States (the "CVAC
Sublicense") to all of HSI's rights to manufacture and sell central smoke
evacuation equipment ("CVAC"), and all related rights, for so long as HSI
continues to have such rights; and a nonexclusive worldwide license outside the
United States to all of HSI's technology relating to mounting devices (the
"Mounting Device License") for a period of ten years from the Closing. See
"TERMS OF THE ACQUISITION -- Indemnification" and "-- Additional Agreements."
Certain Covenants. Pursuant to the terms of the Agreement, HME and
Laserscope have each agreed to certain additional covenants in connection with
the Acquisition and related agreements, including an agreement by: (i) HME not
to develop, manufacture or sell hospital or physician office-based laser
surgical systems or accessories for a period of seven years from the Closing
Date; (ii) Laserscope not to develop, manufacture, service or sell mounting
device products outside of the United States during the term of its related
license to HME; (iii) Laserscope not to develop, manufacture, service or sell
products based on certain technology sublicensed to HME relating to CVAC outside
of the United States during the seven year period after the Closing; (iv) HME
not to acquire any additional shares of Laserscope common stock without the
approval of Laserscope's Board of Directors, during the seven year period after
Closing; (v) HME not to sell, transfer or pledge any shares of Laserscope common
stock received at the Closing (other than to Laserscope pursuant to the
indemnification provisions described above) for a period of one year from the
Closing Date; (vi) Laserscope to cause the reduction in its authorized number of
directors from eight to seven upon the first anniversary of the Closing and to
use its best efforts to have a certain number of nominees of HME elected to the
Laserscope Board of Directors, as more fully described below; and (vii)
Laserscope until the Closing not to issue and sell more than $3 million of its
capital stock (excluding sales upon exercise of employee, director or consultant
stock options), grant options to purchase more than 150,000 shares of Laserscope
common stock to employees and directors of, and consultants to Laserscope or
grant effective upon the Closing, options to purchase more than one million
shares of Laserscope common stock to employees and directors of, and consultants
to Laserscope or HSI, not more than 200,000 of which shall be granted to
Laserscope's executive officers, without obtaining the prior written consent of
HME. In addition, Laserscope and HME have each agreed to conduct their
respective businesses in the ordinary course consistent with prior practices.
See "TERMS OF THE ACQUISITION -- Certain Covenants" and "-- Additional
Agreements."
Indemnification. Laserscope and HME have agreed to indemnify and hold each
other harmless from breaches of representations and warranties and covenants and
for certain liabilities in connection with the
3
<PAGE> 10
Acquisition, the HME Assets and the operation of their respective businesses.
See "TERMS OF THE ACQUISITION -- Indemnification" and "-- Continuing Liability."
Continuing Liability. In the absence of fraud and for a period of one year
from the Closing Date, HME's liability to Laserscope for breach of HME's
representations and warranties under the Agreement will be limited to the
500,000 shares of Laserscope common stock placed in escrow as described below,
and Laserscope's liability to HME for breach of Laserscope's representations and
warranties under the Agreement will be limited to 500,000 additional shares of
Laserscope common stock. In the event of fraud or any claim other than for a
breach of a representation or warranty, the Agreement entitles the aggrieved
party to all rights and remedies at law and in equity which may accrue to such
party. See "TERMS OF THE ACQUISITION -- Continuing Liability."
Escrow. At the Closing, or as soon thereafter as possible, Laserscope's
transfer agent will deposit into escrow a certificate representing 500,000 of
the shares of Laserscope common stock issuable to HME under the Agreement to
cover certain indemnification obligations of HME under the Agreement. If the
Escrow Agent (as defined below) has not received written notice of a claim for
indemnification by Laserscope under the Agreement within one year after the
Closing, the Escrow Agent will release the certificate for the escrowed shares
to HME. Any escrowed shares used to settle any claim under the Agreement will be
valued at the average of the closing prices of Laserscope common stock on the
Nasdaq National Market ("Nasdaq") over the five trading days immediately
preceding the date on which the claim is settled. See "TERMS OF THE
ACQUISITION -- Escrow."
Indemnification Shares. If HME notifies Laserscope within one year after
the Closing that it has a claim or claims for indemnification under the
Agreement, and such claim has been resolved by Laserscope and HME or by an
arbitrator (selected by the parties), Laserscope shall issue up to 500,000
additional shares of Laserscope common stock (the "Indemnification Shares") to
HME to compensate HME for the amount of such claim or claims. Such additional
shares issued to HME to settle any claim under the Agreement will be valued at
the average of the closing prices of Laserscope common stock on Nasdaq over the
five trading days immediately preceding the date on which the claim is settled.
See "TERMS OF THE ACQUISITION -- Indemnification Shares."
Registration Rights. The Agreement provides HME with certain registration
rights which become effective one year following the Closing. See "TERMS OF THE
ACQUISITION -- Registration Rights."
Closing and Conditions to the Acquisition. The Agreement provides that the
Closing will take place following the approval of the Acquisition by the
shareholders of Laserscope at such time and place as the parties may mutually
agree, prior to August 31, 1996. The respective obligations of HME and
Laserscope to consummate the Acquisition are subject to the satisfaction of a
number of conditions, including, but not limited to, (a) the truth and accuracy
in all material respects of the representations and warranties of the other
party set forth in the Agreement; (b) the legality of the Acquisition; (c) the
approval of the Agreement by the shareholders of Laserscope; (d) the Closing of
the Acquisition on or before August 31, 1996; and (e) the obtaining of all
material government approvals and agreements and consents of any party necessary
for the other party's consummation of the transactions contemplated by the
Agreement. In addition, the obligation of Laserscope to consummate the
Acquisition is further subject to the satisfaction of a number of conditions,
unless waived in writing by Laserscope, including the receipt by Laserscope of
an opinion of counsel to HME reasonably satisfactory to Laserscope as to matters
usual in transactions similar to the Acquisition. Furthermore, the obligation of
HME to consummate the Acquisition is further subject to the satisfaction of a
number of conditions, unless waived in writing by HME, including (a) the receipt
by HME of an opinion of counsel to Laserscope reasonably satisfactory to HME as
to matters usual in transactions similar to the Acquisition, and (b) the
expansion of the Board of Directors of Laserscope to eight members, and the
appointment of three directors designated by HME to fill the three resulting
vacancies. See "TERMS OF THE ACQUISITION -- Certain Covenants -- Directors,"
"-- Closing and Conditions to the Acquisition," and "-- Appointment of
Directors."
Appointment of Directors. Upon the consummation of the Acquisition, the
number of directors on the Board of Directors of Laserscope will be set at
eight, and three directors designated by HME will be appointed
4
<PAGE> 11
by the Laserscope Board to fill the three resulting vacancies. See "TERMS OF THE
ACQUISITION -- Certain Covenants -- Directors," "-- Closing and Conditions to
the Acquisition," and "-- Appointment of Directors."
Termination of Agreement. The Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval of the Acquisition
by the shareholders of Laserscope, by either Laserscope or HME if (a) the other
party has breached a material provision of the Agreement and has not corrected
such failure within thirty days after receipt of written notice describing such
breach; or (b) every condition to Closing is not either satisfied or waived, and
Closing does not occur, by August 31, 1996.
ADDITIONAL AGREEMENTS
In connection with the Acquisition, Laserscope has also entered or agreed
to enter into certain other agreements involving the distribution or licensing
of certain products and technology. In addition, in connection with the
Agreement's indemnification provisions, Laserscope and HME will enter into an
escrow agreement with respect to 500,000 of the shares of Laserscope common
stock to be issued to HME upon Closing (the "Escrow Agreement"). Under the
Escrow Agreement, Laserscope and HME agree to indemnify the Escrow Agent (as
defined below) against any and all losses, claims, damages, liabilities and
expenses incurred by the Escrow Agent in connection with performing his duties
under the Escrow Agreement, provided the Escrow Agent acts in good faith and in
the exercise of good business judgment. In the event of any dispute with respect
to the Escrowed Shares (as defined below), the Escrow Agent is authorized under
the Escrow Agreement to retain possession of the Escrowed Shares until such
dispute is resolved.
DISSENTERS' RIGHTS
If the Acquisition is approved by the required vote of Laserscope's
shareholders and is not abandoned or terminated, any holder of Laserscope's
stock may, by complying with the provisions of the California General
Corporation Law, require Laserscope to purchase for cash at their fair market
value the shares owned by such shareholder which were voted against the
Acquisition. Under California law, the fair market value shall be determined as
of the day before the first announcement of the terms of the Acquisition,
excluding any appreciation or depreciation in consequence of the Acquisition.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
A Laserscope shareholder should recognize no gain or loss as a result of
the Acquisition except to the extent that the shareholder exercises dissenters'
rights. Laserscope's issuance to HME of 4,609,395 shares of Laserscope common
stock as partial consideration for the purchased assets could, when aggregated
with other changes in ownership of Laserscope stock over the preceding three
years, cause Laserscope to be deemed to have undergone an "ownership change"
within the meaning of Section 382 of the Internal Revenue Code of 1986, which
could limit the amount of Laserscope's net operating loss carryforwards
available to offset taxable income which may be earned by Laserscope in future
periods. See "TERMS OF THE ACQUISITION -- Certain Federal Income Tax
Considerations" and "-- Dissenters' Rights."
RECOMMENDATION OF THE BOARD OF DIRECTORS
LASERSCOPE'S DIRECTORS HAVE UNANIMOUSLY AUTHORIZED AND APPROVED THE
ACQUISITION AND BELIEVE THAT THE ACQUISITION IS IN THE BEST INTERESTS OF
LASERSCOPE AND THE SHAREHOLDERS, AND UNANIMOUSLY RECOMMEND THAT LASERSCOPE'S
SHAREHOLDERS APPROVE THE AGREEMENT AND THE ACQUISITION. IN ADDITION,
LASERSCOPE'S DIRECTORS HAVE UNANIMOUSLY APPROVED, AND UNANIMOUSLY RECOMMEND,
THAT LASERSCOPE'S SHAREHOLDERS APPROVE THE PROPOSALS TO AMEND LASERSCOPE'S 1994
STOCK OPTION PLAN AND TO ADOPT LASERSCOPE'S 1995 DIRECTORS' STOCK OPTION PLAN. A
VOTE IN FAVOR OF APPROVAL OF THE AGREEMENT WILL ALSO CONSTITUTE A VOTE IN FAVOR
OF EACH OF THE ELEMENTS OF THE ACQUISITION AND ALL OTHER TRANSACTIONS AND
AGREEMENTS SET FORTH IN THE AGREEMENT FOR ALL PURPOSES.
5
<PAGE> 12
VOTING AND PROXIES
DATE, TIME AND PLACE OF SPECIAL MEETING
The Special Meeting will be held at the executives offices of Laserscope,
3052 Orchard Drive, San Jose, California, 95134-2011 on August 29, 1996, at 9:00
a.m. local time.
RECORD DATE AND SHARE OWNERSHIP
Shareholders of record of Laserscope common stock at the close of business
on July 15, 1996 (the "Record Date"), are entitled to notice of, and to vote at,
the Special Meeting. As of the Record Date, shares of Laserscope's common
stock were issued and outstanding. HME is the only shareholder of record of HSI
capital stock and has agreed to the Acquisition.
REVOCABILITY OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Special Meeting in accordance with the instructions contained therein. Proxies
containing no instructions regarding the proposals specified in the form of
proxy will be voted for approval of the Agreement and related transactions, and
for approval of the other proposals described below brought before the
shareholders at the Special Meeting, in accordance with the recommendation of
the Board of Directors of Laserscope. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before its use
by delivering to Laserscope (Attention: Dennis LaLumandiere, Inspector of
Elections) a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Special Meeting and voting in person.
VOTING, VOTE REQUIRED AND SOLICITATION
Votes cast by proxy or in person at the Special Meeting will be tabulated
by the Inspector of Elections with the assistance of Laserscope's transfer
agent. The Inspector of Elections will also determine whether or not a quorum is
present.
The affirmative vote of a majority of the outstanding shares of Laserscope
common stock is required under California law for approval of the Agreement and
the Acquisition. The affirmative vote of a majority of the shares represented
and voting at the Special Meeting (providing that a quorum is present), which
shares voting affirmatively also constitute a majority of the required quorum,
is required under California law for approval of the amendment to the 1994 Stock
Option Plan and the adoption of 1995 Directors' Stock Option Plan. Under
California law a quorum generally consists of a majority of the shares entitled
to vote, represented either in person or by proxy. The Inspector of Elections
will treat abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum but not as voting for purposes
of determining the approval of any matter submitted to the shareholders for a
vote. Any proxy which is returned using the form of proxy enclosed and which is
not marked as to a particular item will be voted for the Acquisition or any and
all other proposals described below that are not marked. If a broker indicates
on the enclosed proxy or its substitute that it does not have discretionary
authority as to certain shares to vote on a particular matter ("broker
non-votes"), those shares will not be considered as either entitled to vote or
as voting with respect to that matter. Accordingly, broker non-votes will not be
considered in calculating the number of shares needed to constitute a quorum.
While there is no definitive specific statutory or case law authority in
California concerning the proper treatment of abstentions and broker non-votes,
Laserscope believes that the tabulation procedures to be followed by the
Inspector of Elections are consistent with the general statutory requirements in
California concerning voting of shares and determination of a quorum.
The cost of soliciting proxies will be borne by Laserscope. The Company has
retained the services of Skinner & Co., Inc. to aid in the solicitation of
proxies from brokers, bank nominees and other institutional owners. The Company
estimates that it will pay Skinner & Co., Inc. a fee not to exceed $3,500 for
its services and will reimburse Skinner & Co. for certain out-of-pocket expenses
that are usual and proper. In addition, Laserscope will reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation materials to such beneficial owners. Proxies
may be solicited by certain of
6
<PAGE> 13
Laserscope's directors, officers and regular employees, without additional
compensation, personally or by telephone or telegram.
The Acquisition and other proposals are not structured so that the approval
of at least a majority of Laserscope's unaffiliated shareholders is required for
approval. Laserscope has been advised by certain of Laserscope's directors and
executive officers that they and their affiliates intend to vote all shares of
Laserscope held by them, representing approximately 2% of the outstanding shares
of Laserscope's common stock, in favor of the proposals. The proposals could be
deemed to have a material effect on shareholders. In particular, 4,609,345
shares of Laserscope common stock (approximately 39.5% of the currently
outstanding shares), will be issued at the Closing in consideration of the
assets purchased, an additional 500,000 shares of Laserscope common stock may be
issued within one year of the Closing Date to meet certain obligations under the
Agreement.
It is currently expected that representatives of Laserscope's principal
accountants for the current year will be present at the Special Meeting where
they will have the opportunity to make a statement if they so decide and will be
available to respond to appropriate questions.
7
<PAGE> 14
SELECTED HISTORICAL AND PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following tables present selected historical and pro forma combined
condensed financial data and comparative per share data for Laserscope and HSI.
The historical financial information is qualified in its entirety by reference
to, and should be read in conjunction with, the financial statements and notes
thereto of the separate companies appearing in or incorporated by reference into
this Proxy Statement. The unaudited pro forma combined condensed financial
information is not necessarily indicative of future operations or the actual
results that would have occurred had the Acquisition been consummated at the
beginning of the periods presented. This information is qualified in its
entirety by reference to, and should be read in conjunction with, the unaudited
pro forma combined condensed financial statements and notes thereto included
elsewhere in this Proxy Statement and with the historical financial statements
and notes thereto of the separate companies appearing elsewhere herein or
incorporated herein by reference.
SELECTED PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
------------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS DATA:
Net revenues....................................... $ 14,629 $57,909
Net income (loss).................................. 510 (4,491)
Net income (loss) per share........................ $ 0.04 $ (0.39)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------
<S> <C> <C>
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA
(END OF PERIOD):
Cash, cash equivalents and short-term
investments...................................... $ 1,460
Working capital.................................... 20,424
Total assets....................................... 40,710
Shareholders' equity............................... 27,249
</TABLE>
SELECTED LASERSCOPE CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- ---------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $7,722 $9,215 $30,133 $36,320 $37,831 $35,963 $41,893
Net income (loss)................ 137 251 (3,552) (931) 589 (4,421) (5,212)
Net income (loss) per share...... 0.02 0.04 (0.51) (0.13) 0.09 (0.66) (0.79)
</TABLE>
<TABLE>
<CAPTION>
ENDED DECEMBER 31,
---------------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
-------------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT THE END OF
PERIOD):
Cash, cash equivalents and
short-term investments......... 2,591 2,278 6,602 8,144 10,143 12,707
Working capital.................. 12,794 12,564 16,825 17,132 16,219 20,157
Total assets..................... 22,987 23,582 27,321 29,301 30,242 35,394
Capital leases (excluding current
portion)....................... 12 15 27 26 97 465
Shareholders' equity............. 17,364 17,326 20,901 21,234 20,182 24,208
</TABLE>
8
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA RELATING TO HSI
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- ---------------------------------------------------
1996(1)(2) 1995 1995 1994 1993 1992 1991
-------------- ------ ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $6,907 $6,868 $27,776 $32,438 $32,555 $19,045 $23,045
Net (loss)....................... (211) (841) (3,275) (439) (675) (5,065) (1,134)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------------------------------
1996(1)(2) 1995 1994 1993 1992 1991
-------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments......... 869 1,782 945 754 1,190 447
Working capital.................. 10,284 3,420 9,296 9,663 7,539 12,162
Total assets..................... 16,895 18,554 15,383 15,297 12,343 17,712
Shareholder's equity............. 11,047 4,261 7,536 7,975 8,649 13,715
</TABLE>
- ---------------
(1) On February 28, 1996, Heraeus Surgical, Inc. ("Predecessor") changed its
name to Heraeus Systems, Inc. In addition, a new company named Heraeus
Medical, Inc. was formed. By asset transfer agreement as of March 1, 1996
all assets and liabilities (with the exception of an intercompany loan and
cash) were transferred from Heraeus Systems, Inc. to Heraeus Medical, Inc.
Heraeus Medical, Inc. subsequently changed its name to Heraeus Surgical,
Inc. ("Successor"). In connection with the corporate reorganization, Heraeus
Med GmbH, the parent company, made a capital contribution of $10.8 million
to the new company named Heraeus Medical, Inc. See "HSI MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Overview." In March 1996, $250,000 of intercompany debt was
forgiven by the Heraeus Group and recorded as a capital contribution by the
Successor.
(2) The information for the three months ended March 31, 1996, includes
information of the Predecessor for the two months ended February 29, 1996
and financial information of the Successor for the one month ended March 31,
1996.
9
<PAGE> 16
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of
Laserscope and combined per share data on an unaudited pro forma basis after
giving effect to the Acquisition on a purchase accounting basis. The information
presented in this table should be read in conjunction with the unaudited pro
forma condensed combined financial statements and the separate financial
statements of the respective companies and the notes thereto appearing elsewhere
herein. The unaudited pro forma condensed combined financial data are not
necessarily indicative of the operating results that would have been achieved
had the transaction been in effect as of the beginning of the periods presented
and should not be construed as representative of future operations.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------- ---------------
1991 1992 1993 1994 1995 1996
------ ------ ----- ------ ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) per share:
Laserscope................. $(0.79) $(0.66) $0.09 $(0.13) $(0.51) $0.02
Pro Forma(1)............... 0.04
Book value per share:
Laserscope................. $ 3.63 $ 3.00 $3.10 $ 2.99 $ 2.45 $2.46
Pro Forma(2)............... $2.34
</TABLE>
- ---------------
(1) Pro forma per share amounts are calculated using Laserscope's equivalent
shares and assumes that the 4,609,345 shares issued in the Acquisition
occurred on January 1, 1995.
(2) Historical book value per share is completed by dividing shareholders'
equity by the number of common shares outstanding at the end of each period.
Pro forma book value per share is computed by dividing pro forma
shareholders' equity by the pro forma number of common shares which would
have been outstanding had the Acquisition been consummated as of March 31,
1996.
10
<PAGE> 17
PROPOSAL NO. 1
THE ACQUISITION AND RELATED TRANSACTIONS
BACKGROUND
In June 1995, Thomas Ihlenfeldt, Chief Executive Officer and Chairman of
HSI and Managing Director of HME, met with Benjamin Holmes, Chairman of
Laserscope's Board of Directors, to discuss the medical laser industry and to
explore possible areas of cooperation. From June through December of 1995, Mr.
Ihlenfeldt met several times with Robert McCormick, Laserscope's President and
Chief Executive Officer, to discuss further potential synergies that could be
realized in a formal business relationship between Laserscope and HSI, including
improved competitiveness in the marketplace and increased shareholder value.
These discussions were general in nature and did not result in any offers or
proposals being made.
At a meeting of the Laserscope Board of Directors in November 1995, after
presentations by Mr. McCormick and Mr. Holmes concerning the possibilities and
benefits of pursuing a relationship with HME, the Laserscope Board authorized
management to investigate the possibility of a relationship with HME, provided
that no definitive agreement was entered into prior to approval of the Board of
Directors. In addition, the Laserscope Board authorized management to retain Von
Gehr International as its financial advisor in connection with a possible
transaction with HME. George Von Gehr of Von Gehr International was retained in
December 1995 to assist the Company in pursuing a relationship with HME.
At a meeting of the Laserscope Board of Directors in early February 1996,
Mr. Von Gehr presented an initial analysis of the benefits of a combination of
Laserscope and HME's medical laser business and reviewed the status of
discussions with HME. The Laserscope Board then discussed the timing, risks,
valuation and the structure of the proposed transaction. The Laserscope Board
again authorized management to continue negotiations with HME, provided that no
commitments were made without the prior approval of the Board of Directors.
Principals from Laserscope and HME and their respective financial advisors
continued to meet throughout February and March to negotiate business terms of a
proposed transaction between the two companies and commence financial, business
and legal due diligence. In early April 1996, the Laserscope Board of Directors
again met and, after a presentation by Mr. Von Gehr, discussed the status of
negotiations with HME, the potential benefits of an acquisition by Laserscope of
HSI and the issues related to the integration of Laserscope and HSI. The
Laserscope Board authorized management to continue to negotiate the terms of the
transaction provided that no definitive agreement concerning such action was
signed prior to final approval of the Board of Directors. The Laserscope Board
made any future approval of a transaction with HME contingent upon the
Laserscope Board receiving an opinion from Von Gehr International concerning the
fairness of the proposed transaction.
During April 1996, principals from Laserscope and HME and their respective
financial advisors continued to negotiate the business terms, finalized a
structure for the proposed acquisition by Laserscope of HSI and certain assets
and liabilities of HME, and completed their financial, business and legal due
diligence. At a special meeting of the Laserscope Board of Directors on April
22, 1996, Laserscope management presented to the Board an overview of their
investigation of HSI and a summary of their April discussions with HME,
including management's review of the financial and other information relating to
the HME Assets. After a presentation by Von Gehr International described under
"Laserscope Financial Advisor" below, and subject to receipt of a fairness
opinion from Von Gehr International in the form described under "Laserscope
Financial Advisor" (which was received by Laserscope on April 23, 1996), the
Laserscope Board approved the terms of, and authorized Laserscope management to
execute, the Agreement.
The Agreement was executed after the close of trading on Tuesday, April 23,
1996, and public announcement thereof was made prior to the opening of trading
of Laserscope common stock on the Nasdaq National Market on Wednesday, April 24,
1996.
11
<PAGE> 18
REASONS FOR THE ACQUISITION
The Laserscope Board believes that the acquisition of the HME Assets will
strengthen and broaden Laserscope's product offerings, expand its international
distribution capabilities, and help Laserscope achieve efficiencies in
manufacturing, product development, marketing, sales and customer support, as
well as increase Laserscope's size, which the Board believes will enhance
Laserscope's profile with customers and with the investment community.
During the Acquisition discussions, both business and financial reasons for
the Acquisition were reviewed extensively. The business factors considered were
the reputation, research and engineering programs, manufacturing facilities,
sales activities and customer base, and the operating efficiencies expected to
be derived from the acquisition of the HME Assets. The financial factors
considered were the operating histories, current operating plans, and balance
sheets of the HME Assets. While the Laserscope Board believes that the prospects
for Laserscope after the Acquisition are positive, the integration of the HME
Assets into Laserscope's business, and the management of the larger combined
business are subject to a number of risks. See "TERMS OF THE
ACQUISITION -- Certain Risks Associated with the Acquisition."
At its April 22, 1996 Board meeting, the Board of Directors of Laserscope
unanimously approved the Agreement and the transactions contemplated thereby,
after a presentation by management and the presentation by Von Gehr
International, primarily for the following reasons:
1. The complementary nature of the HME Assets with Laserscope's business,
and the potential long-term benefits that could result from the integration of
the businesses. Laserscope believes that the Acquisition presents an
opportunity for Laserscope to offer a stronger and broader range of products.
HSI is a prominent manufacturer of CO2 and Nd:YAG lasers as well as operating
room systems. Its lasers are sold under the LaserSonics tradename. The
LaserSonics CO2 PARAGON laser is used in skin resurfacing, a popular
dermatological procedure. Its operating room products include lighting systems,
surgical tables, ceiling-mounted equipment management systems, and centralized
smoke evacuation systems. The addition of new product lines and technologies
will give Laserscope the opportunity to participate in new markets, including
new non-laser markets.
2. The incremental distribution capabilities of HSI should provide new
product channels for Laserscope products. Laserscope believes that the
acquisition will enable Laserscope to expand its distribution capabilities in
Europe, Asia and Latin America. HSI presently distributes its products in 44
countries. Laserscope presently distributes its products in 25 countries. While
the ultimate number of countries in which Laserscope will distribute products
may vary in the future, Laserscope believes that it will be able to take
advantage of certain HSI distribution channels to expand Laserscope's
distribution capabilities and at the same time reduce distribution costs by
eliminating redundant distribution channels.
3. The size of the combined company should position it well in current and
future markets. While each of the companies is smaller in comparison to several
other companies in the highly competitive medical laser industry, the Laserscope
Board believes that the Acquisition presents an opportunity for Laserscope to
broaden and strengthen both its market presence and product offerings with
products that Laserscope believes are well regarded by the market. In
Laserscope's experience, both companies have had strong reputations for quality
products and reliable service. Laserscope believes that the Acquisition presents
an opportunity for Laserscope to grow by further augmenting its reputation with
its customers and with the investment community.
4. The combined company should achieve greater efficiency of scale. As a
larger company, Laserscope believes that greater combined manufacturing levels
will give it additional bargaining power with suppliers and the ability to
spread its fixed costs over greater production levels. Laserscope expects to be
able to combine the two companies' distribution channels and administrative
organizations with the objective of streamlining combined expenses and spreading
those expenses over a larger revenue base.
5. Fairness of the Consideration. The Laserscope Board believes that the
consideration being paid for the HME Assets is fair to Laserscope from a
financial point of view, as supported by the opinion of Von Gehr
12
<PAGE> 19
International. See "THE ACQUISITION AND RELATED TRANSACTIONS -- Laserscope
Financial Advisor."
Laserscope considered the above in light of its knowledge of the business
and operations of Laserscope, information presented by Laserscope management and
by Von Gehr International, the opinion delivered by Von Gehr International and
its business judgment. In view of the number and complexity of factors
considered, the Laserscope Board did not assign a relative weight to any of the
factors considered. However, the Laserscope Board placed special emphasis on its
belief in the complementary and synergistic business and financial strengths of
the Laserscope and the HME Assets, its view that those complementary strengths
in technologies, markets, distribution capabilities and market reputation would
enhance the value of the combined company in the eyes of its customers and the
investment community, and its view, as supported by the Von Gehr International
opinion, that the consideration paid to HME for the HME Assets is fair to
Laserscope from a financial point of view.
LASERSCOPE FINANCIAL ADVISOR
Laserscope engaged Von Gehr International to act as its financial advisor
in connection with the Acquisition and to render its opinion as to the fairness,
from a financial point of view, to Laserscope of the consideration to be paid by
Laserscope in the Acquisition. On April 22, 1996, in connection with the
evaluation of the Agreement and the Acquisition by the Board of Directors of
Laserscope, Von Gehr International made a presentation to the Laserscope Board
with respect to the Acquisition, including delivery of a report summarizing Von
Gehr International's analysis as described below. On April 23, 1996, Von Gehr
International delivered its written opinion that subject to certain assumptions
set forth in its written opinion, the consideration to be paid by Laserscope in
the Acquisition is fair, from a financial point of view, to Laserscope. The full
text of the written opinion of Von Gehr International is set forth in Exhibit B
to this Proxy Statement.
No limitations were imposed by Laserscope on the scope of Von Gehr
International's investigation or the procedures to be followed by Von Gehr
International in rendering its opinion. Von Gehr International's opinion is
directed to the Board of Directors of Laserscope only and does not constitute a
recommendation to any Laserscope shareholder as to how such shareholder should
vote with respect to the Acquisition at the Special Meeting. Von Gehr
International was not requested to opine as to, and its opinion does not in any
manner address, Laserscope's underlying business decision to proceed with or
effect the Acquisition.
In arriving at its opinion, Von Gehr International reviewed the Agreement
and the financial and other information that was publicly available or furnished
by Laserscope and HME, including certain internal financial reports and
forecasts for HSI and the LDB and for Laserscope prepared by their respective
management. Von Gehr International also held discussions with members of the
senior management of HSI and the LDB and Laserscope regarding the historic and
current business operations and future prospects of their respective businesses,
including their expectations for certain strategic benefits of the acquisition.
In addition, Von Gehr International compared selected financial data (including
latest reported twelve months ("LTM") revenues, earnings before income and taxes
("EBIT"), net income and projected financial performance of Laserscope and HSI
and the LDB with similar data from the following publicly traded companies
engaged in businesses considered by Von Gehr International to be comparable to
those of Laserscope and HSI and the LDB: Candela Laser Corporation; Coherent
Inc.; Laser Industries Limited; Medstone International Inc.; Palomar Medical
Technologies, Inc.; Spectranetics Corporation; Sunrise Technologies
International; Surgical Laser Technologies, Inc.; and Trimedyne Inc. With
respect to each such company, Von Gehr International calculated market
capitalization to revenue and market capitalization to EBIT, after performing
appropriate adjustments, as well as three year and one year historical growth
rates. The results of these analyses were used to impute a range of values for
Laserscope by applying the multiples derived from the analyses to Laserscope's
financial results.
Von Gehr International also compared selected financial data of Laserscope
with similar data of the companies involved in the following transactions:
Coherent, Inc.'s acquisition of Applied Laser Systems; Laser Industries
Limited's acquisition of Surgilase Medical Laser; and Spectranetics
Corporation's acquisition of
13
<PAGE> 20
Advanced Interventional; and compared the projected cash flow of HSI and the LDB
with that of Laserscope on an annual basis for five years going forward using
discounted cash flow methodology. In addition, Von Gehr International reviewed
prices paid in certain other similar business combinations and conducted such
other financial studies, analyses and investigations as Von Gehr International
deemed appropriate for purposes of its opinion. In connection with its review,
Von Gehr International assumed, without independent verification, the accuracy,
completeness and fairness of all of the financial and other information
regarding Laserscope and HSI and the LDB provided by their respective
representatives. Von Gehr International did not make any independent evaluation
of Laserscope or HSI and the LDB nor did it review any of their corporate
records.
Pursuant to an engagement letter between Laserscope and Von Gehr
International, Laserscope has agreed to pay Von Gehr International a fee of
$185,000 for acting as financial advisor in connection with the Acquisition,
including rendering its opinion. Of such fee, $15,000 was paid on December 12,
1995, with the remainder to become payable upon the Closing. Laserscope also has
agreed to reimburse Von Gehr International for its reasonable expenses.
CERTAIN RISKS ASSOCIATED WITH THE ACQUISITION
Difficulties and Cost of Integration. The anticipated benefits of the
Acquisition will not be achieved unless the HME Assets are successfully
integrated in a smooth and timely manner. The transition will require among
other matters, integration of the respective companies' engineering,
manufacturing and marketing and sales organizations, product offerings and
research and development personnel and activities. The integration will require
substantial attention from management, which does not have experience
integrating businesses of this size. There can be no assurance that the
integration can be accomplished smoothly or successfully. In addition, the
diversion of management attention from the day-to-day operations of the
businesses to the integration, and any difficulties encountered in the
transition process could have a material adverse impact on the business,
revenues and operating results of Laserscope.
Impact of Amortization on Earnings. The transaction will be recorded as a
purchase and as a result Laserscope will record certain non-recurring and
recurring charges. In the period in which the transaction closes, the Company
will record a non-recurring charge of approximately $1.1 million relating to the
write-off of the in-process technology included in the Acquisition. In addition,
the Company will record annually for a period of five to seven years,
approximately $300,000 in charges resulting from the amortization of other
intangibles determined by the purchase price allocation.
Limited Working Capital; Potential Need to Raise Additional Capital. As of
March 31, 1996, Laserscope's total assets and liabilities were $23.0 million and
$5.6 million, respectively. As of such date, Laserscope's working capital was
$12.8 million while cash and cash equivalents amounted to approximately $2.6
million. Laserscope's need for capital is affected by the current and
anticipated demand for its products as well as procurement and production lead
times in its manufacturing processes. In addition, pursuant to the Agreement,
Laserscope has agreed to pay HME $2 million as partial consideration for the HME
Assets. Laserscope also expects to pay approximately $1.5 million of additional
costs relating to the Acquisition within the first six months after the Closing
of the Acquisition. Changes in these factors could have a material impact on
capital requirements. Although Laserscope currently intends to finance the
Acquisition using existing cash resources, Laserscope is exploring alternatives
for financing the Acquisition, including debt and equity. Such financing may not
be available on satisfactory terms, or at all. In addition, future equity
financings could result in dilution to Laserscope's shareholders, and future
debt financings could result in certain financial and operational restrictions.
Laserscope currently anticipates that while its remaining cash resources will be
sufficient to fund its short term operating needs, including consummation of the
Acquisition, additional financing either through the Company's bank line of
credit or otherwise would be required for the Company's currently envisioned
long term needs.
History of Losses. At March 31, 1996, the Company had an accumulated
deficit of $19.2 million. Although the Company generated net income of $137,000
for the three months ended March 31, 1996, the Company experienced annual net
losses of $3.6 million, $931,000, $4.4 million and $5.2 million for the years
ended December 31, 1995, 1994, 1992 and 1991, respectively. HSI has also
experienced significant net losses,
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incurring net losses of $211,000 for the three months ended March 31, 1996, and
$3.3 million, $439,000, $675,000, $5.1 million and $1.1 million for the years
ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively. There can be
no assurance that, following consummation of the Acquisition, the combined
companies can achieve profitability.
Dilution of Ownership of Laserscope; Significant Influence on Laserscope by
HME. Upon the closing of the Acquisition, HME will beneficially own
approximately 39.5% of the outstanding Laserscope common stock, and
approximately 42% if Laserscope issues all of the Indemnification Shares (as
defined below). This represents substantial dilution of the ownership interest
in Laserscope to its current shareholders. In addition, contingent upon the
Closing, the Laserscope Board of Directors has amended the Laserscope Bylaws to
increase the number of directors on the Laserscope Board to eight. Under the
Agreement, Laserscope has agreed to reduce its Board of Directors to seven
members one year from the Closing Date. Commencing one year after the closing of
the Acquisition, for so long after such anniversary as HME owns at least 3.3
million shares of Laserscope common stock, Laserscope has agreed to use its best
efforts to have three nominees of HME elected to the Laserscope Board of
Directors; for so long after such anniversary as HME owns at least 1.6 million
shares of Laserscope common stock, Laserscope has agreed to use its best efforts
to have at least two nominees of HME elected to the Laserscope Board of
Directors; and for so long after such anniversary as HME owns at least 600,000
shares of Laserscope common stock, Laserscope has agreed to use its best efforts
to have one nominee of HME elected to the Board. Furthermore, for so long as HME
owns at least 600,000 shares of Laserscope common stock, Laserscope has agreed
not to increase, or ask its shareholders to increase, the number of directors
beyond seven without the prior consent of HME.
As a result of the above agreements and as a result of HME's ownership
interest in Laserscope, HME will be in a position to have a significant
influence on the election of directors and other corporate matters which require
the vote of Laserscope shareholders. See "TERMS OF THE ACQUISITION -- Certain
Covenants -- Directors" and "INFORMATION CONCERNING LASERSCOPE -- Principal
Shareholders."
Government Regulation; Uncertainty of Obtaining Regulatory
Approval. Government regulation in the United States and other countries is a
significant factor in the development, manufacturing and marketing of many of
the Company's products and in the Company's ongoing research and development
activities. The Company and its products are regulated by the United States Food
and Drug Administration ("FDA") under the Federal Food, Drug and Cosmetic Act
(the "FDC Act") and the Radiation Control for Health and Safety Act. The FDC Act
provides two basic review procedures for medical devices. Certain products
qualify for a Section 510(k) ("510(k)") procedure under which the manufacturer
gives the FDA premarket notification of the manufacturer's intention to commence
marketing the product. The manufacturer must, among other things, establish that
the product to be marketed is "substantially equivalent" to a previously
marketed product. In some cases, the manufacturer may be required to include
clinical data gathered under an investigational device exemption ("IDE") granted
by the FDA allowing human clinical studies.
If the product does not qualify for the 510(k) procedure, the manufacturer
must file a premarket approval application ("PMA") based on testing intended to
demonstrate that the product is both safe and effective. The PMA requires more
extensive clinical testing than the 510(k) procedure and generally involves a
significantly longer FDA review process. Approval of a PMA allowing commercial
sale of a product requires preclinical laboratory and animal tests and human
clinical studies conducted under an IDE establishing safety and effectiveness.
Generally, because of the amount of information required, the 510(k) procedure
takes less time than the PMA procedure.
To date, all of the Company's products (except for the 600 Series Dye
Module) have been marketed through the 510(k) procedure. Future applications,
however, may require clearance through the PMA procedure. There can be no
assurance that such marketing clearances can be obtained on a timely basis.
Delays in receiving such clearances could have a significant adverse impact on
the Company. The FDA may also require post-market testing and surveillance
programs to monitor certain products.
Certain other countries require the Company to obtain clearances for its
products prior to marketing the products in those countries. The requirements
vary widely from country to country and are subject to change.
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The European community is in the process of developing a new approach to the
regulation of medical products which may significantly change how medical
devices are marketed in those countries within the next several years. In
February 1996, the Company achieved ISO 9001 and CE (European Conformation) Mark
registration in anticipation of this approach.
The Company is also required to register with the FDA and state agencies,
such as the Food and Drug Branch of the California Department of Health
Services, as a medical device manufacturer. The Company is inspected on a
routine basis by both the FDA and the State of California for compliance with
the FDA's Current Good Manufacturing Practice regulations. Those regulations
impose certain procedural and documentation requirements upon the Company with
respect to manufacturing, testing, and quality control activities. If violations
of applicable regulations are noted during these inspections, the continued
marketing of any products manufactured by the Company may be adversely affected.
In addition, the Company's laser products are covered by a performance
standard for laser products set forth in FDA regulations. The laser performance
standard imposes certain specific record-keeping, reporting, product testing,
and product labeling requirements on the Company. These requirements also
include affixing warning labels to the Company's laser systems, as well as the
incorporation of certain safety features in the design of the Company's
products.
In 1983, regulations were adopted under the Medicare program for the
reimbursement of health care costs based on Diagnostic Related Groups ("DRGs").
The DRG regulations limit the dollar amount that a hospital may be reimbursed
depending on the nature of the diagnosis. This provides an incentive for the
hospital to treat a patient in the most cost-effective manner since the
reimbursement will be fixed, regardless of how much it costs the hospital to
provide the treatment. Changes in DRG regulations, such as those relating to
reimbursement of capital equipment costs, could have an adverse effect on the
Company. These regulations also influence reimbursements by private insurance
companies. Changes in insurance coverage could impact such reimbursements and
thereby adversely affect future sales of the Company's products.
Complying with applicable governmental regulations and obtaining necessary
clearances or approvals can be time consuming and expensive, and there can be no
assurance that regulatory review will not involve delays or other actions
adversely affecting the marketing and sale of the Company's products. The
Company also cannot predict the extent or impact of future legislation or
regulations.
During the past four years, there has been substantial debate in the
political arena related to prospective changes in the U.S. healthcare system.
Cost containment is a major element of these policy reviews and to the extent
that new policies and practices curtail hospital capital equipment and supplies
procurement patterns or dictate which surgical procedures will be covered by
applicable insurance or government funded or subsidized programs, this could
have a negative impact on the Company.
The Company is also subject to regulation under federal and state laws
regarding, among other things, occupational safety, the use and handling of
hazardous materials and protection of the environment.
Uncertainty of Technological Change; Uncertainty of New Product
Development. Laserscope and HSI operate in industries that are subject to rapid
technological change. Their ability to remain competitive will depend upon,
among other things, their ability to anticipate and respond to such change. As a
result, the Company has devoted and will continue to devote substantial
resources to research and development. Laserscope's current research and
development programs are directed toward the development of new products and
enhancements to existing laser, instrumentation and disposable products. Much of
the Company's laser product development efforts have built on the earlier basic
research of Du Pont related to the potassium titanyl phosphate ("KTP") crystal.
A major element of the Company's current product development effort is related
to instrumentation and disposable products. The Company's expenditures for
research and development were approximately $3.8 million, $3.6 million, and $4.0
million in 1995, 1994 and 1993, respectively.
No assurance can be given that the Company will be successful in designing,
manufacturing or selling its enhanced or new products in a timely manner. Nor
can any assurance be given that a competitor could not
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introduce a new or enhanced product or technology that could have an adverse
effect on the Company's competitive position.
Dependence on Single-Source Suppliers. Certain of the components used in
the Company's products, including KTP crystals, molded and cast components,
power supplies, and certain optical components, are purchased from single
sources. While the Company believes that most of these components are available
from alternate sources, an interruption of these or other supplies could
adversely affect the Company. KTP crystals are currently available at
appropriate quality levels from only one supplier, a division of Litton
Industries. This supplier has a second crystal growing and fabrication facility
at a second location in the United States geographically isolated from its
original production facility. While the Company believes that an alternative
supplier of KTP crystals could be qualified, if the supply of crystals from the
present supplier were interrupted there could be an adverse effect on the
Company's business and results of operations.
Competition. The medical laser market is highly competitive. The ability
of the Company to compete effectively depends on such factors as market
acceptance of its laser systems, product performance and price, customer
support, and success and timing of new product development by the Company and
its competitors. Some of the Company's current and prospective competitors have
or may have significantly greater financial, technical, manufacturing and
marketing resources than the Company.
Laserscope competes in the nonophthalmic surgical segment of the worldwide
medical laser market, in which lasers are used in hospital operating rooms,
outpatient surgery centers and individual physician offices for a wide variety
of procedures. A large number of companies have entered the surgical laser
market over the past several years, certain of which have significantly greater
financial and other resources than the Company. Certain surgical laser
manufacturers have targeted their efforts on narrow segments of the market, such
as angioplasty and lithotripsy. To the extent that their products compete for
the same capital equipment funds, these manufacturers may be deemed to compete
with the Company. More generally, surgical laser manufacturers such as
Laserscope compete with standard surgical methods and other medical
technologies. There can be no assurance that the Company can compete effectively
against such competitors. In addition, there can be no assurance that these or
other companies will not succeed in developing technologies and products that
are more effective than the Company's or that would render the Company's
technology or products obsolete or uncompetitive.
Reliance on Patents and Licenses. The Company's ability to compete
effectively will depend in part on its ability to develop and maintain
proprietary aspects of its technology. The Company holds several patents issued
in the United States, generally covering surgical laser systems, delivery
devices, calibration inserts, the laser resonator and the connector used to
attach disposable and reusable instrumentation to the Company's laser systems.
There can be no assurance that the patents that have been issued to the Company
or any patents which may be issued as a result of the Company's patent
applications will provide any competitive advantages for the Company's products
or that they will not be successfully challenged, invalidated or circumvented in
the future. In addition, there can be no assurance that competitors, many of
which have substantial resources and have made substantial investments in
competing technologies, will not seek to apply for and obtain patents that will
prevent, limit or interfere with the Company's ability to make, issue, use and
sell its products.
In 1986, the Company acquired a license under certain United States patents
from Du Pont relating to KTP and related crystalline material used in the
Company's laser systems for $270,000. The license was exclusive for in vivo
diagnostic and therapeutic applications of KTP material. Although the license
has a 15-year term expiring in 2001, the principal patent licensed under this
agreement expired in April 1993. Accordingly, the use by competitors of a key
component in the Company's surgical laser systems has not been prohibited since
the expiration date. Under the terms of the Company's license, the Company is
required to achieve certain minimum sales of systems using KTP material to
maintain the license. In addition, Du Pont has sole discretion whether or not to
enforce the license against infringers. While the Company believes that it has
developed proprietary technology that will be difficult for competitors to
replicate without substantial time and expense, and while additional patents
have issued or have been applied for by the Company, there can be no assurance
that others will not develop substantially equivalent proprietary technology or
otherwise obtain access to the Company's know-how.
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Failure to Attract or Retain Key Personnel Can Adversely Affect
Results. Laserscope is and will continue to be dependent upon the efforts and
abilities of a number of current key personnel. In addition, upon consummation
of the Acquisition, Laserscope will be dependent upon the efforts and abilities
of key personnel that will become employees in connection with the Acquisition.
The success of Laserscope after the Acquisition will depend to a large extent
upon its ability to attract and to retain key employees and to integrate former
employees of HSI and HME. The loss of certain of these people or Laserscope's
inability to attract and retain other key employees would have a material
adverse effect on the business, financial condition and results of operations of
Laserscope.
Potential Adverse Effect on Price of Common Stock and Laserscope's Ability
to Raise Capital upon Release of Lockup Restriction. Laserscope will issue
4,609,345 shares of Laserscope common stock to HME in connection with the
Acquisition representing an approximately 39.5% ownership interest in
Laserscope. HME has agreed not to sell any of such additional shares until after
one year from the Closing. Laserscope has agreed to file a "shelf" registration
statement with respect to HME's shares of Laserscope common stock by the end of
such one year period. HME will have the ability, subject to certain restrictions
set forth in the Agreement, to sell all or any of its shares of Laserscope
common stock at any time after such one year period. Any sale of shares by HME
would substantially alter the market float for Laserscope's common stock and
could have an adverse effect on Laserscope's ability to raise capital. In
addition, any such sales, especially in large amounts, could adversely affect
the market price of Laserscope's common stock. See "TERMS OF THE ACQUISITION --
Certain Covenants -- Lockup" and "-- Registration Rights."
Fluctuations in Quarterly Operating Results. A number of factors affect
the Company's financial results and stock price, especially on a quarterly
basis. One such factor is the timing of shipments. The Company's laser products
are relatively expensive pieces of medical capital equipment and the precise
shipment date of specific units can have a marked effect on the Company's
results of operations on a quarterly basis. Any delay in product shipments near
the end of a quarter could cause quarterly results to fall short of anticipated
levels. Another related factor is the timing of orders. To the extent orders are
received by the Company near the end of a quarter, the Company may not be able
to fulfill the order during the balance of that same quarter. In addition, the
Company typically receives a disproportionate percentage of its orders toward
the end of each quarter. To the extent that anticipated orders are not received
or are delayed beyond the end of the applicable quarter, the Company's revenues
may be adversely affected and the Company's revenues may be unpredictable from
quarter to quarter. Further, there can be no assurance that revenue growth or
profitability on a quarterly or annual basis will be accomplished.
Product Liability Risk; Limited Insurance Coverage. Laserscope's
development, manufacture and sale of surgical, dermatological and therapeutic
laser systems and related surgical instrumentation and disposable supplies and
accessories entails significant risk of product liability claims. Laserscope has
agreed to indemnify HME and its officers, directors, shareholders and
affiliates, insurers, attorneys, successors and assigns, from, among other
things, any and all liabilities, losses, damages, claims, costs and expenses not
reimbursed by insurance resulting from any product liability claims (whether
based on negligence, strict liability or any other legal theory) arising after
the Closing and relating to products sold by Laserscope or HSI or the LDB at any
time before or after the Closing. The Company's current product liability
insurance covers claims related to products sold by Laserscope and its
subsidiaries and affiliated persons, including acquired products sold prior to
the Closing by HSI and HME, in an amount up to $10 million (subject to a
$100,000 deductible). There can be no assurance that Laserscope's product
liability insurance coverage is adequate to protect the Company from any
liabilities that it might incur in connection with the development, manufacture
and sale of its products or in connection with the Company's indemnification
obligations to HME. In addition, product liability insurance is expensive and in
the future may not be available to the Company on acceptable terms, or at all. A
successful product liability claim or series of claims, or an indemnification
claim by HME brought against the Company in excess of its insurance coverage,
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "TERMS OF THE
ACQUISITION -- Indemnification" and "Information Concerning HSI and the
LDB -- Products."
Volatility of Stock Price. The market price of the Company's common stock
may be subject to significant fluctuations. These fluctuations may be due to
factors specific to the Company, such as quarterly
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fluctuations in the Company's financial results, changes in analysts' estimates
of future results, changes in investors' perceptions of the Company or the
announcement of new or enhanced products by the Company or its competitors as
well as announcements relating to acquisitions and strategic transactions by the
Company or its competitors, including the Acquisition. In addition, such
fluctuations may be due to or exacerbated by general conditions in the medical
equipment industry or conditions in the financial markets generally. See "THE
ACQUISITION AND RELATED TRANSACTIONS -- Certain Risks Associated with the
Acquisition -- Fluctuations in Quarterly Operating Results."
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS BELIEVES THAT THE ACQUISITION IS FAIR AND IN THE
BEST INTERESTS OF LASERSCOPE AND ITS SHAREHOLDERS, BASED ON THE REASONS FOR THE
ACQUISITION SET FORTH ABOVE. CONSEQUENTLY, THE BOARD OF DIRECTORS RECOMMENDS A
VOTE "FOR" THE PROPOSAL TO ADOPT THE AGREEMENT AND THE ACQUISITION. SEE "THE
ACQUISITION AND RELATED TRANSACTIONS -- REASONS FOR THE ACQUISITION; FACTORS
CONSIDERED BY THE BOARD."
TERMS OF THE ACQUISITION
The following paragraphs summarize, among other things, the material terms
of the Agreement, which is attached hereto as Exhibit A and incorporated herein
by reference. Shareholders are urged to read the Agreement in its entirety for a
more complete description of the Acquisition. Unless defined herein, defined
terms shall have the meanings ascribed to them in the Agreement.
EFFECTIVE TIME OF THE ACQUISITION
Laserscope and HME executed the Agreement on April 23, 1996. The
transactions contemplated by the Agreement will take place on the closing (the
"Closing") which shall occur on or before August 31, 1996 (the "Closing Date").
ASSETS AND LIABILITIES TO BE ACQUIRED
The Agreement provides that at the Closing HME will transfer and Laserscope
will acquire, all of the outstanding shares of capital stock of HSI (the "HSI
Shares") and certain of the assets and liabilities of HME's laser distribution
operations (the "LDB"). The LDB Assets consist principally of inventory, and the
LDB Liabilities are comprised of trade payables (not to exceed $500,000 apart
from payables to HSI), employment contracts and payroll and payroll-related
obligations. The Agreement also provides that, effective upon the Closing, HME
will grant to Laserscope the right to purchase and resell operating room
surgical lamps in the United States. See "TERMS OF THE ACQUISITION -- Additional
Agreements -- Surgical Lamp Distribution Agreement."
In addition, the Agreement provides that at the Closing, Laserscope will
assume certain liabilities of HME, including: (i) certain contracts of HME
related to the LDB; (ii) all outstanding purchase orders of the LDB, other than
to HSI; (iii) all property taxes, lease payments, and prepaid license and
registration fees with respect to the LDB Assets as of the Closing Date; (iv)
insurance premiums related to the LDB Assets, pro rated as of the Closing Date;
(v) all product liability arising after the Closing, relating to products
manufactured or sold by HSI or the LDB any time before or after the Closing.
CONSIDERATION FOR THE HME ASSETS
As consideration for the HME Assets, Laserscope will issue to HME 4,609,345
shares of Laserscope common stock (500,000 of which will be placed in an escrow
account for one year to cover certain indemnification obligations of HME under
the Agreement), and will pay to HME $2 million in cash. All promissory notes and
other indebtedness owed by HSI to HME and its affiliates will be contributed to
HSI's capital effective as of the Closing, except trade accounts payable in an
amount not exceeding $2.5 million
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resulting from product deliveries (subject to increase with Laserscope's prior
written consent), and trade accounts payable in an amount not to exceed $10,000
resulting from the provision of services by HME to HSI.
At the Closing, HSI will grant to HME: the right to obtain from Laserscope,
at any time within four years of the Closing Date, a nonexclusive worldwide
sublicense outside the United States (the "CVAC Sublicense") to all of HSI's
rights to manufacture and sell central smoke evacuation equipment ("CVAC"), and
all related rights, for so long as HSI continues to have such rights; and a
nonexclusive worldwide license outside the United States to all of HSI's
technology relating to mounting devices (the "Mounting Device License") for a
period of ten years from the Closing.
CERTAIN COVENANTS
Noncompetition. The Agreement provides that for a period of seven years
after the Closing, HME and companies controlled by or under common control with
Heraeus Holding GmbH (the "Holding Company") (with the exception of the Heraeus
dental business), will not develop, manufacture, service or sell hospital or
physician office-based laser surgical systems or accessories. The Holding
Company is the indirect parent of HSI. See "HSI MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -- Overview." In
addition, during the term of the Mounting Device License, neither Laserscope nor
any of its subsidiaries or affiliated persons are permitted to develop,
manufacture, service or sell mounting device products based on the licensed
mounting device technology outside of the United States. Furthermore, for a
period of seven years after the Closing, neither Laserscope nor any of its
subsidiaries or affiliated persons are permitted to develop, manufacture,
service or sell products based on the technology sublicensed to Laserscope.
Standstill. The Agreement provides that for a period of seven years after
the Closing, neither HME nor Heraeus Holding nor any other company controlled by
Heraeus Holding will acquire any additional shares of Laserscope common stock or
any rights, options or warrants to purchase additional Laserscope common stock
without the approval of Laserscope's Board of Directors. In addition, HME may
not sell or otherwise transfer more than 1 million Laserscope Shares to any
person (after aggregating all Laserscope Shares held by such person's
affiliates), unless such person and its affiliates agree to the above transfer
restrictions; provided, that with respect to any such person, the transfer
restrictions shall terminate on the third anniversary of the Closing.
Operation of Business. The Agreement provides that prior to the Closing
each party will conduct its business, in the ordinary course consistent with
prior practices. In particular, neither Laserscope, HSI nor HME will make any
distribution or payment of cash or other assets to their shareholders (other
than normal wages, benefits and expense reimbursements to employees). In
addition, during the period from April 23, 1996 through the Closing and other
than in the ordinary course consistent with prior practices, HSI will not
transfer any material assets, incur any material liabilities, materially shift
the balance of inventory, cash and receivables as reflected in its March 31,
1996 balance sheet or enter into any material agreement.
Insurance. The Agreement requires Laserscope to maintain in effect $10
million in product liability insurance to cover claims related to products sold
by Laserscope and its subsidiaries. Laserscope also has agreed to maintain in
effect affiliated persons and directors' and officers' liability insurance of
the type and in the amount customarily maintained by companies of similar size
and similarly situated.
Lockup. The Agreement provides that HME shall not sell, transfer or pledge
any shares of Laserscope common stock received at the Closing (other than to
Laserscope pursuant to the indemnification provisions described above) for a
period of one year from the Closing Date.
Directors. Pursuant to the Agreement, the Laserscope Board of Directors
has amended the Laserscope Bylaws to set the number of directors at eight, and
will reduce the authorized number of directors to seven upon the first
anniversary of the Closing Date. Effective upon the Closing, the Laserscope
Board will appoint three persons designated by HME to fill the three resulting
vacancies on the Laserscope Board. For so long after the first anniversary of
the Closing Date as HME owns at least 3.3 million shares of Laserscope common
stock, Laserscope has agreed to use its best efforts to have three nominees of
HME elected to the Laserscope
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Board of Directors; for so long after such anniversary as HME owns at least 1.6
million shares of Laserscope common stock, Laserscope has agreed to use its best
efforts to have at least two nominees of HME elected to the Laserscope Board;
and for so long after such anniversary as HME owns at least 600,000 shares of
Laserscope common stock, Laserscope has agreed to use its best efforts to have
one nominee of HME elected to the Laserscope Board. In addition, for so long as
HME owns at least 600,000 shares of Laserscope common stock, Laserscope has
agreed not to increase, or to ask its shareholders to increase, the number of
authorized directors beyond seven without the prior consent of HME. Pursuant to
the terms of the Agreement, each member of the Laserscope Board designated by
HME will be covered by liability insurance to the same extent as other members
of the Laserscope Board in their capacity as directors. In addition, Laserscope
has agreed to reimburse HME for the reasonable expenses of such board members in
attending Laserscope Board meetings and fulfilling their duties as directors, up
to a maximum of $25,000 per year. See "THE ACQUISITION AND RELATED
TRANSACTIONS -- Certain Risks Associated with the Acquisition."
Issuances of Capital Stock. Prior to the Closing, Laserscope has agreed
that it will not, without obtaining the prior written consent of HME: (i) issue
and sell more than $3 million of its capital stock (excluding sales upon
exercise of employee, director or consultant stock options); (ii) grant options
to purchase more than 150,000 shares of Laserscope common stock to employees and
directors of, and consultants to Laserscope; and (iii) grant options to purchase
more than one million shares of Laserscope common stock to employees and
directors of, and consultants to Laserscope or HSI effective upon the Closing,
not more than 200,000 of which may be granted to Laserscope's executive officers
listed in Laserscope's Annual Report on Form 10-K for the year ended December
31, 1995, or any of them.
INDEMNIFICATION
HME has agreed to indemnify and hold Laserscope and its officers,
directors, shareholders, affiliates, insurers, attorneys, successors and assigns
harmless from: (i) any liabilities, losses, damages, claims, costs and expenses
of the LDB of any nature, whether absolute or contingent or otherwise, which
Laserscope has not expressly agreed to assume or accept pursuant to the
Agreement; (ii) any and all liabilities, losses, damages, claims, costs and
expenses resulting from any misrepresentation or breach of any warranty in the
Agreement or in any written statement or certificate furnished or to be
furnished by HME to Laserscope pursuant to the Agreement; (iii) any and all
liabilities, losses, damages, claims, costs and expenses resulting from any
breach or non-fulfillment of any covenant or agreement on the part of HME
contained in the Agreement or officer's certificate delivered by HME to
Laserscope under the Agreement; and (iv) any and all actions, suits,
proceedings, demands, assessments or judgments, costs and expenses (including
attorneys' fees) incident to clauses (i), (ii) and (iii).
Laserscope has agreed to indemnify and hold HME and its officers,
directors, shareholders, affiliates, insurers, attorneys, successors and assigns
harmless from: (i) any and all liabilities, losses, damages, claims, costs and
expenses arising out of or resulting from Laserscope's failure to perform its
obligations to assume and accept the assignment of the LDB Assets and LDB
Liabilities, or the use by Laserscope or any of its affiliated persons (other
than HME or any transferee of the Laserscope Shares) after the Closing of any of
the LDB Assets; (ii) any and all liabilities, losses, damages, claims, costs and
expenses resulting from any misrepresentation or breach of warranty by
Laserscope contained in the Agreement or in any written statement or certificate
furnished or to be furnished by Laserscope to HME under the Agreement; (iii) any
and all liabilities, losses, damages, claims, costs and expenses resulting from
any breach or non-fulfillment of any covenant or agreement on the part of
Laserscope or HSI contained in the Agreement or in the officer's certificate
delivered pursuant to the Agreement; (iv) any and all liabilities, losses,
damages, claims, costs and expenses not reimbursed by insurance resulting from
any product liability claims (whether based upon negligence, strict liability or
any other legal theory) arising after the Closing and relating to products
manufactured or sold by Laserscope, HSI or the LDB at any time before or after
the Closing; and (v) any and all actions, suits, proceedings, demands,
assessments or judgments, costs and expenses (including attorneys' fees)
incident to any of the foregoing.
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CONTINUING LIABILITY
In the absence of fraud, HME's liability to Laserscope for breach of HME's
representations and warranties under the Agreement will be limited to 500,000
Laserscope Shares placed in escrow as described above. Under the Agreement, HME
has represented and warranted to Laserscope, subject to certain specified
exceptions, as to: (i) HME's due incorporation and good standing under the
Federal Republic of Germany and HSI's due incorporation and good standing in
Delaware; (ii) HME's and HSI's power to own their properties and conduct their
businesses as now conducted; (iii) HME's and HSI's compliance with applicable
law, charter documents and material contracts; (iv) HSI's capitalization and
HME's title to the HSI Shares free and clear of any liens, and HME's status as
sole shareholder of HSI; (v) HME's authority to transfer the HME Assets as
contemplated under the Agreement; (vi) the accuracy of the financial statements
provided Laserscope with respect to the HME Assets; (vii) the absence of any
material change to the HME Assets; (viii) the timely and complete filing of all
required tax returns; (ix) the absence of any default by HSI under any material
agreement to which it is a party; (x) the absence of any litigation with respect
to the HME Assets; (xi) HME's product liability insurance with respect to
products sold by HSI prior the Closing; (xii) neither HME nor HSI incurring any
brokerage or similar commissions in connection with the Acquisition (other than
as described in the Agreement;) (xiii) the completeness of the list of material
contracts relating to the LDB provided by HME to Laserscope and the absence of
any breach thereunder; (xiv) HSI's ownership of certain assets; (xv) the
accuracy of the representations and warranties provided by HME to Laserscope;
and (xvi) the absence of any employee compensation plans subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") and certain other
representations related to employee matters. HME's representations and
warranties must have been true and correct as of April 23, 1996, must be true as
of the Closing Date, and survive for a period of one year after the Closing
Date.
In the absence of fraud, Laserscope's liability to HME for breach of
Laserscope's representations and warranties under the Agreement will be limited
to 500,000 additional shares of Laserscope common stock. Under the Agreement,
Laserscope has represented and warranted to HME, subject to certain specified
exceptions, as to: (i) Laserscope's due incorporation and good standing in
California; (ii) Laserscope's power to own its properties and conduct its
business as now conducted; (iii) Laserscope's compliance with applicable law,
charter documents and material contracts; (iv) Laserscope's capitalization,
outstanding securities and registration under the Securities Exchange Act of
1934, as amended (the "Exchange Act"); (v) Laserscope's amendment of its Common
Shares Rights Agreement dated October 31, 1991 between Laserscope and American
Stock Transfer & Trust Company to exempt HME's (and certain permitted
transferees') acquisition of the Laserscope Shares from constituting a
triggering event under such agreement; (vi) Laserscope's authority to enter the
Agreement and consummate the transactions contemplated thereunder (subject to
shareholder approval) and the absence, subject to certain exceptions, of the
need for government approvals; (vii) Laserscope's provision to HME of copies of
all of Laserscope's filings with the Securities and Exchange Commission (the
"Commission") and the accuracy of such filings; (viii) the absence of any
material change to Laserscope's business or assets or operating results; (ix)
the timely and complete filing of all required tax returns; (x) the absence of
any default by Laserscope under any material agreement to which it is a party;
(xi) the absence of any litigation or knowledge of any product liability; (xii)
Laserscope's product liability insurance and director and officer liability
insurance; (xiii) Laserscope not incurring any brokerage or similar commissions
in connection with the Acquisition; (xiv) the accuracy of the representations
and warranties provided by HME to Laserscope; and (xv) the absence of any
employee compensation plans subject to ERISA and certain other representations
related to employee matters. Laserscope's representations and warranties must
have been true and correct as of April 23, 1996, must be true as of the Closing
Date, and survive for a period of one year after the Closing Date.
In the event of fraud or any claim other than for a breach of a
representation or warranty, the Agreement entitles the aggrieved party to all
rights and remedies at law and in equity which may accrue to such party. In
addition, as set forth above, Laserscope has agreed to assume certain
liabilities of HME in connection with the Acquisition, including all product
liability arising after the Closing, relating to products manufactured or sold
by HSI or the LDB any time before or after the Closing. See "THE ACQUISITION AND
RELATED
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TRANSACTIONS -- Certain Risks Associated with the Transaction -- Product
Liability Risk; Limited Insurance Coverage."
ESCROW
At the Closing, or as soon thereafter as possible, Laserscope's transfer
agent will deposit into escrow with the Chief Financial Officer of Laserscope
(the "Escrow Agent") a certificate representing 500,000 of the Laserscope shares
of common stock issuable to HME under the Agreement (the "Escrowed Shares") and
a stock assignment in blank in respect of such shares signed by HME, upon the
Escrow Agent's written agreement to be bound by the terms of the agreement with
respect to the Escrowed Shares. If the Escrow Agent has not received written
notice of a claim for indemnification by Laserscope under the Agreement within
one year after the Closing, the Escrow Agent shall promptly release the
certificate for the Escrowed Shares to HME. If Laserscope has made a claim or
claims for indemnification under the Agreement within such one-year period, the
Escrow Agent shall retain the certificate representing such shares until the
Escrow Agent shall have received from Laserscope and HME joint instructions
concerning the disposition of the Escrowed Shares or the order of an arbitrator
(selected by the parties) directing the release of all or a portion of such
shares to Laserscope or HME. The Escrow Agent will have no liability to
Laserscope or HME for any actions taken in good faith and in the exercise of
good business judgment. Laserscope and HME will each pay half of the expenses,
if any, of the Escrow Agent. Any escrowed shares used to settle any claim under
the Agreement will be valued at the average of the closing prices of Laserscope
common stock on Nasdaq over the five trading days immediately preceding the date
on which the claim is settled.
INDEMNIFICATION SHARES
If HME notifies Laserscope within one year after the Closing that it has a
claim or claims for indemnification under the Agreement, and such claim has been
resolved by Laserscope and HME or by an arbitrator (selected by the parties,) in
HME's favor, Laserscope shall issue up to 500,000 additional shares of
Laserscope common stock (the "Indemnification Shares") to HME to compensate HME
for the amount of such claim or claims. Such additional shares issued to HME to
settle any claim under the Agreement will be valued at the average of the
closing prices of Laserscope common stock on Nasdaq over the five trading days
immediately preceding the date on which the claim is settled.
REGISTRATION RIGHTS
The Agreement provides HME with the following registrations rights, none of
which becomes effective until the first anniversary of the Closing:
Shelf Registration. Laserscope has agreed to use best efforts to, within
one year of the Closing, prepare and file with the Commission and maintain for
up to three years from the effective date, a continuous or "shelf" registration
statement pursuant to Rule 415 under the Securities Act of 1933, as amended (the
"Securities Act"), covering sales from time to time thereafter of the shares of
Laserscope common stock issued to HME pursuant to the Agreement (as further
defined in the Agreement, the "Registrable Securities") in one or more
transactions in the over-the-counter market or on any stock exchange on which
Laserscope's common stock may then be listed; or in negotiated transactions or
any combination of the foregoing; provided that such transactions do not include
an underwritten public offering. Securities may not be offered or sold pursuant
to the shelf registration within three months of any prior sale, or for a period
of up to 90 days, if, in the reasonable judgment of the Board of Directors of
Laserscope after consultation with counsel, there is or may be in existence
material undisclosed information or events with respect to Laserscope (the
"Suspension Right"). Once the Suspension Right has been used, it may not be used
again until at least twelve months have elapsed from the end of the prior use.
Piggyback and Demand Registration. After the date that Laserscope is no
longer required to maintain the shelf registration (the "Expiration Date"),
Laserscope has agreed to include the Registrable Securities in any primary
offering of Laserscope's securities (other than registrations relating solely to
approved stock purchase and option or other benefit plans, or a transaction
under Rule 145 under the Securities Act), but only
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to the extent that such inclusion will not diminish the number of securities
included by Laserscope and, in the discretion of the managing underwriter,
market factors do not require a limitation of such Registrable Securities.
In addition, after the Expiration Date, Laserscope has agreed to file one
or more registration statements on Form S-3 for a public offering of shares of
the Registrable Securities, the reasonably anticipated aggregate price to the
public of which, net of underwriting discounts and commissions, would exceed $1
million, and to use its best efforts to cause such Registrable Securities to be
registered for the offering on such form; provided that Laserscope is not
required to effect more than two such registrations in any twelve month period.
Registration Expenses. Under the Agreement, Laserscope has agreed to pay
all registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for Laserscope, blue sky fees and expenses and
the expense of any special audits incident to or required by any registration
described in the registration rights provision of the Agreement. All
underwriting discounts, selling commissions and stock transfer taxes applicable
to securities registered by Holders and all fees and disbursements of counsel
for the Holders shall be borne by the Holders of such securities pro rata based
on the number of Registrable Securities so registered; provided that Laserscope
has agreed to reimburse the Holders for up to an aggregate maximum of $25,000
for such attorney's fees and expenses.
Indemnification. Pursuant to the Agreement, each of the parties has agreed
to customary indemnification obligations in connection with the registration
rights provisions.
CLOSING AND CONDITIONS TO THE ACQUISITION
The Agreement provides that the Closing will take place, as soon as
practicable, following approval of the Acquisition by the shareholders of
Laserscope at such time and place as the parties may mutually agree, on or prior
to August 31, 1996. The respective obligations of HME and Laserscope to
consummate the Acquisition are subject to the satisfaction of a number of
conditions, including, but not limited to, (a) the truth and accuracy in all
material respects of the representations and warranties of the other party set
forth in the Agreement; (b) the legality of the Acquisition; (c) the approval of
the Agreement by the shareholders of Laserscope; (d) the Closing of the
Acquisition on or before August 31, 1996; and (e) the obtaining of all material
government approvals and agreements and consents of any party necessary for the
other party's consummation of the transactions contemplated by the Agreement.
In addition, the obligation of Laserscope to consummate the Acquisition is
further subject to the satisfaction of a number of conditions, unless waived in
writing by Laserscope, including the receipt by Laserscope of an opinion of
counsel to HME reasonably satisfactory to Laserscope as to matters usual in
transactions similar to the Acquisition.
Furthermore, the obligation of HME to consummate the Acquisition is further
subject to the satisfaction of a number of conditions, unless waived in writing
by HME, including (a) the receipt by HME of an opinion of counsel to Laserscope
reasonably satisfactory to HME as to matters usual in transactions similar to
the Acquisition and (b) the expansion of the Board of Directors of Laserscope to
eight members, and the designation of three directors by HME to fill the three
resulting vacancies, such persons to serve as directors of Laserscope until the
next meeting of the shareholders of Laserscope at which directors are elected.
FEES, EXPENSES AND TAXES
Laserscope will pay all of its own legal, accounting and advisor expenses
in connection with the transactions covered by the Agreement. HME will pay all
of its own legal, accounting and advisor expenses in connection with
transactions covered by the Agreement, including all expenses of HSI. If the
transactions contemplated by the Agreement are consummated, Laserscope will
reimburse HME for up to $200,000 of reasonable out-of-pocket legal, accounting
and advisor expenses related to the Agreement (excluding costs of HME employees
and any HSI expenses incurred in connection with the Agreement) or will directly
assume such expenses upon receipt from HME of supporting documentation.
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Under the Agreement, HME shall pay all sales and other taxes, duties and
assessments with respect to any transfer of stock, assets and other rights
transferred to Laserscope which are imposed by any U.S., state or non-U.S.
taxing authority, except Laserscope shall pay any German value added tax
("VAT"), if any, resulting from the sale of the LDB Assets.
APPOINTMENT OF DIRECTORS
Effective upon Closing, the Board of Directors of Laserscope has amended
the Laserscope Bylaws to set the number of directors at eight. The Laserscope
Board has agreed to appoint the following persons designated by HME to fill the
resulting three vacancies on the Laserscope Board (the "HME Directors"):
Klaus Goffloo, 50, is a German national. He served as general manager of
the Electrical Heating and Air Conditioning group of Siemens AG from 1986 until
1992 and since that time has served as Chairman of HME and as a member of the
Board of Directors of the Holding Company.
Thomas Ihlenfeldt, 48, is a German national. He joined the Heraeus group of
companies in 1984 and has served in various positions. Since mid-1995 Mr.
Ihlenfeldt has served as Managing Director of HME. From 1990 through 1995 Mr.
Ihlenfeldt served as President and Chief Executive Officer of Heraeus Surgical,
Inc., formerly Heraeus LaserSonics, and is presently Chairman and Chief
Executive Officer of Heraeus Surgical, Inc., Milpitas, California.
David Cohen, 43, has been an attorney practicing law with the firm of Cohen
& Ostler, A Professional Corporation, for more than five years. Mr. Cohen's firm
served as counsel to HME and HSI in connection with the Acquisition.
TERMINATION OF AGREEMENT
The Agreement may be terminated at any time prior to the Closing Date,
whether before or after approval of the Acquisition by the shareholders of
Laserscope by either Laserscope or HME if (a) the other party has breached a
material provision of the Agreement and has not corrected such failure within
thirty days after receipt of written notice describing such breach; or (b) every
condition to Closing is not either satisfied or waived, and Closing does not
occur, by August 31, 1996.
ADDITIONAL AGREEMENTS
In connection with the Acquisition, Laserscope has also entered or agreed
to enter into the following agreements:
Surgical Lamp Distribution Agreement. Pursuant to the Surgical Lamp
Distribution Agreement (the "Distribution Agreement") to be entered into between
HME and Laserscope at the Closing, HME will grant Laserscope the right to
purchase at a specified discount, distribute and service certain HME surgical
lamp products (the "Products") in the United States. Laserscope's obligations
under the Distribution Agreement will include installing, supporting,
maintaining, servicing and promoting the Products within the United States. The
Distribution Agreement will provide for an indefinite term which may be
terminated on twelve months' prior notice but not before January 1, 2001, except
that it may be terminated immediately by a party upon breach of certain
provisions or covenants.
Escrow Agreement. In connection with the Agreement's indemnification
provisions, Laserscope's chief financial officer will serve without compensation
as escrow agent (the "Escrow Agent") pursuant to an escrow agreement (the
"Escrow Agreement") by and among Laserscope, the Escrow Agent and HME with
respect to 500,000 Laserscope Shares (the "Escrowed Shares"). Under the Escrow
Agreement, Laserscope and HME agree to indemnify the Escrow Agent against any
and all losses, claims, damages, liabilities and expenses incurred by the Escrow
Agent in connection with performing his duties under the Escrow Agreement
provided the Escrow Agent acts in good faith and in the exercise of good
business judgment. In the event of any dispute with respect to the Escrowed
Shares, the Escrow Agent is authorized under the Escrow Agreement to retain
possession of the Escrowed Shares until such dispute is resolved by the parties
or otherwise.
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Common Shares Rights Agreement Amendment. Pursuant to the Agreement, and
as authorized by the Laserscope Board of Directors, Laserscope and American
Stock Transfer & Trust Company (the "Rights Agent") have amended (the "First
Amendment") that certain Common Shares Rights Agreement dated October 31, 1991
by and between Laserscope and the Rights Agent (the "Rights Agreement"). The
First Amendment generally amends the Rights Agreement to provide that the
acquisition by HME, its subsidiaries, affiliates and permitted transferees,
pursuant to the Agreement, of the shares of Laserscope common stock contemplated
to be issued in the Acquisition, does not result in such persons being deemed
"Acquiring Persons" as such term is defined in the Rights Agreement.
DISSENTERS' RIGHTS
Laserscope shareholders who dissent and do not vote in favor of the
Acquisition are entitled to certain dissenters' rights under California law in
connection with the Acquisition. Such shareholders who perfect their dissenters'
rights and follow certain procedures in the manner prescribed by law will be
entitled to have their shares repurchased by Laserscope for cash. Set forth
below is a summary of "dissenters' rights" under California law. Such summary is
qualified in its entirety by reference to Sections 1300-1312 of the California
General Corporation Law, the complete text of which is attached hereto as
Exhibit C. ANY SHAREHOLDER WHO WISHES TO EXERCISE DISSENTERS' RIGHTS OR WHO
WISHES TO PRESERVE HIS OR HER RIGHT TO DO SO SHOULD REVIEW EXHIBIT C CAREFULLY,
SINCE FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE
LOSS OF SUCH RIGHTS.
If the Acquisition is approved by the required vote of Laserscope's
shareholders and is not abandoned or terminated, any Laserscope shareholder who
voted his or her shares against the Agreement (a "Dissenting Shareholder") may,
by complying with the provisions of Sections 1300-1312 of the California General
Corporation Law, require Laserscope to purchase for cash at their fair market
value the shares owned by him or her which were voted against the Acquisition
("Dissenting Shares"). Under California law, the fair market value shall be
determined as of the day before the first announcement of the terms of the
Acquisition, excluding any appreciation or depreciation in consequence of the
Acquisition.
A Dissenting Shareholder wishing to require Laserscope to purchase his or
her Dissenting Shares must:
(1) Vote against the Agreement any or all of the shares he or she is
entitled to vote (shares not voted are not considered to be voted against
the Agreement);
(2) Make written demand upon Laserscope or the transfer agent for
Laserscope not later than the date of the Special Meeting, setting forth in
his or her demand the number of shares which he or she demands that
Laserscope purchase and a statement by him or her as to what he or she
claims the fair market value of such shares to have been, based on the
standards referred to above; and
(3) Submit, within thirty days after the date on which the notice of
approval of the Agreement by Laserscope's shareholders described below is
mailed to such shareholder, at the principal office of Laserscope or at the
office of the transfer agent for Laserscope's common stock, the
certificates representing any shares in regard to which demand for purchase
is being made, for endorsement with a statement that the shares are
"Dissenting Shares."
Written demands, notices or other communications which a Dissenting
Shareholder wishes to send to Laserscope concerning the exercise of dissenters'
rights should be addressed to Laserscope: 3052 Orchard Drive, San Jose,
California 95134-2011, Attn: Chief Financial Officer.
Neither a vote against approval of the Agreement nor the giving of a proxy
directing a negative vote will be sufficient to constitute the demand described
in clause (2) above. A proxy which fails to include instructions with respect to
approval of the Agreement will be voted in favor of the Agreement. Accordingly,
shares covered by such a proxy could not be Dissenting Shares. If a shareholder
delivers a proxy providing for a vote in favor of the Acquisition, the
shareholder may revoke the proxy as described under the above section "VOTING
AND PROXIES," vote against the Agreement and exercise dissenters' rights,
provided that the other requirements of California law have been satisfied by
such shareholder.
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If eligible holders of Laserscope's stock have made demands for payment on
or prior to the date of the Special Meeting, within ten days after the date of
the approval of the Agreement, Laserscope will mail to each Dissenting
Shareholder a notice of approval of the Agreement together with a statement of
the price determined by Laserscope to represent the fair market value of
Dissenting Shares and a brief description of the procedure to be followed if the
shareholder desires to pursue his dissenters' rights under the California
General Corporation Law. The statement of price will constitute an offer by
Laserscope to purchase, at the price stated therein, any Dissenting Shares. If
Laserscope and the Dissenting Shareholder agree that the shares are Dissenting
Shares and agree upon the price of the shares, the Dissenting Shareholder will
be entitled to the agreed upon price plus interest thereon at the legal rate on
judgments from the date of such agreement. Subject to the provisions of the
California General Corporation Law, payment of the fair market value of the
Dissenting Shares will be made within thirty days after such agreement or after
satisfaction of any statutory or contractual condition, whichever is later, and
upon surrender of the certificates therefor. If Laserscope denies that the
shares are Dissenting Shares or if Laserscope and the Dissenting Shareholder
fail to agree upon the fair market value of the shares, then the Dissenting
Shareholder, within six months after the date on which notice of approval of the
Acquisition by the shareholders of Laserscope is mailed to such shareholder and
not thereafter, may file a complaint in the California Superior Court for Santa
Clara County (the "Superior Court"), requiring the court to determine whether
the shares are Dissenting Shares, or the fair market value of the Dissenting
Shares, or both, or may intervene in any pending action for the appraisal of any
shares of Laserscope's stock. In determining the fair market value of the
Dissenting Shares, the Superior Court is entitled to consider any factor
relevant to such determination within the limits of California law, including,
with respect to Laserscope's common stock, the price of the Dissenting Shares as
reported by Nasdaq as of the day before the first announcement of the terms of
the Agreement. The approach of the Superior Court in determining value in such
an appraisal may differ from the approach used by the Board of Directors of
Laserscope in evaluating the fairness of the Agreement. The valuation determined
by the Superior Court may be more than, less than or equal to the amount offered
to the Dissenting Shareholder for the Dissenting Shares. A Dissenting
Shareholder may not withdraw his or her demand for purchase of Dissenting Shares
without Laserscope's consent.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary is a general discussion of certain of the expected
United States federal income tax consequences of the Acquisition under the
Internal Revenue Code of 1986, as amended (the "Tax Code"), to Company
shareholders and to Laserscope. This summary does not discuss all aspects of
federal income taxation of the Acquisition or special tax consequences that may
be relevant to a particular Company shareholder in light of such shareholder's
personal circumstances or as a result of special status under the Tax Code (such
as certain holders of shares acquired upon exercise of statutory stock options
or otherwise as compensation for the performance of services, foreign persons,
dealers in securities and tax-exempt entities). It also does not discuss any tax
considerations under local, state or foreign laws. Laserscope has not sought a
ruling from the Internal Revenue Service (the "IRS") or an opinion from counsel
with respect to the tax consequences of the Acquisition. The IRS is therefore
not precluded from taking positions contrary to those discussed herein. IN VIEW
OF THE SUMMARY NATURE OF THIS DISCUSSION AND THE INDIVIDUAL NATURE OF TAX
CONSEQUENCES, SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE ACQUISITION, AS WELL AS
THE APPLICABILITY OF STATE, LOCAL AND FOREIGN TAX LAWS.
A Company shareholder should recognize no gain or loss as a result of the
Acquisition except to the extent that the shareholder exercises dissenters'
rights.
A Company shareholder who exercises dissenters' rights with respect to a
share of Company stock, who holds such share as a capital asset and who receives
payment for such share in cash should generally recognize capital gain or
capital loss measured by the difference between the amount of cash received and
the shareholder's tax basis in such share. Such capital gain or loss will be
long-term capital gain or loss if the share was held by such shareholder for
more than one year prior to its disposition. However, capital gain treatment
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will not apply unless the redemption of such dissenting shareholder's shares is
either not essentially equivalent to a dividend within the meaning of Section
302(b)(1) of the Tax Code, substantially disproportionate with respect to the
shareholder within the meaning of Section 302(b)(2) of the Tax Code or is in
complete redemption of all of Laserscope stock owned (or deemed to be owned,
taking into account certain attribution rules) by the shareholder within the
meaning of Section 302(b)(3) of the Tax Code. If none of the conditions of the
previous sentence is satisfied, the redemption of the Dissenting Shareholder
would generally be treated as a distribution to which Section 301 of the Tax
Code applies. Such distribution would be treated first as a dividend to the
extent of Laserscope's accumulated or current year's earnings and profits, if
any, next as a reduction in the shareholder's basis in his or her shares and
finally as gain from the sale or exchange of his or her shares. BECAUSE OF THE
COMPLEXITY OF DETERMINING THE TAX TREATMENT OF A DISSENTING SHAREHOLDER,
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS PRIOR TO EXERCISING
DISSENTERS' RIGHT'S.
Laserscope's issuance to HME of 4,609,395 shares of Laserscope common stock
as partial consideration for the purchased assets could, when aggregated with
other changes in ownership of Laserscope stock over the preceding three years,
cause Laserscope to be deemed to have undergone an "ownership change" within the
meaning of Section 382 of the Internal Revenue Code of 1986, which could limit
the amount of Laserscope's net operating loss carryforwards available to offset
taxable income which may be earned by Laserscope in future periods.
GOVERNMENTAL AND REGULATORY APPROVALS
Certain acquisition transactions, including the Acquisition, may not be
consummated until certain information has been furnished to the U.S. Department
of Justice (the "Justice Department") and the U.S. Federal Trade Commission (the
"FTC") pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and certain waiting periods thereunder have been
satisfied. Laserscope and HME intend to file the required information and
material with the Justice Department and the FTC with respect to the Acquisition
on or about June 14, 1996.
At any time before or after the Closing, the Justice Department or the FTC
or a private person or entity could seek under the antitrust laws, among other
things, to enjoin the Acquisition or to cause HME to divest itself, in whole or
in part, of Laserscope or to cause Laserscope to divest itself, in whole or in
part, of the HME Assets. The obligations of the parties to consummate the
Acquisition are subject to the condition that the parties have received the
consent of any government authority necessary to complete the transactions
contemplated by the Agreement.
ACCOUNTING TREATMENT
The Acquisition is to be treated as a purchase of stock and assets for
financial reporting purposes. The financial results of HME will be included in
Laserscope's financial statements effective from the Closing Date.
Laserscope intends to allocate the consideration for the HME Assets among
the HME Assets generally in accordance with their respective fair market values.
It also intends to take amortization or depreciation deductions with respect to
HME Assets which are subject to amortization or depreciation over such HME
Assets' respective useful lives as determined by Laserscope.
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PROPOSAL NO. 2
AMENDMENT TO THE 1994 STOCK OPTION PLAN
At the Special Meeting, shareholders are being asked to approve an
amendment to the Company's 1994 Stock Option Plan (the "1994 Option Plan") that
would increase the shares reserved for issuance thereunder by 975,000 shares. A
copy of the 1994 Option Plan, as amended, is included as Exhibit D hereto.
GENERAL
The Company's 1994 Option Plan provides for the grant of options to
employees and consultants of the Company. The 1994 Option Plan was adopted by
the Board of Directors in March 1994 and approved by the shareholders in June
1994. A total of 725,000 shares of common stock have been reserved for issuance
under the 1994 Option Plan. Subject to shareholder approval, this amount would
be increased to an aggregate of 1,700,000 shares. The aggregate number of shares
reserved for issuance under the 1994 Option Plan includes options previously
granted and exercised under the 1994 Option Plan. The increase in shares
reserved for issuance under the 1994 Option Plan has been necessitated by the
hiring of new employees and the grant of additional stock options to current
employees as previously granted options vest and become exercisable. The
increase will assist the Company in being able to continue its policy of equity
ownership by employees and consultants as an incentive to contribute to the
Company's success.
Options granted under the 1994 Option Plan may be either "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or nonstatutory stock options at the discretion of the
Board of Directors and as reflected in the terms of the written option
agreement. The 1994 Option Plan is not a qualified deferred compensation plan
under Section 401(a) of the Code, and is not subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
As of April 30, 1996, and after giving effect to the amendment to the 1994
Option Plan, 540 shares had been issued upon exercise of options granted under
the 1994 Option Plan, options for 1,108,659 shares were outstanding under the
1994 Option Plan and 591,341 shares remained available for future grants. As of
April 30, 1996, the fair market value of shares subject to outstanding options
was $4,296,054, based upon the closing price of the common stock as reported on
Nasdaq on such date.
During the year ended December 31, 1995, (i) options to purchase 285,000
shares of common stock were granted under the 1994 Option Plan to the current
executive officers as a group (4 persons), (ii) options to purchase 50,000
shares of common stock were granted under the 1994 Option Plan to current
directors who are not executive officers as a group (one person) and (iii)
options to purchase 401,000 shares of common stock were granted under the 1994
Option Plan to all other employees, including current officers who are not
executive officers, as a group (109 persons as of December 31, 1995). Such
option grants exclude options granted to replace certain options which were
canceled during November 1995 in a repricing which numbered 109,688 shares,
50,000 shares and 295,696 shares for current executive officers, current
directors and employees, respectively.
PURPOSE
The purposes of the 1994 Option Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of the Company and to promote
the success of the Company's business. This amendment to the 1994 Option Plan is
intended primarily to grant options to employees of and consultants to the
combined entity, including to former employees of HSI and HME who will become
employees of Laserscope after the Closing.
ADMINISTRATION
The 1994 Option Plan may be administered by the Board of Directors or by a
committee of the Board of Directors. The 1994 Option Plan is currently
administered by the Board of Directors and the Human Resources Committee of the
Board of Directors. Members of the Board of Directors receive no additional
compensation for their services in connection with the administration of the
1994 Option Plan. All questions of
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<PAGE> 36
interpretation of the 1994 Option Plan are determined by the Board of Directors
or its committee and its decisions are final and binding upon all participants.
All directors currently hold office until the annual meeting of shareholders of
the Company following their election, or until their successors are duly elected
and qualified.
ELIGIBILITY
The 1994 Option Plan provides that either incentive stock options or
nonstatutory stock options may be granted to employees (including officers and
directors who are also employees) of the Company or any of its subsidiaries. In
addition, the 1994 Option Plan provides that nonstatutory stock options may be
granted to consultants (not including directors who are not compensated for
their services or are paid only a director's fee by the Company) of the Company
or any of its subsidiaries. The Board of Directors or its committee selects the
optionees and determines the number of shares to be subject to each option. In
making such determination, there are taken into account the duties and
responsibilities of the optionee, the value of the optionee's services, the
optionee's present and potential contribution to the success of the Company, and
other relevant factors.
The 1994 Option Plan provides that the maximum number of shares of common
stock which may be granted under options to any one employee during any fiscal
year shall be 325,000, subject to adjustment as provided in the 1994 Option
Plan. This limitation is intended to preserve the Company's ability to deduct
for federal income tax purposes any compensation income relating to stock
options granted to certain executive officers under the 1994 Option Plan.
Without this limitation, federal tax legislation enacted in 1993 might not allow
the Company to deduct such compensation income.
In addition to the foregoing limitation on discretion for certain grants,
there is also a limit on the aggregate market value of shares subject to all
incentive stock options that may be granted to an optionee during any calendar
year.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company
and the optionee. Each option is subject to the following additional principal
terms and conditions:
(a) Exercise of the Option. The Board of Directors or its committee
determines when options may be exercised. In general, such options become
exercisable on a ratable basis over four years with respect to employees
and over two to four years with respect to consultants. An option is
exercised by giving written notice of exercise to the Company specifying
the number of full shares of common stock to be purchased and by tendering
of payment of the purchase price. The purchase price of the shares
purchased upon exercise of an option shall be paid in consideration of such
form as is determined by the Board of Directors or its committee and
specified in the option agreement, and such form of consideration may vary
for each option.
(b) Exercise Price. The exercise price of each option granted under
the 1994 Option Plan is determined by the Board of Directors or its
committee and may not be less than 100% of the fair market value of the
common stock on the date the option is granted; provided, however, that
nonstatutory stock options may be granted to persons other than the
Company's Chief Executive Officer or its other four most highly compensated
officers whose compensation is required to be reported to shareholders
under the Securities Exchange Act of 1934 at exercise prices of not less
than 50% of the fair market value on the date the option is granted. The
fair market value per share is equal to the closing price on Nasdaq on the
date of grant. In the case of an option granted to an optionee who owns
more than 10% of the voting power of all classes of stock of the Company,
its parent or subsidiaries, the exercise price must not be less than 110%
of the fair market value on the date of the grant.
(c) Termination of Employment. If an optionee's employment or
consulting relationship terminates for any reason other than disability or
death, options under the 1994 Option Plan may be exercised not later than
thirty days (or such other period of time not exceeding three months in the
case of an
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<PAGE> 37
incentive stock option as is determined by the Board of Directors or its
committee) after such termination and may be exercised only to the extent
the option was exercisable on the date of termination. In no event may an
option be exercised by any person after the expiration of its term.
(d) Disability. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of his
total and permanent disability, options may be exercised within six months
(or such other period of time not exceeding twelve months as is determined
by the Board of Directors or its committee) of termination and may be
exercised only to the extent the option was exercisable on the date of
termination, but in no event may the option be exercised after its
termination date.
(e) Death. Under the 1994 Option Plan, if an optionee should die
while employed or retained by the Company, and such optionee has been
continuously employed or retained by the Company since the date of grant of
the option, the option may be exercised within six months after the date of
death (or such other period of time, not exceeding twelve months, as is
determined by the Board of Directors or its committee) by the optionee's
estate or by a person who acquired the right to exercise the option by
bequest or inheritance to the extent the optionee would have been entitled
to exercise the option had the optionee continued living and remained
employed or retained by the Company for six months (or such other period of
time as is determined by the Board of Directors or its committee) after the
date of death, but in no event may the option be exercised after its
termination date. If an optionee should die within three months (or such
other period of time not exceeding three months as is determined by the
Board of Directors or its committee) after the optionee has ceased to be
continuously employed or retained by the Company, the option may be
exercised within six months after the date of death by the optionee's
estate or by a person who acquired the right to exercise the option by
bequest or inheritance to the extent that the optionee was entitled to
exercise the option at the date of termination, but in no event may the
option be exercised after its termination date.
(f) Term of Options. The 1994 Option Plan provides that options
granted under the 1994 Option Plan have the term provided in the option
agreement. In general, these agreements provide for a term of five years.
Incentive stock options granted to an optionee who, immediately before the
grant of such option, owned more than 10% of the total combined voting
power of all classes of stock of the Company, its parents or subsidiaries,
may not in any case have a term of more than five years. No option may be
exercised by any person after its expiration.
(g) Option Not Transferable. An option is not transferable by the
optionee other than by will or the laws of descent and distribution, and is
exercisable only by the optionee during his or her lifetime and in the
event of the optionee's death by a person who acquires the right to
exercise the option by bequest or inheritance or by reason of the
optionee's death.
(h) Acceleration of Options. In the event of the merger or
consolidation of the Company with or into another corporation, or a
proposed sale of all or substantially all of the assets of the Company, the
Board of Directors is obligated to accomplish either a substitution or
assumption of options or in its discretion, to give 30 days' notice of the
acceleration of the optionee's right to exercise his or her outstanding
options as to some or all of the optioned stock at any time within 30 days
of such notice. The exercisability of options held by the Company's
executive officers may also be accelerated upon the occurrence of such
events. See "Transactions with Management and Others."
(i) Other Provisions. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1994 Option Plan
as may be determined by the Board of Directors or its committee.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization that results in an increase or decrease in the number
of outstanding shares of common stock without receipt of consideration by the
Company, appropriate adjustment shall be made in the exercise price of each
outstanding
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option, the number of shares subject to each option, the annual limitation on
grants to employees, as well as the number of shares available for issuance
under the 1994 Option Plan. In the event of the proposed dissolution or
liquidation of the Company, each option will terminate unless otherwise provided
by the Board of Directors or its committee.
AMENDMENT AND TERMINATION
The Board of Directors may amend the 1994 Option Plan at any time or from
time to time or may terminate it without approval of the shareholders; provided,
however, that shareholder approval is required for any amendment to the 1994
Option Plan that increases the number of shares that may be issued under the
1994 Option Plan, modifies the standards of eligibility, modifies the limitation
on grants to employees described in the 1994 Option Plan or results in other
changes which would require shareholder approval to qualify options granted
under the 1994 Option Plan as performance-based compensation under Section
162(m) of the Code, or so long as the Company has a class of equity securities
registered under Section 12 of the Exchange Act, materially increases the
benefits to participants that may accrue under the 1994 Option Plan. However, no
action by the Board of Directors or shareholders may alter or impair any option
previously granted under the 1994 Option Plan. The 1994 Option Plan shall
terminate in April 2004, provided that any options then outstanding under the
1994 Option Plan shall remain outstanding until they expire by their terms.
FEDERAL INCOME TAX ASPECTS OF THE 1994 OPTION PLAN
The following is a brief summary of the United States federal income tax
consequences of transactions under the 1994 Stock Option Plan based on federal
securities and income tax laws in effect as of this date. This summary is not
intended to be exhaustive and does not discuss the tax consequences of a
participant's death or provisions of the income tax laws of any municipality,
state or other country in which an optionee may reside. This summary does not
purport to be complete. The Company advises all optionees to consult their own
tax advisors concerning tax implications of option grants and exercises, and the
disposition of shares acquired upon such exercise, under the 1994 Stock Option
Plan.
Options granted under the 1994 Option Plan may be either "incentive stock
options," as defined in Section 422 of the Code, or nonstatutory stock options.
If an option granted under the 1994 Option Plan is an incentive stock
option, under U.S. tax laws the optionee will recognize no income upon grant of
the incentive stock option and incur no tax liability upon its exercise,
although the exercise may give rise to alternative minimum tax. The Company will
not be allowed a deduction for federal income tax purposes as a result of the
exercise of an incentive stock option regardless of the applicability of the
alternative minimum tax. Upon the sale or exchange of the shares at least two
years after grant of the option and one year after receipt of the shares by the
optionee, any gain will be treated as long-term capital gain under U.S. tax
laws. If these holding periods are not satisfied, the optionee will recognize
ordinary income equal to the difference between the exercise price and the lower
of the fair market value of the stock at the date of the option exercise or the
sale price of the stock. A different rule for measuring ordinary income upon
such a premature disposition may apply if the optionee is also an officer,
director, or 10% shareholder of the Company. The Company will be entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Any gain recognized on such a premature disposition of the shares in excess of
the amount treated as ordinary income will be characterized under U.S. tax laws
as long-term capital gain if the sale occurs more than one year after exercise
of the option or as short-term capital gain if the sale is made earlier. The tax
rate on long-term capital gains under current U.S. tax laws is capped at 28%.
Capital losses are allowed under U.S. tax laws in full against capital gains
plus $3,000 of other income.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income under U.S. tax laws at the time he or she is granted a
nonstatutory option. However, upon its exercise, under U.S. tax laws the
optionee will recognize ordinary income for tax purposes measured by the excess
of the then fair market value of the shares over the exercise price. In certain
circumstances, where the shares are subject to a substantial risk of forfeiture
when
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<PAGE> 39
acquired or where the optionee is an officer, director or 10% shareholder of the
Company, the date of taxation may be deferred unless the optionee files an
election with the IRS under Section 83(b) of the Code. The income recognized by
an optionee who is also an employee of the Company will be subject to tax
withholding by the Company by payment in cash or out of the current earnings
paid to the optionee. The Company will be entitled to a deduction in the same
amount as the ordinary income recognized by the optionee. Upon resale of such
shares by the optionee, any difference between the sales price and the exercise
price, to the extent not recognized as ordinary income as provided above, will
be treated under U.S. tax laws as capital gain or loss, and will qualify for
long-term capital gain or loss treatment if the shares have been held for more
than one year.
REQUIRED VOTE
The affirmative vote of a majority of shares of common stock represented
and voting at the Special Meeting with respect to the amendment to the 1994
Option Plan (which shares voting affirmatively also constitute a majority of the
required quorum) is required for its approval.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE AMENDMENT OF THE 1994
STOCK OPTION PLAN.
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PROPOSAL NO. 3
ADOPTION OF THE 1995 DIRECTORS' STOCK OPTION PLAN
At the Special Meeting, shareholders are being asked to approve the
adoption of Laserscope's 1995 Directors' Stock Option Plan (the "Directors'
Option Plan") and the reservation of 300,000 shares of Laserscope's common stock
for issuance thereunder. A copy of the Director's Option Plan is attached as
Exhibit E hereto.
GENERAL
The Directors' Option Plan was adopted by the Board of Directors in
November 1995 and was amended by the Board of Directors on April 22, 1996. The
shareholders are being asked to approve the adoption of the Directors' Option
Plan at the Special Meeting.
As of April 30, 1996, no shares had been issued upon exercise of options
granted under the Directors' Option Plan, options for 180,000 shares were
outstanding under the Directors' Option Plan and 120,000 shares remained
available for future grants. Shares not purchased under an option prior to its
expiration will be available for future option grants under the Directors'
Option Plan. As of April 30, 1996, the fair market value of shares subject to
outstanding options was $697,500, based upon the closing price of the common
stock as reported on Nasdaq on such date.
PURPOSE
The purposes of the Directors' Option Plan are to attract and retain the
best available persons for service as directors of Laserscope, to provide
additional incentive to the non-employee directors to serve as directors and to
encourage their continued service on the Board.
ADMINISTRATION
The Directors' Option Plan is designed to work automatically and not to
require administration. However, to the extent administration is necessary, it
will be provided by the Board of Directors. No discretion concerning decisions
regarding the Directors' Option Plan shall be afforded to any person who is not
a "disinterested" person under Rule 16b-3 promulgated under the Exchange Act.
The interpretation and construction of any provisions of the Directors' Option
Plan by the Board of Directors shall be final and conclusive. Members of the
Board receive no additional compensation for their services in connection with
the administration of the Directors' Option Plan.
ELIGIBILITY
The Directors' Option Plan currently provides for the grant of nonstatutory
stock options to nonemployee directors of Laserscope at an exercise price not
less than the fair market of the Company's common stock on the date of grant.
Under the Director's Option Plan, persons who were nonemployee directors as of
November 30, 1995 (the effective date of the Directors' Option Plan), as well as
persons who have joined the Board of Directors since that date through the
election by the shareholders or appointment by the Board of Directors to fill a
vacancy, have been granted an option to purchase 45,000 shares of the Company's
common stock. Options issued pursuant to this plan vest ratably and become
exercisable on a monthly basis over three years with respect to each optionee
who remains a director and expire ten years after the date of grant. Directors
who are employees of the Company do not receive any additional compensation for
their services as a director.
Except for automatic option grants under the Directors' Option Plan,
nonemployee directors will not be eligible to receive any additional option
grants or stock issuances under the Directors' Option Plan. The Directors'
Option Plan provides for neither a maximum nor a minimum number of option shares
that may be granted to any one nonemployee director, but does provide for the
number of shares which may be included in any grant and the method of making a
grant. Laserscope currently has four nonemployee directors.
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<PAGE> 41
Directors who are designated or nominated by shareholders who hold 10% or
more of the outstanding Laserscope common stock, including the HME Directors,
are not eligible to receive options under the Directors' Option Plan.
The Directors' Option Plan is not a deferred compensation plan under
Section 401(a) of the Code, and is not subject to the provisions of ERISA.
TERMS OF OPTIONS
Options granted under the Directors' Option Plan have a term of ten years.
Each option is evidenced by an option agreement between Laserscope and the
director to whom such option is granted and is subject to the following
additional terms and conditions:
(a) Rule 16b-3: Options granted to directors must comply with the
applicable provisions of Rule 16b-3, or any successor thereto, and shall
contain such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Directors' Option Plan transactions.
(b) Exercise of the Option: The options granted under the Directors'
Option Plan become exercisable cumulatively to the extent of 1/36 of the
shares subject to the option on each monthly anniversary of the date of
grant. An option is exercised by giving written notice of exercise to
Laserscope, specifying the number of full shares of common stock to be
purchased and tendering payment to Laserscope of the purchase price.
Payment for shares issued upon exercise of an option may consist of cash,
check, an exchange of shares of Laserscope's common stock which have been
held for at least six months, or a combination thereof.
(c) Option Price: The option price is determined by the Board of
Directors and under the Directors' Option Plan is 100% of the fair market
value of Laserscope's common stock on the date of grant. The Board of
Directors determines such fair market value based upon the closing sales
price of Laserscope's common stock on Nasdaq on the date the option is
granted.
(d) Termination of Status as a Director: The Directors' Option Plan
provides that if an optionee ceases to serve as a director of Laserscope,
the option may be exercised within three months after the date he or she
ceases to be a director as to all or part of the shares that the optionee
was entitled to exercise at the date of such termination.
(e) Death: If an optionee should die while serving as a director of
Laserscope, the option may be exercised at any time within six months after
death but only to the extent the that optionee was entitled to exercise the
option at the date of death.
(f) Disability: If an optionee is unable to continue his or her
service as a director of Laserscope as a result of his or her total and
permanent disability, the option may be exercised at any time within six
months after the date of his or her termination, but only to the extent he
or she was entitled to exercise it at the date of such termination.
(g) Termination of Options: No option is exercisable by any person
after the expiration of ten years from the date the option was granted.
(h) Nontransferability of Options: An option is nontransferable by
the optionee, other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order (as defined by the Code),
and is exercisable only by the optionee during his or her lifetime or, in
the event of death, by a person who acquires the right to exercise the
option by bequest, inheritance or transfer or by reason of the death of the
optionee.
(i) Acceleration of Options: In the event of a proposed sale of all
or substantially all of the assets of Laserscope, the merger or
consolidation of Laserscope in which Laserscope is not the surviving
corporation, a dissolution or liquidation of Laserscope, or any other
capital reorganization in which more than 50% of Laserscope's shares
entitled to vote are exchanged, each nonemployee director shall have
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either (i) a reasonable time within which to exercise the option, including
any part of the option that would not otherwise be exercisable, prior to
the effectiveness of such liquidation, dissolution, sale, merger,
consolidation or reorganization, at the end of which time the option shall
terminate or (ii) the right to exercise the option, including any part of
the option that would not otherwise be exercisable, or receive a substitute
option with comparable terms, as to an equivalent number of shares of stock
of the corporation succeeding Laserscope or acquiring its business by
reason of such liquidation, dissolution, sale, merger, consolidation or
reorganization.
(j) Other Provisions: The option agreement may contain such other
terms, provisions and conditions not inconsistent with the Directors'
Option Plan as may be determined by the Board of Directors.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in
Laserscope's capitalization which results in an increase or decrease in the
outstanding shares of common stock without receipt of consideration by
Laserscope, an appropriate adjustment shall be made in the option price and in
the number of shares subject to each option, in the number of shares authorized
for the issuance under the Directors' Option Plan, and in the number of shares
to be granted pursuant to the automatic grant provisions described above.
AMENDMENT AND TERMINATION
The Board of Directors may amend the Directors' Option Plan from time to
time or may terminate it without approval of the shareholders, but no amendment
or termination shall be made that would impair the rights of any optionee under
any prior grant without his or her consent. In addition, Laserscope shall obtain
shareholder approval of any amendment to the Directors' Option Plan in such a
manner and to the extent necessary to comply with Rule 16b-3 under the Exchange
Act, the provisions of the Code, or any other applicable law or regulation.
Further, the provisions of the Directors' Option Plan concerning the grants of
options under the Directors' Option Plan may not be amended more than once every
six months other than to comport with changes in the Code or ERISA. In any
event, the Directors' Option Plan will terminate in November 2005.
TAX INFORMATION
The following is a brief summary of the United States federal income tax
consequences of transactions under the Directors' Stock Option Plan based on
federal securities and income tax laws in effect as of this date. This summary
is not intended to be exhaustive and does not discuss the tax consequences of a
participant's death or provisions of the income tax laws of any municipality,
state or other country in which an optionee may reside. This summary does not
purport to be complete. The Company advises all optionees to consult their own
tax advisors concerning tax implications of option grants and exercises, and the
disposition of shares acquired upon such exercise, under the Directors' Stock
Option Plan.
Options granted under the Directors' Option Plan are nonstatutory stock
options. Under U.S. tax laws an optionee will not recognize any taxable income
at the time he or she is granted a nonstatutory stock option. However, upon its
exercise, the optionee will recognize ordinary income for tax purposes measured
by the excess of the then fair market value of the shares over the option
exercise price. Because the optionee is a director of Laserscope, the date of
taxation under U.S. tax laws (and the date of measurement of taxable ordinary
income) may be deferred in certain circumstances unless the optionee files an
election with the IRS under Section 83(b) of the Code. Upon resale of such
shares by the optionee, any difference between the sales price and the exercise
price, to the extent not recognized as ordinary income as provided above, will
be treated as capital gain (or loss), and will qualify for long-term capital
gains treatment if such shares are held for more than one year. Capital losses
are allowed in full against capital gains plus $3,000 of other income.
Laserscope will be entitled to a tax deduction in the amount and at the time
that the optionee recognizes ordinary income under U.S. tax laws with respect to
shares acquired upon exercise of a nonstatutory stock option.
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REQUIRED VOTE
The affirmative vote of the holders of a majority of the common stock
present and voting at the Special Meeting with respect to the adoption of the
Directors' Option Plan is required for approval.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR APPROVAL OF THE ADOPTION OF
THE 1995 DIRECTORS' STOCK OPTION PLAN.
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INFORMATION CONCERNING LASERSCOPE
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information with respect to the executive
officers of the Company, and their ages as of April 30, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- ---- ------------------------------------------------
<S> <C> <C>
Benjamin L. Holmes................. 61 Chairman of the Board and Director
Robert V. McCormick................ 52 President, Chief Executive Officer and Director
Thomas B. Boyd..................... 49 Senior Vice President of Operations and Finance
Roy Fiebiger....................... 42 Vice President of Marketing and Sales
Bonnie Jones....................... 48 Vice President of Human Resources
Dennis LaLumandiere................ 43 Vice President of Finance and Chief Financial
Officer
E. Walter Lange.................... 63 Director
Rodney Perkins, M.D................ 59 Director
Robert J. Pressley, Ph.D. ......... 64 Director
</TABLE>
Benjamin L. Holmes has been a Director of the Company since January 1992
and was appointed Chairman of the Board of Directors in June 1995. Mr. Holmes
was General Manager of the Medical Products Group of Hewlett-Packard Company
("HP") from 1983 to 1985, and a Vice President of HP, from 1985 until his
retirement in December 1994. Mr. Holmes is a member of the Board of Directors of
Project HOPE and the Massachusetts High Technology Council. He is also a member
of the Massachusetts Governor's Council on Economic Growth and Technology, and a
member of the Board on Health Care Service, Institute of Medicine, National
Academy of Sciences. He is a member of the Board of Visitors of the UCLA and
Boston University Medical Schools. He was also Chairman of the Board of
Directors of the Health Industry Manufacturers Association (HIMA).
Robert V. McCormick has been President of the Company since December 1991
and Chief Executive Officer since July 1992. Between December 1991 and July 1992
he also served as the Company's Chief Operating Officer. He has been a Director
of the Company since July 1992. Mr. McCormick also served as the Company's
Senior Vice President of Marketing and Field Operations from April 1991 to
December 1991. Mr. McCormick was employed by Acuson Corporation, a manufacturer
of medical imaging equipment, from 1983 to April 1991 in a variety of sales and
marketing executive positions culminating as Vice President of Marketing and
Field Operations. Mr. McCormick is also a director of NovaCept (formerly
AcuVasive and prior to that, EnVision Surgical Systems), a manufacturer of
microvisualization catheter products and private development stage medical
device company.
Thomas B. Boyd was hired as Senior Vice President of Operations and Finance
in April 1994. Prior to joining Laserscope, from January 1992 to March 1994, Mr.
Boyd was Vice President of Operations for American Safety Razor ("ASR") Co., a
consumer and medical products company. From August 1975 to December 1991 he was
employed by Baxter Healthcare Corporation, an international manufacturer and
distributor of healthcare products, in various financial and operations
management positions including Vice President of Manufacturing from September
1989 to December 1991.
Roy Fiebiger was hired as Vice President of Marketing in September 1995 and
was promoted to Vice President of Marketing and Sales in November 1995. Prior to
his employment with Laserscope, from November 1994 to August 1995, Mr. Fiebiger
was President and Chief Executive Officer of NovaCept (then named AcuVasive).
From April 1991 to October 1994, Mr. Fiebiger was Executive Vice President and
Chief Operating Officer for Norian Corporation, a development stage medical
device company, and from August 1984 to March 1991 he was Vice President of
Sales and Marketing for Techmedica, a medical device company.
Bonnie Jones has been employed with the Company since November 1988 when
she was hired as Laserscope's first Personnel Manager. She was promoted to
Director of Personnel in June 1991 and Vice
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<PAGE> 45
President of Human Resources in June 1993. Prior to working for the Company, she
was as an independent consultant for various companies and Director of Personnel
for Humphrey Instruments, an ophthalmic instruments company. Ms. Jones worked at
Humphrey from 1982 through 1987.
Dennis LaLumandiere has been employed with the Company since September 1989
when he was hired as Laserscope's Corporate Controller. He was promoted to Vice
President of Finance in February 1995 and appointed Chief Financial Officer in
February 1996. Prior to working for the Company, he held various financial and
operations management positions at Raychem Corporation, a multinational
materials science company. Mr. LaLumandiere was employed by Raychem from 1983 to
1989.
E. Walter Lange has been a Director of the Company since January 1992. Mr.
Lange has more than 31 years of experience in the pharmaceutical industry,
having served in a variety of executive positions at Eli Lilly & Co. from 1960
to 1991. Most recently, Mr. Lange was Group Vice President of Marketing,
Planning and Development and was responsible for Eli Lilly's worldwide product
planning, corporate strategic planning, business development and market
research.
Rodney Perkins, M.D. is a co-founder of the Company and has been a Director
since its founding. Dr. Perkins also served as Chairman of the Board of
Directors from its founding until June 1995 and Chief Executive Officer from
February to May 1987, and from October 1991 to July 1992. He also served as the
President of the Company from October to December 1991. Dr. Perkins, a
specialist in otologic surgery, is President of the California Ear Institute at
Stanford and has been in private practice since 1968. He is a Clinical Associate
Professor of Surgery at Stanford University School of Medicine, and is the
founder and President of Project HEAR a non-profit medical institute for ear
research and education. Dr. Perkins is a founder of Collagen Corporation, a
biomaterials company, and a member of its Board of Directors. Dr. Perkins is
also a founder and the Chairman of the Board of Directors of ReSound
Corporation, a hearing health care company. He also serves on the board of
directors of NovaCept of which he was founding a shareholder.
Robert J. Pressley, Ph.D. is a co-founder of the Company and has been a
Director since its founding. Dr. Pressley founded Silicon Video Corporation, a
developer of electronic products, and served as its President and Chief
Executive Officer from January 1991 to January 1994. Dr. Pressley also founded
XMR, Inc., a manufacturer of eximer lasers and laser systems, and served as its
Chief Executive Officer from March 1979 until March 1990.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows the compensation received by the Company's Chief
Executive Officer, the four other most highly compensated executive officers of
the Company for 1995 who were serving as executive officers at December 31,
1995, one highly compensated executive officer who was not serving as an
executive officer at December 31, 1995 and the compensation received by each
such individual for the Company's two prior years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------- OPTION/SARS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2)(3) (SHARES)(4)(5) COMPENSATION(6)
- ----------------------------------- ---- -------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Robert V. McCormick................ 1995 $248,060 -- 165,000 $ 2,004
President and Chief Executive 1994 $236,250 -- -- $ 2,045
Officer 1993 $225,000 -- 40,000 $ 1,927
Thomas B. Boyd..................... 1995 $168,324(7) -- 45,000 $ 2,400
Senior Vice President of
Operations 1994 $183,428(8) $20,000 65,000 $ 1,471
and Finance 1993 -- -- -- --
Bonnie Jones....................... 1995 $107,330 -- 35,000 $ 1,543
Vice President of Human 1994 $ 99,750 -- 15,000 $ 1,496
Resources 1993 $ 95,000 $ 9,500 35,000 $ 1,425
</TABLE>
39
<PAGE> 46
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------- OPTION/SARS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2)(3) (SHARES)(4)(5) COMPENSATION(6)
- ----------------------------------- ---- -------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Dennis LaLumandiere................ 1995 $119,690 -- 40,000 $ 1,794
Vice President of Finance, Chief 1994 $103,500 -- 15,000 $ 1,548
Financial Officer 1993 $ 96,885 $ 9,821 8,500 $ 1,438
Joseph F. Rondinone................ 1995 $131,250 -- -- $ 1,312
Vice President of Research and 1994 $125,000 -- 25,000 $ 1,250
Development(9) 1993 $162,766(10) -- 27,000 $ 1,136
Eli Wismer......................... 1995 $150,909 $32,643 -- $ 1,744
Vice President of North 1994 $153,399(12) $78,160 50,000 $ 1,927
American Sales & Education(11) 1993 $193,953(12) $83,135 20,000 $ 1,786
</TABLE>
- ---------------
(1) Includes amounts deferred under the Company's 401(k) plan.
(2) Includes bonuses earned in the indicated fiscal year and paid in the
subsequent fiscal year. Excludes bonuses paid in the indicated fiscal year
but earned in the preceding fiscal year.
(3) Executive officers are entitled to discretionary bonuses based on
individual and corporate performance. These bonuses are determined by the
Board of Directors based on the recommendation of the Human Resources
Committee.
(4) The options listed with respect to 1995 long-term compensation awards
include options granted upon the repricing of previously granted options.
Options to purchase the following number of shares granted to the following
persons in 1995 were canceled as a result of their repricing on November
30, 1995: Mr. McCormick -- 97,500: Mr. LaLumandiere -- 12,188. Such
canceled options have not been included with respect to 1995 long-term
compensations award. The repriced options retain the same term and vesting
schedule as those options which were replaced.
(5) All options granted in 1993, 1994 and 1995 to new employees and to officers
of the Company have 5-year terms and become exercisable cumulatively at the
rate of 12.5% of the total six months after the vesting commencement date
(first date of employment for new employees and date of grant for
officers), and 1/48 of the shares subject to the option in equal monthly
installments thereafter. All options granted in 1993, 1994 and 1995 to
existing employees also have 5-year terms, but become exerciseable
cumulatively at the rate of 1/48 of the shares subject to the option in
equal monthly installments following their respective grant date. All
unvested options are subject to earlier termination in the event of the
termination of the participant's relationship with the Company. All options
were granted at market value on the date of grant. In the event that
certain change in control events were to occur, the options would be
assumed or equivalent options substituted by a successor corporation,
unless the Board of Directors determined that the options should become
immediately exercisable. The exercise price may be paid, subject to certain
conditions, by delivery of already-owned shares or with the proceeds from
the sale of the option shares. In addition, the Management Continuity
Agreements entered into between the Company and each of its executive
officers may affect the vesting and manner of exercise of options granted
by the Company to these individuals. See "Transactions with Management and
Others."
(6) Consists of the Company's contributions to its 401(k) plan for the benefit
of the named executive officers.
(7) Includes $8,331 paid to Mr. Boyd in connection with the relocation of his
principal residence to the San Jose metropolitan area.
(8) Includes salary paid to Mr. Boyd during the period beginning April 18, 1994
(the date his employment with the Company commenced) and ending on December
31, 1994 and $79,578 paid to Mr. Boyd in connection with the relocation of
his principal residence to the San Jose metropolitan area.
(9) Mr. Rondinone terminated his employment with the Company in January 1996.
(10) Includes $47,766 paid to Mr. Rondinone in connection with the relocation of
his principal residence to the San Jose metropolitan area.
40
<PAGE> 47
(11) Mr. Wismer terminated his employment with the Company in October 1995.
(12) Includes the following amounts paid to Mr. Wismer in connection with the
relocation of his principal residence to the San Jose metropolitan area:
1994 -- $13,399 and 1993 -- $53,953.
Stock Option Grants In 1995
The following table sets forth information for the named executive officers
with respect to grants of options to purchase common stock of the Company made
in 1995 and the value of all options held by such executive officers on December
31, 1995.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
------------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK PRICE
GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OR OPTIONS TERM(3)
GRANTED IN FISCAL BASE PRICE EXPIRATION -------------------
NAME (SHARES)(1) YEAR(2) (PER SHARE) DATE 5% 10%
- --------------------------------- ----------- ---------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert V. McCormick.............. 22,500(4) 3.3% $4.00 2/17/00 $24,900 $55,000
97,500(5) 14.2% $2.00 2/17/00 $44,600 $96,700
45,000(6) 6.6% $2.00 11/30/00 $24,900 $55,000
Thomas B. Boyd................... 45,000(6) 6.6% $2.00 11/30/00 $24,900 $55,000
Bonnie Jones..................... 35,000(6) 5.1% $2.00 11/30/00 $19,300 $42,700
Dennis LaLumandiere.............. 2,812(4) 0.4% $4.00 2/17/00 $ 3,100 $ 6,900
12,188(5) 1.8% $2.00 2/17/00 $ 5,600 $12,100
25,000(6) 3.6% $2.00 11/30/00 $13,800 $30,500
Joseph F. Rondinone, Ph.D.(7).... -- -- -- -- -- --
Eli Wismer(8).................... -- -- -- -- -- --
</TABLE>
- ---------------
(1) For a description of the material terms of the options, see footnote 5 of
the Summary Compensation Table.
(2) The Company granted options to employees for an aggregate of 686,000 shares
of common stock during 1995 excluding 175,453 issued to replace options
canceled from the 1984 Employee Stock Option Plan and 405,384 issued to
replace options canceled from the 1994 Employee Stock Option Plan.
(3) Gains are reported net of the option exercise price but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on future performance of the Company's common stock, as well as
the optionee's continued employment through the vesting period.
(4) Options listed were granted on February 17, 1995.
(5) Options listed were granted on November 30, 1995 to replace options which
were originally granted on February 17, 1995 then canceled on November 30,
1995 due to repricing.
(6) Options listed were granted on November 30, 1995.
(7) Dr. Rondinone terminated his employment with the Company in January 1996.
(8) Mr. Wismer terminated his employment with the Company in October 1995.
41
<PAGE> 48
Aggregated Option Exercises In 1995 And Year-End Option Values
The following table sets forth information for the named executive officers
with respect to exercises in 1995 of options to purchase common stock of the
Company.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT 12/31/95: AT 12/31/95:
ACQUIRED -------------------- --------------------
ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE)(1) UNEXERCISABLE)(1)(2)
- ------------------------------------ -------- -------- -------------------- --------------------
<S> <C> <C> <C> <C>
Robert McCormick.................... -- -- 217,083/237,917 --/--
Thomas B. Boyd...................... -- -- 26,041/83,959 --/--
Bonnie Jones........................ -- -- 41,712/65,288 --/--
Dennis LaLumandiere................. -- -- 26,103/57,397 --/--
Joseph F. Rondinone, Ph.D.(3)....... -- -- 42,562/39,438 --/--
Eli Wismer(4)....................... -- -- 58,978/0 --/--
</TABLE>
- ---------------
(1) Based on the closing price of the Company's common stock as reported on the
Nasdaq National Market on December 29, 1995 of $1.938 per share.
(2) The closing price of the Company s common stock on the Nasdaq National
Market on December 29, 1995 was less than the exercise price of the
referenced options.
(3) Dr. Rondinone terminated his employment with the Company in January 1996.
(4) Mr. Wismer terminated his employment with the Company in October 1995.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Dr. Perkins was a founding shareholder of NovaCept (formerly AcuVasive and
prior to that, EnVision Surgical Systems), a manufacturer of microvisualization
catheter products ("NovaCept"), and is currently a member of its Board of
Directors. Mr. Fiebiger was formerly President and Chief Executive Officer of
NovaCept and is currently a NovaCept shareholder. The Company is also party to a
Product Development and Marketing Agreement with NovaCept dated June 4, 1993
(the "Development Agreement") pursuant to which NovaCept agreed to develop
certain microvisualization catheter products for which Laserscope has worldwide,
exclusive, royalty-free marketing rights, provided that Laserscope purchases
certain minimum volumes of such products from NovaCept. Should Laserscope fail
to meet such minimums, its market rights under the Development Agreement become
non-exclusive. As of December 31, 1995, NovaCept had not completed, and the
Company did not expect that NovaCept would complete, the development of such
products. In addition, during 1995, the Company loaned NovaCept $100,000
pursuant to a promissory note. At December 31, 1995, NovaCept was in default of
the payment terms of the note and the Company does not expect to be repaid at
least within the next year due to NovaCept's current lack of financial
resources. Robert McCormick is also a director of NovaCept, and Dr. Perkins and
the Company are each holders of NovaCept's capital stock.
In March 1994, the Company entered into Management Continuity Agreements
with each of its executive officers, which were amended in December 1994 (the
"Prior Management Continuity Agreements"). The Prior Management Continuity
Agreements were to expire by their terms no later than December 31, 1996, and
were therefore superseded and replaced in April 1996 by a new version of such
agreements (the "1996 Management Continuity Agreements"). The 1996 Management
Continuity Agreements provide (1) for salary and benefits continuation if the
executive is terminated for any reason other than cause within 24 months (the
"Severance Period") following any Change in Control of the Company (as defined
below), such that if the termination occurs within 12 months of the Change of
Control, the Severance Period is 12 months, and if the termination occurs after
12 months but within 24 months of the Change of Control, the Severance Period is
nine months, (2) that such executives may, with 30 days written prior notice,
resign but will be entitled to receive his or her current salary and level of
benefits for the Severance Period, if,
42
<PAGE> 49
in connection with such Change in Control, the executive's duties or
responsibilities are materially reduced or the executive is asked to relocate to
a facility or location more than 50 miles from the Company's current location,
(3) that all stock options exercisable for the Company's securities held by such
executives 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, and (4) that upon the immediate vesting of stock
options, the optionee will have the right (subject to any limitations imposed by
Section 16 of the Exchange Act or other applicable securities laws and only to
the extent permitted by the terms of the applicable option plan) to deliver a
non-recourse promissory note (secured only by the pledged shares for repayment),
at the prime rate of interest determined as of the date of the note, in payment
of the exercise price for the outstanding options. For purposes of the 1996
Management Continuity Agreements, a Change in Control of the Company shall be
deemed to have occurred upon the happening of any of the following events: (1)
any acquisition of twenty percent (20%) or more of the Company s then
outstanding voting securities without the approval of the Board of Directors,
(2) any acquisition or consolidation in which the Company is not the surviving
entity, (3) approval of 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, or (4) 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. The Acquisition will not result in a Change
in Control of the Company.
The Company has sold common stock to certain employees and directors and
accepted promissory notes secured by that stock as payment for certain of those
shares. These notes originally carried special interest rates of 9.0% to 9.5%.
During 1995 the principal and accrued interest on these notes were refinanced
and the notes now carry special interest rates of 5.79%.
<TABLE>
<CAPTION>
INDEBTEDNESS TO
THE COMPANY AS
TOTAL SHARES AGGREGATE OF 12/31/95
PURCHASER PURCHASED PRICE (1)(2)
- --------------------------------------------------------- ------------ --------- -----------------
<S> <C> <C> <C>
Rodney Perkins, MD. ..................................... 16,667 $75,001 $ 128,603
Robert J. Pressley, Ph.D. ............................... 16,666 $74,997 $ 128,788
</TABLE>
- ---------------
(1) In all cases, the amount shown was also the largest amount of indebtedness
owed to the Company at any time during 1995.
(2) Payment in the form of promissory notes in the above transactions was
approved in each case by a majority of the disinterested directors of the
Company and such sales were made pursuant to the Company s 1984 Stock
Purchase Plan, which was approved by the shareholders of the Company.
During 1995 Mr. Holmes received $25,000 in compensation from the Company
for consulting services to the Company beyond his duties as Chairman of the
Board of Directors.
Nonemployee members of the Company's Board of Directors receive cash
compensation and options to purchase shares of common stock in connection with
their service on the Board. Under the Acquisition Agreement, the Company has
agreed to provide each director designated by HME the same insurance coverage as
the Company provides other directors. In addition, the Company has agreed to
reimburse HME the reasonable expenses of such HME Board members in attending
Laserscope Board meetings and fulfilling their duties as directors, up to a
maximum of $25,000 per year. Directors designated by HME will not be entitled to
receive options under the Directors Option Plan. See "ADOPTION OF THE 1995
DIRECTORS OPTION PLAN -- Eligibility."
The Company has entered into indemnification agreements with each of its
directors and executive officers, which may require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers, to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors and officers liability insurance if
available on reasonable terms.
43
<PAGE> 50
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are currently no employee directors serving on the Human Resources
Committee of the Board of Directors. The following nonemployee directors serve
on the Company s Human Resources Committee: Rodney Perkins, M.D., Robert J.
Pressley, Ph.D.
Dr. Perkins purchased an aggregate of 16,667 shares of the Company's common
stock on September 11, 1989 under the Company's 1984 Stock Purchase Plan at an
aggregate price of $75,002. Dr. Perkins purchased such shares through promissory
notes in favor of the Company bearing interest at the annual rate of 9% and
secured by the shares purchased. At December 31, 1995, Dr. Perkins owed an
aggregate of $128,603 under such notes, the largest amount of indebtedness owed
by him to the Company at any time during 1995. During 1995 the principal and
accrued interest on these notes were refinanced and the notes now carry special
interest rates of 5.79%.
Dr. Perkins is also Chairman of the Board of Directors and a member of the
Board of Directors' Human Resources Committee of ReSound Corporation, a
publicly-traded hearing health care company. The Company and ReSound Corporation
have not conducted any business with each other in the past and the Company does
not presently anticipate doing so in the future.
Dr. Perkins was also a founding shareholder of NovaCept (formerly AcuVasive
and, prior to that, Envision Surgical Systems), a manufacturer of
microvisualization catheter products. The Company has a commercial relationship
with NovaCept. Mr. McCormick is a member of NovaCept's Board of Directors and
Dr. Perkins and the Company are each holders of NovaCept's capital stock. See
"Transactions with Management and Others."
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
common stock as of April 30, 1996 as to (i) each person who is known by the
Company to own beneficially more than five percent of the Company's common
stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table beginning on page 39, and (iv)
all directors and executive officers as a group and to each such person after
the issuance of 4,609,345 shares of Laserscope common stock upon the Closing of
the Acquisition.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
------------------------------------------------------------------------
NUMBER PERCENT OF
BEFORE TOTAL BEFORE NUMBER AFTER PERCENT OF TOTAL
ACQUISITION(2) ACQUISITION ACQUISITION AFTER ACQUISITION
-------------- ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
Heraeus Med GmbH(3).................. -- -- 4,609,345 39.5%
Thomas B. Boyd....................... 42,265 * 42,265 *
Benjamin L. Holmes................... 64,375 * 64,375 *
Bonnie Jones......................... 60,375 * 60,375 *
Dennis LaLumandiere.................. 39,812 * 39,812 *
E. Walter Lange...................... 52,500 * 52,500 *
Robert V. McCormick.................. 352,907 4.8% 352,907 3.0%
Rodney Perkins, M.D.................. 178,967 2.5% 178,967 1.5%
Robert J. Pressley, Ph.D............. 73,516 1.0% 73,516 *
Joseph F. Rondinone, Ph.D.(4)........ 1,121 * 1,121 *
Eli Wismer(5)........................ 378 * 378 *
All directors and executive officers
as a group (12 persons)(6)......... 875,229 11.2% 5,484,574 47.0%
</TABLE>
- ---------------
* Less than 1%.
44
<PAGE> 51
(1) The persons named in this table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the other footnotes to this table.
(2) Includes, with respect to each named person, the following shares subject to
options exercisable within 60 days of April 30, 1996: Mr. Boyd -- 39,791;
Mr. Holmes -- 61,875; Ms. Jones -- 56,187; Mr. LaLumandiere -- 37,166; Mr.
Lange -- 52,500; Mr. McCormick -- 290,208; Dr. Perkins -- 112,500; Dr.
Pressley -- 52,500; Dr. Rondinone -- 0; Mr. Wismer -- 0.
(3) Does not include up to 500,000 shares of Laserscope common stock which
Laserscope may issue to HME in certain circumstances in connection with its
indemnification obligations under the Agreement. See "TERMS OF THE
ACQUISITION -- Indemnification Shares."
(4) Dr. Rondinone terminated his employment with the Company in January 1996.
(5) Mr. Wismer terminated his employment with the Company in October 1995.
(6) The Company has twelve directors and executive officers. Following the
consummation of the Acquisition, the Company's Board of Directors will
expand to eight directors, including three directors designated by HME (the
"HME Directors"), increasing the total number of directors and executive
officers as a group to fifteen. The HME Directors disclaim beneficial
ownership of Laserscope shares of common stock owned by HME.
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market under
the symbol LSCP. As of April 30, 1996, the Company had approximately 1,000
shareholders of record.
As of the close of trading on April 23, 1996, the day before the
announcement of the Acquisition, the high and low bid prices of the Company's
common stock on the Nasdaq National Market were $3 3/4 and $3 3/8, respectively.
The following table shows the Company's high and low selling prices for the
periods indicated, as reported by Nasdaq:
<TABLE>
<CAPTION>
1996 HIGH BID LOW BID
--------------------------------------------------------------- -------- -------
<S> <C> <C>
First Quarter.................................................. $3 3/4 $ 1 5/8
Second Quarter (through June 7, 1996).......................... $87/16 $ 3 1/8
1995
First Quarter.................................................. $4 3/8 $ 3 1/2
Second Quarter................................................. $4 1/2 $ 3 3/8
Third Quarter.................................................. $5 1/8 $ 3 1/4
Fourth Quarter................................................. $4 $ 1 1/2
1994
First Quarter.................................................. $7 1/8 $ 5 1/8
Second Quarter................................................. $7 $ 4 3/8
Third Quarter.................................................. $5 3/8 $ 3 1/8
Fourth Quarter................................................. $4 7/8 $ 3 1/2
</TABLE>
Laserscope has paid no dividends on its common stock since incorporation
and anticipates that for the foreseeable future it will continue to retain its
earnings for use in its business. Laserscope's right to pay dividends is
restricted by a covenant in its loan agreement with its principal lender, which
provides that Laserscope will not pay dividends without the prior approval of
such lender.
TRANSFER AGENT
The transfer agent for Laserscope's common stock is American Stock Transfer
& Trust Company.
45
<PAGE> 52
INFORMATION CONCERNING HSI AND THE LDB
OVERVIEW
HSI manufactures and sells capital equipment for use in surgical
applications, principally surgical laser systems and operating room systems. HSI
is a successor to a business known as LaserSonics. HSI is organized into two
divisions: a Minimally Invasive Surgery division that manufactures and sells
lasers used in surgical procedures ("MIS Products"); and an Operating Room
Products division that manufactures and distributes equipment and distributes
lighting for operating rooms ("OR Products"). Substantially all of HSI's revenue
is from the sale of MIS Products and OR Products directly or through
distributors primarily to surgeons and hospitals, and from related service. HSI
recognizes revenue from products upon shipment to its distributors or its
customers. Service revenue is recognized upon provision of the services to the
customer or pro rata over the period of the applicable contract.
Heraeus MED GmbH ("HME") owns all of the outstanding stock of HSI. The
laser distribution operations (the "LDB"), a division of HME, buys MIS Products
and related accessories primarily from HSI and distributes them though a direct
sales force in Germany, and through dealers in Eastern Europe, South Africa and
certain Middle Eastern countries.
The corporate headquarters and executive offices of HSI are located at 575
Cottonwood Drive, Milpitas, California 95035, and its telephone number is (408)
954-4000. The LDB is located at Heraeusstrasse 12-14, D-63450 Hanau, Germany.
PRODUCTS
MIS Products
HSI manufactures and distributes CO2- and Nd:YAG-based surgical laser
systems, optical fibers for use with the Nd:YAG lasers, optical devices for use
with the Nd:YAG lasers and CO2 lasers and related accessories and disposables.
These products are used in connection with surgical applications relating to
urology, gynecology, ENT (as defined below) surgery, gastroenterology,
pulmonology and general surgery. In addition to medical surgical uses, HSI's CO2
PARAGON lasers are used in aesthetic surgery and office-based dermatology
procedures. The HERCULES Nd:YAG laser is a laser product line that generates
from 40 to 100 watts in a compact design with common electrical outlet
requirements. The list price of this product line ranges from approximately
$49,000 to $79,000 depending on the power output. Realized net prices to HSI are
affected by market prices in the U.S. and worldwide and by discounts granted to
national and international dealers. At present, the largest selling CO2 laser
system is the PARAGON CO2 laser system which is used primarily in gynecology,
ENT surgery and in aesthetic surgery, e.g., skin resurfacing procedures. The
list price of these products is from approximately $58,000 to $85,000 depending
on the power output. The MIS Products division also produces a variety of
optical accessory devices for the use with CO2 lasers for gynecology, ENT and
aesthetic surgical applications.
OR Products
The OR Products division distributes HANAULUX surgical lights, HANAUPORT
ceiling mounted equipment, MAQUET surgical tables, surgical video systems and
smoke and debris evacuation systems throughout the United States.
Ceiling-mounted equipment columns manufactured by HSI are used to organize the
operating room environment, and to provide gas outlets and electrical outlets
from the ceiling directly to the surgical site. Gases and electricity are
transmitted from the source through extension arms. The columns also provide
shelves, rails and other means to attach equipment used during surgical
procedures. Replacing conventional carts, these columns provide operating room
personnel with mobility without obstructing the surgical site.
Surgical video systems are produced by HSI and are used with its
communication networking equipment. HSI's HANAUVISION can be used not only to
teach surgical procedures, but also to connect video of surgical procedures with
off-site locations.
46
<PAGE> 53
Centralized smoke evacuation equipment is manufactured and distributed by
HSI. This equipment provides a centralized airborne smoke and debris evacuation
system for the operating room. During electrocautery and laser surgery, smoke
and debris are evaporated into the air. Traditionally, the smoke and debris have
been removed through stand alone evacuation systems which require additional
equipment in the operating room that result in a significant increase in the
noise level in the operating room environment. HSI's licensed central smoke
evacuation equipment reduces noise and purifies the air by means of filtration.
This equipment also allows several operating rooms to be evacuated
simultaneously through ceiling mounted columns. HSI has exclusive worldwide
manufacturing and distribution rights to this product under patent license from
an unrelated third party. After the payment of a certain amount of royalties has
been made, ownership of this patent will be transferred to HSI. See "INFORMATION
CONCERNING HSI -- Patents and Licenses."
Because HSI designs, manufactures and distributes laser surgical products
and distributes certain operating room equipment, significant product liability
risks are inherent in the operations of HSI and the LDB. Although HSI has never
suffered any product liability loss greater than $250,000, it carries product
liability insurance in the amount of $15 million to protect against product
liability claims. The first $3 million of any liability sustained by HSI is
self-insured. The LDB is covered for product liability claims under the
corporate liability policy maintained by the Heraeus group of companies in the
amount of 100 million German Marks, with a deductible of 75,000 German Marks. In
spite of the foregoing insurance coverage, there can be no assurance that a
substantial uninsured product liability loss will not be incurred by HSI or the
LDB.
MANUFACTURING
HSI has a single manufacturing facility located in Milpitas, California,
which it has occupied since January 1989. This facility is used in the assembly
of optical equipment, laser tube manufacturing, system integration and for the
manufacture and test of surgical laser systems and accessories. HSI also
maintains a cleanroom at its Milpitas facility for the production of fiber
delivery systems. The Company is not dependent upon any one supplier for any raw
materials required in the manufacturing process.
HSI does not process any raw materials in the assembly of its products. HSI
purchases all raw materials and parts, consisting mainly of electronic
components (e.g., power supplies) and standard metal parts. There is no
machining, plating, sterilizing or painting conducted in HSI's facility. All
sheet metal is purchased from sheet metal suppliers and machine parts and quartz
glass are available from a large number of suppliers. HSI is dependent on a
single source of supply for each of a number of critical components used in its
manufacturing, including Nd:YAG crystals, laser flash lamps, power supplies and
bearings for articulated arms for CO2 lasers. HSI is also dependent on two
sources of supply for the glass tubes used in its CO2 lasers. Although HSI has
experienced occasional slow downs and missed shipment dates because of its
inability to obtain components on a timely basis, this has not had a material
adverse effect on HSI's business. However, because most of HSI's component
suppliers are single source, there could be a considerable production delay
should components from any of these sources become unavailable.
MARKETING AND SALES
HSI generates revenues from direct sales to U.S. customers and to U.S. and
international distributors. The LDB buys MIS Products and related accessories
from HSI and distributes them though a direct sales force in Germany, and
through dealers in Eastern Europe, South Africa and certain Middle Eastern
countries.
In 1995, 80% of HSI's revenue was generated from U.S. sales and 20% from
international sales. The three major overseas markets for MIS Products are
Japan, Germany and Korea which accounted for 5%, 5% and 3% of sales,
respectively. The balance of international revenues are generated principally in
Europe, Southeast Asia, the Middle East, and Latin America. Except as described
in the preceding paragraph, HSI sells in Japan through an Heraeus affiliate and
in Korea, Southeast Asia and Latin America through independent dealers. No
single customer accounted for as much as 10% of the Company's MIS Product or
Product sales in 1995.
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German distribution is handled by the LDB, which is operated as a division
of HME. The LDB operations consist of seven employees who are responsible for
sales, marketing, field service and order processing. Certain administrative and
personnel services as well as the facility are provided by HME to the LDB. The
total net assets of the LDB less accruals and liabilities was 1,169,000 German
Marks or approximately U.S. $800,000 as of December 31, 1995.
SERVICE AND INSTALLATION
HSI maintains a service organization in the United States for the
installation and maintenance of its products. Service generated approximately
17% of HSI's total revenue in 1995.
HSI installs and services its products in the United States through service
technicians, its direct sales force and two independent dealers. In
international markets, HSI provides service and installation for its products
through its international distributors. HSI provides service training to its
service technicians and to hospital technicians upon request. HSI has entered
into approximately 550 maintenance agreements with its customers. In Germany,
installation services are provided by the LDB.
RESEARCH AND DEVELOPMENT
For the past three years, HSI has spent between 5% and 6% of its total
revenue on research and product development. During 1995 these expenditures
totaled $1,714,000. The main focus and objective of HSI's research and
development efforts are to develop new laser sources and accessories, refine
electronic and control software and develop methods to achieve system
integration. Presently, HSI's research and development efforts are focused on
continued support of its PARAGON CO2 laser system, the implementation of a
scanner to distribute the laser beam over the skin in a computerized controlled
manner and the development of a compact, low cost CO2 laser.
HSI reduced its research and development programs and expenditures as part
of the January 1996 restructuring. See "HSI MANAGEMENT S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources." Although HSI management does not believe that these reductions will
have a significant effect on HSI's research and development efforts, there can
be no assurance that HSI will successfully design, manufacture or sell new or
enhanced products in a timely manner.
PATENTS AND LICENSES
Management believes that HSI's competitive position is primarily dependent
upon skills in engineering, production and marketing rather than its patents.
However, protection of HSI's technology assets by obtaining and enforcing
patents is increasingly important. Consequently, HSI has an active program to
file applications in the United States and other countries on inventions which
HSI considers significant. HSI has a number of patents in the United States and
other countries and additional applications are pending for new developments in
its products. In addition to patents, HSI possesses other proprietary
intellectual property, including trademarks, know-how and trade secrets. There
can be no assurance, however, that HSI owns or will obtain patents, licenses or
other proprietary rights necessary for the conduct of its business, or that any
such patents, licenses or other proprietary rights will not expire, be
invalidated or found to infringe upon the rights of third parties.
In particular, the U.S. patent for HSI's licensed central smoke evacuation
equipment described above expires in the year 2010 and, accordingly, HSI's
competitors will not be prohibited from producing similar equipment thereafter.
Such competition could have a material, adverse effect on HSI's business.
HSI enters into patent and technology licensing agreements with others when
management determines that it is in HSI's best interest to do so. HSI pays
royalties under existing patent license agreements for the use, in the case of
several of its products, of certain patents which are licensed to HSI.
From time to time HSI receives inquiries with regard to possible patent
infringement. In dealing with such inquiries, it may become necessary or useful
for HSI to obtain and grant licenses or other rights.
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However, there can be no assurance about the outcome of such inquiries or that
such license rights will be available to HSI on commercially reasonable terms.
COMPETITION
HSI competes with a number of companies that have greater financial and
technological resources than it has and which have greater financial ability to
develop markets and gain customers than it does.
In the MIS Product market, HSI experiences competition, not only from
companies selling surgical lasers, but from competing surgical technologies that
are not available from HSI. These technologies, such as electrocautery surgery,
have provided customers with viable alternatives to laser surgery and
accordingly, have reduced, and will continue to reduce, the overall available
market for HSI's laser products. This competition has especially affected the
sales of HSI's Nd:YAG product.
Competition in the OR Products market is mainly from large, diversified
companies with substantially greater financial resources than HSI.
Through company reorganizations and acquisitions in the laser and operating
room products industries, stronger competitors having larger market shares may
emerge. This could adversely affect the performance of HSI.
REGULATION AND QUALITY ASSURANCE
As a medical products company, quality control and regulatory affairs are
key elements of HSI's business. Quality assurance personnel are responsible for
controlling engineering change orders, incoming inspection, final test and
general quality standards of the products. Quality assurance personnel are also
responsible for compliance with various regulations promulgated and enforced by
the Food and Drug Administration ("FDA"), including maintaining good
manufacturing production standards and obtaining FDA clearances for all of HSI's
products and product applications. HSI's products cannot be sold without FDA
clearances. FDA policies regarding medical lasers have, and could again,
seriously impact the medical laser industry. Although such clearances have been
obtained for HSI's current products, no assurances can be made that such
clearances will be available for new products.
A more comprehensive discussion of FDA procedures and requirements, as well
as a number of other policies, regulations, rules and restrictions to which HSI
is also subject, is set forth in "THE ACQUISITION AND RELATED
TRANSACTIONS -- Certain Risks Associated With The Acquisition -- Government
Regulation; Uncertainty of Obtaining Regulatory Approval." All of HSI's current
products are marketed through the 510(k) procedure, and HSI has no IDE's or
PMA's in process. HSI does not have ISO 9001 approval, but sells its products in
Europe under TUV (Technical Supervisory Organization) approval and with a CE
(European Conformation) mark for EMV (Electro Magnetic Compatibility)
regulations.
Upon receiving incoming raw materials and component parts, HSI performs an
incoming inspection and advises the vendor as to possible problems. Incoming
products which do not meet specification are returned to the vendor or, if
necessary, re-worked by HSI production personnel.
During the manufacturing assembly process, quality assurance personnel
monitor the process and inspect the finished product. A detailed specification
sheet is established for each assembled laser system.
Product changes or manufacturing changes are reviewed and approved by
quality assurance personnel prior to their implementation.
FACILITIES
HSI leases an office and manufacturing facility in Milpitas, California. A
small service facility under lease in Jamesburg, New Jersey has been closed and
the remaining lease term expires at the end of 1997. While it is the intention
of HSI to sublease this facility, if possible, prior to its expiration date,
there can be no assurance that it will be able to do so. The current lease calls
for payments of approximately $60,000 per year.
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HAZARDOUS MATERIALS
Chemicals used within the HSI facility include glycol (which is a
high-grade antifreeze), denaturalized alcohol and menthol. Gases used in laser
tube production are helium, nitrogen and CO2. HSI believes that it is in
compliance with applicable law and regulations in the handling of these
materials. HSI has not been charged with violation of any federal or state
environmental laws or regulations. HSI is subject to the same occupational
safety, hazardous materials and environmental laws mentioned in "THE ACQUISITION
AND RELATED TRANSACTIONS -- Certain Risks Associated With The
Acquisition -- Government Regulation; Uncertainty of Obtaining Regulatory
Approval."
LEGAL PROCEEDINGS
HSI is not involved in any legal proceedings, and is not aware of any
impending claims.
DESCRIPTION OF SECURITIES
HSI is a privately held company. It has 1,000 shares of common stock
authorized and 100 shares of common stock issued at no par value per share, all
of which are owned by HME. There is no public trading market for HSI stock.
EMPLOYEES
HSI is dependent upon the efforts and skills of key personnel for its
success. On March 31, 1996, HSI had approximately 125 full time employees, of
whom approximately 57 were executive, marketing, administrative and accounting
personnel, 45 were engaged in manufacturing and engineering positions, and 23
were engaged in field service and installation. Approximately 29 employees were
laid off by HSI in the January 1996 restructuring. See "HSI MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources." In addition, five research and
development personnel voluntarily resigned during the first quarter for 1996.
The employees of HSI do not belong to a labor union and HSI has never
experienced a general labor dispute or strike. HSI considers its relationship
with its employees to be good.
RISK FACTORS
Except for historical information, the matters discussed herein concerning
HSI and the LDB contain forward-looking information. This information is subject
to certain risks and uncertainties that could cause future results to differ
materially from current HSI expectations. These risks are substantially the same
as those affecting Laserscope described in "THE ACQUISITION AND RELATED
TRANSACTIONS -- Certain Risks Associated With The Acquisition -- Government
Regulation; Uncertainty of Obtaining Regulatory Approval," and include:
Failure of New Products to Obtain FDA Clearances; Other
Regulations. Although appropriate FDA approvals have been obtained for HSI's
current products, there can be no assurance that such approvals will be
available for future products. HSI and the LDB are also subject to a number of
other regulatory policies, rules and restrictions, and may be subject to future
legislation and regulations, all of which could entail additional costs, delays
and potential obstacles to the operations of HSI and the LDB. See "THE
ACQUISITION AND RELATED TRANSACTIONS -- Certain Risks Associated With the
Acquisition -- Government Regulation; Uncertainty of Obtaining Regulatory
Approval" and "INFORMATION CONCERNING HSI -- Regulation and Quality Assurance."
Failure to Obtain or Maintain Patents, Licenses or Other Proprietary
Rights. There can be no assurance that HSI will be able to obtain or maintain
patents, licenses or other proprietary rights necessary for the conduct of its
business, or that any such patents, licenses or other proprietary rights will
not expire, be invalidated or found to infringe upon the rights of third
parties. See "THE ACQUISITION AND RELATED TRANSACTIONS -- Certain Risks
Associated With the Acquisition -- Reliance on Patents and Licenses" and
"INFORMATION CONCERNING HSI -- Patents and Licenses."
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Competition; Technological Change. Changes in technology, surgical
procedures using lasers and
market acceptance of laser products have seriously impacted HSI's business and
may continue to do so. HSI has experienced and will continue to experience
competition from manufacturers of both laser products and non-laser products,
which competitors have greater financial and technological resources than HSI.
There can be no assurance that HSI will be able to compete effectively with
other companies and technologies. See "THE ACQUISITION AND RELATED
TRANSACTIONS -- Certain Risks Associated With the Acquisition -- Uncertainty of
Technological Change; Uncertainty of New Product Development," and
"-- Competition" and "INFORMATION CONCERNING HSI -- Research and Development,"
and "-- Competition."
Consolidation and Reorganization in the Medical Laser Industry. These
events could seriously affect HSI's ability to compete. See "INFORMATION
CONCERNING HSI -- Competition."
Currency Fluctuations. Approximately 20% of HSI's sales are made outside
the U.S. and significant portions of the OR Products are imported from Germany.
Fluctuations in currency rates affect and could continue to affect the price
competitiveness and profitability of HSI's products in international markets.
Although Heraeus Holding GmbH (the "Holding Company") has in the past entered
into various hedging contracts with respect to the intercompany loan formerly
outstanding to HSI described in "HSI MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources." HSI generally does not hedge against currency risks.
Limited Working Capital. It is likely that HSI will require additional
financing to continue to meet its obligations in the future. Although the
Holding Company has indicated its willingness to provide HSI with financial
support through January 1, 1997 or until HSI is sold, whichever is sooner,
neither the Holding Company nor any other Heraeus entity is willing to continue
to provide financial support to HSI or the LDB after the Acquisition. See "THE
ACQUISITION AND RELATED TRANSACTIONS -- Certain Risks Associated With the
Acquisition -- Difficulties and Cost of Integration; Impact of Amortization on
Earnings," and "-- History of Losses" and "HSI MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources."
Single Source Suppliers. There can be no assurance that HSI will not
suffer from significant production delays as the result of the unavailability
from single-source suppliers of various components which are used in the
manufacturing process. See "THE ACQUISITION AND RELATED TRANSACTIONS -- Certain
Risks Associated with the Acquisition -- Dependence on Single Source Suppliers"
and "INFORMATION CONCERNING HSI AND THE LDB -- Manufacturing."
Key Personnel. Like Laserscope, HSI is also dependent on the efforts and
abilities of a number of key employees. See "THE ACQUISITION AND RELATED
TRANSACTIONS -- Certain Risks Associated With the Acquisition -- Failure to
Attract or Retain Key Personnel Can Adversely Affect Results" and "INFORMATION
CONCERNING HSI -- Patents and Licenses," and "-- Employees."
Quarterly Results. Because HSI's products are also relatively expensive,
shipment dates can have a significant effect on its quarterly operating results.
See "THE ACQUISITION AND RELATED TRANSACTIONS -- Certain Risks Associated With
the Acquisition -- Fluctuations in Quarterly Operating Results."
Product Liability. Although HSI has never suffered a product liability
loss greater than $250,000, and HSI and the LDB currently carry product
liability insurance believed to be adequate to protect against product liability
claims, significant product liability risks are inherent in the operations of
HSI and the LDB, and there can be no assurance that a substantial uninsured loss
will not be incurred. See "THE ACQUISITION AND RELATED TRANSACTIONS -- Certain
Risks Associated With the Acquisition -- Product Liability Risk; Limited
Insurance Coverage" and "INFORMATION CONCERNING HSI -- Products."
New Product Launch. HSI has encountered various technical problems with
the production of its PARAGON CO2 laser product, which is relatively new.
Although these problems are not believed to be unusual for a new product of this
type, they could adversely affect sales and profitability of this product. See
"HSI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Years Ended December 31, 1995 and 1994."
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HSI MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
HSI manufactures and sells capital equipment for use in surgical
applications, principally surgical laser systems and operating room systems. HSI
is organized into two divisions: a Minimally Invasive Surgery division that
manufactures and sells lasers used in surgical procedures ("MIS Products"); and
an Operating Room Products division that manufactures and distributes equipment
and distributes lighting for operating rooms ("OR Products"). Substantially all
of HSI's revenue is from the sale of MIS Products and OR Products directly or
through distributors primarily to surgeons and hospitals, and from related
service. HSI recognizes revenue from products upon shipment to its distributors
or its customers. Service revenue is recognized upon provision of the services
to the customer.
Heraeus Surgical, Inc. ("HSI"), formerly named Heraeus Medical, Inc., was
organized in the State of Delaware for the purpose of acquiring substantially
all the assets, except for cash and only certain liabilities, of Heraeus
Systems, Inc. (formerly Heraeus Surgical, Inc.). As a result of this
transaction, which closed March 1, 1996, HSI became largely debt-free, with the
exception of customary accruals and trade payables. Heraeus Systems, Inc. and
HSI are both indirectly held subsidiaries of Heraeus Holding GmbH, Hanau,
Germany (the "Holding Company"). Heraeus Systems, Inc. is not participating in
the transaction described in this Proxy Statement. HSI has no subsidiaries.
Financial results described below for periods prior to March 1, 1996 are
for Heraeus Systems, Inc., formerly Heraeus Surgical, Inc. and HSI's
predecessor. Financial results described below for the three-month period ended
March 31, 1996 are combined results for Heraeus Systems, Inc. (for the two
months ended February 29, 1996), and for HSI, the successor company (for the
month of March, 1996). See "HSI MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources."
The impact of inflation on HSI's net revenues and on operating losses has
not been significant. However, declines in the prices of HSI's products have
contributed to reductions in HSI's revenues and increases in its operating
losses.
QUARTERS ENDED MARCH 31, 1996 AND 1995
HSI's net revenues increased $39,000, or 0.6%, in the first quarter of 1996
compared to the first quarter of 1995. Comparing the two quarters, HSI doubled
PARAGON CO2 laser sales, and improved sales of the HANAULUX lights and HANAUPORT
mounting devices. These increases were largely offset, however, by a substantial
decrease in sales of HSI s Nd:YAG laser product in the first quarter of 1996, as
compared with the first quarter of 1995. This decrease was due primarily to
strong competition that had developed following the introduction of an alternate
technology in the urology market in early 1995. Laser accessory sales also
decreased $237,000 in the first quarter of 1996, as compared with the first
quarter of 1995, due to a decrease in the sale of the ULTRALINE fiber resulting
from the decline in the use of laser systems in urological procedures.
Net service revenue decreased $72,000, or 6.0%, in the first quarter of
1996, as compared with the first quarter of 1995, primarily due to a decrease in
billable and contract service revenue related to Nd:YAG and CO2 laser products.
Gross profit increased $209,000, or 8.2%, in the first quarter of 1996 as
compared to the first quarter of 1995. This increase was primarily attributed to
a reduction in the cost of manufacturing as a percentage of sales. Improvement
in engineering and production processes, and reductions in costs of materials
and manufacturing overhead variances, contributed significantly to the margin
improvement.
Operating expenses decreased $188,000, or 5.6%, in the first quarter of
1996 as compared to the first quarter of 1995. As a percentage of net revenues,
operating expenses decreased to 45.5% from 48.5% in the first quarter of 1996
from the first quarter of 1995. This decrease was primarily due to a reduction
in force of
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29 employees. Reduction in legal costs and travel and management bonuses
amounted to $68,000, and were the principal reasons for a 11.1% decrease in
administrative costs in the first quarter of 1996, as compared to the first
quarter of 1995. Research and development project spending in the first quarter
of 1996 declined $79,000, or 16.7%, from the first quarter of 1995. This
decrease resulted from the completion of the PARAGON development project in 1995
and from certain cost-cutting measures executed in January of 1996. See "HSI
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
Interest expense of $86,000 in the first quarter of 1996 increased $41,000
compared to the first quarter of 1995. The increase resulted from increased
borrowings from the Holding Company from $2.5 million to $4.3 million.
Other income for the first quarter of 1996 includes $250,000 from the
settlement of a lawsuit.
HSI reported a loss before income taxes of $209,000 for the first quarter
ended March 31, 1996 and does not anticipate income taxes due for the period,
and therefore has made no significant provision for federal and state income
taxes. HSI recorded a loss before income taxes of $828,000 during the first
quarter of 1995 and made no significant provision for federal and state income
tax.
YEARS ENDED DECEMBER 31, 1995 AND 1994
HSI's net revenues decreased $4.7 million or 14.4%, in 1995 as compared to
1994, primarily due to a significant decline in the quantity and also in the
average unit prices, of Nd:YAG lasers because of a decline in the use of laser
systems in urological procedures. However, CO2 laser revenues increased by
almost 100% in 1995 as compared to 1994 due to acceptance in the marketplace of
the new PARAGON CO2 laser. This increase occurred despite delays in shipments
experienced from early to mid 1995. Laser accessory revenue also decreased from
1995 as compared to 1994. Lack of demand for the ULTRALINE fiber utilized with
the Nd:YAG laser system in the urology market contributed significantly to this
decrease.
Service revenue decreased $481,000, or 9.1%, from 1995 as compared to 1994
due to a decline in billable laser system service and contract laser system
service. Laser system service revenue declines from 1994 to 1995 were caused
primarily by under-utilization of laser systems, and by hospitals replacing old
technology with new equipment requiring less service. Additionally, the market
for service provided by HSI has become more competitive as hospitals bundle
laser maintenance contracts with other equipment maintenance under blanket
service agreements.
Gross profits decreased $3.6 million, or 26%, from fiscal 1995 as compared
to fiscal 1994 primarily because of slowness in the MIS Products business and
start-up costs of the PARAGON CO2 laser that resulted in significant
manufacturing variances and warranty costs.
Operating expenses decreased approximately $1 million, or 7.3%, in 1995 as
compared to 1994, but increased as a percentage of net revenues. The increase as
a percentage of net revenues was primarily due to the decline in net revenues in
1995. Marketing and selling expenses decreased $671,000, or 6.9%, in 1995 as
compared to 1994 primarily as a result of reduced commission costs due to lower
sales volume, reduced demonstration, travel and workshop costs and reduction in
headcount. General and administrative expenses decreased $120,000, or 4.7%, in
1995 as compared to 1994 primarily as a result of lower legal costs due to the
resolution in 1995 of certain legal disputes that began in 1994 or earlier.
Research and development expenses decreased $243,000, or 12.4%, in 1995 as
compared to 1994 primarily as a result of reduced project spending.
Interest expense of $285,000 in 1995 increased from $111,000 in 1994 as a
result of interest expense on increased borrowing from the Holding Company from
$2.5 million in 1994 to $6.9 million in 1995.
HSI reported a loss before income taxes of $3.3 million for 1995 and does
not anticipate income taxes due for the period and therefore has made no
significant provision for federal and state income taxes.
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YEARS ENDED DECEMBER 31, 1994 AND 1993
HSI's net revenues decreased $117,000, or .4%, in 1994 as compared with
1993. Although combined sales of HSI's products were essentially flat from the
previous fiscal year, changes in sales by product type were pronounced. CO2
laser revenues decreased as the CO2 laser market shifted in late 1994 to the
aesthetic market and away from the general surgery market for gynecology and
ear, nose and throat ("ENT") applications. The then-available CO2 Product line,
ILLUMINA, was not able to satisfy the requirements of the aesthetic market.
Sales of HSI's Nd:YAG laser systems remained flat. Laser accessory sales
decreased in 1994 as compared to 1993, primarily due to a decline in fiber sales
in the urology market for MIS Products resulting from increased accessory
competition in 1994. Endoscopy product sales also decreased because a
distribution agreement entered into in 1993 with a German manufacturer of
endoscopic equipment was not successful and the German manufacturer was
prohibited by the FDA from importing products into the U.S. in early 1994. The
distribution agreement was terminated in early 1994. OR Product sales increased
in 1994 from 1993 due to substantial backlog from 1993 and aggressive
discounting in 1994.
Service revenue was essentially flat in 1994 compared to 1993 as increases
in OR Product service from more aggressive selling and overall price increases
were offset by reduced MIS Product service due to the continuing effects of
under-utilization of hospital laser equipment and bundling of maintenance
agreements.
HSI's gross profit decreased $641,000 or 4.4%, from 1993 to 1994 from a
combination of factors, including reduced MIS Product sales and increased OR
Product costs.
Operating expenses decreased $990,000, or 6.5%, in 1994 as compared to
1993. The decrease was primarily due to a reduction of travel, workshop and
trade shows costs and a reduction in headcount. Marketing and selling expense
decreased $1.2 million, in 1994, or 10.6%, compared to 1993. Research and
development expense increased $202,000, or 11.5%, in 1994 as compared to 1993
due to the continued development of high powered lasers.
Interest expense in 1994 of $111,000 increased from $48,000 in 1993
primarily as a result of increased borrowings from the Holding Company.
Because HSI reported a loss before income taxes of $416,000 for 1994, it
does not anticipate income taxes due for this period and therefore has made no
significant provision for federal and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
On February 28, 1996, the old Heraeus Surgical, Inc. changed its name to
Heraeus Systems, Inc. ("Systems"). In addition, a newly organized company named
Heraeus Medical, Inc. ("Medical") was formed. On March 1, 1996 all assets and
liabilities (with the exception of an intercompany loan and cash) were
transferred from Systems to Medical. Medical subsequently changed its name to
Heraeus Surgical, Inc. which throughout this document is referred to as "HSI."
In connection with this corporate reorganization, Heraeus Med GmbH ("HME") made
a capital contribution to HSI of $10.8 million. In March 1996, $250,000 of
intercompany debt was forgiven by the Heraeus Group and recorded as a capital
contribution by HSI. With the proceeds of the initial capital contribution, HSI
paid Systems for the cost of the transferred assets and liabilities.
Subsequently Systems paid off the intercompany loan of approximately $6,924,000.
As a result of this corporate reorganization, HSI will not be entitled to offset
taxable income which may be earned by HSI in future periods with net operating
loss carryforwards from periods prior to the reorganization.
In January of 1996, HSI executed a restructuring designed to reduce its
annual costs, after taking into account the charges associated with such
restructuring. The principle features of the restructuring were the layoffs of
approximately 29 employees and closure of the New Jersey facility described in
"INFORMATION CONCERNING HSI -- Domestic Facilities."
At March 31, 1996 HSI had working capital of $10.3 million and cash of
$869,000. At such date HSI had total and current liabilities of $5.8 million.
Although HSI hopes to be able to meet its financial obligations from cash
generated from operations and does not project additional borrowings, it is
likely, in light of the fact that HSI's predecessor had incurred an accumulated
deficit of approximately $26 million from 1988 through
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February 29, 1996, and relied on the Holding Company to provide financing for
its operations, that HSI will require additional capital to meet its
obligations. The Holding Company has indicated its willingness to continue to
provide the financial support necessary to HSI to enable HSI to meet its
obligations as they become due and to continue as a going concern at least
through January 1, 1997 or until HSI is sold, whichever is sooner. Neither the
Holding Company nor any other Heraeus entity is willing to continue to provide
financial support to HSI or the LDB after the Acquisition.
INCORPORATION BY REFERENCE
The Company hereby incorporates by reference the Company's description of
business, property, legal proceedings and market price of and dividends on the
Company's Common Stock, Selected Financial Data, Financial Statements and
Supplementary Data, and the Management s Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, and the Financial Information
and the Management s Discussion and Analysis of Financial Condition and Results
of Operations contained in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, which reports accompany this Proxy Statement.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, Laserscope's directors, its
executive officers, and any persons holding more than ten percent of
Laserscope's common stock are required to report their initial ownership of
Laserscope's securities and any subsequent changes in that ownership to the
Commission. Specific filing deadlines of these reports have been established and
Laserscope is required to disclose in this Proxy Statement any failure to file
by these dates during 1995. All of these filing requirements have been
satisfied. In making this statement, Laserscope has relied solely on written
representations of its directors and executive officers and any ten percent
holders and copies of the reports that they filed with the Commission.
SHAREHOLDER PROPOSALS FOR 1997 MEETING
Proposals of shareholders intended to be presented by such shareholders at
the Company's 1997 Annual Meeting must be received by the Company no later than
December 28, 1996 in order that they may be included in the proxy statement and
form of proxy relating to that meeting.
OTHER MATTERS
The Laserscope Board of Directors does not intend to bring any matters
before the Special Meeting other than those specifically set forth in the notice
of meetings and does not know of any matters to be brought before the meeting by
others. If other matters properly come before the meeting, it is the intention
of the persons named in the accompanying proxies to vote such proxies in
accordance with the judgment of the Laserscope Board of Directors.
55
<PAGE> 62
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HERAEUS SURGICAL, INC.
Report of Independent Auditors........................................................ F-2
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statements of Cash Flows.............................................................. F-5
Statements of Stockholder's Equity.................................................... F-6
Notes to Financial Statements......................................................... F-7
LASERSCOPE, INC.
Unaudited Pro Forma Financial Statements:
Combined Condensed Balance Sheet as of March 31, 1996............................... F-15
Combined Condensed Statements of Operations for the year ended December 31, 1995
and the three months ended March 31, 1996........................................ F-16
Notes to Pro Forma Financial Statements............................................... F-17
</TABLE>
F-1
<PAGE> 63
INDEPENDENT AUDITORS REPORT
The Board of Directors
Heraeus Surgical, Inc.:
We have audited the accompanying balance sheets of Heraeus Surgical, Inc.
(a wholly-owned subsidiary of Heraeus Med GmbH) as of December 31, 1995 and
1994, and the related statements of operations, stockholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Heraeus Surgical, Inc. as of
December 31, 1995 and 1994 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
February 20, 1996
F-2
<PAGE> 64
HERAEUS SURGICAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBERS OF SHARES)
<TABLE>
<CAPTION>
"PREDECESSOR"
DECEMBER 31,
---------------------
1995 1994
"SUCCESSOR" -------- --------
MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 869 $ 1,782 $ 945
Accounts receivable, net of allowances of $105 and
$138, for the years ended December 31, 1995 and
1994, respectively................................. 5,963 6,413 5,003
Due from related parties.............................. 940 725 626
Inventories, net...................................... 8,020 8,566 7,567
Prepaid expenses...................................... 340 227 454
------- ------- -------
Total current assets.......................... 16,132 17,713 14,595
Property and equipment, net............................. 526 591 788
Intangible assets....................................... 237 250 --
------- ------- -------
Total assets....................................... $ 16,895 $ 18,554 $ 15,383
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of long-term debt due to related
party.............................................. $ -- $ 6,924 --
Accounts payable...................................... 1,824 2,567 2,435
Due to related parties................................ 1,735 1,948 410
Accrued compensation.................................. 688 795 559
Deferred revenue...................................... 885 1,059 1,263
Other accrued expenses................................ 716 1,000 632
------- ------- -------
Total current liabilities..................... 5,848 14,293 5,299
Long term debt due to related party..................... -- -- 2,548
Commitments and Contingencies
Stockholder s equity ("Predecessor")
Common stock -- no par value; 10,000 shares
authorized; 4,500 shares issued and outstanding.... -- 30,000 30,000
Accumulated deficit................................... -- (25,739) (22,464)
Stockholder's equity ("Successor")
Common Stock -- no par value; 10,000 shares
authorized; 100 shares issued and outstanding...... 11,050 -- --
Accumulated deficit................................... (3) -- --
------- ------- -------
Total stockholder's equity.................... 11,047 4,261 7,536
------- ------- -------
Total liabilities and stockholder's equity.... $ 16,895 $ 18,554 $ 15,383
======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 65
HERAEUS SURGICAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
"MEMORANDUM "PREDECESSOR"
TOTAL" "SUCCESSOR" ----------------------------------------------------------
------------ --------- TWO MONTHS YEARS ENDED
THREE MONTHS ONE MONTH ENDED THREE MONTHS DECEMBER
ENDED ENDED FEBRUARY ENDED 31,
MARCH 31, MARCH 31, 29, MARCH 31, -----------------------------
1996 1996 1996 1995 1995 1994 1993
------------ --------- ---------- ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues:
Net product sales to unrelated
parties............................. $4,803 $ 1,678 $3,125 $4,577 $19,822 $22,761 $23,363
Net product sales to related
parties............................. 967 464 503 1,082 3,152 4,394 3,939
Net service revenue................... 1,137 346 791 1,209 4,802 5,283 5,253
------ ------ ------ ------ ------- ------- -------
6,907 2,488 4,419 6,868 27,776 32,438 32,555
Cost of sales to unrelated parties.... 2,951 990 1,961 2,926 13,135 13,072 12,400
Cost of sales to related parties...... 667 320 347 747 1,851 2,647 2,712
Cost of services...................... 530 168 362 645 2,484 2,795 2,878
------ ------ ------ ------ ------- ------- -------
Gross profit................... 2,759 1,010 1,749 2,550 10,306 13,924 14,565
Operating expenses:
Research and development.............. 395 125 270 474 1,714 1,957 1,755
Marketing and selling................. 2,205 717 1,488 2,245 9,079 9,750 10,914
General and administrative............ 546 173 373 614 2,401 2,521 2,549
------ ------ ------ ------ ------- ------- -------
3,146 1,015 2,131 3,334 13,194 14,228 15,218
------ ------ ------ ------ ------- ------- -------
Operating profit (loss)............... (387) (5) (382) (784) (2,888) (304) (653)
Other income (expense), net
Interest expense...................... (86) (12) (74) (45) (285) (111) (48)
Other income (expense)................ 264 14 250 2 (100) (1) 26
------ ------ ------ ------ ------- ------- -------
(178) 2 176 (44) (385) (112) (22)
------ ------ ------ ------ ------- ------- -------
Loss before income taxes................ (209) (3) (206) (828) (3,273) (416) (675)
Provision for income taxes.............. 2 -- 2 13 2 23 --
------ ------ ------ ------ ------- ------- -------
Net loss................................ $ (211) $ (3) $ (208) $ (841) $(3,275) $ (439) $ (675)
====== ====== ====== ====== ======= ======= =======
- ----------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 66
HERAEUS SURGICAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------
</TABLE>
<TABLE>
<CAPTION>
"PREDECESSOR"
-------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
"MEMORANDUM "SUCCESSOR" ------- ------- -------
TOTAL" ONE
THREE MONTH TWO THREE
MONTHS ENDED MONTHS MONTHS
ENDED MARCH 31, ENDED ENDED
MARCH 31, 1996 FEBRUARY 29, MARCH 31,
1996 ---------- 1996 1995
------------- (UNAUDITED) ------------ -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $ (211) $ (3) $ (208) $ (841) $(3,275) $ (439) $ (675)
Adjustments to reconcile net loss
to net cash provided by (used
in) operating activities:
Depreciation and
amortization................. 79 27 52 76 303 286 744
Loss on sale of equipment...... -- -- -- -- -- 13 --
Write-off of fixed assets...... -- -- -- -- 14 -- --
Changes in operating assets and
liabilities:
Accounts receivable.......... 450 376 74 684 (1,410) 1,560 (2,784)
Inventories.................. 546 412 134 (262) (999) (676) (983)
Prepaid expenses............. (113) (97) (16) (42) 227 9 11
Due to related parties,
net........................ (178) (582) 404 1,106 1,439 (589) 427
Accounts payable............. (743) (350) (393) (359) 132 663 601
Accrued compensation......... (107) 7 (114) 65 236 (451) 302
Other accrued expenses....... (284) (1) (283) (31) 368 164 (265)
Deferred revenue............. (174) (98) (76) (28) (204) (122) 131
------- ------- ------ ------ ------- ------- -------
Net cash provided by (used in)
operating activities........... (735) (309) (426) 371 (3,169) 418 (2,491)
Cash flows from investing
activities:
Purchase of property and
equipment...................... (1) (4) 3 (35) (120) (277) (445)
Purchase of patent............... -- -- -- -- (250) -- --
Purchase of HSI Net Assets....... (9,477) (9,477) -- -- -- -- --
Proceeds on sale of fixed
assets......................... -- -- -- -- -- 2 --
------- ------- ------ ------ ------- ------- -------
Net cash used in investing
activities................... (9,478) (9,481) 3 (35) (370) (275) (445)
Cash flows from financing
activities:
Proceeds from recapitalization... 10,800 10,800 -- -- -- -- --
Proceeds from parent advances.... -- -- -- -- 4,376 2,548 --
Repayment of parent advances..... (141) (141) -- -- -- -- --
Short-term note
payable -- borrowings.......... -- -- -- -- -- -- 2,500
Repayment of short-term notes.... -- -- -- -- -- (2,500) --
------- ------- ------ ------ ------- ------- -------
Net cash provided by financing
activities................... 10,659 10,659 -- -- 4,376 48 2,500
------- ------- ------ ------ ------- ------- -------
Net increase (decrease) in cash and
cash equivalents................. 446 869 (423) 336 837 191 (436)
Cash and cash equivalents at the
beginning of the period.......... 1,782 -- 1,782 945 945 754 1,190
------- ------- ------ ------ ------- ------- -------
Cash retained by Heraeus Systems,
Inc.............................. (1,359) -- -- -- -- -- --
------- ------- ------ ------ ------- ------- -------
Cash and cash equivalents at the
end of the year.................. $ 869 $ 869 $1,359 $ 1,281 $ 1,782 $ 945 $ 754
======= ======= ====== ====== ======= ======= =======
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest....................... $ -- $ -- $ -- $ -- $ 212 $ 111 $ 63
======= ======= ====== ====== ======= ======= =======
Income taxes................... $ 2 $ -- $ 2 $ 13 $ 2 $ 23 $ --
======= ======= ====== ====== ======= ======= =======
Non-cash financing activities:
- -----------------------------------
</TABLE>
In March 1996, $250 of inter-company debt was forgiven by the Heraeus Group
and recorded as a capital contribution by the "Successor."
See accompanying notes to financial statements.
F-5
<PAGE> 67
HERAEUS SURGICAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH)
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT NUMBERS OF SHARES)
HERAEUS SURGICAL, INC. ("PREDECESSOR"):
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT DEFICIT EQUITY
------ ------- ----------- -------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1992................. 4,500 $30,000 $ (21,350) $ 8,650
Net loss........................................ (675) (675)
----- ------- -------- -------
Balance as of December 31, 1993................. 4,500 30,000 (22,025) 7,975
Net loss........................................ (439) (439)
----- ------- -------- -------
Balance as of December 31, 1994................. 4,500 30,000 (22,464) 7,536
Net loss........................................ (3,275) (3,275)
----- ------- -------- -------
Balance as of December 31, 1995................. 4,500 $30,000 $ (25,739) $ 4,261
Net loss for the two months ended February 29,
1996 (unaudited).............................. (208) (208)
----- ------- -------- -------
Balance as of February 29, 1996 (unaudited)..... 4,500 $30,000 $ 25,947 $ 4,053
===== ======= ======== =======
</TABLE>
HERAEUS SURGICAL, INC. ("SUCCESSOR"):
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT DEFICIT EQUITY
------ ------- ----------- -------------
<S> <C> <C> <C> <C>
Balance as of March 1, 1996
(inception)(unaudited)........................ -- $ -- $ -- $ --
Capital contribution as of March 1, 1996
(unaudited)................................... 100 $10,800 -- $10,800
Forgiveness of intercompany debt (unaudited).... -- $ 250 -- $ 250
Net loss for the month ended March 31, 1996
(unaudited)................................... -- -- (3) (3)
----- ------- -------- -------
Balance as of March 31, 1996 (unaudited)........ 100 $11,050 $ (3) $11,047
===== ======= ======== =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 68
HERAEUS SURGICAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995, THE ONE MONTH
ENDED MARCH 31, 1996 AND THE TWO MONTHS ENDED FEBRUARY 29, 1996 IS UNAUDITED.)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Operations
Heraeus Surgical, Inc. (the Company) was incorporated on May 11, 1988 as a
wholly-owned subsidiary of Heraeus Instruments GmbH. The Company manufactures,
distributes and services surgical laser equipment. In January 1993 the Company
expanded its line of business and started assembling and selling operating room
equipment systems.
As of January 1, 1995, Heraeus Instruments GmbH, restructured its
organization and transferred its 100% share in Heraeus Surgical, Inc., to
Heraeus Med GmbH (the Parent). In March 1996, $250,000 of intercompany debt was
forgiven by the Heraeus Group and recorded as a capital contribution by the
"Successor." The parent of the Company is Heraeus Holding GmbH, a German holding
company (Heraeus Group).
The accompanying financial statements have been prepared from the separate
records of Heraeus Surgical, Inc. and may not be indicative of conditions which
would have existed or the results of its operations if the Company operated
autonomously.
(b) Corporate Reorganization (unaudited)
On February 28, 1996, Heraeus Surgical, Inc. ("Predecessor") changed its
name to Heraeus Systems, Inc. In addition, a new company named Heraeus Medical,
Inc. was formed. By asset transfer agreement as of March 1, 1996 all assets and
liabilities (with the exception of an intercompany loan and cash) were
transferred from Heraeus Systems, Inc. to Heraeus Medical, Inc. Heraeus Medical,
Inc. subsequently changed its name to Heraeus Surgical, Inc. ("Successor"). The
"Memorandum Total" in the accompanying Statements of Operations and Cash Flows
represents the addition of the amounts for the two months ended February 29,
1996 of the "Predecessor" and the one month ended March 31, 1996 of the
"Successor" and is presented for analysis purposes.
In connection with the corporate reorganization Heraeus Med GmbH, the
parent company, made a capital contribution of $10,800,000 to the new company
named Heraeus Medical, Inc. With the proceeds of the capital contribution the
new company named Heraeus Medical, Inc. paid Heraeus Systems, Inc. for the cost
of the transferred assets and liabilities; subsequently Heraeus Systems, Inc.
paid off the intercompany loan referred to in Note 6. As a result of this
corporate reorganization, the "Successor" Company will not be entitled to offset
taxable income which may be earned by it in future periods with net operating
loss carryforwards from periods prior to the reorganization.
(c) Basis of Accounting
The financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles in the
United States of America.
(d) Interim Financial Information
The financial statements and related notes for the three months ended March
31, 1996 and 1995, the two months ended February 29, 1996, and the one month
ended March 31, 1996, are unaudited, but include all adjustments (consisting
solely of normal recurring adjustments with the exception of the recognition of
$250,000 of other income related to the settlement of a lawsuit which was
recognized during the two months ended February 29, 1996), which are, in the
opinion of management, necessary for a fair presentation. The
F-7
<PAGE> 69
HERAEUS SURGICAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
results of operations for the three months ended March 31, 1996 and 1995, the
two months ended February 29, 1996 and the one month ended March 31, 1996 are
not necessarily indicative of operating results to be expected for any future
period.
(e) Cash and Cash Equivalents
Cash equivalents consist principally of money market instruments with major
financial institutions.
(f) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market (net realizable value).
(g) Property and Equipment
Property and equipment are recorded at cost and are depreciated over
estimated useful lives ranging from 3 to 5 years using the straight-line method.
Leasehold improvements are amortized using the straight-line method over the
shorter of their estimated useful lives or the remaining term of the lease.
(h) Amortization of Intangibles
Intangible assets are amortized on a straight-line basis over periods of up
to five years. The Company assesses the recoverability of intangibles and other
long lived assets by determining whether the amortization of the related
balances over its remaining useful life can be recovered through projected
undiscounted cash flows.
(i) Fair Value of Instruments
Financial assets and liabilities have carrying values which approximate
fair values.
(j) Management Estimates
Preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(k) Dependence Upon Parent
The Company had an accumulated deficit of $25,739,000 as of December 31,
1995 and has relied on corporations in the Heraeus Group to provide financing
for its operations. Heraeus Holding GmbH, the ultimate parent company, plans to
continue to provide the financial support necessary to the Company to enable the
Company to meet its obligations as they become due and to continue as a going
concern at least through January 1, 1997 or until the Company is sold to a third
party, whichever is sooner.
(l) Revenue Recognition
Revenue from sales of surgical laser equipment and operating room systems
is recognized when risk of ownership has transferred to the buyer. The Company
provides for the estimated cost to repair or replace products under warranty
provision in effect at the time of sale. Service revenue is recognized as the
services are provided or pro rata over the period of the applicable contract.
F-8
<PAGE> 70
HERAEUS SURGICAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(m) Export Sales
The Company had export sales of $5,445,000, $6,769,000 and $5,814,000 for
the years ended December 31, 1995, 1994 and 1993, respectively, primarily to
Europe and the Far East.
(n) Concentration of Credit Risk
Concentration of credit risk principally consist of cash and cash
equivalents and accounts receivable. The Company performs ongoing credit
evaluations of its customers and maintains allowances for potential
uncollectible accounts.
(o) Foreign Currency Transactions
Assets and liabilities denominated in foreign currencies are translated to
U.S. dollars using the exchange rates in effect at the balance sheet date and
any gains and losses are recognized in the statements of operations. Gains and
losses from foreign currency transactions are recognized as incurred and are
included in other income (expense) in the accompanying statements of operations.
Heraeus Holding GmbH (the parent company) enters into various foreign
currency hedging contracts on behalf of the Company to provide an economic hedge
against fluctuations in foreign currency exchange rates that affect the
intercompany loan as referred to in note 6. Foreign currency transaction gains
and losses, net of the impact of hedging, were not significant for the years
ended December 31, 1995, 1994 and 1993. As of December 31, 1995, Heraeus Holding
GmbH had entered into foreign currency contracts on behalf of the Company
totaling approximately $6 million.
(p) Research and Development Expenditures
All research and development costs are expensed as incurred.
(q) Income Taxes
Deferred tax assets and liabilities are recognized under the asset and
liability method for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
(2) INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------
1996 1995 1994
--------- ------ ------
<S> <C> <C> <C>
Raw material.................................... $ 2,835 $1,577 $1,175
Work in progress................................ 742 634 635
Finished goods.................................. 2,570 4,504 4,192
Demo............................................ 1,873 1,851 1,565
------ ------ ------
$ 8,020 $8,566 $7,567
====== ====== ======
</TABLE>
F-9
<PAGE> 71
HERAEUS SURGICAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------
1996 1995 1994
--------- ------ ------
<S> <C> <C> <C>
Machinery and equipment......................... $ 1,553 $1,553 $1,497
Office equipment and furniture.................. 1,212 1,212 1,422
Leasehold improvements.......................... 1,015 1,015 1,015
------ ------ ------
3,780 3,780 3,934
Less: Accumulated Depreciation.................. 3,254 3,189 3,146
------ ------ ------
$ 526 $ 591 788
====== ====== ======
</TABLE>
(4) INTANGIBLE ASSETS
At December 31, 1995, intangible asset balances consisted of technical
rights, patents and documentation rights to licensed technology.
Included in depreciation and amortization expense for the year ended
December 31, 1993 was the write-off of $125,000 of certain intangible assets
that were considered to no longer have continuing value.
(5) EMPLOYEE BENEFITS
The Company offers participation in a 401(k) plan ("the Plan"). The Plan
covers all full time employees (i.e., employees that work more than 30 hours per
week). Eligible participants must have at least six months of service. The
Company matches 25% of participants' contributions up to certain amounts.
Matching contributions are fully vested after three years of service. Employer
contributions for 1995, 1994 and 1993 were $103,000, $124,000 and $83,000,
respectively.
(6) DEBT
Debt due to related party of $6,924,000 and $2,548,000 at December 31, 1995
and 1994, respectively, represented three notes payable, due on September 19,
1996 of DM (Deutsche Mark) 4,000,000, DM2,000,000 and DM3,700,000, to a member
of the Heraeus Group and bearing an interest rate of 7.25%. Accrued interest
related to these notes payable was $113,000 and $2,000 at December 31, 1995 and
1994, respectively. (See Note(1)(b) "Corporate Reorganization (unaudited)").
Interest expense related to the notes amounted to $348,000 and $2,000 in 1995
and 1994, respectively.
In December 1994, the Company repaid a $2,500,000 short term note to
Commerzbank. Interest expense related to this note amounted to $98,000 and
$8,000 in 1994 and 1993, respectively.
(7) INCOME TAXES
The Company accounts for income taxes according to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the
asset and liability method specified by SFAS No. 109, a deferred tax asset or
liability is determined based on the differences between the financial statement
carrying amounts and tax basis of assets and liabilities as measured by the
enacted tax rates which will be in effect when these differences reverse.
F-10
<PAGE> 72
HERAEUS SURGICAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34% of pretax losses from operations as a result of
the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax benefit.................. $(1,113) $(141) $(229)
Meals and entertainment expenses not deductible
for income taxes............................... 41 41 14
State tax expense, net of federal income tax
benefit........................................ 1 4 --
Losses and credits for which no benefit has been
recognized..................................... 1,088 153 209
Utilization of loss carryforwards................ -- (43) --
Alternative minimum tax.......................... -- 16 --
Other............................................ (15) (7) 6
------- ----- -----
Provision for income taxes....................... $ 2 $ 23 $ --
======= ===== =====
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
is presented below:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserve and expense accruals............................. $ 1,267 $ 1,104
Net operating loss carryover............................. 7,470 6,531
Other.................................................... 139 33
------- -------
Total gross deferred tax assets..................... 8,876 7,668
Less: valuation allowance........................... (8,868) (7,668)
------- -------
Net deferred tax assets............................. $ 8 $ --
======= =======
Deferred tax liability:
Property and equipment................................... $ (8) $ --
------- -------
Deferred tax liability................................. $ (8) $ --
------- -------
Net deferred tax asset................................. $ -- $ --
======= =======
</TABLE>
The net change in the valuation allowance for the years ended December 31,
1995, 1994 and 1993 was $1,200,000, $134,000 and $244,000, respectively.
As of December 31, 1995, the Company had net operating loss carryforwards
for federal and state income tax purposes of $20,300,000 and $9,100,000,
respectively, which are available to offset future federal and state taxable
income, if any, and expiring through the year 2010 for federal tax purposes and
the year 2000 for state tax purposes.
As a result of the corporate reorganization referred to in Note (1)(b), the
"Successor" Company will not be entitled to offset taxable income which may be
earned by it in future periods with net operating loss carryforwards from
periods prior to the reorganization.
F-11
<PAGE> 73
HERAEUS SURGICAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) COST ASSOCIATED WITH RESTRUCTURING OPERATIONS
In 1995, the Company recorded $140,000 of restructuring costs (included in
general and administrative expenses) primarily associated with the reduction in
personnel and closure of a service warehouse. Approximately $85,000 of the
accrual related to severance benefits. The balance primarily reflected an
accrual for commitments due under a lease net of estimated sublease income.
(9) RELATED PARTY TRANSACTIONS
The Company has transactions in the normal course of business with various
other corporations, which are members of the Heraeus Group.
Due from related parties and due to related parties consist of the
following balances as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------ ----
(IN THOUSANDS)
<S> <C> <C>
Due from related parties:
Heraeus KK, Japan......................................... $ 103 $315
Heraeus Instruments GmbH.................................. -- 270
Heraeus Med GmbH.......................................... 617 --
Other..................................................... 5 41
------ ----
$ 725 626
====== ====
Due to related parties:
Heraeus Med GmbH.......................................... $1,927 $ --
Heraeus Instruments GmbH.................................. -- 410
Other..................................................... 21 --
------ ----
$1,948 $410
====== ====
</TABLE>
The Company has entered into product distribution agreements with certain
members of the Heraeus Group. Product sales to these Heraeus distributors are
for resale internationally. The balance due from Heraeus KK, Japan at December
31, 1995 and 1994, relates to product sold to Heraeus KK under distribution
agreements.
Balances due from Heraeus Instruments GmbH, Heraeus Med GmbH and other at
December 31, 1995 and 1994 represents expenses incurred by the Company on their
behalf.
The Company in the normal course of business purchases inventory from
related parties. During 1995, 1994 and 1993, the purchases from related parties
amounted to $2,763,000, $2,674,000 and $2,947,000 respectively. The balances due
to Heraeus Med GmbH and Heraeus Instruments GmbH at December 31, 1995 and 1994,
represent payments due for purchase of inventory.
The balance due to other related parties at December 31, 1995 relates to
expenses incurred by other related parties on behalf of the Company.
F-12
<PAGE> 74
HERAEUS SURGICAL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF HERAEUS MED GMBH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in various legal
matters. In the opinion of management, the disposition of such litigation will
not have a materially adverse effect on the Company's financial statements.
In October, 1995, the Company acquired technical rights, patents and
documentation to Centralized Airborne Evacuation System from CVAC, Inc. ("CVAC")
for $250,000. In addition, the Company must pay CVAC royalty payments of 25% on
revenues generated as a result of bookings for the CVAC system until December
31, 1995 and for certain bookings by June 30, 1996, respectively. From the
beginning of 1996 through the end of 1999 the Company must pay 7% to 10% on
related revenues. The minimum royalty payments for years 1996 through 1999 are
$150,000 per year. From January 1, 2000 until the end of the life of the
patents, royalty payments will range from 2% to 5% of related revenues.
The Company leases certain space and equipment under operating lease
agreements. The following is a schedule of estimated minimum payments due under
non-cancelable leases with a term of more than one year as of December 31, 1995:
<TABLE>
<CAPTION>
Year Ending December 31, (IN THOUSANDS)
<S> <C>
1996...................................................... $535
1997...................................................... 61
------
Total minimum lease payments......................... $596
===========
</TABLE>
Rental expense under operating leases amounted to $588,000, $601,000 and
$518,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
(11) SUBSEQUENT EVENT (UNAUDITED)
Sale of the Company
On April 23, 1996, Heraeus Med GmbH, the parent of the Company, entered
into a share transfer agreement with Laserscope a publicly traded company, to
transfer and assign all of its shares in the new company named Heraeus Surgical,
Inc. to Laserscope in exchange for common shares of Laserscope and cash. Closing
of this agreement is subject to certain conditions.
F-13
<PAGE> 75
LASERSCOPE AND HSI
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following pages F-15 through F-18 contain the Unaudited Pro Forma
Combined Condensed Balance Sheet as of March 31, 1996, the Unaudited Pro Forma
Combined Condensed Statements of Operations for the fiscal year ended December
31, 1995 and the three months ended March 31, 1996 and the notes thereto.
The Unaudited Pro Forma Combined Condensed Balance Sheet and the Unaudited
Pro Forma Combined Condensed Statements of Operations (collectively, the
Unaudited Pro Forma Statements) were prepared to give effect to the Acquisition
accounted for under the purchase method of accounting. The Unaudited Pro Forma
Combined Condensed Balance Sheet assumes that the Acquisition occurred on March
31, 1996. The Unaudited Pro Forma Combined Condensed Statements of Operations
assume that the Acquisition occurred on January 1, 1995. The Unaudited Pro Forma
Statements are based on the historical Consolidated Financial Statements of
Laserscope and HSI under the assumptions and adjustments set forth in the
accompanying Notes to the Unaudited Pro Forma Combined Condensed Financial
Statements. The combined condensed financial information for the fiscal year
ended December 31, 1995 has been obtained from the consolidated financial
statements of Laserscope and HSI, which statements have been audited by Ernst &
Young LLP and KPMG Peat Marwick LLP, the independent auditors for Laserscope and
HSI, respectively. The selected financial data for Laserscope and HSI for the
three-month period ended March 31, 1996 has been obtained from their respective
unaudited financial statements and includes, in the opinion of Laserscope's and
HSI's management, all adjustments necessary to present fairly the data for such
period. The Unaudited Pro Forma Statements may not be indicative of the results
that actually would have occurred if the Acquisition had been in effect on the
dates indicated or which may be obtained in the future.
The pro forma adjustments are based upon available information and upon
certain assumptions, as described in the Notes to the Unaudited Pro Forma
Statements, that Laserscope's management believes are reasonable in the
circumstances. The purchase price has been allocated to the acquired assets and
liabilities based on a preliminary determination from an independent appraisal
of their respective fair values. The Unaudited Pro Forma Statements and
accompanying notes should be read in conjunction with the separate consolidated
financial statements and notes thereto of Laserscope and HSI which have been
included or incorporated by reference in this Proxy Statement.
F-14
<PAGE> 76
LASERSCOPE AND HSI
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
LASERSCOPE HSI PRO FORMA PRO FORMA
MARCH 31, 1996 MARCH 31, 1996 ADJUSTMENTS(3) ADJUSTMENTS(2) COMBINED
-------------- -------------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 2,591 $ 869 $ $ (2,000)(a) $ 1,460
Accounts receivable, net... 5,674 5,963 11,637
Due from related parties... 940 940
Inventories................ 9,497 8,020 18,865
Other current assets....... 643 340 1,348 983
-------- ------- ------ -------- -------
Total current
assets........... 18,405 16,132 1,348 (2,000) 33,885
Property and equipment,
net........................ 2,478 526 21 3,025
Intangible assets:
Developed technology....... 1,212(c) 1,212
In-process technology...... 1,087(b)
(1,087)(f)
Workforce.................. 239(c) 239
Other assets................. 2,104 237 8 2,349
-------- ------- ------ -------- -------
Total assets....... $ 22,987 $ 16,895 $1,377 $ (549) $ 40,710
======== ======= ====== ======== =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable........... $ 1,255 $ 1,824 $ 179 $ -- $ 3,258
Intercompany payable....... 1,735 1,735
Accrued compensation....... 1,257 688 311 2,256
Warranty................... 415 214 629
Deferred revenue........... 1,605 885 2,490
Other accrued
liabilities............. 1,091 502 1,500(a) 3,093
-------- ------- ------ -------- -------
Total current
liabilities...... 5,623 5,848 490 1,500 13,461
Shareholders' equity:
Common stock............... 37,248 10,972(a) 48,220
Paid-in capital............ 11,050 (11,050)(e)
Retained earnings
(deficit)............... (19,159) (3) 887 3(e)
(1,087)(f)
(887)(e) (20,246)
Notes receivable from
shareholders............... (350) (350)
Translation adjustments...... (375) (375)
-------- ------- ------ -------- -------
Total shareholders'
equity........... 17,364 11,047 887 (2,049) 27,249
-------- ------- ------ -------- -------
Total liabilities
and shareholders'
equity........... $ 22,987 $ 16,895 $1,377 $ (549) $ 40,710
======== ======= ====== ======== =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
F-15
<PAGE> 77
LASERSCOPE AND HSI
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
---------------------- PRO FORMA PRO FORMA
LASERSCOPE HSI ADJUSTMENTS COMBINED
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue..................................... $ 30,133 $27,776 $ -- $57,909
Cost of Sales................................... 14,792 17,470 (627)(g) 31,635
------- ------- ------- -------
Gross margin.................................... 15,341 10,306 (627) $26,274
Operating expenses:
Research and development...................... 3,838 1,714 (37)(g) 5,515
Selling, general and administrative........... 15,333 11,480 290(c)
(2,137)(g) 24,966
------- ------- ------- -------
Total operating expenses.............. 19,171 13,194 (1,884) 30,481
------- ------- ------- -------
Operating income (loss)......................... (3,830) (2,888) 2,511 (4,207)
Interest and other income, net.................. 278 (385) (175)(d) (282)
------- ------- ------- -------
Income (loss) before income taxes............. (3,552) (3,273) 2,336 (4,489)
Provision for income taxes...................... -- 2 -- 2
------- ------- ------- -------
Net income (loss)............................. $ (3,552) $(3,275) $ 2,336 $(4,491)
======= ======= ======= =======
Net income (loss) per share..................... $ (0.51) $ (0.39)
======= =======
Shares used in per share calculations........... 6,999 4,609(a) 11,608
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
MARCH 31, 1996
---------------------- PRO FORMA PRO FORMA
LASERSCOPE HSI ADJUSTMENTS COMBINED
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues.................................... $ 7,722 $ 6,907 $ -- $14,629
Cost of sales................................... 3,852 4,148 (157)(g) 7,843
------- ------- ------- -------
Gross margin.................................... 3,870 2,759 (157) 6,786
Operating expenses:
Research and development...................... 629 395 (9)(g) 1,015
Selling, general and administrative........... 3,092 2,751 72(c)
(534)(g) 5,381
------- ------- ------- -------
Total operating expenses.............. 3,721 3,146 (471) 6,396
------- ------- ------- -------
Operating income (loss)......................... 149 (387) 628 390
Interest and other income, net.................. 7 (178) (44)(d) (141)
------- ------- ------- -------
Income (loss) before income taxes............. 156 (209) 584 531
Provision for income taxes...................... 19 2 -- 21
------- ------- ------- -------
Net income (loss)............................. $ 137 $ (211) $ 584 $ 510
======= ======= ======= =======
Net income (loss) per share..................... $ 0.02 $ 0.04
======= =======
Shares used in per share calculations........... 7,295 4,609(a) 11,904
======= ======= =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
F-16
<PAGE> 78
LASERSCOPE AND HERAEUS
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The pro forma information presented is theoretical in nature and not
necessarily indicative of the future consolidated results of operations of the
Company or the consolidated results of operations which would have resulted had
the Acquisition taken place during the periods presented. The pro forma combined
condensed financial statements reflect the effects of the Acquisition, assuming
the Acquisition and related events occurred as of March 31, 1996 for the
purposes of the pro forma condensed combined balance sheet and as of January 1,
1995 for the purposes of the pro forma condensed combined statements of
operations.
2. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT ADJUSTMENTS:
(a) The purchase price for the Acquisition was determined as follows (in
thousands):
<TABLE>
<S> <C>
Cash............................................................... $ 2,000
Laserscope common stock (approximately 4.6 million shares)......... 10,972
Estimated transaction and direct acquisition costs................. 1,500
-------
$14,472
=======
</TABLE>
(b) Allocation of the purchase price for the completion of the Heraeus
acquisition was determined as follows (in thousands):
<TABLE>
<S> <C>
Net assets of HSI at March 31, 1996................................ $11,047
Net assets of LDB at March 31, 1996................................ 887
Developed Technology............................................... 1,212
In-process Technology.............................................. 1,087
Acquired workforce................................................. 239
-------
$14,472
=======
</TABLE>
(c) Amortization of the developed technology and acquired workforce will be
over the estimated useful lives ranging from five to seven years.
(d) To reduce interest income earned on the cash payment to Heraeus of
$3,500,000 for the purchase price and related transaction and direct acquisition
costs.
(e) Elimination of HSI stockholders equity amounts.
(f) The pro forma combined condensed balance sheet includes a charge of
approximately $1.1 million for the write-off of purchased in-process technology
which arose from the Acquisition. This charge is not reflected in the pro forma
combined condensed statements of operations included herein since it is a non-
recurring charge directly attributable to the transaction.
The purchase price was allocated to the tangible and intangible assets of
HSI based on the fair market values of those assets using a risk adjusted
discounted cash flows approach. The evaluation of the underlying technology
acquired considered the inherent difficulties and uncertainties in completing
the development, and thereby achieving technological feasibility, and the risk
related to the viability of and potential changes in future target markets. The
underlying technology had no alternative future use (in research and development
projects or otherwise) since the technology was acquired for the sole purpose of
developing emulation products.
(g) Represents estimated cost savings resulting from the Acquisition,
primarily due to reduction in personnel and elimination of duplicate facilities.
Cost savings total approximately $2.8 million and $0.7 million for the year
ended December 31, 1995 and the three months ended March 31, 1996, respectively.
F-17
<PAGE> 79
LASERSCOPE AND HERAEUS
NOTES TO UNAUDITED PRO FORMA -- CONTINUED
COMBINED CONDENSED FINANCIAL STATEMENTS
3. ADDITIONAL NET ASSETS ACQUIRED
Included in the Acquisition was the purchase of certain assets and the
assumption of certain liabilities related to the Heraeus laser distribution
business. These net assets had an approximate fair value of $887,000 as of March
31, 1996.
F-18
<PAGE> 80
EXHIBITS
EXHIBIT A
Acquisition Agreement Between Laserscope and Heraeus Med GmbH Dated April
23, 1996
EXHIBIT B
Opinion of Von Gehr International
EXHIBIT C
Section 1300 et seq. of the California Corporations Code
EXHIBIT D
1994 Option Plan
EXHIBIT E
Director's Option Plan
PROXY
<PAGE> 81
EXHIBIT A
ACQUISITION AGREEMENT BETWEEN LASERSCOPE AND HERAEUS MED GMBH
DATED APRIL 23, 1996
A-1
<PAGE> 82
LASERSCOPE
3052 Orchard Drive
San Jose, California, U.S.A. 95134-2011
April 23, 1996
Heraeus Med GmbH
Heraeusstrasse 12-14
D-63450 Hanau
Germany
Attention: Thomas H. Ihlenfeldt
Geschaftsfuhrer
Acquisition of Heraeus Laser Business
Dear Mr. Ihlenfeldt:
This letter shall constitute our agreement for the acquisition by
Laserscope of all of the shares of Heraeus Surgical, Inc. ("HSI"), a wholly
owned subsidiary of Heraeus Med GmbH ("HME"), and certain of the assets and
liabilities of HME's laser distribution business ("LDB"), as well as for the
grant to Laserscope of certain other product distribution rights of HME, and for
the licensing and sublicensing of certain rights by HSI and Laserscope to HME.
This agreement shall include all of the Exhibits and Schedules hereto, which are
hereby incorporated herein by this reference.
1. Background of Agreement: Laserscope, a publicly traded California
corporation, is a leading manufacturer and seller of multi-specialty hospital
and physician office-based laser surgical systems and accessories. HME, a German
corporation and an affiliate of privately-held Heraeus Holding GmbH ("Heraeus
Holding"), is a leading manufacturer and seller of a variety of medical
instrumentation and surgical products, including laser systems and integrated
operating room equipment. HME desires to sell to Laserscope all of the issued
and outstanding shares of HSI and certain of the LDB assets and liabilities in
exchange for cash and shares of common stock of Laserscope, to grant to
Laserscope certain other product distribution rights of HME, and to license and
sublicense certain technology from HSI and Laserscope, all on the terms and
conditions set forth below.
2. Transfer of Laser Business:
(a) HSI Shares:
(i) At the Closing (as defined in Section 7 below)
HME will sell and transfer to Laserscope, and Laserscope will purchase, all of
the outstanding shares of capital stock
A-2
<PAGE> 83
of HSI (the "HSI Shares"). The HSI Shares will be unregistered and the
certificates representing such shares will bear a legend restricting their
further sale or transfer except in accordance with applicable United States and
state securities laws. Laserscope represents that it is acquiring such shares
for investment and not with a view towards their resale or distribution to the
public.
(ii) All of the material assets and liabilities of
HSI, not otherwise reflected in the financial statements of HSI, are reflected
in the HME Disclosure Schedule in Exhibit 4(b) attached hereto (the "HME
Disclosure Schedule").
(iii) Laserscope will have the right to reject any
contract between HSI and HME or any entity controlled by Heraeus Holding (with
the exception of the trade accounts payable described in Section 3(c), and the
distribution, sublicense and license arrangements described in Sections 2(c) and
(d), below) by giving written notice of such rejection to HME prior to or at the
Closing. The HME Disclosure Schedule contains an identified list of all such
contracts.
(b) LDB Assets and Liabilities:
(i) At the Closing, HME will sell, and Laserscope
will purchase, certain assets of HME related to the LDB specifically described
in the attached Schedule 2(b)(i) (the "LDB Assets"), including the machinery,
office equipment, inventory and other tangible assets related to LDB (excluding
LDB's trade accounts receivable).
(ii) At the Closing Laserscope will assume certain
liabilities of HME related to the LDB specifically described in the attached
Schedule 2(b)(ii) (the "LDB Liabilities"), from and after that date, including:
(A) All employees of the LDB, all of which
are listed in Schedule 2(b)(ii) along with the terms of their current employment
contracts, and all accruals related to such employees, including all direct
costs incurred by HME in terminating the employment with HME of any such
employees who elect not to accept employment with Laserscope; each party being
fully aware of the existence and meaning of Article 613 a BGB (German Civil
Code), according to which all employees of HME engaged in the LDB will be
transferred to Laserscope with all their current rights arising from their
employment contracts with HME and under German law;
(B) Certain contracts of HME related to the
LDB listed in Schedule 2(b)(ii);
(C) All outstanding purchase orders by the
LDB, other than to HSI (such purchase orders in excess of $100,000 being
individually identified in Exhibit 4(b)); and
(D) All property taxes, lease payments,
prepaid license and registration fees with respect to the LDB Assets, pro rated
as of the Closing Date;
A-3
<PAGE> 84
(E) Insurance premiums related to the LDB
Assets, prorated as of the Closing Date; and
(F) All trade accounts payable related to
the LDB incurred in the ordinary course, consistent with past practice, not
exceeding $500,000 (apart from payables to HSI) in the aggregate.
(iii) Laserscope may assign any of its rights or
obligations under this Section 2(b) to its German affiliate, NWL Laser
Technologie GmbH, provided that Laserscope shall continue to be liable for all
of its obligations hereunder.
(c) Surgical Lamp Distribution Right: At the Closing, HME will
grant to Laserscope the exclusive right to purchase and resell in the United
States operating room surgical lamps on the terms and conditions set forth in
the attached Exhibit 2(c).
(d) CVAC Sublicense and Mounting Device Technology License: At
the Closing, HSI will grant to HME pursuant to the terms in this Section 2(d)
and in Section 5(a) below: (i) the right to obtain from Laserscope, at any time
within four years of the Closing Date, a sublicense (the "CVAC Sublicense") to
all of HSI's rights under the Agreement for Acquisition of Patent and Technical
Rights dated October 22, 1995, between HSI and CVAC, Inc. (the "Patent
Agreement"), including the right to manufacture and sell central smoke
evacuation equipment ("CVAC"); and (ii) a license to all of HSI's technology
relating to mounting devices (the "Mounting Device License"). The CVAC
Sublicense and the Mounting Device License shall each be nonexclusive, shall
include all improvements made by HSI or Laserscope during the respective terms
thereof, and shall be on a worldwide basis, excluding the United States. The
CVAC Sublicense shall be consistent with the terms of the Patent Agreement.
After the Closing, Laserscope will perform, or cause to be performed, all of
HSI's obligations under the Patent Agreement; provided that HME shall pay all
royalties due under the Patent Agreement resulting from its activities under the
CVAC Sublicense. The duration of HME's sublicense rights shall expire upon
expiration of the license and ownership rights of HSI under the Patent
Agreement. The Mounting Device License shall have a term of ten years from the
Closing Date. HME shall pay all royalties due to its activities under such
license, including any royalties owing to third parties under any license
agreement covering the mounting device technology.
(e) Heraeus Name: At the Closing, HME will grant to Laserscope
and HSI the right, for a period of one year from the Closing Date, to use the
Heraeus name on Laserscope and HSI products and in related promotional
literature and advertising in a manner consistent with the prior use of such
name by HME and HSI. Laserscope and HSI agree not to assert any rights of
ownership in such name, or any intellectual property right or registration in
respect thereof. Laserscope shall indemnify and hold HME and its affiliated
persons harmless from and against all claims, damages, losses, costs, charges
and expenses (including attorney's fees) incurred by any of them as a result of
the use of such name by Laserscope or HSI, other than from a claim based on the
name Heraeus infringing the rights of the claimant. At the end of such one year
period, Laserscope and HSI shall discontinue all use of the Heraeus name, and
HSI shall change its corporate name to delete any reference to "Heraeus".
A-4
<PAGE> 85
3. Payments to HME:
(a) Cash: At the Closing, Laserscope will pay to HME
U.S.$2,000,000, less any adjustment pursuant to Section 3(f) below.
(b) Laserscope Common Stock: At the Closing, Laserscope will
issue to HME 4,609,345 shares of its Common Stock (the "Laserscope Shares"), of
which 500,000 Laserscope Shares will be placed in escrow pursuant to Section
4(c)(iv) below. The Laserscope Shares will be unregistered and the certificates
representing the Laserscope Shares will bear a legend restricting their further
sale or transfer except in accordance with applicable U.S. and state securities
laws. HME represents that it is acquiring the Laserscope Shares for investment
and not with a view towards their resale or distribution to the public.
(c) HSI Indebtedness: All promissory notes and other
indebtedness owed by HSI to HME and its affiliates will be contributed to HSI's
capital effective as of the Closing, except trade accounts payable in an amount
not to exceed $2,500,000 resulting from product deliveries (subject to increase
with the prior written consent of Laserscope), and trade accounts payable in an
amount not to exceed $10,000 resulting from the provision of services, by HME to
HSI.
(d) Legal and Advisor Fees: Laserscope will pay all of its own
legal, accounting and advisor expenses in connection with the transactions
covered by this agreement. HME will pay all of its own legal, accounting and
advisor expenses in connection with the transactions covered by this agreement,
including all expenses of HSI; provided, that if the transactions contemplated
by this Agreement are consummated, Laserscope will reimburse HME for up to
$200,000 of reasonable out-of-pocket legal, accounting and advisor expenses
related to this agreement (excluding the costs of HME employees and any HSI
expenses incurred in connection with this agreement) or directly assume such
expenses upon receipt from HME of supporting documentation for such expenses.
(e) Taxes: HME shall pay all sales and other taxes, duties or
assessments with respect to the transfer of stock, assets and other rights
described in Section 2 above which are imposed by any U.S., state or non-U.S.
taxing authority, except Laserscope or its German affiliate shall pay any German
value added tax (VAT) resulting from the sale of the LDB Assets, if applicable.
(f) Balance Sheet Review: As soon as possible after the date
of this agreement, but not later than June 1, 1996, Laserscope's independent
public accountants will review the balance sheets of HSI and LDB as of March 31,
1996, for the purpose of confirming that the balance sheet of HSI was prepared
in accordance with U.S. generally accepted accounting principles on a going
concern basis, and that the aggregate net worth of HSI and LDB, as reflected in
such balance sheets, equaled or exceeded U.S.$11,500,000 as of March 31, 1996,
based on the exchange rate in effect on such date. If the aggregate net worth of
HSI and LDB as of March 31, 1996 based on such review is less than
U.S.$11,000,000, the cash portion
A-5
<PAGE> 86
of the purchase price to be paid to HME pursuant to Section 3(a) above shall be
reduced by the amount of such deficit. In the event of any dispute concerning
the aggregate net worth of HSI and the LDB arising under this Section 3(f),
Laserscope and HME shall, at their joint expense, appoint an internationally
known accounting firm to make a binding determination of the aggregate net worth
of HSI and LDB as of March 31, 1996.
4. Representations and Warranties; Indemnification and Escrow:
(a) By Laserscope: In addition to any representations and
warranties by Laserscope set forth in this agreement, Laserscope hereby makes
the representations and warranties to HME which are set forth in the attached
Exhibit 4(a).
(b) By HME: In addition to any representations and warranties
by HME set forth in this agreement, HME hereby makes the representations and
warranties to Laserscope which are set forth in the attached Exhibit 4(b).
(c) Indemnification; Escrow:
(i) HME hereby agrees to indemnify and hold
Laserscope and its officers, directors, shareholders, affiliates, insurers,
attorneys, agents, successors and assigns harmless from and against the
following:
(A) Any and all liabilities, losses,
damages, claims, costs and expenses of the LDB of any nature, whether absolute,
contingent or otherwise, which Laserscope has not expressly agreed to assume or
accept pursuant to the terms of this agreement;
(B) Any and all liabilities, losses,
damages, claims, costs and expenses resulting from any misrepresentation or
breach of any warranty in this agreement or in any written statement or
certificate furnished or to be furnished by HME to Laserscope pursuant hereto;
(C) Any and all liabilities, losses,
damages, claims, costs and expenses resulting from any breach or non-fulfillment
of any covenant or agreement on the part of HME contained in this agreement or
in the certificate delivered pursuant to Section 6(a)(ii) by HME to Laserscope
pursuant hereto; and
(D) Any and all actions, suits, proceedings,
demands, assessments or judgments, costs and expenses (including attorneys'
fees) incident to any of the foregoing.
(ii) Laserscope hereby agrees to indemnify and hold
HME and its officers, directors, shareholders, affiliates, insurers, attorneys,
agents, successors and assigns harmless from and against the following:
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(A) Any and all liabilities, losses,
damages, claims, costs and expenses arising out of or resulting from
Laserscope's failure to perform its obligations to assume and accept the
assignment of the LDB Assets and the LDB Liabilities, or the use by Laserscope
or any of its affiliated persons (other than HME or any transferee of the
Laserscope Shares) after the Closing of any of the LDB Assets, described in
Section 2(b) above;
(B) Any and all liabilities, losses,
damages, claims, costs and expenses resulting from any misrepresentation or
breach of any warranty by Laserscope contained in this agreement or in any
written statement or certificate furnished or to be furnished by Laserscope to
HME pursuant hereto;
(C) Any and all liabilities, losses,
damages, claims, costs and expenses resulting from any breach or non-fulfillment
of any covenant or agreement on the part of Laserscope or HSI contained in this
agreement or in the certificate delivered pursuant to Section 6(b)(ii) by
Laserscope to HME;
(D) Notwithstanding any other provision
herein, any and all liabilities, losses, damages, claims, costs and expenses not
reimbursed by insurance resulting from any product liability claims (whether
based upon negligence, strict liability or any other legal theory) arising after
the Closing and relating to products manufactured or sold by Laserscope, HSI or
LDB at any time before or after the Closing; and
(E) Any and all actions, suits, proceedings,
demands, assessments or judgments, costs and expenses (including attorneys'
fees) incident to any of the foregoing.
(iii) In the event that at any time or from time to
time after the Closing a party entitled to indemnification hereunder (the
"Indemnitee") shall sustain a loss of any nature whatsoever against which such
Indemnitee is indemnified hereunder, such Indemnitee shall promptly notify the
other party (the "Indemnitor") in writing of such loss so sustained, and the
Indemnitor shall within ten (10) business days after such notice pay to the
Indemnitee the amount of such loss so sustained, subject to its right to contest
any claim which has not yet resulted in a loss, as hereinafter provided. The
Indemnitee shall promptly notify the Indemnitor in writing of the existence of
any actual or potential claim, demand or other matter involving liabilities to
third parties to which the Indemnitor's indemnification obligations would apply
and shall give the Indemnitor a reasonable opportunity to defend the same or
prosecute such action to conclusion or settlement satisfactory to the Indemnitee
at the Indemnitor's expense and with counsel of the Indemnitor's selection
(which counsel shall control the defense), provided that the Indemnitee shall at
all times also have the right to participate fully in the defense at its own
expense.
(A) If the Indemnitee fails to provide
promptly the Indemnitor with written notice of any actual or potential claim,
demand or other matter involving liabilities to third parties to which the
indemnification provisions of this Section 4(c) relate, the Indemnitor shall not
be liable for any harm, cost, expense or liability which directly results from
or is a result of the Indemnitee's failure to deliver such prompt notice to the
Indemnitor.
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(B) If the Indemnitor shall, within a
reasonable time after said notice, fail to defend, the Indemnitee shall have the
right, but not the obligation, to undertake the defense of, and to compromise or
settle (exercising reasonable business judgment) the claim or other matter on
behalf, for the account, and at the risk and expense, of the Indemnitor. Except
as provided in the preceding sentence, the Indemnitee shall not compromise or
settle any claim or other matter without the prior written consent of the
Indemnitor.
(C) If the claim is one that cannot by its
nature be defended solely by the Indemnitor, the Indemnitee shall make available
all information and assistance that the Indemnitor may reasonably request,
provided that any associated out of pocket expenses shall be paid by the
Indemnitor.
(D) If the Indemnitor contests or challenges
any claim or action asserted against the Indemnitee for which indemnification is
provided in this Section 4(c), it shall do so at its own cost and expense,
holding the Indemnitee harmless from all costs, fees, expenses, debts,
liabilities and charges in connection with such contest; shall diligently defend
against any such claim; and shall hold the Indemnitee's business and assets free
and harmless from any attachment, execution, judgment, lien or other legal
process.
(iv) At the Closing, or as soon thereafter as
possible, Laserscope's transfer agent will deposit into escrow with the Chief
Financial Officer of Laserscope ("Escrow Agent") a certificate representing
500,000 of the Laserscope Shares issuable to HME hereunder and a stock
assignment in blank in respect of such shares signed by HME, upon the Escrow
Agent's written agreement in the form of Exhibit 4(c)(iv) hereto to be bound by
the terms of this agreement with respect to the escrowed shares. If the Escrow
Agent has not received written notice of a claim for indemnification by
Laserscope pursuant to this Section 4(c) within one year after the Closing, the
Escrow Agent shall promptly release the certificate for the escrowed shares to
HME. If Laserscope has made a claim or claims for indemnification under this
Section 4(c) within such one-year period, the Escrow Agent shall retain the
certificate representing such shares until the Escrow Agent shall have received
from Laserscope and HME joint instructions concerning disposition of the
escrowed shares or the order of an arbitrator (selected by the parties pursuant
to Section 8(g) below) directing the release of all or a portion of such shares
to Laserscope or HME. The Escrow Agent will have no liability to Laserscope or
HME for any actions taken in good faith. Laserscope and HME will each pay half
of the expenses, if any, of the Escrow Agent. Any escrowed shares used to settle
any claim under this Section 4 will be valued at the average of the closing
prices of Laserscope Common Stock on Nasdaq over the five trading days
immediately preceding the date on which the claim is settled.
(v) If HME notifies Laserscope within one year after
the Closing that it has a claim or claims for indemnification under this Section
4(c), and such claim has been resolved by Laserscope and HME or by an arbitrator
(selected by the parties pursuant to Section 8(g) below), Laserscope shall issue
up to 500,000 additional shares of Laserscope Common Stock to HME to compensate
HME for the amount of such claim or claims. Such additional shares shall be
entitled to the same rights and subject to the same restrictions as are
applicable to the
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Laserscope Shares. Any additional shares issued to HME to settle any claim under
this Section 4(c) will be valued at the average of the closing prices of
Laserscope Common Stock on Nasdaq over the five trading days immediately
preceding the date on which the claim is settled.
(vi) In the absence of fraud, HME's liability to
Laserscope under Section 4(c)(i)(B) will be limited to the 500,000 Laserscope
Shares placed in escrow as described in Section 4(c)(iv).
(vii) In the absence of fraud, Laserscope's liability
to HME under Section 4(c)(ii)(B) will be limited to the 500,000 additional
shares of Laserscope Common Stock that may be issued in accordance with Section
4(c)(v).
(viii) In the event of fraud or any claim described in
this Section 4(c) (other than Section 4(c)(i)(B) or 4(c)(ii)(B)), the aggrieved
party shall be entitled to all rights and remedies at law and in equity which
may accrue to such party.
5. Covenants:
(a) Noncompetition: For a period of seven years after the
Closing, HME and companies controlled by or under common control with Heraeus
Holding (with the exception of the Heraeus dental business), will not develop,
manufacture, service or sell hospital or physician office-based laser surgical
systems or accessories. During the term of the Mounting Device License, and as a
covenant thereunder, neither Laserscope nor any of its subsidiaries or
affiliated persons will develop, manufacture, service or sell mounting device
products based on the licensed technology outside of the United States. For
seven years after the Closing, and as a covenant under the CVAC Sublicense,
neither Laserscope nor any of its subsidiaries or affiliated persons will
develop, manufacture, service or sell products based on the sublicensed
technology, including CVAC, outside of the United States.
(b) Exclusive Negotiation: Prior to the Closing or termination
of this agreement, whichever is sooner, HME will not engage in any discussions
or negotiations with third parties concerning the sale of HSI, the LDB Assets or
any of the other rights of Laserscope or HSI described in this agreement.
(c) Operation of Businesses: Prior to the Closing, Laserscope
will conduct its business, and HME will conduct the LDB and HSI's business, in
the ordinary course consistent with prior practices. In particular, during the
period from the date of this agreement through and including the Closing,
neither Laserscope, HSI nor HME will make any distribution or payment of cash or
other assets to their shareholders (other than normal wages, benefits and
expense reimbursements to employees). In addition, during the period from the
date of this agreement through and including the Closing and other than in the
ordinary course consistent with prior practices, HSI will not transfer any
material assets, incur any material liabilities, materially shift the balance of
inventory, cash and receivables as reflected in its March 31, 1996 balance sheet
or enter into any material agreement.
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(d) Information: Prior to the Closing, each party shall give
the other party and the other party's authorized representatives reasonable
access to such information as is necessary to prepare the proxy statement for
Laserscope's shareholders and plan the integration of the businesses as
contemplated by this agreement. Each party shall hold all documents and
information furnished to it by the other in confidence in accordance with the
Mutual Non-Disclosure Agreement between Laserscope and HSI dated June 14, 1995
(the "Non-Disclosure Agreement").
(e) Insurance: From and after the Closing, Laserscope shall
maintain in effect U.S.$10,000,000 in product liability insurance to cover
claims related to products sold by Laserscope and its subsidiaries and
affiliated persons (subject to a $100,000 deductible), and directors' and
officers' liability insurance of the type and in the amount customarily
maintained by companies of similar size and similarly situated.
(f) Directors: Every member of the Laserscope Board of
Directors designated for such position by HME shall be covered by the same
insurance coverage as provided for the other members of such Board in their
capacity as directors. In addition, Laserscope shall reimburse HME for the
reasonable expenses of such Board members in attending Laserscope Board meetings
and fulfilling their duties as directors, up to a maximum of $25,000 per year.
(g) Standstill: For a period of seven years after the Closing,
neither HME nor Heraeus Holding nor any other company controlled by Heraeus
Holding will acquire any additional shares of Laserscope Common Stock or any
rights, options or warrants to purchase additional Laserscope Common Stock
without the approval of Laserscope's Board of Directors. HME shall not sell or
otherwise transfer more than 1,000,000 Laserscope Shares to any person (after
aggregating all Laserscope Shares held by such person's affiliates), unless such
person (and its affiliates) shall agree to the restrictions set forth in this
Section 5(g); provided that with respect to such persons, such restrictions
shall terminate on the third anniversary of the Closing.
(h) Lockup: HME shall not sell, transfer or pledge any of the
Laserscope Shares (except to Laserscope as provided in Section 4(c)(iv)) for a
period of one year from the Closing Date.
(i) Number of Directors: One year after the Closing,
Laserscope shall reduce its authorized number of directors from eight to seven.
For so long after such anniversary as HME owns at least 3,300,000 shares of
Laserscope Common Stock, Laserscope shall use its best efforts to have three
nominees of HME elected to the Board. For so long after such anniversary as HME
owns at least 1,600,000 shares of Laserscope Common Stock, Laserscope shall use
its best efforts to have two nominees of HME elected to the Board. For so long
after such anniversary as HME owns at least 600,000 shares of Laserscope Common
Stock, Laserscope shall use its best efforts to have one nominee of HME elected
to the Board, and Laserscope shall not increase, or ask its shareholders to
increase, the number of directors beyond seven without the prior consent of HME.
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(j) Issuances of Capital Stock: Prior to the Closing,
Laserscope shall not without obtaining the prior written consent of HME: (A)
issue and sell more than $3,000,000 of its capital stock (excluding sales upon
exercise of employee, director or consultant stock options); (B) grant options
to purchase more than 150,000 shares of Laserscope Common Stock to employees and
directors of, and consultants to Laserscope; and (C) grant options to purchase
more than one million shares of Laserscope Common Stock to employees and
directors of, and consultants to Laserscope or HSI effective upon the Closing,
not more than 200,000 of which shall be granted to Laserscope's executive
officers listed in Laserscope's Form 10-K for the year ended December 31, 1995,
or any of them.
(k) Registration Rights: At the Closing, Laserscope will grant
to HME the registration rights set forth in the attached Exhibit 5(k).
6. Closing Conditions: The obligations of Laserscope and HME to
complete the transactions contemplated by this agreement are subject to the
following conditions:
(a) Laserscope Closing Conditions:
(i) Laserscope shall have received shareholder
approval for the transactions contemplated by this agreement, including the
issuance of Laserscope Common Stock to HME, in accordance with applicable law,
and Laserscope shall use its best efforts to obtain such shareholder approval.
(ii) HME shall have delivered to Laserscope a
certificate signed by its General Manager that all obligations to be performed
by HME have been performed and the representations and warranties of HME are
still complete and correct as of the Closing.
(iii) HME shall have delivered to Laserscope an
opinion of its legal counsel in form reasonably acceptable to counsel for
Laserscope.
(iv) HME shall have furnished to Laserscope a
properly executed "FIRPTA" certificate satisfying the requirements of Treasury
Regulation Section 1.1445-2(c)(3) in form and substance reasonably satisfactory
to Laserscope to the effect that the shares of HSI capital stock acquired
hereunder do not constitute "United States real property interests" within the
meaning of Section 897(c) of the Internal Revenue Code.
(v) Each of Laserscope and HME shall have obtained
the consent of any government authorities and third parties necessary for it to
complete the transactions contemplated by this agreement.
(b) HME Closing Conditions:
(i) Three representatives of HME shall have been elected to
Laserscope's Board of Directors, with the total number of directors after such
election being eight.
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(ii) Laserscope shall have delivered to HME a certificate
signed by its President that all obligations to be performed by Laserscope have
been performed and the representations and warranties of Laserscope are still
complete and correct as of the Closing.
(iii) Laserscope shall have delivered to HME an opinion of its
legal counsel in form reasonably acceptable to counsel for HME.
(iv) Each of Laserscope and HME shall have obtained the
consent of any government authorities and third parties necessary for it to
complete the transactions contemplated by this agreement.
7. Closing:
(a) The closing of the transactions contemplated by this
agreement ("Closing") shall take place on or before August 31, 1996 (the
"Closing Date") at the offices of Venture Law Group, A Professional Corporation,
2800 Sand Hill Road, Menlo Park, California 94025, or at such other time, date
or place as Laserscope and HME may agree.
(b) At the Closing, Laserscope and HME shall each provide to
the other the payments, stock certificates and other closing documents listed in
this agreement.
(c) This agreement may be terminated by either party if the
other party has breached a material provision of this agreement and has not
corrected such failure within thirty days after receipt of written notice
describing such breach. Such termination shall not limit any remedies the
nondefaulting party may have against the defaulting party for such breach. This
agreement may also be terminated by either party in writing if every condition
to Closing in Section 6 above is not either satisfied or waived, and Closing
does not occur, by August 31, 1996.
8. General Provisions:
(a) This agreement shall be governed by the laws of
California.
(b) This agreement represents the entire agreement between
Laserscope and HME with respect to the subject matter hereof and supersedes all
prior agreements and understandings with respect to such subject matter (except
for the Non-Disclosure Agreement).
(c) All notices pursuant to this agreement shall be in writing
and shall be sent to the other party simultaneously by fax and air express at
the address first set forth above or such other address as either party may from
time to time notify the other, and shall be deemed effective upon receipt.
(d) Upon signing of this agreement Laserscope and HME will
issue a joint press release in form satisfactory to each of them concerning
their relationship.
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(e) This agreement shall benefit and be binding upon the
successors and assigns of Laserscope and HME.
(f) The representations and warranties of Laserscope and HME
hereunder shall survive the Closing and for a period of one year thereafter.
(g) If either party claims that the other has made any breach,
or disputes any claim under any indemnity, hereunder, it shall promptly provide
the other party with a detailed written description of such alleged breach.
Within fifteen days after receipt of such description by the other party, the
President of Laserscope and the General Manager of HME shall meet in New York
City or other mutually agreed location to attempt to resolve such claim. If such
claim has not been resolved as of the conclusion of such meeting, either party
may submit such claim for resolution by arbitration in Santa Clara County,
California before a single arbitrator in accordance with the Rules of the
American Arbitration Association (except that the rules of discovery set forth
in the California Code of Civil Procedure shall apply in lieu of any in such
Rules). The fees and expenses for such arbitrator shall be divided and paid
equally by Laserscope and HME, but the prevailing party shall be entitled to
recover its attorney's fees and other costs incurred in connection with the
arbitration from the other party. The decision of the arbitrator with respect to
such claim or claims shall be final and binding on Laserscope and HME without
right of further appeal.
(h) References in this agreement to numbers of shares shall be
adjusted to reflect any stock splits, reverse stock splits, combinations,
reorganizations and similar transactions which Laserscope or HSI may experience.
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LASERSCOPE HERAEUS MED GmbH
By: /s/ Robert V. McCormick By: /s/ Thomas Ihlenfeldt
----------------------------- ---------------------------
Name: Robert V. McCormick Name: Thomas Ihlenfeldt
-------------------------- --------------------------
Title: President & CEO Title: Managing Director
-------------------------- --------------------------
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EXHIBIT B
OPINION OF VON GEHR INTERNATIONAL
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April 23, 1996
Board of Directors
Laserscope Surgical Systems
3052 Orchard Drive
San Jose, CA 95134-2011
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Laserscope Surgical Systems ("Laserscope") of
the Common Stock and Cash consideration to be paid to Heraeus Medizintechnik
GmbH ("Heraeus") for the common stock of Heraeus Surgical, Inc. And selected
assets and liabilities of LDB ("HSI/LDB") in the merger transaction between
Laserscope and Heraeus as set forth in the Agreement "Acquisition of Heraeus
Laser Business" (the "Agreement") dated April 23, 1996.
Von Gehr International, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers, acquisitions, and corporate partnering transactions.
Von Gehr International is acting as financial advisor to Laserscope in
connection with this merger transaction and will receive fees for various
services in connection therewith.
In arriving at our opinion, we have reviewed the Agreements and the
financial and other information that was publicly available or furnished to us
both by Laserscope and HSI/LDB. We also have reviewed certain internal financial
reports and forecasts for HSI/LDB and for Laserscope prepared by their
respective managements and have held discussions with members of the senior
managements of HSI/LDB and Laserscope regarding the historic and current
business operations and future prospects of their respective companies including
their expectations for certain strategic benefits of the merger. In addition, we
have compared certain financial information of HSI/LDB with those of various
other companies engaged in businesses we considered comparable whose securities
are traded in public markets, reviewed the overall risks presented by the
combined business plan, reviewed prices paid in certain other similar business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion.
We have assumed, without independent verification, the accuracy,
completeness and fairness of all of the financial and other information
regarding Laserscope and HSI/LDB which has been provided to us by the respective
companies and their representatives. We did not make any independent evaluation
of Laserscope of HSI/LDB assets or liabilities nor did we review any of their
corporate records.
Based on the foregoing and such other factors as we deem relevant, we are
of the opinion as of the date hereof, that the consideration to be paid at
closing consisting of, the issuance of 4,609,345 Laserscope Common Shares and
payment of $2.0 million in cash in exchange for all of the outstanding Common
Shares of HSI and the selected assets and liabilities of LDB is fair, from a
financial point of view, to Laserscope s shareholders.
Sincerely yours,
/s/ Von Gehr International
Von Gehr International
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EXHIBIT C
SECTION 1300 ET SEQ. OF THE
CALIFORNIA CORPORATIONS CODE
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CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13
DISSENTERS' RIGHTS
1300. RIGHT TO REQUIRE PURCHASE "--DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) of Section 1201, each shareholder of the corporation entitled to
vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (i) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (ii) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes the provisions of
this section and Sections 1301, 1302, 1303 and 1304; provided, however,
that this provision does not apply to any shares with respect to which
there exists any restriction on transfer imposed by the corporation or by
any law or regulation; and provided, further, that this provision does not
apply to any class of shares described in clause (i) or (ii) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (i) were not voted
in favor of the reorganization or, (ii) if described in clause (i) or (ii)
of paragraph (1) (without regard to the provisos in that paragraph), were
voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that clause (i)
rather than clause (ii) of this paragraph applies in any case where the
approval required by Section 1201 is sought by written consent rather than
at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the record
holder of dissenting shares and includes a transferee of record.
1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any
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dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302. ENDORSEMENT OF SHARES. Within 30 days after the date on which notice
of the approval by the outstanding shares or the notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder, the shareholder shall submit
to the corporation at its principal office or at the office of any transfer
agent thereof, (a) if the shares are certificated securities, the shareholder's
certificates representing any shares which the shareholder demands that the
corporation purchase, to be stamped or endorsed with a statement that the shares
are dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder demands
that the corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor shall bear a
like statement, together with the name of the original dissenting holder of the
shares.
1303. AGREED PRICE -- TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
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(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305. APPRAISERS' REPORT -- PAYMENT -- COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more then 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR. To the extent that the
provisions of Chapter 5 prevent the payment to any holders of dissenting shares
of their fair market value, they shall become creditors of the corporation for
the amount thereof together with interest at the legal rate on judgments until
the date of payment, but subordinate to all other creditors in any liquidation
proceeding, such debt to be payable when permissible under the provisions of
Chapter 5.
1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT. Cash dividends declared
and paid by the corporation upon the dissenting shares after the date of
approval of the reorganization by the outstanding shares (Section 152) and prior
to payment for the shares by the corporation shall be credited against the total
amount to be paid by the corporation therefor.
1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS. Except
as expressly limited in this chapter, holders of dissenting shares continue to
have all the rights and privileges incident to their shares, until the fair
market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS. Dissenting shares lose
their status as dissenting shares and the holders thereof cease to be dissenting
shareholders and cease to be entitled to require the corporation to purchase
their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
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(b) The shares transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending action
as provided in Section 1304, within six months after the date on which
notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION. If
litigation is instituted to test the sufficiency or regularity of the votes of
the shareholders in authorizing a reorganization, any proceedings under Section
1304 and 1305 shall be suspended until final determination of such litigation.
1311. EXEMPT SHARES. This chapter, except Section 1312, does not apply to
classes of shares whose terms and provisions specifically set forth the amount
to be paid in respect to such shares in the event of a reorganization or merger.
1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or shortform
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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EXHIBIT D
1994 OPTION PLAN
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EXHIBIT D
LASERSCOPE
1994 STOCK OPTION PLAN
(AS AMENDED THROUGH APRIL 22, 1996)
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" shall have the meaning set forth in Section 4(a)
below.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) below, if one is appointed.
(f) "Common Stock" shall mean the Common Stock of the Company.
(g) "Company" shall mean Laserscope, a California corporation.
(h) "Consultant" shall mean any person who is engaged by the Company
or any Parent or Subsidiary to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not; provided that the term
Consultant shall not include directors who are not compensated for their
services or are paid only a director's fee by the Company.
(i) "Continuous Status as an Employee or Consultant" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any
other leave of absence approved by the Administrator; provided that such
leave is guaranteed by contract or statute. For purposes of this Plan, a
change in status from an Employee to a Consultant or from a Consultant to
an Employee will not constitute a termination of employment.
(j) "Director" shall mean a member of the Board.
(k) "Employee" shall mean any person, including Named Executives,
Officers and Directors, employed by the Company or any Parent or Subsidiary
of the Company. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be
the closing sales price for such stock as quoted on such system on the
date of determination (if for
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a given day no sales were reported, the closing bid on that day shall be
used), as such price is reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the bid and asked prices for the Common
Stock or;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" shall mean an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(o) "Named Executive" shall mean any individual who, on the last day
of the Company's fiscal year, is the chief executive officer of the Company
(or is acting in such capacity) or among the four highest compensated
officers of the Company (other than the chief executive officer). Such
officer status shall be determined pursuant to the executive compensation
disclosure rules under the Exchange Act.
(p) "Nonstatutory Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option.
(q) "Officer" shall mean a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" shall mean a stock option granted pursuant to the Plan.
(s) "Optioned Stock" shall mean the Common Stock subject to an Option.
(t) "Optionee" shall mean an Employee or Consultant who receives an
Option.
(u) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(v) "Plan" shall mean this 1994 Stock Option Plan.
(w) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange
Act as the same may be amended from time to time, or any successor
provision.
(x) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.
(y) "Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 1,700,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares that were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. Notwithstanding any other provision of the Plan, shares
issued under the Plan and later repurchased by the Company shall not become
available for future grant or sale under the Plan.
4. Administration of the Plan.
(a) Composition of Administrator.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3 and
by the legal requirements relating to the administration of incentive
stock option plans, if any, of applicable securities laws and the Code
(collectively, the "Applicable Laws"), the Plan may (but need not) be
administered by
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different administrative bodies with respect to Directors, Officers who
are not Directors and Employees who are neither Directors nor Officers.
(ii) Administration with respect to Directors and Officers. With
respect to grants of Options to Employees or Consultants who are also
Officers or Directors of the Company, the Plan shall be administered by
(A) the Board, if the Board may administer the Plan in compliance with
Rule 16b-3 as it applies to a plan intended to qualify thereunder as a
discretionary plan and Section 162(m) of the Code as it applies so as to
qualify grants of Options to Named Executives as performance-based
compensation, or (B) a Committee designated by the Board to administer
the Plan, which Committee shall be constituted (I) in such a manner as
to permit the Plan to comply with Rule 16b-3 as it applies to a plan
intended to qualify thereunder as a discretionary plan, (II) in such a
manner as to qualify grants of Options to Named Executives as
performance-based compensation under Section 162(m) of the Code and
(III) in such a manner as to satisfy the Applicable Laws.
(iii) Administration with respect to Other Persons. With respect to
grants of Options to Employees or Consultants who are neither Directors
nor Officers of the Company, the Plan shall be administered by (A) the
Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws.
(iv) General. Once a Committee has been appointed pursuant to
subsection (ii) or (iii) of this Section 4(a), such Committee shall
continue to serve in its designated capacity until otherwise directed by
the Board. From time to time the Board may increase the size of any
Committee and appoint additional members thereof, remove members (with
or without cause) and appoint new members in substitution therefor, fill
vacancies (however caused) and remove all members of a Committee and
thereafter directly administer the Plan, all to the extent permitted by
the Applicable Laws and, in the case of a Committee appointed under
subsection (ii), to the extent permitted by Rule 16b-3 as it applies to
a plan intended to qualify thereunder as a discretionary plan, and to
the extent required under Section 162(m) of the Code to qualify grants
of Options to Named Executives as performance-based compensation.
(b) Powers of the Administrator. Subject to the provisions of the Plan
and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Employees and Consultants to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but
not limited to, the share price and any restriction or limitation, or
any vesting acceleration or waiver of forfeiture restrictions regarding
any Option and/or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator shall determine, in its
sole discretion);
(vii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining the
amount, if any, of any deemed earnings on any deferred amount during any
deferral period); and
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(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted only to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he or she is
otherwise eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair
Market Value of Stock Options are exercisable for the first time by an
Optionee during any calendar year (under all plans of the Company or any
Parent or Subsidiary) exceeds $100,000, such excess Options shall be
treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company,
nor shall it interfere in any way with his or her right or the Company's
right to terminate his or her employment or consulting relationship at any
time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board or its approval by the shareholders of the Company
as described in Section 20 of the Plan. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as provided in
this Plan, the maximum number of Shares which may be granted under options to
any Employee under this Plan for any fiscal year of the Company shall be
325,000.
9. Option Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of
grant;
(B) granted to any Employee, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
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(A) granted to a person who, at the time of the grant of such
Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110%
of the Fair Market Value per Share on the date of the grant;
(B) granted to a person who, at the time of the grant of such
Option, is a Named Executive of the Company, the per share Exercise
Price shall be no less than 100% of the Fair Market Value on the date
of grant;
(C) granted to any person other than a Named Executive, the per
Share exercise price shall be no less than 50% of the Fair Market
Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall
be determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory note, (4) other Shares that (x) in the case of
Shares acquired upon exercise of an Option either have been owned by the
Optionee for more than six months on the date of surrender or were not
acquired, directly or indirectly, from the Company, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price
of the Shares as to which said Option shall be exercised, (5) authorization
from the Company to retain from the total number of Shares as to which the
Option is exercised that number of Shares having a Fair Market Value on the
date of exercise equal to the exercise price for the total number of Shares
as to which the Option is exercised, (6) delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds
required to pay the exercise price, (7) delivery of an irrevocable
subscription agreement for the Shares that irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the
date of delivery of the subscription agreement, (8) any combination of the
foregoing methods of payment, or (9) such other consideration and method of
payment for the issuance of Shares to the extent permitted under Applicable
Laws. In making its determination as to the type of consideration to
accept, the Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received
by the Company. Full payment may, as authorized by the Administrator,
consist of any consideration and method of payment allowable under Section
9(b) of the Plan. Until the issuance (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
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(b) Termination of Status as an Employee or Consultant. In the event
of termination of an Optionee's Continuous Status as an Employee or
Consultant, such Optionee may, but only within thirty (30) days (or such
other period of time, not exceeding three (3) months as is determined by
the Administrator, with such determination in the case of an Incentive
Stock Option being made at the time of grant of the Option) after the date
of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his
or her Option to the extent that he or she was entitled to exercise it at
the date of such termination. To the extent that the Optionee was not
entitled to exercise the Option at the date of such termination, or if the
optionee does not exercise such Option (which he or she was entitled to
exercise) within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
10(b) above, in the event of termination of an Optionee's Continuous Status
as an Employee or Consultant as a result of his or her total and permanent
disability (as defined in Section 22(e)(3) of the Code), he or she may, but
only within six (6) months (or such other period of time not exceeding
twelve (12) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the
time of grant of the Option) from the date of such termination (but in no
event later than the date of expiration of the term of such Option as set
forth in the Option Agreement), exercise his or her Option to the extent he
or she was entitled to exercise it at the date of such termination. To the
extent that he or she was not entitled to exercise the Option at the date
of termination, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death
an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant
of the Option, the Option may be exercised, at any time within six (6)
months (or such other period of time, not exceeding twelve (12) months,
as is determined by the Administrator, with such determination in the
case of an Incentive Stock Option being made at the time of grant of the
Option) following the date of death (but in no event later than the date
of expiration of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance but only to the
extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or
Consultant six (6) months (or such other period of time as is determined
by the Administrator as provided above) after the date of death, subject
to the limitation set forth in Section 5(b); or
(ii) within three (3) months (or such other period of time not
exceeding three (3) months as is determined by the Administrator, with
such determination in the case of an Incentive Stock Option being made
at the time of grant of the Option) after the termination of Continuous
Status as an Employee or Consultant, the Option may be exercised, at any
time within six (6) months following the date of death (but in no event
later than the date of expiration of the term of such Option as set
forth in the Option Agreement), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the
date of termination.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b) of
the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
11. Withholding Taxes. As a condition to the exercise of Options granted
hereunder, the Optionee shall make such arrangements as the Administrator may
require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with the exercise, receipt or
vesting of such Option. The Company shall not be required to issue any Shares
under the Plan until such obligations are satisfied.
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12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option that number of Shares having
a fair market value equal to the amount required to be withheld. For this
purpose, the fair market value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined (the "Tax
Date").
Any surrender by an Officer or Director of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is an Officer or Director, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option is exercised but such Optionee
shall be unconditionally obligated to tender back to the Company the proper
number of Shares on the Tax Date.
13. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution. The designation of a beneficiary
by an Optionee will not constitute a transfer. An Option may be exercised,
during the lifetime of the Optionee, only by the Optionee or a transferee
permitted by this Section 13.
14. Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, the number of shares of Common
Stock that have been authorized for issuance under the Plan but as to which no
Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, the maximum number of shares of Common
Stock for which Options may be granted to any employee under Section 8 of the
Plan, and the price per share of Common Stock covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Administrator, whose determination in that
respect
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shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Administrator. The Administrator may,
in the exercise of its sole discretion in such instances, declare that any
Option shall terminate as of a date fixed by the Administrator and give each
Optionee the right to exercise his or her Option as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Administrator determines, in the exercise of
its sole discretion and in lieu of such assumption or substitution, that the
Optionee shall have the right to exercise the Option as to some or all of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Administrator makes an Option exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option shall be exercisable for
a period of thirty (30) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
15. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.
16. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval
of the shareholders of the Company in the manner described in Section 20 of
the Plan:
(i) any increase in the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 14 of the Plan;
(ii) any change in the designation of the class of persons eligible
to be granted Options;
(iii) any change in the limitation on grants to employees as
described in Section 8 of the Plan or other changes which would require
shareholder approval to qualify Options granted hereunder as
performance-based compensation under Section 162(m) of the Code; or
(iv) if the Company has a class of equity securities registered
under Section 12 of the Exchange Act at the time of such revision or
amendment, any material increase in the benefits accruing to
participants under the Plan.
(b) Shareholder Approval. If any amendment requiring shareholder
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section
12 of the Exchange Act, such shareholder approval shall be solicited as
described in Section 20 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the
Optionee and the Board, which agreement must be in writing and signed by
the Optionee and the Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall
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comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
18. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
19. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
20. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted. Such shareholder approval shall be obtained in
the manner and to the degree required under applicable federal and state
law.
(b) In the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such
registration shall be solicited substantially in accordance with Section
14(a) of the Exchange Act and the rules and regulations promulgated
thereunder.
(c) If any required approval by the shareholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the
manner described in Section 20(b) hereof, then the Company shall, at or
prior to the first annual meeting of shareholders held subsequent to the
later of (1) the first registration of any class of equity securities of
the Company under Section 12 of the Exchange Act or (2) the granting of an
Option hereunder to an Officer or Director after such registration, do the
following:
(i) furnish in writing to the holders entitled to vote for the Plan
substantially the same information that would be required (if proxies to
be voted with respect to approval or disapproval of the Plan or
amendment were then being solicited) by the rules and regulations in
effect under Section 14(a) of the Exchange Act at the time such
information is furnished; and
(ii) file with, or mail for filing to, the Securities and Exchange
Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information
is first sent or given to shareholders.
21. Information to Optionees. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company.
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EXHIBIT E
DIRECTOR'S OPTION PLAN
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EXHIBIT E
LASERSCOPE
1995 DIRECTORS' STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Directors' Stock Option Plan
are to attract and retain the best available personnel for service as Directors
of the Company, to provide additional incentive to the Outside Directors of the
Company to serve as Directors, and to encourage their continued service on the
Board.
All options granted hereunder shall be "nonstatutory stock options".
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Laserscope, a California corporation.
(e) "Continuous Status as a Director" shall mean the absence of any
interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company to a Director shall
not be sufficient in and of itself to constitute "employment" by the
Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Option" shall mean a stock option granted pursuant to the Plan.
All options shall be nonstatutory stock options (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the
Code).
(j) "Optioned Stock" shall mean the Common Stock subject to an Option.
(k) "Optionee" shall mean an Outside Director who receives an Option.
(l) "Outside Director" shall mean a Director who is not an Employee or
an affiliate of a shareholder owning ten percent (10%) or more of the
voting power of all classes of stock of the Company, or any parent or
subsidiary of the Company, or an employee or consultant of, or a service
provider to, such shareholder or any of its affiliates.
(m) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this 1995 Directors' Stock Option Plan.
(o) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 300,000 Shares (the "Pool") of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. If Shares which were acquired upon exercise of an Option
are
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subsequently repurchased by the Company, such Shares shall not in any event be
returned to the Plan and shall not become available for future grant under the
Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the Plan
shall be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder shall be
automatic and nondiscretionary and shall be made strictly in accordance
with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an Option
to purchase Shares as follows: (A) with respect to persons who are
Outside Directors on the effective date of this Plan, as determined in
accordance with Section 6 hereof, 45,000 Shares on such effective date,
and (B) with respect to any other person, 45,000 Shares on the date on
which such person first becomes an Outside Director, whether through
election by the shareholders of the Company or appointment by the Board
of Directors to fill a vacancy.
(iii) Notwithstanding the provisions of subsection (ii) hereof, in
the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon
exercise of Options to exceed the Pool, then each such automatic grant
shall be for that number of Shares determined by dividing the total
number of Shares remaining available for grant by the number of Outside
Directors receiving an Option on such date on the automatic grant date.
Any further grants shall then be deferred until such time, if any, as
additional Shares become available for grant under the Plan through
action of the shareholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
(iv) Notwithstanding the provisions of subsection (ii) hereof, any
grant of an Option made before the Company has obtained shareholder
approval of the Plan in accordance with Section 17 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 17 hereof.
(vi) The terms of each Option granted hereunder shall be as
follows:
(1) the Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in
Section 9 hereof.
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the Option, determined
in accordance with Section 8 hereof.
(3) the Option shall become exercisable in installments
cumulatively as to 1/36 of the Shares subject to the Option on each
monthly anniversary of the date of grant of the Option.
(c) Powers of the Board. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its
discretion: (i) to determine, upon review of relevant information and in
accordance with Section 8(b) of the Plan, the fair market value of the
Common Stock; (ii) to determine the exercise price per share of Options
to be granted, which exercise price shall be determined in accordance
with Section 8(a) of the Plan; (iii) to interpret the Plan; (iv) to
prescribe, amend and rescind rules and regulations relating to the Plan;
(v) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
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(d) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees
and any other holders of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the President or his
or her designee reasonably believes that an Optionee has committed an
act of misconduct, the President may suspend the Optionee's right to
exercise any option pending a determination by the Board of Directors
(excluding the Outside Director accused of such misconduct). If the
Board of Directors (excluding the Outside Director accused of such
misconduct) determines an Optionee has committed an act of embezzlement,
fraud, dishonesty, nonpayment of an obligation owed to the Company,
breach of fiduciary duty or deliberate disregard of the Company rules
resulting in loss, damage or injury to the Company, or if an Optionee
makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the
Company or induces any principal for whom the Company acts as agent to
terminate such agency relationship, neither the Optionee nor his or her
estate shall be entitled to exercise any option whatsoever. In making
such determination, the Board of Directors (excluding the Outside
Director accused of such misconduct) shall act fairly and shall give the
Optionee an opportunity to appear and present evidence on Optionee's
behalf at a hearing before the Board or a committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. Term of Plan; Effective Date. The Plan shall become effective on the
earlier to occur of its adoption by the Board of Directors or its approval by
the shareholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 13 of the Plan.
7. Term of Options. The term of each Option shall be ten (10) years from
the date of grant thereof.
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be 100% of the fair market
value per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value shall be determined by
the Board; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid
and asked prices of the Common Stock in the over-the-counter market on the
date of grant, as reported in The Wall Street Journal (or, if not so
reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") or, in the event the Common
Stock is traded on the Nasdaq National Market or listed on a stock
exchange, the fair market value per Share shall be the closing price on
such system or exchange on the date of grant of the Option, as reported in
The Wall Street Journal.
(c) Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option shall consist entirely of
cash, check, other Shares of Common Stock having a fair market value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised (which, if acquired from the Company,
shall have been held for at least six months), or any combination of such
methods of payment and/or any other consideration or method of payment as
shall be permitted under applicable corporate law.
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9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be
exercisable prior to shareholder approval of the Plan in accordance with
Section 17 hereof has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received
by the Company. Full payment may consist of any consideration and method of
payment allowable under Section 8(c) of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate for the
number of Shares so acquired shall be issued to the Optionee as soon as
practicable after exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
(b) Termination of Status as a Director. If an Outside Director
ceases to serve as a Director, he or she may, but only within three (3)
months after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to
exercise it at the date of such termination. Notwithstanding the foregoing,
in no event may the Option be exercised after its term set forth in Section
7 has expired. To the extent that such Outside Director was not entitled to
exercise an Option at the date of such termination, or does not exercise
such Option (which he or she was entitled to exercise) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding Section 9(b) above, in
the event a Director is unable to continue his or her service as a Director
with the Company as a result of his or her total and permanent disability
(as defined in Section 22(e)(3) of the Internal Revenue Code), he or she
may, but only within six (6) months from the date of such termination,
exercise his or her Option to the extent he or she was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no
event may the Option be exercised after its term set forth in Section 7 has
expired. To the extent that he or she was not entitled to exercise the
Option at the date of termination, or if he or she does not exercise such
Option (which he or she was entitled to exercise) within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee
during the term of the Option who is, at the time of his or her death, a
Director of the Company and who shall have been in Continuous Status as a
Director since the date of grant of the Option, the Option may be
exercised, at any time within six (6) months following the date of death,
by the Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent the Optionee
was entitled to exercise the Option at the date of death. Notwithstanding
the foregoing, in no event may the Option be exercised after its term set
forth in Section 7 has expired.
10. Nontransferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
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11. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the shareholders of
the Company, the number of shares of Common Stock covered by each
outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have
yet been granted or which have been returned to the Plan upon cancellation
or expiration of an Option and the number of shares of Common Stock to be
granted under the provisions set forth in Section 4, as well as the price
per share of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock,
or any other increase or decrease in the number of issued shares of Common
Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall
not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Corporate Transactions. In the event of (i) a dissolution or
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation in which the Company is
not the surviving corporation, or (iv) any other capital reorganization in
which more than fifty percent (50%) of the shares of the Company entitled
to vote are exchanged, the Company shall give to the Eligible Director, at
the time of adoption of the plan for liquidation, dissolution, sale,
merger, consolidation or reorganization, either a reasonable time
thereafter within which to exercise the Option, including Shares as to
which the Option would not be otherwise exercisable, prior to the
effectiveness of such liquidation, dissolution, sale, merger, consolidation
or reorganization, at the end of which time the Option shall terminate, or
the right to exercise the Option, including Shares as to which the Option
would not be otherwise exercisable (or receive a substitute option with
comparable terms), as to an equivalent number of shares of stock of the
corporation succeeding the Company or acquiring its business by reason of
such liquidation, dissolution, sale, merger, consolidation or
reorganization.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule
16b-3 under the Exchange Act (or any other applicable law or regulation),
the Company shall obtain approval of the shareholders of the Company to
Plan amendments to the extent and in the manner required by such law or
regulation. Notwithstanding the foregoing, the provisions set forth in
Section 4 of this Plan (and any other Sections of this Plan that affect the
formula award terms required to be specified in this Plan by Rule 16b-3)
shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan that would impair the rights of any Optionee shall
not affect Options already granted to such Optionee and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the
Board, which agreement must be in writing and signed by the Optionee and
the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as
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amended, the Exchange Act, the rules and regulations promulgated thereunder,
state securities laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. As a condition to the
exercise of an Option, the Company may require the person exercising such Option
to represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell or
distribute such Shares, if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.
15. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to a meeting of the
shareholders held within one year of its adoption by the Board. If such
shareholder approval is obtained at a duly held shareholders' meeting, it may be
obtained by the affirmative vote of the holders of a majority of the outstanding
shares of the Company present or represented and entitled to vote thereon. If
such shareholder approval is obtained by written consent, it may be obtained by
the written consent of the holders of a majority of the outstanding shares of
the Company. Options may be granted, but not exercised, before such shareholder
approval.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF LASERSCOPE
SPECIAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Laserscope, a California corporation (the
"Company"), hereby acknowledges receipt of the Notice of Special Meeting of
Shareholders and Proxy Statement, each dated July __, 1996, and hereby appoints
Robert V. McCormick and Dennis LaLumandiere or either of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Special Meeting of
Shareholders of Laserscope to be held on August 29, 1996 at 9:00 a.m., local
time, at the executive offices of Laserscope, 3052 Orchard Drive, San Jose,
California 95134-2011 and at any adjournment or postponement thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to vote
if then and there personally present, on the following matters, and, in their
discretion, upon such other matters that may properly come before the meeting
and any adjournment(s) thereof.
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SEE REVERSE
SIDE
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<PAGE> 120
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR APPROVAL OF THE AGREEMENT AND THE TRANSACTIONS
AND AGREEMENTS CONTEMPLATED THEREIN; (2) FOR APPROVAL OF THE AMENDMENT TO THE
COMPANY'S 1994 STOCK OPTION PLAN AND THE RESERVATION OF 975,000 SHARES OF COMMON
STOCK FOR ISSUANCE THEREUNDER; (3) FOR APPROVAL OF THE COMPANY'S 1995 DIRECTORS'
STOCK OPTION PLAN AND THE RESERVATION OF 300,000 SHARES OF COMMON STOCK FOR
ISSUANCE THEREUNDER.
1. Proposals to approve the acquisition agreement between the Company and
Heraeus Med GmbH dated April 23, 1996 (the "Agreement") and the
transactions and agreements contemplated therein.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Proposal to approve an amendment to the Company's 1994 Stock Option Plan to
increase the number of shares of common stock reserved for issuance
thereunder by 975,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to approve the adoption of the Company's 1995 Directors' Stock
Option Plan and the reservation of 300,000 shares of common stock for
issuance thereunder.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES. IF SIGNER IS
A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED
OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
SIGNATURE(S) _____________________________________ DATE _______________
NOTE: This Proxy should be marked, dated, signed by the shareholder(s) exactly
as his or her name appears hereon, and returned in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are
held by joint tenants or as community property, both should sign.
