<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------------------
FORM 10-K/A
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1995, or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from ___ to ___.
Commission file number: 0-18053
LASERSCOPE
(Exact name of Registrant as specified in its charter)
California 77-0049527
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3052 Orchard Drive San Jose, California 95134-2011
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 943-0636
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Common Share Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $23,648,000 as of March 20, 1996, based upon the
closing sale price on the NASDAQ National Market System reported for such date.
Shares of Common Stock held by each officer and director and by each person who
owns 5% of more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
There were 7,060,634 shares of Registrant's Common Stock issued and outstanding
as of March 20, 1996.
<PAGE> 2
The undersigned Registrant hereby amends and restates its Annual Report
on Form 10-K for the fiscal year ended December 31, 1995, as set forth below.
INTRODUCTORY STATEMENT
Except for the historical information contained in this Annual Report on Form
10-K, 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 timing of
orders and shipments, the timely development and market acceptance of new
products 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 other SEC reports 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 Annual Report on Form 10-K to "Laserscope," the
"Company" or the "Registrant" refer to Laserscope and its subsidiaries. The
following Laserscope trademarks are mentioned in this Annual Report: 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
American Cyanamid Company.
PART I
ITEM 1. BUSINESS
Laserscope(R) designs, manufactures and markets on a worldwide basis surgical,
dermatologic and therapeutic laser systems and related surgical instrumentation
and disposable supplies and accessories. The Company's laser systems employ
laser technology based on potassium titanyl phosphate (KTP) crystalline material
and enable the physician to cut, coagulate and vaporize tissue in a wide variety
of applications and procedures. The Company's laser systems also enable the
surgeon to operate in contact or in near-contact with tissue, depending on the
desired surgical effect. Laserscope's laser systems are especially well suited
for minimally invasive surgery, which reduces bleeding, postoperative pain and
recovery time as compared to conventional surgery.
The Company shipped its first KTP/532(R) Surgical Laser System in 1984. In 1989,
the Company introduced the KTP/YAG(TM) laser system combining its KTP laser with
an additional module that allows the physician to choose between the KTP
wavelength of 532 nanometers and the neodymium yttrium-aluminum garnet (Nd:YAG)
wavelength of 1,064 nanometers. The surgeon can select the KTP beam for precise
surgical effects with minimal damage to surrounding tissue or for microscopic
applications. Simply by pressing a button, the surgeon can switch virtually
instantaneously to the Nd:YAG beam for increased coagulation and greater tissue
penetration when desired. In 1991, the Company introduced the "XP" module that
permits the laser systems to generate higher levels of laser energy. In 1994,
the Company introduced the "Orion(TM)" models of its KTP/532 and KTP/YAG lasers.
The Orions are smaller, lower priced, lower power versions of its KTP/532 and
KTP/YAG lasers designed primarily for physician office applications and the
international marketplace. In 1995, the Company introduce the "Aura(TM)" models
of its KTP/532 lasers. The Aura is a compact, desk top size laser designed for
use in the offices of dermatologists, aesthetic and ear nose and throat
surgeons. The Company's laser systems are modular in nature and can be upgraded
to provide additional functionality and value to the customer.
The Company's photodynamic therapy (PDT) dye laser module is currently used in
conjunction with its KTP/532 system to deliver specific wavelengths to activate
photosensitizing drugs in the treatment of advanced esophageal cancer. This
investigational modality has received limited regulatory approval in Canada,
Europe, Japan, and the United States. The process to obtain additional approvals
may take several years and there is no assurance that the approvals will ever be
granted
Laserscope markets its products in the United States to hospitals, outpatient
surgical clinics and individual physician offices exclusively through its direct
sales force. The Company has established direct marketing and support
-2-
<PAGE> 3
subsidiaries in the United Kingdom and in France, and has established
distributor relationships in several other countries. From inception through
December 31, 1995, the Company has sold approximately 1,600 laser systems.
SURGICAL LASER DEVELOPMENT
In recent years, cost containment and quality of care in the health care
industry have become increasingly important issues among health care providers
and government and private payers. These issues have been especially important
in surgery, leading to development and increased use of new techniques and
technologies. The result has been more efficient surgical procedures, greater
use of outpatient surgery, reduced hospital confinement and reduced time away
from the workplace.
The Company believes that these trends have created increased opportunities for
the use of laser surgery, especially in connection with less invasive, less
traumatic surgical procedures. These procedures include endoscopy and
laparoscopy, in which a small-diameter tube and an optical instrument are
inserted into the body through natural openings or small incisions. When used in
laser surgery, an optical fiber delivers the laser energy through the endoscope
to cut, coagulate or vaporize tissue. Endoscopic surgery is replacing certain
conventional open surgical procedures, which more often entail general
anesthesia, an extended hospital stay, extended time away from work and the
greater risks attendant to blood loss.
Certain types of lasers can also be used in microsurgery, in which a microscope
is used to view the surgical field. With a device known as a micromanipulator,
the laser beam can be focused and controlled more precisely than conventional
surgical instruments.
The Company believes that lasers are currently used only in a small percentage
of those procedures in which they may provide an advantage over conventional
methods. Although surgeons practicing in certain specialties, such as
gynecology, otolaryngology, urology, dermatology and ophthalmology, have adopted
lasers for many procedures, other specialties such as general surgery, aesthetic
surgery, orthopaedic and disk surgery may offer great potential but have not
been developed fully. Adoption increased in 1990 in general surgery principally
for laparoscopic cholecystectomy (gall bladder removal). During 1991, however,
many physicians who had initially used lasers for laparoscopic general surgery
reverted to conventional surgical tools and laser use for these applications
declined. The Company believes that the past limitations of medical laser
technology the lack of clinical training and the high cost of lasers are among
the factors that have prevented widespread acceptance of laser surgery to date.
To the extent that sufficient potential customers do not adopt lasers for use in
surgical applications or do not accept the Company's laser products for those
applications, a broad market for the Company's laser products may not develop.
In 1993 the Company began to explore the use of KTP/532 in the areas dermatology
and aesthetic surgery. These practitioners perform their services principally in
a non-hospital environment and deal with clientele who are direct payers. This
market has shown historical growth and could provide opportunities for the
Company provided its products are accepted. The Company's Orion and Aura systems
were specifically designed for this market.
In the 1960's and 1970's, argon gas lasers were adopted for ophthalmic and
dermatological procedures. In the 1980's, carbon dioxide (C02) lasers were
employed in surgery and they are currently used in a wide variety of procedures.
Lasers using neodymium yttrium-aluminum garnet (Nd:YAG) crystals were introduced
to the surgical laser market in the early 1980's. While the Nd:YAG beam may be
delivered through an optical fiber and is very effective for endoscopic
coagulation, it cannot be used safely for cutting and vaporizing because it may
penetrate too deeply. In an attempt to address this critical limitation,
sapphire tips have been developed that can be attached to the end of the optical
fiber. Nd:YAG lasers can also be used with sharpened, or sculptured fibers.
These fibers are brought to a sharp point.
Laserscope has developed a surgical laser system that it believes overcomes many
limitations of previous systems. The Company's system can effectively cut,
coagulate and vaporize tissue, and was developed specifically for use in
surgery. The wavelength of the Laserscope KTP/532 laser (532 nanometers) can be
used in a dry field or a fluid environment; therefore, it is well suited for
most surgical procedures. The beam is visible, which allows for precise aiming,
and may be delivered fiberoptically through an endoscope with a handpiece, with
a micromanipulator or with a specialized dermatology scanner. The KTP beam can
be used in contact or in near-contact with tissue. Further, these systems can
-3-
<PAGE> 4
optionally be equipped with Nd:YAG capability to enhance coagulation and tissue
penetration where appropriate. The Company believes that these factors provide a
high degree of versatility and clinical utility to customers.
PHOTODYNAMIC THERAPY (PDT)
Photodynamic therapy is a diagnostic and treatment modality which utilizes a
drug which is photoactivated by laser irradiation. Patients are injected with a
photosensitizing drug. A period of 24 to 72 hours elapses to allow time for
absorption of the drug by malignant tissues or other abnormal cells and
elimination of the drug from normal tissues and blood serum. Tumor tissue or
serum products are then exposed directly to laser light for the purpose of
detecting or destroying abnormal cells. This treatment modality has the
advantage of displaying some degree of selectivity in killing abnormal cells.
Photodynamic therapy has been under investigation for over ten years. However,
recently, a number of drug companies in North America and Europe have
intensified their efforts to obtain regulatory clearances for this treatment
modality which have been granted for limited applications in the United States,
Canada, Europe and Japan. In February 1994, the Company entered into a
cooperative distribution, development and marketing agreement with QLT
Therapeutics, Inc. (formerly QuadraLogic Technologies, Inc.) of Vancouver,
Canada, a leader in photosensitizer drug development for PDT.
LASERSCOPE PRODUCTS
The Company operates in one business segment, the medical systems business. The
Company develops, manufactures, markets and supports surgical lasers and other
surgical systems, related instrumentation and disposable supplies. The Company
markets its products in the United States to hospitals, outpatient surgical
clinics and individual physician offices exclusively through its direct sales
force. The Company has established direct marketing and support subsidiaries in
the United Kingdom and France, and has established distributor relationships in
several other countries. Laserscope sells both KTP/532 and YAG/1064 Surgical
Laser Systems and also the dual wavelength KTP/YAG Surgical Laser System, which
provides both KTP and Nd:YAG wavelength capability in a single system. All these
systems are mobile and are designed to be modular and upgradeable in nature. The
Company's base systems are the KTP/532 fiber optic laser that delivers KTP laser
energy through a disposable fiber optic and the YAG/1064 laser that provides
similar capability with the Nd:Yag wavelength. Additional modules are also
available. First, dual wavelength capability may be added to provide a KTP/YAG
Surgical Laser System. Second, alternative nonfiber optic delivery capability
may be added to enable laser energy to be delivered through a microscope adapter
(for use primarily in ear, nose and throat applications and neurosurgery), or
through either a Dermastat(R) or Hexascan(TM) delivery system (for use in
dermatology). Third, higher laser power is available through the 'XP' module
introduced in 1991. The Orion models of the Company's KTP/532 and KTP/YAG
Surgical Laser Systems, which are available in two power levels, and the Aura
models of the Company's KTP/532 Surgical Laser Systems are lower priced, lower
maximum power capability units which have similar features to the higher powered
systems and also include the ability to employ the Company's SmartScan(TM)
scanning device with StarPulse(TM) for dermatological applications. The Series
600 Dye Laser Module, which is pumped by the KTP/532 laser system was
introduced in 1992 for applications in photodynamic therapy. This system
provides the highest powers currently available for the photoactivation of
PDT drugs.
The Company also sells a line of delivery systems, disposable supplies,
instrumentation and other accessories. As the Company's installed base of
Surgical Laser Systems has continued to increase, revenue from sales of these
items has become an increasingly important component of the Company's overall
business.
The Company's KTP/532 Surgical Laser System utilizes a KTP crystal to produce a
high-power visible green surgical beam. Delivered through an optical fiber, this
beam can cut, coagulate or vaporize by adjusting the power, spot size and
proximity to the tissue. The system can be used either in direct contact or in
near-contact with tissue with the Company's disposable EndostatTM fibers. The
system can also be used in contact with tissue with the Company's Disposable
Sculptured Endostat fibers. The KTP/532 laser offers a high degree of surgical
precision. Target accuracy and exact spot size allow for minimal disruption of
normal tissue. In addition, the beam is highly absorbed in blood and pigment,
but passes safely through clear fluids, allowing surgery in most areas of the
body.
The KTP/532 system may be used with either a hand-held fiberoptic delivery
system, an endoscopic delivery system for minimally invasive surgery, with a
special microscopic adapter for microscopic surgery, with a scanning device for
-4-
<PAGE> 5
use in dermatology or, with procedure-specific kits such as the KTP Disc
Kit(TM) and the Angled Delivery Device (ADD(TM)). The computerized laser
system includes a video display that provides instruction during each step of
setup and laser operation. The KTP/532 laser is field upgradeable so that new
software and delivery devices can be added easily to meet users' needs. In
addition, current models of the KTP/532 system are based on a modular design
approach that allows them to be upgraded in the field to include Nd:YAG
capability and/or to provide higher power levels.
In 1989, the Company began shipping the KTP/YAG dual wavelength laser system,
consisting of the KTP/532 Surgical Laser System and an additional Nd:YAG module
that allows the physician, using the same optical fiber, to switch between the
KTP wavelength and the Nd:YAG wavelength simply by pressing a button. The
KTP/532 wavelength can be selected for procedures requiring precise surgical
effects with minimal damage to surrounding tissue or microscopic applications.
The Nd:YAG beam can be used to provide superior coagulation effects and greater
tissue penetration when appropriate. The selected wavelength is indicated
clearly on the video display.
Laserscope offers a broad line of surgical instrumentation, disposables, kits
and other accessories for use with its surgical laser systems. These include
disposable fibers, disposable sculptured fibers, disposable coaxial fibers,
handpieces, microscope adapters, eye safety filters, safety glasses and goggles,
smoke evacuators and related disposable supplies, irrigation and aspiration
devices, a procedure-specific kit for lumbar disc decompression and the Hexascan
and Smartscan scanners for controlled laser delivery in dermatology.
In 1992, the Company introduced a product called the Angled Delivery Device
(ADD(TM)). The ADD product is used to deliver KTP or YAG laser energy at an
angle, making it ideal for cutting, coagulation and vaporizing tissue in
difficult to reach cylindrical cavities. In 1994, the Company introduced the
next generation ADDStat(TM) which is more flexible than the ADD, allowing the
surgeon greater ease of use. These devices have applications in urology as
well as other specialties.
The Company's disposable Endostat optical fibers are available in different
lengths and diameters for different surgical applications and preferences. The
Company's wide variety of MicrostatTM handpieces, which are used to hold and aim
the optical fiber, give the surgeon the feel of a traditional surgical tool.
When used in contact with body tissue, they provide tactile feedback similar to
conventional surgery.
APPLICATIONS
Through December 31, 1995, the Company had obtained marketing clearances from
the U.S. Food and Drug Administration (FDA) through the Premarket Notification
(510(K)) process for its KTP/532 Surgical Laser System for a broad range of
applications in dermatology, plastic surgery, ear, nose, and throat surgery,
gastroenterology, general surgery, thoracic surgery, gynecology, neurosurgery,
ophthalmology, urology, and disc surgery. In all cases, the clearance applies to
both the base KTP/532 system and the "XP" module.
Laserscope's Nd:YAG module has marketing clearances for coagulating and
vaporizing in contact or non-contact with tissue for applications in gynecology,
ear, nose and throat surgery, urology, neurosurgery, gastroenterology, general
surgery, dermatology, plastic surgery, orthopedic surgery, thoracic surgery,
oculoplastics and pulmonary surgery.
Laserscope's 600 Series Dye Module has been cleared in Canada for use with
Photofrin(R) for treatment of recurrent superficial papillary bladder cancer and
in the Netherlands for use with Photofrin for treatment of esophageal and lung
cancer and in the United States for the palliation of esophageal cancer. It is
under investigation for other applications and the Company is seeking further
regulatory approvals in the United States, other European countries and Japan.
Laserscope believes that increased awareness of both the benefits of laser
surgery and the drawbacks of conventional surgery is one of the most important
factors in expanding the market for its laser and laser-based products. As a
result, the Company has designed its marketing and sales strategy around a
strong educational effort to promote awareness of the versatility, safety and
cost-effectiveness of its surgical laser systems.
Laserscope promotes its products through trade shows and exhibits covering most
of the surgical specialties, medical journal advertising and direct mailings.
The Company supports and participates in a substantial number of workshops and
seminars. The workshops usually include a demonstration of the Company's laser
systems and provide surgeons
-5-
<PAGE> 6
with direct experience using the Company's products. Another important source of
product promotion comes from referrals within the medical community.
Laserscope markets its products to large teaching hospitals, small community
hospitals, free-standing outpatient surgery centers and individual physician
offices throughout the United States. The Company concentrates its marketing
efforts for its laser products on high volume surgical procedures where
conventional surgical techniques can be readily replaced by laser surgery. As
with many types of advanced medical equipment, the sales cycle for the Company's
laser systems is relatively long, frequently lasting several months from initial
sales call to receipt of a purchase order. In the case of hospitals, the
decision to purchase the Company's laser systems is typically made by a
committee consisting of health care professionals and hospital administrators.
This decision process makes breadth of applications and versatility of products
important issues.
The Company's U.S. sales efforts are managed by the Vice President of Marketing
and Sales. The sales organization includes a laser sales force that addresses
the hospital-based market and the office based dermatology/plastic surgery
market for laser systems. In addition, the Company has an accessory sales force
that both provide educational support and sell the Company's surgical
instrumentation, disposable supplies and accessories. Finally, the Company has
an in-house Customer Response Center which provides clinical assistance to users
on the application of the Company's products.
The Company has made a significant investment in building its direct sales
organization within the United States. At December 31, 1995, the Company's
direct sales force included approximately 16 people. Each of these individuals
is experienced in the sale of medical products, and each is compensated on a
salary plus commission basis. Laserscope believes that its own employees can
develop more productive and permanent relationships with customers than can
independent representatives or distributor organizations.
INTERNATIONAL SALES
Through December 31, 1995, most of the Company's revenues have been generated
from customers located in the United States. However, during the past five years
the Company has increased its sales efforts into international markets and
during 1991 obtained necessary regulatory clearances of certain overseas markets
including Japan. Sales outside the United States generated approximately twenty
three percent of the Company's revenues in 1995, seventeen percent in 1994, and
thirteen percent in 1993. The Company's sales outside the U.S. are subject to
certain risks common to all export activities, such as governmental regulation,
export license requirements and the risk of imposition of tariffs or other trade
barriers.
In Europe, the Company has direct sales and service operations in the U.K. and
in France and currently has or is seeking distributor relationships in the rest
of Europe. The Company established its U.K. subsidiary in 1989 and its French
subsidiary in 1993. Both these subsidiaries market and support the Company's
laser products directly to the local markets and support the management of
European distributor relationships. During 1992, the Company terminated its
agreement with its former principal European distributor and is seeking new
distributor relationships on a country-by-country basis. To date distribution
agreements are in place for Germany, Switzerland, Austria, Portugal, Sweden,
Norway, Denmark, and Greece. In Pacific Rim countries, distributors or agents
have been appointed to sell and service the Company's products in Australia,
China, Korea, Singapore, Taiwan, Thailand, Indonesia and Malaysia. The Company
also has distributors in Saudi Arabia and Turkey. Under terms of the Company's
standard distribution agreement, these distributors cannot sell products offered
by the Company's competitors.
In March 1990, the Company entered into a multi-year agreement with Hoya
Corporation (Hoya) of Japan for the exclusive distribution of the Company's
laser products in Japan. Since 1990, Hoya has been responsible for obtaining the
required approvals from the Japanese Authorities for new products as well as
participating in clinical studies of new applications. Approval was received
from the Japanese Ministry of Health and Welfare in December 1991 for the
importation of certain of the Company's lasers and delivery devices into Japan.
In 1993, Hoya obtained approvals for the Company's Angled Delivery Device. In
1995, Hoya also obtained approvals for the Company's ADDStat Device and Orion
laser system.
In March 1995, the Company entered into an agreement with NWL Laser-Technologie
("NWL") whereby the Company paid NWL approximately $1.6 million in exchange for
a cross-distribution and development agreement, a current minority equity
position in NWL and an option to purchase all of the ownership interests in NWL.
These
-6-
<PAGE> 7
assets are carried at cost. If the Company does not exercise its option to
purchase NWL by June 1997, there will be no reimbursement of the Company's
investment and the Company's equity position will be relinquished. If the
Company exercises its option, the remaining purchase price will be paid over
three and one half years from the exercise date. As of December 31,1995 the
Company believes that it will exercise its purchase option.
Sales to International markets in 1995, 1994 and 1993 accounted for
approximately 23%, 17% and 13%, respectively, of the Company's net sales. The
Company expects that international sales will continue to represent a
significant percentage of net sales. The Company desires to continue to expand
its operations outside of the United States and to enter additional
international markets, which will require significant management attention and
financial resources and subject the Company further to the risks of operating
internationally. These risks include unexpected changes in regulatory
requirements, delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs and other barriers and restrictions, and the burdens
of complying with a variety of foreign laws. The Company is also subject to
general geopolitical risks in connection with its international operations, such
as political and economic instability and changes in diplomatic and trade
relationships. The Company cannot predict whether quotas, duties, taxes or other
charges or restrictions will be imposed by the United States, Japan, countries
in the European Union or other countries upon the import or export of the
Company's products in the future, or what effect any such actions would have on
its business, financial condition or results of operations. In addition,
fluctuations in currency exchange rates may negatively impact the Company's
ability to compete in terms of price against products denominated in local
currencies. In addition, there can be no assurance that regulatory, geopolitical
and other factors will not adversely impact the Company's operations in the
future or require the Company to modify its current business practices.
INSTALLATION, SERVICE AND SUPPORT
A direct field service organization provides installation and service for the
Company's products. The Company generally provides a 12-month warranty on its
laser systems. After the warranty period, maintenance support is provided on a
variety of service contract bases or on an individual call basis. In November
1991, the Company announced a "99% Uptime Guarantee" related to 800 series laser
systems shipped after November 1, 1991. This guarantee has also been given for
Orion laser systems. Under provisions of this guarantee, the Company extends the
term of the related warranty or contract if specified system uptime levels are
not maintained. The Company's experience to date under this program has exceeded
99% uptime.
RESEARCH AND DEVELOPMENT
The Company operates in an industry that is subject to rapid technological
changes and its ability to remain competitive depends on, among other things,
its ability to anticipate 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 KTP crystal.
A major element of the Company's current product development effort is related
to instrumentation and disposable products. Expenditures for research and
development were approximately $3.8 million, $3.6 million, and $4.0 million and
in 1995, 1994 and 1993, respectively. The Company's research and development
staff numbered 23 full time employees at December 31, 1995.
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 introduce a new or
enhanced product or technology that could have an adverse effect on the
Company's competitive position.
MANUFACTURING
Laserscope manufactures its own components and subassemblies only when it can
add significant value by doing so or when the devices have strong proprietary
design content. Accordingly, the Company manufactures the laser resonators used
in its laser systems, the system chassis and certain accessories. The Company's
laser manufacturing operations concentrate on the assembly and test of
components and subassemblies manufactured to the Company's designs and
specifications by outside vendors. The Company believes that it has sufficient
manufacturing capacity in its present facilities to support current operations
at least through the end of 1996.
-7-
<PAGE> 8
In addition to its laser manufacturing capability, the Company established an
expanded production facility for certain of its disposable products during 1992.
The Company's Endostat fibers, KTP Disc Kit, and Angled Delivery Devices(ADD and
ADDStat) are manufactured in this facility.
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.
The Company believes that the primary competitive factors within the surgical
laser market are the breadth of surgical capabilities provided by surgical
lasers, the level of customer service and support, safety and price. Laserscope
believes that its KTP/532, YAG/1064 and KTP/YAG dual wavelength systems deliver
a broader range of surgical capabilities than competing systems and that it has
an effective customer support program. The Company also believes that its laser
products offer more versatility than systems offered by its primary competitors,
because of the dual wavelength feature of the KTP/YAG system, the modular design
of the Company's laser systems, the ability to deliver laser energy via optical
fibers, a micromanipulator or via other delivery devices such as the Dermastat,
Hexascan and Smartscan devices, and the ability to operate either in contact or
in near contact with tissue. The Company believes that these features, as well
as the broad range of power capabilities from its high power, 800 series laser
with XP to its lowest power Aura, position its laser systems to have
price/performance flexibility.
PATENTS AND LICENSES
While the Company believes the patents that it has and for which it has applied
are of value, other factors are of greater competitive importance. 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.
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
-8-
<PAGE> 9
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.
In February 1989, the Company entered into a license agreement with Patlex
Corporation (Patlex) for a license under the basic laser patents issued to Mr.
Gordon Gould, for whom Patlex is the exclusive licensing agent. The license
requires the Company to pay a royalty based on the net sales price of components
covered by the Gould patents. The Company believes that royalty payments due
under this agreement have not been and are not expected to be material to the
Company's results of operations. The Company believes that substantially all of
its competitors have also entered into license agreements with Patlex.
In April 1992, the Company entered into an exclusive, worldwide, license
agreement with PDT, Inc. (PDTI) for licenses under the dye laser patents issued
to PDTI. The licenses, which expire in April 1999, allow the Company to
sublicense, manufacture, have manufactured, use, lease and sell the dye laser.
Under the terms of the agreement, PDTI retains ownership of the intellectual
property licensed to the Company under the agreement and has the right to
manufacture, have manufactured, use, lease, and sell the dye laser for use in
photodynamic therapy with PDTI photodynamic drugs. To acquire the licenses, the
Company paid PDTI $400,000 and provided PDTI certain laser equipment. Under the
terms of the license, the Company must pay a royalty to PDTI based on the net
sales price of Dye Lasers sold by the Company. The agreement sets forth certain
minimum sales levels for PDT dye lasers which become effective when there is
final regulatory approval with respect to a photodynamic drug in a major
photodynamic therapy market. Japan and the United States qualify as major
photodynamic therapy markets and such approvals were granted during 1995.
GOVERNMENT REGULATION
Government regulation in the U.S. 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 FDA under statutory
authorities, including 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 may 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. 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 Mark registration in anticipation of this approach.
-9-
<PAGE> 10
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. The Company
believes that it is in material compliance with all of these requirements.
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. The Company believes that
it is in material compliance with these requirements.
PRODUCT LIABILITY EXPOSURE
The business of the Company entails the risk of product liability claims. The
Company has experienced product liability claims from time to time, which it
believes are ordinary for its business. While it is not feasible to predict or
determine the outcome of the actions brought against it, the Company believes
that these actions will not ultimately have a material adverse impact on the
Company's financial position or results of operations. At present, the Company
maintains product liability insurance on a "claims made" basis with coverage of
$10,000,000 in the aggregate and a deductible of $100,000 per occurrence and an
annual maximum aggregate deductible of $500,000. There is no assurance that such
insurance will be available at a reasonable cost, if at all, in the future, nor
can there be any assurance that other claims will not be brought against the
Company which would exceed applicable insurance coverage.
EMPLOYEES
At December 31, 1995, the Company had 174 full-time employees. Of these
employees, 21 were engaged in research and development, 50 in manufacturing and
quality assurance, 78 in sales, marketing and customer service and 25 in
administration. The Company believes that it maintains competitive compensation,
benefit, equity participation and work environment policies to assist in
attracting and retaining qualified personnel. The Company believes that the
success of its business will depend, in part, on its ability to attract and
retain such personnel. The loss or failure to
-10-
<PAGE> 11
recruit key personnel could have a materially adverse effect on the Company. The
Company is not a party to any collective bargaining agreements and considers its
relations with its employees to be good.
FACTORS AFFECTING FINANCIAL RESULTS AND STOCK PRICE
A number of factors affect the Company's financial results and stock price,
especially on a quarterly basis. One such factor is 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.
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 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. 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.
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 December 31, 1995:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Benjamin L. Holmes............................... 61 Chairman of the Board and Director
Robert V. McCormick.............................. 51 President, Chief Executive Officer and
Director
Thomas B. Boyd................................... 49 Senior Vice President of Operations and
Finance
Roy Fiebiger..................................... 41 Vice President of Marketing and Sales
Bonnie Jones .................................... 47 Vice President of Human Resources
Dennis LaLumandiere.............................. 42 Vice President of Finance and Chief
Financial Officer
</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 1992. Mr. Holmes was
General Manager of the Medical Products Group of Hewlett-Packard Company ("HP")
from 1983, and a Vice President of HP, from 1985 until his retirement in October
1995. 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, Commissioner of the
Massachusetts Universal Health Care Commission, and a member of the Board on
Health Care Service, Institute of Medicine, National Academy of Sciences. He is
also Past 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.
-11-
<PAGE> 12
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 EnVision Surgical Systems, a private,
development stage medical device company. 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 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.
ITEM 2. PROPERTIES
The Company leases three buildings aggregating approximately 91,000 square feet
in San Jose, California under leases expiring in February 2001. The Company has
options to extend the leases at the then-current market rates. These facilities
house the Company's research and development and manufacturing operations as
well as the Company's principal sales, marketing, service and administrative
offices. During 1990, the Company leased additional space to accommodate the
manufacture of certain accessories and disposables and to increase production
capacity for its laser systems. During the past three years shipments of the
Company's laser systems declined from the levels of 1990 and, accordingly, the
Company has production capacity in excess of its current shipment level. During
1992, the production of certain disposable products, previously performed by an
outside vendor, was brought in house to utilize more fully the Company's
capacity. The Company believes that these facilities are suitable for its
current operations and are adequate to support those operations at least through
the end of 1995. The Company has also leased small offices in the United Kingdom
and France where the Company's local sales and marketing staffs are based.
ITEM 3. LEGAL PROCEEDINGS
On January 6, 1995, Xintec Corporation (Xintec) filed an action against
Laserscope in the United States District Court for the Northern District of
California, alleging intentional interference with economic advantage, negligent
interference with economic advantage, slander of title, trade liable and
antitrust violations all in connection with Xintec's right to repair the
Company's delivery systems and to distribute Xintec's multi-use connector
adapter and optical fibers, and seeking among other things, declaratory relief
(including a declaration of noninfringement) and money damages for alleged
business torts. Laserscope filed its answer and counterclaim on February 17,
1995. The Company has counterclaimed as to patent infringement, unfair
competition, contractual relations, prospective economic advantage and
conversion. Upon completion of informal discovery, the parties agreed not to
pursue the litigation and a Stipulation of Dismissal (without prejudice) was
filed on October 24, 1995.
The Company is a party to various legal proceedings arising in the normal course
of its business. These actions may include product liability and
employee-related issues. While it is not feasible to predict or determine the
outcome of the actions brought against it, the Company believes that the
ultimate resolution of these claims will not ultimately have a material adverse
impact on the Company's financial position or results of operations.
-12-
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND SHAREHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market under the
symbol LSCP. As of December 31, 1995 the Company had approximately 1,000
shareholders of record.
The following table shows the Company's high and low selling prices for the
years ended December 31, 1995 and December 31, 1994 as reported by Nasdaq:
<TABLE>
<CAPTION>
1995
----
High Bid Low Bid
-------- -------
<S> <C> <C>
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
<CAPTION>
1994
----
High Bid Low Bid
-------- -------
<S> <C> <C>
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>
The Company has not paid dividends on its common stock and has no present plans
to do so. Provisions of the Company's bank line of credit prohibit the payment
of dividends without the bank's permission.
ITEM 6. SELECTED FINANCIAL DATA
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenue $30,133 $36,320 $37,831 $35,963 $41,893
Net income (loss) (3,552) (931) 589 (4,421) (5,212)
Net income (loss)
per share (0.51) (0.13) 0.09 (0.66) (0.79)
</TABLE>
CONSOLIDATED BALANCE SHEET DATA (AT END OF PERIOD):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents &
short-term investments $2,278 $ 6,602 $ 8,144 $10,143 $12,707
Working capital 12,564 16,825 17,132 16,219 20,157
Total assets 23,582 27,321 29,301 30,242 35,394
</TABLE>
-13-
<PAGE> 14
<TABLE>
<S> <C> <C> <C> <C> <C>
Capital leases (excluding
current portion) 15 27 26 97 465
Shareholders' equity 17,326 20,901 21,234 20,182 24,208
</TABLE>
CONSOLIDATED QUARTERLY STATEMENT OF OPERATIONS DATA (UNAUDITED):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MAR 31, JUN 30, SEP 30, DEC 31,
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
Net revenues $9,215 $6,879 $7,048 $6,991
Gross Margin 4,832 3,801 3,463 3,245
Net income (loss) 251 (835) (1,259) (1,709)
Net income (loss) per share 0.04 (0.12) (0.18) (0.25)
1994
Net revenues $9,124 $8,232 $8,769 $10,195
Gross Margin 5,078 4,299 4,828 5,197
Net income (loss) 180 (1,560) 178 271
Net income (loss) per share 0.03 (0.23) 0.03 0.04
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL REVIEW - RESULTS OF OPERATIONS
The following table sets forth certain data from the Company's consolidated
statement of operations, expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Cost of sales 49.1 46.6 42.2
----- ----- -----
Gross margin 50.9 53.4 57.8
Operating expenses:
Research and development 12.7 9.9 10.7
Selling, general and administrative 50.9 46.8 46.2
----- ----- -----
63.6 56.7 56.9
Operating income (loss) (12.7) (3.3) .9
Interest and other income, net .9 .7 .9
----- ----- -----
Income (loss) before income taxes (11.8) (2.6) 1.8
Provision for income taxes - - .2
------ ----- -----
Net income (loss) (11.8)% (2.6)% 1.6%
====== ===== =====
</TABLE>
The Company sells its laser system products to hospitals, outpatient surgery
centers and individual physicians in the United States, Europe, the Middle East
and the Pacific Rim for multispecialty use in a wide range of surgical and
therapeutic applications. The Company's sales in the U.S. are through its own
direct sales force. The Company's export sales, which are generated by its
wholly and majority owned subsidiaries in the United Kingdom and France and by
independent distributors in the rest of the world, are denominated in the local
currencies of the United Kingdom and France, and in U.S. dollars in the rest of
the world.
-14-
<PAGE> 15
During 1995, the Company's revenues decreased 17% from 1994 which is the
combined result of lower product and service revenues. During 1995, the
Company's revenues from the sales of capital equipment declined 19% due to lower
unit shipments of lasers and lower average selling prices than in 1994. The
Company believes that the continuing trend towards reduced health care costs in
the United States is still a factor which continued to impact negatively capital
equipment procurement by its customers during 1995.
The Company's net revenues from the sales of products during the year ended
December 31, 1995 were also affected negatively by lower shipments of its
disposable supplies and instrumentation which were 18% lower in 1995 than in
1994. The Company believes that this was due primarily to lower shipments of its
side-firing devices due to fewer laser prostate surgeries being performed during
this period than in 1994. This was caused principally by increased drug
treatment for those patients with mild to moderate prostate disorders as well as
adoption of alternative electrosurgical techniques to perform prostate
surgeries.
The Company's net revenues from the sales of services during the year ended
December 31, 1995 were 9% lower than in the year ended December 31, 1994. The
declines reflect price erosion due to restructuring of the Company's contract
programs in response to competitive pressures and reduced customer acceptance of
service contracts.
In 1994, the Company's revenues decreased 4% from 1993 primarily due to weaker
demand for capital equipment in the United States which resulted in lower
shipments of its lasers partially offset by higher shipments of its
instrumentation, disposable supplies and service. The Company believes that
pressure to reduce health care costs in the United States and uncertainty
concerning health care reform were factors which negatively impacted capital
equipment procurement by its customers and resulted in lower shipments of the
Company's lasers.
Revenues from sales of instrumentation and disposable supplies represented
approximately 50% of total revenues in each of the years ended December 31, 1995
and 1994, and 43% of total revenues in 1993. Revenues from sales of service
represented approximately 17% of total revenues in 1995 and 16% of total
revenues in each of 1994 and 1993, respectively. The Company expects that
revenues from the sales of instrumentation and disposable supplies will be
dependent on its ability to increase its installed base of systems and to
promote and develop surgical procedures which use its laser systems,
instrumentation and disposable supplies.
The Company believes that the acceptance of lasers in aesthetic surgery,
dermatology, urology and ear, nose and throat surgery, will continue to be
significant to its business. In addition, the adoption of photodynamic therapy
by medical practitioners also will be important. The Company continues to invest
in the development of new instrumentation for emerging surgical applications and
to educate surgeons in the U.S. and internationally to encourage the adoption of
such new applications. Finally, penetration of the international market,
although increasing, has been limited and the Company continues to view this as
a significant opportunity. International revenues accounted for approximately
23%, 17% and 13% of total revenues in 1995, 1994 and 1993, respectively.
The Company's product gross margin as a percentage of net revenues was 53.8%,
55.3% and 58.9% in 1995, 1994 and 1993, respectively. In 1994, the Company
implemented programs to reduce inventory levels, which, coupled with a 4%
reduction in its product revenues, resulted in lower production volumes and
unfavorable manufacturing variances. During 1995, a 19% reduction in its product
revenues caused further reductions in production volumes and greater unfavorable
manufacturing variances and thus a further reduction in product gross margin as
a percentage of net revenues. The Company expects that product gross margin as a
percentage of sales may vary from quarter to quarter during 1996 as it continues
to balance production volumes and inventory levels with product demand, and as
product and distribution mix varies.
Gross margin from service activities as a percentage of net revenues was 36.7%
in 1995, 43.3% in 1994, and 51.2% in 1993. The declines reflect price erosion
due to restructuring of the Company's contract programs in response to
competitive pressures and reduced customer acceptance of service contracts. The
Company expects that gross margin from service activities as a percentage of net
revenues will continue to be influenced by these factors and will remain at or
below 1995 levels at least for the next several quarters.
Research and development expenses are the result of activities related to the
development of new laser, instrumentation and disposable products and the
enhancement of the Company's existing products. In 1995, amounts spent on
research and development increased 7% due principally to expenses incurred in
the development of the Company's Aura laser system. As a result of expense
reduction efforts, amounts spent on research and development
-15-
<PAGE> 16
decreased 11% in 1994. As a percentage of revenues, research and development
spending was 12.7% in 1995, 9.9% in 1994 and 10.7% in 1993. The Company expects
to continue to make significant investments in research and development during
1996 and beyond.
Selling, general and administrative expenses as a percentage of net revenues
were 50.9% in 1995, 46.8% in 1994, and 46.2% in 1993. In absolute terms, these
expenses decreased $1.6 million during 1995 and $0.5 million during 1994. These
decreases are the result of expense control measures originally taken by the
Company in 1992 which continued through 1995. As a result, the Company expects
that selling, general and administrative expenses to be somewhat lower, in
absolute terms, in 1996 than in 1995 unless the revenue base increases
significantly. However, as a percentage of revenues, selling, general and
administrative expenses are expected to remain at relatively high levels during
1996 since the Company expects to continue to invest significant amounts in
international expansion, marketing programs and educational support.
During 1995 and 1994 the Company recorded no income tax provision due to its net
losses during these periods. In 1993 the Company recorded an income tax
provision with an effective tax rate of 10% which reflected the benefit of net
operating loss carryforwards.
FINANCIAL REVIEW - LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995 the Company had working capital of $12.6 million and cash,
cash equivalents and short-term investments of $2.3 million. During 1995, both
working capital and cash, cash equivalents and short-term investments decreased
by $4.3 million, respectively. These changes were due to the funding of the
Company's agreement with NWL and the use of cash in operating activities.
In March 1995, the Company entered into an agreement with NWL Laser-Technologie
("NWL") whereby the Company paid NWL approximately $1.6 million in exchange for
a cross-distribution and development agreement, a current minority equity
position in NWL and an option to purchase all of the ownership interests in NWL.
These assets are carried at cost. If the Company does not exercise its option to
purchase NWL by June 1997, there will be no reimbursement of the Company's
investment and the Company's equity position will be relinquished. If the
Company exercises its option, the remaining purchase price will be paid over
three and one half years from the exercise date. As of December 31, 1995 the
Company believes that it will exercise its purchase option.
The Company's accounts receivable collection cycle is relatively long, which the
Company believes is typical of the surgical systems business. In addition, due
to the length of procurement and production lead times and the need for minimum
stock levels for certain components and accessories, the Company maintains
substantial inventories. For these reasons, the Company's operations require
substantial and varying investment of cash resources. At December 31, 1995 the
Company's net accounts receivable was 31% lower than at December 31, 1994,
primarily due to lower net revenues in the quarter ended December 31, 1995 than
in the corresponding quarter in 1994.
Inventories at December 31, 1995 were 37% higher at December 31, 1994. This was
due to lower product shipments relative to the prior year coupled with the
Company's increased inventory associated with the launch of its Aura laser
system. The Company also increased its inventory of products related to
photodynamic therapy which was approved by the Food and Drug Administration at
the end of December 1995 and for which the Company had expected earlier
approval.
In March 1996, the Company re-negotiated its agreement with a bank for a $5
million line of credit that provides for short-term borrowings based on certain
eligible accounts receivable. The line of credit, which expires in October 1996,
is secured by the assets of the Company and bears interest at the bank's prime
rate plus one percentage point. Provisions of this agreement prohibit the
payment of dividends and the repurchase of stock and require the Company to
maintain certain minimum working capital and net worth levels.
The Company currently has no material commitments for capital expenditures for
1996.
The Company anticipates that current cash resources, internally generated funds,
capital lease lines and available bank borrowings will be sufficient to meet
liquidity and capital needs at least through 1996.
-16-
<PAGE> 17
NEW ACCOUNTING PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. Adoption of SFAS 121 is not expected to have a material
impact on the Company's financial position or results of operations.
The Company accounts for its stock option plans and its employee stock purchase
plan in accordance with the provisions of the Accounting Principles Board's
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees". In 1995,
the Financial Accounting Standards Board released the Statement of Financial
Accounting Standards No. 123 (SFAS 123), " Accounting For Stock Based
Compensation". SFAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. The Company expects to continue
to account for its employee stock plans in accordance with the provisions of APB
25. Accordingly, SFAS 123 is not expected to have any material impact on the
Company's financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Laserscope at December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995, the
report of independent auditors thereon and Supplementary Data are included as a
separate section in this Annual Report on Form 10-K in Item 14, "Exhibits,
Financial Statement Schedules and reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-17-
<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to executive officers of Laserscope is set forth in
"Item 1 - Business - Executive Officers of the Company" in this Annual Report on
Form 10-K. Executive officers of the Company do not serve for set terms, but
serve at the pleasure of the Board of Directors subject to Management
Continuity Agreements. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS WITH
MANAGEMENT AND OTHERS." Members of the Company's Board of Directors serve
until the next annual meeting of the Company's shareholders following their
election to the Board, or until his or her successor has been elected and
qualified.
The names of the Company's directors, and certain information about them as of
December 31, 1995, are set forth below:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Benjamin L. Holmes............................... 61 Chairman of the Board and Director
Robert V. McCormick.............................. 51 President, Chief Executive Officer and
Director
E. Walter Lange.................................. 63 Director
Rodney Perkins, M.D.............................. 59 Director
Robert J. Pressley, Ph.D......................... 63 Director
</TABLE>
Benjamin L. Holmes has been a director of the Company since January 1995 and was
appointed Chairman of the Board of Directors in June 1992. Mr. Holmes was
General Manager of the Medical Products Group of Hewlett-Packard Company ("HP")
from 1983, and a Vice President of HP, from 1985 until his retirement in October
1995. 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, Commissioner of the
Massachusetts Universal Health Care Commission, and a member of the Board on
Health Care Service, Institute of Medicine, National Academy of Sciences. He is
also Past 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.
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 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 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.
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, a developer of
electronic products, and served as its President and Chief Executive Officer
-18-
<PAGE> 19
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.
-19-
<PAGE> 20
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
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
------
OPTION/SARS
ANNUAL COMPENSATION (SHARES) ALL OTHER
-------------------
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS (2)(3) (4)(5) COMPENSATION (6)
--------------------------- ---- --------- ------------ -------- ----------------
<S> <C> <C> <C> <C> <C>
Robert V. McCormick 1995 $248,060 -- 165,000 $2,004
President and Chief Executive Officer 1994 $236,250 -- -- $2,045
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 Resources 1994 $ 99,750 -- 15,000 $1,496
1993 $ 95,000 $9,500 35,000 $1,425
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 American 1994 $153,399(12) $78,160 50,000 $1,927
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
-19-
<PAGE> 21
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 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 option 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 on his
employment commencement of April 18, 1994 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.
(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.
-20-
<PAGE> 22
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
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-----------------
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK
GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR FOR
GRANTED IN FISCAL BASE PRICE EXPIRATION OPTION TERM (3)
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.
-21-
<PAGE> 23
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
SHARES UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT 12/31/95: AT 12/31/95:
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 System 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.
-22-
<PAGE> 24
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 non-employee 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 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.
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 AcuVasive (formerly Envision
Surgical Systems), a manufacturer of microvisualization catheter products
("AcuVasive"). The Company has a commercial relationship with AcuVasive, Mr.
McCormick is a member of its Board of Directors and Dr. Perkins and the Company
are each holders of AcuVasive's capital stock. See "Transactions with Management
and Others."
COMPENSATION OF DIRECTORS
Non-employee members of the Board of Directors receive a retainer of $2,000 per
quarter and $500 per meeting of the Board of Directors attended. In addition,
non-employee members of the Board of Directors receive options to purchase
shares of the Company's Common Stock pursuant to its 1990 Directors' Stock
Option Plan (the "1990 Directors' Option Plan") and 1995 Directors' Stock Option
Plan (the "1995 Directors' Option Plan").
The 1990 Directors' Option Plan, which has been terminated by the Board of
Directors with respect to the grant of any future options, provided for the
grant of nonstatutory options to nonemployee directors of the Company at an
exercise price not less than the fair market value of the Company's Common Stock
on the date of grant. Under the 1990 Directors' Option Plan, persons who were
non-employee directors as of October 18, 1991, as well as persons who have
joined the Board since that date through election by the shareholders of the
Company 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 and become exercisable over three
years with respect to each optionee who remains a director and expire five years
after the date of grant.
The 1995 Directors' Option Plan was approved by the Board of Directors in
November 1995 and also provides for the grant of nonstatutory options to
non-employee directors of the Company at an exercise price not less than the
fair market value of the Company's Common Stock on the date of grant. Under the
1995 Directors' Option Plan, persons who were non-employee directors as of
November 30, 1995, as well as persons who have joined the Board since that date
through election by the shareholders of the Company 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
and become exercisable over three years with respect to each optionee who
remains a director and expire five 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.
-23-
<PAGE> 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 March 20, 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 30, and (iv) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
-----------------------------
NUMBER(2) PERCENT OF TOTAL
--------- ----------------
<S> <C> <C>
Thomas B. Boyd.............................................................. 35,286 *
Benjamin L. Holmes.......................................................... 61,041 *
Bonnie Jones................................................................ 53,407 *
Dennis LaLumandiere......................................................... 34,946 *
E. Walter Lange............................................................. 51,250 *
Robert V. McCormick......................................................... 339,781 4.6%
Rodney Perkins, M.D. ....................................................... 177,717 2.5%
Robert J. Pressley, Ph.D. .................................................. 72,266 1.0%
Joseph F. Rondinone, Ph.D.(3)............................................... 1,121 *
Eli Wismer(4)............................................................... 17,378 *
All directors and executive officers as a group
(12 persons)............................................................... 850,410 11.0%
</TABLE>
- ------------------
* Less than 1%.
(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 March 15, 1996: Mr. Boyd -- 32,812;
Mr. Holmes -- 58,541; Ms. Jones -- 49,219; Mr. LaLumandiere -- 32,300; Mr.
Lange -- 51,250; Mr. McCormick -- 277,082; Dr. Perkins -- 111,250; Dr.
Pressley -- 51,250; Dr. Rondinone -- 0; Mr. Wismer -- 0.
(3) Dr. Rondinone terminated his employment with the Company in January 1996.
(4) Mr. Wismer terminated his employment with the Company in October 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Dr. Perkins was a founding shareholder of AcuVasive (formerly EnVision Surgical
Systems), a manufacturer of microvisualization catheter products ("AcuVasive"),
and is currently a member of its Board of Directors. The Company is also party
to a Product Development and Marketing Agreement with AcuVasive dated June 4,
1993 (the "Development Agreement") pursuant to which AcuVasive has agreed to
develop certain microvisualization catheter products for which Laserscope shall
have world-wide, exclusive, royalty-free marketing rights provided that
Laserscope purchases certain minimum volumes of such products from AcuVasive.
Should Laserscope fail to meet such minimums, its market rights under the
Development Agreement become non-exclusive. As of December 31, 1995, AcuVasive
had not completed and the Company did not expect that AcuVasive would complete
the development of such products. In addition, during 1995, the Company loaned
AcuVasive $100,000 pursuant to a promissory note. At December 31, 1995,
AcuVasive was in default of the payment terms of the note
<PAGE> 26
and the Company does not expect to be repaid at least within the next year due
to AcuVasive's current lack of financial resources. Robert McCormick is also a
director of AcuVasive, and Dr. Perkins and the Company are each holders of
AcuVasive's capital stock. From November 1994 to August 1995, Roy Fiebiger was
President and Chief Executive Officer of AcuVasive.
In March 1994, the Company entered into Management Continuity Agreements with
each of its executive officers, which were amended in December 1994. These
agreements provide (1) for continued employment or salary continuation at the
Company or its successor for at least twelve (12) months following any Change in
Control of the Company (as defined below), at the same salary and with the same
benefit program as were in effect prior to such Change in Control, (2) that such
executives may, with thirty (30) days written prior notice, resign but will be
entitled to receive his or her current salary and level of benefits for the
remainder of the twelve (12) months following the Change in Control if, in
connection with such Change in Control the executive's duties or
responsibilities are materially reduced or 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 Securities Exchange Act of 1934 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 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 merger 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 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 annual 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 annual interest rates of 5.79%. See "HUMAN RESOURCES
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION."
<TABLE>
<CAPTION>
INDEBTEDNESS
TO THE COMPANY
TOTAL SHARES AGGREGATE AS OF
PURCHASED PRICE 12/31/95 (1)(2)
--------- ----- ---------------
<S> <C> <C> <C>
PURCHASER
Rodney Perkins, M.D ................... 16,667 $75,001 $128,603
Robert J. Pressley, Ph.D .............. 16,666 $74,997 $128,788
</TABLE>
(1) The shares were sold to Drs. Perkins and Pressley in September
1989.
(2) In all cases, the amount shown was also the largest amount of
indebtedness owed to the Company at any time during 1995.
(3) Payment in the form of promissory notes in the above transactions
was approved in ach 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. The original notes were due and payable in June 1991. The
notes, which remained unpaid and continued to accrue interest, were
refinanced in November 1995 and mature in November 1998.
-25-
<PAGE> 27
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.
Non-employee 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.
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
(a) (1) Financial Statements:
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors. F-1
Consolidated Balance Sheets at December 31, 1995 and 1994. F-2
Consolidated Statements of - Years ended December 31, 1995, 1994 and 1993. F-3
Consolidated Statements of Cash Flows - Years ended December 31, 1995, 1994 and 1993. F-4
Consolidated Statements of Shareholders' Equity - Years ended December 31, 1995,
1994 and 1993. F-5
Notes to Consolidated Financial Statements. F-6 through F-14
(2) The following financial statement for the years ended December 31, 1995, 1994 and
1993 is submitted herewith:
<CAPTION>
Page
----
<S> <C>
Schedule II - Valuation and Qualifying Accounts S-1
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
(3) Exhibits included herein (numbered in accordance with Item 601 of
Regulation S-K):
</TABLE>
-26-
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.3 Seventh Amended and Restated Articles of Incorporation of
Registrant.(1)
3.4 By-laws of Registrant, as amended.(5)
4.1 Common Shares Rights Agreement dated as of October 31, 1991
between Laserscope and American Stock Transfer & Trust Company
as Rights Agent.(13)
10.1A 1984 Stock Option Plan, as amended, and forms of Incentive
Stock Option Agreement Nonstatutory Stock Option Agreement.(5)
10.1B 1994 Stock Option Plan and forms of Incentive Stock Option
Agreement Nonstatutory Stock Option Agreement.(10)
10.2 1984 Stock Purchase Plan and form of Common Stock Purchase
Agreement.(2)
10.3 1989 Employee Stock Purchase Plan and form of Subscription
Agreement.(5)
10.4 401(k) Plan.(2)
10.6 Net Lease Agreement between the Registrant and Realtec
Properties dated October 7, 1987. (2)
10.6A Amendment No. 1 dated January 18, 1990 to Net Lease Agreement
between the Registrant and Realtec Properties dated October 7,
1987.(2)
10.6B Net Lease Agreement between Registrant and Realtec Properties
dated December 14, 1989.(2)
10.6C Net Lease Agreement between Registrant and Realtec Properties
dated June 25, 1990.(4)
10.6D Amendment No. 2 dated November 10, 1992 to Net Lease Agreement
between Registrant and Realtec Properties dated October 7,
1987.(6)
10.6E Amendment No. 3 dated April 19, 1994 to Net Lease Agreement
between Registrant and Realtec Properties dated October 7,
1987.(8)
10.6F Amendment No. 1 dated April 19, 1994 to Net Lease Agreement
between Registrant and Realtec Properties dated June 25,
1990.(8)
10.6G Amendment No. 1 dated April 19, 1994 to Net Lease Agreement
between Registrant and Realtec Properties dated December 14,
1989.(10)
10.8 License Agreement between the Registrant and DuPont dated June
10, 1986.(2)
10.9 License Agreement between the Registrant and Patlex
Corporation dated February 24, 1989.(2)(3)
10.10 Form of Indemnification Agreement.(2)
</TABLE>
-27-
<PAGE> 29
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.11 Business Loan Agreement between the Registrant and Silicon
Valley Bank dated June 7, 1991 and Promissory Note, as
amended.(5)
10.11A Change in Terms Agreement and Commercial Security Agreement
between the Registrant and Silicon Valley Bank dated April 10,
1992 as amended on November 6, 1992.(6)
10.11B Modification to Loan Agreement between the Registrant and
Silicon Valley Bank dated April 15, 1993.(7)
10.11C Letter Agreement between the Registrant and Silicon Valley
Bank dated May 12, 1993.(7)
10.11D Modification to Loan Agreement between the Registrant and
Silicon Valley Bank dated April 15, 1994.(8)
10.11E Letter Agreement between the Registrant and Silicon Valley
Bank dated July 29, 1994.(8)
10.11F Covenant Waiver letter form Silicon Valley Bank dated August
1, 1994.(8)
10.11G Modification to Loan Agreement between the Registrant and
Silicon Valley Bank dated July 15, 1994.(9)
10.11H Modification to Loan Agreement between the Registrant and
Silicon Valley Bank dated August 1, 1995.(11)
10.11I Modification to Loan Agreement between the Registrant and
Silicon Valley Bank dated September 22, 1995.(11)
10.11J Modification to Loan Agreement between the Registrant and
Silicon Valley Bank dated October 1, 1995.(12)
10.11K Modification to Loan Agreement between the Registrant and
Silicon Valley Bank dated March 18, 1996.(12)
10.11L Amended Loan Agreement between the Registrant and Silicon
Valley Bank dated March 18, 1996.(12)
10.12 License Agreement between the Registrant and Hughes Aircraft
Company effective April 1, 1990.(4)
10.13 1990 Directors' Stock Option Plan and form of Option
Agreement.(5)
10.14 Form of Laserscope Management Continuity Agreement, as
amended.(10)
10.15 Common Stock Purchase Agreement between the Registrant and
EnVision Surgical Systems dated June 4, 1993.(7)
10.16 Preferred Stock Purchase Agreement between the Registrant and
EnVision Surgical Systems dated June 4, 1993.(7)
10.17 Product Development and Marketing Agreement between the
Registrant and EnVision Surgical Systems dated June 4,
1993.(7)
</TABLE>
-28-
<PAGE> 30
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.18 1995 Directors' Stock Option Plan and form of Option
Agreement.(12)
22.1 Subsidiaries of Registrant.(7)
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page
30).(12)
</TABLE>
(b) Reports on Form 8-K: None.
- -------------------------------------------------------------------------------
(1) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits," of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989.
(2) Incorporated by reference to identically numbered exhibits filed in
response to Item 16(a), "Exhibits," of the Registrant's Registration
Statement on Form S-1 and Amendment No. 1 and Amendment No. 2 thereto
(File No. 33-31689), which became effective on November 29, 1989.
(3) Confidential treatment granted by order effective November 28, 1989.
(4) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990.
(5) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991.
(6) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992.
(7) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
(8) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1994.
(9) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 1994.
(10) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
(11) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 1995.
(12) Filed herewith.
(13) Incorporated by reference to Exhibit 1 of the Registrant's Registration
Statement on Form 8-A filed November 15, 1991.
-29-
<PAGE> 31
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-38831, 33-53052) pertaining to the 1990 Director's Stock Option
Plan and the Registration Statements (Form S-8 No. 33-33692, 33-53158)
pertaining to the 1989 Employee Stock Purchase Plan and 1984 Stock Option Plan
and the Registration Statement (Form S-8 No. 33-40506) pertaining to the 1984
Stock Option Plan and the Registration Statements (Form S-8 No. 33-82524,
33-63603) pertaining to the 1994 Stock Option Plan of Laserscope of our report
dated January 26, 1996, with respect to the consolidated financial statements
and schedule of Laserscope included in the Annual Report (Form 10-K/A) for the
year ended December 31, 1995.
Ernst & Young LLP
San Jose, California
July 22, 1996
-30-
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LASERSCOPE
Date: July 22, 1996 By: /s/ Robert V. McCormick*
------------------------
Robert V. McCormick
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Benjamin L. Holmes* Chairman of the Board of July 22, 1996
- ------------------------------------
(Benjamin L. Holmes) Directors
/s/ Robert V. McCormick* President, Chief Executive July 22, 1996
- ------------------------------------
(Robert V. McCormick) Officer and Director
/s/ Dennis LaLumandiere* Vice President of Finance July 22, 1996
- ------------------------------------
(Dennis LaLumandiere) (Principal Financial and
Accounting Officer)
/s/ E. Walter Lange* Director July 22, 1996
- ------------------------------------
(E. Walter Lange)
/s/ Rodney Perkins* Director July 22, 1996
- ------------------------------------
(Rodney Perkins, M.D.)
/s/ Robert J. Pressley* Director July 22, 1996
- ------------------------------------
(Robert J. Pressley, Ph.D.)
*By: /s/ Dennis LaLumandiere
---------------------------------
(Dennis LaLumandiere
Attorney-in-fact)
</TABLE>
-31-
<PAGE> 33
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders Laserscope
We have audited the accompanying consolidated balance sheets of Laserscope as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Laserscope at December 31, 1995 and 1994 , and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
San Jose, California
January 26, 1996
F-1
<PAGE> 34
LASERSCOPE
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,278 $ 4,604
Short-term investments -- 1,998
Accounts receivable, net 5,543 8,066
Inventories 10,292 7,512
Other current assets 692 1,038
-------- --------
Total current assets 18,805 23,218
Property and equipment, net 2,663 3,320
Investment in NWL 1,681 --
Other assets 433 783
-------- --------
Total assets $ 23,582 $ 27,321
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,455 $ 1,292
Accrued compensation 1,156 1,136
Warranty 476 677
Deferred revenue 2,008 2,325
Other accrued liabilities 1,132 950
Current obligations under capital leases 14 13
-------- --------
Total current liabilities 6,241 6,393
Obligations under capital leases 15 27
Commitments and contingencies
Shareholders' equity:
Common stock 7,060,634 shares outstanding (6,983,844 in 1994) 37,248 37,074
Accumulated deficit (19,296) (15,744)
Translation adjustments (251) (180)
Notes receivable from shareholders (375) (249)
-------- --------
Total shareholders' equity 17,326 20,901
-------- --------
Total liabilities and shareholders' equity $ 23,582 $ 27,321
======== ========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE> 35
LASERSCOPE
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
(thousands, except per share amounts) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenues:
Products $ 24,974 $ 30,671 $ 31,946
Services 5,159 5,649 5,885
-------- -------- --------
30,133 36,320 37,831
Cost of Sales:
Products 11,526 13,715 13,115
Services 3,266 3,203 2,872
-------- -------- --------
14,792 16,918 15,987
Gross margin 15,341 19,402 21,844
Operating expenses:
Research and development 3,838 3,589 4,044
Selling, general and administrative 15,333 16,994 17,477
-------- -------- --------
19,171 20,583 21,521
Operating income (loss) (3,830) (1,181) 323
Interest and other income, net 278 250 331
-------- -------- --------
Income (loss) before income taxes (3,552) (931) 654
Provision for income taxes -- -- 65
-------- -------- --------
Net income (loss) $ (3,552) $ (931) $ 589
======== ======== ========
Net income (loss) per share $ (0.51) $ (0.13) $ 0.09
======== ======== ========
Shares used in per share calculations 6,999 6,924 6,834
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 36
LASERSCOPE
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(3,552) $ (931) $ 589
Adjustments to reconcile net income (loss) to
cash provided (used) by operating activities:
Depreciation and amortization 1,419 1,623 1,714
Increase (decrease) from changes in:
Accounts receivable 2,523 (460) (1,575)
Inventories (2,780) 853 487
Other current assets 346 20 98
Other assets 350 86 (399)
Accounts payable 163 (485) (860)
Accrued compensation 20 (312) (143)
Warranty (201) (166) (75)
Deferred revenue (317) (151) 44
Other accrued liabilities 182 (432) (723)
------- ------- -------
Cash used by operating activities (1,847) (355) (84)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of held-to-maturity investments -- (3,001) (3,056)
Maturity of held-to-maturity investments 1,998 3,030 8,174
Capital expenditures (762) (1,684) (1,383)
Funding of agreement with NWL (1,681) -- --
Other (71) 11 (47)
------- ------- -------
Cash provided (used) by investing activities (516) (1,644) 3,688
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on obligations under capital leases (11) (101) (236)
Proceeds from the sale of common stock under stock
plans, net of repurchases and shareholder notes receivable 48 587 510
------- ------- -------
Cash provided by financing activities 37 486 274
------- ------- -------
Increase (decrease) in cash and cash equivalents (2,326) (1,513) 3,119
Cash and cash equivalents, beginning of year 4,604 6,117 2,998
------- ------- -------
Cash and cash equivalents, end of year $ 2,278 $ 4,604 $ 6,117
======= ======= =======
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 37
LASERSCOPE
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes Total
Accumulated Translation Receivable from Shareholders'
(dollars in thousands) Common Stock Deficit Adjustments Shareholders Equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $36,094 $(15,402) $(144) $(366) $20,182
Issuance of 104,924 shares
under stock plans, net
of repayment of notes 399 111 510
Translation adjustments (47) (47)
Net Income 589 589
------- -------- ----- ----- -------
Balance at December 31, 1993 36,493 (14,813) (191) (255) 21,234
Issuance of 140,665 shares
under stock plans, net
of repayment of notes 581 6 587
Translation adjustments 11 11
Net loss (931) (931)
------- -------- ----- ----- -------
Balance at December 31, 1994 37,074 (15,744) (180) (249) 20,901
Issuance of 76,790 shares
under stock plans, net
of repayment and
refinancing of notes 174 (126) 48
Translation adjustments (71) (71)
Net loss (3,552) (3,552)
------- -------- ----- ----- -------
Balance at December 31, 1995 $37,248 $(19,296) $(251) $(375) $17,326
======= ======== ===== ===== =======
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 38
LASERSCOPE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company operates in one business segment, the medical systems business. The
Company develops, manufactures, markets and supports surgical lasers and other
surgical systems, related instrumentation and disposable supplies. The Company
markets its products and services in over twenty countries worldwide to
hospitals, outpatient surgery centers and physicians.
Basis of presentation
The accompanying consolidated financial statements include the Company and its
wholly and majority-owned subsidiaries. All intercompany transactions and
balances have been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash equivalents and short-term investments
The Company invests its excess cash in high-quality debt instruments. The
Company considers cash equivalents to be short-term financial instruments that
are readily convertible to cash, subject to no more than insignificant interest
rate risk and that have original maturities of three months or less. Short-term
investments consist of short-term financial instruments with less than one year
to maturity.
At December 31, 1994 and December 31, 1995 the Company's cash equivalents were
in the form of institutional money market accounts and totaled $3.0 million and
$1.1 million, respectively.
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standard No. 115 (FAS 115), "Accounting for Certain Investments in Debt and
Equity Securities". Under FAS 115, management determines the appropriate
classification of debt securities at the time of purchase as held-to-maturity,
trading, or available-for-sale, and reevaluates such designation as of each
balance sheet date. At December 31, 1994, all debt securities were designated as
held-to-maturity as management believed it had the positive intent and ability
to hold the securities until maturity. Held-to-maturity securities were stated
at amortized cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization, as well as any interest on the
securities, were included in interest income. At December 31, 1994 the Company's
investment in held to maturity securities stated at amortized cost, which
approximates their fair value, consisted of corporate debt securities of $2.03
million. At December 31, 1995 the Company had no investments in debt securities.
Revenue recognition and product warranty
The Company generally recognizes revenue related to the sale of systems,
instrumentation and disposables at the time of shipment and provides currently
for the estimated cost to repair or replace products under warranty provisions
in effect at the time of the sale. Service revenue is recognized as the services
are provided or pro rata over the period of the applicable contract.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization.
Equipment is depreciated using principally accelerated methods over estimated
useful lives of three to seven years. Equipment under capital leases is
amortized over the period of the lease. Leasehold improvements are amortized
using the straight-line method over the remaining term of the lease.
Inventories
Inventories are stated at the lower of cost (computed on a first-in, first-out
basis) or market.
F-6
<PAGE> 39
Net income (loss) per share
Net income (loss) per share is based upon the weighted average number of shares
of common stock outstanding and dilutive common equivalent shares from stock
options (using the treasury stock method).
Foreign currency translation
The functional currencies of the Company's foreign subsidiaries are their local
currencies. Accordingly, all assets and liabilities related to their operations
are translated at the current exchange rates at the end of each period. The
resulting cumulative translation adjustments are recorded directly to the
translation adjustments account included in shareholders' equity. Revenues and
expenses are translated at average exchange rates in effect during the period.
New Accounting Pronouncements
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. Adoption of SFAS 121 is not expected to have a material
impact on the Company's financial position or results of operations.
The Company accounts for its stock option plans and its employee stock purchase
plan in accordance with the provisions of the Accounting principles Board's
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees". In 1995,
the Financial Accounting Standards Board released the Statement of Financial
Accounting Standards No. 123 (SFAS 123), " Accounting For Stock Based
Compensation". SFAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. The Company expects to continue
to account for its employee stock plans in accordance with provisions of APB 25.
Accordingly, SFAS 123 is not expected to have any material impact on the
Company's financial position or results of operations.
2. ACCOUNTS RECEIVABLE
Accounts receivable at December 31 consist of:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Trade accounts receivable $6,033 $8,606
Less: allowance for doubtful accounts (490) (540)
------ ------
$5,543 $8,066
====== ======
</TABLE>
3. INVENTORIES
Inventories at December 31 consist of:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Sub-assemblies and purchased parts $ 7,201 $4,996
Finished goods 3,091 2,516
------- ------
$10,292 $7,512
======= ======
</TABLE>
F-7
<PAGE> 40
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consists of:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $ 4,562 $ 4,189
Office equipment and furniture 6,917 6,535
Leasehold improvements 1,781 1,776
-------- --------
13,260 12,500
Less accumulated depreciation and amortization (10,597) (9,180)
-------- --------
$ 2,663 $ 3,320
======== ========
</TABLE>
5. INVESTMENT IN NWL
In March 1995, the Company entered into an agreement with NWL Laser-Technologie
("NWL") whereby the Company paid NWL approximately $1.6 million in exchange for
a cross-distribution and development agreement, a current minority equity
position in NWL and an option to purchase all of the ownership interests in NWL.
These assets are carried at cost. If the Company does not exercise its option to
purchase NWL by June 1997, there will be no reimbursement of the Company's
investment and the Company's equity position will be relinquished. If the
Company exercises its option, the remaining purchase price will be paid over
three and one half years from the exercise date. As of December 31, 1995 the
Company believes it will exercise its purchase option.
6. LEASE OBLIGATIONS
The Company has not entered into any significant lease agreements that have been
accounted for as capital leases during the last three years. The Company's
capital lease obligations at December 31, 1995 and 1994 were immaterial. Leased
equipment and accumulated amortization related to assets under capital leases at
December 31 were:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Leased equipment $1,545 $1,545
Accumulated amortization 1,518 1,503
</TABLE>
The Company leases its facilities and certain equipment under noncancelable
operating leases. Rental expense under these leases amounted to approximately
$966,000, $1,070,000 and $960,000 in each of the three years ended December 31,
1995, 1994 and 1993, respectively.
Future minimum lease payments under operating leases were as follows at December
31, 1994:
<TABLE>
<CAPTION>
(in thousands)
- --------------------------------------------------------------------------------
<S> <C>
1996 $ 918
1997 839
1998 817
1999 777
2000 777
2001 130
------
$4,258
======
</TABLE>
7. SHAREHOLDERS' EQUITY
The Company has 25,000,000 shares of no par value common stock authorized. In
addition, the Company has authorized 5,000,000 shares of undesignated preferred
stock with rights, preferences and privileges to be determined by the Company's
Board of Directors.
F-8
<PAGE> 41
1994 and 1984 Stock Option Plans
During 1994 and 1984, the Company adopted stock option plans under which the
Board of Directors may grant incentive stock options to purchase shares of
common stock to employees of the Company at a price not less than the fair value
of the shares as of the date of grant. The Board of Directors may also grant
nonstatutory stock options to employees and consultants, including directors who
serve as employees or consultants, at not less than 85% of the fair market value
of the shares as of the date of grant. All options vest and become exercisable
over periods of up to five years and expire five to ten years after the date of
grant.
The 1984 Stock Option Plan expired by its terms with respect to any future
option grants effective in August 1994. At December 31, 1995 there were
1,032,690 options outstanding and 799,689 options exercisable under this plan
with exercise prices ranging from $3.50 to $9.25.
In 1995, the Company allowed non officer employees to cancel outstanding options
that had been granted under the 1984 plan but that had not yet become
exercisable and replace them with new nonstatutory grants outside of the 1984
plan for a like number with the same exercisability restrictions at the fair
market value of the common stock at the date of grant. Employees elected to
cancel and receive new grants to purchase an aggregate of 175,453 shares at an
exercise price of $2.00. At December 31, 1995 none of these options had been
exercised.
The Company has reserved 725,000 shares of common stock for issuance pursuant to
its 1994 stock option plan of which 150,000 shares were subject to shareholder
approval as of December 31, 1995.
In 1995, the Company allowed employees to cancel outstanding options that had
been granted under the 1994 plan but that had not yet become exercisable and
replace them with new grants for a like number with the same exercisability
restrictions at the fair market value of the common stock at the date of grant.
Employees elected to cancel and receive new grants to purchase an aggregate of
455,384 shares at an exercise price of $2.00. These options are included in the
cancellations and grants in 1995 in the following table which summarizes plan
activity for the year ended December 31, 1995.
<TABLE>
<CAPTION>
Number of Shares
--------------------------
Available Options Price Per
For Grant Outstanding Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1994 307,000 18,000 $4.13 - $4.75
Additional shares authorized 400,000 --
Granted (1,191,384) 1,191,384 $2.00 - $4.48
Exercised -- --
Canceled 504,799 (504,799) $3.63 - $4.75
---------- ---------
Balance, December 31, 1995 20,415 704,585 $2.00 - $4.75
========== =========
</TABLE>
At December 31, 1995, options were exercisable for approximately 75,000 shares
at $2.00 to $4.75 per share.
1990 and 1995 Directors' Stock Option Plans
The Company has reserved 600,000 shares of its common stock for issuance
pursuant to its 1990 and 1995 Directors' Stock Option Plans in aggregate,
300,000 of which were subject to shareholder approval as of December 31, 1995.
Under these plans, non-employee directors of the Company have been granted
options to purchase 90,000 shares (45,000 shares pursuant to each plan) of the
Company's common stock exercisable at the fair market value of such shares on
the respective grant dates. Because the 1990 Directors' Stock Option Plan was
terminated in 1995 with respect to any additional grants, new non employee
directors receive only a grant under the 1995 Directors' Stock Option Plan.
Options issued pursuant to these plans vest and become exercisable over three
years from the respective original date of issuance with respect to each
optionee who remains a director and expire five years after the date of grant.
The following table summarizes activity in the plans during the year ended
December 31, 1995:
F-9
<PAGE> 42
<TABLE>
<CAPTION>
Available Options Price Per
For Grant Outstanding Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1994 30,000 270,000 $7.13 - $8.13
Additional shares authorized 300,000 --
Granted (180,000) 180,000 $2.00
Exercised -- --
Canceled 90,000 (90,000) $7.13 - $8.13
Expired (120,000) --
-------- -------
Balance, December 31, 1995 120,000 360,000 $2.00 - $8.00
======== =======
</TABLE>
At December 31, 1995, options were exercisable for 185,000 shares at $2.00 to
$8.00 per share.
1989 Employee Stock Purchase Plan
The Company has reserved 450,000 shares of common stock, (200,000 of which were
subject to shareholder approval as of December 31, 1995) for issuance pursuant
to its 1989 Employee Stock Purchase Plan. Under this plan, qualified employees,
excluding non-employee directors, may purchase up to a specified maximum amount
of the Company's common stock through payroll deduction at 85% of its fair
market value. At December 31, 1995, approximately 294,000 shares had been
purchased under this plan.
1991 Shareholder Rights Plan
In November 1991, the Company adopted a shareholder rights plan and distributed
a dividend of one right to purchase one share of common stock (a "Right") for
each outstanding share of common stock of the Company. The Rights become
exercisable in certain limited circumstances involving a potential business
combination transaction of the Company and are initially exercisable at a price
of $34 per share. Following certain other events after the Rights have become
exercisable, each Right entitles its holder to purchase for $34 an amount of
common stock of the Company, or in certain circumstances, securities of the
acquirer, having a then current market value of twice the exercise price of the
Right. The Rights are redeemable at the Company's option at $0.01 per Right
before they become exercisable. Until a Right is exercised, the holder of a
Right, as such, has no rights as a shareholder of the Company. The Rights expire
on November 20, 2001.
8. EMPLOYEE SAVINGS AND INVESTMENT PLAN
In October 1989, the Company adopted a 401(k) savings and investment plan which
covers all employees. The Company's contributions to the plan have been 50%
matching of employee contributions up to 3% of each employee's base compensation
and were approximately $109,000, $118,000 and $101,000 in the years ended
December 31, 1995, 1994 and 1993, respectively.
9. INCOME TAXES
Significant components of the provision for income taxes were as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current federal taxes $ -- $ -- $15
Current state taxes -- -- 50
-------- -------- ---
Provision for income taxes $ -- $ -- $65
======== ======== ===
</TABLE>
Pretax losses from foreign operations were $1,185,000, $1,100,000 and $900,000
respectively in 1995, 1994 and 1993.
F-10
<PAGE> 43
Income taxes differ from the amount computed by applying the statutory federal
income tax rate of 34% to income (loss) before taxes. The reasons for the
differences and the tax effect of each are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected tax $(1,208) $ (317) $ 200
Operating loss with no carryback benefit 1,208 391 --
State taxes, net of federal benefit -- -- 33
Benefit of net operating loss carryforward -- (74) (168)
------- ------- -------
Provision for income taxes $ -- $ -- $ 65
======= ======= =======
</TABLE>
The components of the deferred tax asset consist of the following at December
31, (in thousands):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carryforwards $ 4,000 $ 2,763
General business credit carryforwards 1,000 816
Inventory reserves and adjustments 1,400 1,354
Other accruals and reserves not
currently deductible for tax purposes 1,500 1,814
------- -------
7,900 6,817
Valuation allowance (7,900) (6,817)
------- -------
Net deferred tax asset $ -- $ --
======= =======
</TABLE>
For federal tax purposes, the Company has net operating loss, research and
development credit and minimum tax credit carryforwards of $9,000,000, $350,000,
and $300,000, respectively, expiring in 1997 through 2010. The Company has net
operating loss and research and development credit carryforwards of $1,000,000
and $500,000, respectively, for state tax reporting purposes. The state net
operating loss carryforward expires in the year 2000. In addition, the Company
has foreign tax loss carryforwards of approximately $3,600,000 which begin to
expire in 1998.
10. FINANCIAL INSTRUMENTS WITH MARKET RISK AND CONCENTRATIONS OF CREDIT RISK
The Company's trade receivables are made up of amounts due from its health care
industry customers, primarily in the United States. Any concentration of credit
risk is substantially alleviated by the Company's credit evaluation and
collection practices and the relative lack of concentration as well as
geographical dispersion of customer accounts comprising its accounts receivable.
Bad debt expense has been insignificant.
The Company's export sales represent sales to unaffiliated customers and are
displayed in the following table in approximate percentages of net revenues.
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
EUROPE 15% 10% 7%
MIDDLE EAST 1% 1% 1%
PACIFIC RIM 7% 6% 5%
-- -- --
TOTAL 23% 17% 13%
</TABLE>
The Company also has an Investment Policy approved by its Board of Directors
related to its short-term cash investment practices. That policy limits the
amount of credit exposure to any one financial institution and restricts
investments to certain types of financial instruments based on specified credit
criteria.
11. CONTINGENCIES
The Company is a party to a number of legal proceedings arising in the ordinary
course of its business. These actions may include product liability and
employee-related issues. While it is not feasible to predict or determine the
outcome of the actions brought against it, the Company believes that the
ultimate resolution of these claims will not ultimately have a material adverse
effect on its financial position or results of operations.
F-11
<PAGE> 44
12. SUBSEQUENT EVENTS (UNAUDITED)
In March 1996, the Company re-negotiated its agreement with a bank for a $5
million line of credit that provides for short-term borrowings based on certain
eligible accounts receivable. The line of credit, which expires in October 1996,
is secured by the assets of the Company and bears interest at the bank's prime
rate plus one percentage point. Provisions of this agreement prohibit the
payment of dividends and the repurchase of stock and require the Company to
maintain certain minimum working capital and net worth levels.
F-12
<PAGE> 45
SCHEDULE I
LASERSCOPE
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning End
Descriptions of Period Additions Deductions of Period
- ------------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts receivable:
Year ended December 31, 1993 $540 $ -- $ -- $540
==== ======= ======= ====
Year ended December 31, 1994 $540 $ -- $ -- $540
==== ======= ======= ====
Year ended December 31, 1995 $540 $ 200 $ 250 $490
==== ======= ======= ====
</TABLE>
F-13
<PAGE> 46
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
10.11J Modification to Loan Agreement between the Registrant and Silicon
Valley Bank dated October 1, 1995.
10.11K Modification to Loan Agreement between the Registrant and Silicon
Valley Bank dated March 18, 1996.
10.11L Loan Agreement between the Registrant and Silicon Valley Bank
dated March 18, 1996.
10.18 1995 Directors' Stock Option Plan and form of Option agreement.
23.1 Consent of Ernst & Young, Independent Auditors (see page 30).
S-1
<PAGE> 1
EXHIBIT 10.11J
<PAGE> 2
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of October 1, 1995,
by and between Laserscope (the "Borrower") whose address is 3052 Orchard Drive,
San Jose, CA 95134, and Silicon Valley Bank (the "Lender") whose address is 3003
Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which
may be owing by Borrower to Lender, Borrower is indebted to Lender pursuant to,
among other documents, a Promissory Note, dated June 7, 1991, in the original
principal amount of Three Million and 00/100 Dollars ($3,000,000.00) (the
"Note"). The Note has been modified pursuant to Change in Terms Agreements dated
April 10, 1992, pursuant to which, among other things, the principal amount of
the Note was increased to Five Million and 00/100 Dollars ($5,000,000.00), and
April 15, 1993, and certain Loan Modification Agreements dated April 15, 1994,
July 15, 1994, and August 1, 1995. The Note, together with other promissory
notes from Borrower to Lender, is governed by the terms of a Business Loan
Agreement, dated June 7, 1991, between Borrower and Lender, as such agreement
may be amended from time to time (the "Loan Agreement").
Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the "Indebtedness."
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents."
2. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to the Loan Agreement.
1. Lender hereby waives Borrower's existing default under the Loan
Agreement by virtue of Borrower's failure to comply with the Tangible
Net Worth, Quick Ratio and Profitability Covenants as of quarter ending
September 30, 1995. Lender's waiver of Borrower's compliance of these
covenants shall apply only to the foregoing period
Lender's agreement to waive the above-described default (1) in no way
shall be deemed an agreement by the Lender to waive Borrower's
compliance with the above-described covenants as of all other dates and
(2) shall not limit or impair the Lender's right to demand strict
performance of these covenants as of all other dates and (3) shall not
limit or impair the Lender's right to demand strict performance of all
other covenants as of any date.
3. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
4. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor
signing below) agrees that, as of this date, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
<PAGE> 3
5. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness,
Lender is relying upon Borrower's representations, warranties, and agreements,
as set forth in the Existing Loan Documents. Except as expressly modified
pursuant to this Loan Modification Agreement, the terms of the Existing Loan
Documents remain unchanged and in full force and effect. Lender's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Lender to make any future modifications to
the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Lender and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Lender in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement. The
terms of this Paragraph apply not only to this Loan Modification Agreement, but
also to all subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER:
LENDER:
LASERSCOPE, INC.
SILICON VALLEY BANK
By: /s/ Thomas B. Boyd By: /s/ Mary T. Toomey
--------------------------- ------------------
Name: Thomas B. Boyd Name: Mary T. Toomey
--------------------------- ------------------
Title: Sr. VP Operations & Finance Title: Vice President
--------------------------- ------------------
<PAGE> 1
EXHIBIT 10.11K
<PAGE> 2
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of March 18, 1996,
by and between Laserscope (the "Borrower") whose address is 3052 Orchard Drive,
San Jose, CA 95134, and Silicon Valley Bank (the "Lender") whose address is 3003
Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which
may be owing by Borrower to Lender, Borrower is indebted to Lender pursuant to,
among other documents, an Amended and Restated Promissory Note, dated June 7,
1991, in the original principal amount of Three Million and 00/100 Dollars
($3,000,000.00) (the "Note"). The Note has been modified pursuant to Change in
Terms Agreements dated August 27, 1991, April 10, 1992, pursuant to which, among
other things, the principal amount of the Note was increased to Five Million and
00/100 Dollars ($5,000,000.00), and April 15, 1993, and those certain Loan
Modification Agreements dated April 15, 1994, July 15, 1994, and August 1, 1995.
The Note, together with other promissory notes from Borrower to Lender, is
governed by the terms of an Amended and Restated Business Loan Agreement, dated
June 7, 1991, between Borrower and Lender, as such agreement may be amended from
time to time (the "Loan Agreement").
Concurrently herewith, Borrower and Lender are entering into, among other
documents, an Amended and Restated Promissory Note and an Amended and Restated
Business Loan Agreement, restructuring the indebtedness, ("the Amended
Documents").
Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the "Indebtedness."
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Concurrently herewith,
repayment of the Indebtedness, together with other promissory notes from
Borrower to Lender, shall be secured by a Commercial Security Agreement, Dated
March 18, 1996.
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to the Loan Agreement.
1. Lender hereby waives Borrower's existing default under the Loan
Agreement by virtue of Borrower's failure to comply with the
profitability covenant as of quarter ended December 31,1995 and year
ended December 31, 1995. Lender's waiver of Borrower's compliance of
this covenant shall apply only to the foregoing period. Accordingly for
the quarter ending March 31, 1996, Borrower shall be in compliance with
the covenant as set forth in the Amended Documents.
Lender's agreement to waive the above-described default (1) in no way
shall be deemed an agreement by the Lender to waive Borrower's
compliance with the above-described covenants as of all other dates and
(2) shall not limit or impair the Lender's right to demand strict
performance of these covenants as of all other dates and (3) shall not
limit or impair the Lender's right to demand strict performance of all
other covenants as of any date.
<PAGE> 3
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor
signing below) agrees that, as of this date, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness,
Lender is relying upon Borrower's representations, warranties, and agreements,
as set forth in the Existing Loan Documents. Except as expressly modified
pursuant to this Loan Modification Agreement, the terms of the Existing Loan
Documents remain unchanged and in full force and effect. Lender's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Lender to make any future modifications to
the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Lender and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Lender in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement. The
terms of this Paragraph apply not only to this Loan Modification Agreement, but
also to all subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER:
LENDER:
LASERSCOPE, INC.
SILICON VALLEY BANK
By: /s/ Thomas B. Boyd By: /s/ Mary T. Toomey
--------------------------- ------------------
Name: Thomas B. Boyd Name: Mary T. Toomey
--------------------------- ------------------
Title: Sr. VP Operations & Finance Title: Vice President
--------------------------- ------------------
<PAGE> 1
EXHIBIT 10.11L
<PAGE> 2
AMENDED AND RESTATED BUSINESS LOAN AGREEMENT
THIS AMENDED AND RESTATED BUSINESS LOAN AGREEMENT BETWEEN LASERSCOPE
("BORROWER") AND SILICON VALLEY BANK ("LENDER") IS MADE AND EXECUTED ON THE
FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS
FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER
FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT
OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (A) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B)
THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE
SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRIMINATION; AND (C) ALL SUCH LOANS
SHALL BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS
AGREEMENT.
TERM. This Agreement shall be effective as of March 18, 1996, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement means this Amended and Restated Business
Loan Agreement, as this Amended and Restated Business Loan Agreement as it
amends and restates that certain Business Loan Agreement dated June 7, 1991, may
be amended or modified from time to time, together with all exhibits and
schedules attached to this Amended and Restated Business Loan Agreement from
time to time.
BORROWER. The word "Borrower" means Laserscope. The word "Borrower"
also includes, as applicable, all subsidiaries and affiliates of Borrower as
provided below in the paragraph titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and amortization.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether granted
now or in the future, and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien, charge,
lien or title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether created by
law, contract, or otherwise.
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
<PAGE> 3
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and liabilities
of Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or hereafter
existing, voluntary or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a guarantor, surety,
or otherwise; whether recovery upon such Indebtedness may be or hereafter may
become barred by any statute of limitations; and whether such Indebtedness may
be or hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means Silicon Valley Bank, its successors and
assigns.
LINE OF CREDIT. The words "Line of Credit" mean and refer to that
certain Amended and Restated Promissory Note of even date herewith.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand
plus Borrower's receivables.
LOAN. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced, including
without limitation those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement from time to
time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note or
notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender; (b) liens
for taxes, assessments, or similar charges either not yet due or being contested
in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers,
or other like liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (d) purchase money liens or purchase
money security interests upon or in any property acquired or held by Borrower in
the ordinary course of business to secure indebtedness outstanding on the date
of this Agreement or permitted to be incurred under the paragraph of this
Agreement titled "Indebtedness and Liens"; (e) liens and security interests
which, as of the date of this Agreement, have been disclosed to and approved by
the Lender in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
<PAGE> 4
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form of a
lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust receipt,
lien or title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether created by
law, contract, or otherwise.
SARA. The word "Sara" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean Indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
Indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's
total assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items, but
including leaseholds and leasehold improvements) less total Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the
initial Loan Advance and each subsequent Loan Advance under this Agreement shall
be subject to the fulfillment to Lender's satisfaction of all of the conditions
set forth in this Agreement and in the Related Documents.
ACCOUNTS RECEIVABLE AUDIT. Lender shall perform an audit of Borrower's
accounts receivable, with results satisfactory to Lender, prior to any advance
under the Line of Credit. Borrower's deposit account shall be debited for the
audit expense and notification shall be mailed to Borrower.
NOTIFICATION. Borrower shall provide to Lender, not later than
forty-five (45) days prior to any advance under the Note, written notification
of Borrower's intent to make such advance. Upon any Advance request, the Line of
Credit shall be transferred to Commercial Finance Department.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence of
insurance as required below; and (e) any other documents required under this
Agreement or by Lender or its counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
<PAGE> 5
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender, as of the date of this Agreement, as of the date of each disbursement of
Loan proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of California
and is validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its properties
and to transact the businesses in which it is presently engaged or presently
proposes to engage. Borrower also is duly qualified as a foreign corporation and
is in good standing in all states in which the failure to so qualify would have
a material adverse effect on its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all necessary
action by Borrower; do not require the consent or approval of any other person,
regulatory authority or governmental body; and do not conflict with, result in a
violation of, or constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other instrument
binding upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of the
date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered will
constitute, legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not presently
due and payable, Borrower owns and has good title to all of Borrower's
properties free and clear of all Security Interests, and has not executed any
security documents or financing statements relating to such properties. All of
Borrower's properties are titled in Borrower's legal name, and Borrower has not
used, or filed a financing statement under, any other name for at least the last
five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA,"
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq.,
Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety
Code, Section 25100, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing. Except as disclosed to
and acknowledged by Lender in writing, Borrower represents and warrants that:
(a) During the period of Borrower's ownership of the properties, there has been
no use, generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on, under,
about or from any of the properties. (b) Borrower has no knowledge of, or reason
to believe that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste or
substance on, under, about or from the properties by any prior owners or
occupants of any of the properties, or (ii) any actual or threatened litigation
or claims of
<PAGE> 6
any kind by any person relating to such matters. (c) Neither Borrower nor any
tenant, contractor, agent or other authorized user of any of the properties
shall use, generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, about or from any of the properties; and
any such activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without limitation
those laws, regulations and ordinances described above. Borrower authorizes
Lender and its agents to enter upon the properties to make such inspections and
tests as Lender may deem appropriate to determine compliance of the properties
with this section of the Agreement. Any inspections or tests made by Lender
shall be at Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender to
Borrower or to any other person. The representations and warranties contained
herein are based on Borrower's due diligence in investigating the properties for
hazardous waste and hazardous substances. Borrower hereby (a) releases and
waives any future claims against Lender for indemnity or contribution in the
event Borrower becomes liable for cleanup or other costs under any such laws,
and (b) agrees to indemnify and hold harmless Lender against any and all claims,
losses, liabilities, damages, penalties, and expenses which Lender may directly
or indirectly sustain or suffer resulting from a breach of this section of the
Agreement or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to Borrower's ownership
or interest in the properties, whether or not the same was or should have been
known to Borrower. The provisions of this section of the Agreement, including
the obligation to indemnify, shall survive the payment of the Indebtedness and
the termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid taxes)
against Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or properties,
other than litigation, claims, or other events, if any, that have been disclosed
to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full, except
those presently being or to be contested by Borrower in good faith in the
ordinary course of business and for which adequate reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or affecting any
of the Collateral directly or indirectly securing repayment of Borrower's Loan
and Note, that would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note and all of
the Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor Prohibited
Transaction (as defined in ERISA) has occurred with respect to any such plan,
(ii) Borrower has not withdrawn from any such plan or initiated steps to do so,
and (iii) no steps have been taken to terminate any such plan.
INVESTMENT COMPANY ACT. Borrower is not an "investment company" or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
<PAGE> 7
PUBLIC UTILITY HOLDING COMPANY ACT. Borrower is not a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
REGULATIONS G, T AND U. Borrower is not engaged principally, or as one
of its important activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulations G, T
and U of the Board of Governors of the Federal Reserve System).
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more than one
place of business, is located at 3052 Orchard Drive, San Jose, CA 95134. Unless
Borrower has designated otherwise in writing this location is also the office or
offices where Borrower keeps its records concerning the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all information
hereafter furnished by or on behalf of Borrower to Lender will be, true and
accurate in every material respect on the date as of which such information is
dated or certified; and none of such information is or will be incomplete by
omitting to state any material fact necessary to make such information not
misleading.
CLAIMS AND DEFENSES. There are no defenses or counterclaims, offsets or
other adverse claims, demands or actions of any kind, personal or otherwise,
that Borrower, Grantor, or any Guarantor could assert with respect to the Note,
Loan, Indebtedness, this Agreement, or the Related Documents.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower. Borrower
further agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and effect until such time
as Borrower's Indebtedness shall be paid in full, or until this Agreement shall
be terminated in the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that,
while this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis, and
permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in
no event later than five (5) days after filing with the Securities and Exchange
Commission, Borrower's forms 10K and 10Q. All financial reports required to be
provided under this Agreement shall be prepared in accordance with generally
accepted accounting principles, applied on a consistent basis, and certified by
Borrower as being true and correct.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. Provide to Lender not later
than 45 days after and as of the end of each quarter, an aged list of accounts
receivable and accounts payable. In the event there are outstandings under the
Note, Borrower shall provide to Lender not later than 20 days after and as of
the end of each month, a borrowing base certificate, in addition to an aged list
of accounts receivable and accounts payable.
<PAGE> 8
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide
Lender quarterly, within fifty (50) days and at the time of each disbursement of
Loan proceeds with a certificate executed by Borrower's chief financial officer,
or other officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and correct
as of the date of the certificate and further certifying that, as of the date of
the certificate, no Event of Default exists under this Agreement.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports with
respect to Borrower's financial condition and business operations as Lender may
request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios: Maintain on a quarterly basis, beginning with the quarter ended March
31, 1996, a minimum quick ratio of 1.10 to 1.00; a minimum tangible net worth of
$16,000,000.00, plus 75% of net income (exclusive of losses) and 100% of new
equity; a maximum total debt minus subordinated debt to tangible net worth plus
subordinated debt ratio of 0.75 to 1.00. Furthermore, Borrower may incur one
quarterly loss not to exceed $300,000.00, provided, Borrower shall achieve
profitability on a quarterly and annual basis.
Except as provided above, all computations made to determine compliance
with the requirements contained in this paragraph shall be made in accordance
with generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct.
FOREIGN EXCHANGE SUBLIMIT. Subject to the terms of this Agreement, as
amended from time to time, Borrower may utilize up to $2,000,000.00 for spot and
future foreign exchange contracts (the "Exchange Contracts"). All Exchange
Contracts must provide for delivery of settlement on or before the Maturity
Date, as set forth in the Note. The limit available at any time shall be reduced
by the following amounts (the "Foreign Exchange Reserve") on each day (the
"Determination Date"): (i) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed more than two business days
from the Determination Date, 10% of the gross amount of the Exchange Contracts;
plus (ii) on all outstanding Exchange Contracts on which delivery is to be
effected or settlement allowed within two business days after the Determination
Date, 100% of the gross amount of the Exchange Contracts. In lieu of the Foreign
Exchange Reserve for 100% of the gross amount of any Exchange Contract, the
Borrower may request that Lender debit Borrower's bank account with Lender for
such amount, provided Borrower has immediately available funds in such amounts
in its bank account.
Lender may, in its discretion, terminate the Exchange Contracts at any
time (a) that an Event of Default occurs or (b) that there is no sufficient
availability under the Note and Borrower does not have available funds in its
bank account to satisfy the Foreign Exchange Reserve. If Lender terminates the
Exchange Contracts, and without limitation of the FX Indemnity Provisions (as
referred to below), Borrower agrees to reimburse Lender for any and all fees,
costs and expenses relating thereto or arising in connection therewith.
Borrower shall not permit the total gross amount of all Exchange
Contracts on which delivery is to be effected and settlement allowed in any two
business day period to be more than $1,000,000.00 nor shall Borrower permit the
total gross amount of all Exchange Contracts to which Borrower is a party,
outstanding at any one time, to exceed $1,000,000.00.
Borrower shall execute all standard form applications and agreements of
Lender in connection with the Exchange contracts, and without limiting any of
the terms of such applications and agreements, Borrower will pay all standard
fees and charges of Lender in connection with the Exchange Contracts. Without
limiting any of the other terms of the Loan Agreement or any such standard form
applications and agreement of Lender, Borrower agrees to indemnify Lender and
hold it harmless, from and against any and all claims, debts, liabilities,
demands, obligations, actions, costs and expenses (including, without
limitation, attorneys fees of counsel of Lender's choice), of every nature and
description which it may sustain or incur, based upon, arising out of, or in any
way relating to any of the Exchange Contracts or any transactions relating
thereto or contemplated thereby (collectively referred to as the "FX Indemnity
Provisions").
<PAGE> 9
LETTER OF CREDIT SUBLIMIT. Subject to the terms and conditions of this
Agreement, as may be amended from time to time, Lender agrees to issue or cause
to be issued under the Note standby and commercial letters of credit for the
account of Borrower in an aggregate face amount not to exceed One Million and
00/100 Dollars ($1,000,000.00). Each such letter of credit shall have an expiry
date of ninety (90) days later than the Maturity Date, as set forth in the Note,
provided that Borrower's letter of credit reimbursement obligation shall be
secured by cash on terms acceptable to Lender at any time after the Maturity
Date if the term of this Agreement is not extended by Lender. All such letters
of credit shall be, in form and substance, acceptable to Lender in its sole
discretion and shall be subject to the terms and conditions of Lender's form of
application and letter of credit agreement.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request of
Lender, will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that coverages
will not be canceled or diminished without at least ten (10) days' prior written
notice to Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any way by
any act, omission or default of Borrower or any other person. In connection with
all policies covering assets in which Lender holds or is offered a security
interest for the Loans, Borrower will provide Lender with such loss payable or
other endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the name of
the insurer; (b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the basis of which
insurance has been obtained, and the manner of determining those values; and (f)
the expiration date of the policy. In addition, upon request of Lender (however
not more often than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be paid by
Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other
party and notify Lender immediately in writing of any default in connection with
any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature, imposed
upon Borrower or its properties, income, or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrower's properties, income, or profits. Provided
however, Borrower will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (a) the legality of the same shall
be contested in good faith by appropriate proceedings, and (b) Borrower shall
have established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the appropriate governmental official to deliver to
Lender at any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of any
event which constitutes an Event of Default under this Agreement or under any of
the Related Documents.
<PAGE> 10
OPERATIONS. Maintain executive and management personnel with
substantially the same qualifications and experience as the present executive
and management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a reasonable
and prudent manner and in compliance with all applicable federal, state and
municipal laws, ordinances, rules and regulations respecting its properties,
charters, businesses and operations, including without limitation, compliance
with the Americans With Disabilities Act and with all minimum funding standards
and other requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
ENVIRONMENTAL STUDIES. Promptly conduct and complete, at Borrower's
expense, all such investigations, studies, samplings and testings as may be
requested by Lender or any governmental authority relative to any substance
defined as toxic or a hazardous substance under any applicable federal, state,
or local law, rule, regulation, order or directive, or any waste or by-product
thereof, at or affecting any property or any facility owned, leased or used by
Borrower.
INSPECTION. Permit employees or agents of Lender at any reasonable time
to inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of any records
it may request, all at Borrower's expense.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a result
of an intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to perfect
all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that
while this Agreement is in effect, Borrower shall not, without the prior written
consent of Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by this
Agreement, in excess of $1,500,000.00, create, incur or assume indebtedness for
borrowed money, including capital leases, (b) except as allowed as a Permitted
Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security interest
in, or encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender. As regards items (a) and (b), exceptions
will be made for (i) trade accounts payable and (ii) equipment financing
arrangements for capital equipment purchases in line with Borrower's approved
budget.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged, (b)
cease operations, liquidate, merge, transfer, acquire or consolidate with any
other entity, change ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock), provided, however
that notwithstanding the foregoing, but only so long as no Event of Default has
occurred and is continuing or would result from the payment of dividends, if
Borrower is a "Subchapter S Corporation" (as
<PAGE> 11
defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash
dividends on its stock to its shareholders from time to time in amounts
necessary to enable the shareholders to pay income taxes and make estimated
income tax payments to satisfy their liabilities under federal and state law
which arise solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of shares of stock of Borrower, or (d)
purchase or retire any of Borrower's outstanding shares or alter or amend
Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or Advance
money or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity in an amount exceeding $1,000,000.00 in the aggregate, or
(c) incur any obligation as surety or guarantor other than in the ordinary
course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any
Loan to Borrower, whether under this Agreement or under any other agreement,
Lender shall have no obligation to make Loan Advances or to disburse Loan
proceeds if: (a) Borrower or any Guarantor is in default under the terms of this
Agreement or any of the Related Documents or any other agreement that Borrower
or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes
insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged
a bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
LOAN ADVANCES. Lender, in its discretion, will make loans to Borrower,
in amounts determined by Lender, up to the amounts as defined and permitted in
the Agreement and Related Documents, including but not limited to any Promissory
Notes, executed by Borrower (the "Credit Limit"). The Borrower is responsible
for monitoring the total amount of Loans and Indebtedness outstanding from time
to time, and Borrower shall not permit the same, at any time to exceed the
Credit Limit. If at any time the total of all outstanding Loans and Indebtedness
exceeds the Credit Limit, the Borrower shall immediately pay the amount of the
excess to Lender, without notice or demand.
BORROWING BASE FORMULA. Funds shall be advanced under the Line of
Credit according to a borrowing base formula, as determined by Lender, on a
monthly basis, defined as follows: the lesser of (a) $5,000,000.00 or up to (b)
Eighty percent (80%) of eligible accounts receivable, subject to satisfactory
accounts receivable audit to be performed by Lender minus the sum of (i) the
face amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) and (ii) the outstanding under the Foreign Exchange Sublimit.
Eligible accounts receivable shall include, but not be limited to, those
accounts outstanding less than 90 days from the date of invoice, excluding
foreign, government, contra, and intercompany accounts; and exclude accounts
wherein 50% or more of the account is outstanding more than 90 days from the
date of invoice. Except for specific projects pre-approved by Lender with an
increased concentration limit, any account which alone exceeds 25% of total
accounts will be ineligible to the extent said account exceeds 25% of total
accounts. Also exclude any credit balances which are aged past 90 days. Also
ineligible are any accounts which Lender in its sole judgment excludes for valid
credit reasons. Notwithstanding the foregoing, upon Borrower's election to
advance under the Line of Credit, Borrower acknowledges and agrees that Lender
shall transfer the loan to its Commercial Finance Division. Any such advance
request shall be made approximately 45 days to borrowing to allow for an audit
of Borrower's accounts receivable. Borrower's deposit account will be debited
for the audit expense and a notification will be mailed to Borrower.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when
due on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition contained in
this Agreement or in any of the Related Documents, or failure of Borrower to
comply with or to perform any other term, obligation, covenant or condition
contained in any other agreement between Lender and Borrower.
<PAGE> 12
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or Borrower's or
any Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at any
time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver for
any part of Borrower's property, any assignment for the benefit of creditors,
any type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help, repossession
or any other method, by any creditor of Borrower, any creditor of any Grantor
against any collateral securing the Indebtedness, or by any governmental agency.
This includes a garnishment, attachment, or levy on or of any of Borrower's
deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability under,
any Guaranty of the Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or performance
of the Indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur,
except where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
DEFAULT RATE. Upon default, including failure to pay upon final
maturity, Lender, at its option, may do one or both of the following: (a)
increase the variable interest rate on this Note to five percentage points
(5.000%) over the Interest Rate otherwise payable thereunder, and (b) add any
unpaid accrued interest to principal and such sum will bear interest therefrom
until paid at the rate provided in the Note.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a
part of this Amendment and Restatement:
<PAGE> 13
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
AMENDMENT AND RESTATEMENT. This Amended and Restated Business Loan
Agreement amends and restates the terms and conditions of that certain Business
Loan Agreement dated June 7, 1991, as amended.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of California. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts of
Santa Clara County, the State of California. Lender and Borrower hereby waive
the right to any jury trial in any action, proceeding, or counterclaim brought
by either Lender or Borrower against the other. (Initial Here /s/ TB) This
Agreement shall be governed by and construed in accordance with the laws of the
State of California.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower
under this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the Borrowers
signing below is responsible for all obligations in this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation interests
in the Loans to one or more purchasers, whether related or unrelated to Lender.
Lender may provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan, and Borrower
hereby waives any rights to privacy it may have with respect to such matters.
Borrower additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such participation
interests. Borrower also agrees that the purchasers of any such participation
interests will be considered as the absolute owners of such interests in the
Loans and will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower further
waives all rights of offset or counterclaim that it may have now or later
against Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or insolvency
of any holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have against
Lender.
BORROWER INFORMATION. Borrower consents to the release of information
on or about Borrower by Lender in accordance with any court order, law or
regulation and in response to credit inquiries concerning Borrower.
NON-LIABILITY OF LENDER. The relationship between Borrower and Lender
is a debtor and creditor relationship and not fiduciary in nature, nor is the
relationship to be construed as creating any partnership or joint venture
between Lender and Borrower. Borrower is exercising its own judgment with
respect to Borrower's business. All information supplied to Lender is for
Lender's protection only and no other party is entitled to rely on such
information. There is no duty for Lender to review, inspect, supervise, or
inform Borrower of any matter with respect to Borrower's business. Lender and
Borrower intend that Lender may reasonably rely on all information supplied by
Borrower to Lender, together with all representations and warranties given by
Borrower to Lender, without investigation or confirmation by Lender and that any
investigation or failure to investigate will not diminish Lender's right to so
rely.
<PAGE> 14
NOTICE OF LENDER'S BREACH. Borrower must notify Lender in writing of
any breach of this Agreement or the Related Documents by Lender and any other
claim, cause of action or offset against Lender within thirty (30) days after
the occurrence of such breach or after the accrual of such claim, cause of
action or offset. Borrower waives any claim, cause of action or offset for which
notice is not given in accordance with this paragraph. Lender is entitled to
rely on any failure to give such notice.
BORROWER INDEMNIFICATION. Borrower shall indemnify and hold Lender
harmless from and against all claims, costs, expenses, losses, damages, and
liabilities of any kind, including but not limited to attorneys' fees and
expenses, arising out of any matter relating directly or indirectly to the
Indebtedness, whether resulting from internal disputes of the Borrower, disputes
between Borrower and any Guarantor, or whether involving any third parties, or
out of any other matter whatsoever related to this Agreement or the Related
Documents, but excluding any claim or liability which arises as a direct result
of Lender's gross negligence or willful misconduct. This indemnity shall survive
full repayment and satisfaction of the Indebtedness and termination of this
Agreement.
COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts, taken together, shall constitute one and the same Agreement.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in connection
with the preparation, execution, enforcement, modification and collection of
this Agreement or in connection with the Loans made pursuant to this Agreement.
Lender may pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes, subject to any
limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses, whether or not there is a lawsuit, including attorneys' fees for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other sums provided
by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the address shown
above. Any party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that the purpose
of the notice is to change the party's address. To the extent permitted by
applicable law, if there is more than one Borrower, notice to any Borrower will
constitute notice to all Borrowers. For notice purposes, Borrower agrees to keep
Lender informed at all times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. if feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this Agreement in all
other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of
any provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as used
herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to the
benefit of Lender, its successors and assigns. Borrower shall not, however, have
the right to assign its rights under this Agreement or any interest therein,
without the prior written consent of Lender.
<PAGE> 15
SURVIVAL. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument delivered
by Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery to
Lender of the Related Documents, regardless of any investigation made by Lender
or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of
this Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor, shall constitute a
waiver of any of Lender's rights or of any obligations of Borrower or of any
Grantor as to any future transactions. Whenever the consent of Lender is
required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent in subsequent instances where
such consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AMENDED
AND RESTATED BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS
AGREEMENT IS DATED AS OF MARCH 18, 1996.
<PAGE> 16
BORROWER:
LASERSCOPE
By: /s/ Thomas B. Boyd
Name: Thomas B. Boyd
Title: Sr. V.P. Operations & Finance
LENDER:
SILICON VALLEY BANK
By: /s/ Mary T. Toomey
Name: Mary T. Toomey
Title: Vice President
<PAGE> 1
EXHIBIT 10.18
<PAGE> 2
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.
(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.
-24-
<PAGE> 3
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 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 1/36th 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
-25-
<PAGE> 4
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.
(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
("Nasdaq") System) 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
-26-
<PAGE> 5
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.
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
-27-
<PAGE> 6
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.
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, 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.
-28-
<PAGE> 7
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 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 the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
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.
-29-
<PAGE> 8
LASERSCOPE
1995 DIRECTORS' STOCK OPTION PLAN
DIRECTOR NONSTATUTORY STOCK OPTION AGREEMENT
Optionee: <<Optionee>>
Address: <<Street Address>>
<<City Address>>
Total Shares Subject to Option: 45,000 Shares
Exercise Price Per Share: <<Price Per Share>>
Date of Grant: <<Grant Date>>
Expiration Date: <<Expiration Date>>
Type of Stock Option: Nonstatutory Stock Option
1. Grant of Option. Laserscope (the "Company"), a California
corporation, hereby grants to the Optionee named above ("Optionee") an option
(the "Option") to purchase a total of up to Forty Five Thousand (45,000) shares
of Common Stock of the Company (the "Shares") at the exercise price per share
set forth above (the "Exercise Price"), subject to all of the terms and
conditions of this Director Nonstatutory Stock Option Agreement ("Agreement")
and the Company's 1995 Directors' Stock Option Plan (the "Plan"). The terms
defined in the Plan shall have the same defined meanings herein.
A. Nature of the Option. This Option is a nonstatutory stock option
and is not intended to qualify for any special tax benefits to the Optionee.
B. Exercise Price. The exercise price is Price Per Share for each
share of Common Stock, which is 100% of the Fair Market Value of the Common
Stock as determined on the date of grant of this Option.
2. Exercise Period of Option. Subject to the terms and conditions of
the Plan and this Grant, this 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.
3. Restrictions on Exercise. Exercise of this Option is subject to the
following limitations:
A. This Option may not be exercised unless such exercise is in
compliance with the Securities Act of 1933, as amended, and all applicable state
securities laws, as they are in effect on the date of exercise.
B. If, at the time of the exercise of this Option, the Optionee is
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), then the Optionee must comply with Rule 16b-3 under the
Exchange Act and 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.
4. Termination of Status as a Director. If an Outside Director ceases
to serve as a Director for any reason other than death or disability, 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. To the extent that
he or she was not entitled to exercise an Option at the date of such
-30-
<PAGE> 9
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.
5. Disability of Director. Notwithstanding Section 4 above, in the
event an Outside Director is unable to continue his or her service as a Director
with the Company as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), he or she may, but only within six (6) months
from the date of termination of such service (but in no event later than the
date of expiration of the term of this Option as set forth in the Notice of
Stock Option Grant), exercise the Option to the extent otherwise so entitled 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 or she does not
exercise such Option (to the extent otherwise so entitled) within the time
specified in this Agreement, the Option shall terminate.
6. Death of Director. Notwithstanding Section 4 above, in the event of
the death an Outside Director while serving as a Director of the Company, 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 this
Option as set forth in the Notice of Stock Option Grant), by Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance to the extent the Optionee was entitled to exercise such Option on
the date of death.
7. Manner of Exercise.
A. This Option shall be exercisable by delivery to the Company of an
executed written Director Stock Option Exercise Notice and Agreement in the form
attached hereto as Exhibit A, or in such other form as may be approved by the
Company, which shall set forth Optionee's election to exercise this Option, the
number of Shares being purchased, any restrictions imposed on the Shares and
such other representations and agreements regarding Optionee's investment intent
and access to information as may be required by the Company to comply with
applicable securities laws.
B. The Director Stock Option Exercise Notice and Agreement shall be
accompanied by full payment of the Exercise Price for the Shares being purchased
(i) in cash, (ii) by check, (iii) by delivery of other shares of Common Stock
having a fair market value on the date of surrender equal to the aggregate
exercise price of the Shares being purchased (which, if acquired from the
Company, shall have been held for at least six months) or (iv) by any
combination of the foregoing methods of payment.
C. Prior to the issuance of the Shares upon exercise of this Option,
Optionee must pay or make adequate provision for any applicable federal or state
withholding obligations of the Company.
D. Provided that such notice and payment are in form and substance
satisfactory to counsel for the Company, the Company shall issue the Shares
registered in the name of Optionee or Optionee's legal representative.
8. Compliance with Laws and Regulations. The issuance and transfer of
Shares shall be subject to compliance by the Company and the Optionee with all
applicable requirements of federal and state securities laws and with all
applicable requirements of any stock exchange on which the Company's Common
Stock may be listed at the time of such issuance or transfer. Optionee
understands that the Company is under no obligation to register or qualify the
Shares with the Securities and Exchange Commission, any state securities
commission or any stock exchange to effect such compliance.
9. Nontransferability of Option. This Option may not be transferred in
any manner other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order (as defined by the Code or the
rules thereunder) and may be exercised during the lifetime of the Optionee only
by the Optionee or a transferee permitted by Section 10 of the Plan. The terms
of this option shall be binding upon the executors, administrators, successors
and assigns of the Optionee.
-31-
<PAGE> 10
10. Federal Tax Consequences. Set forth below is a brief summary as of
the date of this Option of some of the federal tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES. THIS SUMMARY DOES NOT DISCUSS STATE OR LOCAL TAX
CONSEQUENCES OF EXERCISE OF THIS OPTION AND DISPOSITION OF THE SHARES.
A. Taxation Upon Exercise of Option. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then fair market value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is likely to be
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, the
measurement and timing of such income may be deferred, and the Optionee is
advised to contact a tax adviser concerning the desirability of filing an 83(b)
election in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the exercise
price of the Shares, to the extent not included in income as described above,
will be treated as capital gain or loss, which will be long-term if the shares
have been held for more than one year.
11. Interpretation. Any dispute regarding the interpretation of this
agreement shall be submitted by Optionee or the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
12. Entire Agreement. The Plan and the Director Stock Option Exercise
Notice and Agreement attached as Exhibit A are incorporated herein by reference.
This Grant, the Plan and the Director Stock Option Exercise Notice and Agreement
constitute the entire agreement of the parties regarding the Option and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.
LASERSCOPE
By:__________________________
Its:_________________________
-32-
<PAGE> 11
ACCEPTANCE
Optionee hereby acknowledges receipt of a copy of the Plan, represents
that Optionee has read and understands the terms and provisions thereof, and
accepts this Option subject to all the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee should
consult a tax adviser prior to such exercise or disposition.
____________________________
<<Optionee>>
-33-
<PAGE> 12
EXHIBIT A
DIRECTOR NONSTATUTORY STOCK OPTION EXERCISE NOTICE AND AGREEMENT
Laserscope
3052 Orchard Drive
San Jose, CA 95134
Attention: Chief Financial Officer
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of Laserscope (the "Company") under and pursuant to the Company's 1995
Directors' Stock Option Plan and the Director Nonstatutory Stock Option
Agreement dated Grant Date (the "Grant Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Grant Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the
Shares must be held indefinitely unless they are registered under the Securities
Act of 1933, as amended (the "1933 Act") or unless an exemption from such
registration is available and that the certificate(s) representing the Shares
may bear a legend to that effect. Optionee understands that the Company is under
no obligation to register the Shares and that an exemption may not be available
or may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. Entire Agreement. The Grant Agreement is incorporated herein by
reference. This Agreement and the Grant Agreement constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof. This Agreement and the Grant Agreement are governed by California law
except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: LASERSCOPE
____________________________ By:____________________________
<<Optionee>>
Its:___________________________
Address:
<<Street Address>>
<<City address>>
Dated:______________________ Dated:_________________________
-34-
