<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
LASERSCOPE
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[LASERSCOPE LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 11, 1999
------------------------
TO THE SHAREHOLDERS OF LASERSCOPE:
Notice is hereby given that the Annual Meeting of Shareholders (the "Annual
Meeting") of Laserscope, a California corporation (the "Company"), will be held
at the Company's principal executive offices at 3052 Orchard Drive, San Jose,
California 95134, on Friday, June 11, 1999 at 9:00 a.m. local time, for the
following purposes:
1. To elect the following directors to serve for the ensuing year and
until their successors are elected: E. Walter Lange, Robert V. McCormick,
Rodney Perkins, M.D. and Robert J. Pressley, Ph.D.;
2. To authorize an amendment to the Company's 1994 Stock Option Plan
to increase the number of shares of Common Stock reserved for issuance
thereunder by 200,000 shares;
3. To approve the adoption of the Company's 1999 Employee Stock
Purchase Plan and to reserve 100,000 shares of Common Stock for issuance
thereunder;
4. To approve the adoption of the Company's 1999 Directors' Stock
Option Plan and to reserve 300,000 shares of Common Stock for issuance
thereunder;
5. To ratify the appointment of Ernst & Young LLP as the independent
auditors for the Company for the fiscal year ending December 31, 1999; and
6. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 15, 1999 will
be entitled to notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. If you
decide to attend the Annual Meeting, you may vote in person even if you returned
a proxy card.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Elias J. Blawie
ELIAS J. BLAWIE
Secretary
San Jose, California
April 30, 1999
<PAGE> 3
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN
PERSON, YOU ARE URGED TO SIGN AND MAIL THE ENCLOSED PROXY IN THE RETURN ENVELOPE
PROMPTLY SO THAT YOUR SHARES MAY BE REPRESENTED AT THE ANNUAL MEETING.
<PAGE> 4
[LASERSCOPE LOGO]
------------------------
PROXY STATEMENT
------------------------
FOR 1999 ANNUAL MEETING OF SHAREHOLDERS
INTRODUCTION
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Laserscope, a California corporation (the "Company"), for use at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held Friday, June 11, 1999,
at 9:00 a.m. local time, or at any adjournment or postponement thereof, for the
purposes set forth in this Proxy Statement and in the accompanying Notice of
Annual Meeting of Shareholders. The Annual Meeting will be held at the Company's
principal executive offices at 3052 Orchard Drive, San Jose, California 95134.
The Company's telephone number at that location is (408) 943-0636.
These proxy solicitation materials were mailed on or about April 30, 1999
to all shareholders entitled to vote at the Annual Meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
Dennis LaLumandiere, Inspector of Elections) a written notice of revocation or a
duly executed proxy bearing a later date or by attending the meeting and voting
in person.
VOTING AND SOLICITATION
Every shareholder voting for the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of shares held by such
shareholder, or distribute the shareholder's votes on the same principle among
as many candidates as the shareholder thinks fit, provided that votes cannot be
cast for more than the number of directors authorized by the Company's Bylaws.
However, no shareholder shall be entitled to cumulate votes unless the
candidate's name has been placed in nomination prior to the voting and the
shareholder, or any other shareholder, has given notice at the meeting prior to
the voting of the intention to cumulate the shareholder's votes. On all other
matters, each share has one vote.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections with the assistance of the Company's transfer agent.
The Inspector of Elections will also determine whether or not a quorum is
present. Except with respect to the election of directors and except in certain
other specific circumstances, the affirmative vote of a majority of shares
represented and voting with respect to a particular matter at a duly held
meeting at which a quorum is present (which shares voting affirmatively also
constitute a majority of the required quorum) is required under California law
for approval of proposals presented to shareholders. In general, California law
also provides that a quorum consists of a majority of the shares entitled to
vote, represented either in person or by proxy. The Inspector of Elections will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum but as not voting for purposes of
determining the approval of any matter submitted to the shareholders for a vote.
Any proxy which is returned using the form of proxy enclosed and which is not
marked as to a particular item will be voted for the election of directors, for
the approval of the amendment to the Company's 1994 Stock Option Plan, for the
adoption of the 1999 Employee Stock Purchase Plan and reservation of shares
thereunder, for the adoption of the 1999 Directors' Stock Option Plan and the
reservation of shares thereunder, for ratification of the appointment of the
designated independent auditors and as the proxy holders deem advisable on other
matters that may properly come before the Annual Meeting, as the case may be,
with respect to the item not marked. If a broker indicates on the enclosed proxy
or its substitute that it does not have discretionary
<PAGE> 5
authority as to certain shares to vote on a particular matter ("broker
non-votes"), those shares will not be considered as voting with respect to that
matter. While there is no definitive specific statutory or case law authority in
California concerning the proper treatment of abstentions and broker non-votes,
the Company believes that the tabulation procedures to be followed by the
Inspector of Elections are consistent with the general statutory requirements in
California concerning voting of shares and determination of a quorum.
The cost of soliciting proxies will be borne by the Company. The Company
has retained the services of Skinner & Co., Inc. to aid in the solicitation of
proxies from brokers, bank nominees and other institutional owners. The Company
estimates that it will pay Skinner & Co. a fee not to exceed $7,500 for its
services, including its usual and proper out of pocket expenses. In addition,
the Company will reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may be solicited by certain of the
Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or telegram.
RECORD DATE AND SHARE OWNERSHIP
Only Company shareholders of record at the close of business on April 15,
1999 are entitled to notice of and to vote at the Annual Meeting. As of April
15, 1999, 12,545,977 shares of the Company's Common Stock were issued and
outstanding.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES
The Company's Bylaws currently provide for five directors. At the Annual
Meeting, the Board of Directors has nominated four directors to be elected to
serve until the next Annual Meeting of Shareholders and until their successors
are elected and qualified at the meeting. Unless otherwise instructed, the proxy
holders will vote the proxies received by them for the Company's four nominees
named below, all of whom are presently directors of the Company. In the event
that any nominee of the Company is unable or declines to serve as a director at
the time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy. In
the event that additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them in such a manner in
accordance with cumulative voting as will assure the election of as many of the
nominees listed below as possible and, in such event, the specific nominees for
whom the proxy holders will vote will be determined by the proxy holders.
Assuming a quorum is present, the nominees for director receiving the greatest
number of votes cast at the Annual Meeting will be elected, up to the number of
directors authorized by the Company's Bylaws. The term of office of each person
elected as a director will continue until the next Annual Meeting of
Shareholders or until his or her successor has been elected and qualified.
The nominees' names, ages as of December 31, 1998 and certain information
about them are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
Robert J. Pressley, Ph.D. ......... 66 Technology consultant 1984
E. Walter Lange.................... 66 Business consultant 1992
Robert V. McCormick................ 54 President and Chief Executive 1992
Officer of the Company
Rodney Perkins, M.D................ 62 Practicing otologic surgeon and 1984
President of the California Ear
Institute at Stanford
</TABLE>
Except as set forth below, each of the nominees has been engaged in the
principal occupation set forth next to his name above during the past five
years. There is no family relationship between any director or executive officer
of the Company.
2
<PAGE> 6
ROBERT J. PRESSLEY, Ph.D. is a co-founder of the Company and has been a
Director since its founding. Dr. Pressley was appointed Chairman of the Board of
Directors in June 1998. Dr. Pressley co-founded Candescent Technologies
Corporation (formerly named Silicon Video Corporation), a developer of
electronic products, and served as its President and Chief Executive Officer
from January 1991 to January 1994. Dr. Pressley also founded XMR, Inc., a
manufacturer of eximer lasers and laser systems, and served as its Chief
Executive Officer from March 1979 until March 1990. Dr. Pressley has been a
self-employed technology consultant since January 1995.
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. Mr. Lange has been a self-employed business consultant since 1991.
RODNEY PERKINS, M.D. is a co-founder of the Company and has been a Director
since its founding. Dr. Perkins also served as Chairman of the Board of
Directors from its founding until June 1995 and Chief Executive Officer from
February to May 1987, and from October 1991 to July 1992. He also served as the
President of the Company from October to December 1991. Dr. Perkins, a
specialist in otologic surgery, is President of the California Ear Institute at
Stanford and has been in private practice since 1968. He is a Clinical 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. Dr. Perkins is also a founder and the Chairman of the Board of
Directors of ReSound Corporation, a hearing health care company.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of six meetings during
the year ended December 31, 1998. The Board of Directors has an Audit Committee
and a Human Resources Committee. It does not have a nominating committee or a
committee performing the functions of a nominating committee.
The Audit Committee of the Board of Directors currently consists of Mr.
Lange and Dr. Pressley. The Audit Committee held six meetings during 1998. The
Audit Committee recommends engagement of the Company's independent auditors, and
is primarily responsible for approving the services performed by the Company's
independent accountants and for reviewing and evaluating the Company's
accounting principles and its system of internal accounting controls.
The Human Resources Committee of the Board of Directors currently consists
of Drs. Pressley and Perkins. The Human Resources Committee makes
recommendations to the Board of Directors regarding the Company's executive
compensation policy, and approves and makes recommendations to the Board of
Directors concerning the grant of stock options.
No incumbent director attended fewer than 75% of the aggregate number of
meetings of the Board of Directors and meetings of the committees of the Board
of Directors that he was eligible to attend, with the exception that Dr. Perkins
attended four out of the six meetings held by the Board of Directors during
1998.
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<PAGE> 7
COMPENSATION OF DIRECTORS
Nonemployee 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, nonemployee 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"), and, if adopted by the
shareholders at the Annual Meeting, the nonemployee members of the Board of
Directors shall be eligible to receive options under the 1999 Directors' Option
Plan (the "1999 Directors' Option Plan"). See Proposal No. 4.
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 stock 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 nonemployee directors as of October 18, 1991, as well as persons who joined
the Board of Directors 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, which was approved by the Board of
Directors in November 1995 and by the Company's shareholders in August 1996,
provides for the grant of nonstatutory stock 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. The 1995 Directors' Option Plan
shall be replaced by the 1999 Directors' Option Plan if approved at the Annual
Meeting. See Proposal No. 4. Under the 1995 Directors' Option Plan, persons who
were nonemployee directors as of November 30, 1995, as well as persons who
joined the Board of Directors 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 designated or nominated by
shareholders who hold 10% or more of the outstanding Company Common Stock are
not eligible to receive options under the 1995 Directors' Option Plan.
Directors who are employees of the Company do not receive any additional
compensation for their services as a Director of the Company.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ALL OF THE NOMINEES LISTED ABOVE.
PROPOSAL NO. 2
AMENDMENT OF THE 1994 STOCK OPTION PLAN
At the Annual Meeting, shareholders are being asked to approve an amendment
to the 1994 Stock Option Plan (the "1994 Option Plan") that would increase the
shares reserved for issuance thereunder by 200,000 shares.
GENERAL
The Company's 1994 Option Plan provides for the grant of options to
employees and consultants of the Company. The 1994 Option Plan was adopted by
the Board of Directors in March 1994 and approved by the shareholders in June
1994. A total of 2,550,000 shares of Common Stock have been reserved for
issuance under the 1994 Option Plan. Subject to shareholder approval, this
amount would be increased to an aggregate of 2,750,000 shares. The aggregate
number of shares reserved for issuance under the 1994 Option Plan
4
<PAGE> 8
includes options previously granted and exercised under the 1994 Option Plan.
The increase in shares reserved for issuance under the 1994 Option Plan has been
necessitated by the hiring of new employees and the grant of additional stock
options to current employees as previously granted options vest and become
exercisable. The increase will assist the Company in being able to continue its
policy of equity ownership by employees and consultants as an incentive to
contribute to the Company's success.
Options granted under the 1994 Option Plan may be either "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or nonstatutory stock options at the discretion of the
Board of Directors and as reflected in the terms of the written option
agreement. Only employees of the Company or its subsidiaries may be granted
"incentive stock options." The 1994 Option Plan is not a qualified deferred
compensation plan under Section 401(a) of the Code, and is not subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended
(ERISA).
As of April 15, 1999, 194,384 shares had been issued upon exercise of
options granted under the 1994 Option Plan, options for 2,047,120 shares were
outstanding under the 1994 Option Plan and 308,496 shares remain available for
future grants. As of April 15, 1999, the fair market value of shares subject to
outstanding options was $2,366,471 based upon the closing price of the Common
Stock as reported on The Nasdaq Stock Market on such date.
During the year ended December 31, 1998, (i) options to purchase 320,000
shares of Common Stock were granted under the 1994 Option Plan to the executive
officers as a group (7 persons as of December 31, 1998), and (ii) options to
purchase 604,800 shares of Common Stock were granted under the 1994 Option Plan
to all other employees.
PURPOSE
The purposes of the 1994 Option Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of the Company and to promote
the success of the Company's business.
ADMINISTRATION
The 1994 Option Plan may be administered by the Board of Directors or by a
committee of the Board of Directors. The 1994 Option Plan is currently
administered by the Board of Directors and the Human Resources Committee of the
Board of Directors, except that with respect to executive officers (including
executive officers who are also directors), the 1994 Option Plan is administered
exclusively by the Human Resources Committee (comprised of Drs. Perkins and
Pressley, the outside directors of the Company who are not eligible to
participate in the 1994 Option Plan). Members of the Board of Directors receive
no additional compensation for their services in connection with the
administration of the 1994 Option Plan. All questions of interpretation of the
1994 Option Plan are determined by the Board of Directors or its committee and
its decisions are final and binding upon all participants. All directors
currently hold office until the annual meeting of shareholders of the Company
following their election, or until their successors are duly elected and
qualified.
ELIGIBILITY
The 1994 Option Plan provides that either incentive stock options or
nonstatutory stock options may be granted to employees (including officers and
directors who are also employees) of the Company or any of its subsidiaries. In
addition, the 1994 Option Plan provides that nonstatutory stock options may be
granted to consultants (not including directors who are not compensated for
their services or are paid only a director's fee by the Company) of the Company
or any of its subsidiaries. The Board of Directors or its committee selects the
optionees and determines the number of shares to be subject to each option. In
making such determination, there are taken into account the duties and
responsibilities of the optionee, the value of the optionee's services, the
optionee's present and potential contribution to the success of the Company and
other relevant factors.
5
<PAGE> 9
The 1994 Option Plan provides that the maximum number of shares of Common
Stock which may be granted under options to any one employee during any fiscal
year shall be 325,000, subject to adjustment as provided in the 1994 Option
Plan. This limitation is intended to preserve the Company's ability to deduct
for federal income tax purposes any compensation income relating to stock
options granted to certain executive officers under the 1994 Option Plan.
Without this limitation, federal tax legislation enacted in 1993 might not allow
the Company to deduct such compensation income.
In addition to the foregoing limitation on discretion for certain grants,
there is also a limit on the aggregate market value of shares subject to all
incentive stock options that may be granted to an optionee during any calendar
year.
TERMS OF OPTIONS
Each option is evidenced by a stock option agreement between the Company
and the optionee. Each option is subject to the following additional principal
terms and conditions:
(a) Exercise of the Option. The Board of Directors or its committee
determines when options may be exercised. In general, such options become
exercisable ratably over four years with respect to employees and over two
to four years with respect to consultants. An option is exercised by giving
written notice of exercise to the Company specifying the number of full
shares of Common Stock to be purchased and by tendering of payment of the
purchase price. The purchase price of the shares purchased upon exercise of
an option shall be paid in consideration of such form as is determined by
the Board of Directors or its committee and specified in the option
agreement, and such form of consideration may vary for each option.
(b) Exercise Price. The exercise price of each option granted under
the 1994 Option Plan is determined by the Board of Directors or its
committee and may not be less than 100% of the fair market value of the
Common Stock on the date the option is granted; provided, however, that
nonstatutory stock options may be granted to persons other than the
Company's Chief Executive Officer or its other four most highly compensated
officers whose compensation is required to be reported to shareholders
under the Securities Exchange Act of 1934, as amended, at exercise prices
of not less than 50% of the fair market value on the date the option is
granted. The fair market value per share is equal to the closing price on
The Nasdaq Stock Market on the date of grant. In the case of an option
granted to an optionee who owns more than 10% of the voting power of all
classes of stock of the Company, its parent or subsidiaries, the exercise
price must not be less than 110% of the fair market value on the date of
the grant.
(c) Termination of Employment. If an optionee's employment or
consulting relationship terminates for any reason other than disability or
death, options under the 1994 Option Plan may be exercised not later than
30 days (or such other period of time not exceeding three months in the
case of an incentive stock option as is determined by the Board of
Directors or its committee, with such determination in the case of an
incentive stock option being made at the time of grant) after such
termination and may be exercised only to the extent the option was
exercisable on the date of termination. In no event may an option be
exercised by any person after the expiration of its term.
(d) Disability. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of his
or her total and permanent disability, options may be exercised within six
months (or such other period of time not exceeding twelve months as is
determined by the Board of Directors or its committee with such
determination in the case of an incentive stock option being made at the
time of grant) of termination and may be exercised only to the extent the
option was exercisable on the date of termination. In no event may an
option be exercised by any person after the expiration of its term.
(e) Death. Under the 1994 Option Plan, if an optionee should die while
employed or retained by the Company, and such optionee has been
continuously employed or retained by the Company since the date of grant of
the option, the option may be exercised within six months after the date of
death (or such
6
<PAGE> 10
other period of time, not exceeding 12 months, as is determined by the
Board of Directors or its committee, with such determination in the case of
an incentive stock option being made at the time of grant) by the
optionee's estate or by a person who acquired the right to exercise the
option by bequest or inheritance to the extent the optionee would have been
entitled to exercise the option had the optionee continued living and
remained employed or retained by the Company for six months (or such other
period of time as is determined by the Board of Directors or its committee,
with such determination in the case of an incentive stock option being made
at the time of grant) after the date of death. If an optionee should die
within three months (or such other period of time not exceeding three
months as is determined by the Board of Directors or its committee, with
such determination in the case of an incentive stock option being made at
the time of grant) after the optionee has ceased to be continuously
employed or retained by the Company, the option may be exercised within six
months after the date of death by the optionee's estate or by a person who
acquired the right to exercise the option by bequest or inheritance to the
extent that the optionee was entitled to exercise the option at the date of
termination. In no event may an option be exercised by any person after the
expiration of its term.
(f) Term of Options. The 1994 Option Plan provides that options
granted under the 1994 Option Plan have the term provided in the option
agreement. In general, these agreements provide for a term of five years.
Incentive stock options granted to an optionee who, immediately before the
grant of such option, owns more than 10% of the total combined voting power
of all classes of stock of the Company, its parents or subsidiaries, may
not in any case have a term of more than five years. No option may be
exercised by any person after its expiration.
(g) Option Not Transferable. An option is not transferable by the
optionee other than by will or the laws of descent and distribution, and is
exercisable only by the optionee during his or her lifetime and, in the
event of the optionee's death, by a person who acquires the right to
exercise the option by bequest or inheritance or by reason of the
optionee's death.
(h) Acceleration of Options. In the event of a merger or consolidation
in which the Company is not the surviving entity, or a proposed sale of all
or substantially all of the assets of the Company, the Board of Directors
is obligated to accomplish either a substitution or assumption of options
or give 30 days' notice of the acceleration of the optionee's right to
exercise his or her outstanding options as to some or all of the optioned
stock at any time within 30 days of such notice. The exercisability of
options held by the Company's executive officers may also be accelerated
upon the occurrence of such events. See "Transactions with Management and
Others."
(i) Other Provisions. The option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1994 Option Plan
as may be determined by the Board of Directors or its committee.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change, such as a stock split or dividend, is made in the
Company's capitalization that results in an increase or decrease in the number
of outstanding shares of Common Stock without receipt of consideration by the
Company, appropriate adjustment shall be made in the exercise price of each
outstanding option, the number of shares subject to each option, the annual
limitation on grants to employees, as well as the number of shares available for
issuance under the 1994 Option Plan. In the event of the proposed dissolution or
liquidation of the Company, each option will terminate unless otherwise provided
by the Board of Directors or its committee.
AMENDMENT AND TERMINATION
The Board of Directors may amend the 1994 Option Plan at any time or from
time to time or may terminate it without approval of the shareholders; provided,
however, that shareholder approval is required for any amendment to the 1994
Option Plan that increases the number of shares that may be issued under the
1994 Option Plan, modifies the standards of eligibility, modifies the limitation
on grants to employees described in the 1994 Option Plan or results in other
changes which would require shareholder approval to
7
<PAGE> 11
qualify options granted under the 1994 Option Plan as incentive stock options
under Section 422 of the Code, as performance-based compensation under Section
162(m) of the Code or, so long as the Company has a class of equity securities
registered under Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), materially increases the benefits to participants that may
accrue under the 1994 Option Plan. However, no action by the Board of Directors
or shareholders may alter or impair any option previously granted under the 1994
Option Plan. The 1994 Option Plan shall terminate in April 2004, provided that
any options then outstanding under the 1994 Option Plan shall remain outstanding
until they expire by their terms.
FEDERAL INCOME TAX ASPECTS OF THE 1994 OPTION PLAN
The following is a brief summary of the United States federal income tax
consequences of transactions under the 1994 Option Plan based on federal
securities and income tax laws in effect as of this date. This summary is not
intended to be exhaustive and does not discuss the tax consequences of a
participant's death or provisions of the income tax laws of any municipality,
state or other country in which an optionee may reside. This summary does not
purport to be complete. The Company advises all optionees to consult their own
tax advisors concerning tax implications of option grants and exercises, and the
disposition of shares acquired upon such exercise, under the 1994 Option Plan.
Options granted under the 1994 Option Plan may be either "incentive stock
options," as defined in Section 422 of the Code, or nonstatutory stock options.
If an option granted under the 1994 Option Plan is an incentive stock
option, under U.S. tax laws the optionee will recognize no income upon grant of
the incentive stock option and incur no tax liability upon its exercise,
although the exercise may give rise to alternative minimum tax. The Company will
not be allowed a deduction for federal income tax purposes as a result of the
exercise of an incentive stock option regardless of the applicability of the
alternative minimum tax. Upon the sale or exchange of the shares at least two
years after grant of the option and one year after transfer of the shares to the
optionee, any gain will be treated as long-term capital gain under U.S. tax
laws. If these holding periods are not satisfied, the optionee will recognize
ordinary income equal to the difference between the exercise price and the lower
of the fair market value of the stock at the date of the option exercise or the
sale price of the stock. The Company will be entitled to a deduction in the same
amount as the ordinary income recognized by the optionee. Any gain recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income will be characterized under U.S. tax laws as long-term capital
gain if the sale occurs more than one year after exercise of the option or as
short-term capital gain if the sale is made earlier. The tax rate on net capital
gain (net long-term capital gain minus short term capital loss) under current
U.S. tax laws is capped at 20% for shares held more than one year after the date
of exercise. Capital losses are allowed under U.S. tax laws in full against
capital gains plus $3,000 of other income.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income under U.S. tax laws at the time he or she is granted a
nonstatutory stock option. However, upon its exercise, under U.S. tax laws the
optionee will recognize ordinary income for tax purposes measured by the excess
of the then fair market value of the shares over the exercise price. The income
recognized by an optionee who is also an employee of the Company will be subject
to tax withholding by the Company by payment in cash or out of the current
earnings paid to the optionee. The Company will be entitled to a deduction in
the same amount as the ordinary income recognized by tax optionee. Upon resale
of such shares by the optionee, any difference between the sales price and the
exercise price, to the extent not recognized as ordinary income as provided
above, will be treated under U.S. tax laws as capital gain or loss, and will
qualify for long-term capital gain or loss treatment if the shares have been
held for more than one year.
REQUIRED VOTE
The affirmative vote of a majority of shares of Common Stock represented
and voting at the Annual Meeting with respect to the amendment to the 1994
Option Plan (which shares voting affirmatively also constitute a majority of the
required quorum) is required for its approval.
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<PAGE> 12
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE AMENDMENT OF THE 1994
STOCK OPTION PLAN.
PROPOSAL NO. 3
ADOPTION OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, shareholders are being asked to approve the adoption
of the 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan") and to
reserve 100,000 shares of Common Stock for issuance thereunder. The following is
a summary of principal features of the 1999 Purchase Plan. This summary,
however, does not purport to be a complete description of all the provisions of
the 1999 Purchase Plan. Any shareholder of the Company who wishes to obtain a
copy of the actual plan document may do so upon written request to the Chief
Financial Officer at the Company's principal offices at 3052 Orchard Drive, San
Jose, California 95134-2001.
GENERAL
The 1999 Employee Stock Purchase Plan was adopted by the Board of Directors
in April 1999. The Board of Directors has reserved a total of 100,000 shares of
Common Stock for issuance thereunder. If adopted by the shareholders at the
Annual Meeting, the 1999 Employee Stock Purchase Plan shall supersede the
Company's 1989 Employee Stock Purchase Plan, which expires by its terms in
September 1999.
The 1999 Purchase Plan will be implemented by one twelve-month offering
period each year commencing on July 1 of each year, or at such other time or
times as may be determined by the Board of Directors. Each offering period
consists of two six-month purchase periods. The first offering period commences
on July 1, 1999. The first purchase period ends on December 31, 1999. The
Purchase Plan is intended to qualify under Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code"). The 1999 Purchase Plan is further deemed
to contain, and options granted thereunder shall contain, and the shares issued
upon exercise thereof shall be subject to, any additional conditions and
restrictions as may be required by Rule 16b-3 of the Exchange Act to qualify for
the maximum exemption from Section 16 of the Exchange Act with respect to 1999
Purchase Plan transactions.
PURPOSE
The purpose of the 1999 Purchase Plan is to provide employees (including
officers and employee directors) of the Company with an opportunity to purchase
Common Stock of the Company through payroll deductions.
ADMINISTRATION
The 1999 Purchase Plan is to be administered by the Board of Directors of
the Company or a committee appointed by the Board (the "Administrator"). All
questions of interpretation or application of the 1999 Purchase Plan are
determined by the Administrator.
ELIGIBILITY AND PARTICIPATION
Employees (including officers and employee directors) who are employed for
at least 20 hours per week and more than five months in any calendar year and
who are employed by the Company as of the applicable Offering Date of each
offering period of the plan (the "Offering Date") are eligible to participate in
an offering under the 1999 Purchase Plan, subject to certain limitations imposed
by Section 423(b) of the Internal Revenue Code of 1986, as amended (the "Code")
and limitations on stock ownership as set forth in the 1999 Purchase Plan. No
employee shall be granted an option under the 1999 Purchase Plan if (i)
immediately after the grant such employee would own stock and/or hold
outstanding options to purchase stock possessing five percent (5%) or more of
the total voting power or value of all classes of stock of the Company or its
9
<PAGE> 13
subsidiaries, or (ii) such option would permit such employee to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries to
accrue at a rate which exceeds $25,000 of fair market value of such stock for
each calendar year in which such option is outstanding at any time.
Eligible employees become participants in the 1999 Purchase Plan by filing
with the Human Resources Department of the Company a subscription agreement
authorizing payroll deductions prior to the applicable Offering Date, unless a
later time for filing the subscription agreement has been set by the
Administrator. Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
day (the "Purchase Date") of each purchase period in an offering period to which
the subscription agreement is applicable, unless sooner terminated by the
participant.
GRANT AND EXERCISE OF OPTION
At the beginning of an offering period, each participant is granted an
option to purchase up to that number of shares determined by dividing such
employee's payroll deductions accumulated prior to the end of a purchase period
and retained in the participant's account as of the end of the purchase period
by the lower of (i) eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the applicable offering date or (ii)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the last day of the applicable purchase period; provided that in
no event shall a participant be permitted to purchase during each offering
period more than a number of shares determined by dividing $25,000 by the fair
market value of a share of the Company's Common Stock at the beginning of the
offering period, and provided further that such purchases shall be subject to
the limitations set forth below. The Company may make a pro rata reduction in
the number of shares subject to options if the total number of shares which
would otherwise be subject to options granted at the beginning of an offering
period exceeds the number of remaining available shares in the 1999 Purchase
Plan. Unless an employee withdraws his or her participation in the 1999 Purchase
Plan by giving written notice to the Company of his or her election to withdraw
all accumulated payroll deductions prior to the end of an offering period, the
employee's option for the purchase of shares will be exercised automatically at
the end of each purchase period, and the maximum number of full shares subject
to option which are purchasable with the accumulated payroll deductions in his
or her account will be purchased at the applicable purchase price determined as
provided below.
During his or her lifetime, a participant's option to purchase shares under
the 1999 Purchase Plan is exercisable only by him or her. However, a participant
may file a written designation of a beneficiary who is (i) to receive any shares
and cash, if any, from the participant's account under the 1999 Purchase Plan in
the event of such participant's death subsequent to the end of an Offering
Period but prior to delivery to him or her of such shares and cash, and (ii) to
receive any cash from the participant's account under the 1999 Purchase Plan in
the event of such participant's death prior to a Purchase Date of the Offering
Period. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
PURCHASE PRICE
The purchase price per share at which shares are sold to participating
employees under the 1999 Purchase Plan is the lower of (i) 85% of the fair
market value per share of the Common Stock at the time the option is granted on
the applicable Offering Date, and (ii) 85% of the fair market value per share of
the Common Stock at the time the option is exercised on the applicable Purchase
Date. The fair market value of the Common Stock on a given date shall be
determined by the Board of Directors and will generally be based upon the last
reported sales price of the Common Stock on The Nasdaq Stock Market.
PAYROLL DEDUCTIONS
The purchase price of the shares to be acquired under the 1999 Purchase
Plan is accumulated by payroll deductions during the offering period. The
deductions may not be less than 1% or more than 10% of a participant's aggregate
compensation during the offering period. A participant may discontinue his or
her participation in the 1999 Purchase Plan or, on one occasion only during a
purchase period, may increase or
10
<PAGE> 14
decrease his or her rate of payroll deductions. Payroll deductions for a
participant shall commence on the first payroll following the applicable
Offering Date and shall continue until his or her participation is terminated as
provided in the 1999 Purchase Plan.
TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement or death, or the failure of the participant to remain in the
continuous employ of the Company for at least 20 hours per week during the
applicable offering period, cancels his or her option and his or her
participation in the 1999 Purchase Plan immediately. In such event, the payroll
deductions credited to the participant's account will be returned to him or her
or, in the case of death, to the person or persons entitled thereto as provided
in the 1999 Purchase Plan.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event any change is made in the Company's capitalization in the
middle of an offering period, such as a stock split, stock dividend, combination
or reclassification, that results in an increase or decrease in the number of
shares of Common Stock outstanding without receipt of consideration by the
Company, appropriate adjustment shall be made in the purchase price and in the
number of shares subject to options under the 1999 Purchase Plan, as well as the
number of shares available for issuance under the 1999 Purchase Plan.
In the event of a proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Administrator. In the event of
a proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
1999 Purchase Plan shall be assumed be assumed or an equivalent substitute
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation. In the event that the successor
corporation refuses to assume or substitute for outstanding options, each
Offering Period then in progress shall be shortened and a new Purchase Date
shall be set as of which date such Offering Period shall terminate. The
Administrator shall notify the optionees of the change in their Purchase Date.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may at any time amend or terminate the 1999 Purchase
Plan without the approval of the shareholders, except that such termination
cannot affect options previously granted nor may an amendment make any change in
an option granted prior thereto which adversely affects the rights of any
participant unless prevailing accounting rules change in such a way that would
have an adverse effect on the Company if it did not terminate the 1999 Purchase
Plan or such Offering Period. No amendment may be made to the 1999 Purchase Plan
without approval of the shareholders of the Company to the extent required by
applicable law.
The 1999 Purchase Plan shall expire in 2009 unless sooner terminated by the
Administrator.
TAX INFORMATION
The 1999 Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Plan are sold or otherwise disposed of.
Upon sale or other disposition of the shares, the participant will generally be
subject to tax and the amount of the tax will depend upon how long the shares
have been held by the participant. If the shares are sold or otherwise disposed
of more than two years from the first day of the applicable Offering Date or
more than one year after the Purchase Date, the participant will recognize
ordinary income measured as the lesser of (a) the excess of the fair market
value of the shares at the time of such sale or disposition over the purchase
price, or (b) an amount equal to 15% of the fair market value of the shares as
of the first day of the offering period. Any additional gain will be treated as
long-term capital gain, taxed at a rate of 20% if the shares are held for more
11
<PAGE> 15
than one year after the applicable Purchase Date. If the shares are sold or
otherwise disposed of before the expiration of these holding periods, the
participant will recognize ordinary income generally measured as the excess of
the fair market value of the shares on the date the shares are purchased over
the purchase price. Any additional gain or loss on such sale or disposition will
be long-term or short-term capital gain or loss, depending on the holding
period. The Company is not entitled to a deduction for amounts taxed as ordinary
income or capital gain to a participant except to the extent of ordinary income
recognized by participants upon a sale or disposition of shares prior to the
expiration of the holding period(s) described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the 1999 Purchase Plan. Reference should be made to the applicable provisions of
the Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
REQUIRED VOTE
The ratification of the adoption of the 1999 Purchase Plan and the
reservation of 100,000 shares of Common Stock for issuance thereunder requires
the affirmative vote of the holders of a majority of the shares of the Company's
capital stock entitled to vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1999
PURCHASE PLAN AND THE RESERVATION OF 100,000 SHARES OF COMMON STOCK FOR ISSUANCE
THEREUNDER.
PROPOSAL NO. 4
APPROVAL OF 1999 DIRECTORS' STOCK OPTION PLAN
At the Annual Meeting, shareholders are being asked to approve the adoption
of the 1999 Directors' Stock Option Plan (the "1999 Directors' Plan") and to
reserve 300,000 shares of Common Stock for issuance thereunder. The following is
a summary of principal features of the 1999 Directors' Plan. This summary,
however, does not purport to be a complete description of all the provisions of
the 1999 Directors' Plan. Any shareholder of the Company who wishes to obtain a
copy of the actual plan document may do so upon written request to the Chief
Financial Officer at the Company's principal offices at 3052 Orchard Drive, San
Jose, California 95134-2001.
GENERAL AND PURPOSE
The 1999 Directors' Plan was adopted by the Board of Directors in February
1999 and the Board has reserved a total of 300,000 shares of Common Stock for
issuance thereunder. If adopted by the shareholders at the Annual Meeting, the
1999 Directors' Plan shall supersede the Company's 1995 Directors' Stock Option
Plan currently in effect.
The 1999 Directors' Plan provides for the grant of nonstatutory stock
options to nonemployee directors of the Company. It is designed to work
automatically and not to require administration; however, to the extent
administration is necessary, it will be provided by the Board of Directors.
The purpose of the 1999 Directors' Plan is to provide an incentive for
directors to continue to serve the Company as directors and to assist the
Company in recruiting highly qualified individuals when vacancies occur on the
Board of Directors.
GRANT AND EXERCISE OF OPTION
The 1999 Directors' Plan provides that each person who becomes a
nonemployee director after the effective date of the 1999 Directors' Plan shall
be automatically granted a "New Director Option" to purchase 60,000 shares of
Common Stock on the date on which such person first becomes a nonemployee
director,
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<PAGE> 16
whether through election by the shareholders of the Company or appointment by
the Board of Directors to fill a vacancy. In addition, each nonemployee director
who is a nonemployee director on the effective date of the 1999 Directors Plan
shall be automatically granted a "Continuing Director Option" to purchase 60,000
shares of Common Stock on the effective date.
The 1999 Directors' Plan provides for neither a maximum nor a minimum
number of shares subject to options that may be granted to any one nonemployee
director, but does provide for the number of shares that may be included in any
grant and the method of making a grant. No option granted under the 1999
Directors' Plan is transferable by the optionee other than by will or the laws
of descent or distribution or pursuant to the terms of a qualified domestic
relations order (as defined by the Internal Revenue Code of 1986 (the "Code")),
and each option is exercisable, during the lifetime of the optionee, only by
such optionee.
The 1999 Directors' Plan provides that each New Director Option and
Continuing Director Option granted thereunder becomes exercisable in
installments cumulatively as to 20,000 of the Shares subject to the New Director
Option or Continuing Director Option, as applicable, on January 1 of each of the
three years following the date of grant of such option, provided that if as of
the first January 1 following the date of grant of a New Director Option, the
optionee has not served as a director for at least six months, the New Director
Option shall not become exercisable until the next following January 1. The
options remain exercisable for up to ninety days following the optionee's
termination of service as a director of the Company, unless such termination is
a result of death or disability, in which case the options remain exercisable
for up to a twelve-month period (or such lesser period as is determined by the
Board).
EXERCISE PRICE AND TERM OF OPTIONS
The exercise price of all stock options granted under the 1999 Directors'
Plan shall be equal to the fair market value of a share of the Company's Common
Stock on the date of grant of the option, which is defined to be the closing
sale price of the Company's Common Stock on The Nasdaq Stock Market on the grant
date. Options granted under the 1999 Directors' Plan have a term of ten years.
PLAN BENEFITS
The following table sets forth information with respect to the stock
options to be granted to the nonemployee directors of the Company (3 persons)
upon approval of the 1999 Directors' Plan by the shareholders at the Annual
Meeting. As discussed above, the executive officers of the Company and the
employees of the Company are not eligible for grants under the 1999 Directors'
Plan.
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT TO
OPTIONS GRANTED UNDER
DIRECTOR THE DIRECTORS' OPTION PLAN
-------- ---------------------------
<S> <C>
Robert J. Pressley, Ph.D. ................... 60,000
E. Walter Lange.............................. 60,000
Rodney Perkins, M.D. ........................ 60,000
</TABLE>
MERGER OR SALE OF ASSETS
In the event of the dissolution or liquidation of the Company, a sale of
all or substantially all of the assets of the Company, or the merger or
consolidation or other capital reorganization of the Company with or into
another corporation in which the Company is not the surviving corporation or any
other capital reorganization in which more than 50% of the shares of the Company
entitled to vote are exchanged, each outstanding option under the 1999
Directors' Plan shall be assumed or an equivalent option shall be substituted by
the successor corporation, unless the successor corporation does not agree to
assume the outstanding options or to substitute equivalent options, in which
case, the options shall terminate upon consummation of the transaction;
provided, however, that in the event of a change of control, each option granted
under the 1999 Directors' Plan shall become fully vested with respect to all
unvested shares immediately prior to the consummation of such change of control
transaction.
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<PAGE> 17
AMENDMENT AND TERMINATION
The Board of Directors may at any time amend or terminate the 1999
Directors' Plan, except that such termination cannot affect options previously
granted without the agreement of any optionee so affected. No amendment may be
made to the 1999 Directors' Plan without approval of the shareholders of the
Company to the extent required by applicable law.
If not terminated earlier, the 1999 Directors' Plan will expire in 2009.
U.S. FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the 1999 Directors' Plan, does not purport to be complete, and
does not discuss the income tax laws of any municipality, state or foreign
country in which an optionee may reside. The Company advises all eligible
directors to consult their own tax advisors concerning tax implications of
option grants and exercises and the disposition of stock acquired upon such
exercises under the 1999 Directors' Plan.
Options granted under the 1999 Directors' Plan are nonstatutory stock
options. An optionee will not recognize any taxable income at the time he or she
is granted a nonstatutory stock option. However upon its exercise, the optionee
will recognize ordinary income for tax purposes measured by the excess of the
then fair market value of the shares over the option price. Because the optionee
is a director of the Company, the date of taxation (and the date of measurement
of taxable ordinary income) may be deferred unless the optionee files an
election with the Internal Revenue Service under Section 83(b) of the Code. Upon
resale of such shares by the optionee, any difference between the sale price and
the exercise price, to the extent not recognized as ordinary income as provided
above will be treated as capital gain (or loss), and will be long-term capital
gain if the optionee has held the shares more than one year. For individual
taxpayers, the maximum U.S. federal income tax rate on long-term capital gains
under current tax rules is 20%, whereas the maximum rate on other income is
39.6%. Capital losses for individual taxpayers are allowed under U.S. tax laws
in full against capital gains plus $3,000 of other income. The Company will be
entitled to a tax deduction in the amount and at the time that the optionee
recognizes ordinary income with respect to shares acquired upon exercise of a
nonstatutory stock option.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Company's Common
Stock present at the Annual Meeting in person or by proxy and entitled to vote
is required to approve the adoption of the 1999 Directors' Plan and the
reservation of 300,000 shares of Common Stock for issuance thereunder.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 1999
DIRECTORS' STOCK OPTION PLAN AND THE RESERVATION OF 300,000 SHARES OF COMMON
STOCK FOR ISSUANCE THEREUNDER.
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<PAGE> 18
PROPOSAL NO. 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 1999, and recommends that the shareholders vote for
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection. Ernst &
Young LLP has audited the financial statements of the Company since the
Company's inception. Representatives of Ernst & Young LLP are expected to be
present at the meeting and will have the opportunity to make a statement if they
desire to do so. They are also expected to be available to respond to
appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS FOR THE COMPANY.
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<PAGE> 19
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 15, 1999 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, and (iv) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-----------------------------
NUMBER(2) PERCENT OF TOTAL
--------- ----------------
<S> <C> <C>
Entities affiliated with Special Situations Funds
L.P.(3)................................................. 2,246,700 17.9%
153 East 53rd Street, 51st Floor
New York, NY 10022
Thomas B. Boyd(4)......................................... 150,879 1.2%
Kevin Candio.............................................. 110,270 *
Dennis LaLumandiere....................................... 112,014 *
E. Walter Lange........................................... 50,000 *
Robert V. McCormick....................................... 433,502 3.4%
Rodney Perkins, M.D. ..................................... 171,467 1.4%
Robert J. Pressley, Ph.D. ................................ 66,016 *
Eric M. Reuter............................................ 20,533 *
All directors and executive officers as a group (10
persons)................................................ 1,165,723 8.7%
</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. Unless otherwise indicated,
the address of each individual named above is: c/o Laserscope, 3052 Orchard
Drive, San Jose, California 95134-2011.
(2) Includes with respect to each named person and with respect to all directors
and executive officers as a group the following shares subject to options
exercisable within 60 days of March 15, 1999: Mr. Boyd -- 143,673; Mr.
Candio -- 56,581; Mr. LaLumandiere -- 107,188; Mr. Lange -- 45,000; Mr.
McCormick -- 299,269; Dr. Perkins -- 105,000; Dr. Pressley -- 45,000; Mr.
Reuter -- 49,501.
(3) Includes 1,211,700 shares held by Special Situations Fund III, L.P, 630,000
shares held by Special Situations Private Equity Fund, L.P., and 405,000
shares held by Special Situations Cayman Fund, L.P.
(4) Mr. Boyd resigned as an officer of the Company effective March 31, 1999.
16
<PAGE> 20
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the Performance Graph shall not be incorporated by reference into any such
filings.
REPORT OF THE HUMAN RESOURCES COMMITTEE
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's executive officers are responsible for the achievement of the
Company's broad business goals and, accordingly, their compensation continues to
be determined by reference both to corporate performance and to their individual
performance. Of these two elements, the Human Resources Committee believes
corporate performance should have the most significant impact on executives'
compensation through cash bonuses and the value of stock options.
The Company's executive compensation programs are based upon:
1. Pay for Performance -- Rewarding individual executives for their
individual performance as well as for the overall performance of the
Company.
2. Competitive Environment -- Attracting and retaining talented
individuals requires the Company to maintain compensation levels and
programs that are competitive in the relevant employment market.
3. Shareholder Return -- Ultimately, management's responsibility is to
generate a return for the Company's shareholders by growing both the size
and the profitability of the Company. Executive compensation programs must
align management's interests with those of the Company's shareholders.
COMPENSATION OF EXECUTIVE OFFICERS
Laserscope's executive compensation consists of three parts: (i) salary,
(ii) annual cash bonuses and (iii) stock options. The Committee believes that
these three elements satisfy the compensation objectives stated above.
Salaries are generally reviewed at the end of each year and adjusted after
taking into account factors such as individual performance, surveys of
remuneration in comparable positions in the relevant geographic area, level of
responsibility and relative salary levels within the Company.
Cash bonus targets are established at the beginning of each year and are
based on corporate financial performance for the year and individual goals for
each executive. For 1999, cash bonuses are related to operating profit. No
bonuses are paid unless the Company achieves at least 70% of targeted profit
levels. These target bonuses increase as actual profit increases. The portion of
the bonus that is actually paid is based on an assessment of the individual
executive's performance.
Stock options are a key element in aligning the interests of management and
shareholders, since they jointly share in stock value increases over time.
Multi-year vesting schedules are used to encourage a long-term commitment to the
Company by its executive officers. The level of stock options held by each
executive officer is reviewed at the end of each year and additional awards are
considered to optimize the level of incentives and rewards.
Specific recommendations with respect to each of these three compensation
elements for the executive officers (except the President and Chief Executive
Officer) are made by the President and Chief Executive Officer, with the final
decisions being made by the Human Resources Committee and reviewed by the Board
of Directors (except that the Human Resources Committee has exclusive and final
authority with respect to the grant of stock options to executive officers of
the Company). In the case of the Chief Executive Officer, the Human Resources
Committee determines any actions to be taken and such actions are reviewed by
the Board of Directors, except that the Human Resources Committee has exclusive
and final authority with respect to the grant of stock options to Mr. McCormick.
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<PAGE> 21
COMPENSATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
Robert V. McCormick has served as the Company's President since December
1991. He was Chief Operating Officer from December 1991 to July 1992 and since
July 1992 has been President and Chief Executive Officer. Mr. McCormick's salary
has been $290,446 since January 5, 1998 and has not been increased since such
date. The Compensation Committee has continued the structure of Mr. McCormick's
compensation to maintain a long-term focus on the growth of Laserscope's
business and stock price. Consequently, the most significant element of Mr.
McCormick's potential compensation (stock options) is premised on substantial
improvements in the Company's operating performance. Based on the Company's
performance in 1998, Mr. McCormick received no cash bonus and is not eligible
for a cash bonus in 1999. Mr. McCormick was granted an option to purchase 35,000
shares of Common Stock (vesting over four years) in December 1998 at an exercise
price of $1.28. Mr. McCormick has been granted stock options to purchase a total
of 560,000 shares of Common Stock at exercise prices of $1.28 to $6.00 with
vesting periods of four to five years, depending on the specific option granted.
REPORT ON REPRICED STOCK OPTIONS
In December 1998, the Board of Directors' Human Resources Committee
determined that it was in the best interest of the Company to offer to reprice
those then-existing stock options of the Company granted under the 1994 Stock
Option Plan at exercise prices in excess of the then-current fair market value
of the Company's Common Stock. Included in the repricing actions were options
held by the Company's executive officers and directors not serving on the Human
Resources Committee.
The objectives of the 1994 Stock Option Plan are to promote the interests
of the Company by providing employees, certain directors, and certain
consultants or independent contractors an incentive to acquire a proprietary
interest in the Company and to continue to render services to the Company. It
was the view of the Committee that stock options with exercise prices
substantially above the current market price of the Company's Common Stock were
viewed negatively by most optionees of the Company, and provided little, if any,
equity incentive to the optionees. The Committee thus concluded that such option
grants seriously undermined the specific objectives of the 1994 Stock Option
Plan and should properly be repriced. In making this decision, the Committee
also considered the fairness of such a determination in relation to other
shareholders. In the opinion of the Committee, the shareholders' long-term best
interests were clearly served by the retention and motivation of optionees.
In this context, the Committee decided that effective December 11, 1998
(the "Grant Date") all optionees (except for Human Resources Committee members)
holding stock options granted under the 1994 Stock Option Plan with exercise
prices in excess of the fair market value of the Company's Common Stock should
receive a one-for-one repricing of their then-existing unexercised stock options
with a new exercise price set at $1.28 per share, the fair market value of the
Company's Common Stock on the Grant Date. The Company completed this repricing
through a one-for-one stock option exchange of "underwater" stock options for
all optionees. The new options were subject to the same vesting schedule as the
canceled options. The exchange was completed in December 1998.
It is the opinion of the Board of Directors that this program helped build
optionee morale and provided new incentives for the Company's employees and
management.
HUMAN RESOURCES COMMITTEE
Rodney Perkins, M.D.
Robert J. Pressley, Ph.D. (Chairman)
18
<PAGE> 22
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are currently no employee directors serving on the Human Resources
Committee of the Board of Directors. The following nonemployee directors serve
on the Company's Human Resources Committee: Rodney Perkins, M.D. and Robert J.
Pressley, Ph.D.
Dr. Perkins served as Chief Executive Officer of Laserscope from February
to May 1987 and from October 1991 to July 1992 and as President of Laserscope
form October to December 1991. Dr. Perkins purchased an aggregate of 16,667
shares of the Company's Common Stock in September 1989 under the Company's 1984
Stock Purchase Plan at an aggregate price of $75,001. 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. During 1995, the principal
and accrued interest on these notes were refinanced and the notes now carry
annual interest rates of 5.79% and are due in November 1998. At December 31,
1998, Dr. Perkins owed an aggregate of $144,155 under such notes, the largest
amount of indebtedness owed by him to the Company at any time during 1998.
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. Pressley purchased an aggregate of 16,667 shares of the Company's
Common Stock in September 1989 under the Company's 1984 Stock Purchase Plan at
an aggregate price of $74,997. Dr. Pressley purchased such shares through
promissory notes in favor of the Company bearing interest at the annual rate 9%
and secured by the shares purchased. During 1995, the principal and accrued
interest on these notes were refinanced and the notes now carry annual interest
rates of 5.79% and are due in November 1998. At December 31, 1998, Dr. Pressley
owed an aggregate of $121,895 under such notes. The largest amount of
indebtedness owed by him to the Company at any time during 1998 was $148,542.
See "Proposal No. 1 -- Election of Directors -- Compensation of Directors"
for a discussion of certain information with respect to directors serving on the
Human Resources Committee.
19
<PAGE> 23
PERFORMANCE GRAPH
The following graph summarizes cumulative total shareholder return data
(assuming reinvestment of dividends) for the period since December 31, 1993. The
graph assumes that $100 was invested on December 31, 1993 (i) in the Common
Stock of Laserscope, (ii) in the CRSP Total Return Index for The Nasdaq Stock
Market (U.S. companies), and (iii) in the MG Medical Instruments and Supplies
Index (provided by Media General Financial Services, Inc.). The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
COMPARISON OF TOTAL RETURN
<TABLE>
<CAPTION>
MG MEDICAL APPLIANCES/
CRSP NASDAQ INDEX (U.S.) LASERSCOPE (LSCP) EQUIPMENT INDEX
------------------------ ----------------- ----------------------
<S> <C> <C> <C>
12/31/93 100 100 100
12/31/94 98 66 111
12/30/95 138 35 190
12/29/96 170 114 200
12/29/97 209 82 246
12/31/98 293 32 308
</TABLE>
20
<PAGE> 24
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 1998 who were serving as executive officers at December 31,
1998, and the compensation received by each such individual for the Company's
two prior years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION OPTION/SARS
------------------------ (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................ 1998 $ 289,914 -- 35,000 $23,095
President and Chief Executive
Officer 1997 $ 276,614 -- 30,000 $21,021
1996 $ 263,455 $129,486 40,000 $15,706
Thomas B. Boyd..................... 1998 $ 188,651 -- 35,000 $22,711
Former Senior Vice President 1997 $ 179,928 -- 30,000 $17,320
of International(7) 1996 $ 171,350 $ 51,749 40,000 $13,232
Kevin Candio....................... 1998 $ 165,000 -- 35,000 $12,726
Vice President of Sales and
Service 1997 $ 115,759 $ 21,748 60,000 $ 7,082
1996 $ 104,190 $146,186 10,000 $ 7,235
Dennis LaLumandiere................ 1998 $ 149,615 -- 35,000 $15,844
Vice President of Finance, Chief 1997 $ 140,000 -- 30,000 $12,862
Financial Officer and Assistant 1996 $ 124,426 $ 37,580 40,000 $ 9,543
Secretary
Eric M. Reuter..................... 1998 $161,462(8) -- 50,000 $13,344
Vice President of Research 1997 $147,500(8) -- 50,000 $13,632
and Development 1996 $104,114(9) $ 10,519 50,000 $ 2,462
</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. Mr.
Candio's bonuses consisted of sales commissions.
(4) The options listed with respect to 1998 long-term compensation awards
exclude options granted upon the repricing of previously granted options.
Options to purchase the following number of shares granted to the following
persons in were repriced on December 11, 1998: Mr. McCormick -- 92,500; Mr.
Boyd -- 70,000; Mr. Candio -- 70,520; Mr. LaLumandiere -- 72,812; Mr. Reuter
-- 99,500. The repriced options retain the same term and vesting schedule as
those options that were replaced.
(5) All options granted in 1996, 1997 and 1998 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 options granted in 1996, 1997 and 1998 to existing employees
also have 5-year terms but become exercisable 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
21
<PAGE> 25
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) benefit plan and
certain other employee benefits, including payment of disability and group
term life insurance premiums and a car allowance.
(7) Mr. Boyd resigned as an officer of the Company effective March 31, 1999.
(8) Includes $12,000 mortgage allowance paid to Mr. Reuter in connection with
the relocation of his principal residence to the San Jose metropolitan area.
(9) Includes salary paid to Mr. Reuter during the period beginning on the
commencement of his employment on August 22, 1996 and ending on December 31,
1996 and $70,614 paid to Mr. Reuter in connection with the relocation of his
principal residence to the San Jose metropolitan area.
STOCK OPTION GRANTS IN 1998
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 1998 and the value of all options held by such executive officers on December
31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK PRICE
GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OR OPTION TERM(4)
GRANTED IN FISCAL BASE PRICE EXPIRATION ---------------------
NAME (SHARES)(1)(2) YEAR(3) (PER SHARE) DATE 5% 10%
---- -------------- ----------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert V. McCormick............ 35,000(5) 5.8% $1.28 12/11/03 $12,400 $27,400
Thomas B. Boyd (6)............. 35,000(5) 5.8% $1.28 12/11/03 $12,400 $27,400
Kevin Candio................... 35,000(5) 5.8% $1.28 12/11/03 $12,400 $27,400
Dennis LaLumandiere............ 35,000(5) 5.8% $1.28 12/11/03 $12,400 $27,400
Eric M. Reuter................. 50,000(5) 8.3% $1.28 12/11/03 $17,700 $39,100
</TABLE>
- ---------------
(1) For a description of the material terms of the options, see footnote 5 of
the Summary Compensation Table.
(2) The options listed with respect to 1998 long-term compensation awards
exclude options granted upon the repricing of previously granted options.
Options to purchase the following number of shares granted to the following
persons in were repriced on December 11, 1998: Mr. McCormick -- 92,500; Mr.
Boyd -- 70,000; Mr. Candio -- 70,520; Mr. LaLumandiere -- 72,812; Mr.
Reuter -- 99,500. The repriced options retain the same term and vesting
schedule as those options that were replaced.
(3) Excluding options granted upon the repricing of previously granted options,
the Company granted options to employees for an aggregate of 604,800 shares
of Common Stock during 1998.
(4) 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.
(5) Options listed were granted on December 11, 1998.
(6) Mr. Boyd resigned as an officer of the Company effective March 31, 1999.
22
<PAGE> 26
AGGREGATED OPTION EXERCISES IN 1998
AND YEAR-END OPTION VALUES
The following table sets forth information for the named executive officers
with respect to exercises in 1998 of options to purchase Common Stock of the
Company.
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS(1)
SHARES DECEMBER 31, 1998 AT DECEMBER 31, 1998
ACQUIRED ----------------- -----------------------
ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE) UNEXERCISABLE)
---- -------- -------- ----------------- -----------------------
<S> <C> <C> <C> <C>
Robert V. McCormick................ 0 0 281,354/88,646 $26,600/$33.200
Thomas B. Boyd(2).................. 0 0 132,916/82,084 $16,000/$33,200
Kevin Candio....................... 938 $1,500 53,124/81,876 $11,400/$38,100
Dennis LaLumandiere................ 0 0 97,814/77,186 $17,300/$33,200
Eric M. Reuter..................... 0 0 41,168/108,332 $19,300/$50,800
</TABLE>
- ---------------
(1) Based on the closing price of the Company's Common Stock as reported on The
Nasdaq Stock Market on December 31, 1998 of $1.75 per share.
(2) Mr. Boyd resigned as an officer of the Company effective March 31, 1999.
TEN-YEAR OPTION REPRICINGS
The following table sets forth certain information as of December 31, 1998
with respect to the repricing of certain stock options held by the Company's
executive officers.
<TABLE>
<CAPTION>
NUMBER LENGTH OF
OF ORIGINAL OPTION
SECURITIES MARKET PRICE EXERCISE TERM
UNDERLYING OF STOCK AT PRICE AT NEW REMAINING AT
DATE OF OPTIONS TIME OF TIME OF EXERCISE DATE OF
NAME REPRICING REPRICED(#) REPRICING($) REPRICING($) PRICE($) REPRICING
---- --------- ----------- ------------ ------------ -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Robert McCormick............ 07/25/91 150,000 $9.25 $14.25 $9.25 4.8 years
President and Chief 06/26/92 150,000 $5.75 $ 9.25 $5.75 3.8 years
Executive Officer 06/26/92 50,000 $5.75 $ 8.13 $5.75 9.5 years
11/30/95 97,500 $2.00 $ 4.00 $2.00 4.2 years
12/11/98 22,500 $1.28 $ 4.00 $1.28 1.2 years
12/11/98 40,000 $1.28 $ 3.48 $1.28 2.3 years
12/11/98 30,000 $1.28 $ 4.63 $1.28 4.0 years
John Allison................ 12/11/98 50,000 $1.28 $ 2.53 $1.28 4.5 years
Former Vice President
of Operations(1)
Herbert Bellucci............ 07/25/91 15,000 $9.25 $26.00 $9.25 4.5 years
Former Senior Vice 06/26/92 15,000 $5.75 $ 9.25 $5.75 3.6 years
President of Operations(1) 06/26/92 40,000 $5.75 $ 7.75 $5.75 9.7 years
Robert Bogart............... 07/25/91 10,000 $9.25 $26.00 $9.25 4.5 years
Former Vice President 06/26/92 10,000 $5.75 $ 9.25 $5.75 3.6 years
of Engineering(1) 06/26/92 20,000 $5.75 $ 7.75 $5.75 9.7 years
Thomas Boyd................. 12/11/98 40,000 $1.28 $ 3.48 $1.28 2.3 years
Former Senior Vice 12/11/98 30,000 $1.28 $ 4.63 $1.28 4.0 years
President of
International(1)
Kevin Candio................ 7/25/91 2,000 $9.25 $26.00 $9.25 4.5 years
Vice President Sales and 6/26/92 2,000 $5.75 $ 9.25 $5.75 3.6 years
Customer Service 12/11/98 520 $1.28 $ 4.48 $1.28 1.5 years
12/11/98 10,000 $1.28 $ 3.48 $1.28 2.3 years
12/11/98 10,000 $1.28 $ 7.50 $1.28 3.2 years
12/11/98 50,000 $1.28 $ 4.63 $1.28 4.0 years
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
NUMBER LENGTH OF
OF ORIGINAL OPTION
SECURITIES MARKET PRICE EXERCISE TERM
UNDERLYING OF STOCK AT PRICE AT NEW REMAINING AT
DATE OF OPTIONS TIME OF TIME OF EXERCISE DATE OF
NAME REPRICING REPRICED(#) REPRICING($) REPRICING($) PRICE($) REPRICING
---- --------- ----------- ------------ ------------ -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul Davis.................. 07/25/91 25,000 $9.25 $14.25 $9.25 4.8 years
Former Vice President and 06/26/92 25,000 $5.75 $ 9.25 $5.75 3.8 years
General Council(1) 06/26/92 40,000 $5.75 $ 7.75 $5.75 9.7 years
Benjamin Holmes............. 11/30/95 50,000 $2.00 $ 3.75 $2.00 5.7 years
Former Director(2)
Robert Jagunich............. 07/25/91 10,000 $9.25 $26.00 $9.25 4.5 years
Former Vice President
of Marketing(1)
Bonnie Jones................ 07/25/91 5,000 $9.25 $26.00 $9.25 4.5 years
Former Vice President 06/26/92 5,000 $5.75 $ 9.25 $5.75 4.1 years
of Human Resources(1) 06/26/92 5,000 $5.75 $ 9.25 $5.75 3.6 years
Dennis LaLumandiere......... 07/25/91 5,000 $9.25 $26.00 $9.25 4.5 years
Vice President of Finance 06/26/92 5,000 $5.75 $ 9.25 $5.75 3.6 years
and Chief Financial
Officer 06/26/92 15,000 $5.75 $ 5.88 $5.75 9.8 years
11/30/95 12,188 $2.00 $ 4.00 $2.00 4.2 years
12/11/98 2,812 $1.28 $ 4.00 $1.28 1.2 years
12/11/98 40,000 $1.28 $ 3.48 $1.28 2.3 years
12/11/98 30,000 $1.28 $ 4.63 $1.28 4.0 years
Alfred Merriweather......... 07/25/91 15,000 $9.25 $26.00 $9.25 4.5 years
Former Vice President 06/26/92 15,000 $5.75 $ 9.25 $5.75 3.6 years
of Finance and Chief 06/26/92 40,000 $5.75 $ 7.75 $5.75 9.7 years
Financial Officer(1)
Rodney Perkins, M.D......... 06/26/92 60,000 $5.75 $ 7.13 $5.75 4.3 years
Director(2)
Eric Reuter................. 12/11/98 99,500 $1.28 $ 4.63 $1.28 4.0 years
Vice President of R&D
Herbert Taus................ 07/25/91 40,000 $9.25 $26.00 $9.25 4.5 years
Former President and Chief
Executive Officer(1)
Susan Webster............... 12/11/98 50,000 $1.28 $ 2.72 $1.28 4.5 years
Vice President of
Marketing
Eli Wismer.................. 06/26/92 35,000 $5.75 $ 7.00 $5.75 4.4 years
Former Vice President
of North American Sales
and Education(1)
</TABLE>
- ---------------
(1) No longer employed by the Company, but was an executive officer of the
Company within the ten-year period covered by the table.
(2) Options were granted pursuant to consulting agreements.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
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
24
<PAGE> 28
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%.
<TABLE>
<CAPTION>
TOTAL INDEBTEDNESS TO THE
SHARES AGGREGATE COMPANY AS OF
PURCHASER PURCHASED PRICE DECEMBER 31, 1998(1)(2)
--------- --------- --------- -----------------------
<S> <C> <C> <C>
Rodney Perkins, M.D. ..................... 16,667 $75,001 $152,675
Robert J. Pressley, Ph.D. ................ 16,666 $74,997 $121,895
</TABLE>
- ---------------
(1) In the cases of Dr. Perkins, the amount shown was also the largest amount of
indebtedness owed to the Company at any time during 1998. In the case of Dr.
Pressley, the largest amount of indebtedness owed to the Company at any time
during 1998 was $148,542.
(2) Payment in the form of promissory notes in the above transactions was
approved in each case by a majority of the disinterested directors of the
Company and such sales were made pursuant to the Company's 1984 Stock
Purchase Plan, which was approved by the shareholders of the Company.
During 1998 Dr. Pressley received $31,000 in compensation from the Company
for consulting services to the Company beyond his duties as Chairman of the
Board of Directors, such compensation was applied to the outstanding balance of
his indebtedness to the Company.
Nonemployee members of the Company's Board of Directors receive cash
compensation and options to purchase shares of Common Stock in connection with
their service on the Board.
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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and changes in
ownership of the Company's Common Stock. Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based solely on its review of the copies of
such reports received or written representations from certain Reporting Persons
that no other reports were required, the Company believes that during its fiscal
year ended December 31, 1998, all Reporting Persons complied with all applicable
filing requirements.
25
<PAGE> 29
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of shareholders of the Company that are intended to be presented
by such shareholders at the Company's 2000 Annual Meeting must be received by
the Company no later than January 17, 2000 in order that they may be included in
the proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the
Annual Meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed form of Proxy to vote the shares
they represent as the Board of Directors may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Elias J. Blawie
ELIAS J. BLAWIE
Secretary
Dated: April 30, 1999
26
<PAGE> 30
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF LASERSCOPE
1999 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Laserscope, a California corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy
Statement, each dated April 30, 1999, and hereby appoints Robert V. McCormick
and Dennis LaLumandiere, or either of them, proxies and attorneys-in-fact, with
full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1999 Annual Meeting of
Shareholders of Laserscope to be held on June 11, 1999 at 9:00 a.m., local time,
at the Company's principal executive offices at 3052 Orchard Drive, San Jose,
California 95134 and at any adjournment or postponement thereof, and to vote all
shares of Common Stock which the undersigned would be entitled to vote if then
and there personally present, on the following matters, and, in their
discretion, upon such other matters that may properly come before the meeting
and any adjournment(s) thereof.
-----------
SEE REVERSE
SIDE
-----------
<PAGE> 31
<TABLE>
<S> <C> <C> <C>
PLEASE MARK YOUR
[X] VOTES AS IN THIS
EXAMPLE
FOR ALL NOMINEES WITHHOLD AUTHORITY
LISTED TO THE RIGHT TO VOTE FOR ALL
(EXCEPT AS NOMINEES
INDICATED) LISTED TO THE RIGHT
------------------- -------------------
1. Election of NOMINEES: E. Walter Lange
Directors Robert V. McCormick
Rodney Perkins, M.D.
Robert J. Pressley, Ph.D
------------------- -------------------
</TABLE>
If you wish to withhold authority to vote for any
individual nominee, strike a line through that
nominee's name in the list to the right.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
------------ ------------- -----------
<S> <C> <C> <C> <C>
2. Proposal to approve an amendment to the Company's 1994 Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 200,000 shares.
------------ ------------- -----------
3. Proposal to approve the adoption of the Company's 1999 Employee Stock
Purchase Plan and to reserve 100,000 shares of Common Stock for issuance
thereunder.
------------ ------------- -----------
4. Proposal to approve the adoption of of the Company's 1999 Directors' Stock
Option Plan and to reserve 300,000 shares of Common Stock for issuance
thereunder.
------------ ------------- -----------
5. Proposal to ratify the appointment of Ernst & Young as the independent
auditors of the Company for the year ending December 31, 1999.
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</TABLE>
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF DIRECTORS; (2) FOR APPROVAL OF
THE AMENDMENT TO THE COMPANY'S 1994 STOCK OPTION PLAN; (3) FOR APPROVAL OF THE
ADOPTION OF THE COMPANY'S 1999 EMPLOYEE STOCK PURCHASE PLAN; (4) FOR THE
APPROVAL OF THE ADOPTION OF THE COMPANY'S 1999 DIRECTORS' STOCK OPTION PLAN; AND
(5) FOR RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG AS INDEPENDENT
AUDITORS, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME
BEFORE THE MEETING.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES. IF SIGNER IS
A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED
OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
SIGNATURE(S) DATE
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NOTE: This Proxy should be marked, dated, signed by the shareholder(s) exactly
as his or her name appears hereon, and returned in the enclosed envelope.
Persons signing in a capacity should so indicate. If shares are held by
joint tenants or as community property, both should sign.
