<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the quarterly period ended March 31,1996 or
--- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______ to ______
Commission file number 0-18053
LASERSCOPE
(Exact name of Registrant as specified in its charter)
CALIFORNIA 77-0049527
(State of Incorporation) (I.R.S. Employer Identification No.)
3052 ORCHARD DRIVE, SAN JOSE, CALIFORNIA 95134-2011
(Address of principal executive offices)
Registrant's telephone number: (408) 943-0636
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Registrant's common stock issued and outstanding as of
April 30, 1996 was 7,060,755.
This document consists of 10 pages of which this is page 1.
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION 3
Item 1. Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Results of Operations 7
Liquidity and Capital Resources 9
PART II. OTHER INFORMATION 10
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Items 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
LASERSCOPE
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(thousands) 1996 1995
- - ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,591 $ 2,278
Accounts receivable, net 5,674 5,543
Inventories 9,497 10,292
Other current assets 643 692
-------- --------
Total current assets 18,405 18,805
Property and equipment, net 2,478 2,663
Other assets 2,104 2,114
-------- --------
Total assets $ 22,987 $ 23,582
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,255 $ 1,455
Accrued compensation 1,257 1,156
Other current liabilities 3,099 3,630
-------- --------
Total current liabilities 5,611 6,241
Obligations under capital leases 12 15
Commitments and contingencies
Shareholders' equity:
Common stock 37,248 37,248
Accumulated deficit (19,159) (19,296)
Translation adjustments (350) (251)
Notes receivable from shareholders (375) (375)
-------- --------
Total shareholders' equity 17,364 17,326
-------- --------
Total liabilities and shareholders' equity $ 22,987 $ 23,582
======== ========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 4
LASERSCOPE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(thousands except per share amounts) 1996 1995
- - ------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $7,722 $9,215
Cost of sales 3,852 4,383
------ ------
Gross margin 3,870 4,832
Operating expenses:
Research and development 629 921
Selling, general and administrative 3,092 3,723
------ ------
3,721 4,644
Operating income 149 188
Interest and other income, net 7 99
------ ------
Income before income taxes 156 287
Provision for income taxes 19 36
------ ------
Net income $ 137 $ 251
====== ======
Net income per share $ 0.02 $ 0.04
====== ======
Shares used in per share calculations 7,295 6,989
====== ======
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 5
LASERSCOPE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(thousands) 1996 1995
- - -----------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 137 $ 251
Adjustments to reconcile net income to cash
cash provided by operating activities:
Depreciation and amortization 277 403
Increase (decrease) from changes in:
Accounts receivable (131) 391
Inventories 795 291
Other current assets 49 5
Other assets 10 22
Accounts payable (200) 138
Accrued compensation 101 312
Other current liabilities (531) (149)
------- -------
Cash provided by operating activities 507 1,664
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (92) (242)
Maturities of held-to-maturity investments -- 984
Other (99) 9
------- -------
Cash provided (used) by investing activities (191) 751
------- -------
CASH USED BY FINANCING ACTIVITIES:
Payments on obligations under capital leases (3) --
------- -------
Increase in cash and cash equivalents 313 2,415
Cash and cash equivalents, beginning of period 2,278 4,604
------- -------
Cash and cash equivalents, end of period $ 2,591 $ 7,019
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 3 $ 20
Income taxes $ 25 $ 22
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
1. The accompanying condensed consolidated financial statements include
Laserscope (the "Company") and its wholly and majority-owned subsidiaries.
All intercompany transactions and balances have been eliminated. While the
financial information in this report is unaudited, in the opinion of
management, all adjustments (which included only normal recurring
adjustments) necessary to present fairly the financial position and results
of operations as of and for the periods indicated have been recorded. It is
suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
for the year ended December 31, 1995 included in the Company's annual
report. The results of operations for the three month period ended March 31,
1996 are not necessarily indicative of the results expected for the full
year.
2. Inventory was comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
-----------------------
<S> <C> <C>
Sub-assemblies and purchased parts $ 6,558 $ 7,201
Finished goods 2,939 3,091
------- -------
$ 9,497 $10,292
======= =======
</TABLE>
3. Net income 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).
4. The Company invests its excess cash in high-quality debt instruments. The
Company considers cash equivalents to be 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 financial instruments with less than one
year to maturity.
At March 31, 1996 and December 31, 1995 the Company's cash equivalents were
in the form of institutional money market accounts and totaled $1.05 million
and $3.02 million, respectively. At March 31, 1996 and December 31, 1995 the
Company had no investment in short-term financial instruments.
5. Subsequent event: During April 1996, the Company and Heraeus MED, GmbH
signed a definitive agreement for Heraeus Surgical, Inc.(a wholly-owned
subsidiary of Heraeus MED, GmbH) to be acquired by the Company. The
transaction is subject to approval by the shareholders of the Company as
well as the obtaining of necessary governmental consents. Heraeus MED will
receive approximately 4.6 million shares of newly issued Laserscope common
stock and a $2.00 million cash payment in exchange for all of the
outstanding shares of Heraeus Surgical, Inc. and certain assets and
liabilities of Heraeus MED's German laser distribution organization.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Except for the historical information contained in this Quarterly Report on Form
10-Q, the matters discussed herein are forward-looking statements subject to
certain risks and uncertainties that could cause the actual results to differ
materially for those projected. Factors that could cause actual results to
differ materially include, but are not limited to, the timing of orders and
shipments, the Company's ability to balance its inventory and production
schedules, the timely development and market acceptance of new products and
surgical/therapeutic procedures, the impact of competitive products and pricing,
the Company's ability to expand further 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 as well as government agencies in other countries, the
Company's ability to integrate successfully acquired businesses and other risks
included from time to time in the Company's press announcements and public
disclosure filings with the United States Securities and Exchange Commission,
copies of which are available upon request from Laserscope's Investor Relations
Department. The Company assumes no obligation to update any forward-looking
statements contained herein.
RESULTS OF OPERATIONS:
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included in Part I -- Item 1
of this Quarterly Report and the audited financial statements and notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations for the year ended December 31, 1995 contained in the Company's
Annual Report on Form 10-K.
Net revenues for the quarter ended March 31, 1996 were $7.72 million, a decrease
of 16% from net revenues of $9.22 million in the corresponding quarter of 1995.
Net revenues decreased during the first quarter of 1996 relative to the first
quarter of 1995 as a combined result of higher unit shipments of the Company's
KTP/YAG Surgical Laser Systems at lower average selling prices, lower shipments
of disposable supplies and instrumentation and, to a lesser extent, lower sales
of services.
Revenues from the sales of capital equipment comprised approximately 39% of
total net revenues during the quarter ended March 31, 1996 compared to
approximately 35% of total net revenues during the corresponding period in 1995.
Although the revenues from sales of capital increased as a proportion of total
net revenues, in absolute dollars these revenues decreased. While laser unit
shipments were 11% higher in the first quarter of 1996 relative to the first
quarter of 1995, average unit prices decreased during this period as a combined
result of greater shipments of lower priced Aura office laser units as well as
increased shipments to independent international distributors. The Company
believes that the continuing trend toward reduced health care costs in the
United States is still a factor which continues to impact negatively capital
equipment procurement by its customers, particularly its hospital customers in
the United States. As a result, the Company expects that its revenue mix trends
for capital equipment in the United States will continue to shift toward its
lower priced Aura office laser.
Revenues from the sales of disposable supplies, instrumentation and service
comprised approximately 61% of total net revenues during the quarter ended March
31, 1996, compared to approximately 65% of total net revenues in the
corresponding period in 1995. The
7
<PAGE> 8
decrease is primarily the result of lower shipments of its side-firing devices
used in prostate surgeries due to fewer prostate surgeries using laser surgical
techniques being performed during the quarter ended March 31, 1996 than in the
corresponding quarter of 1995. The Company believes that this was caused
principally by increased drug treatment of those patients with mild to moderate
prostate disorders as well as adoption of alternative electrosurgical techniques
to perform prostate surgeries.
The Company believes that acceptance of lasers in aesthetic surgery,
dermatology, urology, ear, nose and throat surgery, will continue to be
important to its business. In addition, the adoption of photodynamic therapy by
medical practitioners will be important. The Company continues to invest in
developing new instrumentation for emerging surgical applications and to educate
surgeons in the United States 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.
Gross margin as a percentage of net revenues for the quarter ended March 31,
1996 was 50%, compared to 52% for the corresponding quarter in 1995. The
decrease is due in part to a higher proportion of revenues from sales to
independent international distributors during the first quarter of 1996 than in
the corresponding quarter of 1995. These revenues generally generate lower gross
margins than those generated by revenues from sales through the Company's direct
sales force. In addition, the Company continued to balance its inventories with
product demand and it reduced production volumes in the first quarter of 1996
relative the first quarter of 1995 which further negatively impacted gross
margins during the first quarter of 1996. The Company expects that gross margin
as a percentage of revenues for the remainder of 1996 may vary from quarter to
quarter as it continues to balance production volumes and inventory levels with
product demand and as product and distribution mix varies.
Research and development expenses, which 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 were approximately 32% lower in
the first quarter of 1996 when compared to the corresponding quarter of 1995. As
a percentage of net revenues these expenses were 8% and 10% in the quarters
ended March 31, 1996 and March 31, 1995, respectively. This decrease is the
combined result of expense control measures implemented by the Company during
the fourth quarter of 1995 and reduced spending on the Company's Aura office
laser which the Company shipped commercially commencing in December 1995. The
Company expects to continue to make significant investments in research and
development during 1996 and beyond.
Selling, general and administrative expenses in absolute terms decreased
approximately 17% in the quarter ended March 31, 1996 compared to the
corresponding quarter of 1995 although they did not decrease significantly as a
percentage of net revenues. The reduction in the expense level is the combined
result of lower direct selling expenses resulting from a higher proportion of
its revenues being generated from sales to independent international
distributors and expense reduction measures implemented by the Company during
the fourth quarter of 1995. In absolute terms, the Company expects these amounts
to continue to be lower in 1996 than in the corresponding periods in 1995 unless
the Company's 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.
8
<PAGE> 9
During the quarters ended March 31, 1996 and 1995 the Company recorded income
tax provisions representing effective tax rates of 12% and 13%, respectively.
The amounts are below the combined federal and state rates primarily as a result
of the utilization of available net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES:
Total assets and liabilities as of March 31, 1996 were $22.99 million and $5.61
million respectively, compared to assets and liabilities of $23.58 million and
$6.24 million at December 31, 1995. Working capital increased $0.23 million from
$12.56 million at December 31, 1995 to $12.79 million at March 31, 1996 while
cash and cash equivalents increased $0.31 million during the period. The net
increase in cash and cash equivalents was primarily due to cash provided by
operating activities of $0.51 million. The Company anticipates that future
changes in cash and working capital will be dependent on the levels of its
business.
At March 31, 1996, cash and cash equivalents amounted to approximately $2.59
million. The Company currently has in place a $5.00 million revolving bank line
of credit which expires October 1996 and under which no borrowings were
outstanding at March 31, 1996
The Company's need for capital is affected by the current and anticipated demand
for its products as well as procurement and production lead times in its
manufacturing operations. Changes in these factors can have a significant impact
on capital requirements.
From time to time, the Company may also consider the acquisition of, or
evaluate investments in, certain products and businesses complementary to the
Company's business. Any such acquisition or investment may require additional
capital resources. During April 1996, the Company and Heraeus MED, GmbH signed
a definitive agreement for Heraeus Surgical, Inc.(a wholly-owned subsidiary of
Heraeus MED, GmbH) to be acquired by the Company. The transaction is subject to
approval by the shareholders of the Company as well as the obtaining of
necessary governmental consents. Heraeus MED will receive approximately 4.6
million shares of newly issued Laserscope common stock and a $2.00 million cash
payment in exchange for all of the outstanding shares of Heraeus Surgical, Inc.
and certain assets and liabilities of Heraeus MED's German laser distribution
organization. The Company is exploring alternatives for financing its
acquisition of Heraeus Surgical, Inc. including debt, equity or the use of the
Company's currently existing cash resources. In the event the Company finances
the Heraeus Surgical, Inc. acquisition using its existing cash resources, the
Company anticipates that while its remaining cash resources will be sufficient
to fund its short term operating needs, additional financing either through the
Company's bank line of credit or otherwise would be required for the Company's
currently envisioned long term needs.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to a number of legal proceedings arising in the ordinary
course of business. While it is not feasible to predict or determine the outcome
of the actions brought against it, the Company believes that the ultimate
resolution of these claims will not ultimately have a material adverse effect on
its financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER ITEMS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed herewith (numbered in accordance with Item 601 of
Regulation S-K):
Exhibit
Number Description
10.14 Form of Laserscope Management Continuity Agreement, as
amended.
10.19 Acquisition of Heraeus Laser Business Agreement.
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LASERSCOPE
Registrant
/s/ Dennis LaLumandiere
----------------------------------------
Dennis LaLumandiere
Vice President of Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 15, 1996
10
<PAGE> 1
This Management Continuity Agreement (the "Agreement") is made and
entered into effective as of April 4, 1996, by and between She/He (the
"Employee") and Laserscope, a California corporation (the "Company").
R E C I T A L S
A. It is expected that another company or other entity may from time to
time consider the possibility of acquiring the Company or that a change in
control may otherwise occur, with or without the approval of the Company's Board
of Directors (the "Board"). The Board recognizes that such consideration can be
a distraction to the Employee and can cause the Employee to consider alternative
employment opportunities. The Board has determined that it is in the best
interests of the Company and its shareholders to assure that the Company will
have the continued dedication and objectivity of the Employee, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company.
B. The Board believes that it is in the best interests of the Company
and its shareholders to provide the Employee with an incentive to continue his
or her employment with the Company.
C. The Board believes that it is imperative to provide the Employee
with certain benefits upon a Change of Control and, under certain circumstances,
upon termination of the Employee's employment in connection with a Change of
Control, which benefits are intended to provide the Employee with financial
security and provide sufficient income and encouragement to the Employee to
remain with the Company notwithstanding the possibility of a Change of Control.
D. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to agree
to the terms provided in this Agreement.
E. Certain capitalized terms used in the Agreement are defined in
Section 4 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee acknowledge that
the Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
written policies at the time of termination. The terms of this Agreement shall
terminate upon the earlier of (i) the date that all obligations of the parties
hereunder have been satisfied, (ii) April 4, 1998, or (iii) twenty-four (24)
months after a Change of Control. A termination of the terms of this Agreement
pursuant to the preceding sentence shall be effective for all purposes, except
that such termination shall not affect the payment or provision of compensation
or benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement.
2. Change of Control/Stock Options. Immediately upon the effective
date of the Change of Control, each stock option granted for the Company's
securities held by the Employee shall become immediately vested and shall be
exercisable in full in accordance with the provisions of the option agreement
and plan pursuant to which such option was granted. Upon the immediate vesting
of such stock options, the Employee will have the right (subject to any
limitations imposed by Section 16 of the Securities Exchange Act of 1934 or
other applicable securities laws and the California Corporations Code and only
to the extent permitted by the terms of the applicable option plan) to deliver a
promissory note with a two (2) year term, at the prime rate of interest
determined as of the date of the note (but not in excess of the maximum rate
permitted by applicable law), in payment of the exercise price for such options.
The delivered note will be non-recourse, and the Company or its successor will
look solely to the pledged shares for repayment.
3. Severance Benefits.
<PAGE> 2
(a) Termination Following A Change of Control. Subject to Section
5 below, if the Employee's employment with the Company is terminated at any time
within 24 months after a Change of Control, then the Employee shall be entitled
to receive severance benefits as follows:
(i) Voluntary Resignation. If the Employee voluntarily
resigns from the Company (other than as an Involuntary Termination (as defined
below) or if the Company terminates the Employee's employment for Cause (as
defined below)), then the Employee shall not be entitled to receive severance
payments. The Employee's benefits will be terminated under the Company's then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of termination.
(ii) Involuntary Termination. If the Employee's employment is
terminated within 12 months of the Change of Control as a result of Involuntary
Termination other than for Cause, the Employee shall be entitled to receive 12
months severance payments (the "Severance Period") from the date of the
Employee's termination. If the Employee's employment is terminated after 12
months but within 24 months after the Change of Control, the Employee shall be
entitled to receive 9 months severance payments (the "Severance Period") from
the date of the Employee's termination. The Employee's severance payments shall
be equal to the salary which the Employee was receiving immediately prior to the
Change of Control and shall be paid during the Severance Period in accordance
with the Company's standard payroll practices. In addition, during the Severance
Period, the Employee shall be provided with benefits substantially identical to
those to which the Employee was entitled immediately prior to the Change of
Control.
(iii) Involuntary Termination for Cause. If the Employee's
employment is terminated for Cause, then the Employee shall not be entitled to
receive severance payments. The Employee's benefits will be terminated under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of termination.
(b) Termination Apart from Change of Control. In the event the
Employee's employment terminates for any reason prior to the Change of Control,
then the Employee shall not be entitled to receive any severance payments under
this Agreement. The Employee's benefits will be terminated under the Company's
then existing benefit plans and policies in accordance with such plans and
policies in effect on the date of termination.
4. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:
(i) Ownership. Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing twenty percent
(20%) or more of the total voting power represented by the Company's then
outstanding voting securities without the approval of the Board of Directors of
the Company; or
(ii) Merger/Sale of Assets. A merger or consolidation of the
Company whether or not approved by the Board of Directors of the Company, other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
(iii) Change in Board Composition. A change in the
composition of the Board of Directors of the Company, as a result of which fewer
than a majority of the directors are Incumbent Directors. "Incumbent Directors"
shall mean directors who either (A) are directors of the Company as of April 4,
1996, or (B) are elected, or nominated for election, to the Board of Directors
of the Company with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not
<PAGE> 3
include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company).
(b) Cause. "Cause" shall mean (i) material breach of any material
terms of this Agreement, (ii) conviction of a felony, (iii) fraud, (iv) repeated
unexplained or unjustified absence, (v) willful breach of fiduciary duty under
applicable laws, this Agreement or Company policies first in effect prior to the
occurrence of a Change in Control or (vi) gross negligence or willful misconduct
where such gross negligence or willful misconduct has resulted or is likely to
result in substantial and material damage to the Company or its subsidiaries.
(c) Involuntary Termination. "Involuntary Termination" will
include the Employee's voluntary termination, upon 30 days prior written notice
to the Company, following (i) a material reduction in job responsibilities
inconsistent with the Employee's position with the Company and the Employee's
prior responsibilities, i.e., corporate versus subsidiary level or type
responsibility, or (ii) relocation to a facility or location more than 50 miles
from the Company's current location.
5. Limitation on Payments. To the extent that any of the payments or
benefits provided for in this Agreement or otherwise payable to the Employee
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and, but for this Section
5, would be subject to the excise tax imposed by Section 4999 of the Code, the
Company shall reduce the aggregate amount of such payments and benefits such
that the present value thereof (as determined under the Code and the applicable
regulations) is equal to 2.99 times the Employee's "base amount" as defined in
Section 280G(b)(3) of the Code.
6. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of the Employee's rights
hereunder shall inure to the benefit of, and be enforceable by, the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
7. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to the Employee shall be
addressed to the Employee at the home address which the Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
8. Miscellaneous Provisions.
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that the Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes any agreement of the same title and concerning similar subject matter
dated prior to the date of this Agreement, and by execution of this Agreement
both parties agree that any such predecessor agreement shall be deemed null and
void.
<PAGE> 4
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California without reference to conflict of laws provisions.
(e) Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and equitable term or provision shall be substituted therefor to
carry out, insofar as may be valid and enforceable, the intent and purpose of
the invalid or unenforceable term or provision.
(f) Arbitration. Any dispute or controversy arising under or in
connection with this Agreement may be settled at the option of either party by
binding arbitration in the County of Santa Clara, California, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction. Punitive
damages shall not be awarded.
(g) Legal Fees and Expenses. The parties shall each bear their own
expenses, legal fees and other fees incurred in connection with this Agreement.
(h) No Assignment of Benefits. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or assignment,
either by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this subsection (h) shall be void.
(i) Employment Taxes. All payments made pursuant to this Agreement will
be subject to withholding of applicable income and employment taxes.
(j) Assignment by Company. The Company may assign its rights under this
Agreement to an affiliate, and an affiliate may assign its rights under this
Agreement to another affiliate of the Company or to the Company; provided,
however, that no assignment shall be made if the net worth of the assignee is
less than the net worth of the Company at the time of assignment. In the case of
any such assignment, the term "Company" when used in a section of this Agreement
shall mean the corporation that actually employs the Employee.
(k) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
LASERSCOPE She/He
By: By:
------------------------------- ----------------------------
Title:
---------------------------- ----------------------------
<PAGE> 1
LASERSCOPE
3052 Orchard Drive
San Jose, California, U.S.A. 95134-2011
April 23, 1996
Heraeus Med GmbH
Heraeusstrasse 12-14
D-63450 Hanau
Germany
Attention: Thomas H. Ihlenfeldt
Geschaftsfuhrer
Acquisition of Heraeus Laser Business
Dear Mr. Ihlenfeldt:
This letter shall constitute our agreement for the acquisition by
Laserscope of all of the shares of Heraeus Surgical, Inc. ("HSI"), a wholly
owned subsidiary of Heraeus Med GmbH ("HME"), and certain of the assets and
liabilities of HME's laser distribution business ("LDB"), as well as for the
grant to Laserscope of certain other product distribution rights of HME, and for
the licensing and sublicensing of certain rights by HSI and Laserscope to HME.
This agreement shall include all of the Exhibits and Schedules hereto, which are
hereby incorporated herein by this reference.
1. Background of Agreement: Laserscope, a publicly traded California
corporation, is a leading manufacturer and seller of multi-specialty hospital
and physician office-based laser surgical systems and accessories. HME, a German
corporation and an affiliate of privately-held Heraeus Holding GmbH ("Heraeus
Holding"), is a leading manufacturer and seller of a variety of medical
instrumentation and surgical products, including laser systems and integrated
operating room equipment. HME desires to sell to Laserscope all of the issued
and outstanding shares of HSI and certain of the LDB assets and liabilities in
exchange for cash and shares of common stock of Laserscope, to grant to
Laserscope certain other product distribution rights of HME, and to license and
sublicense certain technology from HSI and Laserscope, all on the terms and
conditions set forth below.
2. Transfer of Laser Business:
(a) HSI Shares:
(i) At the Closing (as defined in Section 7 below)
HME will sell and transfer to Laserscope, and Laserscope will purchase, all of
the outstanding shares of capital stock
<PAGE> 2
of HSI (the "HSI Shares"). The HSI Shares will be unregistered and the
certificates representing such shares will bear a legend restricting their
further sale or transfer except in accordance with applicable United States and
state securities laws. Laserscope represents that it is acquiring such shares
for investment and not with a view towards their resale or distribution to the
public.
(ii) All of the material assets and liabilities of
HSI, not otherwise reflected in the financial statements of HSI, are reflected
in the HME Disclosure Schedule in Exhibit 4(b) attached hereto (the "HME
Disclosure Schedule").
(iii) Laserscope will have the right to reject any
contract between HSI and HME or any entity controlled by Heraeus Holding (with
the exception of the trade accounts payable described in Section 3(c), and the
distribution, sublicense and license arrangements described in Sections 2(c) and
(d), below) by giving written notice of such rejection to HME prior to or at the
Closing. The HME Disclosure Schedule contains an identified list of all such
contracts.
(b) LDB Assets and Liabilities:
(i) At the Closing, HME will sell, and Laserscope
will purchase, certain assets of HME related to the LDB specifically described
in the attached Schedule 2(b)(i) (the "LDB Assets"), including the machinery,
office equipment, inventory and other tangible assets related to LDB (excluding
LDB's trade accounts receivable).
(ii) At the Closing Laserscope will assume certain
liabilities of HME related to the LDB specifically described in the attached
Schedule 2(b)(ii) (the "LDB Liabilities"), from and after that date, including:
(A) All employees of the LDB, all of which
are listed in Schedule 2(b)(ii) along with the terms of their current employment
contracts, and all accruals related to such employees, including all direct
costs incurred by HME in terminating the employment with HME of any such
employees who elect not to accept employment with Laserscope; each party being
fully aware of the existence and meaning of Article 613 a BGB (German Civil
Code), according to which all employees of HME engaged in the LDB will be
transferred to Laserscope with all their current rights arising from their
employment contracts with HME and under German law;
(B) Certain contracts of HME related to the
LDB listed in Schedule 2(b)(ii);
(C) All outstanding purchase orders by the
LDB, other than to HSI (such purchase orders in excess of $100,000 being
individually identified in Exhibit 4(b)); and
(D) All property taxes, lease payments,
prepaid license and registration fees with respect to the LDB Assets, pro rated
as of the Closing Date;
-2-
<PAGE> 3
(E) Insurance premiums related to the LDB
Assets, prorated as of the Closing Date; and
(F) All trade accounts payable related to
the LDB incurred in the ordinary course, consistent with past practice, not
exceeding $500,000 (apart from payables to HSI) in the aggregate.
(iii) Laserscope may assign any of its rights or
obligations under this Section 2(b) to its German affiliate, NWL Laser
Technologie GmbH, provided that Laserscope shall continue to be liable for all
of its obligations hereunder.
(c) Surgical Lamp Distribution Right: At the Closing, HME will
grant to Laserscope the exclusive right to purchase and resell in the United
States operating room surgical lamps on the terms and conditions set forth in
the attached Exhibit 2(c).
(d) CVAC Sublicense and Mounting Device Technology License: At
the Closing, HSI will grant to HME pursuant to the terms in this Section 2(d)
and in Section 5(a) below: (i) the right to obtain from Laserscope, at any time
within four years of the Closing Date, a sublicense (the "CVAC Sublicense") to
all of HSI's rights under the Agreement for Acquisition of Patent and Technical
Rights dated October 22, 1995, between HSI and CVAC, Inc. (the "Patent
Agreement"), including the right to manufacture and sell central smoke
evacuation equipment ("CVAC"); and (ii) a license to all of HSI's technology
relating to mounting devices (the "Mounting Device License"). The CVAC
Sublicense and the Mounting Device License shall each be nonexclusive, shall
include all improvements made by HSI or Laserscope during the respective terms
thereof, and shall be on a worldwide basis, excluding the United States. The
CVAC Sublicense shall be consistent with the terms of the Patent Agreement.
After the Closing, Laserscope will perform, or cause to be performed, all of
HSI's obligations under the Patent Agreement; provided that HME shall pay all
royalties due under the Patent Agreement resulting from its activities under the
CVAC Sublicense. The duration of HME's sublicense rights shall expire upon
expiration of the license and ownership rights of HSI under the Patent
Agreement. The Mounting Device License shall have a term of ten years from the
Closing Date. HME shall pay all royalties due to its activities under such
license, including any royalties owing to third parties under any license
agreement covering the mounting device technology.
(e) Heraeus Name: At the Closing, HME will grant to Laserscope
and HSI the right, for a period of one year from the Closing Date, to use the
Heraeus name on Laserscope and HSI products and in related promotional
literature and advertising in a manner consistent with the prior use of such
name by HME and HSI. Laserscope and HSI agree not to assert any rights of
ownership in such name, or any intellectual property right or registration in
respect thereof. Laserscope shall indemnify and hold HME and its affiliated
persons harmless from and against all claims, damages, losses, costs, charges
and expenses (including attorney's fees) incurred by any of them as a result of
the use of such name by Laserscope or HSI, other than from a claim based on the
name Heraeus infringing the rights of the claimant. At the end of such one year
period, Laserscope and HSI shall discontinue all use of the Heraeus name, and
HSI shall change its corporate name to delete any reference to "Heraeus".
-3-
<PAGE> 4
3. Payments to HME:
(a) Cash: At the Closing, Laserscope will pay to HME
U.S.$2,000,000, less any adjustment pursuant to Section 3(f) below.
(b) Laserscope Common Stock: At the Closing, Laserscope will
issue to HME 4,609,345 shares of its Common Stock (the "Laserscope Shares"), of
which 500,000 Laserscope Shares will be placed in escrow pursuant to Section
4(c)(iv) below. The Laserscope Shares will be unregistered and the certificates
representing the Laserscope Shares will bear a legend restricting their further
sale or transfer except in accordance with applicable U.S. and state securities
laws. HME represents that it is acquiring the Laserscope Shares for investment
and not with a view towards their resale or distribution to the public.
(c) HSI Indebtedness: All promissory notes and other
indebtedness owed by HSI to HME and its affiliates will be contributed to HSI's
capital effective as of the Closing, except trade accounts payable in an amount
not to exceed $2,500,000 resulting from product deliveries (subject to increase
with the prior written consent of Laserscope), and trade accounts payable in an
amount not to exceed $10,000 resulting from the provision of services, by HME to
HSI.
(d) Legal and Advisor Fees: Laserscope will pay all of its own
legal, accounting and advisor expenses in connection with the transactions
covered by this agreement. HME will pay all of its own legal, accounting and
advisor expenses in connection with the transactions covered by this agreement,
including all expenses of HSI; provided, that if the transactions contemplated
by this Agreement are consummated, Laserscope will reimburse HME for up to
$200,000 of reasonable out-of-pocket legal, accounting and advisor expenses
related to this agreement (excluding the costs of HME employees and any HSI
expenses incurred in connection with this agreement) or directly assume such
expenses upon receipt from HME of supporting documentation for such expenses.
(e) Taxes: HME shall pay all sales and other taxes, duties or
assessments with respect to the transfer of stock, assets and other rights
described in Section 2 above which are imposed by any U.S., state or non-U.S.
taxing authority, except Laserscope or its German affiliate shall pay any German
value added tax (VAT) resulting from the sale of the LDB Assets, if applicable.
(f) Balance Sheet Review: As soon as possible after the date
of this agreement, but not later than June 1, 1996, Laserscope's independent
public accountants will review the balance sheets of HSI and LDB as of March 31,
1996, for the purpose of confirming that the balance sheet of HSI was prepared
in accordance with U.S. generally accepted accounting principles on a going
concern basis, and that the aggregate net worth of HSI and LDB, as reflected in
such balance sheets, equaled or exceeded U.S.$11,500,000 as of March 31, 1996,
based on the exchange rate in effect on such date. If the aggregate net worth of
HSI and LDB as of March 31, 1996 based on such review is less than
U.S.$11,000,000, the cash portion
-4-
<PAGE> 5
of the purchase price to be paid to HME pursuant to Section 3(a) above shall be
reduced by the amount of such deficit. In the event of any dispute concerning
the aggregate net worth of HSI and the LDB arising under this Section 3(f),
Laserscope and HME shall, at their joint expense, appoint an internationally
known accounting firm to make a binding determination of the aggregate net worth
of HSI and LDB as of March 31, 1996.
4. Representations and Warranties; Indemnification and Escrow:
(a) By Laserscope: In addition to any representations and
warranties by Laserscope set forth in this agreement, Laserscope hereby makes
the representations and warranties to HME which are set forth in the attached
Exhibit 4(a).
(b) By HME: In addition to any representations and warranties
by HME set forth in this agreement, HME hereby makes the representations and
warranties to Laserscope which are set forth in the attached Exhibit 4(b).
(c) Indemnification; Escrow:
(i) HME hereby agrees to indemnify and hold
Laserscope and its officers, directors, shareholders, affiliates, insurers,
attorneys, agents, successors and assigns harmless from and against the
following:
(A) Any and all liabilities, losses,
damages, claims, costs and expenses of the LDB of any nature, whether absolute,
contingent or otherwise, which Laserscope has not expressly agreed to assume or
accept pursuant to the terms of this agreement;
(B) Any and all liabilities, losses,
damages, claims, costs and expenses resulting from any misrepresentation or
breach of any warranty in this agreement or in any written statement or
certificate furnished or to be furnished by HME to Laserscope pursuant hereto;
(C) Any and all liabilities, losses,
damages, claims, costs and expenses resulting from any breach or non-fulfillment
of any covenant or agreement on the part of HME contained in this agreement or
in the certificate delivered pursuant to Section 6(a)(ii) by HME to Laserscope
pursuant hereto; and
(D) Any and all actions, suits, proceedings,
demands, assessments or judgments, costs and expenses (including attorneys'
fees) incident to any of the foregoing.
(ii) Laserscope hereby agrees to indemnify and hold
HME and its officers, directors, shareholders, affiliates, insurers, attorneys,
agents, successors and assigns harmless from and against the following:
-5-
<PAGE> 6
(A) Any and all liabilities, losses,
damages, claims, costs and expenses arising out of or resulting from
Laserscope's failure to perform its obligations to assume and accept the
assignment of the LDB Assets and the LDB Liabilities, or the use by Laserscope
or any of its affiliated persons (other than HME or any transferee of the
Laserscope Shares) after the Closing of any of the LDB Assets, described in
Section 2(b) above;
(B) Any and all liabilities, losses,
damages, claims, costs and expenses resulting from any misrepresentation or
breach of any warranty by Laserscope contained in this agreement or in any
written statement or certificate furnished or to be furnished by Laserscope to
HME pursuant hereto;
(C) Any and all liabilities, losses,
damages, claims, costs and expenses resulting from any breach or non-fulfillment
of any covenant or agreement on the part of Laserscope or HSI contained in this
agreement or in the certificate delivered pursuant to Section 6(b)(ii) by
Laserscope to HME;
(D) Notwithstanding any other provision
herein, any and all liabilities, losses, damages, claims, costs and expenses not
reimbursed by insurance resulting from any product liability claims (whether
based upon negligence, strict liability or any other legal theory) arising after
the Closing and relating to products manufactured or sold by Laserscope, HSI or
LDB at any time before or after the Closing; and
(E) Any and all actions, suits, proceedings,
demands, assessments or judgments, costs and expenses (including attorneys'
fees) incident to any of the foregoing.
(iii) In the event that at any time or from time to
time after the Closing a party entitled to indemnification hereunder (the
"Indemnitee") shall sustain a loss of any nature whatsoever against which such
Indemnitee is indemnified hereunder, such Indemnitee shall promptly notify the
other party (the "Indemnitor") in writing of such loss so sustained, and the
Indemnitor shall within ten (10) business days after such notice pay to the
Indemnitee the amount of such loss so sustained, subject to its right to contest
any claim which has not yet resulted in a loss, as hereinafter provided. The
Indemnitee shall promptly notify the Indemnitor in writing of the existence of
any actual or potential claim, demand or other matter involving liabilities to
third parties to which the Indemnitor's indemnification obligations would apply
and shall give the Indemnitor a reasonable opportunity to defend the same or
prosecute such action to conclusion or settlement satisfactory to the Indemnitee
at the Indemnitor's expense and with counsel of the Indemnitor's selection
(which counsel shall control the defense), provided that the Indemnitee shall at
all times also have the right to participate fully in the defense at its own
expense.
(A) If the Indemnitee fails to provide
promptly the Indemnitor with written notice of any actual or potential claim,
demand or other matter involving liabilities to third parties to which the
indemnification provisions of this Section 4(c) relate, the Indemnitor shall not
be liable for any harm, cost, expense or liability which directly results from
or is a result of the Indemnitee's failure to deliver such prompt notice to the
Indemnitor.
-6-
<PAGE> 7
(B) If the Indemnitor shall, within a
reasonable time after said notice, fail to defend, the Indemnitee shall have the
right, but not the obligation, to undertake the defense of, and to compromise or
settle (exercising reasonable business judgment) the claim or other matter on
behalf, for the account, and at the risk and expense, of the Indemnitor. Except
as provided in the preceding sentence, the Indemnitee shall not compromise or
settle any claim or other matter without the prior written consent of the
Indemnitor.
(C) If the claim is one that cannot by its
nature be defended solely by the Indemnitor, the Indemnitee shall make available
all information and assistance that the Indemnitor may reasonably request,
provided that any associated out of pocket expenses shall be paid by the
Indemnitor.
(D) If the Indemnitor contests or challenges
any claim or action asserted against the Indemnitee for which indemnification is
provided in this Section 4(c), it shall do so at its own cost and expense,
holding the Indemnitee harmless from all costs, fees, expenses, debts,
liabilities and charges in connection with such contest; shall diligently defend
against any such claim; and shall hold the Indemnitee's business and assets free
and harmless from any attachment, execution, judgment, lien or other legal
process.
(iv) At the Closing, or as soon thereafter as
possible, Laserscope's transfer agent will deposit into escrow with the Chief
Financial Officer of Laserscope ("Escrow Agent") a certificate representing
500,000 of the Laserscope Shares issuable to HME hereunder and a stock
assignment in blank in respect of such shares signed by HME, upon the Escrow
Agent's written agreement in the form of Exhibit 4(c)(iv) hereto to be bound by
the terms of this agreement with respect to the escrowed shares. If the Escrow
Agent has not received written notice of a claim for indemnification by
Laserscope pursuant to this Section 4(c) within one year after the Closing, the
Escrow Agent shall promptly release the certificate for the escrowed shares to
HME. If Laserscope has made a claim or claims for indemnification under this
Section 4(c) within such one-year period, the Escrow Agent shall retain the
certificate representing such shares until the Escrow Agent shall have received
from Laserscope and HME joint instructions concerning disposition of the
escrowed shares or the order of an arbitrator (selected by the parties pursuant
to Section 8(g) below) directing the release of all or a portion of such shares
to Laserscope or HME. The Escrow Agent will have no liability to Laserscope or
HME for any actions taken in good faith. Laserscope and HME will each pay half
of the expenses, if any, of the Escrow Agent. Any escrowed shares used to settle
any claim under this Section 4 will be valued at the average of the closing
prices of Laserscope Common Stock on Nasdaq over the five trading days
immediately preceding the date on which the claim is settled.
(v) If HME notifies Laserscope within one year after
the Closing that it has a claim or claims for indemnification under this Section
4(c), and such claim has been resolved by Laserscope and HME or by an arbitrator
(selected by the parties pursuant to Section 8(g) below), Laserscope shall issue
up to 500,000 additional shares of Laserscope Common Stock to HME to compensate
HME for the amount of such claim or claims. Such additional shares shall be
entitled to the same rights and subject to the same restrictions as are
applicable to the
-7-
<PAGE> 8
Laserscope Shares. Any additional shares issued to HME to settle any claim under
this Section 4(c) will be valued at the average of the closing prices of
Laserscope Common Stock on Nasdaq over the five trading days immediately
preceding the date on which the claim is settled.
(vi) In the absence of fraud, HME's liability to
Laserscope under Section 4(c)(i)(B) will be limited to the 500,000 Laserscope
Shares placed in escrow as described in Section 4(c)(iv).
(vii) In the absence of fraud, Laserscope's liability
to HME under Section 4(c)(ii)(B) will be limited to the 500,000 additional
shares of Laserscope Common Stock that may be issued in accordance with Section
4(c)(v).
(viii) In the event of fraud or any claim described in
this Section 4(c) (other than Section 4(c)(i)(B) or 4(c)(ii)(B)), the aggrieved
party shall be entitled to all rights and remedies at law and in equity which
may accrue to such party.
5. Covenants:
(a) Noncompetition: For a period of seven years after the
Closing, HME and companies controlled by or under common control with Heraeus
Holding (with the exception of the Heraeus dental business), will not develop,
manufacture, service or sell hospital or physician office-based laser surgical
systems or accessories. During the term of the Mounting Device License, and as a
covenant thereunder, neither Laserscope nor any of its subsidiaries or
affiliated persons will develop, manufacture, service or sell mounting device
products based on the licensed technology outside of the United States. For
seven years after the Closing, and as a covenant under the CVAC Sublicense,
neither Laserscope nor any of its subsidiaries or affiliated persons will
develop, manufacture, service or sell products based on the sublicensed
technology, including CVAC, outside of the United States.
(b) Exclusive Negotiation: Prior to the Closing or termination
of this agreement, whichever is sooner, HME will not engage in any discussions
or negotiations with third parties concerning the sale of HSI, the LDB Assets or
any of the other rights of Laserscope or HSI described in this agreement.
(c) Operation of Businesses: Prior to the Closing, Laserscope
will conduct its business, and HME will conduct the LDB and HSI's business, in
the ordinary course consistent with prior practices. In particular, during the
period from the date of this agreement through and including the Closing,
neither Laserscope, HSI nor HME will make any distribution or payment of cash or
other assets to their shareholders (other than normal wages, benefits and
expense reimbursements to employees). In addition, during the period from the
date of this agreement through and including the Closing and other than in the
ordinary course consistent with prior practices, HSI will not transfer any
material assets, incur any material liabilities, materially shift the balance of
inventory, cash and receivables as reflected in its March 31, 1996 balance sheet
or enter into any material agreement.
-8-
<PAGE> 9
(d) Information: Prior to the Closing, each party shall give
the other party and the other party's authorized representatives reasonable
access to such information as is necessary to prepare the proxy statement for
Laserscope's shareholders and plan the integration of the businesses as
contemplated by this agreement. Each party shall hold all documents and
information furnished to it by the other in confidence in accordance with the
Mutual Non-Disclosure Agreement between Laserscope and HSI dated June 14, 1995
(the "Non-Disclosure Agreement").
(e) Insurance: From and after the Closing, Laserscope shall
maintain in effect U.S.$10,000,000 in product liability insurance to cover
claims related to products sold by Laserscope and its subsidiaries and
affiliated persons (subject to a $100,000 deductible), and directors' and
officers' liability insurance of the type and in the amount customarily
maintained by companies of similar size and similarly situated.
(f) Directors: Every member of the Laserscope Board of
Directors designated for such position by HME shall be covered by the same
insurance coverage as provided for the other members of such Board in their
capacity as directors. In addition, Laserscope shall reimburse HME for the
reasonable expenses of such Board members in attending Laserscope Board meetings
and fulfilling their duties as directors, up to a maximum of $25,000 per year.
(g) Standstill: For a period of seven years after the Closing,
neither HME nor Heraeus Holding nor any other company controlled by Heraeus
Holding will acquire any additional shares of Laserscope Common Stock or any
rights, options or warrants to purchase additional Laserscope Common Stock
without the approval of Laserscope's Board of Directors. HME shall not sell or
otherwise transfer more than 1,000,000 Laserscope Shares to any person (after
aggregating all Laserscope Shares held by such person's affiliates), unless such
person (and its affiliates) shall agree to the restrictions set forth in this
Section 5(g); provided that with respect to such persons, such restrictions
shall terminate on the third anniversary of the Closing.
(h) Lockup: HME shall not sell, transfer or pledge any of the
Laserscope Shares (except to Laserscope as provided in Section 4(c)(iv)) for a
period of one year from the Closing Date.
(i) Number of Directors: One year after the Closing,
Laserscope shall reduce its authorized number of directors from eight to seven.
For so long after such anniversary as HME owns at least 3,300,000 shares of
Laserscope Common Stock, Laserscope shall use its best efforts to have three
nominees of HME elected to the Board. For so long after such anniversary as HME
owns at least 1,600,000 shares of Laserscope Common Stock, Laserscope shall use
its best efforts to have two nominees of HME elected to the Board. For so long
after such anniversary as HME owns at least 600,000 shares of Laserscope Common
Stock, Laserscope shall use its best efforts to have one nominee of HME elected
to the Board, and Laserscope shall not increase, or ask its shareholders to
increase, the number of directors beyond seven without the prior consent of HME.
-9-
<PAGE> 10
(j) Issuances of Capital Stock: Prior to the Closing,
Laserscope shall not without obtaining the prior written consent of HME: (A)
issue and sell more than $3,000,000 of its capital stock (excluding sales upon
exercise of employee, director or consultant stock options); (B) grant options
to purchase more than 150,000 shares of Laserscope Common Stock to employees and
directors of, and consultants to Laserscope; and (C) grant options to purchase
more than one million shares of Laserscope Common Stock to employees and
directors of, and consultants to Laserscope or HSI effective upon the Closing,
not more than 200,000 of which shall be granted to Laserscope's executive
officers listed in Laserscope's Form 10-K for the year ended December 31, 1995,
or any of them.
(k) Registration Rights: At the Closing, Laserscope will grant
to HME the registration rights set forth in the attached Exhibit 5(k).
6. Closing Conditions: The obligations of Laserscope and HME to
complete the transactions contemplated by this agreement are subject to the
following conditions:
(a) Laserscope Closing Conditions:
(i) Laserscope shall have received shareholder
approval for the transactions contemplated by this agreement, including the
issuance of Laserscope Common Stock to HME, in accordance with applicable law,
and Laserscope shall use its best efforts to obtain such shareholder approval.
(ii) HME shall have delivered to Laserscope a
certificate signed by its General Manager that all obligations to be performed
by HME have been performed and the representations and warranties of HME are
still complete and correct as of the Closing.
(iii) HME shall have delivered to Laserscope an
opinion of its legal counsel in form reasonably acceptable to counsel for
Laserscope.
(iv) HME shall have furnished to Laserscope a
properly executed "FIRPTA" certificate satisfying the requirements of Treasury
Regulation Section 1.1445-2(c)(3) in form and substance reasonably satisfactory
to Laserscope to the effect that the shares of HSI capital stock acquired
hereunder do not constitute "United States real property interests" within the
meaning of Section 897(c) of the Internal Revenue Code.
(v) Each of Laserscope and HME shall have obtained
the consent of any government authorities and third parties necessary for it to
complete the transactions contemplated by this agreement.
(b) HME Closing Conditions:
(i) Three representatives of HME shall have been elected to
Laserscope's Board of Directors, with the total number of directors after such
election being eight.
-10-
<PAGE> 11
(ii) Laserscope shall have delivered to HME a certificate
signed by its President that all obligations to be performed by Laserscope have
been performed and the representations and warranties of Laserscope are still
complete and correct as of the Closing.
(iii) Laserscope shall have delivered to HME an opinion of its
legal counsel in form reasonably acceptable to counsel for HME.
(iv) Each of Laserscope and HME shall have obtained the
consent of any government authorities and third parties necessary for it to
complete the transactions contemplated by this agreement.
7. Closing:
(a) The closing of the transactions contemplated by this
agreement ("Closing") shall take place on or before August 31, 1996 (the
"Closing Date") at the offices of Venture Law Group, A Professional Corporation,
2800 Sand Hill Road, Menlo Park, California 94025, or at such other time, date
or place as Laserscope and HME may agree.
(b) At the Closing, Laserscope and HME shall each provide to
the other the payments, stock certificates and other closing documents listed in
this agreement.
(c) This agreement may be terminated by either party if the
other party has breached a material provision of this agreement and has not
corrected such failure within thirty days after receipt of written notice
describing such breach. Such termination shall not limit any remedies the
nondefaulting party may have against the defaulting party for such breach. This
agreement may also be terminated by either party in writing if every condition
to Closing in Section 6 above is not either satisfied or waived, and Closing
does not occur, by August 31, 1996.
8. General Provisions:
(a) This agreement shall be governed by the laws of
California.
(b) This agreement represents the entire agreement between
Laserscope and HME with respect to the subject matter hereof and supersedes all
prior agreements and understandings with respect to such subject matter (except
for the Non-Disclosure Agreement).
(c) All notices pursuant to this agreement shall be in writing
and shall be sent to the other party simultaneously by fax and air express at
the address first set forth above or such other address as either party may from
time to time notify the other, and shall be deemed effective upon receipt.
(d) Upon signing of this agreement Laserscope and HME will
issue a joint press release in form satisfactory to each of them concerning
their relationship.
-11-
<PAGE> 12
(e) This agreement shall benefit and be binding upon the
successors and assigns of Laserscope and HME.
(f) The representations and warranties of Laserscope and HME
hereunder shall survive the Closing and for a period of one year thereafter.
(g) If either party claims that the other has made any breach,
or disputes any claim under any indemnity, hereunder, it shall promptly provide
the other party with a detailed written description of such alleged breach.
Within fifteen days after receipt of such description by the other party, the
President of Laserscope and the General Manager of HME shall meet in New York
City or other mutually agreed location to attempt to resolve such claim. If such
claim has not been resolved as of the conclusion of such meeting, either party
may submit such claim for resolution by arbitration in Santa Clara County,
California before a single arbitrator in accordance with the Rules of the
American Arbitration Association (except that the rules of discovery set forth
in the California Code of Civil Procedure shall apply in lieu of any in such
Rules). The fees and expenses for such arbitrator shall be divided and paid
equally by Laserscope and HME, but the prevailing party shall be entitled to
recover its attorney's fees and other costs incurred in connection with the
arbitration from the other party. The decision of the arbitrator with respect to
such claim or claims shall be final and binding on Laserscope and HME without
right of further appeal.
(h) References in this agreement to numbers of shares shall be
adjusted to reflect any stock splits, reverse stock splits, combinations,
reorganizations and similar transactions which Laserscope or HSI may experience.
-12-
<PAGE> 13
LASERSCOPE HERAEUS MED GmbH
By: /s/ Robert V. McCormick By: /s/ Thomas Ihlenfeldt
----------------------------- ---------------------------
Name: Robert V. McCormick Name: Thomas Ihlenfeldt
-------------------------- --------------------------
Title: President & CEO Title: Managing Director
-------------------------- --------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,591
<SECURITIES> 0
<RECEIVABLES> 5,674
<ALLOWANCES> 490
<INVENTORY> 9,497
<CURRENT-ASSETS> 18,405
<PP&E> 13,354
<DEPRECIATION> 10,876
<TOTAL-ASSETS> 22,987
<CURRENT-LIABILITIES> 5,611
<BONDS> 0
0
0
<COMMON> 37,248
<OTHER-SE> (19,884)
<TOTAL-LIABILITY-AND-EQUITY> 22,987
<SALES> 7,722
<TOTAL-REVENUES> 7,722
<CGS> 3,852
<TOTAL-COSTS> 3,852
<OTHER-EXPENSES> 3,721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7)
<INCOME-PRETAX> 156
<INCOME-TAX> 19
<INCOME-CONTINUING> 137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
