CUTERA, INC.
2015 PROXY STATEMENT AND 2014 ANNUAL REPORT
Dear Stockholders:
You are cordially invited to attend the 2015 Annual Meeting of Stockholders of Cutera, Inc. (the “Company”). The
meeting will be held at our principal executive offices located at 3240 Bayshore Blvd., Brisbane, California 94005-
1021 on June 17, 2015 at 10:00 a.m. Pacific Time.
The attached Notice of 2015 Annual Meeting of Stockholders and Proxy Statement contain details of the business
to be conducted at the Annual Meeting. We have also made available a copy of our 2014 Annual Report to
Stockholders with this proxy statement. We encourage you to read our Annual Report. It includes our audited
financial statements and provides information about our business.
We have elected to provide access to our proxy materials over the internet under the Securities and Exchange
Commission’s “notice and access” rules. We are constantly focused on improving the ways people connect with
information, and believe that providing our proxy materials over the internet increases the ability of our
stockholders to connect with the information they need, while reducing the environmental impact of our Annual
Meeting. If you need additional information about Cutera, please visit the Investor Relations section of the
Company’s website at www.cutera.com.
Whether or not you attend the Annual Meeting, it is important that your shares be represented and voted at the
meeting. Therefore, I urge you to promptly vote and submit your proxy via the internet, by phone, or by signing,
dating, and returning the proxy card provided to you. If you decide to attend the Annual Meeting, you will be able
to vote in person, even if you have previously submitted your proxy.
On behalf of Cutera’s Board of Directors and executive team, I would like to express our appreciation for your
continued interest and confidence in our business.
Sincerely,
Kevin Connors,
President and Chief Executive Officer
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
☐
☐
☒
☐
☐
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to §240.14a-11(c) or §240.14a-2
CUTERA, INC.
(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):
☒
☐
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1)
Title of each class of securities to which transaction applies:
(2)
(3)
(4)
(5)
Aggregate number of securities to which transaction applies:
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):
Proposed maximum aggregate value of transaction:
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)
(2)
(3)
(4)
Amount Previously Paid:
Form, Schedule or Registration Statement No.:
Filing Party:
Date Filed:
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NOTICE OF 2015 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 2015
10:00 A.M. Pacific Time
To our Stockholders:
You are cordially invited to attend the 2015 Annual Meeting of Stockholders of Cutera, Inc. (the “Company”). The meeting
will be held at our principal executive offices located at 3240 Bayshore Blvd., Brisbane, California 94005-1021. The meeting
will be held on June 17, 2015 at 10:00 a.m. Pacific Time, for the following purposes:
1.
2.
3.
4.
5.
To elect two Class II directors to each serve for a three-year term that expires at the 2018 Annual Meeting of
Stockholders and until their successors have been duly elected and qualified;
To ratify the selection of BDO USA, LLP as the independent registered public accounting firm of the Company (the
“Independent Registered Public Accounting Firm”) for the fiscal year ending December 31, 2015;
To approve our amended and restated 2004 Equity Incentive Plan;
To hold a non-binding vote on the compensation of our Named Executive Officers; and
To transact such other business as may properly come before the Annual Meeting, including any motion to adjourn
to a later date to permit further solicitation of proxies, if necessary, or before any adjournment thereof.
The foregoing items of business are more fully described in the proxy statement accompanying this Notice of Annual
Meeting.
To help conserve resources and reduce printing and distribution costs, we will be mailing a notice to our stockholders, instead
of a paper copy of this proxy statement and our 2014 Annual Report, with instructions on how to access our proxy materials
over the Internet, including this proxy statement, our 2014 Annual Report and a form of proxy card or voting instruction card.
The notice will also contain instructions on how each of those stockholders can receive a paper copy of our proxy materials.
The meeting will begin promptly at 10:00 a.m., local time, and check-in will begin at 9:50 a.m. local time. Only holders of
record of shares of our common stock (NASDAQ: CUTR) at the close of business on April 20, 2015 will be entitled to notice
of, and to vote at, the meeting and any postponements or adjournments of the meeting.
For a period of at least 10 days prior to the meeting, a complete list of stockholders entitled to vote at the meeting will be
available and open to the examination of any stockholder for any purpose relating to the Annual Meeting during normal
business hours at our principal executive offices located at 3240 Bayshore Blvd., Brisbane, California 94005-1021.
By order of the Board of Directors,
Kevin P. Connors
President and Chief Executive Officer
Brisbane, California
April 27, 2015
Proxy Statement
YOUR VOTE IS IMPORTANT!
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY VOTE BY
TELEPHONE, OR IF AVAILABLE, ELECTRONICALLY, OR, IF YOU RECEIVED PER YOUR REQUEST A
PAPER COPY OF OUR PROXY MATERIALS, COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED
PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. NO ADDITIONAL POSTAGE IS
NECESSARY IF THE PROXY CARD IS MAILED IN THE UNITED STATES OR CANADA. YOU MAY REVOKE
YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE MEETING.
Proxy Statement
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS REGARDING THIS SOLICITATION AND VOTING AT THE ANNUAL
MEETING ......................................................................................................................................................................
Why am I receiving these proxy materials? ..............................................................................................................
Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a paper
copy of the proxy materials? ..................................................................................................................................
What is the purpose of the Annual Meeting? ............................................................................................................
Who is entitled to attend the meeting? ......................................................................................................................
Who is entitled to vote at the meeting? .....................................................................................................................
How many shares must be present or represented to conduct business at the meeting (that is, what constitutes a
quorum)? ................................................................................................................................................................
What items of business will be voted on at the meeting? ..........................................................................................
How does the Board recommend that I vote? ............................................................................................................
What shares can I vote at the meeting? .....................................................................................................................
What is the difference between holding shares as a stockholder of record and as a beneficial owner? ....................
How can I vote my shares without attending the meeting? .......................................................................................
How can I vote my shares in person at the meeting? ................................................................................................
Can I change my vote? ..............................................................................................................................................
Is my vote confidential? ............................................................................................................................................
What vote is required to approve each item and how are votes counted? .................................................................
What is a “broker non-vote”? ....................................................................................................................................
How are “broker non-votes” counted? ......................................................................................................................
How are abstentions counted? ...................................................................................................................................
What happens if additional matters are presented at the meeting? ............................................................................
Who will serve as inspector of election? ...................................................................................................................
What should I do in the event that I receive more than one set of proxy/voting materials? ......................................
Who is soliciting my vote and who will bear the costs of this solicitation? ..............................................................
Where can I find the voting results of the meeting? ..................................................................................................
What is the deadline to propose actions for consideration at next year’s Annual Meeting of stockholders or to
nominate individuals to serve as directors? ...........................................................................................................
STOCK OWNERSHIP .....................................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management .......................................................................
Section 16(a) Beneficial Ownership Reporting Compliance .....................................................................................
CORPORATE GOVERNANCE AND BOARD MATTERS ...........................................................................................
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Director Independence ..............................................................................................................................................
Board Leadership Structure .......................................................................................................................................
Risk Oversight and Analysis .....................................................................................................................................
Committees of the Board ...........................................................................................................................................
Meetings Attended by Directors ................................................................................................................................
Director Nomination Process ....................................................................................................................................
Director Compensation ..............................................................................................................................................
Code of Ethics ...........................................................................................................................................................
Compensation Committee Interlocks and Insider Participation ................................................................................
Review, Approval or Ratification of Related Party Transactions .............................................................................
Certain Relationships and Related Transactions .......................................................................................................
Family Relationships .................................................................................................................................................
Indemnification Agreements .....................................................................................................................................
Communications with the Board by Stockholders ....................................................................................................
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Proxy Statement
TABLE OF CONTENTS
Page
Stock Ownership Guidelines .....................................................................................................................................
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REPORT OF THE AUDIT COMMITTEE .......................................................................................................................
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PROPOSAL ONE—ELECTION OF DIRECTORS .........................................................................................................
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Classes of the Board of Directors ..............................................................................................................................
Director Nominees ....................................................................................................................................................
Board of Directors’ Recommendation .......................................................................................................................
Directors Whose Terms Extend Beyond the 2015 Annual Meeting ..........................................................................
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PROPOSAL TWO—RATIFICATION OF BDO USA, LLP AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM ...................................................................................................................................................
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Board of Directors’ Recommendation .......................................................................................................................
Audit and Non-Audit Services ..................................................................................................................................
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PROPOSAL THREE— APPROVAL OF OUR AMENDED AND RESTATED 2004 EQUITY INCENTIVE PLAN .
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PROPOSAL FOUR— NON-BINDING ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED
EXECUTIVE OFFICERS ..............................................................................................................................................
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General ......................................................................................................................................................................
Summary of 2014 Executive Compensation Program ...............................................................................................
Board of Directors’ Recommendation .......................................................................................................................
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NAMED EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION ................................................................
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Compensation Discussion and Analysis ....................................................................................................................
Internal Revenue Code Section 162(m) and Limitations on Executive Compensation .............................................
Securities Authorized for Issuance Under Equity Compensation Plans ....................................................................
Summary Compensation Table .................................................................................................................................
Grants of Plan-Based Awards ...................................................................................................................................
Equity Incentive Awards Outstanding .......................................................................................................................
Options Exercised and Stock Vested .........................................................................................................................
Potential Payments Upon Termination or Change in Control ...................................................................................
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COMPENSATION COMMITTEE REPORT ...................................................................................................................
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OTHER MATTERS ..........................................................................................................................................................
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APPENDIX A - 2004 EQUITY INCENTIVE PLAN (AS AMENDED AND RESTATED) ..........................................
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Proxy Statement
PROXY STATEMENT
FOR
2015 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 2015
The Board of Directors (“Board”) of Cutera, Inc., a Delaware corporation, is soliciting the enclosed proxy from you. The
proxy will be used at our 2015 Annual Meeting of Stockholders to be held on Wednesday, June 17, 2015, beginning at 10:00
a.m., Pacific Time, which is the local time, at our principal executive offices located at 3240 Bayshore Blvd., Brisbane,
California 94005-1021, and at any postponements or adjournments thereof. This proxy statement contains important
information regarding the meeting. Specifically, it identifies the matters upon which you are being asked to vote, provides
information that you may find useful in determining how to vote and describes the voting procedures.
In this proxy statement the terms “we”, “our”, “Cutera” and the “Company” each refer to Cutera, Inc.; the term “Board”
means our Board of Directors; the term “proxy materials” means this proxy statement, the enclosed proxy card, and our
Annual Report on Form 10-K for the year ended December 31, 2014, filed with the U.S. Securities and Exchange Commission
(the “SEC”) on March 16, 2015, and the term “Annual Meeting” means our 2015 Annual Meeting of Stockholders.
We are sending the Notice of Internet Availability of Proxy Materials on or about May 7, 2015, to all stockholders of record
at the close of business on April 20, 2015 (the “Record Date”).
QUESTIONS AND ANSWERS REGARDING THIS SOLICITATION AND VOTING
AT THE ANNUAL MEETING
Why am I receiving these
proxy materials?
You are receiving these proxy materials from us because you were a stockholder of record
at the close of business on the Record Date (which was April 20, 2015). As a stockholder
of record, you are invited to attend the meeting and are entitled to and requested to vote on
the items of business described in this proxy statement.
Why did I receive a notice in
the mail regarding the Internet
availability of the proxy
materials instead of a paper
copy of the proxy materials?
Pursuant to SEC rules, we have elected to provide access to our proxy materials over the
Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials
(the “Notice”) to our stockholders.
All stockholders will have the ability to access the proxy materials on a website referred to
in the Notice or request to receive a printed set of the proxy materials.
Instructions on how to access the proxy materials over the Internet or to request a printed
copy may be found on the Notice.
In addition, stockholders may request to receive proxy materials in printed form by mail or
electronically by email on an ongoing basis. Choosing to receive your future proxy
materials by email will save us the cost of printing and mailing documents to you and will
reduce the impact of our annual stockholders’ meetings on the environment. If you chose
prior to the Record Date to receive future proxy materials by email, you should receive an
email this year with instructions containing a link to those materials and a link to the proxy
voting site. In connection with our upcoming Annual Meeting, if you choose to receive
future proxy materials by email, you will receive an email next year with instructions
containing a link to those materials and a link to the proxy voting site. Your election to
receive proxy materials by email will remain in effect until you terminate it.
Proxy Statement
What is the purpose of the
Annual Meeting?
At our meeting, stockholders of record will vote upon the items of business outlined in the
notice of meeting (on the cover page of this proxy statement), each of which is described
more fully in this proxy statement. In addition, management will report on the performance
of the Company and respond to questions from stockholders.
Who is entitled to attend the
meeting?
You are entitled to attend the meeting only if you owned our common stock (or were a joint
holder) as of the Record Date or if you hold a valid proxy for the meeting. You should be
prepared to present photo identification for admittance.
Please also note that if you are not a stockholder of record but hold shares in street name
(that is, through a broker or nominee), you will need to provide proof of beneficial
ownership as of the Record Date, such as your most recent brokerage account statement, a
copy of the voting instruction card provided by your broker, trustee or nominee, or other
similar evidence of ownership.
The meeting will begin promptly at 10:00 a.m., local time. Check-in will begin at 9:50 a.m.,
local time.
Who is entitled to vote at the
meeting?
Only stockholders who owned our common stock at the close of business on the Record
Date are entitled to notice of and to vote at the meeting, and at any postponements or
adjournments thereof.
As of the Record Date, 14,566,851 shares of our common stock were outstanding. Each
outstanding share of our common stock entitles the holder to one vote on each matter
considered at the meeting. Accordingly, there are a maximum of 14,566,851 votes that may
be cast at the meeting.
How many shares must be
present or represented to
conduct business at the
meeting (that is, what
constitutes a quorum)?
The presence at the meeting, in person or by proxy, of the holders of a majority of the shares
of our common stock entitled to vote at the meeting will constitute a quorum. A quorum is
required to conduct business at the meeting. The presence of the holders of our common
stock representing at least 7,283,426 votes will be required to establish a quorum at the
meeting. Both abstentions and broker non-votes are counted for the purpose of determining
the presence of a quorum.
What items of business will be
voted on at the meeting?
The items of business scheduled to be voted on at the meeting are as follows:
1. The election of two nominees to serve as Class II directors on our Board;
2. The ratification of BDO USA, LLP (“BDO”) as the Independent Registered
Public Accounting Firm for the 2015 fiscal year;
3. The approval of our amended and restated 2004 Equity Incentive Plan;
4. To hold a non-binding advisory vote on the compensation of our Named
Executive Officers; and
5. To transact such other business as may properly come before the Annual
Meeting, including any motion to adjourn to a later date to permit further
solicitation of proxies, if necessary, or before any adjournment thereof. These
proposals are described more fully below in this proxy statement. As of the date
of this proxy statement, the only business that our Board intends to present or
knows of that others will present at the meeting is as set forth in this proxy
statement. If any other matter or matters are properly brought before the meeting,
it is the intention of the persons who hold proxies to vote the shares they
represent in accordance with their best judgment.
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Proxy Statement
How does the Board
recommend that I vote?
Our Board recommends that you vote your shares “FOR” each of the director nominees,
“FOR” the ratification of BDO as the Independent Registered Public Accounting Firm for
the 2015 fiscal year, “FOR” the approval of the amended and restated 2004 Equity Incentive
Plan, and “FOR” the approval of the non-binding advisory vote on the compensation of our
Named Executive Officers.
What shares can I vote at the
meeting?
You may vote all shares owned by you as of the Record Date, including (1) shares held
directly in your name as the stockholder of record, and (2) shares held for you as the
beneficial owner through a broker, trustee or other nominee such as a bank.
What is the difference between
holding shares as a
stockholder of record and as a
beneficial owner?
Most of our stockholders hold their shares through a broker or other nominee rather than
directly in their own name. As summarized below, there are some distinctions between
shares held of record and those owned beneficially.
Stockholders of Record. If your shares are registered directly in your name with our
transfer agent, Computershare Trust Company, Inc., you are considered, with respect to
those shares, the stockholder of record, and these proxy materials are being sent directly to
you by us. As the stockholder of record, you have the right to grant your voting proxy
directly to Cutera or to vote in person at the meeting. We have enclosed a proxy card for
your use.
Beneficial Owner. If your shares are held in a brokerage account or by another nominee,
you are considered the beneficial owner of shares held in street name, and these proxy
materials are being forwarded to you together with a voting instruction card. As the
beneficial owner, you have the right to direct your broker, trustee or nominee how to vote
and are also invited to attend the meeting. Please note that since a beneficial owner is not
the stockholder of record, you may not vote these shares in person at the meeting unless
you obtain a “legal proxy” from the broker, trustee or nominee that holds your shares, giving
you the right to vote the shares at the meeting. Your broker, trustee or nominee has enclosed
or provided voting instructions for you to use in directing the broker, trustee or nominee
how to vote your shares.
How can I vote my shares
without attending the meeting?
Whether you hold shares directly as the stockholder of record or beneficially in street name,
you may direct how your shares are voted without attending the meeting. Stockholders of
record of our common stock may submit proxies by completing, signing and dating their
proxy cards and mailing them in the accompanying pre-addressed envelope. Our
stockholders who hold shares beneficially in street name may vote by mail by completing,
signing and dating the voting instruction cards provided by the broker, trustee or nominee
and mailing them in the accompanying pre-addressed envelope.
How can I vote my shares in
person at the meeting?
Shares held in your name as the stockholder of record may be voted in person at the meeting.
Shares held beneficially in street name may be voted in person only if you obtain a legal
proxy from the broker, trustee or nominee that holds your shares giving you the right to
vote the shares. Even if you plan to attend the meeting, we recommend that you also submit
your proxy card or voting instructions as described above so that your vote will be counted
if you later decide not to, or are unable to, attend the meeting.
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Proxy Statement
Can I change my vote?
Is my vote confidential?
You may change your vote at any time prior to the vote at the meeting. If you are the
stockholder of record, you may change your vote by granting a new proxy bearing a later
date (which automatically revokes the earlier proxy), by providing a written notice of
revocation to our Secretary prior to your shares being voted, or by attending the meeting
and voting in person. Attendance at the meeting will not cause your previously granted
proxy to be revoked unless you specifically so request.
For shares you hold beneficially in street name, you may change your vote by submitting
new voting instructions to your broker, trustee or nominee, or, if you have obtained a legal
proxy from your broker, trustee or nominee giving you the right to vote your shares, by
attending the meeting and voting in person.
Proxy instructions, ballots and voting tabulations that identify individual stockholders are
handled in a manner that protects your voting privacy. Your vote will not be disclosed either
within Cutera or to third parties, except: (1) as necessary to meet applicable legal
requirements, (2) to allow for the tabulation of votes and certification of the vote, and (3)
to facilitate a successful proxy solicitation. Occasionally, stockholders provide written
comments on their proxy card, which are then forwarded to our management.
What vote is required to
approve each item and how
are votes counted?
The vote required to approve each item of business and the method for counting votes is set
forth below:
Election of Directors. The two director nominees receiving the highest number of
affirmative “FOR” votes at the meeting (a plurality of votes cast) will be elected to serve as
Class II directors. You may vote either “FOR” or “WITHHOLD” your vote for the director
nominees. A properly executed proxy marked “WITHHOLD” with respect to the election
of one or more directors will not be voted with respect to the director or directors indicated,
although it will be counted for purposes of determining whether there is a quorum.
Ratification of BDO as our Independent Registered Public Accounting Firm. For the
ratification of BDO as our Independent Registered Public Accounting Firm, the affirmative
“FOR” vote of a majority of the shares represented in person or by proxy and entitled to
vote on the item will be required for approval. You may vote “FOR,” “AGAINST” or
“ABSTAIN” for this item of business. If you “ABSTAIN,” your abstention has the same
effect as a vote “AGAINST.”
Approval of our Amended and Restated 2004 Equity Incentive plan. For the approval
of our amended and restated 2004 Equity Incentive Plan, the affirmative “FOR” vote of a
majority of the shares represented in person or by proxy and entitled to vote on the item
will be required for approval. You may vote “FOR,” “AGAINST” or “ABSTAIN” for this
item of business. If you “ABSTAIN,” your abstention has the same effect as a vote
“AGAINST.”
Non-binding Advisory Vote on the Compensation of our Named Executive Officers.
For the non-binding vote on executive compensation, the affirmative “FOR” vote of a
majority of the shares represented in person or by proxy and entitled to vote on the item
will be required for approval. You may vote “FOR,” “AGAINST” or “ABSTAIN” for this
item of business. If you “ABSTAIN,” your abstention has the same effect as a vote
“AGAINST.”
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Proxy Statement
If you provide specific instructions with regard to certain items, your shares will be voted
as you instruct on such items. If you sign your proxy card or voting instruction card without
giving specific instructions, your shares will be voted in accordance with the
recommendations of the Board (“FOR” all of the Company’s nominees to the Board, “FOR”
ratification of BDO as our Independent Registered Public Accounting Firm, “FOR” the
approval, by non-binding vote, of executive compensation, and in the discretion of the
proxy holders on any other matters that may properly come before the meeting).
What is a “broker non-vote”? A “broker non-vote” occurs when a broker expressly instructs on a proxy card that it is not
voting on a matter, whether routine or non-routine. Under the rules that govern brokers who
have record ownership of shares that are held in street name for their clients who are the
beneficial owners of the shares, brokers have the discretion to vote such shares on routine
matters, which includes ratifying the appointment of an independent registered public
accounting firm but does not include the election of directors, and the non-binding vote on
executive compensation. Therefore, if you do not otherwise instruct your broker, the broker
may turn in a proxy card voting your shares “FOR” ratification of BDO as the Independent
Registered Public Accounting Firm.
However, if you do not instruct your broker how to vote with respect to the election of
directors and the non-binding vote on executive compensation, your broker may not vote
with respect to such proposal and your shares will not be counted as voting in favor of these
matters.
How are “broker non-votes”
counted?
Broker non-votes will be counted for the purpose of determining the presence or absence
of a quorum for the transaction of business, but they will not be counted in tabulating the
voting result for any particular proposal.
How are abstentions counted? If you return a proxy card that indicates an abstention from voting on all matters, the shares
represented will be counted for the purpose of determining both the presence of a quorum
and the total number of votes cast with respect to a proposal (other than the election of
directors), but they will not be voted on any matter at the meeting. In the absence of
controlling precedent to the contrary, we intend to treat abstentions in this manner.
Accordingly, abstentions will have the same effect as a vote “AGAINST” a proposal.
What happens if additional
matters are presented at the
meeting?
Other than the four proposals described in this proxy statement, we are not aware of any
other business to be acted upon at the meeting. If you grant a proxy, the persons named as
proxy holders, Kevin P. Connors (President and Chief Executive Officer) and Ronald J.
Santilli (our Executive Vice President and Chief Financial Officer), will have the discretion
to vote your shares on any additional matters that may be properly presented for a vote at
the meeting. If, for any unforeseen reason, any of our nominees is not available as a
candidate for director, the persons named as proxy holders will vote your proxy for such
other candidate or candidates as may be nominated by our Board.
Who will serve as inspector of
election?
We expect a representative of Computershare Trust Company, Inc., our transfer agent, to
tabulate the votes, and expect Rajesh Madan, our Vice President of Finance and Legal to
act as inspector of election at the meeting.
What should I do in the event
that I receive more than one
set of proxy/voting materials?
You may receive more than one set of these proxy solicitation materials, including multiple
copies of this proxy statement and multiple proxy cards or voting instruction cards. For
example, if you hold your shares in more than one brokerage account, you may receive a
separate voting instruction card for each brokerage account in which you hold shares. In
addition, if you are a stockholder of record and your shares are registered in more than one
name, you may receive more than one proxy card. Please complete, sign, date and return
each Cutera proxy card and voting instruction card that you receive to ensure that all your
shares are voted.
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Proxy Statement
Who is soliciting my vote and
who will bear the costs of this
solicitation?
Your vote is being solicited on behalf of the Board, and the Company will bear the entire
cost of solicitation of proxies, including preparation, assembly, printing and mailing of this
proxy statement. In addition to these mailed proxy materials, our directors and employees
may also solicit proxies in person, by telephone, by electronic mail or by other means of
communication. Directors and employees will not be paid any additional compensation for
soliciting proxies. We may reimburse brokerage firms, banks and other agents for the cost
of forwarding proxy materials to beneficial owners. We may also engage the services of a
professional proxy solicitation firm to aid in the solicitation of proxies from certain brokers,
bank nominees and other institutional owners. Our costs for such services, if retained, will
not be material.
Where can I find the voting
results of the meeting?
We intend to announce preliminary voting results at the Annual Meeting and file a Form 8-
K with the SEC within four business days after the end of our Annual Meeting to report the
voting results.
What is the deadline to propose
actions for consideration at
next year’s Annual Meeting of
stockholders or to nominate
individuals to serve as
directors?
As a stockholder, you may be entitled to present proposals for action at a future meeting of
stockholders, including director nominations.
Stockholder Proposals: For a stockholder proposal to be considered for inclusion in our
proxy statement for the Annual Meeting to be held in 2016, the written proposal must be
received by our corporate Secretary at our principal executive offices no later than January
8, 2016, which is the date 120 calendar days before the anniversary of the mailing date of
the Notice of Internet Availability of Proxy Materials. If the date of next year’s Annual
Meeting is moved more than 30 days before or after the anniversary date of this year’s
Annual Meeting, the deadline for inclusion of proposals in our proxy statement is instead a
reasonable time before we begin to print and mail its proxy materials. Such proposals also
must comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), and any other applicable rules established by the SEC.
Stockholders interested in submitting such a proposal are advised to contact knowledgeable
legal counsel with regard to the detailed requirements of applicable securities laws.
Proposals should be addressed to:
Secretary
Cutera, Inc.
3240 Bayshore Blvd.
Brisbane, California 94005-1021
Nomination of Director Candidates: You may propose director candidates for
consideration by our Board. Any such recommendations should include the nominee’s
name and qualifications for Board membership and should be directed to the “Secretary” at
the address of our principal executive offices set forth above. In addition, our bylaws permit
stockholders to nominate directors for election at an Annual Meeting of stockholders. To
nominate a director, the stockholder must provide the information required by our bylaws,
as well as a statement by the nominee consenting to being named as a nominee and to serve
as a director if elected. In addition, the stockholder must give timely notice to our corporate
Secretary in accordance with the provisions of our bylaws, which require that the notice be
received by our corporate Secretary no later than January 8, 2016.
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Proxy Statement
Copy of Bylaw Provisions: Our bylaws are available on the Investor page of our website
at www.cutera.com.You may also contact our corporate Secretary at our principal
executive offices for a copy of the relevant bylaw provisions regarding the requirements
for making stockholder proposals and nominating director candidates.
-7-
Proxy Statement
Security Ownership of Certain Beneficial Owners and Management
STOCK OWNERSHIP
The following table provides information relating to the beneficial ownership of our common stock as of the Record Date,
by:
●
●
●
●
each stockholder known by us to own beneficially more than 5% of our common stock;
each of our executive officers named in the Summary Compensation Table on page 45 (including our Chief
Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”);
each of our directors; and
all of our directors and Named Executive Officers (“NEOs”) as a group.
The number of shares beneficially owned by each entity, person, director or executive officer is determined in accordance
with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose.
Under such rules, beneficial ownership includes any shares over which the individual has the sole or shared voting power or
investment power and any shares that the individual has the right to acquire within 60 days of April 20, 2015 (the Record
Date) through the exercise of any stock option or other right. The number and percentage of shares beneficially owned is
computed on the basis of 14,566,851 shares of our common stock outstanding as of the Record Date. The information in the
following table regarding the beneficial owners of more than 5% of our common stock is based upon information supplied
by principal stockholders or Schedules 13D and 13G filed with the SEC.
Shares of our common stock that a person has the right to acquire within 60 days of the Record Date are deemed outstanding
for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all
directors and executive officers as a group. To our knowledge, except as set forth in the footnotes to this table and subject to
applicable community property laws, each person or entity named in the table has sole voting and disposition power with
respect to the shares set forth opposite such person’s or entity’s name. The address for those persons for which an address is
not otherwise provided is c/o Cutera, Inc., 3240 Bayshore Blvd., Brisbane, California 94005-1021.
Name and Address of Beneficial Owner
Craig A Drill ......................................................................................
Rima Senvest Management, LLC ......................................................
Dimensional Fund Advisors LP .........................................................
Renaissance Technologies, LLC ........................................................
Granahan Investment Management, Inc. ............................................
David B. Apfelberg ............................................................................
Gregory Barrett ..................................................................................
Kevin P. Connors ...............................................................................
David A. Gollnick ..............................................................................
Timothy J. O’Shea .............................................................................
J. Daniel Plants ...................................................................................
Clint H. Severson ...............................................................................
Ronald J. Santilli ................................................................................
Jerry P. Widman .................................................................................
All directors and Named Executive Officers as a group (9 persons) ..
Number of
Shares
Outstanding
Warrants and
Options
Exercisable
Within 60
Days
Approximate
Percent
Owned
1,410,000
1,186,292
1,099,827
779,202
740,877
10,864
15,602
509,432
169,352
25,506
—(1)
4,000
25,923
36,706
797,385
—
—
—
—
—
33,448
20,448
549,890
6,448
33,448
—
—
277,722
26,448
947,852
9.7%
8.1%
7.6%
5.3%
5.1%
*
*
7.0%
1.2%
*
*(1)
*
2.0%
*
11.2%
*Less than 1%.
(1) Mr. Plants is the Managing Partner of Voce Capital Management LLC, the holder of 476,954 shares (approximately
3.3%) of our interest outstanding common stock as of the Record Date. While Mr. Plants has disclaimed beneficial
ownership of the shares owned by Voce Capital Management LLC, except to the extent of his pecuniary interest therein,
he has the sole or shared voting power of these shares.
-8-
Proxy Statement
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, officers and beneficial owners of more than 10% of our common
stock to file reports of ownership and reports of changes in the ownership with the SEC. Such persons are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms received by us, or written representations from reporting persons that
no Forms 3, 4 or 5 were required of such persons, we believe that during our fiscal year ended December 31, 2014 all reports
were timely filed.
CORPORATE GOVERNANCE AND BOARD MATTERS
Director Independence
Our Board currently consists of eight authorized directors. The Company’s directors are David B. Apfelberg, Gregory Barrett,
Kevin P. Connors, David A. Gollnick, Timothy J. O’Shea, J. Daniel Plants, Clint H. Severson, and Jerry P. Widman. Our
Board has determined that each of the directors other than Kevin P. Connors, the Company’s President and CEO, and David
A. Gollnick, the Company’s former Vice President of North American Sales and former Executive Vice President of Research
and Development, satisfy the current “independent director” standards established by rules of The NASDAQ Stock Market
LLC (“NASDAQ”).
Board Leadership Structure
Our Board does not have a chairman but David B. Apfelberg is the Board-designated lead independent director. We believe
Dr. Apfelberg’s technical qualifications as a physician and Adjunct Clinical Professor of Plastic Surgery at the Stanford
University Medical Center, understanding of our products, tenure with the Company and his knowledge of the aesthetics
market make him suitable for this lead independent director position. Our CEO, Mr. Connors, performs many of the functions
that a chairman would typically perform and works together with Dr. Apfelberg in setting the agenda for each board meeting
and presiding over such meetings. At the end of each board meeting, the independent directors meet without Mr. Connors
and Mr. Gollnick present. Following each meeting, Dr. Apfelberg provides feedback to Mr. Connors on his performance and
the performance of other Cutera employees during the meeting and frequently recommends new agenda items for the next
meeting.
As described in more detail below, the Board has four standing committees, an Audit Committee, a Compensation
Committee, a Nominating and Corporate Governance Committee and a Strategic Transactions Committee. The chairman and
each member of these committees is an independent director. The Board delegates substantial duties and responsibilities to
each committee. The committees make recommendations to the Board and report regularly to the Board on their activities
and any actions they have taken. We believe that our independent board committees and their chairman are an important
aspect of our board leadership structure.
Risk Oversight and Analysis
Our management is responsible for managing the risks we face in the ordinary course of operating our business. The Board
oversees potential risks and our risk management activities by receiving operational and strategic presentations from
management which include discussions of key risks to our business. While our Board has the ultimate responsibility for risk
management and oversight, various committees of the Board also support the Board in its fulfillment of this responsibility.
For example, our Audit Committee assists the Board in its risk oversight function by reviewing and discussing with
management our system of disclosure controls and our internal controls over financial reporting risks associated with our
cash investment policies, risks related to regulatory matters, and evaluating and advising on other matters. Our business is
run conservatively and excessive risk taking has been discouraged. As a result, risk analysis has not been a significant factor
for our Compensation Committee in establishing compensation. The Nominating and Corporate Governance Committee
assists the Board in fulfilling its oversight responsibilities with respect to the management of risks associated with Board
organization, membership and structure. The Strategic Transactions Committee evaluates from time-to-time, business
development opportunities, as well as any risks and benefits associated with acquiring potential targets, and reports back to
the full Board with their recommendations.
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Proxy Statement
Committees of the Board
Our Board has four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate
Governance Committee and the Strategic Transactions Committee. From time to time, our Board may also create various ad
hoc committees for special purposes. The membership during the last fiscal year, and the function of each of the committees,
are described below.
Name of Director
Nominating
and
Corporate
Governance
Committee
Compensation
Committee
Strategic
Transactions
Committee
Audit
Committee
Non-Employee Directors:
David B. Apfelberg .....................................................................
Gregory Barrett ...........................................................................
W. Mark Lortz .............................................................................
Timothy J. O’Shea ......................................................................
J. Daniel Plants ............................................................................
Clint H. Severson ........................................................................
Jerry P. Widman ..........................................................................
X1
X
X3
X*
Employee Director:
Kevin P. Connors ........................................................................
David A. Gollnick** ...................................................................
X
X*
X
X
X
X
X*
X
X
X
X
X*2
Number of Meetings Held During the Last Fiscal Year ..............
8
3
1
2
X = Committee member
* = Chairman of Committee
1 = W. Mark Lortz resigned from the Board on January 6, 2015 and as a member of the Audit and Strategic
Transactions committees.
2 = J. Daniel Plants became the Chairman of the Strategic Transactions Committee effective January 6, 2015.
3 = Clint H. Severson became a member of the Audit Committee effective January 6, 2015.
Audit Committee. The Audit Committee oversees the Company’s accounting and financial reporting processes and the audits
of its financial statements. The committee operates under a written charter adopted by the Board in January 2004 and as
amended and approved by the Board on October 25, 2013. A copy of the charter can be found on the Investor page, under
the Corporate Governance section of our website at www.cutera.com under the Corporate Governance section. In this role,
the Audit Committee monitors and oversees the integrity of the Company’s financial statements and related disclosures, the
qualifications, independence, and performance of the Company’s Independent Registered Public Accounting Firm, and the
Company’s compliance with applicable legal requirements and its business conduct policies. Our Board has determined that
each member of the Audit Committee meets the independence and financial literacy requirements of the NASDAQ rules and
the independence requirements of the SEC. Our Board has determined that Jerry P. Widman continues to qualify as an “audit
committee financial expert,” as defined in SEC rules. The report of the Audit Committee appears on page 17 of this proxy
statement.
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Proxy Statement
Committees of the Board
Our Board has four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate
Governance Committee and the Strategic Transactions Committee. From time to time, our Board may also create various ad
hoc committees for special purposes. The membership during the last fiscal year, and the function of each of the committees,
are described below.
Nominating
and
Corporate
Strategic
Audit
Compensation
Governance
Transactions
Committee
Committee
Committee
Committee
X
X*
X
X
X
X
X*
X
X
X
X
X*2
Non-Employee Directors:
Name of Director
David B. Apfelberg .....................................................................
Gregory Barrett ...........................................................................
W. Mark Lortz .............................................................................
Timothy J. O’Shea ......................................................................
J. Daniel Plants ............................................................................
Clint H. Severson ........................................................................
Jerry P. Widman ..........................................................................
X1
X
X3
X*
Employee Director:
Kevin P. Connors ........................................................................
David A. Gollnick** ...................................................................
Number of Meetings Held During the Last Fiscal Year ..............
8
3
1
2
X = Committee member
* = Chairman of Committee
Transactions committees.
1 = W. Mark Lortz resigned from the Board on January 6, 2015 and as a member of the Audit and Strategic
2 = J. Daniel Plants became the Chairman of the Strategic Transactions Committee effective January 6, 2015.
3 = Clint H. Severson became a member of the Audit Committee effective January 6, 2015.
Audit Committee. The Audit Committee oversees the Company’s accounting and financial reporting processes and the audits
of its financial statements. The committee operates under a written charter adopted by the Board in January 2004 and as
amended and approved by the Board on October 25, 2013. A copy of the charter can be found on the Investor page, under
the Corporate Governance section of our website at www.cutera.com under the Corporate Governance section. In this role,
the Audit Committee monitors and oversees the integrity of the Company’s financial statements and related disclosures, the
qualifications, independence, and performance of the Company’s Independent Registered Public Accounting Firm, and the
Company’s compliance with applicable legal requirements and its business conduct policies. Our Board has determined that
each member of the Audit Committee meets the independence and financial literacy requirements of the NASDAQ rules and
the independence requirements of the SEC. Our Board has determined that Jerry P. Widman continues to qualify as an “audit
committee financial expert,” as defined in SEC rules. The report of the Audit Committee appears on page 17 of this proxy
statement.
Compensation Committee. The Compensation Committee, together with our Board, establishes compensation for our CEO
and the other executive officers and administers the Company’s 2004 amended and restated Equity Incentive Plan and 2004
Employee Stock Purchase Plan. The Compensation Committee has a written charter, which was adopted by our Board in
January 2004, amended on April 13, 2007, April 25, 2008 and on August 27, 2014, and can be found on the Investor page,
under the Corporate Governance section of our website at www.cutera.com.
In June 2014, the Compensation Committee received and discussed the report of the independent compensation consultants
hired to benchmark and evaluate the compensation of the NEOs. In July 2014, the Compensation Committee reviewed with
the full Board the recommendations of the independent compensation consultants and proposed changes to the NEOs’
compensation- see detailed discussion in the Compensation Discussion and Analysis below.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee reviews and
makes recommendations to the Board on matters concerning corporate governance, Board composition, identification,
evaluation and nomination of director candidates, Board committees, Board compensation, and conflicts of interest. The
Nominating and Corporate Governance Committee has a written charter, which was adopted by our Board on October 21,
2011 and can be found on the Investor page, under the Corporate Governance section of our website at www.cutera.com.
In December 2014, the Nominating and Corporate Governance Committee evaluated possible candidates for joining the
Cutera Board of directors. In addition, prior to the meeting, certain board members interviewed possible candidates to
evaluate their qualifications, prior industry experience, as well as the possible contributions they would be able to make to
our Board. In January 2015, based on the recommendations of the Nominating and Corporate Governance Committee, the
Board elected two new members.
Strategic Transactions Committee. The Strategic Transactions Committee reviews and evaluates any potential strategic
business combination transactions as the possibilities arise and other related or pertinent strategic alternatives for the
Company (which may include, but are not limited to, a merger, other business combination, recapitalization, acquisition,
spin-off, split-off, acquisition of a subsidiary, division or unit, or other similar transaction).
In July and August 2014, the Strategic Transactions Committee identified and evaluated possible targets for a strategic
combination. Thereafter, the members of the Strategic Transactions Committee discussed their findings and
recommendations with the whole Board. Following these discussions the Board decided to not pursue the targets being
evaluated due to several considerations including, price of the targets and strategic fit for the Company.
Meetings Attended by Directors
During 2014, the Board held six meetings, the Audit Committee held eight meetings, the Compensation Committee held
three meetings, the Strategic Transactions Committee held two meetings, and the Nominating and Corporate Governance
Committee held one meeting. No director attended fewer than 75% of the meetings of the Board or committee(s) on which
he served during 2014.
The directors of the Company are encouraged to attend the Company’s Annual Meeting of Stockholders. In 2014, director
Kevin P. Connors attended the meeting in person; and all other directors, except for W. Mark Lortz, attended the meeting
telephonically.
-10-
-11-
Proxy Statement
Director Nomination Process
Director Qualifications. While the Nominating and Corporate Governance Committee has not established specific minimum
qualifications for director candidates, the candidates for Board membership should have the highest professional and personal
ethics and values, and conduct themselves consistent with our Code of Ethics. While the Nominating and Corporate
Governance Committee has not formalized specific minimum qualifications they believe must be met by a candidate to be
recommended by the independent members, the Nominating and Corporate Governance Committee believes that candidates
and nominees must reflect a Board that is comprised of directors who (i) have broad and relevant experience, (ii) are
predominantly independent, (iii) are of high integrity, (iv) have qualifications that will increase overall Board effectiveness
and enhance long-term stockholder value, and (v) meet other requirements as may be required by applicable rules, such as
financial literacy or financial expertise with respect to Audit Committee members.
Stockholder Nominations and Recommendations. As described above in the Question and Answer section of this proxy
statement under “What is the deadline to propose actions for consideration at next year’s Annual Meeting of Stockholders or
to nominate individuals to serve as directors?,” our bylaws set forth the procedure for the proper submission of stockholder
nominations for membership on our Board. In addition, the Nominating and Corporate Governance Committee may consider
properly submitted stockholder recommendations (as opposed to formal nominations) for candidates for membership on the
Board. A stockholder may make such a recommendation by submitting the following information to our Secretary at 3240
Bayshore Blvd., Brisbane, California 94005-1021 no later than January 8, 2016:
the candidate’s name;
●
● home and business contact information;
● detailed biographical data, relevant qualifications, professional and personal references;
●
●
information regarding any relationships between the candidate and Cutera within the last three years; and
evidence of ownership of Cutera stock by the recommending stockholder.
Identifying and Evaluating Director Nominees. Typically new candidates for nomination to the Board are suggested by
existing directors or by our executive officers, although candidates may initially come to our attention through professional
search firms, stockholders or other persons. The Nominating and Corporate Governance Committee carefully reviews the
qualifications of any candidates who have been properly brought to its attention. Such a review may, in the Nominating and
Corporate Governance Committee’s discretion, include a review solely of information provided to the Nominating and
Corporate Governance Committee or may also include discussion with persons familiar with the candidate, an interview with
the candidate or other actions that the Nominating and Corporate Governance Committee deems proper. The Nominating and
Corporate Governance Committee shall consider the suitability of each candidate, including the current members of the
Board, in light of the current size and composition of the Board. In evaluating the qualifications of the candidates, Nominating
and Corporate Governance Committee considers many factors, including, issues of character, judgment, independence,
expertise, length of service, and other commitments. In addition, the Nominating and Corporate Governance Committee takes
into account diversity in professional experience, skills and background in considering and evaluating candidates. However,
while diversity relating to background, skill, experience and perspective is one factor considered in the nomination process,
the Company does not have a formal policy relating to diversity. The Nominating and Corporate Governance Committee
evaluates such factors, among others, and does not assign any particular weighting or priority to any of these factors.
Candidates properly recommended by stockholders are evaluated by the Nominating and Corporate Governance Committee
using the same criteria as other candidates. Candidates are not discriminated against on the basis of race, religion, national
origin, sexual orientation, disability or any other basis proscribed by law.
Director Nominees at our 2015 Annual Meeting. Our Nominating and Corporate Governance Committee recommended the
director nominees for nomination to our Board.
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Proxy Statement
Director Nomination Process
Director Compensation
Director Qualifications. While the Nominating and Corporate Governance Committee has not established specific minimum
qualifications for director candidates, the candidates for Board membership should have the highest professional and personal
ethics and values, and conduct themselves consistent with our Code of Ethics. While the Nominating and Corporate
Governance Committee has not formalized specific minimum qualifications they believe must be met by a candidate to be
recommended by the independent members, the Nominating and Corporate Governance Committee believes that candidates
and nominees must reflect a Board that is comprised of directors who (i) have broad and relevant experience, (ii) are
predominantly independent, (iii) are of high integrity, (iv) have qualifications that will increase overall Board effectiveness
and enhance long-term stockholder value, and (v) meet other requirements as may be required by applicable rules, such as
financial literacy or financial expertise with respect to Audit Committee members.
Stockholder Nominations and Recommendations. As described above in the Question and Answer section of this proxy
statement under “What is the deadline to propose actions for consideration at next year’s Annual Meeting of Stockholders or
to nominate individuals to serve as directors?,” our bylaws set forth the procedure for the proper submission of stockholder
nominations for membership on our Board. In addition, the Nominating and Corporate Governance Committee may consider
properly submitted stockholder recommendations (as opposed to formal nominations) for candidates for membership on the
Board. A stockholder may make such a recommendation by submitting the following information to our Secretary at 3240
Bayshore Blvd., Brisbane, California 94005-1021 no later than January 8, 2016:
●
the candidate’s name;
● home and business contact information;
● detailed biographical data, relevant qualifications, professional and personal references;
information regarding any relationships between the candidate and Cutera within the last three years; and
evidence of ownership of Cutera stock by the recommending stockholder.
●
●
Identifying and Evaluating Director Nominees. Typically new candidates for nomination to the Board are suggested by
existing directors or by our executive officers, although candidates may initially come to our attention through professional
search firms, stockholders or other persons. The Nominating and Corporate Governance Committee carefully reviews the
qualifications of any candidates who have been properly brought to its attention. Such a review may, in the Nominating and
Corporate Governance Committee’s discretion, include a review solely of information provided to the Nominating and
Corporate Governance Committee or may also include discussion with persons familiar with the candidate, an interview with
the candidate or other actions that the Nominating and Corporate Governance Committee deems proper. The Nominating and
Corporate Governance Committee shall consider the suitability of each candidate, including the current members of the
Board, in light of the current size and composition of the Board. In evaluating the qualifications of the candidates, Nominating
and Corporate Governance Committee considers many factors, including, issues of character, judgment, independence,
expertise, length of service, and other commitments. In addition, the Nominating and Corporate Governance Committee takes
into account diversity in professional experience, skills and background in considering and evaluating candidates. However,
while diversity relating to background, skill, experience and perspective is one factor considered in the nomination process,
the Company does not have a formal policy relating to diversity. The Nominating and Corporate Governance Committee
evaluates such factors, among others, and does not assign any particular weighting or priority to any of these factors.
Candidates properly recommended by stockholders are evaluated by the Nominating and Corporate Governance Committee
using the same criteria as other candidates. Candidates are not discriminated against on the basis of race, religion, national
origin, sexual orientation, disability or any other basis proscribed by law.
Director Nominees at our 2015 Annual Meeting. Our Nominating and Corporate Governance Committee recommended the
director nominees for nomination to our Board.
The following table sets forth a summary of the cash compensation paid and the grant date fair value of shares of Cutera
common stock which vest over a one-year period, awarded to our non-employee directors in the fiscal year ended December
31, 2014.
2014 Director Compensation Table
Name
Fees Earned
or Paid in
Cash(1)
Stock
Awards(2)
All Other
Compensation(3)
Total
David B. Apfelberg ............................................................... $
Gregory Barrett .....................................................................
David A. Gollnick .................................................................
W. Mark Lortz .......................................................................
Timothy J. O’Shea ................................................................
J. Daniel Plants ......................................................................
Clint H. Severson ..................................................................
Jerry P. Widman ....................................................................
51,000 $
65,000
—
57,500
62,500
—
—
71,000
60,000(4) $
60,000(5)
60,000(6)
60,000(7)
60,000(8)
—
—
60,000(9)
— $ 111,000
— 125,000
313,627(6) 373,627
— 117,500
— 122,500
—
—
—
—
— 131,000
(1) The amounts reported in this column were earned in connection with serving on our Board and its committees, or
as committee Chairman retainers, each as described below.
(2) The amounts reported in this column represent the aggregate grant date fair value of shares of Cutera common stock
which vest over a one-year period, awarded during the fiscal year ended December 31, 2014 calculated in
accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718.
(3) The amounts reported in this column were earned for services provided for other than serving on our Board or its
committees, each as described below.
(4) At December 31, 2014, Dr. Apfelberg held options to purchase 27,000 shares of Cutera common stock. .
(5) At December 31, 2014, Mr. Barrett held options to purchase 14,000 shares of Cutera common stock.
(6) Mr. Gollnick served as Vice President of North American Sales of the Company between February and August 2014,
for which he was paid $287,467 in cash and a RSU award of $60,000. In addition, Mr. Gollnick was paid $26,160
for consulting services provided to the Company at other times in 2014.
(7) At December 31, 2014, Mr. Lortz held options to purchase 27,000 shares of Cutera common stock.
(8) At December 31, 2014, Mr. O’Shea held options to purchase 27,000 shares of Cutera common stock.
(9) At December 31, 2014, Mr. Widman held options to purchase 27,000 shares of Cutera common stock.
For 2014, our non-employee directors earned an annual retainer of $45,000 for regular Board meetings; $6,000 for
Compensation Committee meetings (for members other than the Chairman); $7,500 for Audit Committee meetings (for
members other than the Chairman); and $5,000 for Strategic Transactions Committee meetings. Our non-employee directors
did not earn an annual retainer for Nominating and Corporate Governance Committee meetings (for members other than the
Chairman). The Chairman of the Audit Committee and the Compensation Committee each earned an annual retainer of
$20,000 for their services on the respective committees. The Chairman of the Nominating and Corporate Governance
Committee earned an annual retainer of $5,000 for his services. Our non-employee directors no longer receive meeting fees
for Board and committee meetings regardless of the number of meetings held throughout the year.
Our 2004 amended and restated Equity Incentive Plan provides for the automatic grant of options to purchase shares of Cutera
common stock to our non-employee directors. Each non-employee director who is appointed to the Board will receive an
initial option to purchase 14,000 shares of Cutera common stock upon such appointment. Each of these stock options will
have an exercise price equal to fair market value of Cutera common stock on the date of grant and a term of seven years and
will become exercisable as to one-third of the shares subject to the option on each anniversary of its date of grant, provided
the non-employee director remains a director on such dates. In addition, each non-employee director, who is a director on the
date of each Annual Meeting of Stockholders and has been a director for at least the preceding six months, will receive an
award of shares represented by the quotient of $60,000 divided by the closing market price of Cutera common stock on the
date of such Annual Meeting. These shares vest on the one-year anniversary of the grant date.
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-13-
Proxy Statement
Code of Ethics
We are committed to maintaining the highest standards of business conduct and ethics. Our Code of Ethics, as amended, (the
“Code”) reflects our values and the business practices and principles of behavior that support this commitment. The Code is
intended to satisfy SEC rules for a “code of ethics” required by Section 406 of the Sarbanes-Oxley Act of 2002, as well as
the NASDAQ listing standards requirement for a “code of conduct.” The Code is an Exhibit to our Form 8-K filed with the
SEC on April 29, 2004, was amended and restated on January 1, 2011, and is available on the Company’s website at
www.cutera.com. We will post any amendment to the Code, as well as any waivers that are required to be disclosed by the
rules of the SEC or NASDAQ, on our website.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of the following members: David Apfelberg, Gregory Barrett and Jerry Widman.
Neither any member of the Compensation Committee, nor any of our NEOs, has a relationship that would constitute an
interlocking relationship with executive officers or directors of another entity. No Compensation Committee member is an
officer or employee of Cutera.
Review, Approval or Ratification of Related Party Transactions
As provided by our Audit Committee charter, our Audit Committee must review and approve in advance any proposed related
party transaction. All of our directors and officers are required to report to our Audit Committee any such related party
transaction prior to its completion. We have not adopted specific standards for approval of related party transactions, but
instead our Audit Committee reviews each such transaction on a case-by-case basis. Our policy is to require that all executive
compensation-related matters be recommended and approved by our Compensation Committee as provided by our
Compensation Committee charter and be reported under applicable SEC rules.
Certain Relationships and Related Transactions
In 2014 and through April 20, 2015, except for compensation paid to the Company’s directors and executive officers for
services performed in such roles, and except as provided in the following paragraph, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which the Company was or is to be a party in which the amount
involved exceeds $120,000 and in which any director, executive officer, holder of more than 5% of our common stock or any
member of their immediate families had or will have a direct or indirect material interest.
In addition, we have a consulting agreement with Mr. Gollnick pursuant to which he is compensated for services that he
provides to us, including product development, clinical sales and marketing support. Payments to Mr. Gollnick under this
agreement in fiscal year 2014 were $26,160 plus travel expenses. Additionally, Mr. Gollnick served as Vice President of
North American Sales of the Company between February and August 2014, for which he was paid $287,467 in cash and
received a RSU award of $60,000.
Family Relationships
There are no family relationships among any of our directors or executive officers.
-14-
Proxy Statement
Code of Ethics
Indemnification Agreements
Each of our directors and officers has an indemnification agreement with our Company.
Communications with the Board by Stockholders
Stockholders wishing to communicate with the Board or with an individual Board member concerning the Company may do
so by writing to the Board or to the particular Board member, and mailing the correspondence to: Attention: Board, c/o
Secretary, Cutera, Inc., 3240 Bayshore Blvd., Brisbane, California 94005-1021. The envelope should indicate that it contains
a stockholder communication. All such stockholder communications will be forwarded to the director or directors to whom
the communications are addressed.
Stock Ownership Guidelines
To enhance our overall corporate governance practices and director compensation program, our Board adopted stock
ownership guidelines for our non-employee directors, which the Compensation Committee intends to review annually. These
guidelines are designed to align our non-employee directors’ interests with our stockholders’ long-term interests by
promoting long-term ownership of Cutera common stock. These guidelines provide that, within five years of the later of the
adoption of the guidelines or his or her first date of election to our Board, our non-employee directors must hold shares of
Cutera common stock having a value not less than three times the value of their annual retainer for general Board service.
We are committed to maintaining the highest standards of business conduct and ethics. Our Code of Ethics, as amended, (the
“Code”) reflects our values and the business practices and principles of behavior that support this commitment. The Code is
intended to satisfy SEC rules for a “code of ethics” required by Section 406 of the Sarbanes-Oxley Act of 2002, as well as
the NASDAQ listing standards requirement for a “code of conduct.” The Code is an Exhibit to our Form 8-K filed with the
SEC on April 29, 2004, was amended and restated on January 1, 2011, and is available on the Company’s website at
www.cutera.com. We will post any amendment to the Code, as well as any waivers that are required to be disclosed by the
rules of the SEC or NASDAQ, on our website.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of the following members: David Apfelberg, Gregory Barrett and Jerry Widman.
Neither any member of the Compensation Committee, nor any of our NEOs, has a relationship that would constitute an
interlocking relationship with executive officers or directors of another entity. No Compensation Committee member is an
officer or employee of Cutera.
Review, Approval or Ratification of Related Party Transactions
As provided by our Audit Committee charter, our Audit Committee must review and approve in advance any proposed related
party transaction. All of our directors and officers are required to report to our Audit Committee any such related party
transaction prior to its completion. We have not adopted specific standards for approval of related party transactions, but
instead our Audit Committee reviews each such transaction on a case-by-case basis. Our policy is to require that all executive
compensation-related matters be recommended and approved by our Compensation Committee as provided by our
Compensation Committee charter and be reported under applicable SEC rules.
Certain Relationships and Related Transactions
In 2014 and through April 20, 2015, except for compensation paid to the Company’s directors and executive officers for
services performed in such roles, and except as provided in the following paragraph, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which the Company was or is to be a party in which the amount
involved exceeds $120,000 and in which any director, executive officer, holder of more than 5% of our common stock or any
member of their immediate families had or will have a direct or indirect material interest.
In addition, we have a consulting agreement with Mr. Gollnick pursuant to which he is compensated for services that he
provides to us, including product development, clinical sales and marketing support. Payments to Mr. Gollnick under this
agreement in fiscal year 2014 were $26,160 plus travel expenses. Additionally, Mr. Gollnick served as Vice President of
North American Sales of the Company between February and August 2014, for which he was paid $287,467 in cash and
received a RSU award of $60,000.
Family Relationships
There are no family relationships among any of our directors or executive officers.
-14-
-15-
Proxy Statement
As of April 20, 2015, the non-employee directors’ holdings and target guidelines were as follows:
Non-Employee Directors
Stock
Ownership as
of April 20,
2015
Minimum
Stock
Ownership
Required
David B. Apfelberg .........................................................................................................
Gregory Barrett ...............................................................................................................
David A. Gollnick ...........................................................................................................
Timothy J. O’Shea .........................................................................................................
J. Daniel Plants ...............................................................................................................
Clint H. Severson ...........................................................................................................
Jerry P. Widman .............................................................................................................
10,864
15,602
169,352
25,506
—
4,000
36,706
9,691(1)
9,691(1)
9,691(1)
9,691(1)
9,691(2)
9,691(3)
9,691(1)
(1) Based on the closing stock price of $13.93 on April 20, 2015, each of these non-employee directors already held
shares that exceeded the minimum stock ownership required.
(2) By January 6, 2020, based on the closing stock price of $13.93 on April 20, 2015.
(3) By January 3, 2020, based on the closing stock price of $13.93 on April 20, 2015.
On January 6, 2015, we entered into an agreement with Voce Capital Management LLC and Mr. Plants (the “Voce
Agreement”), which was filed with the SEC on January 8th, 2015. The Voce Agreement states the terms and understandings
concerning the nomination and election of Mr. Plants to our Board of Directors and other matters. Further, it was agreed that
if, at any time Voce’s ownership in our common stock (subject to adjustment for stock splits, reclassifications, combinations
and similar adjustments) falls below 140,000 shares, then Mr. Plants will immediately resign from our Board.
-16-
Proxy Statement
REPORT OF THE AUDIT COMMITTEE
In accordance with its written charter, the Audit Committee of the Board is responsible for assisting the Board to fulfill its
oversight of the integrity of the Company’s financial statements and internal controls, the Company’s compliance with legal
and regulatory requirements, the independent auditors’ qualifications and independence, and the performance of the
Company’s internal audit function and independent auditors. It is the responsibility of the Company’s management to prepare
the Company’s financial statements, develop and maintain adequate systems of internal accounting and financial controls,
facilitating the internal audit intended to evaluate the adequacy and effectiveness of the Company’s financial and operating
internal control systems.
BDO USA, LLP (“BDO ”), the Company’s independent registered public accounting firm for 2014 (the independent
auditors), was responsible for performing independent audits of the Company’s consolidated financial statements and internal
control over financial reporting and issuing an opinion on the conformity of those audited financial statements with generally
accepted accounting principles in the United States of America (“GAAP”) and on the effectiveness of the Company’s internal
control over financial reporting. The independent auditors also review the Company’s interim financial statements in
accordance with applicable auditing standards.
In evaluating the independence of BDO, the Audit Committee has (i) received the written disclosures and the letter from
BDO required by applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) regarding the
audit firm’s communications with the committee concerning independence, and (ii) discussed with BDO the firm’s
independence from the Company and management. The committee has concluded that BDO was independent from the
Company and its management. The committee has reviewed with the independent auditors and the Company’s internal
auditors the overall scope and specific plans for their respective audits, and the committee regularly monitored the progress
of both in assessing the Company’s compliance with Section 404 of the Sarbanes-Oxley Act, including their findings,
required resources and progress.
In 2014, the Audit Committee held eight meetings. At every regular meeting, the Committee reviews the results of the
independent auditor’s examinations, their evaluations of the Company’s internal controls, and the overall quality of the
Company’s accounting and financial reporting. Following the regular meeting, the committee meets separately with the
independent auditors, without management present, and also meets separately with the Company’s management. In addition,
from time-to-time the Audit Committee met with the independent internal audit firm.
The committee has met and discussed with management and the independent auditors the fair and complete presentation of
the Company’s financial statements. The committee has also discussed and reviewed with the independent auditors all
communications, including those described in Auditing Standards No. 16, “Communications with Audit Committees,” as
adopted by the PCAOB. The committee has discussed significant accounting policies applied in the financial statements as
well as alternative treatments. Management has represented that the consolidated financial statements have been prepared in
accordance with GAAP and the committee has reviewed and discussed the audited consolidated financial statements with
both management and the independent auditors.
Relying on the foregoing reviews and discussions, the committee recommended to the Board, and the Board approved,
inclusion of the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2014, for filing with the Securities and Exchange Commission.
The foregoing report is provided by the undersigned members of the Audit Committee.
Timothy J. O’Shea
Clint H. Severson
Jerry P. Widman
-17-
Proxy Statement
Classes of the Board of Directors
PROPOSAL ONE—ELECTION OF DIRECTORS
Our Amended and Restated Certificate of Incorporation provides that our Board shall be divided into three classes designated
as Class I, Class II and Class III, respectively, with the classes of directors serving for staggered three-year terms. Our Board
currently consists of eight directors, divided among the three classes as follows:
●
●
●
three Class I directors, Kevin P. Connors, David A. Gollnick and Clint H. Severson, whose terms expire at our
Annual Meeting of Stockholders to be held in 2017;
two Class II directors, David B. Apfelberg and Timothy J. O’Shea, whose terms expire at our Annual Meeting of
Stockholders to be held in 2015; and
three Class III directors Gregory Barrett, J. Daniel Plants and Jerry P. Widman, whose terms expire at the Annual
Meeting of Stockholders to be held in 2016.
The name of each member of the Board, the class in which he serves, and his age as of the Record Date, principal occupation
and length of service on the Board are as follows:
Directors Whose Terms Extend Beyond the 2015 Annual Meeting
Principal Occupation
Director Since
Term
Expires Age
Name
Class I Directors
Kevin P. Connors .............. 2017
David A. Gollnick ............. 2017
Clint H. Severson(2) ........... 2017
Class II Directors
David B. Apfelberg(1)(3) ..... 2015
53
51
67
President and CEO
Former Vice President (“VP”) of North American Sales
and Former Executive Vice President (“EVP”) of
Research and Development
President and CEO, Abaxis, Inc.
73
Clinical Professor of Plastic Surgery, Stanford
Timothy J. O’Shea(2)(3)(4) ... 2015
Class III Directors
Gregory Barrett(1)(3) ........... 2016
J. Daniel Plants(3)(4) ............ 2016
Jerry P. Widman(1)(2)(3) ....... 2016
62
61
47
72
University Medical Center
Former Managing Director, Oxo Capital
President and CEO, DFINE, Inc.
Managing Partner, Voce Capital Management LLC
Former CFO, Ascension Health
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of Nominating and Corporate Governance Committee.
(4) Member of the Strategic Transactions Committee.
Director Nominees
1998
1998
2015
1998
2004
2011
2015
2004
The Board has nominated David B. Apfelberg and Timothy J. O’Shea for re-election as Class II directors.
understanding of our employees, products and operations.
David B. Apfelberg, MD has served as a member of our Board since November 1998. Since 1980, Dr. Apfelberg has held
various roles at the Stanford University Medical Center, and currently serves as an Adjunct Clinical Professor of Plastic
Surgery. Since 1987, Dr. Apfelberg has also been a consultant for entrepreneurs and venture capital companies in the areas
of medical devices and medicine. From June 1991 to May 2001, Dr. Apfelberg was Director of the Plastic Surgery Center in
Atherton, California. Dr. Apfelberg is the author of five books on lasers in medicine and is a founding member and past
president of the American Society for Lasers in Medicine and Surgery. Dr. Apfelberg holds a B.M.S., Bachelor of Medical
Science, and an M.D. from Northwestern University Medical School. We believe Dr. Apfelberg’s qualifications to serve on
our Board include his medical expertise, understanding of our products, and his knowledge of the aesthetics market generally.
-18-
-19-
Timothy J O'Shea has served as a member of our Board since April 2004. Mr. O'Shea was with OXO Capital from 2008 to
2014 serving as managing director. From 1995 to 2008, he served in a variety of management positions at Boston Scientific,
including Corporate Vice President of Business Development from 2000 to 2008. Mr. O'Shea currently acts as an advisor to
several medical device companies. Mr. O'Shea holds a B.A. in history from the University of Detroit. We believe Mr.O'Shea's
qualifications to serve on our Board include his corporate marketing knowledge as well as his diverse experience in the
medical device industry working for a large medical device company.
If elected to our Board, directors Dr. Apfelberg and Mr. O’Shea would each hold office as a Class II director until our Annual
Meeting of Stockholders to be held in 2018, or until the earlier of their resignation, removal, or death.
Board of Directors’ Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE TWO NOMINEES
FOR CLASS II DIRECTOR LISTED ABOVE.
Kevin P. Connors has served as our President and CEO, and as a member of our Board, since our inception in August 1998.
Prior to founding Cutera, from May 1996 to June 1998 Mr. Connors served as President and General Manager of Coherent
Medical Group, a unit of Coherent Inc., which manufactures lasers, optics and related accessories. We believe Mr. Connors’
qualifications to serve on our Board include, his knowledge of and leadership experience, in the aesthetic medical equipment
industry prior to joining Cutera and the substantial understanding of the Company and its operations that he has gained while
serving as President, CEO and director of the Company since its inception.
Gregory Barrett has served as a member of our Board since October 2011. Mr. Barrett has been the President and CEO of
DFINE, Inc., a private medical device equipment company since September 2013. Mr. Barrett was the Chairman, President
and CEO of BÂRRX Medical, Inc., a private medical device company that was acquired by Covidien, a manufacturer and
distributer of products to treat gastrointestinal diseases. Prior to joining BÂRRX Medical in February 2004, from January
2001 through August 2003, Mr. Barrett served as President and CEO of ACMI Corporation, a developer of medical
visualization and energy systems; Group Vice President at Boston Scientific Corporation; Vice President, Global Sales and
Marketing at both Orthofix Corporation (formerly American Medical Electronics) and Baxter Healthcare. Mr. Barrett holds
a B.A. in Marketing from the University of Texas, Austin. We believe Mr. Barrett’s qualifications to serve on our Board
include his more than 36 years of diverse experiences in the medical device industry, including time spent serving as president
and CEO of several medical device companies.
David A. Gollnick has served as a member of our Board since our inception in August 1998. From February 2014 to June
2014, he held the position of Vice President of North American Sales for the Company. From March 2009 to December 2014,
Mr. Gollnick has consulted with the Company for product development, clinical, sales and marketing support as needed. Mr.
Gollnick served as our EVP of Research and Development from April 2007 to March 2009 and as Vice President of Research
and Development from August 1998 until April 2007. From June 1996 to July 1998, Mr. Gollnick held the position of Vice
President of Research and Development at Coherent Medical Group, a unit of Coherent Inc. Mr. Gollnick holds a B.S. in
Mechanical Engineering from Fresno State University. We believe Mr. Gollnick’s qualifications to serve on our Board
include his technical experience in researching and developing products for the aesthetic medical equipment industry and his
Proxy Statement
Timothy J O'Shea has served as a member of our Board since April 2004. Mr. O'Shea was with OXO Capital from 2008 to
2014 serving as managing director. From 1995 to 2008, he served in a variety of management positions at Boston Scientific,
including Corporate Vice President of Business Development from 2000 to 2008. Mr. O'Shea currently acts as an advisor to
several medical device companies. Mr. O'Shea holds a B.A. in history from the University of Detroit. We believe Mr.O'Shea's
qualifications to serve on our Board include his corporate marketing knowledge as well as his diverse experience in the
medical device industry working for a large medical device company.
If elected to our Board, directors Dr. Apfelberg and Mr. O’Shea would each hold office as a Class II director until our Annual
Meeting of Stockholders to be held in 2018, or until the earlier of their resignation, removal, or death.
Board of Directors’ Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE TWO NOMINEES
FOR CLASS II DIRECTOR LISTED ABOVE.
Directors Whose Terms Extend Beyond the 2015 Annual Meeting
Kevin P. Connors has served as our President and CEO, and as a member of our Board, since our inception in August 1998.
Prior to founding Cutera, from May 1996 to June 1998 Mr. Connors served as President and General Manager of Coherent
Medical Group, a unit of Coherent Inc., which manufactures lasers, optics and related accessories. We believe Mr. Connors’
qualifications to serve on our Board include, his knowledge of and leadership experience, in the aesthetic medical equipment
industry prior to joining Cutera and the substantial understanding of the Company and its operations that he has gained while
serving as President, CEO and director of the Company since its inception.
Gregory Barrett has served as a member of our Board since October 2011. Mr. Barrett has been the President and CEO of
DFINE, Inc., a private medical device equipment company since September 2013. Mr. Barrett was the Chairman, President
and CEO of BÂRRX Medical, Inc., a private medical device company that was acquired by Covidien, a manufacturer and
distributer of products to treat gastrointestinal diseases. Prior to joining BÂRRX Medical in February 2004, from January
2001 through August 2003, Mr. Barrett served as President and CEO of ACMI Corporation, a developer of medical
visualization and energy systems; Group Vice President at Boston Scientific Corporation; Vice President, Global Sales and
Marketing at both Orthofix Corporation (formerly American Medical Electronics) and Baxter Healthcare. Mr. Barrett holds
a B.A. in Marketing from the University of Texas, Austin. We believe Mr. Barrett’s qualifications to serve on our Board
include his more than 36 years of diverse experiences in the medical device industry, including time spent serving as president
and CEO of several medical device companies.
David A. Gollnick has served as a member of our Board since our inception in August 1998. From February 2014 to June
2014, he held the position of Vice President of North American Sales for the Company. From March 2009 to December 2014,
Mr. Gollnick has consulted with the Company for product development, clinical, sales and marketing support as needed. Mr.
Gollnick served as our EVP of Research and Development from April 2007 to March 2009 and as Vice President of Research
and Development from August 1998 until April 2007. From June 1996 to July 1998, Mr. Gollnick held the position of Vice
President of Research and Development at Coherent Medical Group, a unit of Coherent Inc. Mr. Gollnick holds a B.S. in
Mechanical Engineering from Fresno State University. We believe Mr. Gollnick’s qualifications to serve on our Board
include his technical experience in researching and developing products for the aesthetic medical equipment industry and his
understanding of our employees, products and operations.
-19-
Proxy Statement
J. Daniel Plants has served as a member of our Board since January 2015. Mr. Plants has been Managing Partner of Voce
Capital Management LLC since 2009. Prior to founding Voce Capital Management, Mr. Plants held a number of positions
at leading Wall Street firms, including executive roles in investment banking at Goldman Sachs and JPMorgan Chase and as
a corporate attorney with Sullivan & Cromwell. Mr. Plants is also the co-founder of the Bay Area Urban Debate League, a
San Francisco based charitable organization dedicated to expanding opportunities for area youth to become articulate,
informed leaders. Mr. Plants served as the organization’s Vice Chair from 2008 to 2012. Mr. Plants holds a Juris Doctorate
degree from University of Michigan Law School and an undergraduate degree from Baylor University. We believe
Mr. Plants’ qualifications to serve on our Board include his substantial experience as a strategic advisor and corporate
attorney, as well as his role as the founder of a successful investment management firm and status as a significant Company
stockholder, which bring valuable skills and perspective to the Board in the areas of finance, capital markets, strategy and
corporate governance.
Clint Severson has served as a member of our Board since January 2015. He is presently the Chairman, Chief Executive
Officer and President of Abaxis, Inc., a manufacturer of portable blood analysis systems. Mr. Severson also serves on the
Boards of Directors of Response Biomedical Corporation and Trinity Biotech. From February 1989 to May 1996, Mr.
Severson served as President and Chief Executive Officer of MAST Immunosystems, Inc., a privately-held medical
diagnostics company. We believe Mr. Severson’s qualifications to serve on our Board include his more than 40 years of
experience as an executive in the medical and biotechnology industries.
Jerry P. Widman has served as a member of our Board since March 2004. From 1982 to 2001, Mr. Widman served as the
CFO of Ascension Health, a not-for-profit multi-hospital system. Mr. Widman currently serves as a member of the Board of
three other privately-held companies in the healthcare industry. Within the past five years, Mr. Widman also served on the
Board of ArthroCare Corporation, United Surgical Partners International and the Trizetto Group. Mr. Widman holds a B.B.A.
from Case Western Reserve University, an M.B.A. from the University of Denver, a J.D. from Cleveland State University,
and is a Certified Public Accountant. We believe Mr. Widman’s qualifications to serve on our Board include his financial
expertise and prior experience as a CFO, as well as his experience serving on the boards of various public and private
companies.
-20-
Proxy Statement
PROPOSAL TWO—RATIFICATION OF BDO USA, LLP AS OUR INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has selected BDO USA, LLP as the Independent Registered Public Accounting Firm to
perform the audit of the Company’s consolidated financial statements for the fiscal year ending December 31, 2015. BDO
audited the Company’s consolidated financial statements for the fiscal year 2014 and Ernst & Young LLP (“E&Y”) audited
the Company’s consolidated financial statements for the fiscal year 2013.
The Board is asking the stockholders to ratify the selection of BDO as the Company’s Independent Registered Public
Accounting Firm for 2015. Although not required by law, by rules of NASDAQ, or by the Company’s bylaws, the Board is
submitting the selection of BDO to the stockholders for ratification as a matter of good corporate practice. Even if the
selection is ratified, the Audit Committee in its discretion may select a different Independent Registered Public Accounting
Firm at any time during the year if it determines that such a change would be in the best interests of the Company and its
stockholders.
We have requested that representatives of BDO be present at the Annual Meeting. They will have an opportunity to make a
statement if they desire to do so and will be available to respond to appropriate questions from the Company’s stockholders.
Board of Directors’ Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE
SELECTION OF BDO AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR 2015.
Audit and Non-Audit Services
To help ensure the independence of the Independent Registered Public Accounting Firm, the Audit Committee has adopted
a policy for the pre-approval of all audit and non-audit services to be performed for the Company by its Independent
Registered Public Accounting Firm. Pursuant to this policy, all audit and non-audit services to be performed by the
Independent Registered Public Accounting Firm must be approved in advance by the Audit Committee. The Audit Committee
may delegate to one or more of its members the authority to grant the required approvals, provided that any exercise of such
authority is presented to the full Audit Committee at its next regularly scheduled meeting.
The Audit Committee reviewed all non-audit services provided by E&Y in 2013 and concluded that the provision of such
services was compatible with maintaining their independence in the conduct of their auditing functions.
All of the services provided by BDO and E&Y described in the table below were approved by the Audit Committee.
The aggregate fees incurred by the Company for audit and non-audit services in 2014 and 2013 were as follows:
Service Category
2014
2013
BDO USA LLP:
Audit Fees(1) .................................................................................................................. $
Total BDO USA LLP ................................................................................................ $
445,228 $
445,228 $
—
—
Ernst & Young LLP:
Audit Fees(1) .................................................................................................................. $
All Other Fees(2) ............................................................................................................
Total Ernst & Young LLP ......................................................................................... $
12,900 $
8,652
21,552 $
521,239
13,300
534,539
(1) In accordance with the SEC’s definitions and rules, audit fees are comprised of billed and unbilled fees for
professional services related to the audit of financial statements and internal control over financial reporting for the
Company’s 2014 and 2013 fiscal years as included in the annual report on Form 10-K; and the review of financial
statements for interim periods included in the quarterly reports on Form 10-Q within those years. The 2014 E&Y
audit fees, relate to the consent for inclusion of the 2013 and 2012 audited financial statements in the 2014 Form
10-K.
(2) All Other Fees for 2014 relate to the transition of audit services from E&Y to BDO. For 2013 they are related to the
review of the Company's responses to SEC comment letters by E&Y.
-21-
Proxy Statement
PROPOSAL THREE—APPROVAL OF OUR AMENDED AND RESTATED 2004
EQUITY INCENTIVE PLAN
Overview
The Company’s stockholders are being asked to vote on a proposal to approve an increase in the number of shares available
for future grant by 1,500,000 shares (as detailed below in this proposal). Other than this change, all other terms of the amended
and restated Cutera Inc. 2004 Equity Incentive Plan (the “2004 Plan” or “Plan”) are unchanged from the version previously
approved by stockholders at the 2013 Annual Meeting of Stockholders on June 19, 2013. The increase in the shares available
for grant has been approved by the Board of Directors, contingent upon stockholder approval and is attached as Appendix A
to this Proxy Statement.
Why Stockholders Should Vote ‘For’ the Amendment of the 2004 Plan
For the following principal reasons, the Company requests that the stockholders approve the amendment to the 2004 Plan
and increase the available shares by an additional 1,500,000 shares:
● We believe that our employees are our most valuable assets and that the approval of the amended and restated Plan
is crucial to the Company’s future success.
● We depend heavily on equity incentive awards to attract and retain top-caliber employees. The ability to grant equity
awards is a necessary and powerful recruiting and retention tool for the Company to hire and motivate the quality
personnel it needs to drive the Company’s long-term growth and financial success.
● We believe that equity awards are a vital component of our employee compensation programs, since they allow us
to compensate employees based on Company performance, while at the same time providing an incentive to build
long-term stockholder value. Given equity awards have a period vesting feature, and the vesting of any Performance
Share Units (“PSUs”) require the achievement of pre-established Company performance goals, employees only
realize value in the equity awards if the Company’s performance goals are met and the Company’s stock price
increases over time. This ensures alignment of employee interest with that of stockholders.
● We have a broad-based equity incentive program. In 2014 and 2013, the total stock-based awards granted to non-
section 16 officers (directors and NEOs) was 73% and 79%, respectively. This was computed based on ‘option
equivalents’ after applying the 2.12 fungible share factors for full value awards granted (see below detailed
calculations).
● Prior to 2014, we used to grant equity-based awards annually to all full-time employees. However, commencing
from 2014, we have granted equity-based awards primarily to management employees only. This change was made
due in part to reduce the net equity-burn-rate so that the dilution impact to stockholders is reduced. See below a
summary of the equity-burn-rate calculations as well as the details of the stock-based awards granted in 2014 and
2013. If the stockholders do not approve the amendment to the 2004 Plan, our plans to operate the business could be
adversely affected. Additionally, we may need to instead offer material cash-based incentives to compete for talent,
which could impact our quarterly results of operations, balance sheet and may make the Company less competitive
compared to other medical device technology companies and the Company’s peer companies in hiring and retaining
top talent.
● Our 2004 Plan is set-up to conform to best practices, some of which are as follows:
✓ Does not contain an “evergreen” provisions and sets a fixed number of shares authorized for issuance, which
will require the Company to seek specific stockholder approval for any future increases in the shares
available for issuance under the amended and restated 2004 Plan;
✓ Requires that stock options and stock appreciation rights must be granted with an exercise price of at least
100% of the fair market value of the option shares on the grant date;
✓ Has a “fungible share” provision whereby for each full-value award issued under the Plan results in a
requirement to subtract 2.12 shares from the shares reserved under the Plan.
-22-
Proxy Statement
✓ Prohibits equity award repricing or other exchanges of underwater awards without stockholder approval;
✓ Does not contain “liberal” share recycling features; deducts the shares available for issuance under the 2004
Plan by the gross number of shares for which an award is exercised or vests, not the net number of shares
actually issued upon exercise (in the event the exercise price is paid in shares of the Company’s common
stock or shares are withheld to satisfy tax withholding obligations);
✓ Does not provide for the automatic full “single trigger” acceleration of outstanding equity awards in the
event of a change in control if such equity awards are assumed by the successor corporation; and
✓ Contains annual limits on the size of awards that may be granted to non-employee directors.
Summary of Equity-Based Grants for 2014 and 2013:
Equity Awards Granted (Option Equivalents Based on
2.12 Fungible Shares for PSUs and RSUs)
Equity-Based Awards Granted To:
Employees other than section-16 officers ..................................
Named executive officers ..........................................................
Directors .....................................................................................
2014
910,035
258,640
82,019
Total ....................................................................................... 1,250,694
(470,971)
779,723
Forfeitures and expirations ........................................................
Net grants ................................................................................
% of Total
73%
21%
6%
2013
1,108,406
212,528
86,229
1,407,163
(472,290)
934,873
% of Total
79%
15%
6%
Weighted average shares outstanding ........................................ 14,254,000
5.47%
Annual Equity Burn Rate* .........................................................
14,421,000
6.48%
*- We have computed the Annual Equity Burn Rate based on the following formula for each of 2014 and 2013: (Number of
net options granted + Number of adjusted time-based full value awards granted + Number of adjusted performance-based
full value awards granted) / Weighted average shares outstanding for the fiscal year.
Our Compensation Committee considers the impact of potential dilution on our stockholders from equity-based awards. As
such, after carefully forecasting our anticipated equity award needs for the next two years, and considering our historical
forfeiture rates, the Compensation Committee and the Board believe the proposed increase in the share reserve by 1,500,000
under the 2004 Plan will be sufficient for us to make anticipated grants of equity incentive awards under our current
compensation programs for the next two years. However, a change in business conditions, Company strategy or equity market
performance could alter this projection. The Compensation Committee and the Board believe that approving two years’
projected equity awards would enable stockholders to continue to provide input on share increases in equity plans on a
reasonable interval.
If the amended and restated 2004 Plan is approved, the incremental 1,500,000 shares of common stock will be available for
granting after June 17, 2015 through the 2017 Annual Meeting date.
Our Directors and NEOs have an interest in this proposal as they are eligible to receive equity awards under the 2004 Plan.
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Proxy Statement
The following table sets forth information regarding the shares of common stock in our 2004 Plan as of April 20, 2015:
Weighted-
Average
Exercise
Price
($ per Share)
9.45
Options
Outstanding
(# of Shares)
2,671,301 $
Stock options ............................................
Restricted stock units ..............................
Performance share units ...........................
Shares available for future grant ..............
Weighted-
Average
Remaining
Term
(Years)
3.82
Full Value
Awards
Outstanding
(# of Shares)
Shares
Available for
Future Grant
(# of Shares)
318,373
105,000
1,509,731(1)
(1)- Shares of common stock available for future grant in this table include the 1,500,000 shares approved by the Board,
subject to shareholder approval on June 17, 2015.
What Happens if Stockholders Do Not Approve the Amended and Restated 2004 Plan
If the Company’s stockholders do not approve the amended and restated 2004 Plan, then the term, conditions and current
share limits of the 2004 Plan will continue in effect, and we will continue to make awards under the 2004 Plan, subject to
such terms, conditions and share limits. However, the Company’s plans to operate its business could be adversely affected
as reduced equity awards could increase employee turnover, make it more difficult to motivate and retain existing employees,
make Cutera less competitive in hiring new talent into the Company to grow our business. Additionally, as a consequence,
we may need to increase the cash-based compensation incentives in hiring and retaining top talent, which could adversely
impact our financial results of operations, cash flows and balance sheet.
Vote Required
Approval of the amendment and restatement of the Plan requires the affirmative vote of a majority of the shares of our
Common Stock that are present in person or proxy and entitled to vote at the Annual Meeting.
Board of Directors' Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE AMENDED
AND RESTATED PLAN.
Summary of the Amended and Restated Plan
The following is a summary of the principal features of the Plan and its operation. It is qualified in its entirety by reference
to the Plan set forth in Appendix A.
The Plan provides for the grant of the following types of incentive Awards: (i) stock options, (ii) restricted stock, (iii)
restricted stock units, (iv) stock appreciation rights (v) performance units and performance shares, and (vi) and other stock
or cash awards. Each of these is referred to individually as an “Award.” Those eligible for Awards under the Plan include
employees, directors and consultants who provide services to us or our subsidiaries. As of April 20, 2015, we had
approximately 230 employees and 6 outside directors who were eligible to participate in this Plan. The Plan allows us to
grant Awards to consultants, however, it has been our practice not to grant awards to consultants.
Number of Shares of Common Stock Available Under the Plan. A total of 1,750,000 shares of common stock were initially
authorized for issuance under the Plan, plus approximately 499,000 shares were returned under the 1998 Stock Plan as a
result of termination of options or repurchase of shares issued under such plan, and approximately 2,442,000 shares added
pursuant to automatic annual increases under the evergreening provision of the Plan. In 2008, stockholders approved an
amendment to the Plan which eliminated the “evergreen” provision which provided for an automatic annual increase in the
number of shares available in the Plan. In 2012, the stockholders approved an additional 1,910,000 to be added to the 2004
Plan.
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Proxy Statement
The Company’s Board of Directors has approved an incremental 1,500,000 shares, subject to stockholder approval at the
2015 Annual General Meeting on June 17, 2015. As of April 20, 2015, approximately a total of 8,101,000 shares were
authorized for issuance under the 2004 Plan, of which 1,509,731 shares remained available for future awards (shares of
common stock authorized and shares of common stock available for future grant include the 1,500,000 shares approved by
the Board, subject to shareholder approval on June 17, 2015). The shares may be authorized, but unissued or reacquired
common stock.
In 2012 the stockholders approved a “fungible share” provision whereby for each full-value award issued under the Plan
results in a requirement to subtract 2.12 shares from the shares reserved under the Plan.
If an Award expires or becomes unexercisable without having been exercised in full, or, with respect to restricted stock,
restricted stock units, performance shares or performance units, is forfeited to or repurchased by us, the unpurchased shares
(or for Awards other than options and stock appreciation rights, the forfeited or repurchased shares) which were subject
thereto will become available for future grant or sale under the Plan. Upon exercise of a stock appreciation rights settled in
shares, the gross number of shares covered by the portion of the stock appreciation right will cease to be available under the
Plan. Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not
become available for future distribution under the Plan; provided, however, that if shares of restricted stock, restricted stock
units, performance shares or performance units are repurchased by us or are forfeited to us, such shares will become available
for future grant under the Plan as described above. Shares used to pay the exercise price of an Award and/or used to satisfy
tax withholding obligations will not become available for future grant or sale under the Plan. To the extent an Award is paid
out in cash rather than stock, such cash payment will not reduce the number of shares available for issuance under the Plan.
If we declare a stock dividend or engage in reorganization or other change in our capital structure, including a merger, the
Administrator will adjust the (i) number and class of shares available for issuance under the Plan, (ii) number, class and price
of shares subject to outstanding Awards, and (iii) specified per-person limits on Awards to reflect the change.
Administration of the Plan. Our Board, or its Compensation Committee, or a committee of directors or of other individuals
satisfying applicable laws and appointed by our Board (the “Administrator”), administers the Plan. To make grants to certain
of our officers and key employees, the members of the committee must qualify as “non-employee directors” under Rule 16b-
3 of the Securities Exchange Act of 1934 (the “Exchange Act”), and as “outside directors” under Section 162(m) (so that we
can receive a federal tax deduction for certain compensation paid under the Incentive Plan).
Subject to the terms of the Plan, the Administrator has the sole discretion to select the employees, consultants, and directors
who will receive Awards, to determine the terms and conditions of Awards, to modify or amend each Award (subject to the
restrictions of the Plan), to interpret the provisions of the Plan and outstanding Awards, and to allow participants to satisfy
withholding tax obligations by electing to have us withhold from the shares to be issued upon exercise that number of shares
having a fair market value equal to the minimum amount required to be withheld.
The Administrator may, but only with stockholder approval, implement an exchange program under which (i) outstanding
Awards may be surrendered or cancelled in exchange for Awards of the same type, Awards of a different type, or cash, (ii)
participants would have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity
selected by the Administrator, and/or (iii) the exercise price of an outstanding Award could be reduced.
Automatic Director Grants. The Plan provides for an automatic grant to outside directors of an option to purchase 14,000
shares (the “First Option”) on the date the person first becomes an outside director. Each First Option will vest and become
exercisable as to one-third of the shares subject to the option on each annual anniversary of its date of grant. In addition, each
outside director who is a director on the date of each Annual Meeting of stockholders and has been a director for at least the
preceding six months, will receive an award of shares represented by the quotient of $60,000 divided by the closing market
price of Cutera common stock on the date of such Annual Meeting. These shares vest on the one-year anniversary of the
grant date.
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Proxy Statement
Options. The Administrator is able to grant non-statutory stock options and incentive stock options under the Plan. The
Administrator determines the number of shares subject to each option, although the Plan provides that a participant may not
receive options for more than 1,000,000 shares in any fiscal year, except in connection with his or her initial employment
with us, in which case he or she may be granted an option covering up to 1,000,000 shares.
The Administrator determines the exercise price of options granted under the Plan, provided the exercise price must be at
least equal to, and not less than, the fair market value of our common stock on the date of grant. In addition, the exercise
price of an incentive stock option granted to any participant who owns more than 10% of the total voting power of all classes
of our outstanding stock must be at least 110% of the fair market value of the common stock on the grant date.
The term of each option will be stated in the Award agreement. The term of an option may not exceed seven years, except
that, with respect to any participant who owns more than 10% of the voting power of all classes of the Company’s outstanding
capital stock, the term of an incentive stock option may not exceed five years.
After a termination of service with us, a participant will be able to exercise the vested portion of his or her option for the
period of time stated in the Award agreement. If no such period of time is stated in the participant’s Award agreement, the
participant will generally be able to exercise his or her option for (i) three months following his or her termination for reasons
other than death or disability, and (ii) twelve months following his or her termination due to death or disability. In no event
may an option be exercise beyond its maximum term.
Restricted Stock. Awards of restricted stock are rights to acquire or purchase shares of our common stock, which vest in
accordance with the terms and conditions established by the Administrator in its sole discretion. For example, the
Administrator may set restrictions based on the achievement of specific performance goals. The Administrator, in its
discretion, may accelerate the time at which any restrictions will lapse or be removed. The Award agreement generally will
grant us the right to repurchase or reacquire the shares upon the termination of the participant's service with us for any reason
(including death or disability). The Administrator will determine the number of shares granted pursuant to an Award of
restricted stock, but no participant will be granted a right to purchase or acquire more than 300,000 shares of restricted stock
during any fiscal year, except that a participant may be granted up to an additional 300,000 shares of restricted stock in
connection with his or her initial employment with us.
Restricted Stock Units. Awards of restricted stock units result in a payment to a participant only if the vesting criteria the
Administrator establishes is satisfied. For example, the Administrator may set vesting criteria based on the achievement of
specific performance goals. The restricted stock units vest at a rate determined by the Administrator; provided, however, that
after the grant of restricted stock units, the Administrator, in its sole discretion, may reduce or waive any restrictions for such
restricted stock units. Upon satisfying the applicable vesting criteria, the participant will be entitled to the payout specified
in the Award agreement. The Administrator, in its sole discretion, may pay earned restricted stock units in cash, shares, or a
combination thereof. Restricted stock units that are fully paid in cash will not reduce the number of shares available for grant
under the Plan. On the date set forth in the Award agreement, all unearned restricted stock units will be forfeited to us. The
Administrator determines the number of restricted stock units granted to any participant, but no participant may be granted
more than 300,000 restricted stock units during any fiscal year, except that the participant may be granted up to an additional
300,000 restricted stock units in connection with his or her initial employment with us.
Stock Appreciation Rights. The Administrator will be able to grant stock appreciation rights (“SARs”), which are the rights
to receive the appreciation in fair market value of common stock between the exercise date and the date of grant. We can pay
the appreciation in cash, shares of common stock, or a combination thereof. The Administrator, subject to the terms of the
Plan, will have complete discretion to determine the terms and conditions of SARs granted under the Plan, provided, however,
that the exercise price may not be less than 100% of the fair market value of a share on the date of grant and the term of a
SAR may not exceed seven years. No participant will be granted SARs covering more than 1,000,000 shares during any fiscal
year, except that a participant may be granted SARs covering up to an additional 1,000,000 shares in connection with his or
her initial employment with us.
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Proxy Statement
The Administrator may grant “affiliated” SARs, “freestanding” SARs, “tandem” SARs, or any combination thereof. An
“affiliated SAR” is a SAR that is granted in connection with a related option and which automatically will be deemed to be
exercised at the same time that the related option is exercised. However, an affiliated SAR will not require a reduction in the
number of shares subject to the related option. A "freestanding" SAR is one that is granted independent of any options. A
“tandem” SAR is a SAR granted in connection with an option that entitles the participant to exercise the SAR by surrendering
to us an equivalent portion of the unexercised related option. A tandem SAR may be exercised only with respect to the shares
for which its related option is then exercisable. With respect to a tandem SAR granted in connection with an incentive stock
option, the tandem SAR will expire no later than the expiration of the underlying incentive stock option, the value of the
payout with respect to the tandem SAR will be for no more than 100% of the difference between the exercise price of the
underlying incentive stock option and the fair market value of the shares subject to the underlying incentive stock option at
the time the tandem SAR is exercised, and the tandem SAR will be exercisable only when the fair market value of the shares
subject to the incentive stock option exceeds the exercise price of the incentive stock option.
After termination of service with us, a participant will be able to exercise the vested portion of his or her SAR for the period
of time stated in the Award agreement. If no such period of time is stated in a participant's Award agreement, a participant
will generally be able to exercise his or her vested SARs for the same period of time as applies to stock options.
Performance Units and Performance Shares. The Administrator may grant performance units and performance shares, which
are Awards that will result in a payment to a participant only if the performance goals or other vesting criteria the
Administrator may establish are achieved or the Awards otherwise vest. Earned performance units and performance shares
will be paid, in the sole discretion of the Administrator, in the form of cash, shares, or in a combination thereof. The
Administrator will establish performance or other vesting criteria in its discretion, which, depending on the extent to which
they are met, will determine the number and/or the value of performance units and performance shares to be paid out to
participants. The performance units and performance shares will vest at a rate determined by the Administrator; provided,
however, that after the grant of a performance unit or performance share, the Administrator, in its sole discretion, may reduce
or waive any performance objectives or other vesting provisions for such performance unit or performance share. During any
fiscal year, no participant will receive more than 300,000 performance shares and no participant will receive performance
units having an initial value greater than $2,000,000, except that a participant may be granted performance shares covering
up to an additional 300,000 shares in connection with his or her initial employment with us. Performance units will have an
initial value established by the Administrator on or before the date of grant. Performance shares will have an initial value
equal to the fair market value of a share of our common stock on the grant date.
Performance Goals. Awards of restricted stock, restricted stock units, performance shares, performance units and other
incentives under the Plan may be made subject to the attainment of performance goals relating to one or more business criteria
within the meaning of Section 162(m) of the Internal Revenue Code and may provide for a targeted level or levels of
achievement including: (i) cash position, (ii) earnings per Share, (iii) net income, (iv) operating cash flow, (v) operating
income, (vi) operating expenses, (vii) product revenues, (viii) profit after-tax, (ix) revenue, (x) revenue growth, and (xi) total
stockholder return. The performance goals may differ from participant to participant and from Award to Award, may be used
alone or in combination, may be used to measure our performance as a whole or the performance of one of our business units,
and may be measured relative to a peer group or index.
Limits on Awards Granted to Non-Employee Directors. Our non-employee directors will not be granted awards under the
Plan in excess of 25,000 shares per non-employee director on the date of each Annual Meeting during any calendar year.
Transferability of Awards. Awards granted under the Plan are generally not transferable, and all rights with respect to an
Award granted to a participant generally will be available during a participant’s lifetime only to the participant.
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Proxy Statement
Change in Control. In the event we experience a change in control, each outstanding Award will be assumed or an equivalent
option or right substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Award, the participant will fully vest in and have the
right to exercise all of his or her outstanding options and stock appreciation rights, including shares as to which such Awards
would not otherwise be vested or exercisable, all restrictions on restricted stock will lapse, and, with respect to restricted
stock units, performance shares and performance units, all performance goals or other vesting criteria will be deemed
achieved at target levels and all other terms and conditions met. In addition, if an option or stock appreciation right is not
assumed or substituted for in the event of a change in control, the Administrator will notify the participant in writing or
electronically that the option or stock appreciation right will be fully vested and exercisable for a period of time determined
by the Administrator in its sole discretion, and the option or stock appreciation right will terminate upon the expiration of
such period.
With respect to Awards granted to an outside director that are assumed or substituted for, if on the date of or following such
assumption or substitution the participant’s status as a director or a director of the successor corporation, as applicable, is
terminated other than upon a voluntary resignation by the participant not at the request of the successor, then the participant
will fully vest in and have the right to exercise his or her options and/or stock appreciation rights as to all of the shares subject
to the Award, including shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on
restricted stock shall lapse, and, with respect to restricted stock units, performance shares and performance units, all
performance goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met.
Amendment and Termination of the Plan. The Administrator has the authority to amend, alter, suspend or terminate the Plan,
except that stockholder approval will be required for any amendment to the extent required by applicable laws. No
amendment, alteration, suspension or termination of the Plan will impair the rights of any participant, unless mutually agreed
otherwise between the participant and the Administrator and which agreement must be in writing and signed by the participant
and us. The Plan will remain in effect through the Annual General Meeting in 2018, unless our Board terminates it earlier.
Number of Awards Granted to Employees, Consultants, and Directors
The number of Awards that an employee, director or consultant may receive under the Plan is in the discretion of the
Administrator and therefore cannot be determined in advance. The following table sets forth (a) the aggregate number of
shares of common stock subject to options granted under the Plan during the last fiscal year, and (b) the average per share
exercise price of such options:
Number
of Options
Granted
Average
Per Share
Exercise
Price
Number
of PSU’s
Granted
Base Price
of RSU and
PSU
granted.
Name of Individual or Group
Kevin P. Connors .................................................
President and Chief Executive Officer
Ronald J. Santilli ..................................................
Executive Vice President and Chief Financial
Officer
All Named Executive Officers as a group ............
All directors who are not Named Executive
Officers, as a group ............................................
All employees who are not directors or Named
— $
— $
— $
— $
Number
of RSU’s
Granted
40,000
—
40,000 $
—
21,000
21,000 $
—
61,000
61,000 $
—
38,688
— $
9.97
9.97
9.97
9.31
9.74
Executive Officers, as a group ...........................
486,300 $
9.78
150,250
44,000 $
Federal Tax Aspects
The following paragraphs are a summary of the general federal income tax consequences to U.S. taxpayers and us of Awards
granted under the Plan. Tax consequences for any particular individual may be different.
-28-
-29-
Nonstatutory Stock Options. No taxable income is reportable when a nonstatutory stock option with an exercise price equal
to the fair market value of the underlying stock on the date of grant is granted to a participant. Upon exercise, the participant
will recognize ordinary income in an amount equal to the excess of the fair market value (on the exercise date) of the shares
purchased over the exercise price of the option. Any taxable income recognized in connection with an option exercise by one
of our employees is subject to tax withholding by us. Any additional gain or loss recognized upon any later disposition of the
shares would be capital gain or loss.
As a result of Section 409A of the Internal Revenue Code and the Treasury regulations promulgated thereunder (“Section
409A”), however, nonstatutory stock options and stock appreciation rights granted with an exercise price below the fair
market value of the underlying stock or with a deferral feature may be taxable to the recipient in the year of vesting in an
amount equal to the difference between the then fair market value of the underlying stock and the exercise price of such
Awards and may be subject to an additional 20% federal income tax plus penalties and interest. In addition, certain states,
such as California, have adopted similar tax provisions.
Incentive Stock Options. No taxable income is reportable when an incentive stock option is granted or exercised (except for
purposes of the alternative minimum tax, in which case taxation is the same as for nonstatutory stock options). If the
participant exercises the option and then later sells or otherwise disposes of the shares more than two years after the grant
date and more than one year after the exercise date, the difference between the sale price and the exercise price will be taxed
as capital gain or loss. If the participant exercises the option and then later sells or otherwise disposes of the shares before the
end of the two- or one-year holding periods described above, he or she generally will have ordinary income at the time of the
sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the
option.
Stock Appreciation Rights. No taxable income is reportable when a stock appreciation right with an exercise price equal to
the fair market value of the underlying stock on the date of grant is granted to a participant. Upon exercise, the participant
will recognize ordinary income in an amount equal to the amount of cash received and the fair market value of any shares
received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
Restricted Stock, Restricted Stock Units, Performance Units and Performance Shares. A participant generally will not have
taxable income at the time an Award of restricted stock, restricted stock units, performance shares or performance units are
granted. Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares
underlying the Award becomes either (i) freely transferable, or (ii) no longer subject to substantial risk of forfeiture. However,
the recipient of a restricted stock Award may elect to recognize income at the time he or she receives the Award in an amount
equal to the fair market value of the shares underlying the Award (less any cash paid for the shares) on the date the Award is
Section 409A. Section 409A addresses non-qualified deferred compensation arrangements. Awards granted under our Plan
with a deferral feature will be subject to the requirements of Section 409A, including discount stock options and stock
appreciation rights discussed above. If an Award is subject to and fails to satisfy the requirements of Section 409A, the
recipient of that Award may recognize ordinary income on the amounts deferred under the Award, to the extent vested, which
may be prior to when the compensation is actually or constructively received. Also, if an Award that is subject to Section
409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on
compensation recognized as ordinary income, as well as interest on such deferred compensation. Some states may also apply
a penalty tax (for instance, California imposes a 20% penalty tax in addition to the 20% federal penalty tax). The Internal
Revenue Service has not issued complete and final guidance under Section 409A and, accordingly, the requirements of
Section 409A (and the application of those requirements to Awards issued under the Plan) are not entirely clear. We strongly
encourage recipients of such Awards to consult their tax, financial, or other advisor regarding the tax treatment of such
Awards.
Proxy Statement
Nonstatutory Stock Options. No taxable income is reportable when a nonstatutory stock option with an exercise price equal
to the fair market value of the underlying stock on the date of grant is granted to a participant. Upon exercise, the participant
will recognize ordinary income in an amount equal to the excess of the fair market value (on the exercise date) of the shares
purchased over the exercise price of the option. Any taxable income recognized in connection with an option exercise by one
of our employees is subject to tax withholding by us. Any additional gain or loss recognized upon any later disposition of the
shares would be capital gain or loss.
As a result of Section 409A of the Internal Revenue Code and the Treasury regulations promulgated thereunder (“Section
409A”), however, nonstatutory stock options and stock appreciation rights granted with an exercise price below the fair
market value of the underlying stock or with a deferral feature may be taxable to the recipient in the year of vesting in an
amount equal to the difference between the then fair market value of the underlying stock and the exercise price of such
Awards and may be subject to an additional 20% federal income tax plus penalties and interest. In addition, certain states,
such as California, have adopted similar tax provisions.
Incentive Stock Options. No taxable income is reportable when an incentive stock option is granted or exercised (except for
purposes of the alternative minimum tax, in which case taxation is the same as for nonstatutory stock options). If the
participant exercises the option and then later sells or otherwise disposes of the shares more than two years after the grant
date and more than one year after the exercise date, the difference between the sale price and the exercise price will be taxed
as capital gain or loss. If the participant exercises the option and then later sells or otherwise disposes of the shares before the
end of the two- or one-year holding periods described above, he or she generally will have ordinary income at the time of the
sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the
option.
Stock Appreciation Rights. No taxable income is reportable when a stock appreciation right with an exercise price equal to
the fair market value of the underlying stock on the date of grant is granted to a participant. Upon exercise, the participant
will recognize ordinary income in an amount equal to the amount of cash received and the fair market value of any shares
received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.
Restricted Stock, Restricted Stock Units, Performance Units and Performance Shares. A participant generally will not have
taxable income at the time an Award of restricted stock, restricted stock units, performance shares or performance units are
granted. Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares
underlying the Award becomes either (i) freely transferable, or (ii) no longer subject to substantial risk of forfeiture. However,
the recipient of a restricted stock Award may elect to recognize income at the time he or she receives the Award in an amount
equal to the fair market value of the shares underlying the Award (less any cash paid for the shares) on the date the Award is
granted.
Section 409A. Section 409A addresses non-qualified deferred compensation arrangements. Awards granted under our Plan
with a deferral feature will be subject to the requirements of Section 409A, including discount stock options and stock
appreciation rights discussed above. If an Award is subject to and fails to satisfy the requirements of Section 409A, the
recipient of that Award may recognize ordinary income on the amounts deferred under the Award, to the extent vested, which
may be prior to when the compensation is actually or constructively received. Also, if an Award that is subject to Section
409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on
compensation recognized as ordinary income, as well as interest on such deferred compensation. Some states may also apply
a penalty tax (for instance, California imposes a 20% penalty tax in addition to the 20% federal penalty tax). The Internal
Revenue Service has not issued complete and final guidance under Section 409A and, accordingly, the requirements of
Section 409A (and the application of those requirements to Awards issued under the Plan) are not entirely clear. We strongly
encourage recipients of such Awards to consult their tax, financial, or other advisor regarding the tax treatment of such
Awards.
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Proxy Statement
Tax Effect for Us; Section 162(m). We generally will be entitled to a tax deduction in connection with an Award under the
Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such
income (for example, the exercise of a nonstatutory stock option). Special rules limit the deductibility of compensation paid
to our Chief Executive Officer (i.e., its principal executive officer) and to each of our three most highly compensated
executive officers for the taxable year (other than the principal financial officer). Under Section 162(m), the annual
compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1,000,000.
However, we can preserve the deductibility of certain compensation in excess of $1,000,000 if the conditions of Section
162(m) are met. These conditions include stockholder approval of the Plan, setting limits on the number of Awards that any
individual may receive and for Awards other than certain stock options and stock appreciation rights, establishing
performance criteria that must be met before the Award actually will vest or be paid. The Plan has been designed to permit
the Administrator to grant Awards that qualify as performance-based for purposes of satisfying the conditions of Section
162(m), thereby permitting us to continue to receive a federal income tax deduction in connection with such Awards.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON
PARTICIPANTS AND US WITH RESPECT TO THE GRANT AND EXERCISE OF AWARDS UNDER THE
INCENTIVE PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX
CONSEQUENCES OF A PARTICIPANT'S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY
MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
PROPOSAL FOUR—NON-BINDING ADVISORY VOTE ON THE COMPENSATION
OF NAMED EXECUTIVE OFFICERS
General
this proxy statement.
As required pursuant to Section 14A of the Securities Exchange Act of 1934, the Board is asking you to approve, on an
advisory And non-binding basis, the executive compensation programs and policies and the resulting 2014 compensation of
our Named Executive Officers listed in the 2014 Summary Compensation Table on page 45 (our “NEOs”) as described in
This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views
on our NEOs’ compensation as a whole. This vote is not intended to address any specific item of compensation or any specific
NEO, but rather the overall compensation of all of our NEOs and the philosophy, policies and practices described in this
proxy statement. Because the vote is advisory, the result will not be binding on our Compensation Committee and it will not
affect, limit or augment any existing compensation or awards. The say-on-pay vote will, however, provide information to the
Compensation Committee and our Board regarding investor sentiment about our executive compensation philosophy, policies
and practices, which they will take into account when considering future compensation arrangements. Our Board and the
Compensation Committee value the opinions of our stockholders and to the extent there is any significant vote against the
compensation of the NEOs as disclosed in this proxy statement, they will consider our stockholders’ concerns and the
Compensation Committee will evaluate whether any actions are necessary to address those concerns.
We recommend you should read the Compensation Discussion and Analysis and compensation tables and also consider the
factors below in determining whether to approve this proposal.
Summary of Our Executive Compensation Program
Pay-for-Performance and Stockholder Alignment
Our Compensation Committee reviews the compensation of our NEO and strikes a balance between fixed base pay and Pay-
for-Performance ("PFP") systems that tie compensation directly to specific business goals and management objectives. The
NEOs’ compensations are set-up such that it delivers competitive pay for competitive levels of performance. In order to align
the NEOs’ compensation drivers to the overall Company’s goals, the Compensation Committee designed the 2014
compensation such that the majority of the compensation was that of a PFP type. For example, in 2014, 69% of the CEO’s
compensation was performance-based and 46% of total pay was in the form of equity-based awards. Further, the equity-
based awards were split into 50% PSUs, vesting of which was contingent upon the achievement of certain pre-established
Company revenue and operating loss reduction performance goals, and 50% was in RSUs. As a result, the impact of our
growth in revenue, improvement of our operating results and the improvement of our stock price, all significantly impacted
the compensation of our NEOs. This ensured that their interests were aligned to those of the Company’s and its stockholders.
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Proxy Statement
PROPOSAL FOUR—NON-BINDING ADVISORY VOTE ON THE COMPENSATION
OF NAMED EXECUTIVE OFFICERS
General
As required pursuant to Section 14A of the Securities Exchange Act of 1934, the Board is asking you to approve, on an
advisory And non-binding basis, the executive compensation programs and policies and the resulting 2014 compensation of
our Named Executive Officers listed in the 2014 Summary Compensation Table on page 45 (our “NEOs”) as described in
this proxy statement.
This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views
on our NEOs’ compensation as a whole. This vote is not intended to address any specific item of compensation or any specific
NEO, but rather the overall compensation of all of our NEOs and the philosophy, policies and practices described in this
proxy statement. Because the vote is advisory, the result will not be binding on our Compensation Committee and it will not
affect, limit or augment any existing compensation or awards. The say-on-pay vote will, however, provide information to the
Compensation Committee and our Board regarding investor sentiment about our executive compensation philosophy, policies
and practices, which they will take into account when considering future compensation arrangements. Our Board and the
Compensation Committee value the opinions of our stockholders and to the extent there is any significant vote against the
compensation of the NEOs as disclosed in this proxy statement, they will consider our stockholders’ concerns and the
Compensation Committee will evaluate whether any actions are necessary to address those concerns.
We recommend you should read the Compensation Discussion and Analysis and compensation tables and also consider the
factors below in determining whether to approve this proposal.
Summary of Our Executive Compensation Program
Pay-for-Performance and Stockholder Alignment
Our Compensation Committee reviews the compensation of our NEO and strikes a balance between fixed base pay and Pay-
for-Performance ("PFP") systems that tie compensation directly to specific business goals and management objectives. The
NEOs’ compensations are set-up such that it delivers competitive pay for competitive levels of performance. In order to align
the NEOs’ compensation drivers to the overall Company’s goals, the Compensation Committee designed the 2014
compensation such that the majority of the compensation was that of a PFP type. For example, in 2014, 69% of the CEO’s
compensation was performance-based and 46% of total pay was in the form of equity-based awards. Further, the equity-
based awards were split into 50% PSUs, vesting of which was contingent upon the achievement of certain pre-established
Company revenue and operating loss reduction performance goals, and 50% was in RSUs. As a result, the impact of our
growth in revenue, improvement of our operating results and the improvement of our stock price, all significantly impacted
the compensation of our NEOs. This ensured that their interests were aligned to those of the Company’s and its stockholders.
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Proxy Statement
Key Features of Our Executive Compensation Program
WHAT WE DO
WHAT WE DON’T DO
✓ We pay reasonable salaries and appropriate benefits
✓ We incent and pay for performance to align compensation
with shareholder goals.
✓ We retain an independent compensation consultant to
benchmark compensation at reasonable intervals.
✓ We consider market conditions and peer groups in
X We do not enter into multi-year employment contracts.
X We do not allow repricing of underwater stock options
for our executive officers.
X We do not have single-trigger equity vesting in the event
of a change-in-control
X We do not provide excessive perquisites
establishing compensation
✓ We have stock ownership guidelines
X We do not provide any tax reimbursements or gross-ups
on any severance or change-in-control payments or
benefits.
Following is a summary of some of the key features of our 2014 executive compensation program. For a detailed discussion
about our compensation philosophy, policies and practices, and other changes that we have made to our corporate governance
policies, see the section titled “Executive Compensation” below beginning on page 34.
(cid:127) The primary objectives of our executive compensation programs are that they be fair, objective and consistent.
Further that compensation be directly and substantially linked to measurable corporate and individual performance
and that compensation remains competitive so that we can attract, motivate, retain and reward the key executives
whose knowledge, skills and performance are necessary for our success.
(cid:127) We seek to foster a culture where individual performance is aligned with organizational objectives.
(cid:127) Our NEOs are compensated with cash, equity and non-equity incentives, and other customary employee benefits.
(cid:127) We evaluate and reward our NEOs based on the comparable industry specific and general market compensation for
their respective positions in the Company and an evaluation of their contributions to the achievement of short-and
long-term organizational goals.
(cid:127) Executive compensation is reviewed annually by the Compensation Committee, and adjustments are made to reflect
performance-based factors and competitive conditions.
(cid:127) Our Compensation Committee engages outside compensation consultant to review our executive compensation
programs, in comparison to a peer group of companies (the “Peer Group”), and recommend modifications to it.
(cid:127) Our NEOs have Change of Control and Severance Agreements and, except for these arrangements, we do not have
employment agreements with any of our NEOs.
(cid:127) We have stock ownership guideline for our NEOs.
We believe that the information provided above and within the Executive Compensation section of this proxy statement
demonstrates that our executive compensation program has been designed appropriately and is working to ensure our NEOs’
interests are aligned with our stockholders’ interests to support long-term value creation.
Accordingly, we ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on an advisory and non-binding basis, the compensation
of the NEOs, as disclosed in the Company’s Proxy Statement for the Annual Meeting of Stockholders pursuant to
the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation
Discussion and Analysis, the compensation tables and the other related disclosure.”
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Proxy Statement
Consistent with the preference of our stockholders, as reflected in the advisory vote on the frequency of future say-on-pay
votes conducted at our 2011 Annual Meeting of Stockholders, the Board has adopted a policy providing for annual advisory
votes on the compensation of the NEOs.
Board of Directors’ Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ADVISORY (NON-BINDING)
VOTE APPROVING THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS.
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Proxy Statement
NAMED EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
Set forth below is certain information as of the Record Date, which is April 20, 2015, concerning our NEOs.
Name
Kevin P. Connors ....................................................
Ronald J. Santilli .....................................................
Age
53
55
Position(s)
President, CEO and Director
EVP and CFO
Further information regarding Kevin P. Connors is provided above under “Director Nominees.”
Ronald J. Santilli has served as our CFO since September 2001. In addition, Mr. Santilli has performed the role of EVP since
April 2007 to present and prior to that he held the position of Vice President of Finance and Administration. Prior to joining
Cutera, from April 2001 to August 2001, Mr. Santilli served as Senior Director of Financial Planning and Accounting at
Lumenis, a manufacturer of medical lasers. From May 1993 to March 2001, Mr. Santilli held several positions at Coherent
Inc., including Sales Operations Manager, Controller of the Medical Group and, most recently, Director of Finance and
Administration. Mr. Santilli holds a B.S. in Business Administration from San Jose State University and an M.B.A. in Finance
from Golden Gate University.
Compensation Discussion and Analysis
Overview
The primary objectives of our compensation programs are that:
● They be fair, objective and consistent across the employee population;
● Compensation be directly and substantially linked to measurable corporate and individual performance;
and
● Compensation remains competitive, so that we can attract, motivate, retain and reward the key employees
whose knowledge, skills and performance are necessary for our success.
We seek to foster a culture where individual performance is aligned with organizational objectives. We evaluate and reward
our NEOs based on the comparable industry specific and general market compensation for their respective positions in the
Company and an evaluation of their contributions to the achievement of short-term and long-term organizational goals.
Executive compensation is reviewed and evaluated annually by the Compensation Committee and once every few years by
an independent compensation consultant hired by the Compensation Committee. Based on input received from the
compensation consultant, and the results of the stockholder vote on our say-on-pay, the Compensation Committee makes
adjustments to the components of, as well as, the total compensation of the NEOs.
Financial Highlights
Fiscal 2014 was a year of continued improvement and one dedicated to building the foundation for achieving stronger
financial performance in the future. Our research and development team delivered two new product platforms in a single
year, which represented a product launch milestone for the Company. We now have a strong and well diversified portfolio
of products. In addition, we augmented and expanded our sales and marketing leadership teams with proven and industry
experienced leaders to increase our revenue growth. As a result, in the fourth quarter of 2014, our revenue increased by 15%
to $25.5 million, compared to the same period last year, representing a seven-year record for quarterly revenue.
We ended the year with cash and investments of $81.1 million – with no debt. We plan to continue to make additional
improvements in our business in order to increase our market share in the growing aesthetic equipment market.
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Proxy Statement
Executive Compensation Actions
In 2012, our Compensation Committee conducted a full review of our executive compensation policies and practices and
engaged an outside compensation consultant to study the design, pay mix, and pay levels of our executives; compare our
program to that of our peers; and then make recommendations for changes to our policies or practices that were inconsistent
with “best practices.” As part of this review, our executives also directly contacted some of our major stockholders to solicit
their input on our executive compensation policies and practices.
In 2014, the Compensation Committee requested that our outside compensation consultants to prepare an update to the 2012
report to reflect current market compensation data of our peers and as to any recommended changes that need to be made.
Following the review of the outside compensation consultants’ report, the Compensation Committee made recommendations,
and our Board approved, for the following changes to the compensation arrangements of our NEOs: .
● Base Salary and Bonus: Maintained the CEO’s cash compensation at the 50th percentile of the Peer Group but
changed the mix by increasing his annual base compensation from $515,000 to $533,000 and reducing his target
bonus percentage from 75% to 70%. Increased the CFO’s total compensation from the 35th percentile to the 40th
percentile of the Peer Group by increasing his annual base compensation from $310,000 to $341,000 and reduced
his target bonus percentage from 55% to 50%.
● Equity awards: Granted less than the 50th percentile of the Peer Group of equity grants to both the CEO and CFO.
The CEO was granted 80,000 stock awards and the CFO was granted 42,000 stock awards, each split 50% PSUs and
50% RSUs.
● Other Benefits: There were no changes made to the benefits provided, which are reasonable and customary as
discussed in detail below in the section titled “Benefits.”
The Compensation Committee concluded that the changes to the compensation of our NEOs strengthen the alignment of their
interests with those of our stockholders, should be sufficient to maintain competitiveness with the executives in comparable
positions at the companies in our Peer Group, and promote their retention. Further, the Compensation Committee also took
into consideration the fact that, consistent with our compensation objectives, the equity awards granted increase our NEOs’
stake in the Company, thereby reinforcing their incentive to manage our business as owners and subjecting a significant
portion of their total compensation to fluctuations in the market price of Cutera common stock in alignment with stockholder
interests.
Corporate Governance Highlights
We endeavor to maintain good corporate governance standards consistent with our executive compensation policies and
practices. The following policies and practices were in effect during 2014:
● The Compensation Committee is comprised solely of independent directors who have established effective means
for communicating with stockholders regarding executive compensation issues and concerns.
● We have a Nominating and Corporate Governance Committee that is comprised of independent directors who review
and make recommendations to the Board on matters concerning corporate governance, director composition,
identification, evaluation and nomination of director candidates, Board committees, director compensation and
conflicts of interest.
● The Compensation Committee conducts an annual review and approval of our compensation strategy. We ensure
that our compensation practices remain current with market conditions by having them reviewed by compensation
consultants from time to time. Our compensation philosophy and related corporate governance features are
complemented by several elements that are designed to align our executive compensation with long-term stockholder
interests, including the following:
- We do not currently offer, nor do we have plans to provide, pension arrangements, retirement plans or
nonqualified deferred compensation plans or arrangements to our executive officers, including our NEOs;
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Proxy Statement
- We provide limited perquisites to our executive officers, including our NEOs. Our executive officers
participate in broad-based Company-sponsored health and welfare benefits programs on the same basis as
our other full-time, salaried employees;
- Executive officers are not entitled to any tax reimbursement payments (including “gross-ups”) on any
severance or change-in-control payments or benefits;
- All change-in-control payments and benefits are based on a “double-trigger” arrangement (i.e., requiring
both a change-in-control of the Company plus a qualifying termination of employment before payments and
benefits are paid);
- We use performance-based short-term and long-term incentives; and
- We adopted stock ownership guidelines for our executive officers and non-employee directors.
Role of Our Compensation Committee
Compensation Committee Charter
The Compensation Committee establishes the compensation for our NEOs, who are our CEO and CFO and administers our
Equity Incentive Plans, which are currently the 2004 Equity Incentive Plan and the 2004 Employee Stock Purchase Plan. The
Compensation Committee has a written charter, which was adopted by our Board in January 2004, and was amended in April
2007, April 2008 and again in August 2014. A copy of this charter, as amended, can be found on the Investor page, under the
Corporate Governance section, of our website, which is www.cutera.com.
Duties of the Compensation Committee
The responsibilities of the Compensation Committee include:
(i) Establishing the following for our NEOs and such other executive officers as appropriate:
(a) annual base salary;
(b) annual incentive bonus, which may include the setting of specific goals and target amounts;
(c) equity compensation;
(d) agreements for employment, severance and change-of-control payments and benefits; and
(e) any other benefits, compensation or arrangements, other than benefits generally available to our employees.
(ii) Reviewing and making recommendations to our Board, at such intervals as may be decided by the Compensation
Committee from time to time, regarding:
(a) general compensation goals and guidelines for our employees and the criteria by which bonuses and stock
compensation awards to our employees are determined; and,
(b) other policies and plans for the provision of compensation to our employees, directors and consultants.
(iii) Acting as Administrator of our 2004 Equity Incentive Plan, 2004 Employee Stock Purchase Plan and any other
equity compensation plans adopted by our Board.
(iv) Reviewing and making recommendations to our Board with respect to policies relating to the issuance of equity
incentives to employees, directors and consultants.
(v) Evaluating the compensation of the independent members of our Board.
(vi) Preparing the report that follows this Compensation Discussion and Analysis.
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Proxy Statement
Compensation Committee Members
The members of the Compensation Committee are appointed by our Board. The members of the Compensation Committee
as of the Record Date were Dr. David B. Apfelberg, Mr. Jerry P. Widman and Mr. Gregory Barrett (chairman). Each member
of the Compensation Committee is an “outside director” for purposes of Section 162(m) of the Internal Revenue Code, a
“non-employee director” for purposes of Exchange Act Rule 16b-3 and satisfies the independence requirements imposed by
NASDAQ.
Role of the Compensation Committee and its Consultant in Setting Executive Compensation
The Compensation Committee establishes the compensation for our NEOs to ensure consistency with market compensation
rates for similar positions, our compensation philosophy and corporate governance guidelines. Following the SEC’s reforms
relating to executive compensation disclosure, the Compensation Committee assumed an active role in reviewing market data
and working with a compensation consultant on executive compensation matters. Because certain components of executive
compensation—such as bonus targets—are driven by operational priorities, as to which management has greater insight than
our Board or the Compensation Committee, the Compensation Committee has directed management to interface with the
Committee and the compensation consultant to help establish appropriate target levels.
The Compensation Committee engaged an independent compensation consultant in December 2011 to perform a complete
study and then again in June 2014 to update the analysis with current market data. The compensation consultants performed
the following activities for each of our NEOs:
● Review the components of the total compensation package;
● Evaluate and develop a group of public companies that would be suitable to use as a Peer Group;
● Gather competitive market data with respect to compensation of executive officers of the Peer Group;
● Compare our NEOs’ compensation against the Peer Group;
● Recommend any adjustments that should be considered for cash-based and equity-based compensations; and
● Recommend compensation components that would make the compensation variable, based on the performance of
the Company
Due to the significant cost associated with services provided by a compensation consultant, the Compensation Committee
plans to not engage our compensation consultant every year but only from time to time as determined by our Compensation
Committee and our CEO and CFO.
Role of our Executives in Setting Compensation
On occasion, the Compensation Committee meets with members of our management team, including our CEO and CFO, to
obtain recommendations with respect to Company compensation programs, practices and packages for our executive officers,
other employees and directors. Management may make recommendations to the Compensation Committee on all components
of compensation. The Compensation Committee considers, but is not bound to and does not always accept, management’s
recommendations with respect to these matters. The Compensation Committee has the ultimate authority to make decisions
with respect to the compensation of our NEOs and does not delegate any of its compensation functions to others.
Competitive Positioning
In developing, reviewing, and approving the annual compensation for our NEOs, the Compensation Committee develops and
maintains a Peer Group of public companies from which to gather competitive market data. The Compensation Committee,
with the assistance of an independent compensation consultant, refined its approach to reviewing market compensation data
for our NEOs and approved a set of selection criteria for determining the companies to comprise the compensation Peer
Group. Going forward, companies should meet the following criteria to be included in our compensation Peer Group:
(i) U.S.-based companies with a primary focus on health care equipment and supplies;
(ii) revenue of between 0.5x to 2.0x Cutera (approximately $39 million and $154 million); and
(iii) market capitalization of between 0.5x to 2.5x Cutera (approximately $64 million and $320 million).
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Proxy Statement
This set of selection criteria led the independent compensation consultants to revise in 2014 the then-existing Peer Group to
include the following companies:
AtriCure
Atrion Corporation
BIOLASE
Cardiovascular Systems
CryoLife
Cynosure
Derma Sciences
IRIDEX
LeMaitre Vascular
Photomedex
RTI Surgical
SPECTRANETICS
SurModics
Synergetics USA
Vascular Solutions
Zeltiq Aesthetics
Compensation Components
Our NEOs are compensated with cash, equity and non-equity incentives, and other customary employee benefits.
Cash Compensation
Cash compensation consists of base salary, participation in a Discretionary Management Bonus Program (“Bonus Program”)
and participation in a profit-sharing plan. Our cash compensation goals for our NEOs are based upon the following principles:
● Total cash compensation should generally be set at or above the 50th percentile of the Peer Group;
● Base salary should be positioned to reflect each individual’s experience, performance and potential;
● A significant portion of cash compensation should be “at risk”; and
● The amount of bonuses payable for any quarter should be based on revenue growth and the improvement of the
operating profit before stock-based compensation and non-operational expenses, or “adjusted operating profit,”
compared with the same quarter in the prior year.
Base Salary and Total Target Cash Compensation
Total target cash compensation for each Named Executive Officer includes his annual base salary, annual target bonus
opportunity (described below) and annual profit-sharing payments.
Discretionary Management Bonus Program
In addition to base salary, we provided cash bonus opportunities for our NEOs in 2014 pursuant to which cash bonuses were
determined quarterly based on the Company’s performance for the then-preceding quarter. Payments under the Bonus
Program are made quarterly and are at the discretion of our Compensation Committee.
Effective July 1, 2014, our Board of directors, upon the recommendation of the Compensation Committee, amended the
Bonus Program and key changes made were as follows:
(i) The ‘Revenue Growth Rate’ multiplier, compared to the same period in the prior year, was increased from 5 to 15;
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Proxy Statement
(ii) The ‘Adjusted Operating Profit as a Percentage of Revenue’ performance measure was changed to ‘Improvement of
the Adjusted Operating Profit’ during the quarter, compared to the same period in the prior year while the multiplier
of the Adjusted Operating Profit rate was maintained at 5; and
(iii) The requirement that the Company have a positive Adjusted Operating Profit for any bonus to be paid, was
eliminated so that bonuses are only determined based on the above two criteria.
Target Bonus Opportunities
For 2014, the target cash bonuses were designed to reward our NEOs based on the Company’s overall financial performance
and were established based on the recommendation that the compensation consultants provided to the Compensation
Committee. As in prior years, the Compensation Committee determined that the target cash bonus for each NEO should be
determined as a percentage of their base salary.
In 2014, the Compensation Committee reduced Mr. Connor’s target bonus percentage from 75% to 70% and increased his
annual base compensation. In 2014, the Compensation Committee reduced Mr. Santilli’s target bonus percentage from 55%
to 50% and increased his annual base compensation. The target bonus opportunity is reviewed annually by the Compensation
Committee and is based on several factors, including the scope of the NEOs’ performance, contributions, responsibilities,
experience, prior years’ target cash bonus and market conditions.
Corporate Performance Measures
For 2014, the Compensation Committee selected revenue growth and adjusted operating profit improvement from the third
quarter of 2014, compared with the same quarter in the prior year, as the corporate performance measures that best supported
our annual operating plan and enhanced long-term value creation for purposes of paying quarterly cash bonuses. For these
purposes, “Adjusted Operating Profits” was defined as operating profit less stock-based compensation expense and non-
operational expenses. The Compensation Committee decided that non-operational expenses should be excluded from the
operating profit amount as they were deemed unrelated to quarterly “operating” performance.
Using these measures, each fiscal quarter the Compensation Committee compared our performance against the same fiscal
quarter in the prior year, and applied the associated multiplying factor to the percentage improvement for that quarter to
determine our quarterly performance for that measure. If one performance measure’s percentage improvement for a fiscal
quarter in 2014 was negative, when compared to the same fiscal quarter for the prior year, the multiplier for that measure was
set to zero.
For example, with the revenue growth factor of 15 and the adjusted operating profit improvement factor of 5, at 10% revenue
growth and 10% adjusted operating profit improvement, an individual would be eligible to receive 200% of his or her target
bonus opportunity for that quarter. At 15% revenue growth and 15% adjusted operating profit improvement, an individual
would be eligible to receive 300% of his or her target bonus opportunity.
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Proxy Statement
Based on the actual quarterly revenue growth and adjusted operating profit improvement for each of the quarters in 2014, the
NEOs earned the following bonus payout multipliers of their respective target bonus opportunity.
Long-Term Incentive Program
Revenue
Growth
(expressed
as a
percentage)
Revenue
Growth
Multiplier
Factor
Adjusted
Operating
Profit
(expressed
as a
percentage)
Adjusted
Operating
Profit
Multiplier
Factor
Total
Payout
Multiplier
Fiscal Period
First quarter* ...................................
1.39%
Second quarter* ...............................
-9.39%
5
5
6.95%
—
Third quarter ...................................
11.28%
15
169.18%
—
—
—
Fourth quarter ..................................
14.66%
15
219.88%
1.80%
5
5
5
5
—
6.95%
—
—
—
169.18%
9.00%
228.88%
* The first and second quarter of 2014 bonus was based on a Revenue Growth Rate multiplier of 5, versus 15 for the third
and fourth quarter, per the amended Bonus Plan as explained above.
On an annual basis, the cash bonus opportunity, and the amount actually earned, for fiscal 2014 was as follows:
Named Executive Officer
Annual Cash
Bonus
Target(1)
Annual Cash
Bonus Paid for
2014(1)
Mr. Connors ..................................................................................................................... $
380,725 $
379,766
Mr. Santilli ....................................................................................................................... $
171,792 $
174,816
(1) The Annual Cash Bonus Target and the Annual Cash Bonus Paid for each of the quarters in 2014 was based on the
corporate performance measures and the target bonus percentage that the respective NEOs were entitled to, per the Bonus
Plan as applicable for each of the quarters. (See the section above titled “Discretionary Management Bonus Program.”)
Profit-Sharing Program
We have a profit sharing program for our NEOs and other employees pursuant to which quarterly cash payments are made.
Target profit-sharing payments are calculated based upon half of the quarterly pre-tax Adjusted Operating Profit percentage
(pre-tax Adjusted Operating Profit divided by revenue) multiplied by the NEOs’ gross salary earned during that quarter.
Names
In 2014, our CEO and our CFO earned $2,236 and $1,430 in profit sharing payments respectively.
Mr. Connors .........................................................
—
40,000
40,000 $
9.97 $
797,600
We believe that equity-based compensation promotes and encourages long-term successful performance by our NEOs that is
aligned with the organization’s goals and the generation of stockholder value. Our equity compensation goals for our NEOs
are based upon the following principles:
● Stockholder and executive officer interests should be aligned;
● Key and high-performing employees, who have a demonstrable impact on our performance and /or stockholder
value, should be provided this benefit;
● The program should be structured to provide meaningful retention incentives to participants;
● The equity awards should reflect each individual’s experience, performance, potential and be comparable to what
the Peer Group awards for the respective position; and
● Actual awards should be tailored to reflect individual performance and attraction/retention goals.
Equity Incentive Compensation
Under our 2004 Equity Incentive Plan, we are permitted to grant stock options, stock appreciation rights, restricted shares,
RSU awards, performance shares and other stock-based awards. Under this Plan, we grant options to our executive officers,
directors and employees to purchase shares of our common stock at an exercise price equal to the fair market value of such
stock on the date of grant. The grant date for stock options to our NEOs is typically the date of a regularly scheduled Board
meeting, or, for annual merit grants, on or around June 1st of each year. Our non-employee directors are granted RSUs
annually on the date of our Annual Meeting of Stockholders that vest on the one-year anniversary of the grant date. We have
no program, plan or practice to select option grant dates (or set board meeting and annual stockholder meeting dates) to
correspond with the release of material non-public information.
In July 2014, our Board, with the approval of our non-employee directors, granted the following number of RSUs and PSU
awards to our NEOs. No stock options were granted to our NEOs. In granting these awards, our Board considered the
recommendations of the compensation consultants hired by the Compensation Committee; individual performance and
contribution to the Company’s performance; its own subjective assessment of market conditions; its ability to retain the
individual NEO; and the goal of increasing the value of the Company, in arriving at the amounts awarded to each NEO.
Stock
Option
Awards:
Number of
Securities
Underlying
Options
Number of
Restricted
Stock Unit
Awards –
Shares(1)
Number of
Performance
Share Unit
Awards for
Target
Performance-
Shares(2)
Exercise
Price for
Stock
Options
and Base
Price of
RSU and
PSU
Awards
Grant Date
Fair Value
of All
Equity
Award
Mr. Santilli ...........................................................
—
21,000
21,000 $
9.97 $
418,740
(1) These RSU awards vest as to one-third of the shares on each of June 1, 2014, 2015 and 2016, subject to the
recipient’s continuing service.
(2) The PSU awards reflect the number of shares of stock that would vest on June 30, 2015 assuming 100% achievement
of each of the performance targets discussed below.
Restricted Stock Unit Awards:
The RSU awards granted to our NEOs vest as to one-third of the shares on each of June 1, 2014, 2015 and 2016, subject to
the recipient's continuing service.
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Proxy Statement
Long-Term Incentive Program
We believe that equity-based compensation promotes and encourages long-term successful performance by our NEOs that is
aligned with the organization’s goals and the generation of stockholder value. Our equity compensation goals for our NEOs
are based upon the following principles:
● Stockholder and executive officer interests should be aligned;
● Key and high-performing employees, who have a demonstrable impact on our performance and /or stockholder
value, should be provided this benefit;
● The program should be structured to provide meaningful retention incentives to participants;
● The equity awards should reflect each individual’s experience, performance, potential and be comparable to what
the Peer Group awards for the respective position; and
● Actual awards should be tailored to reflect individual performance and attraction/retention goals.
Equity Incentive Compensation
Under our 2004 Equity Incentive Plan, we are permitted to grant stock options, stock appreciation rights, restricted shares,
RSU awards, performance shares and other stock-based awards. Under this Plan, we grant options to our executive officers,
directors and employees to purchase shares of our common stock at an exercise price equal to the fair market value of such
stock on the date of grant. The grant date for stock options to our NEOs is typically the date of a regularly scheduled Board
meeting, or, for annual merit grants, on or around June 1st of each year. Our non-employee directors are granted RSUs
annually on the date of our Annual Meeting of Stockholders that vest on the one-year anniversary of the grant date. We have
no program, plan or practice to select option grant dates (or set board meeting and annual stockholder meeting dates) to
correspond with the release of material non-public information.
In July 2014, our Board, with the approval of our non-employee directors, granted the following number of RSUs and PSU
awards to our NEOs. No stock options were granted to our NEOs. In granting these awards, our Board considered the
recommendations of the compensation consultants hired by the Compensation Committee; individual performance and
contribution to the Company’s performance; its own subjective assessment of market conditions; its ability to retain the
individual NEO; and the goal of increasing the value of the Company, in arriving at the amounts awarded to each NEO.
Stock
Option
Awards:
Number of
Securities
Underlying
Options
Number of
Restricted
Stock Unit
Awards –
Shares(1)
Number of
Performance
Share Unit
Awards for
Target
Performance-
Shares(2)
Exercise
Price for
Stock
Options
and Base
Price of
RSU and
PSU
Awards
Grant Date
Fair Value
of All
Equity
Award
Names
Mr. Connors .........................................................
—
40,000
40,000 $
9.97 $
797,600
Mr. Santilli ...........................................................
—
21,000
21,000 $
9.97 $
418,740
(1) These RSU awards vest as to one-third of the shares on each of June 1, 2014, 2015 and 2016, subject to the
recipient’s continuing service.
(2) The PSU awards reflect the number of shares of stock that would vest on June 30, 2015 assuming 100% achievement
of each of the performance targets discussed below.
Restricted Stock Unit Awards:
The RSU awards granted to our NEOs vest as to one-third of the shares on each of June 1, 2014, 2015 and 2016, subject to
the recipient's continuing service.
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Proxy Statement
Performance Stock Unit Awards:
In July 2014, our Board, upon the recommendation of our Compensation Committee, granted PSUs to the NEOs. The number
of PSUs awarded to the NEOs will result in a varying number of shares of common stock that will vest on June 30, 2015
based on the degree of achievement of three performance goals as set forth below and subject to the recipient continuing to
provide service to the Company through the vesting date. The PSU awards represent the aggregate number of shares that may
be earned from achievement of the three performance goals at targets that have been pre-determined by the Board.
The three revenue and profitability performance goals of the Company and the weighting of them for the year ended June 30,
2015, are as follows:
Performance Goal
Weighting of
Goal
(1) Actual revenue achievement, compared to the target established by the Company’s Board ................
(2) Degree of improvement of the Company’s operating loss, compared to the target established by the
Company’s Board. .................................................................................................................................
(3) Date of actual commencement of commercial shipments of the Company’s enlighten product,
compared to the target established by the Company’s Board. ..............................................................
60%
20%
20%
The following matrix provides an example of the number of common stock that would vest on June 30, 2015 based on the
performance at varying degrees of achievement of all three performance criteria:
Number of Shares of Common Stock that Would Vest on
June 30, 2015
Name
Mr. Connors .........................................................
Mr. Santilli ...........................................................
If
Minimum
Thresholds
are Not
Met
At 90% of
Target
Performance
35,200
18,480
At 100% of
Target
Performance
40,000
21,000
At 110% of
Target
Performance
52,800
27,720
At 200% of
Target
Performance
132,000
69,300
—
—
Benefits
We provide the following benefits to our NEOs generally on the same basis as the benefits provided to all employees. These
benefits are consistent with those offered by other companies and specifically with those companies with which we compete
for employees:
● Health, dental and vision insurance;
● Life insurance;
● Short-term and long-term disability insurance;
● 401(k) plan with 25% employer matching contributions, capped at 6% of total cash compensation; and
● Flexible Spending Accounts.
Employee Stock Purchase Plan
We maintain a 2004 Employee Stock Purchase Plan that provides eligible employees with the opportunity to purchase shares
of Cutera common stock at a 15% discounted price to the lower of the fair market value at either the beginning or the end of
the applicable offering period.
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Proxy Statement
Post-Employment Compensation
Except for Change of Control and Severance Agreements, we do not have employment agreements with any of our NEOs.
We have Change of Control and Severance Agreements with each of our NEOs. The purpose of these agreements is to provide
incentives to our NEOs to continue their employment with the Company and not be distracted by the possibility of loss of
employment as a result of an acquisition of the Company or for other reasons. For a summary of the material terms and
conditions of these Change of Control and Severance agreements, see Potential Payments upon Termination or Change in
Control below.
In 2014, upon the recommendation of the Compensation Committee, the Board modified Mr. Connors’ Change of Control
and Severance Agreement as follows. If Mr. Connors’ employment with the Company is terminated by the Company without
“cause” or by Mr. Connors for “good reason,” and such termination occurs within the period beginning three months before,
and ending 12 months following a Change of Control of the Company, then the bonus component of the lump sum severance
payment that would be payable was increased from 100% to 200% of his annual target bonus rate for the fiscal year in which
the termination occurs or, if greater, his annual target bonus rate in effect immediately prior to the Change of Control. All
other provisions of the Change of Control and Severance Agreement relating to the base salary, COBRA coverage and
automatic vesting of the equity awards payable remained unchanged.
Mr. Santilli’s Change of Control and Severance Agreement remains unchanged.
Internal Revenue Code Section 162(m) and Limitations on Executive Compensation
Section 162(m) of the Internal Revenue Code may limit our ability to deduct for federal income tax purposes compensation
paid to either our CEO or CFO, or to our three other most highly paid officers in any fiscal year that is, for each such person,
in excess of $1,000,000. Neither of our NEOs, nor the three other most highly paid officers, received any such compensation
in excess of this limit during 2014, or any prior year.
Stock options granted under the 2004 Equity Incentive Plan are not subject to the deduction limitation; however, to preserve
our ability to deduct the compensation income associated with stock options granted to such executive officers pursuant to
Section 162(m) of the Internal Revenue Code, our 2004 equity plan provides that no optionee may be granted option(s) to
purchase more than 500,000 shares of Cutera common stock in any one fiscal year. However, in the fiscal year in which the
optionee is hired, an optionee may be granted an option to purchase up to 1,000,000 shares of Cutera common stock. In the
future, the Compensation Committee may, in its judgment, authorize compensation payments that do not comply with an
exemption from the deductibility limit when it believes that such payments are appropriate to attract and retain executive
talent.
Accounting for Stock-Based Compensation
We follow Financial Accounting Standard Board Accounting Standards Codification Topic 718 (“ASC 718”) for our stock-
based compensation awards. ASC 718 requires companies to measure the compensation expense for all share-based payment
awards made to employees and directors, including stock options, based on the grant date “fair value” of these awards. This
calculation is performed for accounting purposes and reported in the compensation tables below, even though our executive
officers may never realize any value from their awards. ASC Topic 718 also requires companies to recognize the
compensation cost of their stock-based awards in their income statements over the period that an employee is required to
render service in exchange for the award.
Securities Authorized for Issuance Under Equity Compensation Plans
Our stockholders have approved each of our equity compensation plans, including our 2004 Equity Incentive Plan (as
amended). The following table provides information regarding the shares of Cutera common stock that may be issued upon
the exercise of stock options, RSU and PSU awards granted under our 2004 Equity Incentive Plan as of December 31, 2014.
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Proxy Statement
Number of
securities
remaining
available for
future
issuance under
equity
compensation
plans
(excluding
securities
reflected in
column (a))
(c)(1)
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights (b)
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (a)
Plan category
Equity compensation plans approved by security holders ..................
Equity compensation plan not approved by security holders .............
Total ................................................................................................
3,462,567 $
—
3,462,567 $
9.39
—
9.39
129,760
—
129,760
(1) Included in this figure are 200,000 additional shares approved by the Board of Directors that are subject to stock
holder’s approval.
Other Compensation Practices and Policies
Stock Ownership Guidelines
To enhance our overall corporate governance practices and executive compensation program, our Board adopted stock
ownership guidelines for our executive officers, which the Compensation Committee intends to review annually. These
guidelines are designed to align our executive officers’ interests with our stockholders’ long-term interests by promoting
long-term ownership of our common stock, which reduces the incentive for excessive short-term risk taking. These guidelines
provide that, within five years of the later of the adoption of the guidelines or his or her first date of employment, our CEO
and CFO must hold shares of our common stock having a value not less than three times and one time respectively of their
annual salary.
As of April 20, 2015, the NEOs’ holdings and targeted guidelines were as follows:
Named Executive Officer
Mr. Connors .....................................................................................................................
Mr. Santilli .......................................................................................................................
509,432
25,923
114,788
24,480
Stock
Ownership
as of April 20,
2015
Minimum
Stock
Ownership
Required
by April 27,
2017(1)
(1) Based of the closing stock price of $13.93 on April 20, 2015.
Insider Trading Compliance Program
According to our Insider Trading Compliance Program, no employee of the Company, including, but not limited to, our
executive officers and directors, may invest in derivatives of the Company’s securities. This prohibition includes, but is not
limited to, trading in put or call options related to securities of the Company.
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Proxy Statement
2014 Summary Compensation Table
The following table sets forth summary compensation information for the fiscal years ended December 31, 2014, 2013 and
2012 for our NEOs.
Salary
Bonus(1)
Option
Awards(2)
Stock
Awards(2)
All Other
Compensation(3)
Total
Name and
Principal Position
Kevin P. Connors,
President and
CEO
2014 .............. $
2013 ..............
2012 ..............
525,500 $
481,667
428,750
382,002 $
41,914
569,048
— $
294,307
218,336
797,600 $
240,579
247,680
13,597 $
12,435
23,520
1,718,699
1,070,902
1,487,334
Ronald J. Santilli,
EVP and CFO
2014 .............. $
2013 ..............
2012 ..............
328,083 $
310,000
301,667
176,246 $
19,156
247,087
— $
153,039
77,977
418,740 $
120,285
86,000
11,662 $
3,825
15,032
934,731
606,305
727,763
(1) The amounts reported in this column represent the bonus earned for each of the years covered in the table in
accordance with our discretionary management Bonus Plan (see section above describing our Discretionary
Management Bonus Program).
(2) The amounts reported in this column represent the aggregate grant date fair value of stock awards granted during
each of the fiscal years in 2014, 2013 and 2012 calculated in accordance with ASC Topic 718. See Note 6 of the
Consolidated Notes to Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2014 filed with the SEC on March 16, 2015 for a discussion of the valuation assumptions for stock-
based compensation.
(3) Amounts represent 401(k) employer-match contributions and a non-cash benefit associated with a Company
sponsored, non-business event for achieving sales targets in accordance with our commission incentive plan..
2014 Grants of Plan-Based Awards Table
The following table lists grants of plan-based RSU and PSU awards made to our NEOs during the fiscal year ended December
31, 2014. There were no stock option grants to our NEOs during the fiscal year ended December 31, 2014.
Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards
All
Other
Stock
Awards:
Number
of
Shares
of
Stock or
All Other
Option
Awards:
Number of
Securities
Underlying
Options
Exercise
or Base
Price of
Option
Awards(1)
Grant
Date Fair
Value of
Stock
and
Option
Awards(1)
9.97 $ 797,600
9.97 $ 418,740
— $
— $
Name
Mr. Connors .............. 07/25/2014
Mr. Santilli ................ 07/25/2014
Grant Date Threshold Target Maximum
—
—
Units
— 80,000
— 42,000
—
—
(1) The amounts reported in this column reflect the grant date fair value of equity awards calculated in accordance with
ASC Topic 718. See Note 6 of the Notes to Consolidated Financial Statements included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2014 filed with the SEC on March 16, 2015 for a discussion of
the valuation assumptions for our stock-based compensation.
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Proxy Statement
2014 Outstanding Equity Awards at Fiscal Year-End Table
The following table lists the outstanding equity incentive awards held by our NEOs as of December 31, 2014.
Name
Mr. Connors .................
Mr. Santilli ...................
Option Awards
Number of
Securities
Underlying
Unexercised
Unearned
Options
Option
Exercise
Price
Option
Expiration
Date
Stock Awards
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
Number of
Shares or
Units of
Stock that
Have Not
Vested
Date
Awards
Will be
Fully
Vested
Number of
Securities
Underlying
Unexercised
Earned
Options
30,000
33,300
100,000
120,000
120,000
120,000
75,834
41,667
— $
—
—
—
—
—
15,166(1)
41,666(1)
20.25 7/28/2015
10.43 5/28/2015
10.43 5/28/2015
8.66 6/08/2016
10.24 5/14/2017
8.72 5/27/2018
6.88 7/27/2019
8.91 6/10/2020
15,000
13,700
50,000
55,000
55,000
80,000
27,084
21,667
—
—
—
—
—
—
5,416(1)
21,666(1)
20.25 7/28/2015
10.43 5/28/2015
10.43 5/28/2015
8.66 6/08/2016
10.24 5/14/2017
8.72 5/27/2018
6.88 7/27/2019
8.91 6/10/2020
40,000(2) 427,200(2) 6/30/2015(2)
40,000(5) 427,200(5) 6/30/2017(5)
21,000(2) 224,280(2) 6/30/2015(2)
22,246(3) 6/01/2015(3)
2,083(3)
4,500(4)
48,060(4) 6/01/2016(4)
21,000(5) 224,280(5) 6/01/2017(5)
(1) One-third of the shares underlying each of these stock options vest on the first anniversary of the vesting
commencement date and 1/36th of the underlying shares vest each month thereafter.
(2) These unvested shares represent the PSU awards assuming they are paid at target performance levels and will vest
on June 30, 2015.
(3) One-third of the shares underlying this award vest on the first, second and third anniversary of the vesting
commencement date of June 1, 2012.
(4) One-third of the shares underlying this award vest on the first, second and third anniversary of the vesting
commencement date of June 1, 2013.
(5) One-third of the shares underlying this award vest on the first, second and third anniversary of the vesting
commencement date of June 1, 2014.
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Proxy Statement
2014 Options Exercised and Stock Vested Table
The following table lists the stock options exercised by, and stock awards vested to, our NEOs in the fiscal year ended
December 31, 2014.
Option Awards
Stock Awards
Name
Mr. Connors ..................................................................................
Mr. Santilli ....................................................................................
Number of
Shares
Acquired
on Exercise
—
—
Value
Realized
on Exercise
—
—
Number of
Shares
Acquired
on Vesting
4,500 $
5,458 $
Value
Realized
Upon
Vesting(1)
44,415
53,870
(1) The amounts reported in this column represent the fair market value of the shares of our common stock on the vesting
date of each Named Executive Officer’s outstanding RSU awards.
Pension Benefits
We did not sponsor any defined benefit pension or other actuarial plan for our executive officers, including our NEOs, during
2014.
Nonqualified Deferred Compensation
We did not maintain any nonqualified defined contribution or other deferred compensation plans or arrangements for our
executive officers, including our NEOs, during 2014.
Employment Agreements
We do not have employment agreements with any of our NEOs.
Potential Payments Upon Termination or Change in Control
We have entered into Change of Control and Severance Agreements with each of our NEOs. These agreements provide that
if a Named Executive Officer’s employment with the Company is terminated by the Company without “cause” (as defined
in the agreement) or by the Named Executive Officer for “good reason” (as defined in the agreement) either prior to three
months before or after 12 months following a Change of Control (as defined in the agreement) of the Company but not in
connection with a Change of Control, the Named Executive Officer will receive, subject to signing a release of claims in
favor of the Company:
●
a lump sum severance payment equal to 200% of the annual base salary as in effect immediately prior to such
termination for our CEO and 100% of the annual base salary as in effect immediately prior to such termination for
our CFO; and
● up to 24 months for our CEO and up to 12 months for our CFO of reimbursement for premiums paid for COBRA
coverage.
These agreements also provide that if a Named Executive Officer’s employment with the Company is terminated by the
Company without “cause” or by the Named Executive Officer for “good reason” and such termination occurs within the
period beginning three months before, and ending 12 months following, a Change of Control of the Company and in
connection with a Change of Control, the Named Executive Officer will receive, subject to signing a release of claims in
favor of the Company:
● A lump sum severance payment equal to 200% of the annual base salary as in effect immediately prior to such
termination or, if greater, at the level in effect immediately prior to the Change of Control for our CEO and 100% of
the annual base salary as in effect immediately prior to such termination or, if greater, at the level in effect
immediately prior to the Change of Control for our CFO;
● A lump sum severance payment equal to 200% (changed from 100% effective June 1, 2014) of the annual target
bonus for the fiscal year in which the termination occurs or, if greater, his annual target bonus in effect immediately
prior to the Change of Control for our CEO and 100% of the annual target bonus for the fiscal year in which the
termination occurs or, if greater, his annual target bonus in effect immediately prior to the Change of Control for our
CFO;
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Proxy Statement
● Automatic vesting in full of all outstanding and unvested equity awards held by the Named Executive Officer as of
the date of the Change of Control; and
● Reimbursement for premiums paid for COBRA coverage of up to 24 months for our CEO and up to 12 months for
our CFO.
Each of these agreements were renewed in 2013 for another initial term of three years, and will extend for an additional year
unless the Company or the applicable Named Executive Officer provides written notice at least 60 days prior to the third
anniversary of the agreement.
For purposes of these agreements, “cause” means a Named Executive Officer’s termination of employment only upon (i) his
willful failure to substantially perform his duties (subject to notice and a reasonable period to cure), other than a failure
resulting from his complete or partial incapacity due to physical or mental illness or impairment; (ii) his willful act which
constitutes gross misconduct and which is injurious to the Company; (iii) his willful breach of a material provision of the
agreement (subject to notice and reasonable period to cure); or (iv) his knowing, material and willful violation of a federal or
state law or regulation applicable to the business of the Company.
For purposes of these agreements, “good reason” means a Named Executive Officer’s termination of employment within 90
days following the expiration of any cure period following the occurrence of one or more of the following, without his
consent: (i) a material reduction in his authority, duties, or responsibilities relative to duties, position or responsibilities in
effect immediately prior to such reduction; (ii) a material reduction in his base salary as in effect immediately prior to such
reduction; or (iii) a material change in the geographic location at which he must perform services (in other words, the
relocation of the Named Executive Officer to a facility that is more than 50 miles from his then-current location).
The following table lists our NEOs and the estimated payments and benefits that each of them would have received had their
employment with the Company been terminated without “cause” or had they resigned for “good reason” on December 31,
2014.
Name
Mr. Connors ..................................................................................................................... $
Mr. Santilli ....................................................................................................................... $
Estimated
Total Value of
Cash Payment
1,066,000 $
341,000 $
Estimated
Total Value of
Health
Coverage
Continuation
49,969
21,894
The following table lists our NEOs and the estimated payments and benefits that each of them would have received had their
employment with the Company been terminated without “cause” or had they resigned for “good reason” in connection with
a change in control of the Company on December 31, 2014.
Name
Mr. Connors ....................................................................................... $
Mr. Santilli ......................................................................................... $
Estimated
Total Value of
Cash Payment
Estimated
Total Value of
Health
Coverage
Continuation
Value of
Accelerated
Equity(1)
1,812,200 $
511,500 $
49,969 $
21,894 $
985,780
331,270
(1) We estimated the value of acceleration of the outstanding and unvested stock options, RSU and PSU awards (assuming
paid at 100% of target) held by each of our NEOs based on a market price of $10.68 per share for Cutera common stock
as of December 31, 2014.
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Proxy Statement
Severance payments upon termination or change in control would be payable to the recipient only if the executive signs and
does not revoke a release of claims with the Company (in a form reasonably acceptable to the Company) and provided that
such release of claims becomes effective no later than sixty (60) days following the termination date. In addition, the executive
would need to have complied with the terms of any confidential information agreement executed by executive in favor of the
Company and the provisions of the severance agreements.
● Automatic vesting in full of all outstanding and unvested equity awards held by the Named Executive Officer as of
● Reimbursement for premiums paid for COBRA coverage of up to 24 months for our CEO and up to 12 months for
the date of the Change of Control; and
our CFO.
Each of these agreements were renewed in 2013 for another initial term of three years, and will extend for an additional year
unless the Company or the applicable Named Executive Officer provides written notice at least 60 days prior to the third
anniversary of the agreement.
For purposes of these agreements, “cause” means a Named Executive Officer’s termination of employment only upon (i) his
willful failure to substantially perform his duties (subject to notice and a reasonable period to cure), other than a failure
resulting from his complete or partial incapacity due to physical or mental illness or impairment; (ii) his willful act which
constitutes gross misconduct and which is injurious to the Company; (iii) his willful breach of a material provision of the
agreement (subject to notice and reasonable period to cure); or (iv) his knowing, material and willful violation of a federal or
state law or regulation applicable to the business of the Company.
For purposes of these agreements, “good reason” means a Named Executive Officer’s termination of employment within 90
days following the expiration of any cure period following the occurrence of one or more of the following, without his
consent: (i) a material reduction in his authority, duties, or responsibilities relative to duties, position or responsibilities in
effect immediately prior to such reduction; (ii) a material reduction in his base salary as in effect immediately prior to such
reduction; or (iii) a material change in the geographic location at which he must perform services (in other words, the
relocation of the Named Executive Officer to a facility that is more than 50 miles from his then-current location).
The following table lists our NEOs and the estimated payments and benefits that each of them would have received had their
employment with the Company been terminated without “cause” or had they resigned for “good reason” on December 31,
2014.
Estimated
Total Value of
Estimated
Total Value of
Health
Coverage
Cash Payment
Continuation
Mr. Connors ..................................................................................................................... $
Mr. Santilli ....................................................................................................................... $
1,066,000 $
341,000 $
49,969
21,894
Name
The following table lists our NEOs and the estimated payments and benefits that each of them would have received had their
employment with the Company been terminated without “cause” or had they resigned for “good reason” in connection with
a change in control of the Company on December 31, 2014.
Mr. Connors ....................................................................................... $
Mr. Santilli ......................................................................................... $
1,812,200 $
511,500 $
49,969 $
21,894 $
985,780
331,270
Name
Estimated
Total Value of
Estimated
Total Value of
Health
Coverage
Cash Payment
Continuation
Value of
Accelerated
Equity(1)
(1) We estimated the value of acceleration of the outstanding and unvested stock options, RSU and PSU awards (assuming
paid at 100% of target) held by each of our NEOs based on a market price of $10.68 per share for Cutera common stock
as of December 31, 2014.
-48-
-49-
Proxy Statement
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item
402(b) of SEC Regulation S-K with management. Based on such review and discussion, the Compensation Committee has
recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Cutera’s proxy
statement.
The foregoing report is provided by the undersigned members of the Compensation Committee.
David B. Apfelberg
Gregory Barrett
Jerry P. Widman
(1) The material in this report is not deemed soliciting material or filed with the SEC and is not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended, whether made before or after the date of this Proxy Statement and irrespective of any general
incorporation language in those filings.
-50-
Proxy Statement
OTHER MATTERS
We are not aware of any other business to be presented at the meeting. As of the date of this proxy statement, no stockholder
had advised us of the intent to present any business at the meeting. Accordingly, the only business that our Board intends to
present at the meeting is as set forth in this proxy statement.
If any other matter or matters are properly brought before the meeting, the proxies will use their discretion to vote on such
matters in accordance with their best judgment.
By order of the Board of Directors,
/s/ Ronald J. Santilli
Ronald J. Santilli, Executive Vice President and Chief Financial Officer
Brisbane, California
April 27, 2015
-51-
Proxy Statement
CUTERA, INC.
2004 EQUITY INCENTIVE PLAN
(as amended on April 20, 2015, subject to stockholder approval on June 17, 2015)
1. Purposes of the Plan. The purposes of this Plan are:
●
●
●
to attract and retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees, Directors and Consultants, and
to promote the success of the Company's business.
The Plan permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock,
Restricted Stock Units, Stock Appreciation Rights, Performance Units, Performance Shares and other stock or cash awards
as the Administrator may determine.
2. Definitions. As used herein, the following definitions will apply:
accordance with Section 4 of the Plan.
(a) “Administrator” means the Board or any of its Committees as will be administering the Plan, in
automatically will be deemed to be exercised at the same time that the related Option is exercised.
(b) “Affiliated SAR” means an SAR that is granted in connection with a related Option, and which
(c) “Applicable Laws” means the requirements relating to the administration of equity-based awards
under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on
which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards
are, or will be, granted under the Plan.
(d) “Award” means, individually or collectively, a grant under the Plan of Options, SARs, Restricted
Stock, Restricted Stock Units, Performance Units, Performance Shares and other stock or cash awards as the Administrator
may determine.
applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.
(e) “Award Agreement” means the written or electronic agreement setting forth the terms and provisions
(f) “Board” means the Board of Directors of the Company.
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(g) “Change in Control” means the occurrence of any of the following events:
(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding
voting securities; or
of the Company’s assets;
(ii) The consummation of the sale or disposition by the Company of all or substantially all
(iii) A change in the composition of the Board occurring within a two-year period, as a
result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” means directors who
either (A) are Directors as of the effective date of the Plan, or (B) are elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not
include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the
election of directors to the Company); or
(iv) The consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.
Code herein will be a reference to any successor or amended section of the Code.
(h) “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the
appointed by the Board in accordance with Section 4 hereof.
(i) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws
(j) “Common Stock” means the common stock of the Company.
(k) “Company” means Cutera, Inc., a Delaware corporation, or any successor thereto.
Subsidiary to render services to such entity.
(l) “Consultant” means any person, including an advisor, engaged by the Company or a Parent or
Award granted under the Plan as “performance-based compensation” under Section 162(m) of the Code.
(m) “Determination Date” means the latest possible date that will not jeopardize the qualification of an
(n) “Director” means a member of the Board.
(o) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided
that in the case of Awards other than Incentive Stock Options, the Administrator in its discretion may determine whether a
permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the
Administrator from time to time.
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(z)
“Option” means a stock option granted pursuant to the Plan.
(aa)
“Outside Director” means a Director who is not an Employee.
Section 424(e) of the Code.
(bb)
“Parent” means a “parent corporation,” whether now or hereafter existing, as defined in
(cc)
“Participant” means the holder of an outstanding Award.
(dd)
“Performance Goals” will have the meaning set forth in Section 12 of the Plan.
Administrator in its sole discretion.
(ee)
“Performance Period” means any Fiscal Year or such other period as determined by the
part upon attainment of Performance Goals or other vesting criteria as the Administrator may determine pursuant to Section
(ff)
“Performance Share” means an Award denominated in Shares which may be earned in whole or in
(p) “Employee” means any person, including Officers and Directors, employed by the Company or any
Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director's fee by the Company will be
sufficient to constitute “employment” by the Company.
to qualify as an Incentive Stock Option.
(x)
“Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended
(y)
“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the
(q) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
Exchange Act and the rules and regulations promulgated thereunder.
(r) “Exchange Program” means a program under which (i) outstanding Awards are surrendered or
cancelled in exchange for Awards of the same type (which may have lower exercise prices and different terms), Awards of a
different type, and/or cash, (ii) Participants would have the opportunity to transfer any outstanding Awards to a financial
institution or other person or entity selected by the Administrator, and/or (iii) the exercise price of an outstanding Award is
reduced. The Administrator will determine the terms and conditions of any Exchange Program in its sole discretion.
(s) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market
system, including without limitation the Nasdaq Global Market, the Nasdaq Global Select Market or the Nasdaq Capital
Market, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source
as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling
prices are not reported, the Fair Market Value of a Share of Common Stock will be the mean between the high bid and low
asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source
as the Administrator deems reliable;
10.
will be determined in good faith by the Administrator.
or other securities or a combination of the foregoing pursuant to Section 10.
(iii) In the absence of an established market for the Common Stock, the Fair Market Value
Performance Goals or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares
(gg)
“Performance Unit” means an Award which may be earned in whole or in part upon attainment of
(t) “Fiscal Year” means the fiscal year of the Company.
(u) “Freestanding SAR” means a SAR that is granted independently of any Option.
(hh)
“Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are
subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based
on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by
the Administrator.
the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(v) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within
(ii)
“Plan” means this 2004 Equity Incentive Plan.
(w) “Inside Director” means a Director who is an Employee.
(jj)
“Restricted Stock” means Shares issued pursuant to an Award of Restricted Stock under Section 7
of the Plan, or issued pursuant to the early exercise of an Option.
Value of one Share, granted pursuant to Section 8. Each Restricted Stock Unit represents an unfunded and unsecured
(kk)
“Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market
obligation of the Company.
when discretion is being exercised with respect to the Plan.
(ll)
“Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect
(mm) “Section 16(b) “ means Section 16(b) of the Exchange Act.
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(x)
to qualify as an Incentive Stock Option.
“Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended
Exchange Act and the rules and regulations promulgated thereunder.
(y)
“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the
(z)
“Option” means a stock option granted pursuant to the Plan.
(aa)
“Outside Director” means a Director who is not an Employee.
Section 424(e) of the Code.
(bb)
“Parent” means a “parent corporation,” whether now or hereafter existing, as defined in
(cc)
“Participant” means the holder of an outstanding Award.
(dd)
“Performance Goals” will have the meaning set forth in Section 12 of the Plan.
Administrator in its sole discretion.
(ee)
“Performance Period” means any Fiscal Year or such other period as determined by the
“Performance Share” means an Award denominated in Shares which may be earned in whole or in
part upon attainment of Performance Goals or other vesting criteria as the Administrator may determine pursuant to Section
10.
(ff)
“Performance Unit” means an Award which may be earned in whole or in part upon attainment of
Performance Goals or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares
or other securities or a combination of the foregoing pursuant to Section 10.
(gg)
(hh)
“Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are
subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based
on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by
the Administrator.
(ii)
“Plan” means this 2004 Equity Incentive Plan.
of the Plan, or issued pursuant to the early exercise of an Option.
(jj)
“Restricted Stock” means Shares issued pursuant to an Award of Restricted Stock under Section 7
“Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market
Value of one Share, granted pursuant to Section 8. Each Restricted Stock Unit represents an unfunded and unsecured
obligation of the Company.
(kk)
when discretion is being exercised with respect to the Plan.
(ll)
“Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect
(mm) “Section 16(b) “ means Section 16(b) of the Exchange Act.
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(nn)
“Service Provider” means an Employee, Director or Consultant.
(oo)
“Share” means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan.
Option, that pursuant to Section 9 is designated as a SAR.
(pp)
“Stock Appreciation Right” or “SAR” means an Award, granted alone or in connection with an
Section 424(f) of the Code.
(qq)
“Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in
“Tandem SAR” means a SAR that is granted in connection with a related Option, the exercise of
which will require forfeiture of the right to purchase an equal number of Shares under the related Option (and when a Share
is purchased under the Option, the SAR will be canceled to the same extent).
(rr)
“Unvested Awards” will mean Options or Restricted Stock that (i) were granted to an individual in
connection with such individual’s position as an Employee and (ii) are still subject to vesting or lapsing of Company
repurchase rights or similar restrictions.
(ss)
3. Stock Subject to the Plan.
(a) Stock Subject to the Plan. Subject to the provisions of Section 14 of the Plan, as of April 20, 2015,
the maximum aggregate number of shares of common stock that may be awarded and sold under the amended 2004 Plan was
8,101,192, of which 1,509,731 shares remained available for future awards.
(b) Full Value Awards. Any Shares subject to Awards granted with an exercise price less than Fair
Market Value on the date of grant of such Awards will be counted against the numerical limits of this Section 3 as 2.12 Shares
for every one Share subject thereto. Further. if Shares acquired pursuant to any such Award are forfeited or repurchased by
the Company and would otherwise return to the Plan pursuant to Section 3(c), 2.12 times the number of Shares so forfeited
or repurchased will return to the Plan and will again become available for issuance
(c) Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full,
or, with respect to Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units, is forfeited to or
repurchased by the Company, the unpurchased Shares (or for Awards other than Options and Stock Appreciation Rights, the
forfeited or repurchased Shares) which were subject thereto will become available for future grant or sale under the Plan
(unless the Plan has terminated). Upon exercise of a Stock Appreciation Right settled in Shares, the gross number of Shares
covered by the portion of the Award so exercised will cease to be available under the Plan. If the exercise price of an Option
is paid by tender to the Company, or attestation to the ownership, of Shares owned by the Participant, the number of Shares
available for issuance under the Plan will be reduced by the gross number of Shares for which the Option is exercised. Shares
that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available
for future distribution under the Plan; provided, however, that if unvested Shares of Restricted Stock, Restricted Stock Units,
Performance Shares or Performance Units are repurchased by the Company or are forfeited to the Company, such Shares will
become available for future grant under the Plan. Shares used to pay the tax and/or exercise price of an Award will not
become available for future grant or sale under the Plan. To the extent an Award under the Plan is paid out in cash rather than
Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan.
Notwithstanding the foregoing provisions of this Section 3(c), subject to adjustment provided in Section 14, the maximum
number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number
stated in Section 3(a), plus, to the extent allowable under Section 422 of the Code, any Shares that become available for
issuance under the Plan under this Section 3(c).
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such number of Shares as will be sufficient to satisfy the requirements of the Plan.
(d) Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available
4. Administration of the Plan.
(a) Procedure.
of Service Providers may administer the Plan.
(i) Multiple Administrative Bodies. Different Committees with respect to different groups
(ii) Section 162(m). To the extent that the Administrator determines it to be desirable to
qualify Awards granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code,
the Plan will be administered by a Committee of two (2) or more “outside directors” within the meaning of Section 162(m)
of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under
Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule
16b-3.
(A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.
(iv) Other Administration. Other than as provided above, the Plan will be administered by
(b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee,
subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Awards may be granted hereunder;
(iii) to determine the number of Shares to be covered by each Award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
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(v) with the approval of the Company’s stockholders, to institute an Exchange Program;
(vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of
any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times
when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such
factors as the Administrator will determine;
Plan;
(vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the
rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;
(viii) to prescribe, amend and rescind rules and regulations relating to the Plan, including
(ix) to modify or amend each Award (subject to Section 18(c) of the Plan), including the
discretionary authority to extend the post-termination exercisability period of Awards longer than is otherwise provided for
in the Plan;
(x) to allow Participants to satisfy withholding tax obligations by electing to have the
Company withhold from the Shares to be issued upon exercise of an Award that number of Shares having a Fair Market
Value equal to the minimum amount required to be withheld (the Fair Market Value of the Shares to be withheld will be
determined on the date that the amount of tax to be withheld is to be determined and all elections by a Participant to have
Shares withheld for this purpose will be made in such form and under such conditions as the Administrator may deem
necessary or advisable);
to effect the grant of an Award previously granted by the Administrator;
(xi) to authorize any person to execute on behalf of the Company any instrument required
(xii) to allow a Participant to defer the receipt of the payment of cash or the delivery of
Shares that would otherwise be due to such Participant under an Award pursuant to such procedures as the Administrator
may determine; and
Plan.
(xiii) to make all other determinations deemed necessary or advisable for administering the
will be final and binding on all Participants and any other holders of Awards.
(c) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations
5. Eligibility. Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation
Rights, Performance Units, Performance Shares, and such other cash or stock awards as the Administrator determines may
be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
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6. Stock Options.
(a) Limitations.
(i) Each Option will be designated in the Award Agreement as either an Incentive Stock
Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant
during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000 (U.S.), such
Options will be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options will be
taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the
time the Option with respect to such Shares is granted.
(ii) The following limitations will apply to grants of Options:
(1) No Service Provider will be granted, in any Fiscal Year, Options to purchase more
than 1,000,000 Shares.
(2) In connection with his or her initial service, a Service Provider may be granted
Options to purchase up to an additional 1,000,000 Shares, which will not count against the limit set forth in Section 6(a)(ii)(1)
above.
change in the Company’s capitalization as described in Section 14.
(3) The foregoing limitations will be adjusted proportionately in connection with any
(4) If an Option is cancelled in the same Fiscal Year in which it was granted (other
than in connection with a transaction described in Section 14), the cancelled Option will be counted against the limits set
forth in subsections (1) and (2) above.
(b) Term of Option. The term of each Option will be stated in the Award Agreement, but in no event
will the term be greater than seven (7) years from the date of grant. In the case of an Incentive Stock Option, the term will be
seven (7) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the
case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term
as may be provided in the Award Agreement.
(c) Option Exercise Price and Consideration.
exercise of an Option will be determined by the Administrator, subject to the following:
(i) Exercise Price. The per share exercise price for the Shares to be issued pursuant to
(1) In the case of an Incentive Stock Option
a) granted to an Employee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price will be no less than 110% of the Fair Market Value per Share on the
date of grant.
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b) granted to any Employee other than an Employee described in paragraph
(A) immediately above, the per Share exercise price will be no less than 100% of the Fair Market Value per Share on the date
of grant.
c) Notwithstanding the foregoing, Incentive Stock Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a
transaction described in, and in a manner consistent with, Section 424(a) of the Code.
(2) In the case of a Nonstatutory Stock Option, the per Share exercise price will be
determined by the Administrator, but the per Share exercise price will be no less than 100% of Fair Market Value per Share
on the date of grant. In the case of a Nonstatutory Stock Option intended to qualify as “performance-based compensation”
within the meaning of Section 162(m) of the Code, the per Share exercise price will be no less than 100% of the Fair Market
Value per Share on the date of grant. Notwithstanding the foregoing, Nonstatutory Stock Options may be grated with a per
Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a transaction
described in, and in a manner consistent with, Section 424(a) of the Code.
(ii) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator
will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before
the Option may be exercised.
(iii) Form of Consideration. The Administrator will determine the acceptable form(s) of
consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the
Administrator will determine the acceptable form of consideration at the time of grant. Such consideration may consist
entirely of: (1) cash; (2) check; (3) promissory note; (4) other Shares, provided that such Shares have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to which said Option will be exercised and provided
that accepting such Shares, in the sole discretion of the Administrator, shall not result in any adverse accounting consequences
to the Company; (5) consideration received by the Company under a cashless exercise program implemented by the Company
in connection with the Plan; (6) a reduction in the amount of any Company liability to the Participant, including any liability
attributable to the Participant's participation in any Company-sponsored deferred compensation program or arrangement; (7)
such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws; or
(8) any combination of the foregoing methods of payment.
(d) Exercise of Option.
(i) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will be
exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator
and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.
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An Option will be deemed exercised when the Company receives: (i) written or electronic notice
of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option, and (ii) full payment
for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of
payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise
of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant
and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder
will exist with respect to the Shares, notwithstanding the exercise of the Option. The Company will issue (or cause to be
issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided in Section 14 of the Plan.
both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
Exercising an Option in any manner will decrease the number of Shares thereafter available,
(ii) Termination of Relationship as a Service Provider. If a Participant ceases to be a Service
Provider, other than upon the Participant’s termination as the result of the Participant’s death or Disability, the Participant
may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option
is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the
Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three
(3) months following the Participant's termination. Unless otherwise provided by the Administrator, if on the date of
termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the
Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified
by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iii) Disability of Participant. If a Participant ceases to be a Service Provider as a result of
the Participant's Disability, the Participant may exercise his or her Option within such period of time as is specified in the
Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement,
the Option will remain exercisable for twelve (12) months following the Participant's termination. Unless otherwise provided
by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares
covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his
or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert
to the Plan.
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(iv) Death of Participant. If a Participant dies while a Service Provider, the Option may be
exercised following the Participant's death within such period of time as is specified in the Award Agreement to the extent
that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term
of such Option as set forth in the Award Agreement), by the Participant's designated beneficiary, provided such beneficiary
has been designated prior to Participant's death in a form acceptable to the Administrator. If no such beneficiary has been
designated by the Participant, then such Option may be exercised by the personal representative of the Participant's estate or
by the person(s) to whom the Option is transferred pursuant to the Participant's will or in accordance with the laws of descent
and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve
(12) months following Participant's death. Unless otherwise provided by the Administrator, if at the time of death Participant
is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert
to the Plan. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered
by such Option will revert to the Plan.
7. Restricted Stock.
(a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any
time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator,
in its sole discretion, will determine.
(b) Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award
Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as
the Administrator, in its sole discretion, will determine. Notwithstanding the foregoing sentence, for Restricted Stock
intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, during any
Fiscal Year no Participant will receive more than an aggregate of 300,000 Shares of Restricted Stock. Notwithstanding the
foregoing limitation, in connection with his or her initial service as an Employee, for Restricted Stock intended to qualify as
“performance-based compensation” within the meaning of Section 162(m) of the Code, an Employee may be granted an
aggregate of up to an additional 300,000 Shares of Restricted Stock. Unless the Administrator determines otherwise, Shares
of Restricted Stock will be held by the Company as escrow agent until the restrictions on such Shares have lapsed.
transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.
(c) Transferability. Except as provided in this Section 7, Shares of Restricted Stock may not be sold,
Shares of Restricted Stock as it may deem advisable or appropriate.
(d) Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on
(e) Removal of Restrictions. Except as otherwise provided in this Section 7, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last
day of the Period of Restriction. The Administrator, in its discretion, may accelerate the time at which any restrictions will
lapse or be removed.
(f) Voting Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock
granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.
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(g) Dividends and Other Distributions. During the Period of Restriction, Service Providers holding Shares
of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares unless
otherwise provided in the Award Agreement. If any such dividends or distributions are paid in Shares, the Shares will be
subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which
they were paid.
(h) Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted
Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the
Plan.
(i) Section 162(m) Performance Restrictions. For purposes of qualifying grants of Restricted Stock as
“performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion, may set
restrictions based upon the achievement of Performance Goals. The Performance Goals will be set by the Administrator on
or before the Determination Date. In granting Restricted Stock which is intended to qualify under Section 162(m) of the
Code, the Administrator will follow any procedures determined by it from time to time to be necessary or appropriate to
ensure qualification of the Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).
8. Restricted Stock Units.
(a) Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the
Administrator. Each Restricted Stock Unit grant will be evidenced by an Award Agreement that will specify such other terms
and conditions as the Administrator, in its sole discretion, will determine, including all terms, conditions, and restrictions
related to the grant, the number of Restricted Stock Units and the form of payout, which, subject to Section 8(d), may be left
to the discretion of the Administrator. Notwithstanding anything to the contrary in this subsection (a), for Restricted Stock
Units intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, during
any Fiscal Year of the Company, no Participant will receive more than an aggregate of 300,000 Restricted Stock Units.
Notwithstanding the limitation in the previous sentence, for Restricted Stock Units intended to qualify as “performance-based
compensation” within the meaning of Section 162(m) of the Code, in connection with his or her initial service as an
Employee, an Employee may be granted an aggregate of up to an additional 300,000 Restricted Stock Units.
(b) Vesting Criteria and Other Terms. The Administrator will set vesting criteria in its discretion, which,
depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid
out to the Participant. After the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive
any restrictions for such Restricted Stock Units. Each Award of Restricted Stock Units will be evidenced by an Award
Agreement that will specify the vesting criteria, and such other terms and conditions as the Administrator, in its sole discretion
will determine. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.
entitled to receive a payout as specified in the Award Agreement.
(c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be
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(d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as
practicable after the date(s) set forth in the Award Agreement. The Administrator, in its sole discretion, may pay earned
Restricted Stock Units in cash, Shares, or a combination thereof. Shares represented by Restricted Stock Units that are fully
paid in cash again will be available for grant under the Plan.
be forfeited to the Company.
(e) Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will
(f) Section 162(m) Performance Restrictions. For purposes of qualifying grants of Restricted Stock Units
as “performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion, may set
restrictions based upon the achievement of Performance Goals. The Performance Goals will be set by the Administrator on
or before the Determination Date. In granting Restricted Stock Units which are intended to qualify under Section 162(m) of
the Code, the Administrator will follow any procedures determined by it from time to time to be necessary or appropriate to
ensure qualification of the Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).
9. Stock Appreciation Rights.
(a) Grant of SARs. Subject to the terms and conditions of the Plan, a SAR may be granted to Service
Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion. The
Administrator may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination thereof.
(b) Number of Shares. The Administrator will have complete discretion to determine the number of
SARs granted to any Service Provider; provided, however, no Service Provider will be granted, in any Fiscal Year, SARs
covering more than 1,000,000 Shares. Notwithstanding the limitation in the previous sentence, in connection with his or her
initial service a Service Provider may be granted SARs covering up to an additional 1,000,000 Shares. The foregoing
limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in
Section 14. In addition, if a SAR is cancelled in the same Fiscal Year in which it was granted (other than in connection with
a transaction described in Section 14), the cancelled SAR will be counted against the numerical share limits set forth above.
(c) Exercise Price and Other Terms. The Administrator, subject to the provisions of the Plan, will have
complete discretion to determine the terms and conditions of SARs granted under the Plan; provided, however, that the per
Share exercise price of a SAR will be no less than 100% of the Fair Market Value per Share on the date of grant. However,
the exercise price of Tandem or Affiliated SARs will equal the exercise price of the related Option.
(d) Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to
the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR
may be exercised only with respect to the Shares for which its related Option is then exercisable. With respect to a Tandem
SAR granted in connection with an Incentive Stock Option: (a) the Tandem SAR will expire no later than the expiration of
the underlying Incentive Stock Option; (b) the value of the payout with respect to the Tandem SAR will be for no more than
one hundred percent (100%) of the difference between the exercise price of the underlying Incentive Stock Option and the
Fair Market Value of the Shares subject to the underlying Incentive Stock Option at the time the Tandem SAR is exercised;
and (c) the Tandem SAR will be exercisable only when the Fair Market Value of the Shares subject to the Incentive Stock
Option exceeds the Exercise Price of the Incentive Stock Option.
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(d) Form and Timing of Payment. Payment of earned Restricted Stock Units will be made as soon as
practicable after the date(s) set forth in the Award Agreement. The Administrator, in its sole discretion, may pay earned
Restricted Stock Units in cash, Shares, or a combination thereof. Shares represented by Restricted Stock Units that are fully
paid in cash again will be available for grant under the Plan.
(e) Exercise of Affiliated SARs. An Affiliated SAR will be deemed to be exercised upon the exercise of
the related Option. The deemed exercise of an Affiliated SAR will not necessitate a reduction in the number of Shares subject
to the related Option.
(f) Exercise of Freestanding SARs. Freestanding SARs will be exercisable on such terms and conditions
be forfeited to the Company.
(e) Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will
as the Administrator, in its sole discretion, will determine.
(f) Section 162(m) Performance Restrictions. For purposes of qualifying grants of Restricted Stock Units
as “performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion, may set
restrictions based upon the achievement of Performance Goals. The Performance Goals will be set by the Administrator on
or before the Determination Date. In granting Restricted Stock Units which are intended to qualify under Section 162(m) of
the Code, the Administrator will follow any procedures determined by it from time to time to be necessary or appropriate to
ensure qualification of the Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).
9. Stock Appreciation Rights.
(g) SAR Agreement. Each SAR grant will be evidenced by an Award Agreement that will specify the
exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Administrator, in
its sole discretion, will determine.
(h) Maximum Term/Expiration of SARs. An SAR granted under the Plan will expire upon the date
determined by the Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing
provisions of this Section 9, the rules of Section 6(b) relating to the maximum term, (i.e., that an SAR may not have a term
longer than seven (7) years from the date of grant) and Section 6(d) relating to post-termination exercise also will apply to
SARs.
Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion. The
from the Company in an amount determined by multiplying:
(a) Grant of SARs. Subject to the terms and conditions of the Plan, a SAR may be granted to Service
(i) Payment of SAR Amount. Upon exercise of an SAR, a Participant will be entitled to receive payment
Administrator may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination thereof.
(i) The difference between the Fair Market Value of a Share on the date of exercise over
(b) Number of Shares. The Administrator will have complete discretion to determine the number of
the exercise price; times
SARs granted to any Service Provider; provided, however, no Service Provider will be granted, in any Fiscal Year, SARs
covering more than 1,000,000 Shares. Notwithstanding the limitation in the previous sentence, in connection with his or her
initial service a Service Provider may be granted SARs covering up to an additional 1,000,000 Shares. The foregoing
limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in
Section 14. In addition, if a SAR is cancelled in the same Fiscal Year in which it was granted (other than in connection with
a transaction described in Section 14), the cancelled SAR will be counted against the numerical share limits set forth above.
(c) Exercise Price and Other Terms. The Administrator, subject to the provisions of the Plan, will have
complete discretion to determine the terms and conditions of SARs granted under the Plan; provided, however, that the per
Share exercise price of a SAR will be no less than 100% of the Fair Market Value per Share on the date of grant. However,
the exercise price of Tandem or Affiliated SARs will equal the exercise price of the related Option.
(d) Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to
the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR
may be exercised only with respect to the Shares for which its related Option is then exercisable. With respect to a Tandem
SAR granted in connection with an Incentive Stock Option: (a) the Tandem SAR will expire no later than the expiration of
the underlying Incentive Stock Option; (b) the value of the payout with respect to the Tandem SAR will be for no more than
one hundred percent (100%) of the difference between the exercise price of the underlying Incentive Stock Option and the
Fair Market Value of the Shares subject to the underlying Incentive Stock Option at the time the Tandem SAR is exercised;
and (c) the Tandem SAR will be exercisable only when the Fair Market Value of the Shares subject to the Incentive Stock
Option exceeds the Exercise Price of the Incentive Stock Option.
(ii) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Administrator, the payment upon SAR exercise may be in cash, in Shares of equivalent
value, or in some combination thereof.
10. Performance Units and Performance Shares.
(a) Grant of Performance Units/Shares. Performance Units and Performance Shares may be granted to
Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The
Administrator will have complete discretion in determining the number of Performance Units and Performance Shares
granted to each Participant provided that during any Fiscal Year, for Performance Units or Performance Shares intended to
qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, (i) no Participant will
receive Performance Units having an initial value greater than $2,000,000, and (ii) no Participant will receive more than
300,000 Performance Shares. Notwithstanding the foregoing limitation, for Performance Shares intended to qualify as
“performance-based compensation” within the meaning of Section 162(m) of the Code, in connection with his or her initial
service, a Service Provider may be granted up to an additional 300,000 Performance Shares.
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(b) Value of Performance Units/Shares. Each Performance Unit will have an initial value that is
established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to
the Fair Market Value of a Share on the date of grant.
(c)
Performance Objectives and Other Terms. The Administrator will set performance objectives or
other vesting provisions in its discretion which, depending on the extent to which they are met, will determine the number or
value of Performance Units/Shares that will be paid out to the Service Providers. Each Award of Performance Units/Shares
will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as
the Administrator, in its sole discretion, will determine. The Administrator may set vesting criteria based upon the
achievement of Company-wide, business unit, or individual goals (including, but not limited to, continued employment), or
any other basis determined by the Administrator in its discretion.
(d)
Earning of Performance Units/Shares. After the applicable Performance Period has ended, the
holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned
by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding
performance objectives or other vesting provisions have been achieved. After the grant of a Performance Unit/Share, the
Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such
Performance Unit/Share.
(e)
Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance
Units/Shares will be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator,
in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair
Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period)
or in a combination thereof.
Cancellation of Performance Units/Shares. On the date set forth in the Award Agreement, all
unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under
the Plan.
(f)
(g)
Section 162(m) Performance Restrictions. For purposes of qualifying grants of Performance
Units/Shares as “performance-based compensation” under Section 162(m) of the Code, the Administrator, in its discretion,
may set restrictions based upon the achievement of Performance Goals. The Performance Goals will be set by the
Administrator on or before the Determination Date. In granting Performance Units/Shares which are intended to qualify
under Section 162(m) of the Code, the Administrator will follow any procedures determined by it from time to time to be
necessary or appropriate to ensure qualification of the Award under Section 162(m) of the Code (e.g., in determining the
Performance Goals).
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11. Formula Option Grants to Outside Directors.
and will be made in accordance with the following provisions:
All grants of Options to Outside Directors pursuant to this Section will be automatic and nondiscretionary
except as otherwise provided herein, will be subject to the other terms and conditions of the Plan.
(a) Type of Option. All Options granted pursuant to this Section will be Nonstatutory Stock Options and,
(b) No Discretion. No person will have any discretion to select which Outside Directors will be granted
Options under this Section or to determine the number of Shares to be covered by such Options (except as provided in
Sections 10(f) and 13).
(c) First Option. Each person who first becomes an Outside Director following the Registration Date
will be automatically granted an Option to purchase 10,000 Shares (the “First Option”) on or about the date on which such
person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by
the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director, but who remains
a Director, will not receive a First Option.
(d) Subsequent Option. Each Outside Director will be automatically granted an Option to purchase 5,000
Shares (a “Subsequent Option”) on each date of the annual meeting of the stockholders of the Company, if as of such date,
he or she will have served on the Board for at least the preceding six (6) months.
(e) Terms. The terms of each Option granted pursuant to this Section will be as follows:
(i) The term of the Option will be seven (7) years.
date of grant of the Option.
(ii) The exercise price per Share will be 100% of the Fair Market Value per Share on the
(iii) Subject to Section 14, the First Option will vest and become exercisable as to 1/3rd of
the Shares subject to such First Option on each anniversary of its date of grant, provided that the Participant continues to
serve as a Director through each such date.
(iv) Subject to Section 14, the Subsequent Option will vest and become exercisable as to
100% of the Shares subject to such Option on the third anniversary of its date of grant, provided that the Participant continues
to serve as a Director through such date.
(f) Amendment. The Administrator in its discretion may change and otherwise revise the terms of Awards
granted under this Section 11, including, without limitation, the number of Shares and exercise prices thereof or the type of
Award to be granted, with respect to Awards granted on or after the date the Administrator determines to make any such
change or revision.
12. Performance-Based Compensation Under Code Section 162(m).
(a) General. If the Administrator, in its discretion, decides to grant an Award intended to qualify as
“performance-based compensation” under Section 162(m) of the Code, the provisions of this Section 12 will control over
any contrary provision in the Plan; provided, however, that the Administrator may in its discretion grant Awards that are not
intended to qualify as “performance-based compensation” under Section 162(m) of the Code to such Participants that are
based on Performance Goals or other specific criteria or goals but that do not satisfy the requirements of this Section 12.
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(b) Performance Goals. The granting and/or vesting of Awards of Restricted Stock, Restricted Stock
Units, Performance Shares and Performance Units and other incentives under the Plan may be made subject to the attainment
of performance goals relating to one or more business criteria within the meaning of Section 162(m) of the Code and may
provide for a targeted level or levels of achievement (“Performance Goals”) including: (i) cash position, (ii) earnings per
Share, (iii) net income, (iv) operating cash flow, (v) operating income, (vi) operating expenses, (vii) product revenues, (viii)
profit after-tax, (ix) revenue, (x) revenue growth, and (xii) total stockholder return. Prior to the Determination Date, the
Administrator will determine whether any significant element(s) will be included in or excluded from the calculation of any
Performance Goal with respect to any Participant. Any Performance Goals may be used to measure the performance of the
Company as a whole or a business unit of the Company and may be measured relative to a peer group or index. With respect
to any Award, Performance Goals may be used alone or in combination. The Performance Goals may differ from Participant
to Participant and from Award to Award. Prior to the Determination Date, the Administrator will determine whether any
significant element(s) will be included in or excluded from the calculation of any Performance Goal with respect to any
Participant.
(c) Procedures. To the extent necessary to comply with the performance-based compensation provisions
of Section 162(m) of the Code, with respect to any Award granted subject to Performance Goals, within the first twenty-five
percent (25%) of the Performance Period, but in no event more than ninety (90) days following the commencement of any
Performance Period (or such other time as may be required or permitted by Code Section 162(m)), the Administrator will, in
writing, (i) designate one or more Participants to whom an Award will be made, (ii) select the Performance Goals applicable
to the Performance Period, (iii) establish the Performance Goals, and amounts of such Awards, as applicable, which may be
earned for such Performance Period, and (iv) specify the relationship between Performance Goals and the amounts of such
Awards, as applicable, to be earned by each Participant for such Performance Period. Following the completion of each
Performance Period, the Administrator will certify in writing whether the applicable Performance Goals have been achieved
for such Performance Period. In determining the amounts earned by a Participant, the Administrator will have the right to
reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional
factors that the Administrator may deem relevant to the assessment of individual or corporate performance for the
Performance Period. A Participant will be eligible to receive payment pursuant to an Award for a Performance Period only
if the Performance Goals for such period are achieved.
(d) Additional Limitations. Notwithstanding any other provision of the Plan, any Award which is granted
to a Participant and is intended to constitute qualified performance based compensation under Code Section 162(m) will be
subject to any additional limitations set forth in the Code (including any amendment to Section 162(m)) or any regulations
and ruling issued thereunder that are requirements for qualification as qualified performance-based compensation as
described in Section 162(m) of the Code, and the Plan will be deemed amended to the extent necessary to conform to such
requirements.
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(b) Performance Goals. The granting and/or vesting of Awards of Restricted Stock, Restricted Stock
Units, Performance Shares and Performance Units and other incentives under the Plan may be made subject to the attainment
of performance goals relating to one or more business criteria within the meaning of Section 162(m) of the Code and may
provide for a targeted level or levels of achievement (“Performance Goals”) including: (i) cash position, (ii) earnings per
Share, (iii) net income, (iv) operating cash flow, (v) operating income, (vi) operating expenses, (vii) product revenues, (viii)
profit after-tax, (ix) revenue, (x) revenue growth, and (xii) total stockholder return. Prior to the Determination Date, the
Administrator will determine whether any significant element(s) will be included in or excluded from the calculation of any
Performance Goal with respect to any Participant. Any Performance Goals may be used to measure the performance of the
Company as a whole or a business unit of the Company and may be measured relative to a peer group or index. With respect
to any Award, Performance Goals may be used alone or in combination. The Performance Goals may differ from Participant
to Participant and from Award to Award. Prior to the Determination Date, the Administrator will determine whether any
significant element(s) will be included in or excluded from the calculation of any Performance Goal with respect to any
Participant.
(c) Procedures. To the extent necessary to comply with the performance-based compensation provisions
of Section 162(m) of the Code, with respect to any Award granted subject to Performance Goals, within the first twenty-five
percent (25%) of the Performance Period, but in no event more than ninety (90) days following the commencement of any
Performance Period (or such other time as may be required or permitted by Code Section 162(m)), the Administrator will, in
writing, (i) designate one or more Participants to whom an Award will be made, (ii) select the Performance Goals applicable
to the Performance Period, (iii) establish the Performance Goals, and amounts of such Awards, as applicable, which may be
earned for such Performance Period, and (iv) specify the relationship between Performance Goals and the amounts of such
Awards, as applicable, to be earned by each Participant for such Performance Period. Following the completion of each
Performance Period, the Administrator will certify in writing whether the applicable Performance Goals have been achieved
for such Performance Period. In determining the amounts earned by a Participant, the Administrator will have the right to
reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional
factors that the Administrator may deem relevant to the assessment of individual or corporate performance for the
Performance Period. A Participant will be eligible to receive payment pursuant to an Award for a Performance Period only
if the Performance Goals for such period are achieved.
(d) Additional Limitations. Notwithstanding any other provision of the Plan, any Award which is granted
to a Participant and is intended to constitute qualified performance based compensation under Code Section 162(m) will be
subject to any additional limitations set forth in the Code (including any amendment to Section 162(m)) or any regulations
and ruling issued thereunder that are requirements for qualification as qualified performance-based compensation as
described in Section 162(m) of the Code, and the Plan will be deemed amended to the extent necessary to conform to such
requirements.
13. Leaves of Absence. Unless the Administrator provides otherwise, vesting of Awards granted hereunder
will be suspended during any unpaid leave of absence. A Service Provider will not cease to be an Employee in the case of
(i) any leave of absence approved by the Company, or (ii) transfers between locations of the Company or between the
Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed three (3) months,
unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of
a leave of absence approved by the Company is not so guaranteed, then six (6) months and one day following the
commencement of such leave any Incentive Stock Option held by the Participant will cease to be treated as an Incentive
Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.
14. Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes
an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.
15. Adjustments; Dissolution or Liquidation; Merger or Change in Control.
(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the
corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or
enlargement of the benefits or potential benefits intended to be made available under the Plan, shall appropriately adjust the
number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares covered by
each outstanding Award, and the numerical Share limits set forth in Sections 3, 6, 7, 8, 9, and 10.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company,
the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction.
To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such
proposed action.
(c) Change in Control. In the event of a Change in Control, each outstanding Award will be assumed or
an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation.
In the event that the successor corporation refuses to assume or substitute for the Award, the Participant will fully vest in and
have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to which
such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock shall lapse, and, with respect
to Restricted Stock Units, Performance Shares and Performance Units, all performance goals or other vesting criteria will be
deemed achieved at target levels and all other terms and conditions met. In addition, if an Option or Stock Appreciation Right
is not assumed or substituted for in the event of a Change in Control, the Administrator will notify the Participant in writing
or electronically that the Option or Stock Appreciation Right will be fully vested and exercisable for a period of time
determined by the Administrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the
expiration of such period.
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With respect to Awards granted to an Outside Director that are assumed or substituted for, if on the date of
or following such assumption or substitution the Participant’s status as a Director or a director of the successor corporation,
as applicable, is terminated other than upon a voluntary resignation by the Participant not at the request of the successor, then
the Participant will fully vest in and have the right to exercise Options and/or Stock Appreciation Rights as to all of the Shares
subject to the Award, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions
on Restricted Stock shall lapse, and, with respect to Restricted Stock Units, Performance Shares and Performance Units, all
performance goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met.
For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in
Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the
Change in Control, the consideration (whether stock, cash, or other securities or property) or, in the case of a Stock
Appreciation Right upon the exercise of which the Administrator determines to pay cash or a Restricted Stock Unit,
Performance Share or Performance Unit which the Administrator can determine to pay in cash, the fair market value of the
consideration received in the merger or Change in Control by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders
of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control is
not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon
the payout of a Restricted Stock Unit, Performance Share or Performance Unit, for each Share subject to such Award (or in
the case of Performance Units, the number of implied shares determined by dividing the value of the Performance Units by
the per share consideration received by holders of Common Stock in the Change in Control), to be solely common stock of
the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of
Common Stock in the Change in Control.
Notwithstanding anything in this Section 15(c) to the contrary, an Award that vests, is earned or paid-out
upon the satisfaction of one or more Performance Goals will not be considered assumed if the Company or its successor
modifies any of such Performance Goals without the Participant’s consent; provided, however, a modification to such
Performance Goals only to reflect the successor corporation’s post-Change in Control corporate structure will not be deemed
to invalidate an otherwise valid Award assumption.
16. Tax Withholding
(a) Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or
exercise thereof), the Company will have the power and the right to deduct or withhold, or require a Participant to remit to
the Company, an amount sufficient to satisfy federal, state, local, foreign or other taxes (including the Participant’s FICA
obligation) required to be withheld with respect to such Award (or exercise thereof).
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(b) Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures
as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part
by (without limitation) (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or Shares
having a Fair Market Value equal to the minimum amount required to be withheld, (iii) delivering to the Company already-
owned Shares having a Fair Market Value equal to the amount required to be withheld, or (iv) selling a sufficient number of
Shares otherwise deliverable to the Participant through such means as the Administrator may determine in its sole discretion
(whether through a broker or otherwise) equal to the amount required to be withheld. The amount of the withholding
requirement will be deemed to include any amount which the Administrator agrees may be withheld at the time the election
is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax rates
applicable to the Participant with respect to the Award on the date that the amount of tax to be withheld is to be determined.
The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required
to be withheld.
17. No Effect on Employment or Service. Neither the Plan nor any Award will confer upon a Participant any
right with respect to continuing the Participant's relationship as a Service Provider with the Company, nor will they interfere
in any way with the Participant's right or the Company's right to terminate such relationship at any time, with or without
cause, to the extent permitted by Applicable Laws.
18. Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator
makes the determination granting such Award, or such later date as is determined by the Administrator. Notice of the
determination will be provided to each Participant within a reasonable time after the date of such grant.
19. Term of Plan. Subject to Section 23 of the Plan, the Plan will become effective upon its adoption by the
Board. It will continue in effect for a term of ten (10) years unless terminated earlier under Section 20 of the Plan.
20. Amendment and Termination of the Plan.
the Plan.
(a) Amendment and Termination. The Administrator may at any time amend, alter, suspend or terminate
extent necessary and desirable to comply with Applicable Laws.
(b) Stockholder Approval. The Company will obtain stockholder approval of any Plan amendment to the
(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the
Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator,
which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect
the Administrator's ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior
to the date of such termination.
21. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise
of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to
the approval of counsel for the Company with respect to such compliance.
-71-
Proxy Statement
(b) Investment Representations. As a condition to the exercise of an Award, the Company may require
the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the
Company, such a representation is required.
22. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of
any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to
which such requisite authority will not have been obtained.
23. Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company within
twelve (12) months after the date the Plan is adopted. Such stockholder approval will be obtained in the manner and to the
degree required under Applicable Laws.
-72-
Proxy Statement
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CUTERA, INC.
2015 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Cutera, Inc., a Delaware corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement each dated April 27, 2015 and hereby appoints Kevin P. Connors (our President
and Chief Executive Officer) and Ronald J. Santilli (our Chief Financial Officer), each as proxy and attorney-in-fact, with
full power of substitution, on behalf and in the name of the undersigned to represent the undersigned at the 2015 Annual
Meeting of Stockholders of Cutera, Inc. to be held on June 17, 2015 at 10:00 a.m., local time, at Cutera’s offices located at
3240 Bayshore Blvd., Brisbane, California 94005-1021, and at any postponement or adjournment 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 matters
set forth below:
SEE REVERSE SIDE
FOLD AND DETACH HERE
-73-
Proxy Statement
The Board of Directors of Cutera, Inc. recommends a vote FOR the following proposals:
Please mark your votes as indicated:☒
1. Election of Directors: Class II Nominees:
David B. Apfelberg
FOR
☐
WITHHOLD
☐
Timothy J. O’Shea
☐
☐
2. Ratification of BDO USA,
LLP as our Independent
Registered Public
Accounting Firm for the
fiscal year ending
December 31, 2015.
FOR
AGAINST
ABSTAIN
☐
☐
☐
3. Approval of our amended
FOR
AGAINST
ABSTAIN
and restated 2004
Equity Incentive Plan.
4. Non-binding advisory vote
on the compensation of our
Named Executive Officers.
☐
☐
☐
FOR
AGAINST
ABSTAIN
☐
☐
☐
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE
VOTED AS FOLLOWS: (1) FOR THE ELECTION OF THE NOMINATED CLASS II DIRECTORS; (2) FOR THE
RATIFICATION OF THE APPOINTMENT OF BDO USA, LLP AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM; (3) FOR THE APPROVAL OF OUR AMENDED AND RESTATED EQUITY INCENTIVE
PLAN; (4) FOR THE APPROVAL, BY NON-BINDING VOTE, OF EXECUTIVE COMPENSATION; AND (5) AS THE
PROXY HOLDERS 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 NAME
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 SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE, WHICH
IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
SIGNATURE(S) SIGNATURE(S)
DATE:
NOTE: This Proxy should be marked, signed by the stockholder(s) exactly as his or her name appears hereon, and returned
promptly in the enclosed envelope. Persons signing in fiduciary capacity should so indicate. If shares are held by joint tenants
or as community property, both should sign.
-74-
Proxy Statement
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 2014
Commission file number: 000-50644
Cutera, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
77-0492262
(I.R.S. Employer Identification Number)
3240 Bayshore Blvd.
Brisbane, California 94005
(415) 657-5500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.001 par value per share
Name of Each Exchange on Which Registered
The NASDAQ Stock Market, LLC
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the
definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
(Do not check if a smaller reporting company)
Smaller reporting company ☐
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock, held by non-affiliates of the registrant as of June 30, 2014 (which is the
last business day of registrant’s most recently completed second fiscal quarter) based upon the closing price of such stock on the NASDAQ
Global Select Market on June 30, 2014, was approximately $85 million. For purposes of this disclosure, shares of common stock held by
entities and individuals who own 5% or more of the outstanding common stock and shares of common stock held by each officer and
director have been excluded in that such persons may be deemed to be “affiliates” as that term is defined under the Rules and Regulations
of the Securities Exchange Act of 1934. This determination of affiliate status is not necessarily conclusive.
The number of shares of Registrant’s common stock issued and outstanding as of February 28, 2015 was 14,685,960.
Part III incorporates by reference certain information from the registrant’s definitive proxy statement for the 2015 Annual Meeting of
Stockholders.
DOCUMENTS INCORPORATED BY REFERENCE
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TABLE OF CONTENTS
PART I
Item 1.
Business ........................................................................................................................................................
Item 1A. Risk Factors .................................................................................................................................................
Item 1B. Unresolved Staff Comments .......................................................................................................................
Properties .....................................................................................................................................................
Item 2.
Item 3.
Legal Proceedings ........................................................................................................................................
Item 4. Mine Safety Disclosures ..............................................................................................................................
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ......................................................................................................................................
Item 6.
Selected Financial Data ...............................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................................................
Financial Statements and Supplementary Data........................................................................................
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................
Item 9A. Controls and Procedures .............................................................................................................................
Item 9B. Other Information .......................................................................................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance ......................................................................
Item 11. Executive Compensation .............................................................................................................................
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters .....................................................................................................................................................
Item 13. Certain Relationships and Related Transactions, and Director Independence .....................................
Item 14. Principal Accounting Fees and Services ....................................................................................................
PART IV
Page
1
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29
30
30
30
30
33
33
46
47
77
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Item 15. Exhibits, Financial Statement Schedules...................................................................................................
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ITEM 1. BUSINESS
PART I
We are a global medical device company headquartered in Brisbane, California specializing in the design, development,
manufacture, marketing and servicing of laser and other energy based aesthetics systems for practitioners worldwide. We
offer easy-to-use products based on the following key product platforms: xeo®, Genesis PlusTM, excel VTM, truSculptTM, excel
HRTM and enlightenTM — each of which enables physicians and other qualified practitioners to perform safe and effective
aesthetic procedures for their customers. Each of our laser and other energy-based platforms consists of one or more hand
pieces and a console that incorporates a universal graphical user interface, a laser or other energy-based module, control
system software and high voltage electronics. However, depending on the application, the laser or other energy-based module
is sometimes instead contained in the hand piece itself.
Our trademarks include: "Cutera," “CoolGlide,”“enlighten,” “excel HR”, “excel V,” “Genesis Plus,”“solera,” “titan,”
“truSculpt,” and “xeo.” Our logo and our other trade names, trademarks and service marks appearing in this document are
our property. Other trade names, trademarks and service marks appearing in this annual report on Form 10-K are the property
of their respective owners. Solely for convenience, our trademarks and trade names referred to in this annual report on Form
10-K appear without the ™ or ® symbols, but those references are not intended to indicate, in any way, that we will not assert,
to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and trade
names.
A description of each of our hand pieces, and the aesthetic conditions they are designed to treat, is contained in the section
below entitled “Products” and a summary of the features of our primary products is as follows:
● xeo- In 2003, we introduced the xeo platform, which can combine pulsed light and laser applications in a single
system. The xeo is a multi-application platform on which a customer can purchase hand piece applications for the
removal of unwanted hair, treatment of vascular lesions, and skin rejuvenation by treating discoloration, improving
texture, reducing pore size, and treating fine lines and laxity. This multi-application platform represents the largest
contributor to our Product revenue.
●
●
● Genesis Plus- In 2010, we introduced the Genesis Plus platform, which is a dedicated laser system for performing
aesthetic skin procedures and for the temporary increase of clear nail in patients with onychomycosis, or toenail
fungus. This system features a hand piece that includes real time temperature monitoring of the treatment area, as
well as a non-contact distance gauge using dual aiming beams that enhances ease of use. In addition, this system can
be used to treat patients with skin concerns such as fine wrinkles, diffuse redness and rosacea.
excel V- In February 2011, we introduced our excel V platform, a high-performance, vascular platform designed
specifically for the core-market of Dermatologists and Plastic Surgeons. This platform provides a combination of
the 532 nanometer, or “nm” green laser with Cutera’s® award-winning 1064 nm Nd:YAG technology, to provide a
single, compact and efficient system that treats the entire range of cosmetic vascular conditions, without the need
for costly consumables.
truSculpt- In August 2012, we commenced shipments of our truSculpt platform with a 25cm2 hand piece. truSculpt
is a high-powered radio frequency (“RF”) platform designed for the non-invasive body contouring market. This
system is designed to treat all body areas and with its unique electrode design is able to achieve comfortable, uniform
heating of the subcutaneous fat. In the fourth quarter of 2012, we commenced shipping a larger 40cm2 hand piece
that enables faster treatments of larger areas. In the third quarter of 2013, we commenced shipping a smaller 16 cm2
hand piece.
excel HR- In June 2014, we introduced our excel HR platform, a premium hair removal solution for all skin types,
combining Cutera’s proven long-pulse 1064 nm Nd:YAG laser and a high-power 755 nm Alexandrite laser with
sapphire contact cooling.
enlighten- In December 2014, we introduced our enlighten platform, a dual wavelength (1064 nm + 532 nm) and
dual pulse duration (750 picosecond, or “ps,” and 2 nanosecond, or “ns”) laser system for tattoo removal and the
treatment of benign pigmented lesions.
●
●
Other than the above mentioned six primary systems, we continue to generate revenue from our legacy products such as
CoolGlide®, solera®, and a third-party sourced system called myQTM for the Japanese market.
We offer our customers the ability to select the systems and applications that best fit their practice and to subsequently
upgrade their systems to add new applications. This upgrade path allows our customers to cost-effectively build their aesthetic
practices and provides us with a source of incremental revenue.
1
In addition to systems and upgrades, we generate revenue from the sale of post warranty services, Titan hand piece refills,
and Dermal fillers and cosmeceuticals.
The Structure of Skin and Conditions that Affect Appearance
The skin is the body’s largest organ and is comprised of two layers called the epidermis and dermis. The epidermis is the
outer layer, and serves as a protective barrier for the body. It contains cells that determine pigmentation, or skin color. The
underlying layer of skin, the dermis, contains hair follicles and large and small blood vessels that are found at various depths
below the epidermis. Collagen, also found within the dermis, provides strength and flexibility to the skin.
Many factors, including advancing age, smoking, and sun damage, can result in aesthetically unpleasant changes in the
appearance of the skin. These changes can include:
● Undesirable hair growth;
● Enlargement or swelling of blood vessels due to circulatory changes that become visible at the skin’s surface in the
form of unsightly veins;
● Deterioration of collagen, leading to uneven texture, increased pore size, wrinkles and skin laxity;
● Uneven pigmentation or sun spots due to long-term sun exposure.
In addition to these skin conditions, people seek removal of unwanted tattoos as well as removal of fat in certain body areas
in order to improve their appearance and confidence.
The Market for Non-Surgical Aesthetic Procedures
The market for non-surgical aesthetic procedures has grown significantly over the past several years. The American Society
of Plastic Surgeons estimates that in 2013 there were over 13.4 million minimally-invasive aesthetic procedures performed
in North America, a 3% increase over 2012 and a 144% increase over 2000.
We believe there are several factors contributing to the growth of these aesthetic procedures:
● Aging of the U.S. Population- The “baby boomer” demographic segment ─ ages 50 to 68 in 2014 ─ represented
approximately 76 million people, or nearly 25%, of the U.S. population in 2014. The size and wealth of this aging
segment, and its desire to retain a youthful appearance, has contributed to the growth in demand for aesthetic
procedures.
● Broader Range of Safe and Effective Treatments- Technical developments have led to safe, effective, easy-to-use
and low-cost treatments with fewer side effects, resulting in broader adoption of aesthetic procedures by
practitioners. In addition, technical developments have enabled practitioners to offer a broader range of treatments.
These technical developments have reduced the required treatment and recovery times, which in turn have led to
greater patient demand.
● Broader Base of Customers- Managed care and government payer reimbursement restrictions in the U.S., and
similar payment related constraints outside the U.S., may help motivate qualified practitioners from differing
specialties to establish or expand their elective aesthetic practices with procedures that are paid for directly by
patients. As a result, in addition to the core users such as dermatologists and plastic surgeons, many other non-core
practitioners, such as gynecologists, family practitioners, primary care physicians, physicians offering aesthetic
treatments in non-medical offices, and other qualified practitioners are offering aesthetic procedures.
● Wide acceptance of aesthetic procedures and increased focus on body image and appearance- According to an
ASAPS survey in 2010, 51% of Americans (including 53% of women and 49% of men) approved of cosmetic
surgery, and 67% of Americans responded that they would not be embarrassed if their friends or family knew they
had undergone a cosmetic procedure. Broader social acceptance of aesthetic treatments, and reduced average cost of
treatments resulting from competition, have also driven the growth in aesthetic procedures.
Non-Surgical Aesthetic Procedures for Improving the Skin’s Appearance and Their Limitations
Many alternative therapies are available for improving a person’s appearance by treating specific structures within the skin.
These procedures utilize injections or abrasive agents to reach different depths of the dermis and the epidermis. In addition,
non-invasive and minimally-invasive treatments have been developed that employ laser and other energy-based technologies
to achieve similar therapeutic results. Some of these more common therapies and their limitations are described below.
2
Hair Removal- Techniques for hair removal include waxing, depilatories, tweezing, shaving, electrolysis and laser and other
energy-based hair removal. The only techniques that provide a long-lasting solution are electrolysis and other energy-based
hair removal. Electrolysis is usually painful, time-consuming and expensive for large areas, but is the most common method
for removing light-colored hair. During electrolysis, an electrologist inserts a needle directly into a hair follicle and activates
an electric current in the needle. Since electrolysis only treats one hair follicle at a time, the treatment of an area as small as
an upper lip may require numerous visits and many hours of treatment. In addition, electrolysis can cause blemishes and
infection related to needle use.
Leg and Facial Veins- Current aesthetic treatment methods for leg and facial veins include sclerotherapy and laser and other
energy-based treatments. With these treatments, patients seek to eliminate visible veins and improve overall skin appearance.
Sclerotherapy requires a skilled practitioner to inject a saline or detergent-based solution into the target vein, which breaks
down the vessel causing it to collapse and be absorbed into the body. The need to correctly position the needle on the inside
of the vein makes it difficult to treat smaller veins, which limits the treatment of facial vessels and small leg veins. The
American Society of Plastic Surgeons estimates that approximately 321,000 sclerotherapy procedures were performed in
2013.
Skin Rejuvenation- Skin rejuvenation treatments include a broad range of popular alternatives, including Botox and collagen
injections, chemical peels, microdermabrasions, radio frequency treatments and lasers and other energy-based treatments.
With these treatments, patients hope to improve overall skin tone and texture, reduce pore size, tighten skin and remove other
signs of aging, including mottled pigmentation, diffuse redness and wrinkles. All of these procedures are temporary solutions
and must be repeated within several weeks or months to sustain their effect, thereby increasing the cost and inconvenience
to patients. For example, the body absorbs Botox and collagen and patients require supplemental injections every three to six
months to maintain the benefits of these treatments.
Some skin rejuvenation treatments, such as chemical peels and microdermabrasion, can have undesirable side effects.
Chemical peels use acidic or caustic solutions to peel away the epidermis, and microdermabrasion generally utilizes sand
crystals to resurface the skin. These techniques can lead to stinging, redness, irritation and scabbing. In addition, more serious
complications, such as changes in skin color, can result from deeper chemical peels. Patients that undergo these deep chemical
peels are also advised to avoid exposure to the sun for several months following the procedure. The American Society of
Plastic Surgeons estimates that in 2013, approximately 6.3 million injections of Botulinum Toxin and 2.24 million injections
of collagen and other soft-tissue fillers were administered; and 1.16 million chemical peels and 970,000 microdermabrasion
procedures were performed.
In radio frequency tissue tightening, energy is applied to heat the dermis of the skin with the goal of shrinking and tightening
collagen fibers. This approach may result in a more subtle and incremental change to the skin than a surgical facelift.
Drawbacks to this approach may include surface irregularities that may however resolve over time, and the risk of burning
the treatment area.
Laser and other energy-based non-surgical treatments for hair removal, veins, skin rejuvenation and body contouring are
discussed in the following section and in the section entitled “Our Applications and Procedures” below.
Laser and Other Energy-Based Aesthetic Treatments
Laser and other energy-based aesthetic treatments can achieve therapeutic results by affecting structures within the skin. The
development of safe and effective aesthetic treatments has created a well-established market for these procedures.
Ablative skin resurfacing is a method of improving the appearance of the skin by removing the outer layers of the skin.
Ablative skin resurfacing procedures are considered invasive or minimally invasive, depending on how much of the epidermis
is removed during a treatment. Non-ablative skin resurfacing is a method of improving the appearance of the skin by treating
the underlying structure of the skin without damaging the outer layers of the skin. Practitioners can use laser and other energy-
based technologies to selectively target hair follicles, veins or collagen in the dermis, as well as cells responsible for
pigmentation in the epidermis, without damaging surrounding tissue. Practitioners can also use these technologies to safely
remove portions of the epidermis and deliver heat to the dermis as a means of generating new collagen growth.
Safe and effective laser and energy-based treatments require an appropriate combination of the following four parameters:
● Energy Level- the amount of light or radio frequency emitted to heat a target;
● Pulse Duration- the time interval over which the energy is delivered;
● Spot Size or Electrode Size- the diameter of the energy beam, which affects treatment depth and area; and
3
● Wavelength or Frequency- the position in the electromagnetic spectrum which impacts the absorption and therefore
the effective depth of the energy delivered.
For example, in the case of hair removal, by utilizing the correct combination of these parameters, a practitioner can use a
laser or other light source to selectively target melanin within the hair follicle to absorb the laser energy and destroy the
follicle, without damaging other delicate structures in the surrounding tissue. Wavelength and spot size permit the practitioner
to target melanin in the base of the hair follicle, which is found in the dermis. The combination of pulse duration and energy
level may vary, depending upon the thickness of the targeted hair follicle. A shorter pulse length with a high energy level is
optimal to destroy fine hair, whereas coarse hair is best treated with a longer pulse length with lower energy levels. If
treatment parameters are improperly set, non-targeted structures within the skin may absorb the energy thereby eliminating
or reducing the therapeutic effect. In addition, improper setting of the treatment parameters or failure to protect the surface
of the skin may cause burns, which can result in blistering, scabbing and skin discoloration.
Technology and Design of Our Systems
Our unique xeo, Genesis Plus, excel V, truSculpt, excel HR and enlighten platforms provide the long-lasting benefits of laser
and other energy-based aesthetic treatments. Our technology allows for a combination of a wide variety of applications
available in a single system. Key features of our solutions include:
● Multiple Applications Available in a Single System- Our platforms feature multiple-applications that enable
practitioners to perform a variety of aesthetic procedures using a single device. These procedures include hair
removal, vascular treatments and skin rejuvenation ─ including the treatment of discoloration, laxity, fine lines, pore
size reduction, and uneven texture. Because practitioners can use our systems for multiple indications, the cost of a
unit may be spread across a potentially greater number of patients and procedures and therefore may be more rapidly
recovered.
● Technology and Design Leadership- We offer innovative laser and other energy-based solutions for the aesthetic
market. Our laser technology combines long wavelength, adjustable energy levels, variable spot sizes and a wide
range of pulse durations, allowing practitioners to customize treatments for each patient and condition. Our
proprietary pulsed light hand pieces for the treatment of discoloration, hair removal and vascular treatments optimize
the wavelength used for treatments and incorporate a monitoring system to increase safety. Our Titan hand pieces
utilize a novel light source that had not been previously used for aesthetic treatments. Our Pearl and Pearl Fractional
hand pieces, with proprietary YSGG technology, represent the first application of the 2790 nm wavelength for
minimally-invasive cosmetic dermatology. Further, our Genesis Plus platform performs aesthetic skin procedures
and temporarily increases clear nail in patients with onychomycosis. The Genesis Plus platform contains a hand
piece that includes real time temperature monitoring of the treatment area, as well as a non-contact distance gauge
using dual aiming beams, for improving the clinical result of the treatment. excel V is a stand-alone laser device that
combines a new high power green laser with Cutera's award winning Nd:YAG technology, to provide a system that
treats the entire range of cosmetic vascular conditions, without the need for costly consumables. truSculpt is a mono-
polar radio frequency platform and has a unique electrode design that delivers high-powered energy at 1 MHz for
the deep and uniform heating of the subcutaneous fat tissues at sustained therapeutic temperatures. This system
includes real-time skin temperature sensing and a large 40cm2 surface area for faster treatments over large areas of
the body.
● Upgradeable Platform- We have designed some of our products to allow our customers to cost-effectively upgrade
to our multi-application systems (solera and xeo), which provide our customers with the option to add additional
applications to their existing systems and provides us with a source of incremental revenue. We believe that product
upgradeability allows our customers to take advantage of our latest product offerings and provide additional
treatment options to their patients, thereby expanding the opportunities for their aesthetic practices.
● Treatments for Broad Range of Skin Types and Conditions- Our products remove hair safely and effectively on
patients of all skin types, including harder-to-treat patients with dark or tanned skin. In addition, the wide parameter
range of our systems allows practitioners to effectively treat patients with both fine and coarse hair. Practitioners
may use our products to treat spider and reticular veins (unsightly small veins in the leg) and small facial veins;
perform skin rejuvenation procedures for discoloration, texture, pore size, fine lines, and laxity on any type of skin;
and treat toenail fungus. The ability to customize treatment parameters enables practitioners to offer safe and
effective therapies to a broad base of their patients.
● Ease of Use- We design our products to be easy to use. Our proprietary hand pieces are lightweight and ergonomic,
minimizing user fatigue, and allow for clear views of the treatment area, reducing the possibility of unintended
damage and increasing the speed of application. Our control console contains a universal graphical user interface
with three simple, independently adjustable controls from which to select a wide range of treatment parameters to
suit each patient’s profile. The clinical navigation user interface on the xeo platform provides recommended clinical
treatment parameter ranges based on patient criteria entered. And our Pearl and Pearl Fractional hand pieces include
4
a scanner with multiple scan patterns to allow simple and fast treatments of the face. Risks involved in the use of our
products include risks common to other laser and other energy-based aesthetic procedures, including the risk of
burns, blistering and skin discoloration.
Strategy
Our goal is to maintain and expand our position as a leading, worldwide, provider of energy-based aesthetic devices and
complementary aesthetic products by executing the following strategies:
●
● Continue to Expand our Product Offering- Though we believe that our current portfolio of products is
comprehensive, our research and development group has a pipeline of potential products under development that we
expect to commercialize in the future. We launched GenesisPlus in 2010, excel V in 2011, truSculpt in 2012, the
ProWave LX and truSculpt 16 cm2 hand pieces in 2013 and excel HR and enlighten in 2014. Such products will allow
us to leverage our existing customer call points and provide us with new customer call points which will enhance
the productivity of our distribution channels.
Increasing Revenue and Improving Productivity- We believe that the market for aesthetic systems will continue to
offer growth opportunities. We continue to build brand recognition, add additional products to our international
distribution channel, and are focused on enhancing our global distribution network, all of which we expect will
increase our revenue.
Increasing Focus on Practitioners with Established Medical Offices- We believe there is growth opportunity in
targeting our products to a broad customer base. However, in response to the 2009 to 2010 global recession, we
shifted our focus to core practitioners and physicians with established medical offices. We believe that our
customers’ success is largely dependent upon having an existing medical practice, in which our systems provide
incremental revenue sources to augment their practice revenue. The success of our excel V platform has resulted
from strong adoption by core customers in dermatology and plastic and reconstructive surgery.
●
● Leveraging our Installed Base - With the introduction of excel V, truSculpt, and now excel HR and enlighten, we
are able to effectively offer additional platforms into our existing installed base. In addition, each of these platforms
allows for potential future upgrades to offer additional indications or capabilities. We believe this program aligns
our interest in generating revenue with our customers’ interest in improving the return on their investment by
expanding the range of applications that can be performed in their practice.
● Generating Revenue from Services and Refillable Hand Pieces- Our Titan and pulsed-light hand pieces are
refillable products, which provide us with a source of recurring revenue from our existing customers. We offer post-
warranty services to our customers either through extended service contracts to cover preventive maintenance or
through direct billing for parts and labor. These post-warranty services serve as additional sources of recurring
revenue.
Products
Our CoolGlide, xeo, solera, Genesis Plus, excel V, truSculpt, myQ, excel HR and enlighten platforms allow for the delivery
of multiple laser and energy-based aesthetic applications from a single system. With our xeo and solera platforms,
practitioners can purchase customized systems with a variety of our multi-technology applications.
5
The following table lists our currently offered products and each checked box represents the applications that were included
in the product in the years noted. In the fourth quarter of 2014, we discontinued the manufacture and sale of the VariLite
product, but continue to provide services for this product to our existing installed base of customers.
Applications:
Hair
Removal:
Vascular
Lesions:
Skin Rejuvenation
Non Invasive
Body
Contouring:
Products:
System
Platforms:
CoolGlide ....... CV
Year:
2000
2001
Excel
2002
Vantage
2003
Xeo ................. Nd:YAG
2003
OPS600
LP560
2004
2004
Titan S
2005
ProWave 770
2005
AcuTip 500
2006
Titan V/XL
LimeLight
2006
Pearl
2007
Pearl Fractional 2008
ProWave LX
2013
2004
2005
2005
2005
2005
2006
2006
2010
2011
2011
2012
2014
2014
GenesisPlus ....
excel V ............
myQ ................
truSculpt .........
excel HR .........
Enlighten ........
ProWave 770
OPS 600
LP560
AcuTip 500
Titan V/XL
LimeLight
Solera ............. Titan S
Energy
Source:
a
a
a
a
b
b
c
b
b
c
b
d
d
b
c
b
b
b
b
c
b
a
e
e
g
h
e
Texture,
Lines and
Wrinkles:
Skin
Laxity:
Melasma
&Tattoo
Removal:
Dyschromia:
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Energy Source: a. 1064nm Nd:YAG laser; b. flashlamp; c. Infrared laser; d. 2790 nm YSGG laser; e. combined frequency-
doubled 532 nm and 1064 nm Nd:YAG laser; f. Combined frequency-doubled 532 nm and 940 nm diode laser; g. Radio
frequency at 1 MHz; h. combined frequency 755 nm Alexandrite laser and 1064 nm Nd:YAG laser
Each of our products consists of a control console and one or more hand pieces, depending on the model.
Control Console
Our control console includes a universal graphical user interface, control system software and high voltage electronics. All
CoolGlide systems, Genesis Plus, excel V and some models of the xeo platform, include our laser module which consists of
electronics, a visible aiming beam, a focusing lens, and an Nd:YAG and/or flashlamp laser that functions at wavelengths that
permit penetration over a wide range of depths and is effective across all skin types. The interface allows the practitioner to
set the appropriate laser or flashlamp parameters for each procedure through a user-friendly format. The control system
software ensures that the operator’s instructions are properly communicated from the graphic user interface to the other
components within the system. Our high voltage electronics produce over 10,000 watts of peak laser energy, which permits
therapeutic effects at short pulse durations. Our solera console platform comes in two configurations—Opus and Titan—
both of which include a universal graphical user interface, control system software and high voltage electronics. The solera
Opus console is designed specifically to drive our flashlamp hand pieces while the solera Titan console is designed
specifically to drive the Titan hand pieces. The control system software is designed to ensure that the operator’s instructions
are properly communicated from the graphical user interface to the other components within the system and includes real-
time calibration to control the output energy as the pulse is delivered during the treatment. Our truSculpt control console
includes a high-powered, mono-polar RF generator at 1MHz capable of delivering up to 300 watts of energy. The truSculpt
system dynamically adjusts current, voltage and power during treatment as needed to reach and maintain the appropriate
treatment levels.
6
Hand Pieces
1064 nm Nd:YAG Hand Piece- Our 1064nm Nd:YAG hand piece delivers laser energy to the treatment area for hair removal,
leg and facial vein treatment, and skin rejuvenation procedures to treat skin texture and fine lines, and reduce pore size. The
1064nm Nd:YAG hand piece consists of an energy-delivery component, consisting of an optical fiber and lens, and a copper
cooling plate with imbedded temperature monitoring. The hand piece weighs approximately 14 ounces, which is light enough
to be held with one hand. The lightweight nature and ergonomic design of the hand piece allows the operation of the device
without user fatigue. Its design allows the practitioner an unobstructed view of the treatment area, which reduces the
possibility of unintended damage to the skin and can increase the speed of treatment. The 1064nm Nd:YAG hand piece also
incorporates our cooling system, providing integrated pre- and post-cooling of the treatment area through a temperature-
controlled copper plate to protect the outer layer of the skin. The hand piece is available in either a fixed 10 millimeter spot
size for our CoolGlide CV system, or a user-controlled variable 3, 5, 7 or 10 millimeter spot size for our CoolGlide Excel and
CoolGlide Vantage systems.
excel V Hand Piece- The excel V system introduced in February 2011 delivers 1064 nm and 532 nm laser energy to the
treatment area for vascular treatments. The excel V system supports two hand pieces, both consisting of an energy-delivery
component housing an optical fiber and lens. One hand piece includes a sapphire window cooling plate with temperature
monitoring. The second hand piece does not have a cooling plate and includes a non-contact temperature sensor to monitor
the treatment area temperature. In addition, this second hand piece includes dual aiming beams that facilitate consistent
treatments by maintaining the correct distance of the hand piece to the skin. Both hand pieces offer a spot size range from
1.5 to 12 mm in 0.1 mm increments. Each hand piece is capable of delivering either the 1064 nm or 532 nm laser energy.
Genesis Plus Hand Piece- Our Genesis Plus system launched in 2010 delivers 1064 nm laser energy to the treatment area for
the temporary increase of clear nail in patients with onychomycosis and for the treatment of fine wrinkles, diffuse redness
and rosacea. This lightweight 1064nm Nd:YAG hand piece consists of an energy-delivery component, housing an optical
fiber and lens. The hand piece includes a non-contact temperature sensor to monitor the treatment area temperature. In
addition, the hand piece includes dual, coaxial aiming beams that facilitate consistent treatments by maintaining the correct
distance of the hand piece to the skin. This hand piece offers a single 5 mm spot size.
Pulsed Light Hand Piece- The LP560, ProWave 770, ProWave LX, AcuTip 500, and LimeLight hand pieces are designed to
produce a pulse of light over a wavelength spectrum to treat discoloration such as age and sun spots and other dyschromia,
hair removal, and superficial facial vessels. The hand pieces each consist of a custom flashlamp, proprietary wavelength
filter, closed-loop power control and embedded temperature monitor, and weigh approximately 13 ounces. The filter in the
AcuTip 500 eliminates long and short wavelengths, transmitting only the therapeutic range required for safe and effective
treatment. The filter in the LP560, ProWave 770, ProWave LX, and LimeLight eliminates short wavelengths, allowing longer
wavelengths to be transmitted to the treatment area. In addition, the wavelength spectrum of the ProWave 770 and the
LimeLight can be shifted based on the setting of the control console. Our power control includes a monitoring system to
ensure that the desired energy level is delivered. The hand pieces protect the epidermis by regulating the temperature of the
hand piece window through the embedded temperature monitor. These hand pieces are available on the xeo and solera
platforms.
Titan Hand Piece- The Titan hand pieces are designed to produce a sustained pulse of light over a wavelength spectrum
tailored to induce heating in the dermis to treat skin laxity (although it is cleared in the U.S. by the U.S. Food and Drug
Administration, or FDA, only for deep dermal heating). The hand piece consists of a custom light source, proprietary
wavelength filter, closed-loop power control, sapphire cooling window and embedded temperature monitor, and weighs
approximately three pounds. The temperature of the epidermis is controlled by using a sapphire window to provide cooling
before, during and after the delivery of energy to the treatment site. We offer two different Titan hand pieces—Titan V and
Titan XL.
● Titan V- Titan V has a treatment tip that extends beyond the hand piece housing to provide enhanced visibility of the
skin’s surface to effectively treat delicate areas such as the skin around the eyes and nose.
● Titan XL- Titan XL, like the Titan V, has a treatment tip that extends beyond the housing for improved visibility. It
also has a larger treatment spot size to treat larger body areas faster, such as the arms, abdomen and legs.
7
The Titan hand pieces can be used on the xeo and solera platforms. The Titan hand piece requires a periodic “refilling”
process, which includes the replacement of the optical source, after a set number of pulses have been used. This provides us
with a source of recurring revenue.
Pearl Hand Piece- The Pearl hand piece, introduced in 2007, is designed to treat fine lines, uneven texture and dyschromia
through the application of proprietary YSGG laser technology. This hand piece can safely remove a small portion of the
epidermis, while coagulating the remaining epidermis, leading to new collagen growth. The Pearl hand piece consists of a
custom monolithic laser source, scanner and power monitoring electronics. The scanner includes multiple scan patterns to
allow simple and fast treatments of the face. The hand piece includes an attachment for a smoke evacuator, allowing the
practitioner to use one hand during treatment.
Pearl Fractional Hand Piece- The Pearl Fractional hand piece, introduced in 2008, also uses proprietary YSGG technology
and is designed to treat wrinkles and deep dermal imperfections (although it is cleared in the U.S. by the FDA only for skin
resurfacing and coagulation). This hand piece penetrates the deep dermis producing a series of micro-columns across the
skin, which can result in the removal of damaged tissue and the production of new collagen. The Pearl Fractional hand piece
consists of a custom monolithic laser source, scanner and power monitoring electronics. The scanner includes multiple scan
patterns to allow simple and fast treatments of the face. The hand piece includes an attachment for a smoke evacuator,
allowing the practitioner to use one hand during treatment.
truSculpt Hand Pieces- The truSculpt product introduced in August 2012 is used for the non-invasive heating of subcutaneous
fat tissue. We sold three different truSculpt hand pieces in 2013. The original 25cm2 hand piece (now discontinued), 40 cm2
for larger body parts and the 16cm2 for smaller parts of the body. Each of the truSculpt hand pieces is light weight and
ergonomically designed for operator comfort, which allows for the uniform heat distribution delivered by the hand pieces. In
addition, the hand pieces have a built-in, real time, temperature sensing system to monitor the temperature during the
treatment.
excel HR Hand Piece- The dual wavelength excel HR system introduced in June 2014 delivers 1064 nm and 755 nm laser
energy to the treatment area for hair removal. excel HR’s single hand piece consists of an energy-delivery component housing
an optical fiber and lens. The hand piece features a sapphire window and peripheral cooling plate with temperature
monitoring. The sapphire window allows for 30 watts of temperature regulation with user selectable settings ranging from 4
to 20 degrees centigrade and provides cooling of the skin before, during, and immediately after each laser pulse. This “pre,
parallel, and post” cooling provides an anesthetic benefit that makes treatments more comfortable than systems without
contact cooling, and also increases the safety profile of treatments by reducing the chances of burning skin. The hand piece
has a wide spot-size range between 3 to 18 mm (5 to 18 mm, alexandrite mode), and is adjustable in 1 mm increments.
enlighten Hand Piece- The dual wavelength and dual pulse mode enlighten system introduced in December 2014 delivers
532 nm and 1064 nm laser energy to treat benign pigmented lesions as well as the removal of multi-color tattoos. enlighten’s
single hand piece consists of an energy-delivery component housing a motorized focus lens assembly connected to an
articulated arm. The hand piece features spot size adjustability from 2 to 8mm, adjustable in 1 mm increments. As with all
Cutera laser and light-based systems, the hand piece does not require manual power calibration through a separate calibration
port. The power calibration is automatic and built into the laser system.
Upgrades
Our solera and xeo platforms are multi-application products that are designed to allow our customers to cost-effectively
upgrade to our newest technologies, which provide our customers the option to add applications to their system and provides
us with a source of recurring revenue.
Service
We offer post-warranty services to our customers through extended service contracts ─ that cover preventive maintenance
and/or replacement parts and labor ─ as well as direct billing for detachable hand piece replacements, parts and labor. These
post-warranty services serve as additional sources of recurring revenue from our installed base.
Titan and truSculpt Hand Piece Refills
When customers purchase a replacement Titan or truSculpt hand piece, we treat that as “refill” revenue, which provides us
with a source of recurring revenue from existing customers. Following the launch of truSculpt product in 2012, we charged
customers for hand piece refills, however, beginning in the third quarter of 2013 we included truSculpt refills as part of our
standard warranty and service contract product offerings.
8
Fillers and Cosmeceuticals
We distribute ZO Skin Health, Inc.’s (“ZO”) physician-dispensed, topical skin health systems (or ‘cosmeceuticals’) and
through the second quarter of 2014, we also distributed Merz’s Radiesse® dermal filler product to physicians in the Japanese
market. Since the first quarter of 2010 we had been distributing Obagi Medical Products, Inc.’s (“Obagi”) cosmeceuticals.
As of December 31, 2013 we stopped distributing the Obagi cosmeceuticals and have fully transitioned to the ZO product
line.
Our Applications and Procedures
Our products are designed to allow the practitioner to select an appropriate combination of energy level, spot size and pulse
duration for each treatment. The ability to manipulate the combinations of these parameters allows our customers to treat the
broadest range of conditions available with a single energy-based system.
Hair Removal- Our laser technology allows our customers to treat all skin types and hair thicknesses. Our 1064 nm Nd:YAG
and 755 nm Alexandrite lasers permits energy to safely penetrate through the epidermis of any skin type and into the dermis
where the hair follicle is located. Using the universal graphic user interface on our control console, the practitioner sets
parameters to deliver therapeutic energy with a large spot size and variable pulse durations, allowing the practitioner to treat
fine or coarse hair. Our 1064nm Nd:YAG and 755 nm Alexandrite hand pieces allows our customers to treat all skin types,
while our ProWave 770 and ProWave LX hand pieces, with pulsed light technology, treat the majority of skin types quickly
and effectively.
For hair removal treatments, the treatment site on the skin is first cleaned and shaved. The practitioner then applies a thin
layer of gel to improve contact and aid gliding of the hand piece across the skin. If using the CoolGlide 1064nm Nd:YAG
hand piece, the hand piece is applied directly to the skin to cool the area to be treated, then moved and a laser pulse is delivered
to the pre-cooled area. To remove hair using the excel HR, excel V, ProWave 770 and ProWave LX hand pieces, cooling is
provided by a sapphire window placed directly on the skin, allowing the pulse of light to be applied while the treatment area
is being cooled. In the case of both hand pieces, delivery of light which is converted to heat destroys the hair follicles and
prevents hair re-growth. This procedure is then repeated at the next treatment site on the body, and can be done in a gliding
motion to increase treatment speed. Patients receive on average three to six treatments. Each treatment can take between five
minutes to one hour depending on the size of the area and the condition being treated. On average, there are six to eight weeks
between treatments.
Vascular Lesions- Our laser technology allows our customers to treat the widest range of aesthetic vein conditions, including
spider and reticular veins and small facial veins. Our CoolGlide and xeo 1064nm Nd:YAG hand piece’s adjustable spot size
of 3, 5, 7 or 10 millimeters; the excel V 1064 nm and 532 nm hand piece with adjustable spot sizes from 1.5 to 12 mm; and
the excel HR 1064 nm and 755 nm hand pieces with adjustable spot sizes from 3 mm to 18 mm, allows the practitioner to
control treatment depth to target different sized veins. Selection of the appropriate energy level and pulse duration ensures
effective treatment of the intended target. Our AcuTip 500 hand piece, with its 6 millimeter spot size, uses pulsed-light
technology and is designed for the treatment of facial vessels.
The vein treatment procedure when using the 1064nm Nd:YAG hand piece is performed in a substantially similar manner to
the laser hair removal procedure. The laser hand piece is used to cool the treatment area both before and after the laser pulse
has been applied. With the excel V and excel HR hand pieces the cooling can be performed pre, during and post-delivery of
the laser pulse. With the AcuTip 500 hand piece, the pulse of light is delivered while the treatment area is being cooled with
the sapphire tip. The delivered energy damages the vein and, over time, it is absorbed by the body. Patients receive on average
between one and six treatments, with six weeks or longer between treatments.
Skin Rejuvenation- Our Nd:YAG laser and other energy based technologies allow our customers to perform non-invasive and
minimally-invasive treatments that reduce redness, pore size, fine lines and laxity, improve skin texture, and treat other
aesthetic conditions.
Tattoo Removal- Our enlighten dual wavelength, dual pulse duration system featuring picosecond technology and our myQ
Q-switched laser can be used for tattoo removal, for the treatment of benign pigmented lesions, and for skin rejuvenation and
laser skin toning.
Texture, Lines and Wrinkles- When using a 1064nm Nd:YAG laser to improve skin texture, reduce pore size and treat fine
lines, cooling is not applied and the hand piece is held directly above the skin. A large number of pulses are directed at the
treatment site, repeatedly covering an area, such as the cheek. By delivering many pulses of laser light to a treatment area, a
9
gentle heating of the dermis occurs and collagen growth is stimulated to rejuvenate the skin and reduce wrinkles. Patients
typically receive four to six treatments for this procedure. The treatment typically takes less than a half hour and there are
typically two to four weeks between treatments.
When treating texture and fine lines with a Pearl hand piece, the hand piece is held at a controlled distance from the skin and
the scanner delivers a preset pattern of spots to the treatment area. Cooling is not applied to the epidermis during the treatment.
The energy delivered by the hand piece ablates a portion of the epidermis while leaving a coagulated portion that will gently
peel off over the course of a few days. Heat is also delivered into the dermis which can result in the production of new
collagen. Treatment of the full face can usually be performed in 15 to 30 minutes. Patients receive on average between one
and three treatments at monthly intervals.
When treating wrinkles and deep dermal imperfections with a Pearl Fractional hand piece, the hand piece is held at a
controlled distance from the skin and the scanner delivers a preset pattern of spots to the treatment area. Cooling is not applied
to the epidermis during the treatment. The energy delivered by the hand piece penetrates the deep dermis producing a series
of micro-columns across the skin, which can result in the removal of damaged tissue and the production of new collagen.
Treatment of the full face can usually be performed in less than an hour. Patients receive on average between one and three
treatments at monthly intervals.
Our CE Mark allows us to market Pearl Fractional in the European Union, Australia and certain other countries outside the
U.S. for the treatment of wrinkles and deep dermal imperfections. However, in the U.S. we have a 510(k) clearance for only
skin resurfacing and coagulation.
Toenail Fungus- In addition to performing skin rejuvenation, we have FDA, Health Canada and CE Mark approvals for
Genesis Plus that allows us to market it for onychomycosis (“toenail fungus”). Tiny pulses of light from an Nd:YAG laser
pass through the toenail to the fungus underneath, which is irradiated without any damage to the surrounding nail or skin.
The Genesis Plus has dual aiming beams that facilitate consistent treatments by maintaining the correct distance of the hand
piece to the skin. In addition, during the treatment an integrated sensor is used to actively monitor the temperature of the
treatment area.
Dyschromia- Our pulsed-light technologies allow our customers to safely and effectively treat red and brown dyschromia,
which is skin discoloration, pigmented lesions, and rosacea. The practitioner delivers a narrow spectrum of light to the surface
of the skin through our LP560 or LimeLight hand pieces. These hand pieces include one of our proprietary wavelength filters,
which reduce the energy level required for therapeutic effect and minimize the risk of skin injury.
In treating pigmented lesions with a pulsed-light technology, the hand piece is placed directly on the skin and then the light
pulse is triggered. The cells forming the pigmented lesion absorb the light energy, darken and then flake off over the course
of two to three weeks. Several treatments may be required to completely remove the lesion. The treatment takes a few minutes
per area treated and there are typically three to four weeks between treatments.
The 532 nm wavelength green laser option on the excel V and the 755 nm infrared wavelength of the excel HR can also be
used to treat pigmented lesions in substantially the same way as described above with the pulsed light devices.
Practitioners can also treat dyschromia and other skin conditions with our Pearl hand piece. During these treatments, the heat
delivered by the Pearl hand piece will remove the outer layer of the epidermis while coagulating a portion of the epidermis.
That coagulated portion will gently peel off over the course of a few days, revealing a new layer of skin underneath. Treatment
of the full face can usually be performed in 15 to 30 minutes. Patients receive on average between one and three treatments
at monthly intervals.
Skin Laxity- Our Titan technology allows our customers to use deep dermal heating to tighten lax skin. The practitioner
delivers a spectrum of light to the skin through our Titan hand piece. This hand piece includes our proprietary light source
and wavelength filter which tailors the delivered spectrum of light to provide heating at the desired depth in the skin.
In treating skin laxity, the hand piece is placed directly on the skin and then the light pulse is triggered. A sustained pulse
causes significant heating in the dermis. This heating can cause immediate collagen contraction while also stimulating long-
term collagen re-growth. Several treatments may be required to obtain the desired degree of tightening of the skin. The
treatment of a full face can take over an hour and there are typically four weeks between treatments.
Our CE Mark allows us to market the Titan in the European Union, Australia and certain other countries outside the U.S. for
the treatment of wrinkles through skin tightening. However, in the U.S. we have a 510(k) clearance for only deep dermal
heating.
10
Non-Invasive Body Contouring- our truSculpt technology allows physicians to apply a hand piece directly to the skin and
deliver high-powered RF energy that results in the deep and uniform heating of the subcutaneous fat tissue at sustained
therapeutic temperatures. This heating can cause selective destruction of fat cells, which are eliminated from the treatment
area through the body’s natural wound healing processes. The treatment takes approximately 45 minutes and two or more
treatments may be required to obtain the desired aesthetic results.
Our CE Mark allows us to market the truSculpt in the European Union, and certain other countries outside the U.S. for fat
reduction, body shaping and body contouring. In the U.S. we have 510(k) clearance for the purpose of elevating tissue
temperature for the treatment of selected medical conditions such as relief of pain, muscle spasms, increase in local
circulation, and the temporary improvement in the appearance of cellulite.
Sales and Marketing
In the U.S. we market and sell our products primarily through a direct sales organization. Generally, each direct sales
employee is assigned a specific territory. As of December 31, 2014, we had a U.S. direct sales force of 33 employees. We
internally manage our U.S. and Canadian sales organization as one North American sales region with 37 territories as of
December 31, 2014.
International sales are generally made through a worldwide distributor network in over 40 countries, as well as a direct
international sales force of 32 employees, as of December 31, 2014. As of December 31, 2014, we had direct sales offices in
Australia, Belgium, Canada, France, Japan and Switzerland. Our international revenue as a percentage of total revenue
represented 55% in 2014, 58% in 2013 and 59% in 2012.
We also sell certain items like Titan hand piece refills and marketing brochures through the internet.
Although specific customer requirements can vary depending on applications, customers generally demand quality,
performance, ease of use, and high productivity in relation to the cost of ownership. We have responded to these customer
demands by introducing new products focused on these requirements in the markets we serve. Specifically, we believe that
we introduce new products and applications that are innovative, address the specific aesthetic procedures in demand, and are
upgradeable on our customers’ existing systems. In addition, we provide attractive upgrade pricing to new product families
and are responsive to our customers’ financing preferences. To increase market penetration, in addition to marketing to the
core specialties of plastic surgeons and dermatologists, we also market to the non-core aesthetic practices consisting of
gynecologists, primary care physicians, family practitioners, physicians offering aesthetic treatments in non-medical offices,
podiatrists and other qualified practitioners.
We seek to establish strong ongoing relationships with our customers through the upgradeability of our products, sales of
extended service contracts, the refilling of Titan hand pieces, ongoing training and support, and distributing (in Japan only)
cosmeceutical products. We primarily target our marketing efforts to practitioners through office visits, workshops, trade
shows, webinars and trade journals. We also market to potential patients through brochures, workshops and our website. In
addition, we offer clinical forums with recognized expert panelists to promote advanced treatment techniques using our
products to further enhance customer loyalty and uncover new sales opportunities.
Competition
Our industry is subject to intense competition. Our products compete against conventional non-energy-based treatments, such
as electrolysis, Botox and collagen injections, chemical peels, microdermabrasion and sclerotherapy. Our products also
compete against laser and other energy-based products offered by public companies, such as Cynosure, Elen (in Italy),
Lumenis, Syneron and Zeltiq, as well as private companies, including, Alma, Sciton, and several others.
Competition among providers of laser and other energy-based devices for the aesthetic market is characterized by extensive
research efforts and innovative technology. While we attempt to protect our products through patents and other intellectual
property rights, there are few barriers to entry that would prevent new entrants or existing competitors from developing
products that would compete directly with ours. There are many companies, both public and private, that are developing
innovative devices that use both energy-based and alternative technologies. Some of these competitors have greater resources
than we do or product applications for certain sub-markets in which we do not participate. Additional competitors may enter
the market, and we are likely to compete with new companies in the future. To compete effectively, we have to demonstrate
that our products are attractive alternatives to other devices and treatments by differentiating our products on the basis of
performance, brand name, service and price. We have encountered, and expect to continue to encounter, potential customers
who, due to existing relationships with our competitors, are committed to, or prefer the products offered by these competitors.
Competitive pressures may result in price reductions and reduced margins for our products.
11
Research and Development
Our research and development group develops new products and applications and builds clinical support to address unmet or
underserved market needs. As of December 31, 2014, our research and development activities were conducted by a staff of
38 employees with a broad base of experience in lasers, optoelectronics, software and other fields. We have developed
relationships with outside contract engineering and design consultants, giving our team additional technical and creative
breadth. We work closely with thought leaders and customers, to understand unmet needs and emerging applications in
aesthetic medicine. Research and development expenses were approximately $10.5 million in 2014, $9.2 million in 2013 and
$8.4 million in 2012.
Service and Support
Our products are engineered to enable quick and efficient service and support. There are several separate components of our
products, each of which can easily be removed and replaced. We believe that quick and effective delivery of service is
important to our customers. As of December 31, 2014, we had a 40-person global service department. Internationally, we
provide direct service support through our Australia, Belgium, Canada, France and Japan offices, and also through the
network of distributors and third-party service providers in over 40 countries. In February 2012, we acquired Iridex’s aesthetic
business, which resulted in an increase in our service and support team and service revenue.
We provide a standard one-year warranty coverage for all of our systems. We provide initial warranties on our products to
cover parts and service and offer extended service plans that vary by the type of product and the level of service desired. Our
standard warranty on system consoles covers parts and service for a standard period of one year. From time to time, we also
have promotions whereby we include a post-warranty service contract with the sale of our products. Customers are notified
before their initial warranty expires and are able to choose from two different extended service plans covering preventative
maintenance or replacement parts and labor. With effect from the third quarter of 2013, we included the refilling of truSculpt
hand pieces in the initial warranty as well as service contracts offered to customers.
In the event a customer does not purchase an extended service plan, we will offer to service the customer’s system and charge
the customer for time and materials. With respect to the truSculpt and other hand pieces, if a customer’s system is out of
warranty and they have not purchased an extended service contract that covers hand piece replacements, then the customer
is charged for their replacement hand piece.
Our Titan hand pieces generally include a warranty for a set number of shots, instead of for a period of time.
We have invested substantial financial and management resources to develop a worldwide infrastructure to meet the service
needs of our customers through our direct operations in the U.S., Australia, Belgium, Canada, France, Japan, and Switzerland.
In countries where we are represented by distributor partners, our customers are serviced through the distributor network.
Manufacturing
We manufacture our products with components and subassemblies supplied by vendors. We assemble and test each of our
products at our Brisbane, California facility. Quality control, cost reduction and inventory management are top priorities of
our manufacturing operations.
We purchase certain components and subassemblies from a limited number of suppliers. We have flexibility with our
suppliers to adjust the number of components and subassemblies as well as the delivery schedules. The forecasts we use are
based on historical demands and sales projections. Lead times for components and subassemblies may vary significantly
depending on the size of the order, time required to fabricate and test the components or subassemblies, specific supplier
requirements and current market demand for the components and subassemblies. We reduce the potential for disruption of
supply by maintaining sufficient inventories and identifying additional suppliers. The time required to qualify new suppliers
for some components, or to redesign them, could cause delays in our manufacturing. To date, we have not experienced
significant delays in obtaining any of our components or subassemblies.
We use small quantities of common cleaning products in our manufacturing operations, which are lawfully disposed of
through a normal waste management program. We do not forecast any material costs due to compliance with environmental
laws or regulations.
We are required to manufacture our products in compliance with the FDA’s Quality System Regulation, or QSR. The QSR
covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging,
storage and shipping of our products. The FDA enforces the QSR through periodic unannounced inspections. We had an
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FDA full quality system audit for three weeks during March 2014. There were no significant findings as a result of this audit
and our responses have been accepted by the FDA. Our failure to maintain compliance with the QSR requirements could
result in the shutdown of our manufacturing operations and the recall of our products, which would have a material adverse
effect on business. In the event that one of our suppliers fails to maintain compliance with our quality requirements, we may
have to qualify a new supplier and could experience manufacturing delays as a result. We have opted to maintain quality
assurance and quality management certifications to enable us to market our products in the U.S., the member states of the
European Union, the European Free Trade Association and countries which have entered into Mutual Recognition
Agreements with the European Union. In January 2015, we passed our recertification audit establishing compliance with the
most current requirements of EN ISO 13485:2012, CAN/CSA ISO 13485:2003, and MDD 93/42/EEC. Our manufacturing
facility is ISO 13485 certified.
Patents and Proprietary Technology
We rely on a combination of patent, copyright, trademark and trade secret laws, and non-disclosure, confidentiality and
invention assignment agreements to protect our intellectual property rights. As of December 31, 2014, we had 34 issued U.S.
patents and 5 pending U.S. patent applications. In the U.S. and several foreign countries, we have registered our Company
name and several of our product names as trademarks, including Cutera, Acutip 500, CoolGlide, CoolGlide Excel, Limelight,
myQ, Pearl, ProWave 770, ProWave LX, solera, Titan, xeo and truSculpt. We may have common law rights in other product
names, including excel V, Pearl Fractional, solera Titan, excel HR and enlighten. We intend to file for additional patents and
trademarks to continue to strengthen our intellectual property rights.
We license certain patents from Palomar (acquired by Cynosure in 2013) and pay ongoing royalties based on sales of
applicable hair-removal products. The royalty rate on these products ranges from 3.75% to 7.50% of revenue. One patent
expired in February 2013, the remaining U.S. patents expired in February 2015 and the remaining international patents are
set to expire in February 2016. Our revenue from systems that do not include hair-removal capabilities (such as our solera
Titan, xeo SA, GenesisPlus, myQ, excel V and enlighten), and other revenue from service contracts, Titan, Fillers and
cosmeceuticals, are not subject to these royalties. In addition, in 2006 we capitalized $1.2 million as an intangible asset
representing the ongoing license for these patents, which is being amortized on a straight-line basis over their expected useful
life of 9-10 years.
Our employees and technical consultants are required to execute confidentiality agreements in connection with their
employment and consulting relationships with us. We also require them to agree to disclose and assign to us all inventions
conceived in connection with the relationship. We cannot provide any assurance that employees and consultants will abide
by the confidentiality or assignability terms of their agreements. Despite measures taken to protect our intellectual property,
unauthorized parties may copy aspects of our products or obtain and use information that we regard as proprietary.
Government Regulation
Our products are medical devices subject to extensive and rigorous regulation by the U.S. Food and Drug Administration, as
well as other regulatory bodies. FDA regulations govern the following activities that we perform and will continue to perform
to ensure that medical products distributed domestically or exported internationally are safe and effective for their intended
uses:
● Product design and development;
● Product testing;
● Product manufacturing;
● Product safety;
● Product labeling;
● Product storage;
● Recordkeeping;
● Pre-market clearance or approval;
● Advertising and promotion;
● Production;
● Product sales and distribution; and
● Complaint Handling.
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FDA’s Pre-market Clearance and Approval Requirements
Unless an exemption applies, each medical device we wish to commercially distribute in the U.S. will require either prior
510(k) clearance or pre-market approval from the FDA. The FDA classifies medical devices into one of three classes. Devices
deemed to pose lower risks are placed in either class I or II, which requires the manufacturer to submit to the FDA a pre-
market notification requesting permission to commercially distribute the device. This process is generally known as 510(k)
clearance. Some low risk devices are exempted from this requirement. Devices deemed by the FDA to pose the greatest risk,
such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously
cleared 510(k) device, are placed in class III, requiring pre-market approval. All of our current products are class II devices.
510(k) Clearance Pathway
When a 510(k) clearance is required, we must submit a pre-market notification demonstrating that our proposed device is
substantially equivalent to a previously cleared 510(k) device or a device that was in commercial distribution before May 28,
1976 for which the FDA has not yet called for the submission of Pre-Market Approval, or PMA, applications. By regulation,
the FDA is required to clear or deny a 510(k), pre-market notification within 90 days of submission of the application. As a
practical matter, clearance often takes significantly longer. The FDA may require further information, including clinical data,
to make a determination regarding substantial equivalence. Laser devices used for aesthetic procedures, such as hair removal,
have generally qualified for clearance under 510(k) procedures.
The following table details the indications for which we received a 510(k) clearance for our products and when these
clearances were received.
FDA Marketing Clearances:
Laser-based products:
Date Received:
- treatment of vascular lesions .............................................................................................................
- hair removal ......................................................................................................................................
- permanent hair reduction ..................................................................................................................
- treatment of benign pigmented lesions and pseudo folliculitis barbae, commonly referred to as
razor bumps, and for the reduction of red pigmentation in scars ...................................................
- treatment of wrinkles ........................................................................................................................
- treatment to increase clear nail in patients with onychomycosis ......................................................
- expanded spot size to 5 mm for clear nail in patients with onychomycosis ......................................
- addition of Alexandrite 755 nm laser wavelength for hair removal, permanent hair reduction and
June 1999
March 2000
January 2001
June 2002
October 2002
April 2011
May 2013
the treatment of vascular and benign pigmented lesions ................................................................ December 2013
- enlighten picosecond and nanosecond 532/1064 nm for the treatment of benign pigmented lesions
August 2014
- enlighten picosecond and nanosecond 532/1064 nm for tattoo removal ........................................... November 2014
Pulsed-light technologies:
- treatment of pigmented lesions .........................................................................................................
- hair removal and vascular treatments ................................................................................................
March 2003
March 2005
Infrared Titan technology for deep dermal heating for the temporary relief of minor muscle and joint
pain and for the temporary increase in local circulation where applied .................................................
February 2004
Solera tabletop console:
- for use with the Titan hand piece ......................................................................................................
- for use with our pulsed-light hand pieces .........................................................................................
October 2004
January 2005
Pearl product for the treatment of wrinkles .........................................................................................
March 2007
Pearl Fractional product for skin resurfacing and coagulation ..........................................................
August 2008
truSculpt radio frequency (“RF”) product for deep tissue heating for the temporary relief of minor
muscle and joint pain and for a temporary improvement in the appearance of cellulite
- 16cm2 to 25cm2 hand pieces for smaller body parts ..........................................................................
April 2008
- 16cm2 to 40cm2 hand pieces for larger body parts ............................................................................ November 2012
- Product labeling and technology updates for existing clearances ..................................................... September 2014
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Pre-Market Approval (“PMA”) Pathway
A PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process. A PMA must be supported
by extensive data, including but not limited to, technical, preclinical, clinical trials, manufacturing and labeling to demonstrate
to the FDA’s satisfaction the safety and effectiveness of the device. No device that we have developed to date has required
pre-market approval, although development of future devices or indications may require pre-market approval.
Product Modifications
We have modified aspects of our products since receiving regulatory clearance, but we believe that new 510(k) clearances
are not required for these modifications. After a device receives 510(k) clearance or a PMA, any modification that could
significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new
clearance or approval. The FDA requires each manufacturer to make this determination initially, but the FDA can review any
such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with our determination not to seek
a new 510(k) clearance or PMA, the FDA may retroactively require us to seek 510(k) clearance or pre-market approval. The
FDA could also require us to cease marketing and distribution and/or recall the modified device until 510(k) clearance or
pre-market approval is obtained. Also, in these circumstances, we may be subject to significant regulatory fines or penalties.
Clinical Trials
When FDA approval of a class I, class II or class III device requires human clinical trials, and if the device presents a
“significant risk,” as defined by the FDA, to human health, the device sponsor is required to file an Investigational Device
Exemption, or IDE, application with the FDA and obtain IDE approval prior to commencing the human clinical trial. If the
device is considered a “non-significant” risk, IDE submission to the FDA is not required. Instead, only approval from the
Institutional Review Board, or IRB, overseeing the clinical trial is required. Human clinical studies are generally required in
connection with approval of class III devices and may be required for class I and II devices. The IDE application must be
supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans
and that the testing protocol is scientifically sound. The IDE must be approved in advance by the FDA for a specified number
of patients. Clinical trials for a significant risk device may begin once the application is reviewed and cleared by the FDA
and the appropriate institutional review boards at the clinical trial sites. Future clinical trials of our products may require that
we submit and obtain clearance of an IDE from the FDA prior to commencing clinical trials. The FDA, and the IRB at each
institution at which a clinical trial is being performed, may suspend a clinical trial at any time for various reasons, including
a belief that the subjects are being exposed to an unacceptable health risk.
Pervasive and Continuing Regulation
After a device is placed on the market, numerous regulatory requirements apply. These include:
● Quality system regulations, which require manufacturers, including third-party manufacturers, to follow stringent
design, testing, control, documentation and other quality assurance procedures during all aspects of the
manufacturing process;
● Labeling regulations and FDA prohibitions against the promotion of products for un-cleared, unapproved or “off-
label” uses;
● Medical device reporting regulations, which require that manufacturers report to the FDA if their device may have
caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to
a death or serious injury if the malfunction were to recur; and
● Post-market surveillance regulations, which apply when necessary to protect the public health or to provide
additional safety and effectiveness data for the device.
The FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA
and the Food and Drug Branch of the California Department of Health Services, or CDHS, to determine our compliance with
the QSR and other regulations, and these inspections may include the manufacturing facilities of our subcontractors. In the
past, our prior facility has been inspected, and observations were noted. There were no findings that involved a material
violation of regulatory requirements. Our responses to these observations have been accepted by the FDA and CDHS, and
we believe that we are in substantial compliance with the QSR. Our current manufacturing facility has been inspected by the
FDA and the CDHS. The FDA and the CDHS noted observations, but there were no findings that involved a material violation
of regulatory requirements. Our responses to those observations have been accepted by the FDA and CDHS.
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We are also regulated under the Radiation Control for Health and Safety Act, which requires laser products to comply with
performance standards, including design and operation requirements, and manufacturers to certify in product labeling and in
reports to the FDA that their products comply with all such standards. The law also requires laser manufacturers to file new
product and annual reports, maintain manufacturing, testing and sales records, and report product defects. Various warning
labels must be affixed and certain protective devices installed, depending on the class of the product.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include
any of the following sanctions:
● Warning letters, fines, injunctions, consent decrees and civil penalties;
● Repair, replacement, recall or seizure of our products;
● Operating restrictions or partial suspension or total shutdown of production;
● Refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses, or
modifications to existing products;
● Withdrawing 510(k) clearance or pre-market approvals that have already been granted; and
● Criminal prosecution.
The FDA also has the authority to require us to repair, replace or refund the cost of any medical device that we have
manufactured or distributed. If any of these events were to occur, they could have a material adverse effect on our business.
We are also subject to a wide range of federal, state and local laws and regulations, including those related to the environment,
health and safety, land use and quality assurance. We believe that compliance with these laws and regulations as currently in
effect will not have a material adverse effect on our capital expenditures, earnings and competitive and financial position.
International
International sales of medical devices are subject to foreign governmental regulations, which vary substantially from country
to country. The time required to obtain clearance or approval by a foreign country may be longer or shorter than that required
for FDA clearance or approval, and the requirements may be different.
The primary regulatory environment in Europe is that of the European Union, which consists of a 27 countries encompassing
most of the major countries in Europe. The member states of the European Free Trade Association have voluntarily adopted
laws and regulations that mirror those of the European Union with respect to medical devices. Other countries, such as
Switzerland, have entered into Mutual Recognition Agreements and allow the marketing of medical devices that meet
European Union requirements. The European Union has adopted numerous directives and European Standardization
Committees have promulgated voluntary standards regulating the design, manufacture, clinical trials, labeling and adverse
event reporting for medical devices. Devices that comply with the requirements of a relevant directive will be entitled to bear
CE conformity marking, indicating that the device conforms with the essential requirements of the applicable directives and,
accordingly, can be commercially distributed throughout the member states of the European Union, the member states of the
European Free Trade Association and countries which have entered into a Mutual Recognition Agreement. The method of
assessing conformity varies depending on the type and class of the product, but normally involves a combination of self-
assessment by the manufacturer and a third-party assessment by a Notified Body, an independent and neutral institution
appointed by a country to conduct the conformity assessment. This third-party assessment may consist of an audit of the
manufacturer’s quality system and specific testing of the manufacturer’s device. An assessment by a Notified Body in one
member state of the European Union, the European Free Trade Association or one country which has entered into a Mutual
Recognition Agreement is required in order for a manufacturer to commercially distribute the product throughout these
countries. ISO 9001 and ISO 13845 certification are voluntary harmonized standards. Compliance establishes the
presumption of conformity with the essential requirements for a CE Marking. In February 2000, our facility was awarded the
ISO 9001 and EN 46001 certification. In March 2003, we received our ISO 9001 updated certification (ISO 9001:2000) as
well as our certification for ISO 13485:1996 which replaced our EN 46001 certification. In March 2004, we received our
ISO 13485:2003 certification and in March 2006, March 2010, February 2011 and January 2012 we passed ISO 13485
recertification audits. Our most recent recertification audit occurred in January 2015. We passed the audit establishing
compliance with the most current requirements of EN ISO 13485:2012, CAN/CSA ISO 13485:2003, and MDD 93/42/EEC.
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Employees
As of December 31, 2014, we had 266 employees, compared to 238 employees as of December 31, 2013. Of the 266
employees at December 31, 2014, 106 were in sales and marketing, 58 in manufacturing operations, 40 in technical service,
38 in research and development and 24 in general and administrative. We believe that our future success will depend in part
on our continued ability to attract, hire and retain qualified personnel. None of our employees are represented by a labor
union, and we believe our employee relations are good.
Available Information
We are subject to the reporting requirements under the Securities Exchange Act of 1934. Consequently, we are required to
file reports and information with the Securities and Exchange Commission, or SEC, including reports on the following forms:
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These reports and other
information concerning the company may be accessed through the SEC’s website at www.sec.gov. Such filings, as well as
our charters for our Audit and Compensation Committees and our Code of Ethics are available on our website at
www.cutera.com. In the event that we grant a waiver under our Code of Ethics to any of our officers and directors, we will
publish it on our website.
ITEM 1A. RISK FACTORS
We operate in a rapidly changing economic and technological environment that presents numerous risks, many of which are
driven by factors that we cannot control or predict. Our business, financial condition and results of operations may be
impacted by a number of factors. In addition to the factors discussed elsewhere in this report, the following risks and
uncertainties could materially harm our business, financial condition or results of operations, including causing our actual
results to differ materially from those projected in any forward-looking statements. The following list of significant risk
factors is not all-inclusive or necessarily in order of importance. Additional risks and uncertainties not presently known to
us, or that we currently deem immaterial, also may materially adversely affect us in future periods. You should carefully
consider these risks and uncertainties before investing in our securities.
Revenue from the U.S. represents a significant part of our total revenue. In 2014, our U.S. revenue increased by
approximately 13%, compared to 2013. Unless our U.S. revenue continues to improve, we could experience a material
adverse effect on our total revenue, profitability, employee retention and stock price.
Revenue from the U.S. represented 45% of our total revenue in 2014 compared to 42% in 2013. U.S. revenue increased by
approximately 13% in 2014, compared to 2013, due to several factors, including:
●
In 2014, we expanded our North American direct sales force, restructured their compensation arrangements, and
hired new sales management.
● Historically, following a new product introduction, we experience revenue growth, compared to the same period in
the prior year. We experienced revenue growth from our new enlighten and excel HR products launched in the fourth
and second quarter of 2014, respectively, as well as continued growth of our excel V product.
There can be no assurance that we will continue to introduce new products each year, or that the new product introductions
will translate into increased revenue in the long term in the U.S., or that the new direct sales employees and management
hired to replace the departed sales employees will be effective and result in improved sales productivity. Further, if the current
economic recovery does not continue, or there is another recession in the U.S., our future revenue would be adversely
impacted.
Given the U.S. represents a significant source of our revenue, if our U.S. revenue does not improve further, we could
experience a material adverse effect on our total revenue, profitability, employee retention and stock price.
In over five years we have only had two profitable quarters and we are unable to predict whether we will return to sustained
quarterly profits in the future.
Although we had a profitable fourth quarter in 2009 and 2012, we have had net quarterly losses in each quarter since the third
quarter of 2008. There is no guarantee that we will be profitable in the future and you should not rely on our operating results
for any prior quarterly or annual periods as an indication of our future operating performance. Any predictions about the
performance of our operations in the future may not be as accurate as they could be if we had a longer history of profitability.
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Revenue growth in our business is driven by several factors and one such factor is new product introductions. While we
generated revenue from sales of our newly released enlighten and excel HR product in the second, third and fourth quarters
of 2014, and sales of our excel V platform increased in 2014 and 2013, compared with the respective prior years, sales of our
truSculpt product introduced in 2012 have not gained a share of the market segment to the degree we had expected. If our
total revenue does not continue to grow in 2015 compared to 2014, we may not be able to become profitable in future quarters.
In an effort to improve our revenue in 2014, we expanded our North American sales force and restructured their compensation
arrangements, hired new senior sales management with prior experience in the aesthetic medical device industry, and have
increased our marketing and promotional activities in North America. Given the time it takes to train new sales employees
to sell our products and for the marketing efforts to yield in improved revenue, our total sales and marketing expenses
increased to 41% of total net revenue in 2014, compared to 38% in 2013. If our North American revenue does not increase
by more than our expenses, we may not be able to become profitable in future quarters.
Our ability to sustain profitability depends on the extent to which we can increase revenue and control our costs in order to,
among other things, counter any unforeseen difficulties, complications, product delays or other unknown factors that may
require additional expenditures. Because of the numerous risks and uncertainties associated with our growth prospects,
product development, sales and marketing and other efforts, we are unable to predict the extent of our future profitability or
losses. If our revenue does not achieve adequate growth in the future, we may continue to incur a quarterly net loss and may
continue to consume cash in our operations in the future.
We rely heavily on our sales professionals to market and sell our products worldwide. If we are unable to hire, effectively
train, manage, improve the productivity of, and retain the sales professionals, our business will be harmed, which would
impair our future revenue and profitability.
Our success largely depends on our ability to hire, train, manage and improve the productivity levels of our sales professionals
worldwide. Because of our focus on the non-core market in the past, several of our sales professionals do not have established
relationships with core market physicians (dermatologists and plastic surgeons) or where those relationships exist, they are
not very strong.
We have experienced direct sales employee and sales management turnover in North America for several reasons. One such
reason was the consolidation of our specialty podiatry sales force into the mainstream aesthetic sales group in the third quarter
of 2013. Further, competition for sales professionals who are familiar and trained to sell in the aesthetic equipment market
continues to be strong. As a result, we have lost some of our sales people to our competitors. However, we have also hired a
record number of new sales people, including several from our competitors. Several of our sales employees and sales
management have been recently hired or recently transferred into different roles, and it will take time for them to be fully
trained to improve their productivity. These factors have heavily impacted the revenue we derived from our products and
upgrades in the 2014.
In 2014, we restructured our North American direct sales force and sales management, and expanded our direct sales force
in North America. We have increased our efforts to hire high quality experienced sales professionals but there can be no
guarantee that we will be able to retain all of the hired sales professionals or that they will all become productive in a short
period of time. Our industry is characterized by a few established companies that compete vigorously for talented sales
professionals. Further, as the economy in North America has rebounded from the recent recession, some of those sales
professionals have left our company for jobs that they perceive to be better opportunities, both within and outside of the
aesthetic industry. We believe that the sales employee turnover, restructuring and expansion of the sales force had a negative
impact on our North American productivity in the 2014.
We train our existing and recently recruited sales professionals to better understand our existing and new product technologies
and how they can be positioned against our competitors’ products. These initiatives are intended to improve the productivity
of our sales professionals and our revenue and profitability. It takes time for the sales professionals to become productive
following their training and there can be no assurance that the recently recruited sales professionals will be adequately trained
in a timely manner, or that our direct sales productivity will improve, or that we will not experience significant levels of
attrition in the future. If we are not able to improve the productivity and retention of our North American and international
sales professionals, then our total revenue, profitability and stock price may be adversely impacted.
Measures we implement in an effort to recruit, retain, train and manage our sales professionals, strengthen their relationships
with core market physicians, and improve their productivity may not be successful and may instead contribute to instability
in our operations, additional departures from our sales organization, or further reduce our revenue and harm our business.
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If our revenue does not improve, or if our cost of revenue and/or operating expenses increase by a greater percentage
than our revenue, our gross margins and operating margins may be adversely impacted, our loss from operations will
increase, and our cash used in operating activities will increase, which could reduce our assets and have a material adverse
effect on our stock price.
Our gross margin (revenue less cost of revenue) was 56% for both 2014 and 2013. Our gross margin is impacted by the
revenue that we generate and the costs incurred to generate the revenue. To the extent that our revenue declines, it is difficult
to improve our gross margins as our fixed costs must be spread over a lower revenue base. Our future revenue may be
adversely affected by a number of factors including the competitive market environment in which we operate which may
result in a decrease in the number of units sold, a decrease in the number of applications per system purchased by customers,
a decrease in the average selling prices achieved for our product sales, a shift in our product mix towards products with lower
average selling prices, or a shift in our product mix towards products with lower margins.
Our cost of revenue may also be adversely impacted by various factors such as obsolescence of our inventory, impairment of
our intangibles, increased expenses associated with the repair of defective products covered by our warranty program,
utilization of our relatively fixed manufacturing costs, and a shift in our product mix towards products that have a higher cost
of manufacturing.
We have also been investing significant resources in our research and development and sales and marketing activities. We
have expanded our global direct sales force, and it may take time for our new sales professionals to become productive and
for the revenue that they generate to become accretive to our operating income. We plan to continue making such investments
in order to bring new products to market and to distribute them effectively. If these investments do not yield increased
revenue, we may continue to generate losses and consume cash.
If our revenue does not improve, or if our cost of revenue increases by a greater percentage than our revenue, or if we are not
able to reduce expenses in the event of a decline in revenue, we may continue to generate losses from operations and use
cash, which could reduce our assets and have a material adverse effect on our operations and stock price.
The aesthetic equipment market is characterized by rapid innovation. To compete effectively, we must develop and/or
acquire new products, market them successfully, and identify new markets for our technology.
We have created products to apply our technology to body contouring, hair removal, treatment of veins, tattoo removal, and
skin rejuvenation, including the treatment of diffuse redness, skin laxity, fine lines, wrinkles, skin texture, pore size and
pigmented lesions, etc. In the fourth quarter of 2014, we launched enlighten, a dual wavelength, dual pulse duration tattoo
removal and benign pigmented lesions system featuring picosecond technology. Additionally, in the second quarter of 2014
we launched excel HR, a premium hair removal platform for all skin types. In 2012, we launched truSculpt for the body
contouring market; and acquired VariLite for the treatment of vascular and pigmented lesions, which we discontinued selling
in the fourth quarter of 2014. In 2011, we launched our vascular laser product – excel V – and began distribution of a Q-
switched laser in Japan that Cutera is sourcing from a third party OEM for superficial and deep pigmented lesions (i.e.,
melasma), skin rejuvenation, laser skin toning and tattoo removal. Currently, these applications represent the majority of
offered laser and other energy-based aesthetic procedures. In addition, since the first quarter of 2010, we have been
distributing cosmeceuticals and dermal fillers in the Japanese market. In the second quarter of 2014, we terminated our
agreement with Merz for the distribution of their Radiesse dermal filler product. To grow in the future, we must continue to
develop and/or acquire new and innovative aesthetic products and applications, identify new markets, and successfully launch
the newly acquired or developed product offerings.
To successfully expand our product offerings, we must, among other things:
● Develop and acquire new products that either add to or significantly improve our current product offerings;
● Convince our existing and prospective customers that our product offerings are an attractive revenue-generating
addition to their practice;
Identify new markets and alternative applications for our technology;
● Sell our product offerings to a broad customer base;
●
● Protect our existing and future products with defensible intellectual property; and
● Satisfy and maintain all regulatory requirements for commercialization.
Historically, product introductions have been a significant component of our financial performance. To be successful in the
aesthetics industry, we need to continue to innovate. Our business strategy has therefore been based, in part, on our
expectation that we will continue to increase our product offerings. We need to continue to devote substantial research and
development resources to make new product introductions, which can be costly and time consuming to our organization.
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We also believe that, to increase revenue from sales of new products, we need to continue to develop our clinical support,
further expand and nurture relationships with industry thought leaders and increase market awareness of the benefits of our
new products. However, even with a significant investment in research and development, we may be unable to continue to
develop, acquire or effectively launch and market new products and technologies regularly, or at all. If we fail to successfully
commercialize new products, our business may be harmed.
While we attempt to protect our products through patents and other intellectual property, there are few barriers to entry that
would prevent new entrants or existing competitors from developing products that compete directly with ours. We expect
that any competitive advantage we may enjoy from current and future innovations may diminish over time as companies
successfully respond to our, or create their own, innovations. Consequently, we believe that we will have to continuously
innovate and improve our products and technology to compete successfully. If we are unable to innovate successfully, our
products could become obsolete and our revenue could decline as our customers and prospects purchase our competitors’
products.
Demand for our products in any of our markets could be weakened by several factors, including:
● Our ability to develop and market our products to the core market specialties of dermatologists and plastic surgeons;
● Poor financial performance of market segments that try introducing aesthetic procedures to their businesses;
● The inability to differentiate our products from those of our competitors;
● Reduced patient demand for elective aesthetic procedures;
● Failure to build and maintain relationships with opinion leaders within the various market segments;
● An increase in malpractice lawsuits that result in higher insurance costs; and
● The lack of credit financing for some of our potential customers.
If we do not achieve anticipated demand for our products, there could be a material adverse effect on our total revenue,
profitability, employee retention and stock price.
Macroeconomic political and market conditions, and catastrophic events may adversely affect our business, results of
operations, financial condition and stock price.
Our business is influenced by a range of factors that are beyond our control, including:
● General economic and business conditions;
● The overall demand for our products by the core market specialties of dermatologists and plastic surgeons;
● Governmental budgetary constraints or shifts in government spending priorities;
● General political developments;
● Natural disasters; and
● Currency exchange rate fluctuations.
Macroeconomic developments like the global recession and the debt crisis in the U.S. and certain countries in the European
Union, could negatively affect our business, operating results or financial condition which, in turn, could adversely affect our
stock price. A general weakening of, and related declining corporate confidence in, the global economy or the curtailment in
government or corporate spending could cause current or potential customers to reduce their budgets or be unable to fund
product or upgrade application purchases, which could cause customers to delay, decrease or cancel purchases of our products
and services or cause customers not to pay us or to delay paying us for previously purchased products and services.
In addition, political unrest in regions like the Middle East, terrorist attacks around the globe and the potential for other
hostilities in various parts of the world, potential public health crises and natural disasters continue to contribute to a climate
of economic and political uncertainty that could adversely affect our results of operations and financial condition, including
our revenue growth and profitability. For example, the March 2011 earthquake and tsunami and other collateral events in
Japan adversely affected the demand for our products and services in the Japanese market.
Macroeconomic declines, negative political developments, adverse market conditions and catastrophic events may cause a
decline in our revenue, negatively affect our operating results, adversely affect our cash flow and could result in a decline in
our stock price.
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To successfully market and sell our products internationally, we must address many issues that are unique to our
international business.
International revenue represented 55% of our total revenue in 2014, compared to 58% in 2013. International revenue is a
material component of our business strategy. We depend on third-party distributors and a direct sales force to sell our products
internationally, and if they underperform, we may be unable to increase or maintain our level of international revenue. For
example, our direct business in Japan and Canada as well as revenue from Asia Pacific distributors declined in year ended
December 31, 2014, negatively impacting our revenue from international operations.
We have experienced significant turnover of our European sales team in the past. While we continue to have a direct sales
and service organization in France, Belgium and Switzerland, a significant portion of our European revenue is generated
through our network of distributors. Though we continue to evaluate and replace non-performing distributors, and have
recently brought greater focus on collaborating with our distributor partners, there can be no assurance given that these
initiatives will result in improved European-sourced revenue or profitability in the future.
To grow our business, we will need to improve productivity in current sales territories and expand into new territories.
However, direct sales productivity may not improve and distributors may not accept our business or commit the necessary
resources to market and sell our products to the level of our expectations. If we are not able to increase or maintain
international revenue growth, our total revenue, profitability and stock price may be adversely impacted.
We believe, as we continue to manage our international operations and develop opportunities in additional international
territories, our international revenue will be subject to a number of risks, including:
● Difficulties in staffing and managing our foreign operations;
● Export restrictions, trade regulations and foreign tax laws;
● Fluctuating foreign currency exchange rates;
● Foreign certification and regulatory requirements;
● Lengthy payment cycles and difficulty in collecting accounts receivable;
● Customs clearance and shipping delays;
● Political and economic instability;
● Lack of awareness of our brand in international markets;
● Preference for locally-produced products; and
● Reduced protection for intellectual property rights in some countries.
If one or more of these risks were realized, it could require us to dedicate significant resources to remedy the situation; and
if we were unsuccessful at finding a solution, we may not be able to sell our products in a particular market and, as a result,
our revenue may decline.
We are subject to fluctuations in the exchange rate of the U.S. Dollar and foreign currencies.
Foreign currency fluctuations could result in volatility of our revenue. We do not actively hedge our exposure to currency
rate fluctuations. While we transact business primarily in U.S. Dollars, and a significant proportion of our revenue is
denominated in U.S. Dollars, a portion of our costs and revenue is denominated in other currencies, such as the Euro, Japanese
Yen, Australian Dollar and Canadian Dollar. As a result, changes in the exchange rates of these currencies to the U.S. Dollar
will affect our results from operations. For example, as a result of the recent strengthening of the U.S. Dollar, relative to
many other major currencies, our products priced in U.S. Dollars have become more expensive relative to products of our
foreign competitors. In addition, our revenue earned in foreign currencies, such as our locally generated revenue in Japan,
has been negatively impacted upon translation into U.S. Dollars. Both these factors had a negative impact on our international
revenue in 2014, compared to 2013. Future foreign currency fluctuations could adversely impact and increase the volatility
of our revenue, profitability and stock price.
Our ability to effectively compete and generate additional revenue from new and existing products depend upon our ability
to distinguish our company and our products from our competitors and their products, and to develop and effectively
market new and existing products. Our success is dependent on many factors, including the following:
● Speed of new and innovative product development;
● Effective strategy and execution of new product launches;
●
● Product performance;
● Product pricing;
Identify and develop clinical support for new indications of our existing products;
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● Quality of customer support;
● Development of successful distribution channels, both domestically and internationally; and
●
Intellectual property protection.
To compete effectively, we have to demonstrate that our new and existing products are attractive alternatives to other devices
and treatments, by differentiating our products on the basis of such factors as innovation, performance, brand name, service,
and price. This is difficult to do, especially in a crowded aesthetic market. Some of our competitors have newer or different
products and more established customer relationships than we do, which could inhibit our market penetration efforts. For
example, we have encountered, and expect to continue to encounter, situations where, due to pre-existing relationships,
potential customers decided to purchase additional products from our competitors. Potential customers also may need to
recoup the cost of products that they have already purchased from our competitors and may decide not to purchase our
products, or to delay such purchases. If we are unable to increase our market penetration or compete effectively, our revenue
and profitability will be adversely impacted.
We compete against companies that offer alternative solutions to our products, or have greater resources, a larger installed
base of customers and broader product offerings than ours. If we are not able to effectively compete with these companies,
it may harm our business.
Our industry is subject to intense competition. Our products compete against similar products offered by public companies,
such as Cynosure, Elen (in Italy), Lumenis, Solta (acquired by Valeant Pharmaceuticals International, Inc. in January 2014),
Syneron, as well as private companies such as Alma, Sciton and several other companies. Recently, there has been
consolidation in the aesthetic industry leading to companies combining their resources. For example, Valeant acquired Solta
in January 2014 and Cynosure acquired Palomar in June 2013. We are likely to compete with new companies in the future.
Competition with these companies could result in reduced selling prices, reduced profit margins and loss of market share,
any of which would harm our business, financial condition and results of operations.
The energy-based aesthetic market faces competition from non-energy-based medical products, such as Botox, an injectable
compound used to reduce wrinkles, and collagen injections. Other alternatives to the use of our products include electrolysis,
a procedure involving the application of electric current to eliminate hair follicles, and chemical peels. We may also face
competition from manufacturers of pharmaceutical and other products that have not yet been developed.
If there is not sufficient consumer demand for the procedures performed with our products, practitioner demand for our
products could be inhibited, resulting in unfavorable operating results and reduced growth potential.
Continued expansion of the global market for laser and other-energy-based aesthetic procedures is a material assumption of
our business strategy. Most procedures performed using our products are elective procedures not reimbursable through
government or private health insurance, with the costs borne by the patient. The decision to utilize our products may therefore
be influenced by a number of factors, including:
● Consumer disposable income and access to consumer credit, which as a result of the unstable economy, may have
been significantly impacted;
● The cost of procedures performed using our products;
● The cost, safety and effectiveness of alternative treatments, including treatments which are not based upon laser or
other energy-based technologies and treatments which use pharmaceutical products;
● The success of our sales and marketing efforts; and
● The education of our customers and patients on the benefits and uses of our products, compared to competitors’
products and technologies.
If, as a result of these factors, there is not sufficient demand for the procedures performed with our products, practitioner
demand for our products could be reduced, which could have a material adverse effect on our business, financial condition,
revenue and result of operations.
The U.S. Food and Drug Administration (the “FDA”), federal and state agencies and international regulatory bodies
have broad enforcement powers. If we fail to comply with applicable regulatory requirements, it could result in
enforcement action by the FDA, federal and state agencies or international regulatory bodies.
The FDA, state authorities and international regulatory bodies have broad enforcement powers. For example, in July 2012,
we received a warning letter from the FDA concerning the promotional labeling for our GenesisPlus laser. The FDA
determined that some of the claims, such as the one related to Skin Rejuvenation, constituted new Indications for Use and
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required additional 510(k) clearances. The FDA subsequently requested that we review the promotional labeling for all of
our products to ensure our claims were within regulatory clearances and that we submit updated promotional labeling for our
products to the FDA for their review. In October 2014, following the satisfactory review of our amended marketing materials
and website, the FDA issued us a formal notice of closure of the warning letter.
If we fail to comply with any U.S. law or any of the applicable regulatory requirements of the FDA, or federal or state
agencies, or one of the international regulatory bodies, it could result in enforcement action by the agencies, which may
include any of the following sanctions:
● Warning letters, fines, injunctions, consent decrees and civil penalties;
● Repair, replacement, refund, recall or seizure of our products;
● Operating restrictions or partial suspension or total shutdown of production;
● Refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses, or
modifications to existing products;
● Withdrawing 510(k) clearance or pre-market approvals that have already been granted; and
● Criminal prosecution.
If we fail to obtain or maintain necessary FDA clearances for our products and indications, if clearances for future
products and indications are delayed or not issued, if there are federal or state level regulatory changes or if we are found
to have violated applicable FDA marketing rules, our commercial operations would be harmed.
Our products are medical devices that are subject to extensive regulation in the U.S. by the FDA for manufacturing, labeling,
sale, promotion, distribution and shipping. Before a new medical device, or a new use of or labeling claim for an existing
product, can be marketed in the U.S., it must first receive either 510(k) clearance or pre-marketing approval from the FDA,
unless an exemption applies. Either process can be expensive and lengthy. In the event that we do not obtain FDA clearances
or approvals for our products, our ability to market and sell them in the U.S. and revenue derived from there may be adversely
affected.
Medical devices may be marketed in the U.S. only for the indications for which they are approved or cleared by the FDA.
For example, prior to April 2011 our GenesisPlus product had a number of general indications for use in the U.S. that allowed
us to market the product in the U.S.; however, we could only market it for the treatment of toenail fungus outside of the US
where it held CE Mark approval for this indication. In April 2011, we received FDA clearance to market GenesisPlus in the
U.S. for the clearance of nails that are infected with toenail fungus. Another example is our Pearl Fractional product which
is cleared only for skin resurfacing in the U.S. and our Titan product only for deep heating for the temporary relief of muscle
aches and pains in the U.S. Therefore, we are prevented from promoting or advertising Titan and Pearl Fractional in the U.S.
for any other indications. If we fail to comply with these regulations, it could result in enforcement action by the FDA which
could lead to such consequences as warning letters, adverse publicity, criminal enforcement action and/or third-party civil
litigation, each of which could adversely affect us.
We have obtained 510(k) clearance for the indications for which we market our products. However, our clearances can be
revoked if safety or effectiveness problems develop. We also are subject to Medical Device Reporting regulations, which
require us to report to the FDA if our products cause or contribute to a death or serious injury, or malfunction in a way that
would likely cause or contribute to a death or serious injury. Our products are also subject to state regulations, which are, in
many instances frequently changing. Changes in state regulations may impede sales. For example, federal regulations allow
our products to be sold to, or on the order of, “licensed practitioners,” as determined on a state-by-state basis. As a result, in
some states, non-physicians may legally purchase our products. However, a state could change its regulations at any time,
thereby disallowing sales to particular types of end users. We cannot predict the impact or effect of future legislation or
regulations at the federal or state levels.
Federal regulatory reforms and changes occurring at the FDA could adversely affect our ability to sell our products
profitably and financial condition.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions
governing the clearance or approval, manufacture and marketing of a device. It is impossible to predict whether legislative
changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if
any, may be.
In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly
affect our business and our products. Changes in FDA regulations may lengthen the regulatory approval process for medical
devices and require additional clinical data to support regulatory clearance for the sale and marketing of our new products.
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In addition, it may require additional safety monitoring, labeling changes, restrictions on product distribution or use, or other
measures after the introduction of our products to market. Either of these changes lengthen the duration to market, increase
our costs of doing business, adversely affect the future permitted uses of approved products, or otherwise adversely affect
the market for our products.
If we fail to comply with the FDA’s Quality System Regulation and laser performance standards, our manufacturing
operations could be halted, and our business would suffer.
We are currently required to demonstrate and maintain compliance with the FDA’s Quality System Regulation (the “QSR”).
The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control,
manufacturing, labeling, quality assurance, packaging, storage and shipping of our products. Because our products involve
the use of lasers, our products also are covered by a performance standard for lasers set forth in FDA regulations. The laser
performance standard imposes specific record-keeping, reporting, product testing and product labeling requirements. These
requirements include affixing warning labels to laser products, as well as incorporating certain safety features in the design
of laser products.
The FDA enforces the QSR and laser performance standards through periodic unannounced inspections. We have had
multiple quality system audits by the FDA, our Notified Body, and other foreign regulatory agencies, with the most recent
inspection by the FDA occurring over three weeks in March 2014. There were no significant findings and only one
observation as a result of this audit. Our response to this observation was accepted by the FDA. Failure to take satisfactory
corrective action in response to an adverse QSR inspection or our failure to comply with applicable laser performance
standards could result in enforcement actions, including a public warning letter, a shutdown of our manufacturing operations,
a recall of our products, civil or criminal penalties, or other sanctions, such as those described in the preceding paragraph,
which would cause our sales and business to suffer.
If we modify one of our FDA-approved devices, we may need to seek re-approval, which, if not granted, would prevent us
from selling our modified products or cause us to redesign our products.
Any modifications to an FDA-cleared device that would significantly affect its safety or effectiveness or that would constitute
a major change in its intended use would require a new 510(k) clearance or possibly a pre-market approval. For example, we
designed a larger 40cm2 hand piece for our truSculpt product and had to get that clearance from the FDA before we could
market it, which clearance was received in November 2012. We may not be able to obtain additional 510(k) clearance or pre-
market approvals for new products or for modifications to, or additional indications for, our existing products in a timely
fashion, or at all. Delays in obtaining future clearance would adversely affect our ability to introduce new or enhanced
products in a timely manner, which in turn would harm our revenue and future profitability.
We have made modifications to our devices in the past and may make additional modifications in the future that we believe
do not or will not require additional clearance or approvals. If the FDA disagrees, and requires new clearances or approvals
for the modifications, we may be required to recall and to stop marketing the modified devices, which could harm our
operating results and require us to redesign our products.
We may be unable to obtain or maintain international regulatory qualifications or approvals for our current or future
products and indications, which could harm our business.
Sales of our products outside the U.S. are subject to foreign regulatory requirements that vary widely from country to country.
In addition, exports of medical devices from the U.S. are regulated by the FDA. Complying with international regulatory
requirements can be an expensive and time-consuming process and approval is not certain. The time required for obtaining
clearance or approvals, if required by other countries, may be longer than that required for FDA clearance or approvals, and
requirements for such clearances or approvals may significantly differ from FDA requirements. We may be unable to obtain
or maintain regulatory qualifications, clearances or approvals in other countries. We may also incur significant costs in
attempting to obtain and in maintaining foreign regulatory approvals or qualifications. If we experience delays in receiving
necessary qualifications, clearances or approvals to market our products outside the U.S., or if we fail to receive those
qualifications, clearances or approvals, we may be unable to market our products or enhancements in international markets
effectively, or at all, which could have a material adverse effect on our business and growth strategy.
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Any defects in the design, material or workmanship of our products may not be discovered prior to shipment to customers,
which could materially increase our expenses, adversely impact profitability and harm our business.
The design of our products is complex. To manufacture them successfully, we must procure quality components and employ
individuals with a significant degree of technical expertise. If our designs are defective, or the material components used in
our products are subject to wearing out, or if suppliers fail to deliver components to specification, or if our employees fail to
properly assemble, test and package our products, the reliability and performance of our products will be adversely impacted.
If our products contain defects that cannot be repaired easily, inexpensively, or on a timely basis, we may experience:
● Damage to our brand reputation;
● Loss of customer orders and delay in order fulfillment;
Increased costs due to product repair or replacement;
●
●
Inability to attract new customers;
● Diversion of resources from our manufacturing and research and development departments into our service
department; and
● Legal action.
The occurrence of any one or more of the foregoing could materially increase expenses, adversely impact profitability and
harm our business.
We depend on skilled and experienced personnel to operate our business effectively. If we are unable to recruit, hire, train
and retain these employees, our ability to manage and expand our business will be harmed, which would impair our future
revenue and profitability.
Our success largely depends on the skills, experience and efforts of our officers and other key employees. Except for Change
of Control and Severance Agreements for our executive officers and a few key employees, we do not have employment
contracts with any of our officers or other key employees. Any of our officers and other key employees may terminate their
employment at any time. We do not have a succession plan in place for each of our officers and key employees. In addition,
we do not maintain “key person” life insurance policies covering any of our employees. The loss of any of our senior
management team members could weaken our management expertise and harm our business.
Our ability to retain our skilled labor force and our success in attracting and hiring new skilled employees are critical factors
in determining whether we will be successful in the future. We may not be able to meet our future hiring needs or retain
existing personnel. The staff we hire to perform administrative functions may be become stretched due to our increased
growth and they may not be able to perform their jobs effectively or efficiently as a result.
We may face particularly significant challenges and risks in hiring, training, managing and retaining engineering and sales
and marketing employees. Failure to attract, train and retain personnel, particularly technical and sales and marketing
personnel, would materially harm our ability to compete effectively and grow our business.
Product liability suits could be brought against us due to a defective design, material or workmanship or misuse of our
products and could result in expensive and time-consuming litigation, payment of substantial damages and an increase
in our insurance rates.
If our products are defectively designed, manufactured or labeled, contain defective components or are misused, we may
become subject to substantial and costly litigation by our customers or their patients. Misusing our products or failing to
adhere to operating guidelines could cause significant eye and skin damage, and underlying tissue damage. In addition, if our
operating guidelines are found to be inadequate, we may be subject to liability. We have been involved, and may in the future
be involved, in litigation related to the use of our products. Product liability claims could divert management’s attention from
our core business, be expensive to defend and result in sizable damage awards against us. We may not have sufficient
insurance coverage for all future claims. We may not be able to obtain insurance in amounts or scope sufficient to provide us
with adequate coverage against all potential liabilities. Any product liability claims brought against us, with or without merit,
could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our
reputation in the industry and could reduce product sales. In addition, we historically experienced steep increases in our
product liability insurance premiums as a percentage of revenue. If our premiums continue to rise, we may no longer be able
to afford adequate insurance coverage.
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If customers are not trained and/or our products are used by non-physicians, it could result in product misuse and adverse
treatment outcomes, which could harm our reputation, result in product liability litigation, distract management, result
in additional costs, all of which could harm our business.
Because we do not require training for users of our products, and sell our products at times to non-physicians, there exists an
increased potential for misuse of our products, which could harm our reputation and our business. U.S. federal regulations
allow us to sell our products to or on the order of “licensed practitioners.” The definition of “licensed practitioners” varies
from state to state. As a result, our products may be purchased or operated by physicians with varying levels of training, and
in many states, by non-physicians, including nurse practitioners, chiropractors and technicians. Outside the U.S. many
jurisdictions do not require specific qualifications or training for purchasers or operators of our products. We do not supervise
the procedures performed with our products, nor do we require that direct medical supervision occur. We and our distributors
generally offer but do not require product training to the purchasers or operators of our products. In addition, we sometimes
sell our systems to companies that rent our systems to third parties and that provide a technician to perform the procedures.
The lack of training and the purchase and use of our products by non-physicians may result in product misuse and adverse
treatment outcomes, which could harm our reputation and our business, and, in the event these result in product liability
litigation, distract management and subject us to liability, including legal expenses.
In the past we entered into strategic alliances to distribute third party products internationally. To successfully market
and sell these products, we must address many issues that are unique to these businesses and could reduce our available
cash reserves and negatively impact our profitability.
In the past we entered into distribution arrangements pursuant to which we utilize our sales force and distributors to sell
products manufactured by other companies. In Japan we distribute a Q-switched laser product manufactured by a third party
OEM. We also have an agreement with ZO to distribute certain of their proprietary cosmeceuticals, or skin care products, in
Japan. Each of these agreements requires us to purchase annual minimum dollar amounts of their product. If we do not make
these minimum purchases, we could lose exclusivity for distributing these products to physicians in Japan. Finally, we had
an agreement with Merz Aesthetics to distribute its Radiesse dermal filler product in Japan, but terminated this agreement in
the second quarter of 2014.
Each of these distribution agreements presents its own unique risks and challenges. For example, to sell cosmeceutical
products we need to invest in creating a sales structure that is experienced in the sale of cosmeceuticals and not in capital
equipment. We need to commit resources to training this sales force, obtaining regulatory licenses in Japan and developing
new marketing materials to promote the sale of cosmeceutical products. In addition, the minimum commitments and other
costs of distributing products manufactured by these companies may exceed the incremental revenue that we derive from the
sale of their products thereby negatively impacting our profitability and reducing our available cash reserves.
Adverse conditions in the global banking industry and credit markets may adversely impact the value of our marketable
investments or impair our liquidity.
We invest our excess cash primarily in money market funds and in highly liquid debt instruments of the U.S. government
and its agencies and U.S. municipalities, in commercial paper and high grade corporate debt. As of December 31, 2014, our
balance in marketable investments was $71 million. The longer the duration of a security, the more susceptible it is to changes
in market interest rates and bond yields. As yields increase, those securities with a lower yield-at-cost show a mark-to-market
unrealized loss. For example, assuming a hypothetical increase in interest rates of one percentage point, the fair value of our
total investment portfolio as of December 31, 2014 would have potentially decreased by approximately $612,000, resulting
in an unrealized loss that would subsequently adversely impact our earnings. As a result, changes in the market interest rates
will affect our future net income (loss).
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The price of our common stock may fluctuate substantially due to several factors, some of which are discussed below.
Further, we have a limited number of shares of common stock outstanding, a large portion of which is held by a small
number of investors, which could result in the increase in volatility of our stock price.
As of December 31, 2014, approximately 53% of our outstanding shares of common stock were held by 10 institutional
investors. As a result of our relatively small public float, our common stock may be less liquid than the stock of companies
with broader public ownership. Among other things, trading of a relatively small volume of our common stock may have a
greater impact on the trading price for our shares than would be the case if our public float were larger. The public market
price of our common stock has in the past fluctuated substantially and, due to the current concentration of stockholders, it
may continue to do so in the future. The market price for our common stock could also be affected by a number of other
factors, including:
● Litigation surrounding executive compensation has increased with the passage of the Dodd-Frank Wall
Street Reform and Consumer Protection Act. If we are involved in a lawsuit related to compensation matters or any
other matters not covered by our D&O insurance, there could be material expenses involved, fines, or remedial
actions which could negatively affect our stock price;
● The general market conditions unrelated to our operating performance;
● Sales of large blocks of our common stock, including sales by our executive officers, directors and our large
institutional investors;
● Quarterly variations in our, or our competitors’, results of operations;
● Changes in analysts’ estimates, investors’ perceptions, recommendations by securities analysts or our failure to
achieve analysts’ estimates;
● The announcement of new products or service enhancements by us or our competitors;
● The announcement of the departure of a key employee or executive officer by us or our competitor;
● Regulatory developments or delays concerning our, or our competitors’ products; and
● The initiation of litigation by us or against us.
Actual or perceived instability and / or volatility in our stock price could reduce demand from potential buyers of our stock,
thereby causing our stock price to either remain depressed or to decline further.
Our manufacturing operations are dependent upon third-party suppliers, making us vulnerable to supply shortages and
price fluctuations, which could harm our business.
Many of the components and materials that comprise our products are currently manufactured by a limited number of
suppliers. A supply interruption or an increase in demand beyond our current suppliers’ capabilities could harm our ability
to manufacture our products until a new source of supply is identified and qualified. Our reliance on these suppliers subjects
us to a number of risks that could harm our business, including:
Interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;
●
● Delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s variation in a
component;
● A lack of long-term supply arrangements for key components with our suppliers;
Inability to obtain adequate supply in a timely manner, or on reasonable terms;
●
Inability to redesign one or more components in our systems in the event that a supplier discontinues manufacturing
●
such components and we are unable to source it from other suppliers on reasonable terms;
● Difficulty locating and qualifying alternative suppliers for our components in a timely manner;
● Production delays related to the evaluation and testing of products from alternative suppliers and corresponding
regulatory qualifications; and
● Delay in supplier deliveries.
Any interruption in the supply of components or materials, or our inability to obtain substitute components or materials from
alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers, which
would have an adverse effect on our business.
Intellectual property rights may not provide adequate protection for some or all of our products, which may permit third
parties to compete against us more effectively.
We rely on patent, copyright, trade secret and trademark laws and confidentiality agreements to protect our technology and
products. At December 31, 2014, we had 34 issued U.S. patents. Some of our components, such as our laser module,
electronic control system and high-voltage electronics, are not, and in the future may not be, protected by patents.
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Additionally, our patent applications may not issue as patents or, if issued, may not issue in a form that will be advantageous
to us. Any patents we obtain may be challenged, invalidated or legally circumvented by third parties. Consequently,
competitors could market products and use manufacturing processes that are substantially similar to, or superior to, ours. We
may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants,
vendors, former employees or current employees, despite the existence generally of confidentiality agreements and other
contractual restrictions. Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we do not
know whether the steps we have taken to protect our intellectual property will be effective. Moreover, the laws of many
foreign countries will not protect our intellectual property rights to the same extent as the laws of the U.S.
The absence of complete intellectual property protection exposes us to a greater risk of direct competition. Competitors could
purchase one of our products and attempt to replicate some or all of the competitive advantages we derive from our
development efforts, design around our protected technology, or develop their own competitive technologies that fall outside
of our intellectual property rights. If our intellectual property is not adequately protected against competitors’ products and
methods, our competitive position and our business could be adversely affected.
We may be involved in future costly intellectual property litigation, which could impact our future business and financial
performance.
Our competitors or other patent holders may assert that our present or future products and the methods we employ are covered
by their patents. In addition, we do not know whether our competitors own or will obtain patents that they may claim prevent,
limit or interfere with our ability to make, use, sell or import our products. Although we may seek to resolve any potential
future claims or actions, we may not be able to do so on reasonable terms, or at all. If, following a successful third-party
action for infringement, we cannot obtain a license or redesign our products, we may have to stop manufacturing and selling
the applicable products and our business would suffer as a result. In addition, a court could require us to pay substantial
damages, and prohibit us from using technologies essential to our products, any of which would have a material adverse
effect on our business, results of operations and financial condition.
We may become involved in litigation not only as a result of alleged infringement of a third party’s intellectual property
rights but also to protect our own intellectual property. For example, we have been, and may hereafter become, involved in
litigation to protect the trademark rights associated with our company name or the names of our products. Infringement and
other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate, and could divert
management’s attention from our core business.
We offer credit terms to some qualified customers and also to leasing companies to finance the purchase of our products.
In the event that any of these customers default on the amounts payable to us, our earnings may be adversely affected.
While we qualify customers to whom we offer credit terms (generally net 30 to 90 days), we cannot provide any assurance
that the financial position of these customers will not change adversely before we receive payment. Our general and
administrative expenses and earnings are negatively impacted by customer defaults and cause an increase in the allowance
for doubtful accounts. In the event that there is a default by any customers to whom we have provided credit terms in the
future, we may recognize a bad debt charge in our general and administrative expenses and this could negatively affect our
earnings and results of operations.
The expense and potential unavailability of insurance coverage for our customers could adversely affect our ability to sell
our products, and therefore our financial condition.
Some of our customers and prospective customers have had difficulty in procuring or maintaining liability insurance to cover
their operation and use of our products. Medical malpractice carriers are withdrawing coverage in certain states or
substantially increasing premiums. If this trend continues or worsens, our customers may discontinue using our products and
potential customers may opt against purchasing laser and light based products due to the cost or inability to procure insurance
coverage. The unavailability of insurance coverage for our customers and prospects could adversely affect our ability to sell
our products, and that could harm our financial condition.
Healthcare reform legislation will continue to adversely affect our profitability and financial condition.
In December 2009, the President and members of Congress passed legislation relating to healthcare reform. Procedures
performed by our products are not reimbursed by insurance companies or federal or state governments and as a result this
legislation had a limited impact on our business. Medical device manufacturers have to pay an excise tax of 2.3% on certain
U.S. medical device revenues. Though there are some exceptions, this excise tax applies to all of our product and upgrade
revenue from the U.S. and will continue to have an adverse effect on our operating profitability and financial condition.
28
Our ability to use net operating losses and tax credit carryforwards to offset future tax liabilities may be limited.
As of December 31, 2014, we had cumulative net operating loss carry-forwards for federal and state income tax reporting
purposes of approximately $34.3 million and $10.4 million, respectively, and research and development tax credits for federal
and state income tax purposes of approximately $4.2 million and $5.1 million, respectively. A lack of future taxable income
would adversely affect our ability to utilize these NOLs and tax credit carryforwards. In addition, under Section 382 of the
U.S. Internal Revenue Code, or the Code, a corporation that experiences a more-than 50% ownership change over a three-
year testing period is subject to limitations on its ability to utilize its pre-change NOLs and tax credit carryforwards to offset
future taxable income. We have not conducted a study to-date to assess whether a limitation would apply under Section 382
of the Code. In the event it is determined that we previously experienced an ownership change, or should we experience an
ownership change in the future, the amount of net operating losses and research and development credit carryovers available
in any taxable year, could be limited and may expire unutilized.
Any acquisitions that we make could result in operating difficulties, dilution, and other consequences that may adversely
impact our business and results of operations.
While we from time to time evaluate potential acquisitions of businesses, products and technologies, and anticipate continuing
to make these evaluations, we have no present understandings, commitments or agreements with respect to any material
acquisitions or collaborative projects We may not be able to identify appropriate acquisition candidates or strategic partners,
or successfully negotiate, finance or integrate any businesses, products or technologies that we acquire.
We have limited experience as a team with acquiring companies and products. Furthermore, the integration of any acquisition
and management of any collaborative project may divert management’s time and resources from our core business and disrupt
our operations and we may incur significant legal, accounting and banking fees in connection with such a transaction.
Acquisitions could diminish our available cash balances for other uses, result in the incurrence of debt, contingent liabilities,
or amortization expenses, and restructuring charges. Also, the anticipated benefits or value of our acquisitions or investments
may not materialize and could result in an impairment of goodwill and/or purchased long-lived assets, similar to the $650,000
charge we recorded in the fourth quarter of 2014 related to an acquisition completed in 2012.
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and
investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated
liabilities, and harm our business and our financial condition or results.
Anti-takeover provisions in our Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law,
contain provisions that could discourage a takeover.
Our Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law, contain provisions that might enable
our management to resist a takeover, and might make it more difficult for an investor to acquire a substantial block of our
common stock. These provisions include:
● A classified board of directors;
● Advance notice requirements to stockholders for matters to be brought at stockholder meetings;
● Limitations on stockholder actions by written consent; and
● The right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership
of a potential hostile acquirer.
These provisions, as well as Change of Control and Severance Agreements entered into with each of our executive officers
and certain key employees, might discourage, delay or prevent a change in control of our company or a change in our
management. The existence of these provisions could adversely affect the voting power of holders of common stock and limit
the price that investors might be willing to pay in the future for shares of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
29
ITEM 2. PROPERTIES
Our corporate headquarters and U.S. operations are located in an approximately 66,000 square foot facility in Brisbane,
California. We lease these premises under a non-cancelable operating lease which expires on December 31, 2017. In addition,
we have leased office facilities in certain countries as follows:
Country
Japan .......
Square Footage
Approximately 5,896
France ......
Approximately 2,239
Lease termination or Expiration
Two leases, one of which expires in March 2018 and one which expires in
December 2015.
One lease which expires in October 2021 but can be terminated with six
months’ notice prior to October 2015 and 2018.
We believe that these facilities are adequate for our current and future needs for at least the next twelve months.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any pending litigation that we believe will have a material impact to our results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Stock Exchange Listing
Our common stock trades on The NASDAQ Global Select Market under the symbol “CUTR.” As of February 27, 2015, the
closing sale price of our common stock was $12.85 per share.
Common Stockholders
We had 10 stockholders of record as of February 28, 2015. Since many stockholders choose to hold their shares under the
name of their brokerage firm, we estimate that the actual number of stockholders was over 1,900 shareholders.
Stock Prices
The following table sets forth quarterly high and low closing sales prices of our common stock for the indicated fiscal periods:
4th Quarter ................................................................................... $
3rd Quarter ...................................................................................
2nd Quarter ..................................................................................
1st Quarter ....................................................................................
11.04 $
10.75
11.73
11.24
9.66 $
9.27
9.25
9.00
10.56 $
10.18
13.70
13.03
8.39
8.89
8.62
8.95
Common Stock
2014
2013
High
Low
High
Low
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Issuer Purchases of Equity Securities
The following table summarizes the activity related to stock repurchases for the year ended December 31, 2014 and 2013
(in thousands except per share data):
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
546 $
251 $
264 $
1,061 $
— $
1,061 $
Approximate
Dollar Value
of Shares
That May
Yet
Be
Purchased
Under the
Plans
or Programs
14,833
12,400
10,000
10,000
10,000
10,000
Total
Number
of Shares
Purchased
Average
Price
Paid
per Share
9.46
9.70
9.10
9.43
—
9.43
546 $
251 $
264 $
1,061 $
— $
1,061 $
Period
August 1-30, 2013 ........................................................................
September 1-30, 2013 ..................................................................
November 1-30, 2013 ...................................................................
As of December 31, 2013......................................................
January 1-December 31, 2014 ......................................................
As of December 31, 2014......................................................
On August 5, 2013, our Board of Directors modified Cutera, Inc.’s stock buyback program, originally adopted in November
2012, to permit an additional $10 million of its issued and outstanding common shares to be repurchased. As modified, the
stock buyback program permits us to purchase an aggregate of $20 million of our common stock through a 10b5-1 program
based on predetermined pricing and volume parameters, as well as open-market purchase that are subject to management
discretion and regulatory restrictions.
In the year ended December 31, 2013, we repurchased 1,060,447 shares of our common stock for approximately $10.0
million. There were no repurchases of shares of our common stock in 2014. As of December 31, 2014, there remained an
additional $10.0 million of our common stock to be purchased under the modified stock buyback program. The number of
shares to be repurchased, and the timing of such repurchases, will be based on several factors, including the price of the
Company's common stock, regulatory restrictions, and general market and business conditions.
On February 18, 2015, our Board of Directors approved the expansion of our Stock Repurchase Program from $10 million
to $40 million, under which we are authorized to repurchase shares of our common stock. We plan to make the repurchases
from time to time through open market transactions at prevailing prices and/ or through privately-negotiated transactions,
and/ or through a pre-arranged Rule 10b5-1 trading plan.
Sales of Unregistered Securities
We did not sell any unregistered securities during the period covered by this Annual Report on Form 10-K.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this Item regarding equity compensation plans is incorporated by reference to the information
set forth in Part III Item 12 of this Annual Report on Form 10-K.
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Performance Graph
Below is a graph showing the cumulative total return to our stockholders during the period from December 31, 2009 through
December 31, 2014 in comparison to the cumulative return on the NASDAQ Composite Index (U.S.) and the NASDAQ
Medical Equipment Index during that same period.
The information under “Performance Graph” is not deemed filed with the Securities and Exchange Commission and is not
to be incorporated by reference in any filing of Cutera under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after the date of this 10-K and irrespective of any general
incorporation language in those filings.
Dividend Policy
We have never paid a cash dividend and have no present intention to pay cash dividends in the foreseeable future. We intend
to retain any future earnings for use in our business.
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ITEM 6. SELECTED FINANCIAL DATA
The table set forth below contains certain consolidated financial data for each of our last five fiscal years. The following
selected consolidated financial data should be read in conjunction with Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing in
Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Consolidated Statements of Operations Data
(in thousands, except per share data):
Net revenue .......................................................... $
Cost of revenue ....................................................
Gross profit ......................................................
Operating expenses:
Sales and marketing .........................................
Research and development ...............................
General and administrative ..............................
Total operating expenses ............................
Loss from operations ............................................
Interest and other income, net ..............................
Loss before income taxes .....................................
Income tax (benefit) provision .............................
Net loss ................................................................. $
Net loss per share:
Year Ended December 31,
2014
2013
2012
2011
2010
78,138 $
34,765
43,373
74,594 $
32,712
41,882
77,277 $
35,737
41,540
60,290 $
25,978
34,312
53,274
23,058
30,216
32,246
10,543
11,203
53,992
(10,619)
226
(10,393)
219
(10,612) $
27,984
9,216
9,938
47,138
(5,256)
455
(4,801)
(54)
(4,747) $
28,664
8,427
11,276
48,367
(6,827)
497
(6,330)
218
(6,548) $
25,499
9,141
10,104
44,744
(10,432)
614
(9,818)
243
(10,061) $
24,735
7,004
9,576
41,315
(11,099)
583
(10,516)
2
(10,518)
Basic and diluted .............................................. $
(0.74) $
(0.33) $
(0.46) $
(0.73) $
(0.78)
Weighted-average number of shares used in per
share calculations:
Basic and diluted ..............................................
14,254
14,421
14,089
13,807
13,540
As of December 31,
Consolidated Balance Sheet Data (in
thousands):
Cash, cash equivalents and marketable
investments ...................................................... $
Long-term investments .........................................
Working capital (current assets less current
liabilities) .........................................................
Total assets ...........................................................
Retained earnings (accumulated deficit) ..............
Total stockholders’ equity ....................................
2014
2013
2012
2011
2010
81,146 $
—
83,073 $
—
85,572 $
—
88,686 $
3,027
90,003
6,784
81,900
108,913
(25,232)
80,508
84,654
108,669
(14,620)
84,265
88,788
112,794
(9,873)
90,774
89,075
111,353
(3,325)
91,567
90,339
111,805
6,736
95,417
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with our audited financial statements and notes thereto for the fiscal
year ended December 31, 2014. This Annual Report on Form 10-K, including the following sections, contains forward-
looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout this Report, and
particularly in this Item 7, the forward-looking statements are based upon our current expectations, estimates and projections
and that reflect our beliefs and assumptions based upon information available to us at the date of this Report. In some cases,
you can identify these statements by words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “predicts,” “potential” or “continue,” and other similar terms. These forward-looking statements
are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to predict.
Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-
looking statements. The forward-looking statements include, but are not limited to, statements relating to our future financial
performance, the ability to grow our business, increase our revenue, manage expenses, generate additional cash, achieve
and maintain profitability, develop and commercialize existing and new products and applications, improve the performance
of our worldwide sales and distribution network, and to the outlook regarding long term prospects. We caution you not to
33
place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this
Annual Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or
circumstances occurring after the date of this Form 10-K.
Some of the important factors that could cause our results to differ materially from those in our forward-looking statements,
and a discussion of other risks and uncertainties, are discussed in Item 1A—Risk Factors commencing on page 17. We
encourage you to read that section carefully as well as other risks detailed from time to time in our filings with the SEC.
Introduction
The Management’s Discussion and Analysis, or MD&A, is organized as follows:
● Executive Summary. This section provides a general description and history of our business, a brief discussion of
our product lines and the opportunities, trends, challenges and risks we focus on in the operation of our business.
● Critical Accounting Policies and Estimates. This section describes the key accounting policies that are affected by
critical accounting estimates.
● Recent Accounting Guidance. This section describes the issuance and effect of new accounting pronouncements that
are and may be applicable to us.
● Results of Operations. This section provides our analysis and outlook for the significant line items on our
Consolidated Statements of Operations.
● Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows, as well as a
discussion of our commitments that existed as of December 31, 2014.
Executive Summary
Company Description.
We are a leading medical device company specializing in the research, development, manufacture, marketing and servicing
of laser and other energy-based aesthetics systems for practitioners worldwide. We offer easy-to-use products which enable
physicians and other qualified practitioners to perform safe and effective aesthetic procedures, including treatment of vascular
conditions and removal of benign pigmented lesions, hair-removal, skin rejuvenation, body contouring, skin resurfacing,
tattoo removal and toenail fungus. Our platforms are designed to be easily upgraded to add additional applications and hand
pieces, which provide flexibility for our customers as they expand their practices. In addition to systems and upgrade revenue,
we generate revenue from the sale of post warranty service contracts, providing services for products that are out of warranty,
hand piece refills, and third-party manufactured dermal fillers and cosmeceuticals. In the second quarter of 2014, we
terminated our agreement with Merz for the distribution of its Radiesse dermal filler product.
Our corporate headquarters and U.S. operations are located in Brisbane, California, from where we conduct our
manufacturing, warehousing, research and development, regulatory, sales and marketing, service, and administrative
activities. We market, sell and service our products through direct sales and service employees in the U.S., Australia, Belgium,
Canada, France, Japan and Switzerland. Sales and Service outside of these direct markets are made through a worldwide
distributor network in over 40 countries. As of December 31, 2014, we had a U.S. direct sales force of 33 employees and a
direct international sales force of 32 employees.
Products. Our revenue is derived from the sale of Products, Upgrades, Service, Titan and truSculpt hand piece refills, and
Dermal fillers and cosmeceutical products. Product revenue represents the sale of a system. A system consists of a console
that incorporates a universal graphic user interface, a laser and/or other energy based module, control system software and
high voltage electronics; as well as one or more hand pieces. However, depending on the application, the laser or other energy
based module is sometimes contained in the hand piece such as with our Pearl and Pearl Fractional applications instead of
within the console.
We offer our customers the ability to select the system that best fits their practice at the time of purchase and then to cost-
effectively add applications to their system as their practice grows. This provides customers the flexibility to upgrade their
systems whenever they want and provides us with a source of recurring revenue which we classify as Upgrade revenue.
Service revenue relates to amortization of prepaid service contracts, direct billings for detachable hand piece replacements
and revenue for parts and labor on out-of-warranty products. For our Titan hand pieces, after a set number of treatments have
been performed, the customer is required to send the hand piece back to the factory for refurbishment, which we refer to as
”refilling” the hand piece. In Japan, we distribute ZO’s cosmeceutical products, and through the second quarter of 2014, we
also distributed Merz Pharma GmbH’s (“Merz”) Radiesse dermal filler product.
34
Significant Business Trends. We believe that our ability to grow revenue will be primarily dependent on the following:
● Continuing to expand our product offerings ─ both through internal development and sourcing from other vendors.
● Ongoing investment in our global sales and marketing infrastructure.
● Use of clinical results to support new aesthetic products and applications.
● Enhanced luminary development and reference selling efforts (to develop a location where our products can be
displayed and used to assist in selling efforts).
● Customer demand for our products.
● Consumer demand for the application of our products.
● Marketing to physicians in the core dermatology and plastic surgeon specialties, as well as outside those specialties.
● Generating ongoing revenue from our growing installed base of customers through the sale of Service, Upgrade,
Titan hand piece refills, and Dermal fillers and cosmeceutical products.
For a detailed discussion of the significant business trends impacting our business, please see “Results of Operations” below.
Factors that May Impact Future Performance
Our industry is impacted by numerous competitive, regulatory and other significant factors. Our industry is highly
competitive and our future performance depends on our ability to compete successfully. Additionally, our future performance
is dependent upon our ability to continue to expand our product offerings with innovative technologies, obtain regulatory
clearances for our products, protect the proprietary technology of our products and our manufacturing processes, manufacture
our products cost-effectively, and successfully market and distribute our products in a profitable manner. If we fail to execute
on the aforementioned initiatives, our business would be adversely affected. A detailed discussion of these and other factors
that could impact our future performance are provided in Part I, Item 1A “Risk Factors.”
Critical Accounting Policies and Estimates
The preparation of our Consolidated Financial Statements and related disclosures in conformity with generally accepted
accounting principles in the U.S. (“GAAP”) requires us to make estimates, judgments and assumptions that affect the reported
amounts of assets, liabilities, revenue and expenses. These estimates, judgments and assumptions are based on historical
experience and on various other factors that we believe are reasonable under the circumstances. We periodically review our
estimates and make adjustments when facts and circumstances dictate. To the extent that there are material differences
between these estimates and actual results, our financial condition or results of operations will be affected.
Critical accounting estimates, as defined by the Securities and Exchange Commission (“SEC”), are those that are most
important to the portrayal of our financial condition and results of operations and require our management’s most difficult
and subjective judgments and estimates of matters that are inherently uncertain. Our critical accounting estimates are as
follows:
Revenue Recognition
We earn revenue from the sale of Products, Upgrades, Titan and truSculpt hand piece refills, and Dermal fillers and
cosmeceuticals. We recognize revenue when persuasive evidence of an arrangement exists, transfer of title to the customer
has occurred, the sales price is fixed or determinable, and collectability is probable. We defer revenue in the event that any
of these revenue recognition criteria is not met.
● Persuasive evidence of an arrangement exists: We use customer purchase agreements or contracts, or customer
purchase orders to determine the existence of an arrangement;
● Transfer of title: Our standard terms generally specify that title transfers upon shipment to the customer. We
generally use third party shipping documents to verify that title has transferred. For service revenue, we use the date
that services have been rendered;
● Sales price is fixed or determinable: We assess whether the sales price is fixed or determinable at the time of the
transaction. Sales prices are documented in the customer purchase agreement or purchase order received prior to
shipment. Our standard terms do not allow for trial or evaluation periods, rights of return or refund, payments
contingent upon the customer obtaining financing or other terms that could impact the customer's obligation; and
● Collectability is probable: We assess whether collection is reasonably assured based on a number of factors,
including receipt of cash or credit card payment, customer's past transaction history, credit worthiness, or the receipt
of an irrevocable letter of credit.
35
Multiple-Element Arrangements
For System or Upgrade sales, all of the tangible products, including the embedded software, are delivered to the customer at
the time of sale. In some circumstances, in conjunction with the purchase of a System or Upgrade, customers purchase Service
contracts for one or more years to cover their products. For these transactions, the following multiple-element arrangement
exists:
a tangible product delivered to the customer at the inception of the revenue arrangement; and
a service contract for delivery of services to the customer over a contractually stated period of time defined in the service
contract.
For multiple-element arrangements, judgments are required as to the allocation of the proceeds received from an arrangement
to the multiple elements of the arrangement. For multiple element arrangements entered into on or after January 1, 2010, we
allocate revenue to all deliverables based on their relative selling prices. Because we have neither vendor-specific objective
evidence (“VSOE”) nor third-party evidence of selling price (“TPE”) for our systems, the allocation of revenue has been
based on our best estimate of selling prices (“BESP”). The objective of BESP is to determine the price at which we would
transact a sale if the product or service was sold on a stand-alone basis. We determine BESP for our deliverables by
considering multiple factors including, but not limited to, features and functionality of the system, geographies, type of
customer and market conditions.
Revenue under service contracts is recognized on a straight-line basis over the period of the applicable service contract.
Service revenue, not under a service contract, is recognized as the services are provided.
Hand Piece Refills
When customers purchase a hand piece refill, we ship a previously refurbished unit and recognize revenue upon shipment.
With respect to our truSculpt product, prior to the third quarter of 2013, we sold the system and hand piece and then charged
the customer an incremental fee for any future refills and we treated the refills as a separate deliverable under FASB ASC
605-25. In addition, we also provided promotions that included an unlimited number of “free” hand piece replacements during
a stated trial period of 3 months or 12 months. We determined that these free refills were an undelivered element under FASB
ASC 605-25 in the original revenue transaction. As such, we deferred the relative fair value related to the estimated number
of hand piece replacements to be delivered during the promotional period and recognized that deferred revenue over the free
refills promotion period. Commencing with the third quarter of 2013, we included unlimited hand piece replacements in the
truSculpt standard warranty contract and concluded that this no longer was a separate deliverable under the multiple-element
arrangement revenue guidance. Following this change, we recognized the revenue under the warranty model, in which the
revenue for the system sale was recognized up-front along with an estimate of the costs which will be incurred under the
warranty obligation recorded in cost of revenue.
Shipping and handling costs
We expense shipping and handling costs as incurred and include them in cost of revenue. In those cases where we bill shipping
and handling costs to customers, we classify the amounts billed as revenue.
Stock-based Compensation Expense
Stock options
We account for stock-based compensation in accordance with the fair value recognition provisions of U.S. GAAP. We use
the Black-Scholes-Merton option-pricing model which requires the input of highly subjective assumptions. These
assumptions include:
● Estimating the length of time employees will retain their vested stock options before exercising them (“expected
term”);
● Estimated volatility of our common stock price over the expected term;
● Number of options that will ultimately not complete their vesting requirements (“forfeiture rate”); and
● Expected risk-free interest rate and dividend rate over the expected term.
The assumptions for expected volatility and expected term are the two assumptions that significantly affect the grant date fair
value.
36
The expected term represents the weighted-average period that our stock options are expected to be outstanding. The expected
term is based on the observed and expected time to post-vesting exercise of options by employees. We use historical exercise
patterns of previously granted options in relation to stock price movements to derive an employee behavioral pattern used to
forecast expected exercise patterns.
We estimate volatility based on historical volatility and we also consider implied volatility when there is sufficient volume
of freely traded options with comparable terms and exercise prices in the open market.
U.S. GAAP requires us to develop an estimate of the number of share-based awards that will be forfeited due to employee
turnover. Adjustments in the estimated forfeiture rates can have a significant effect on our reported share-based compensation,
as we recognize the cumulative effect of the rate adjustments for all expense amortization in the period the estimated forfeiture
rates were adjusted. We estimate and adjust forfeiture rates based on a periodic review of recent forfeiture activity and
expected future employee turnover. If a revised forfeiture rate is higher than previously estimated forfeiture rate, we may
make an adjustment that will result in a decrease to the expense recognized in the financial statements during the period when
the rate was changed. Adjustments in the estimated forfeiture rates could also cause changes in the amount of expense that
we recognize in future periods.
Changes in expected risk-free interest rate and dividend rate do not significantly impact the calculation of fair value, and
determining this input is not highly subjective.
Changes in the subjective assumptions of expected term, volatility and forfeiture rate can materially affect the estimate of
fair value of stock-based compensation and, consequently, the related amount recognized on the Consolidated Statements of
Income.
Restricted Stock Units
We grant restricted stock unit (“RSU”) awards to our management employees, officers and directors. RSUs are measured
based on the fair market values of the underlying stock on the dates of grant and the stock based compensation expense is
recognized over the vesting period using the straight-line method. Shares are issued on the vesting dates net of the minimum
statutory tax withholding requirements to be paid by us on behalf of our employees. As a result, the actual number of shares
issued will be fewer than the actual number of RSUs outstanding. Furthermore, we record the liability for withholding
amounts to be paid by us as a reduction to additional paid-in capital.
Performance Stock Units
Performance stock unit (“PSU”) awards were granted to our officers and other members of management in 2014 and 2013.
The final number of shares of common stock issuable at the end of the performance measurement period, subject to the
recipient’s continued service through that date, is determined based on the degree of achievement of the performance goals.
The stock-based compensation expenses for the PSUs is measured based on the fair market value on the dates of grant of the
target number of underlying shares. Stock based compensation expense is recognized over the vesting period using the
straight-line method and the expected degree of achievement of the performance goals. At the vesting date, we issue fully-
paid up common stock, net of the minimum statutory tax withholding requirements to be paid by us on behalf of our officers.
As a result, the actual number of shares issued is less than the original number of PSUs outstanding. Furthermore, we record
the liability for withholding amounts to be paid by us as a reduction to additional paid-in capital.
Intangible Assets
Our intangible assets include identifiable intangibles and goodwill. Identifiable intangibles include sub-licenses, rights
acquired from a former distributor and those acquired in conjunction with an acquisition in 2012. All of our identifiable
intangibles have finite lives.
In February 2012, we acquired the global aesthetic business unit of IRIDEX Corporation, which included various laser
systems (such as the VariLite and Gemini) and an installed base of customers, whose products are being serviced by us. This
acquisition was considered a business combination for accounting purposes, and as such, in addition to valuing all the assets,
we recorded goodwill associated with the expected synergies from leveraging the customer relationships and integrating new
product offerings into our business. The fair values of the assets acquired were determined to be $4.8 million of net tangible
and intangible assets and $1.3 million of goodwill.
37
Identifiable intangible assets with finite lives are subject to impairment testing and are reviewed for impairment when events
or circumstances indicate that such assets may not be recoverable at their carrying value. We evaluate the recoverability of
the carrying value of these identifiable intangibles based on estimated undiscounted cash flows to be generated from such
assets. If the cash flow estimates or the significant operating assumptions upon which they are based change in the future, we
may be required to record additional impairment charges. When events or changes in circumstances indicate that the carrying
amount of long-lived assets may not be recoverable, we recognize such impairment in the event the net book value of such
assets exceeds the future undiscounted cash flows attributable to such assets.
The valuation and classification of intangible assets and goodwill and the assignment of useful amortization lives for the
intangible assets involves judgments and the use of estimates. The evaluation of these intangibles and goodwill for
impairment under established accounting guidelines is required on a recurring basis. Changes in business conditions could
potentially require future adjustments to asset valuations. If we determine that the remaining useful lives of assets are shorter
than we had originally estimated, we accelerate the rate of amortization over the assets’ new, shorter useful lives. A
considerable amount of judgment is required in assessing impairment, which includes financial forecasts. Should conditions
be different from management’s current estimates, material write-downs of long-lived assets may be required, which would
adversely affect our operating results.
As of December 31, 2014, we evaluated the recoverability of our long-lived assets. Relating to the purchased intangible assets
associated with the Iridex acquisition in 2012, due to the discontinuation of the manufacture and sale of all products acquired,
lower than projected future service revenue, and lower than projected revenue expected from the distributor relationships
acquired, we determined based on an undiscounted cash flow model that the remaining carrying value of these assets was
impaired. Based on a discounted cash flow model, we measured the impairment of the purchased intangible assets and
recorded an impairment charge of $650,000 in cost of revenue in the year ended December 31, 2014. There were no
impairment charges or accelerated amortization recorded for the years ended December 31, 2013 or 2012. Our valuation
model relied on unobservable inputs (referred to as Level 3 in the fair value hierarchy), that are supported by little or no
market activity and reflect the use of significant management judgment and included expected future cash flow streams as
well as a market discount rate. Our valuation model is subject to uncertainties that are difficult to predict.
Based on the remaining fair value of the purchased intangible assets, we recorded an impairment charge of $650,000 in cost
of revenue in the year ended December 31, 2014. There were no impairment charges or accelerated amortization recorded
for the years ended December 31, 2013 or 2012.
Valuation of Inventories
We state our inventories at the lower of cost or market, computed on a standard cost basis, which approximates actual cost
on a first-in, first-out basis and market being determined as the lower of replacement cost or net realizable value. Standard
costs are monitored and updated quarterly or as necessary, to reflect changes in raw material costs, labor to manufacture the
product and overhead rates. We provide for excess and obsolete inventories when conditions indicate that the selling price
could be less than cost due to physical deterioration, usage, obsolescence, reductions in estimated future demand and
reductions in selling prices. Inventory provisions are measured as the difference between the cost of inventory and estimated
market value and charged to cost of revenue to establish a lower cost basis for the inventories. We balance the need to
maintain strategic inventory levels with the risk of obsolescence due to changing technology, timing of new product
introductions and customer demand levels. Unfavorable changes in market conditions may result in a need for additional
inventory provisions that could adversely impact our gross margins. Conversely, favorable changes in demand could result
in higher gross margins when product that had previously been written down is sold.
Warranty Obligations
We provide a one-year standard warranty on all systems. Warranty coverage provided is for labor and parts necessary to
repair the systems during the warranty period. Commencing with the third quarter of 2013, for sales of our truSculpt product,
we included free hand piece refills during the warranty period. We provide for the estimated future costs of warranty
obligations in cost of revenue when the related revenue is recognized. The accrued warranty costs represent our best estimate
at the time of sale, and as reviewed and updated quarterly, of the total costs that we expect to incur during the warranty period
to repair or replace product parts that fail, including the refurbishment of any truSculpt refills included as part of the original
sale. Accrued warranty costs include costs of material, technical support labor and associated overhead. The amount of
accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product
failures adjusted for current information on repair costs. Actual warranty costs could differ from the estimated amounts. On
a quarterly basis, we review the accrued balances of our warranty obligations and update based on historical warranty cost
38
trends. If we were required to accrue additional warranty cost in the future due to actual product failure rates, material usage,
service delivery costs or overhead costs differing from our estimates, revisions to the estimated warranty liability would be
required, which would negatively impact our operating results.
Provision for Income Taxes
We are subject to taxes on earnings in both the U.S. and various foreign jurisdictions. As a global taxpayer, significant
judgments and estimates are required in evaluating our uncertain tax positions and determining our provision for income
taxes on earnings. We perform a two-step approach to recognizing and measuring uncertain tax positions. The first step is to
evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely
than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The
second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.
Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax
outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as
the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different
than the amounts recorded, such differences will impact the provision for income taxes in the period in which such
determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that
are considered appropriate, as well as the related net interest.
Our effective tax rates have differed from the statutory rate primarily due to changes in the valuation allowance, foreign
operations, research and development tax credits, state taxes, and certain benefits realized related to stock option activity.
Our current effective tax rate does not assume U.S. taxes on undistributed profits of foreign subsidiaries. These earnings
could become subject to incremental foreign withholding or U.S. federal and state taxes, should they either be deemed or
actually remitted to the U.S. The effective tax rate in 2014, 2013 and 2012 was approximately (2)%, 1%, and (3)%,
respectively. Our future effective tax rates could be adversely affected by earnings being lower in countries where we have
lower statutory rates and being higher in countries where we have higher statutory rates, or by changes in tax laws, accounting
principles, interpretations thereof, net operating loss carryback, research and development tax credits, and due to changes in
the valuation allowance of our U.S. deferred tax assets. In addition, we are subject to the examination of our income tax
returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes
resulting from these examinations to determine the adequacy of our provision for income taxes.
At December 31, 2014, we had an aggregate of approximately $2.6 million of unremitted earnings of foreign subsidiaries
that have been, or are intended to be, indefinitely reinvested for continued use in foreign operations. Depending on the timing
and nature of the distribution, if the total undistributed earnings of foreign subsidiaries were remitted while the Company is
able to utilize its net operating losses, it is likely there would be no material additional tax resulting from the distribution.
Our deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards.
A valuation allowance reduces deferred tax assets to estimated realizable value, which assumes that it is more likely than not
that we will be able to generate sufficient future taxable income in certain tax jurisdictions to realize the net carrying value.
We have fully reserved our U.S. federal and state deferred tax assets due to our history of operating losses.
Litigation
We have been, and may in the future become, subject to legal proceedings related to securities litigation, intellectual property,
product liability claims, contractual disputes and other matters. Based on all available information at the balance sheet dates,
we assess the likelihood of any adverse judgments or outcomes for these matters, as well as potential ranges of probable loss.
If losses are probable and reasonably estimable, we record an estimated liability.
39
Results of Operations
The following table sets forth selected consolidated financial data expressed as a percentage of net revenue.
Net revenue ..............................................................................
Cost of revenue ........................................................................
Gross profit .......................................................................
Operating expenses:
Sales and marketing ..............................................................
Research and development ...................................................
General and administrative ...................................................
Total operating expenses ...................................................
Loss from operations ................................................................
Interest and other income, net ...............................................
Loss before income taxes .........................................................
Income tax (benefit) provision ..............................................
Net loss .....................................................................................
Net Revenue
Year Ended December 31,
2013
2014
2012
100%
44%
56%
41%
14%
14%
69%
(13)%
—%
(13)%
—%
(13)%
100%
44%
56%
38%
12%
13%
63%
(7)%
1%
(6)%
—%
(6)%
100%
46%
54%
37%
11%
15%
63%
(9)%
1%
(8)%
—%
(8)%
The following table sets forth selected consolidated revenue by major geographic area and product category with changes
thereof.
(Dollars in thousands)
Revenue mix by geography:
United States ........................................................ $
Percent of total .................................................
Japan..................................................................... $
Asia, excluding Japan ...........................................
Europe ..................................................................
Rest of the world ..................................................
Total international revenue ...............................
Percent of total .................................................
Total consolidated revenue ............................... $
Revenue mix by product category:
Products and upgrades .......................................... $
Titan and truSculpt hand piece refills ...................
Dermal fillers and cosmeceuticals ........................
Total product revenue ......................................
Service ..................................................................
Total consolidated revenue ............................... $
Revenue by Geography:
2014
Year Ended December 31,
2013
% Change
% Change
2012
35,494
45%
13,328
11,023
7,792
10,501
42,644
55%
78,138
53,106
3,714
3,479
60,299
17,839
78,138
13% $
(6)% $
(2)%
6%
2%
(1)%
5% $
31,487
42%
14,205
11,263
7,358
10,281
43,107
58%
74,594
(1)% $
(20)% $
27%
48%
(25)%
(5)%
(3)% $
31,949
41%
17,826
8,902
4,958
13,642
45,328
59%
77,277
10% $
(13)%
(18)%
6%
1%
5% $
48,374
4,267
4,264
56,905
17,689
74,594
(2)% $
(11)%
(24)%
(5)%
3%
(3)% $
49,605
4,807
5,645
60,057
17,220
77,277
Our U.S. revenue increased by 13% in 2014, compared to 2013. We believe the increase in U.S. revenues was attributable to
several factors, including:
● Revenue generated by our recently introduced enlighten and excel HR products;
● Continued growth of excel V product revenue; partially offset by
● Reduced productivity of our U.S. sales force, caused in part by field sales and management turnover; and
● A decline in revenue from our xeo, Genesis Plus and truSculpt products.
40
Our total international revenue decreased by 1% in 2014, compared to 2013, and represented 55% of our total revenue. The
decrease in international revenue was primarily a result of decreased revenue from Canada, the decline in 2014 of the Japanese
Yen versus the U.S. Dollar compared to 2013, partially offset by growth in revenue from Australia and the Benelux region.
Revenue by Product Category:
Our product and upgrade revenue increased by 10% in 2014 and decreased by 2% in 2013, compared to the respective prior
year periods. The 2014 increase in product and upgrade revenue was primarily attributable to revenue generated by our newly
introduced enlighten and excel HR products and the continued growth in excel V sales, partially offset by declines in xeo,
Genesis Plus and truSculpt sales. The 2013 decrease in product and upgrade revenue was primarily attributable to a decline
of the Japanese Yen versus the U.S. Dollar and the decline of Genesis Plus sales, partially offset by continued growth in excel
V sales.
Our service revenue increased by 1% in 2014 and by 3% in 2013, compared to the respective prior year periods. The ratable
recognition of service contract fees is the primary component of our service revenue. The increase in 2013 was primarily due
to an expanded customer base as well as one additional month of service revenue in 2013, versus 2012, relating to the
acquisition of the Iridex aesthetic business in February 2012.
Our Titan and truSculpt hand piece refill revenue decreased by 13% and 11% in 2014 and 2013, compared to the respective
prior year periods. The decrease in 2014 was due primarily to declines in Titan hand piece refill revenue caused by reduced
utilization. The decrease in 2013 was due primarily to declines in Titan hand piece refill revenue caused by reduced utilization
and partly due to decline in the Japanese Yen versus the U.S. Dollar, which was partially offset by an increase in revenue
from truSculpt refills. Commencing in the third quarter of 2013, we have repositioned our truSculpt product to include the
refurbishment of the hand pieces as part of the original system warranty or ongoing service contracts, thereby enabling our
customers unlimited usage as part of the original system warranty.
Our Dermal filler and cosmeceutical business decreased by 18% and 24% in 2014 and 2013, compared to the respective prior
year periods. The decrease in 2014 was primarily a result of the discontinuation of the distribution of the Merz Radiesse filler
product in Japan in the second quarter of 2014. In addition, the continued devaluation of the Japanese Yen versus the U.S.
Dollar by approximately 9% in 2014, compared to 2013, had an adverse impact on our revenue. The decrease in 2013 Dermal
filler and cosmeceuticals revenue was primarily the result of a devaluation of the Japanese Yen, versus the U.S. Dollar, by
approximately 22%, compared to 2012.
Gross Profit
(Dollars in thousands)
Gross Profit .......................................................... $
As a percentage of total revenue ..................
2014
Year Ended December 31,
2013
% Change
% Change
43,373
56%
4% $
41,882
56%
1 % $
2012
41,540
54%
Our cost of revenue consists primarily of materials, personnel expenses, royalty expense, warranty and manufacturing
overhead expenses. Gross margin as a percentage of net revenue was flat at 56% in 2014, compared to 2013, which was
primarily attributable to the following:
● A $3.5 million increase in total revenue, which improved the leverage of our manufacturing department expenses;
offset by
● A one-time impairment charge of $650,000 for purchased intangibles related to a previous acquisition; and
● A partial shift in product mix towards lower margin products, primarily as a result of our newly introduced excel HR
and enlighten products in 2014 that had a high initial cost structure.
Gross margin as a percentage of net revenue improved to 56% in 2013, compared to 2012, which was primarily attributable
to the following:
● A partial shift in product mix towards higher margin products;
●
Improved gross margin from our Service business, due primarily to reduced material expenses resulting from
improved reliability of our products;
● Results of cost reduction initiatives; and
● Reduced amortization of intangibles related to the acquisition of Iridex’s aesthetic business.
41
Sales and Marketing
(Dollars in thousands)
Sales and marketing ............................................. $
As a percentage of total revenue ..................
2014
Year Ended December 31,
2013
% Change
% Change
32,246
41%
15% $
27,984
38%
(2)% $
2012
28,664
37%
Sales and marketing expenses consist primarily of personnel expenses, expenses associated with customer-attended
workshops and trade shows, post-marketing studies and advertising. Sales and marketing expenses increased by $4.3 million
in 2014, compared to 2013, which was primarily attributable to the following:
● $2.6 million increase in personnel related expenses in North American, driven primarily by the expansion of our
sales force;
● $1.4 million increase in non-Japan international spending, primarily as a result of higher international sales
headcount as well as the expansion of our international operations;
● $752,000 of increased promotional spending, primarily in North America;
● $541,000 of increased North American travel and entertainment expenses due to the higher sales headcount; partially
offset by
● $941,000 of decreased Japan expenses resulting primarily from the continued devaluation of the Japanese Yen,
versus the U.S. Dollar.
In 2013, sales and marketing expenses decreased by $680,000 compared to 2012. This decrease was primarily attributable
to:
● $1.0 million of decreased Japan expenses resulting primarily from the devaluation of the Japanese Yen, versus the
U.S. Dollar;
● $312,000 of decreased North American travel and entertainment expenses due primarily to reduced business
meetings and other cost cutting measures; partially offset by
● $523,000 of increased North American product demonstration, promotional and marketing expenses.
Sales and marketing expenses as a percentage of net revenue, increased to 41% in 2014, compared to 38% in 2013. This
increase was due to a larger increase in expenses, compared to the increase in revenue. Sales and marketing expenses as a
percentage of net revenue, increased to 38% in 2013, compare to 37% in 2012. This increase was due to lower revenue in
2012.
Research and Development (“R&D”)
(Dollars in thousands)
Research and development ................................... $
As a percentage of total revenue ..................
2014
Year Ended December 31,
2013
% Change
% Change
10,543
14%
14% $
9,216
12%
9 % $
2012
8,427
11%
Research and development expenses consist primarily of personnel expenses, clinical, regulatory and material costs. R&D
expenses increased $1.3 million in 2014, compared to 2013, which was primarily attributable to:
● $1.0 million higher personnel expenses as a result of increased headcount;
● $398,000 increase in material spending due to product development efforts related to our two new launched products
(enlighten and excel HR); partially offset by
● A decrease of $110,000 in equipment spending.
In 2013, R&D expenses increased by $789,000, compared to 2012, which primarily attributable to:
● $1.1 million increase in material spending related to new product development; partially offset by
● A decrease of $237,000 in outside consulting expenses.
42
General and Administrative (“G&A”)
(Dollars in thousands)
General and administrative ................................... $
As a percentage of total revenue ..................
2014
Year Ended December 31,
2013
% Change
% Change
11,203
14%
13% $
9,938
13%
(12)% $
2012
11,276
15%
General and administrative expenses consist primarily of: personnel expenses, legal fees, accounting, audit and tax consulting
fees, and other general and administrative expenses. G&A expenses increased by $1.3 million in 2014, compared to 2013,
which was primarily attributable to:
● $1.3 million of increased personnel related expenses;
● $407,000 of increased legal fees and costs of settlements; partially offset by
● A reduction of $600,000 in fees resulting from the conclusion of a management consulting engagement that
commenced in 2013.
In 2013, G&A expenses decreased by $1.3 million, compared to 2012. This decrease was primarily attributable to:
● $1.0 million of decreased personnel related expenses;
● $532,000 of reduced legal fees and costs of settlements;
● A reduction of $527,000 of business integration expenses, which were incurred in 2012 due to the acquisition of
Iridex;
● $292,000 of reduced accounting fees; partially offset by
● $800,000 in fees relating to a management consulting engagement in 2013; and
● $343,000 of increased expenses due to the introduction of the U.S. medical excise tax with effect from January 1,
2013.
Interest and Other Income, Net
The components of “Interest and Other Income, Net” are as follows:
(Dollars in thousands)
Interest income ..................................................... $
Other income (expense), net .................................
Total interest and other income, net ............. $
% Change
Year Ended December 31,
2013
% Change
2014
406
(180)
226
(4)% $
(629)%
(50)% $
421
34
455
(12)% $
113%
(8)% $
2012
481
16
497
Interest income decreased 4% in 2014, compared to 2013, and decreased 12% in 2013, compared to 2012. These decreases
in interest income in 2014 and in 2013, were primarily attributable to decreases in our cash, cash equivalents and marketable
investments balances and decreased yields on our investments. Our cash, cash equivalents, marketable investments and long-
term investments at December 31, 2014, 2013 and 2012 were $81.1 million, $83.1 million and $85.6 million, respectively.
Income Tax (Benefit) Provision
(Dollars in thousands)
Loss before income taxes ..................................... $
Income tax (benefit) provision .............................
Effective tax rate ...........................................
Year Ended December 31,
2013
$ Change
2014
(10,393)
219
$ Change
$
(5,592) $
273
(2)%
(4,801) $
(54)
1%
1,529 $
(272)
2012
(6,330)
218
(3)%
In 2014, 2013 and 2012, we recorded an income tax provision of $219,000, an income tax benefit of $54,000 and an income
tax provision of $218,000, respectively. Our tax provisions for both 2014 and 2012 are primarily related to foreign tax
expenses. Our tax benefit for 2013 is primarily related to releases of reserves for Uncertain Tax Positions due to lapses in the
applicable statutes of limitations, offset by foreign tax expenses. A full valuation allowance was applied against all U.S.
federal and state deferred tax assets arising during each of these years.
43
Liquidity and Capital Resources
Liquidity is the measurement of our ability to meet potential cash requirements, fund the planned expansion of our operations
and acquire businesses. Our sources of cash include operations, stock option exercises, and employee stock purchases. We
actively manage our cash usage and investment of liquid cash to ensure the maintenance of sufficient funds to meet our daily
needs. The majority of our cash and investments are held in U.S. banks and our foreign subsidiaries maintain a limited amount
of cash in their local banks to cover their short-term operating expenses. The following table summarizes our cash and cash
equivalents and marketable investments (in thousands):
(Dollars in thousands)
Cash, cash equivalents and marketable securities:
Year ended December 31,
2013
2014
Change
Cash and cash equivalents .......................................................... $
Marketable investments ..............................................................
Total ........................................................................................ $
9,803 $
71,343
81,146 $
16,242 $
66,831
83,073 $
(6,439)
4,512
(1,927)
Cash Flows
In summary, our cash flows were as follows:
(Dollars in thousands)
Cash flows provided by (used in):
Year ended December 31,
2013
2014
2012
Operating activities ..................................................................... $
Investing activities ......................................................................
Financing activities .....................................................................
Net (decrease) increase in cash and cash equivalents ............. $
(4,286) $
(5,611)
3,458
(6,439) $
3,513 $
(5,848 )
(4,969 )
(7,304 ) $
(2,300)
10,153
1,673
9,526
Cash Flows from Operating Activities
We used net cash of $4.3 million in operating activities during 2014, which was primarily attributable to:
● $5.1 million used for operations based on a net loss of $10.6 million after adjusting for non-cash related items of
$5.5 million, consisting primarily of stock-based compensation expense of $3.3 million, depreciation and
amortization expense of $1.3 million and $0.7 million of an impairment of intangible assets;
● $2.0 million used to increase inventories for the addition of the new product line in 2014;
● $1.5 million used as a result of an increase in accounts receivable that resulted from increased product sales in the
three-month period ended December 31, 2014, compared to the same period in 2013; partially offset by
● $1.7 million generated from an increase in accrued liabilities;
● $1.4 million generated from an increase in deferred revenue due primarily to a “two years-for the price of one”
service contract pricing promotion; and
● $1.3 million generated from an increase in accounts payable resulting from the higher purchases of inventories
relating to the new product lines added in 2014.
We generated net cash of $3.5 million in operating activities during 2013, which was primarily attributable to:
● $3.1 million generated from an increase in deferred revenue due primarily to a “two years-for the price of one”
service contract pricing promotion;
● $2.1 million generated from a reduction of inventories due primarily to a the consumption of inventories acquired in
the Iridex acquisition and a reduction of other inventories; partially offset by
● $857,000 used as a result of an increase in accounts receivable that resulted from increased product sales in December
2013 compared to December 2012; and
● $371,000 used as a result of a reduction in accrued liabilities.
44
Cash Flows from Investing Activities
We used net cash of $5.6 million in investing activities in 2014, which was primarily attributable to:
● $44.1 million of cash used to purchase marketable investments;
● $0.7 million of cash used to purchase property and equipment; partially offset by
● $39.3 million in net proceeds from the sales and maturities of marketable investments.
We used net cash of $5.8 million in investing activities in 2013, which was primarily attributable to:
● $56.8 million of cash used to purchase marketable investments;
● $0.5 million of cash used to purchase property and equipment; partially offset by
● $51.6 million in net proceeds from the sales and maturities of marketable investments.
Cash Flows from Financing Activities
Net cash provided by financing activities in 2014 was $3.5 million, which resulted primarily from the issuance of stock
through our stock option and employee stock purchase plans.
Net cash used in financing activities in 2013 was $5.0 million, which resulted from:
● $10.0 million of cash used to repurchase common stock; partially offset by
● $5.2 million generated from the issuance of stock through our stock option and employee stock purchase plan.
Adequacy of cash resources to meet future needs
We had cash, cash equivalents and marketable investments of $81.1 million as of December 31, 2014. We believe that our
existing cash resources are sufficient to meet our anticipated cash needs for working capital and capital expenditures for at
least the next several years.
Contractual Obligations
The following are our contractual obligations, consisting of future minimum lease commitments related to facility and vehicle
leases as of December 31, 2014:
Contractual Obligations
Operating leases ................................................... $
Capital leases ........................................................
Total leases ........................................................... $
Purchase Commitments
Payments Due by Period ($’000’s)
Total
Less Than
1 Year
1-3 Years 3-5 Years
More Than
5 Years
5,368 $
402
5,770 $
1,821 $
167
1,988 $
3,467 $
235
3,702 $
80 $
—
80 $
—
—
—
We maintain certain open inventory purchase commitments with our suppliers to ensure a smooth and continuous supply for
key components. Our liability in these purchase commitments is generally restricted to a forecasted time-horizon as agreed
between the parties. These forecasted time-horizons can vary among different suppliers. Our open inventory purchase
commitments were not material at December 31, 2014. As a result, this amount is not included in the contractual obligations
table above.
Income Tax Liability
We have included in our Consolidated Balance Sheet a $74,000 long-term income tax liability for unrecognized tax benefits
and accrued interest as of December 31, 2014. At this time, we are unable to make a reasonably reliable estimate of the timing
of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this
amount is not included in the contractual obligations table above.
45
Other
In the normal course of business, we enter into agreements that contain a variety of representations, warranties, and
indemnification obligations. For example, we have entered into indemnification agreements with each of our directors and
executive officers. Our exposure under the various indemnification obligations is unknown and not reasonably estimable as
they involve future claims that may be made against us. As such, we have not accrued any amounts for such obligations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
Our exposure to interest rate risk relates primarily to our investment portfolio. Fixed rate securities may have their fair market
value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less income than
expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to
changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value
due to changes in interest rates. The primary objective of our investment activities is to preserve principal while at the same
time maximizing yields without significantly increasing risk. To achieve this objective, we invest in debt instruments of the
U.S. Government and its agencies and municipal bonds, and, by policy, restrict our exposure to any single type of investment
or issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain
investments at a weighted average maturity of generally less than eighteen months. Based on discounted cash flow modeling
with respect to our total investment portfolio as of December 31, 2014 and 2013, assuming a hypothetical increase in interest
rates of one percentage point, the fair value of our total investment portfolio would potentially decline by approximately
$612,000 and $788,000, respectively.
Foreign Currency Exchange
In 2014 and 2013, our international revenue was approximately 55% and 58%, respectively, of total revenue. Approximately
48% and 54%, of this international revenue was denominated in U.S. Dollars, respectively. All of the remaining revenue was
denominated in Japanese Yen, Euros, Australian Dollars and Swiss Francs. Our Japanese Yen denominated revenue
represents the majority of our foreign currency denominated revenue. In 2014 and 2013, the Japanese Yen, compared to the
U.S. Dollar, devalued by approximately 9% and 22%, respectively, which had a significant adverse foreign exchange impact
on our revenue − both from a re-measurement loss upon the conversion of our Japanese Yen denominated revenue as well as
the additional negative revenue impact due to the effective price increase for the local customers importing our U.S. Dollar
denominated systems into Japan. In addition, the Japanese Yen devaluation had a favorable foreign currency translation
impact on our local cost of sales and operating expenses.
We have historically not engaged in hedging activities relating to our non-U.S. Dollar operations.
46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CUTERA, INC. AND SUBSIDIARY COMPANIES
ANNUAL REPORT ON FORM 10-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Registrant and its subsidiaries are required to be included in Item 8:
Reports of Independent Registered Public Accounting Firms .......................................................................................
Consolidated Balance Sheets .........................................................................................................................................
Consolidated Statements of Operations .........................................................................................................................
Consolidated Statements of Comprehensive Loss .........................................................................................................
Consolidated Statements of Stockholders’ Equity .........................................................................................................
Consolidated Statements of Cash Flows ........................................................................................................................
Notes to Consolidated Financial Statements ..................................................................................................................
Page
48
50
51
52
53
54
55
The following Consolidated Financial Statement Schedule of the Registrant and its subsidiaries for the years ended
December 31, 2014, 2013 and 2012 is filed as a part of this Report as required to be included in Item 15(a) and should be
read in conjunction with the Consolidated Financial Statements of the Registrant and its subsidiaries:
Schedule
II
Valuation and Qualifying Accounts ............................................................................................................
Page
77
All other required schedules are omitted because of the absence of conditions under which they are required or because the
required information is given in the Consolidated Financial Statements or the Notes thereto.
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Cutera, Inc.
Brisbane, California
We have audited the accompanying consolidated balance sheet of Cutera, Inc. as of December 31, 2014 and the related
consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the year ended
December 31, 2014. In connection with our audit of the financial statements, we have also audited the financial statement
schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Cutera, Inc. at December 31, 2014, and the results of its operations and its cash flows for the year ended December
31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion,
the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Cutera Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal
Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated March 16, 2015 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
San Jose, California
March 16, 2015
48
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Cutera, Inc.:
We have audited the accompanying consolidated balance sheet of Cutera, Inc. as of December 31, 2013, and the related
consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the two years in
the period ended December 31, 2013. Our audit also included the financial statement schedule at Item 15(a) for each of the
years in the two-year period ended December 31, 2013. These financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Cutera, Inc. as of December 31, 2013, and the consolidated results of its operations, and its cash flows for each
of the two years in the period ended December 31, 2013, in conformity with US generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Redwood City, California
March 17, 2014
49
CUTERA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents ............................................................................................ $
Marketable investments ...............................................................................................
Accounts receivable, net of allowance for doubtful accounts of $0 and $19,
respectively ...............................................................................................................
Inventories....................................................................................................................
Deferred tax assets .......................................................................................................
Other current assets and prepaid expenses ...................................................................
Total current assets ..............................................................................................
Property and equipment, net .............................................................................................
Deferred tax assets, net of current portion ........................................................................
Intangibles, net .................................................................................................................
Goodwill ...........................................................................................................................
Other long-term assets ......................................................................................................
Total assets .......................................................................................................... $
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable .................................................................................................... $
Accrued liabilities ...................................................................................................
Deferred revenue ....................................................................................................
Total current liabilities ........................................................................................
Deferred revenue, net of current portion .................................................................
Income tax liability .................................................................................................
Other long-term liabilities .......................................................................................
Total liabilities ....................................................................................................
Commitments and contingencies (Note 11)
Stockholders’ equity:
Convertible preferred stock, $0.001 par value:
December 31,
2014
2013
9,803 $
71,343
11,137
10,988
26
1,591
104,888
1,461
269
595
1,339
361
108,913 $
3,083 $
11,007
8,898
22,988
4,346
145
926
28,405
16,242
66,831
9,679
9,006
31
1,507
103,296
1,362
329
2,019
1,339
324
108,669
1,820
9,328
7,494
18,642
4,340
108
1,314
24,404
Authorized: 5,000,000 shares; Issued and outstanding: none ......................................
—
—
Common stock, $0.001 par value:
Authorized: 50,000,000 shares; Issued and outstanding: 14,446,950 and 13,931,833
shares at December 31, 2014 and 2013, respectively ...............................................
Additional paid-in capital .......................................................................................
Accumulated deficit ................................................................................................
Accumulated other comprehensive income ............................................................
Total stockholders’ equity ...................................................................................
Total liabilities and stockholders’ equity ......................................................... $
14
105,721
(25,232 )
5
80,508
108,913 $
14
98,820
(14,620)
51
84,265
108,669
The accompanying notes are an integral part of these consolidated financial statements.
50
CUTERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Net revenue:
Products ......................................................................................... $
Service ...........................................................................................
Total net revenue ........................................................................
Cost of revenue:
Products .........................................................................................
Service ...........................................................................................
Total cost of revenue ..................................................................
Gross profit .................................................................................
Operating expenses:
Sales and marketing .......................................................................
Research and development .............................................................
General and administrative ............................................................
Total operating expenses ............................................................
Loss from operations ..........................................................................
Interest and other income, net ............................................................
Loss before income taxes ...................................................................
Income tax (benefit) provision ...........................................................
Net loss ............................................................................................... $
Year Ended December 31,
2013
2014
2012
60,299 $
17,839
78,138
26,796
7,969
34,765
43,373
32,246
10,543
11,203
53,922
(10,619)
226
(10,393)
219
(10,612) $
56,905 $
17,689
74,594
24,179
8,533
32,712
41,882
27,984
9,216
9,938
47,138
(5,256 )
455
(4,801 )
(54 )
(4,747 ) $
60,057
17,220
77,277
26,911
8,826
35,737
41,540
28,664
8,427
11,276
48,367
(6,827)
497
(6,330)
218
(6,548)
Net loss per share:
Basic and diluted ............................................................................ $
Weighted-average number of shares used in per share calculations:
Basic and diluted ............................................................................
(0.74) $
(0.33 ) $
(0.46)
14,254
14,421
14,089
The accompanying notes are an integral part of these consolidated financial statements.
51
CUTERA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Net loss ............................................................................................... $
Other comprehensive income (loss):
Available-for-sale investments
Net change in unrealized gain (loss) on available-for-sale
investments .............................................................................
Less: Reclassification adjustment for net gains on investments
recognized during the year .....................................................
Net change in unrealized gain (loss) on available-for-sale
investments .............................................................................
Tax provision (benefit) ..........................................................
Other comprehensive income (loss), net of tax ..................................
Comprehensive loss ........................................................................... $
Year Ended December 31,
2013
2014
2012
(10,612) $
(4,747 ) $
(6,548)
(42)
(4)
(46)
—
(46)
(10,658) $
(21 )
(9 )
(30 )
—
(30 )
(4,777 ) $
959
(19)
940
18
922
(5,626)
The accompanying notes are an integral part of these consolidated financial statements.
52
CUTERA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
Additional
Paid-in
Retained
Earnings
(Accumulated
Common Stock
Shares
Amount Capital
Deficit)
Accumulated
Other
Comprehensive
Income (loss)
Total
Stockholders’
Equity
Balance at December 31, 2011 ......... 13,948,395 $
Issuance of common stock for
14 $
95,719 $
(3,325) $
(841) $
91,567
employee purchase plan ...............
Exercise of stock options ..................
Issuance of common stock in
settlement of restricted stock
units, net of shares withheld for
employee taxes, and stock awards
Stock-based compensation expense .
Tax benefit from exercises of stock-
based payment awards .................
Net loss .............................................
Net change in unrealized gain (loss)
on available-for-sale investments
(net of $18 of tax provision).........
46,982
211,551
—
—
289
1,480
26,548
—
—
—
—
—
—
—
(101)
3,159
6
—
—
—
—
—
—
(6,548)
—
Balance at December 31, 2012 ......... 14,233,476
Issuance of common stock for
—
14
—
100,552
—
(9,873)
employee purchase plan ...............
Exercise of stock options ..................
Issuance of common stock in
51,338
612,210
—
1
362
5,048
—
—
settlement of restricted stock
units, net of shares withheld for
employee taxes, and stock awards
95,256
Repurchase of common stock .......... (1,060,447)
—
Stock-based compensation expense .
Net loss .............................................
—
Net change in unrealized gain (loss)
on available-for-sale investments .
—
Balance at December 31, 2013 ......... 13,931,833
Issuance of common stock for
employee purchase plan ...............
Exercise of stock options ..................
Issuance of common stock in
settlement of restricted stock
units, net of shares withheld for
employee taxes, and stock awards
Stock-based compensation expense .
Net loss .............................................
Net change in unrealized gain (loss)
52,759
396,970
65,388
—
—
—
(1)
—
—
—
14
—
—
—
—
—
(222)
(10,030)
3,110
—
—
98,820
451
3,307
—
—
—
(4,747)
—
(14,620)
—
—
(156)
3,299
—
—
—
(10,612)
on available-for-sale investments .
—
Balance at December 31, 2014 ......... 14,446,950 $
—
—
14 $ 105,721 $
—
(25,232) $
—
—
—
—
—
—
922
81
—
—
—
—
—
—
(30)
51
—
—
—
—
—
(46)
5 $
289
1,480
(101)
3,159
6
(6,548)
922
90,774
362
5,049
(222)
(10,031)
3,110
(4,747)
(30)
84,265
451
3,307
(156)
3,299
(10,612)
(46)
80,508
The accompanying notes are an integral part of these consolidated financial statements.
53
CUTERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss ......................................................................................... $
Adjustments to reconcile net loss to net cash used in operating
activities:
Stock-based compensation .....................................................
Tax benefit (deficit) from stock-based compensation ............
Excess tax benefit related to stock-based compensation ........
Depreciation and amortization ...............................................
Impairment of intangible assets .............................................
Other ......................................................................................
Changes in assets and liabilities:
Accounts receivable ...............................................................
Inventories .............................................................................
Other current assets and prepaid expenses .............................
Other long-term assets ...........................................................
Accounts payable ...................................................................
Accrued liabilities ..................................................................
Other long-term liabilities ......................................................
Deferred revenue ....................................................................
Income tax liability ................................................................
Net cash provided by (used in) operating activities ............
Cash flows from investing activities:
Acquisition of property, equipment and software .........................
Acquisition of intangible asset ......................................................
Business acquisition ......................................................................
Disposal of property and equipment .............................................
Proceeds from sales of marketable and long-term investments ....
Proceeds from maturities of marketable investments ....................
Purchase of marketable investments .............................................
Net cash (used in) provided by investing activities ............
Cash flows from financing activities:
Repurchase of common stock ....................................................
Proceeds from exercise of stock options and employee stock
purchase plan .........................................................................
Payments on capital lease obligation .........................................
Excess tax benefit related to stock-based compensation ...........
Net cash provided by (used in) financing activities ............
Net (decrease) increase in cash and cash equivalents ........................
Cash and cash equivalents at beginning of year ................................
Cash and cash equivalents at end of year .......................................... $
Supplemental cash flow information:
Cash paid for interest ....................................................................
Cash paid for income taxes ........................................................... $
Supplemental non-cash investing and financing activities:
Year Ended December 31,
2013
2014
2012
(10,612) $
(4,747 ) $
(6,548)
3,299
—
—
1,336
650
206
(1,460)
(1,982)
239
(37)
1,263
1,650
(285)
1,410
37
(4,286)
(734)
—
—
—
12,354
26,915
(44,146)
(5,611)
3,110
—
—
1,304
—
243
(857 )
2,108
345
73
(287 )
(371 )
(218 )
3,114
(304 )
3,513
(517 )
(155 )
—
63
15,578
36,030
(56,847 )
(5,848 )
3,160
6
(6)
1,606
—
(87)
(3,690)
1,167
859
89
(466)
(177)
(62)
1,915
(66)
(2,300)
(516)
—
(5,091)
—
31,564
43,009
(58,813)
10,153
—
(10,031 )
—
3,602
(144)
—
3,458
(6,439)
16,242
9,803 $
26
225 $
5,189
(127 )
—
(4,969 )
(7,304 )
23,546
16,242 $
19
337 $
1,667
—
6
1,673
9,526
14,020
23,546
—
307
—
Assets acquired under capital lease ............................................... $
70 $
577 $
The accompanying notes are an integral part of these consolidated financial statements.
54
CUTERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Operations and Principles of Consolidation
Cutera, Inc. (“Cutera” or the “Company”) is a global provider of laser and other energy-based aesthetic systems for
practitioners worldwide. The Company designs, develops, manufactures, and markets laser and other energy-based product
platforms for use by physicians and other qualified practitioners which enable them to offer safe and effective aesthetic
treatments to their customers. The Company currently markets the following key product platforms: CoolGlide®, xeo,
solera®, Genesis Plus, excel V, truSculpt, excel HR and enlighten. The Company’s products offer multiple hand pieces and
applications, which allow customers to upgrade their systems. The sales of systems, upgrades, hand pieces, hand piece refills
(Titan® and truSculpt) and the distribution of third party manufactured dermal fillers and cosmeceuticals are classified as
“Product” revenue. In the second quarter of 2014, the Company terminated its agreement with Merz Pharma GmbH (“Merz”)
for the distribution of its Radiesse dermal filler product. In addition to Product revenue, the Company generates revenue from
the sale of post-warranty service contracts, parts, detachable hand piece replacements (except for Titan and truSculpt) and
service labor for the repair and maintenance of products that are out of warranty, all of which is classified as “Service”
revenue.
Headquartered in Brisbane, California, the Company has wholly-owned subsidiaries that are currently operational in
Australia, Belgium, Canada, France, Japan, Switzerland and Hong Kong, that market, sell and service its products outside of
the United States. The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All inter-
company transactions and balances have been eliminated.
Use of Estimates
The preparation of Consolidated Financial Statements in conformity with generally accepted accounting principles in the
United States of America (“GAAP”) requires the Company’s management to make estimates and assumptions that affect the
amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially
from those estimates. On an ongoing basis, the Company evaluates their estimates, including those related to warranty
obligation, sales commission, accounts receivable and sales allowances, valuation of inventories, fair values of acquired
intangible assets, useful lives of intangible assets and property and equipment, fair values of options to purchase the
Company’s common stock and other share based awards, recoverability of deferred tax assets, and effective income tax rates,
among others. Management bases their estimates on historical experience and on various other assumptions that are believed
to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Cash, Cash Equivalents, and Marketable Investments
The Company invests its cash primarily in money market funds and in highly liquid debt instruments of U.S. federal and
municipal governments and their agencies, commercial paper and corporate debt securities. All highly liquid investments
with stated maturities of three months or less from date of purchase are classified as cash equivalents; all highly liquid
investments with stated maturities of greater than three months are classified as marketable investments. The majority of the
Company’s cash and investments are held in U.S. banks and its foreign subsidiaries maintain a limited amount of cash in
their local banks to cover their short term operating expenses.
The Company determines the appropriate classification of its investments in marketable securities at the time of purchase
and re-evaluates such designation at each balance sheet date. The Company’s marketable securities have been classified and
accounted for as available-for-sale. Investments with remaining maturities more than one year are viewed by the Company
as available to support current operations, and are classified as current assets under the caption marketable investments in the
accompanying Consolidated Balance Sheets. Investments in marketable securities are carried at fair value, with the unrealized
gains and losses reported as a component of stockholders’ equity. Any realized gains or losses on the sale of marketable
securities are determined on a specific identification method, and such gains and losses are reflected as a component of
interest and other income, net.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. In determining fair value, the Company utilizes valuation techniques
that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as
55
considers counterparty credit risk in its assessment of fair value. Carrying amounts of the Company’s financial instruments,
including cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values as of
the balance sheet dates because of their generally short maturities.
The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained
from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions
developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy
consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value
hierarchy are described below:
● Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or
liabilities.
● Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data,
including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not
active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that
do not require significant judgment since the input assumptions used in the models, such as interest rates and
volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full
term of the financial instrument.
● Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant
management judgment. These values are generally determined using pricing models for which the assumptions
utilize management’s estimates of market participant assumptions.
Impairment of Marketable Investments
After determining the fair value of available-for-sales debt instruments, gains or losses on these securities are recorded to
other comprehensive income, until either the security is sold or the Company determines that the decline in value is other-
than-temporary. The primary differentiating factors that the Company considers in classifying impairments as either
temporary or other-than-temporary impairments is the intent and ability to retain the investment in the issuer for a period of
time sufficient to allow for any anticipated recovery in market value, the length of the time and the extent to which the market
value of the investment has been less than cost, the financial condition and near-term prospects of the issuer. There were no
other-than-temporary impairments in the years ended December 31, 2014, 2013, and 2012.
Allowance for Sales Returns and Doubtful Accounts
The allowance for sales returns is based on the Company’s estimates of potential future product returns and other allowances
related to current period product revenue. The Company analyzes historical returns, current economic trends and changes in
customer demand and acceptance of our products.
The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The
Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the
accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash, cash
equivalents, marketable investments and accounts receivable. The Company’s cash and cash equivalents are primarily
invested in deposits and money market accounts with three major financial institutions in the U.S. In addition, the Company
has operating cash balances in banks in each of the international locations in which it operates. Deposits in these banks may
exceed the amount of insurance provided on such deposits, if any. Management believes that these financial institutions are
financially sound and, accordingly, believes that minimal credit risk exists. The Company has not experienced any losses on
its deposits of cash and cash equivalents.
The Company invests in debt instruments, including bonds of the U.S. Government, its agencies and municipalities. The
Company has also invested in other high grade investments such as commercial paper and corporate bonds. By policy, the
Company restricts its exposure to any single issuer by imposing concentration limits. To minimize the exposure due to adverse
shifts in interest rates, the Company maintains investments at an average maturity (interest reset date for auction-rate
securities and variable rate demand notes) of generally less than eighteen months.
56
Accounts receivable are typically unsecured and are derived from revenue earned from worldwide customers. The Company
performs credit evaluations of its customers and maintains reserves for potential credit losses. No single customer represented
more than 10% of net accounts receivable as of either December 31, 2014 or 2013.
During the years ended December 31, 2014, 2013, and 2012, domestic revenue accounted for 45%, 42%, and 41%,
respectively, of total revenue, while international revenue accounted for 55%, 58%, and 59%, respectively, of total revenue,
for each of the years. No single customer represented more than 10% of total revenue for any of the years ended
December 31, 2014, 2013, and 2012.
The Company is also subject to risks common to companies in the medical device industry, including, but not limited to, new
technology innovations, dependence on key personnel, dependence on key suppliers, protection of proprietary technology,
product liability, Food and Drug Administration and/ or international regulatory approvals required for new products and
compliance with government regulations.
Inventories
Inventories are stated at the lower of cost or market, cost being determined on a standard cost basis (which approximates
actual cost on a first-in, first-out basis) and market being determined as the lower of replacement cost or net realizable value.
The Company includes demonstration units within inventories. Demonstration units are carried at cost and amortized over
an estimated economic life of two years. Amortization expense related to demonstration units is recorded in cost of revenue
or in the respective operating expense line based on which function and purpose for which it is being used for. Proceeds from
the sale of demonstration units are recorded as revenue and all costs incurred to refurbish the systems prior to sale are charged
to cost of revenue.
As of December 31, 2014 and 2013, demonstration inventories included in the “Finished goods inventory” balance was
$2.3 million and $1.8 million, respectively.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation recognized is on a straight-line basis
over the estimated useful lives of the assets, generally as follows:
Leasehold improvements ..........................................................................
Office equipment and furniture (years) ....................................................
Machinery and equipment (years) ............................................................
Useful Lives
Lesser of useful life or term of lease
3
3
Upon sale or retirement of assets, the costs and related accumulated depreciation and amortization are removed from the
balance sheet and the resulting gain or loss is reflected in operating expenses. Maintenance and repairs are charged to
operations as incurred.
Depreciation expense related to property, equipment and leasehold improvements for 2014, 2013 and 2012, were $562,000,
$602,000 and $436,000 respectively. Amortization expense for vehicles leased under capital leases is included in depreciation
expense.
Goodwill and Intangible Assets
Goodwill, which represents the excess of the purchase price over the fair value of net tangible and identifiable intangible
assets, is not subject to amortization, but is subject to at least an annual assessment for impairment, applying a fair-value
based test.
The Company’s intangible assets are comprised of purchased technology sub-licenses, acquired customer relationships, and
those assets acquired in conjunction with an asset acquisition in February 2012 including, existing customer relationships,
product portfolio and a manufacturing process for the products acquired. All identifiable intangibles have finite lives and are
carried at cost, net of accumulated amortization. Amortization was recorded using the straight-line method, over their
respective useful lives, which range from approximately 11 months to 10 years.
57
Impairment of Long-lived Assets
Goodwill is not amortized, but is tested for impairment at least annually or as circumstances indicate their value may no
longer be recoverable. The goodwill impairment test is generally performed annually during the fourth fiscal quarter (or
earlier if impairment indicators arise). The Company continues to operate in one segment, which is considered to be the sole
reporting unit and therefore, goodwill was tested for impairment at the enterprise level. As of December 31, 2014, there has
been no impairment of goodwill.
The Company evaluates the recoverability of its long-lived assets, which include amortizable intangible and tangible assets.
Acquired intangible assets with definite useful lives are amortized over their useful lives. The Company evaluates long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying value of long-lived assets may
not be recoverable. The Company recognizes such impairment in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets. In 2014, the Company’s impairment review indicated that certain
purchased long-lived assets associated with the Iridex acquisition were impaired and an impairment charge of $650,000 was
recognized. No other impairment losses were incurred in the periods presented.
Warranty Obligations
The Company provides a one-year standard warranty on all systems. Warranty coverage provided is for labor and parts
necessary to repair the systems during the warranty period.
The Company accounts for the estimated warranty cost of the standard warranty coverage as a charge to costs of revenue
when revenue is recognized. The estimated warranty cost is based on historical product performance. To determine the
estimated warranty reserve, the Company utilizes actual service records to calculate the average service expense per system
and applies this to the equivalent number of units exposed under warranty. The Company updates these estimated charges
every quarter.
Revenue Recognition
Product, Upgrade, Titan hand piece refill, and Dermal filler and cosmeceutical revenue is recognized when title and risk of
ownership has been transferred, provided that:
● Persuasive evidence of an arrangement exists;
● The price is fixed or determinable;
● Delivery has occurred or services have been rendered; and
● Collectability is probable.
Transfer of title and risk of ownership occurs when the product is shipped to the customer or when the customer receives the
product, depending on the nature of the arrangement. Revenue is recorded net of customer and distributor discounts. For sales
transactions when collectability is not reasonably assured, the Company recognizes revenue upon receipt of cash payment.
Sales to customers and distributors do not include any return or exchange rights. In addition, the Company’s distributor
agreements obligate the distributor to pay the Company for the sale regardless of whether the distributor is able to resell the
product. Shipping and handling charges are invoiced to customers based on the amount of products sold. Shipping and
handling fees are recorded as revenue and the related expense as a component of cost of revenue.
Multiple-element arrangements
A multiple-element arrangement includes the sale of one or more tangible product offerings with one or more associated
services offerings, each of which are individually considered separate units of accounting. The Company determined that its
multiple-element arrangements are generally comprised of the following elements that are recognized as separate units of
accounting: system and upgrade sales; and service contracts.
For multiple-element arrangements revenue is allocated to each element based on their relative selling prices. Relative selling
prices would be based first on vendor specified objective evidence (“VSOE”), then on third-party evidence of selling price
(“TPE”) when VSOE does not exist, and then on best estimate of selling price (“BESP”) when VSOE and TPE do not exist.
Because the Company has neither VSOE nor TPE for its systems, the allocation of revenue has been based on the Company’s
BESPs. The objective of BESP is to determine the price at which the Company would transact a sale if the product was sold
on a stand-alone basis. The Company determines BESP for its systems by considering multiple factors including, but not
58
limited to, prices charged for stand-alone sales, features and functionality of the system, geographies, type of customer, and
market conditions. Revenue allocated to each element is then recognized when the other revenue recognition criteria are met
for each element.
In the first and second quarter of 2013, with respect to the sale of its truSculpt product, the Company provided promotions
that included an unlimited number of “free” hand piece replacements during a stated trial period of 3 months or 12 months.
These free refills were treated as an undelivered element under FASB ASC 605-25 in the original revenue transaction. The
Company deferred the relative fair value related to the estimated number of hand piece replacements to be delivered during
the promotional period and recognized that deferred revenue over the free refills promotion period. Commencing with the
third quarter of 2013, the Company included unlimited refills as part of the truSculpt standard warranty and determined that
this was no longer a separate deliverable under the multiple-element arrangement revenue guidance. Following this change,
the Company recognized the revenue under the warranty model, in which the revenue for the system sale was recognized up-
front along with an estimate of the costs which will be incurred under the warranty obligation recorded in cost of revenue.
The Company also offers customers extended service contracts. Revenue under service contracts is recognized on a straight-
line basis over the period of the applicable service contract. Service revenue, from customers whose systems are not under a
service contact, is recognized as the services are provided. Service revenue for the years ended December 31, 2014, 2013,
and 2012 was $17.8 million, $17.7 million, and $17.2 million, respectively.
Cost of Revenue
Cost of revenue consists primarily of material, finished and semi-finished products purchased from third-party manufacturers,
labor, stock-based compensation expenses, overhead involved in our internal manufacturing processes, technology license
amortization and royalties, costs associated with product warranties and any inventory or intangible write-downs.
The Company's system sales include a control console, universal graphic user interface, control system software, high voltage
electronics and a combination of applications (referred to as hand pieces). Hand pieces are programmed to have a limited
number of uses to ensure the safety of the device to patients. The Company sells refurbished hand pieces, or "refills," of its
Titan product and provides for refurbishment of other hand pieces under warranty or service contracts. When customers
purchase a replacement hand piece (or “refill”) or are provided a replacement hand piece under a warranty or service contract,
Cutera ships a previously refurbished unit. Upon the receipt of the expended hand piece from the customer the Company
capitalizes the expended hand piece as inventory at the estimated fair value. Cost of revenue includes the costs incurred to
refurbish hand pieces.
Research and Development Expenditures
Costs related to research, design, development and testing of products are charged to research and development expense as
incurred. Expenses incurred primarily relate to employees, facilities, material, third party contractors and clinical and
regulatory fees.
Advertising Costs
Advertising costs are included as part of sales and marketing expense and are expensed as incurred. Advertising expenses for
2014, 2013 and 2012 were $1.6 million, $1.6 million and $1.3 million, respectively.
Stock-based Compensation
The Company accounts for stock-based employee compensation plans under the fair value recognition and measurement
provisions under U.S. GAAP. The Company’s stock-based compensation cost is measured at the grant date, based on the fair
value of the award, and is recognized as expense over the requisite service period. The Company elected to use the Black-
Scholes-Merton (“BSM”) pricing model to determine the fair value of stock options on the dates of grant. Restricted stock
units (“RSUs”), performance stock units (“PSUs”) and stock awards are measured based on the fair market values of the
underlying stock on the dates of grant. Shares are issued on the vesting dates, net of the tax withholding requirements to be
paid by the Company on behalf of its employees. As a result, the actual number of shares issued will be fewer than the actual
number of RSUs outstanding. Furthermore, the Company records the liability for withholding amounts to be paid by us as a
reduction to additional paid-in capital when the shares are issued. Also, the Company recognizes stock-based compensation
using the straight-line method.
59
U.S. GAAP requires the cash flows resulting from the tax benefits due to tax deductions in excess of the compensation cost
recognized for stock-based awards for options exercised and RSUs vested during the period (excess tax benefits) to be
classified as financing cash flows.
Income Taxes
The Company recognizes income taxes under the liability method. The Company recognizes deferred income taxes for
differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for
the years in which differences are expected to reverse. The Company recognizes the effect on deferred taxes of a change in
tax rates in income in the period that includes the enactment date. For deferred tax assets which are not subject to a valuation
allowance, the Company has determined that its future taxable income will be sufficient to recover all of the deferred tax
assets. However, should there be a change in their ability to recover the deferred tax assets, the Company could be required
to record a valuation allowance against the net carrying value of its deferred tax assets. This would result in an increase to
the Company’s tax provision in the period in which they determined that the recovery was not probable.
The measurement of deferred taxes often involves an exercise of judgment related to the computation and realization of tax
basis. The deferred tax assets and liabilities reflect management’s assessment that tax positions taken, and the resulting tax
basis, are more likely than not to be sustained if they are audited by taxing authorities. Also, assessing tax rates that the
Company expects to apply and determining the years when the temporary differences are expected to affect taxable income
requires judgment about the future apportionment of our income among the states in which the Company operates. These
matters, and others, involve the exercise of significant judgment. Any changes in our practices or judgments involved in the
measurement of deferred tax assets and liabilities could materially impact our financial condition or results of operations.
Valuation allowances are established when necessary to reduce deferred income tax assets to amounts that the Company
believes are more likely than not to be recovered. The Company evaluates its deferred tax assets quarterly to determine
whether adjustments to our valuation allowance are appropriate. In making this evaluation, the Company relies on its recent
history of pre-tax earnings, estimated timing of future deductions and benefits represented by the deferred tax assets, and its
forecasts of future earnings, the latter two of which involve the exercise of significant judgment. The Company maintains a
full valuation allowance against its U.S. federal and state deferred tax asset due to a history of operating losses.
The Company establishes reserves for uncertain tax positions in accordance with the Income Taxes subtopic of ASC 740.
The subtopic prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the
financial statements. Additionally, the subtopic provides guidance on de-recognition, measurement, classification, interest
and penalties, and transition of uncertain tax positions. The impact of an uncertain income tax position on income tax expense
must be recognized at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position will
not be recognized if it has less than a 50% likelihood of being sustained. The Company has provided taxes and related interest
and penalties due for potential adjustments that may result from examinations of open U.S. Federal, state and foreign tax
years. The Company will reverse the liability and recognize a tax benefit during the period in which the Company makes the
determination that the tax position is effectively settled through examination, negotiation, or litigation, or the statute of
limitations for the relevant taxing authority to examine and challenge the tax position has expired. The Company will record
an additional charge in the Company’s provision for taxes in the period in which the Company determines that the recorded
tax liability is less than the Company expects the ultimate assessment to be.
Computation of Net Loss per Share
Basic net income per share is computed using the weighted-average number of shares outstanding during the period. Diluted
net income per share is computed using the weighted-average number of shares and dilutive potential shares outstanding
during the period. Dilutive potential shares primarily consist of employee stock options. Dilute earnings per share is the same
as basic earnings per share for the periods presented because the inclusion of outstanding common stock equivalents would
be anti-dilutive.
U.S. GAAP requires that employee equity share options, non-vested shares and similar equity instruments granted by the
Company be treated as potential common shares outstanding in computing diluted earnings per share. In periods of net
income, diluted shares outstanding include the dilutive effect of in-the-money options, which is calculated based on the
average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the
employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has
not yet recognized, and the amount of tax benefits that would be recorded in additional-paid-in-capital (“APIC”) when the
award becomes deductible are all assumed to be used to repurchase shares.
60
Comprehensive Loss
Comprehensive loss includes all changes in stockholders’ equity except those resulting from investments or contributions by
stockholders. For the periods presented, the accumulated other comprehensive income (loss) consisted solely of the
unrealized gains or losses on the Company's available-for-sale investments, net of tax.
Foreign Currency
The U.S. Dollar is the functional currency of the Company’s subsidiaries. Monetary and non-monetary assets and liabilities
are re-measured into U.S. Dollars at the applicable period end exchange rate. Sales and operating expenses are re-measured
at average exchange rates in effect during each period, except for those expenses related to non-monetary assets which are
re-measured at historical exchange rates. Gains or losses resulting from foreign currency transactions are included in net
income (loss) and are insignificant for each of the three years ended December 31, 2014. The effect of exchange rate changes
on cash and cash equivalents was insignificant for each of the three years presented in the period ended December 31, 2014.
Segments
The Company operates in one segment. Management uses one measurement of profitability and does not segregate its
business for internal reporting. As of December 31, 2014 and 2013, 71% and 83%, respectively, of all long-lived assets were
maintained in the U.S. See Note 10 for details relating to revenue by geography.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates No. 2014-09,
Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be
entitled to for the transfer of promised goods or services to customers. The updated standard will replace most existing
revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or
cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for the
Company in the first quarter of fiscal year 2017. The Company has not yet selected a transition method and is currently
evaluating the effect that the updated standard will have on the Consolidated Financial Statements and related disclosures.
NOTE 2—INVESTMENT SECURITIES
The following tables summarize cash, cash equivalents and marketable securities (in thousands):
Cash and cash equivalents:
Cash .............................................................................................................................. $
Cash equivalents:
Money market funds .................................................................................................
Commercial paper .....................................................................................................
Total cash and cash equivalents .............................................................................
Marketable securities:
U.S. government notes ..............................................................................................
U.S. government agencies .........................................................................................
Municipal securities ..................................................................................................
Commercial paper .....................................................................................................
Corporate debt securities ...........................................................................................
Total marketable securities ....................................................................................
December 31,
2014
2013
7,761 $
3,816
242
1,800
9,803
18,361
19,800
3,607
10,695
18,880
71,343
9,926
2,500
16,242
10,522
25,858
2,039
10,242
18,170
66,831
Total cash, cash equivalents and marketable securities .................................................... $
81,146 $
83,073
61
The following table summarizes unrealized gains and losses related to our marketable investments (in thousands):
December 31, 2014
Cash and cash equivalents
Marketable investments
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Market
Value
$
9,803 $
— $
— $
9,803
U.S. government notes ..............................................................
U.S. government agencies ........................................................
Municipal securities ..................................................................
Commercial paper .....................................................................
Corporate debt securities ..........................................................
Total marketable securities ...................................................
18,345
19,768
3,607
10,693
18,875
71,288
17
33
3
2
13
68
(1)
(1)
(3)
—
(8)
(13)
18,361
19,800
3,607
10,695
18,880
71,343
Total cash, cash equivalents and marketable securities ......... $
81,091 $
68 $
(13) $
81,146
December 31, 2013
Cash and cash equivalents ............................................................ $
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Market
Value
16,242 $
— $
— $
16,242
Marketable investments
U.S. government notes ..............................................................
U.S. government agencies ........................................................
Municipal securities ..................................................................
Commercial paper .....................................................................
Corporate debt securities ..........................................................
Total marketable securities ...................................................
10,516
25,823
2,043
10,239
18,109
66,730
11
38
1
3
61
114
(5)
(3)
(5)
—
—
(13)
10,522
25,858
2,039
10,242
18,170
66,831
Total cash, cash equivalents and marketable securities ......... $
82,972 $
114 $
(13) $
83,073
No investments were in a continuous unrealized loss position for longer than 12 months.
The following table summarizes the estimated fair value of our marketable investments classified by the contractual maturity
date of the security as of December 31, 2014 (in thousands):
Due in less than one year (fiscal year 2015) .................................................................................................. $
Due in 1 to 3 years (fiscal year 2016 - 2017) ................................................................................................
$
37,023
34,320
71,343
Amount
Fair Value Measurements
The following table summarizes financial assets measured and recognized at fair value on a recurring basis and classified
under the appropriate level of the fair value hierarchy as described above (in thousands):
December 31, 2014
Cash equivalents:
Level 1 Level 2 Level 3
Total
Money market funds ............................................................... $
Commercial paper ..................................................................
242 $
—
— $
1,800
Short term marketable investments:
Available-for-sale securities ...................................................
Total assets at fair value ..................................................... $
—
242 $
71,343
73,143 $
— $
—
—
— $
242
1,800
71,343
73,385
62
December 31, 2013
Cash equivalents:
Level 1 Level 2 Level 3
Total
Money market funds ............................................................... $
Commercial paper ..................................................................
9,926 $
—
— $
2,500
Short term marketable investments:
Available-for-sale securities ...................................................
Total assets at fair value ..................................................... $
—
9,926 $
66,831
69,331 $
— $
—
—
— $
9,926
2,500
66,831
79,257
The Company’s Level 1 financial assets are money market funds with fair values are based on quoted market prices The
Company’s Level 2 investments include U.S. government-backed securities and corporate securities that are valued based
upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided
markets, benchmark securities, bids, offers and reference data including market research publications. The average remaining
maturity of the Company’s Level 2 investments as of December 31, 2014 is less than 36 months and all of these investments
are rated by S&P and Moody’s at A or better.
The table presented below summarizes the change in carrying value associated with Level 3 financial assets, which represents
the Company’s investment in long term Auction Rate Securities, for the year ended December 31, 2012 (in thousands):
Balance at December 31, 2011 ...................................................................................................................... $
Total gains or losses (realized or unrealized)
Included in other comprehensive income (loss) ............................................................................................
Settlements ....................................................................................................................................................
Balance at December 31, 2012, 2013 and 2014 ............................................................................................ $
Amount
3,027
262
(3,289)
—
At December 31, 2014, the Company evaluated the fair values of its intangible assets, which are classified within Level 3 of
the fair value hierarchy. With respect to the purchased intangible assets associated with the Iridex acquisition in 2012, the
Company determined that there was impairment in the value of these intangible assets based on an undiscounted cash flow
model. Based on a discounted cash flow model, we measured the impairment of the purchased intangibles. This model relied
on Level 3 inputs that included expected future cash flow streams as well as a market discount rate and is subject to
uncertainties that are difficult to predict.
NOTE 3—ACQUISITION
On February 2, 2012, Cutera acquired certain assets and liabilities of Iridex’s global aesthetics business unit for $5.1 million
in cash. This business is engaged in developing, manufacturing, marketing and servicing laser-based medical systems and
delivery devices. The business purpose of this transaction was to acquire access to an expanded installed base of customers,
add to Cutera’s product offerings and acquire a recurring stream of service revenue. This acquisition was considered a
business combination for accounting purposes, and as such, in addition to valuing all the assets, the Company recorded
goodwill associated with the expected synergies from leveraging the customer relationships and integrating new product
offerings into the Company’s business.
The fair values of the assets acquired were determined to be $4.8 million of net tangible and intangible assets and $1.3 million
of goodwill. The customer relationship intangible assets are being amortized over 5 years on a straight-line basis. Other
intangible assets are being amortized over 11 months to 5 years from the date of acquisition on a straight-line basis.
The following table summarizes the fair value as of February 2, 2012 of the net assets acquired (in thousands):
Purchase price paid ....................................................................................................................................... $
5,091
Assets (liabilities acquired):
Inventory ...................................................................................................................................................
Customer relationship intangible assets ....................................................................................................
Other identified intangible assets ..............................................................................................................
Goodwill ...................................................................................................................................................
Deferred service revenue ..........................................................................................................................
Accrued warranty liability.........................................................................................................................
Total ...................................................................................................................................................... $
1,552
2,510
780
1,339
(780)
(310)
5,091
63
The identifiable intangible assets and goodwill identified above shall be deductible for income taxes over a useful economic
life of 15 years.
NOTE 4—BALANCE SHEET DETAIL
Inventories
Inventories consist of the following (in thousands):
Raw materials ................................................................................................................... $
Finished goods .................................................................................................................
Total .............................................................................................................................. $
7,185 $
3,803
10,988 $
5,989
3,017
9,006
December 31,
2014
2013
Property and Equipment, net
Property and equipment, net, consists of the following (in thousands):
Leasehold improvements .................................................................................................. $
Office equipment and furniture ........................................................................................
Machinery and equipment ................................................................................................
Less: Accumulated depreciation ......................................................................................
Property and equipment, net ..................................................................................... $
December 31,
2014
2013
641 $
2,964
4,140
7,745
(6,284 )
1,461 $
625
3,285
3,876
7,786
(6,424)
1,362
Included in machinery and equipment are financed vehicles used by the Company’s North American sales employees. As of
December 31, 2014 and 2013, the gross capitalized value of the leased vehicles was $647,000 and $577,000 and the related
accumulated depreciation was $253,000 and $98,000, respectively.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets comprise a patent sublicense acquired from Palomar in 2006, intangible assets and
goodwill related to the acquisition of Iridex’s aesthetic business unit, and, customer relationships in the Benelux countries
acquired from a former distributor in 2013. The components of intangible assets at December 31, 2014 and 2013 were as
follows (in thousands):
December 31, 2014
Patent sublicense ................................................................................ $
Customer relationship intangible related to acquisition .....................
Other identified intangible assets related to acquisition .....................
Other intangible ..................................................................................
Goodwill .............................................................................................
Total ................................................................................................... $
December 31, 2013
Patent sublicense ................................................................................ $
Customer relationship intangible related to acquisition .....................
Other identified intangible assets related to acquisition .....................
Other intangible ..................................................................................
Goodwill .............................................................................................
Total ................................................................................................... $
64
Gross
Carrying
Amount
Accumulated
Amortization
& Impairment
Amount
Net
Amount
1,218 $
2,510
780
155
1,339
6,002 $
1,218 $
2,510
780
155
1,339
6,002 $
1,206 $
1,998
780
84
—
4,068 $
1,068 $
962
607
6
—
2,643 $
12
512
—
71
1,339
1,934
150
1,548
173
149
1,339
3,359
As of December 31, 2014, the Company evaluated the recoverability of its long-lived assets. Relating to the purchased
intangible assets associated with the Iridex acquisition in 2012, due to the discontinuation of the manufacture and sale of all
products acquired, lower than projected future Service revenue, and lower than projected revenue expected from the
distributor relationships acquired, the Company concluded based on future undiscounted cash flows that the remaining
carrying value of these assets was impaired. As a result, the Company recorded an impairment charge of $650,000 in cost of
revenue.
Amortization expense (excluding the impairment charge described above) in 2014, 2013, and 2012 for intangible assets was
$773,000, $702,000, and $1.2 million, respectively.
Based on intangible assets recorded at December 31, 2014, and assuming no subsequent additions to, or impairment of the
underlying assets, the remaining estimated annual amortization expense is expected to be as follows (in thousands):
Year ending December 31,
2015 ............................................................................................................................................................... $
2016 ...............................................................................................................................................................
2017 ...............................................................................................................................................................
Total ........................................................................................................................................................ $
Amount
452
142
1
595
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
December 31,
2014
2013
Payroll and related expenses ............................................................................................ $
Sales tax ...........................................................................................................................
Warranty ...........................................................................................................................
Other.................................................................................................................................
Total ................................................................................................................................. $
5,533 $
1,789
1,167
2,518
11,007 $
4,753
1,307
1,202
2,066
9,328
NOTE 5—WARRANTY AND SERVICE CONTRACTS
The Company has a direct field service organization in the U.S. Internationally, the Company provides direct service support
through its wholly-owned subsidiaries in Australia, Belgium, Canada, France and Japan as well as through a network of
distributors and third-party service providers in several other countries where it does not have a direct presence. The Company
provides a warranty with its products, depending on the type of product. After the original warranty period, maintenance and
support are offered on a service contract basis or on a time and materials basis. The Company currently provides for the
estimated cost to repair or replace products under warranty at the time of sale.
Warranty Accrual (in thousands)
Balance at beginning of year ............................................................................................ $
Add: Accruals for warranties issued during the year .......................................................
Less: Settlements made during the year ...........................................................................
Balance at end of year .............................................................................................. $
1,202 $
2,497
(2,532 )
1,167 $
1,212
3,420
(3,430)
1,202
December 31,
2014
2013
Deferred Service Contract Revenue (in thousands)
Balance at beginning of year ............................................................................................ $
Add: Payments received ...................................................................................................
Less: Revenue recognized ................................................................................................
Balance at end of year .............................................................................................. $
11,637 $
13,913
(12,601 )
12,949 $
8,539
15,026
(11,928)
11,637
December 31,
2014
2013
65
Costs incurred under service contracts in 2014, 2013 and 2012 amounted to $6.6 million, $6.9 million, and $7.2 million,
respectively, and are recognized as incurred.
NOTE 6—STOCKHOLDERS’ EQUITY, STOCK PLANS AND STOCK-BASED COMPENSATION EXPENSE
As of December 31, 2014, the Company had the following stock-based employee compensation plans:
2004 Equity Incentive Plan and 1998 Stock Plan
In 1998, the Company adopted the 1998 Stock Plan, or 1998 Plan, under which 4,650,000 shares of the Company’s common
stock were reserved for issuance to employees, directors and consultants.
On January 12, 2004, the Board of Directors adopted the 2004 Equity Incentive Plan. A total of 1,750,000 shares of common
stock were originally reserved for issuance pursuant to the 2004 Equity Incentive Plan. In addition, the shares reserved for
issuance under the 2004 Equity Incentive Plan included shares reserved but un-issued under the 1998 Plan and shares returned
to the 1998 Plan as the result of termination of options or the repurchase of shares. In 2012 the stockholders approved a
“fungible share” provision whereby each full-value award issued under the 2004 Equity Incentive Plan results in a
requirement to subtract 2.12 shares from the shares reserved under the Plan.
Options granted under the 1998 Plan and 2004 Equity Incentive Plan may be incentive stock options or non-statutory stock
options. Stock purchase rights may also be granted under the 2004 Equity Incentive Plan. Incentive stock options may only
be granted to employees. The Board of Directors determines the period over which options become exercisable. Options
granted under the Plan to employees generally vest over a four year term from the vesting commencement date and become
exercisable 25% on the first anniversary of the vesting commencement date and an additional 1/48th on the last day of each
calendar month until all of the shares have become exercisable. During 2013 and 2012 the officers of the Company were
granted options that vest over a three year term at the rate of 1/3rd on the one year anniversary of the vesting commencement
date and 1/36th thereafter. In 2014 the officers of the Company were granted RSUs and PSUs but were not granted any
options. The contractual term of the options granted in 2013 and 2012 was seven years.
In accordance with the 2004 Equity Incentive Plan, prior to 2012, the Company’s non-employee directors were granted
$60,000 of grant date fair value, fully vested, stock awards annually on the date of the Company’s Annual Meeting of
stockholders. Commencing with 2012, the Company’s non-employee directors get $60,000 of RSUs annually that cliff-vest
on the one year anniversary of the grant date. In the years ended December 31, 2014, 2013 and 2012, the Company issued
38,688, 40,674 and 52,938 shares of stock to its non-employee directors, respectively.
In the years ended December 31, 2014 and 2013, the Company’s Board of Directors granted 211,250 and 148,004,
respectively, of RSUs to its executive officers and certain members of the Company’s management. The RSUs granted to the
employees vest at the rate of one-fourth on the one-year anniversary of the grant date, and one-fourth in each of the subsequent
three years. The RSUs granted to the executive officers vest at the rate of one-third on the one-year anniversary of the grant
date, and one-third in each of the subsequent two years. The Company measured the fair market values of the underlying
stock on the dates of grant and recognizes the stock-based compensation expense using the straight-line method over the
vesting period.
In addition, in the years ended December 31, 2014 and 2013 the Company’s Board of Directors granted its executive officers
and certain senior management employees 105,000 and 33,751 of PSUs that had a vesting date of June 30, 2015, and
June 1, 2014, respectively, subject to the recipient’s continued service through that date and achievement of the pre-
established performance objectives. At the vest date, the Company issues fully-paid up common stock, based on the degree
of achievement towards pre-established targets. The Company’s targets were based on revenue and operating loss
improvements, compared to the same period in the prior year. The Company recognizes stock based compensation expense
over the requisite services period if it is probable that the performance goals will be met.
66
2004 Employee Stock Purchase Plan
On January 12, 2004, the Board of Directors adopted the 2004 Employee Stock Purchase Plan. Under the 2004 Employee
Stock Purchase Plan, or 2004 ESPP, eligible employees are permitted to purchase common stock at a discount through payroll
deductions. The 2004 ESPP offering and purchase periods are for approximately six months. The 2004 ESPP has an evergreen
provision based on which shares of common stock eligible for purchase are increased on the first day of each fiscal year by
an amount equal to the lesser of:
i. 600,000 shares;
ii. 2.0% of the outstanding shares of common stock on such date; or
iii. an amount as determined by the Board of Directors.
The Company’s Board of Directors did not increase the shares available for future grant on January 1, 2014, 2013, 2012 and
2011. The price of the common stock purchased is the lower of 85% of the fair market value of the common stock at the
beginning or end of a six month offering period. In the years ended December 31, 2014 and 2013, under the 2004 ESPP, the
Company issued 52,759 and 51,338 shares, respectively. At December 31, 2014, 905,857 shares remained available for future
issuance.
Option Activity
Activity under the 1998 Plan and 2004 Equity Incentive Plan is summarized as follows:
Options Outstanding
Shares
Available
For Grant
Number of
Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
(in years)
4.6
Aggregate
Intrinsic
Value
(in $ millions)(1)
0.4
474,537 3,549,022 $
Balances as of December 31, 2011 .....................
Additional shares reserved(2) ................................ 1,910,000
—
921,500 $
(921,500)
Options granted ....................................................
(211,551) $
—
Options exercised .................................................
(470,732) $
470,732
Options cancelled (expired or forfeited)...............
—
(314,159)
Stock awards granted ...........................................
—
Stock awards cancelled (expired or forfeited) ......
24,746
Balances as of December 31, 2012 ..................... 1,644,356 3,788,239 $
Options granted .................................................... (1,007,166) 1,007,166 $
(612,210) $
Options exercised .................................................
(391,033) $
Options cancelled (expired or forfeited)...............
—
Stock awards granted ...........................................
—
Stock awards cancelled (expired or forfeited) ......
709,483 3,792,162 $
Balances as of December 31, 2013 .....................
Additional shares reserved(3) ................................
200,000
—
486,300 $
(486,300)
Options granted ....................................................
(396,970) $
—
Options exercised .................................................
(418,925) $
418,925
Options cancelled (expired or forfeited)...............
—
(764,394)
Stock awards granted ...........................................
—
Stock awards cancelled (expired or forfeited) ......
52,046
129,760 3,462,567 $
Balances as of December 31, 2014 .....................
Exercisable as of December 31, 2014 ................
2,330,762 $
Expected to vest, net of estimated forfeitures,
—
391,033
(399,997)
81,257
9.92
—
7.04
7.00
9.45
—
—
9.44
8.97
8.16
10.37
—
—
9.42
—
9.78
8.33
11.15
—
—
9.39
9.62
4.3 $
2.6
4.2 $
5.1
3.4 $
2.7 $
5.7
3.7
1.7
as of December 31, 2014 ................................
909,562 $
8.86
4.96 $
(1) Based on the closing stock price of the Company’s stock of $10.68 on December 31, 2014, $10.18 on December 31,
2013, $9.00 on December 30, 2012 and $7.45 on December 31, 2011.
(2) Approved by stock holders in 2012.
(3) Approved by Board of Directors in 2014, subject to stock holder’s approval in 2015.
67
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference between
the Company’s closing stock price on the last trading day of the fiscal year and the exercise price, multiplied by the number
of in-the-money options) that would have been received by the option holders had all option holders exercised their options
on December 31, 2014. The aggregate intrinsic amount changes based on the fair market value of the Company’s common
stock. Total intrinsic value of options exercised in 2014, 2013 and 2012 was $824,000, $2.1 million, and $397,000,
respectively. The options outstanding and exercisable at December 31, 2014 were in the following exercise price ranges:
Options Outstanding
Options Exercisable
Range of Exercise Price
$ 6.54 ......................................................................
$ 6.88 ......................................................................
$ 7.11–$ 8.66 ..........................................................
$ 8.72 ......................................................................
$ 8.80 ......................................................................
$ 8.81–$9.65 ...........................................................
$ 9.74–$10.03 .........................................................
$ 10.24 ....................................................................
$ 10.32–$14.78 .......................................................
$ 16.25–$25.73 .......................................................
$ 6.54–$25.73 .........................................................
Number
Outstanding
17,125
460,530
442,525
473,989
553,795
432,778
183,000
441,325
354,500
103,000
3,462,567
Weighted-
Average
Remaining
Contractual
Life
(in years)
Number
Outstanding
Weighted-
Average
Exercise
Price
1.30
4.37
1.63
3.21
5.08
5.47
4.66
2.21
1.36
0.81
3.42
17,125 $
278,266
428.942
431,615
196,926
114,960
28,000
441,325
290,603
103,000
2,330,762 $
6.54
6.88
8.53
8.72
8.80
9.15
9.74
10.24
11.14
20.93
9.62
As of December 31, 2013 there were 2,221,657 options that were exercisable at a weighted average exercise price of $10.14.
Stock Awards (RSU and PSU) Activity Table
Information with respect to restricted stock units’ and performance stock units’ activity is as follows (in thousands):
Weighted-
Average
Grant-
Date Fair
Value
Aggregate
Fair
Value(1)
(in
thousands)
Number
of
Shares
Aggregate
Intrinsic
Value(2)
(in
thousands)
412
$
Outstanding at December 31, 2011 ...........................................
Granted .........................................................................................
Vested (3).......................................................................................
Forfeited .......................................................................................
Outstanding at December 31, 2012 ...........................................
Granted .........................................................................................
Vested (3).......................................................................................
Forfeited .......................................................................................
Outstanding at December 31, 2013 ...........................................
Granted .........................................................................................
Vested (3).......................................................................................
Forfeited .......................................................................................
Outstanding at December 31, 2014 ...........................................
55,253 $
148,188 $
(41,522) $
(13,210) $
148,709 $
188,678 $
(119,505) $
(38,417) $
179,465 $
360,563 $
(81,157) $
(24,550) $
434,321 $
9.55
6.85
9.79 $
7.39
6.99
8.94
7.68 $
8.11
8.34
9.72
8.62 $
8.14
9.31
279(4)
$
1,338
1,091(5)
$
1,827
777(6)
$
4,639
(1) Represents the value of the Company’s stock on the date that the restricted stock units vest.
(2) Based on the closing stock price of the Company’s stock of $10.68 on December 31, 2014, $10.18 on
December 31, 2013, $9.00 on December 30, 2012 and $7.45 on December 31, 2011.
(3) The number of restricted stock units vested includes shares that the Company withheld on behalf of the employees to
satisfy the statutory tax withholding requirements.
(4) On the grant date, the fair value for these vested awards was $407,000.
(5) On the grant date, the fair value for these vested awards was $917,000.
(6) On the grant date, the fair value for these vested awards was $699,000.
68
Performance Stock Units
In 2014 and 2013, the Company granted its executive officers and certain senior management 105,000 and 33,751 PSUs that
vest on June 30, 2015 and June 1, 2014, respectively, subject to the recipient’s continued service through that date. At the
vest date, the Company issues fully-paid up common stock based on the percentage achievement of each performance goal.
For the July 1, 2014 to June 30, 2015 PSUs, there are three performance goals. For the June 1, 2013 to May 30, 2014 PSUs,
there were also three performance goals, related to Company revenue and profitability targets, based on which the Company
issued 5,625 shares of common stock on June 1, 2014.
Stock-Based Compensation
Stock-based compensation expense for stock options, restricted stock units, stock awards and ESPP shares for the year ended
December 31, 2014, 2013 and 2012 was as follows (in thousands):
Stock options ...................................................................................... $
RSUs ..................................................................................................
PSUs ...................................................................................................
ESPP ..................................................................................................
Total stock-based compensation expense ........................................... $
Year Ended December 31,
2013
2014
2012
1,811 $
875
455
158
3,299 $
2,201 $
631
162
116
3,110 $
2,421
501
138
100
3,160
As of December 31, 2014, the unrecognized compensation cost, net of expected forfeitures, was $4.9 million for stock options
and stock awards, which will be recognized using the straight-line attribution method over an estimated weighted-average
remaining amortization period of 2.31 years. For the ESPP, the unrecognized compensation cost, net of expected forfeitures,
was $59,000, which will be recognized using the straight- line attribution method over an estimated weighted-average
amortization period 0.33 years.
The Company issues new shares of common stock upon the exercise of stock options, vesting of RSUs and PSUs, and the
issuance of ESPP shares. The amount of cash received from these issuances, net of taxes withheld and paid, in 2014, 2013
and 2012 was $3.6 million, $5.2 million and $1.7 million. The total direct tax benefit realized, including the excess tax benefit,
from stock-based award activity was $6,000 in 2012. There was no direct tax benefit (deficit) in 2013 or 2014. The Company
elected to account for the indirect effects of stock-based awards—primarily the research and development tax credit—through
the Statement of Operations.
Total stock-based compensation expense recorded by department during the year ended December 31, 2014, 2013 and 2012
was as follows (in thousands):
Cost of revenue .................................................................................. $
Sales and marketing ...........................................................................
Research and development .................................................................
General and administrative .................................................................
Total stock-based compensation expense ...................................... $
560 $
641
581
1,517
3,299 $
638 $
744
397
1,331
3,110 $
658
657
514
1,331
3,160
Year Ended December 31,
2013
2014
2012
69
Valuation Assumptions and Fair Value of Stock Options and ESPP Grants
The Company uses the Black-Scholes option pricing model to estimate the fair value of options granted under its equity
incentive plans and rights to acquire stock granted under its employee stock purchase plan. The Company based the weighted
average estimated values of employee stock option grants and rights granted under the employee stock purchase plan, as well
as the weighted average assumptions used in calculating these values, on estimates at the date of grant, as follows:
2014
Stock Options
2013
2012
Stock Purchase Plan
2013
2012
2014
Expected term (in years)(1) ...........
Risk-free interest rate(2) ................
Volatility(3) ...................................
Dividend yield(4) ...........................
4.18
1.31%
41%
—%
4.30
1.13%
43%
—%
4.17
0.45%
44%
—%
0.50
0.06%
37%
—%
0.50
0.08%
44%
—%
0.50
0.15%
43%
—%
Weighted average estimated fair
value at grant date .................... $
3.36 $
3.22 $
2.47 $
2.65 $
2.84 $
2.16
(1) The expected term represents the period during which the Company’s stock-based awards are expected to be
outstanding. The estimated term is based on historical experience of similar awards, giving consideration to the
contractual terms of the awards, vesting requirements, and expectation of future employee behavior, including post-
vesting terminations.
(2) The risk-free interest rate is based on U.S. Treasury debt securities with maturities close to the expected term of the
option as of the date of grant.
(3) Estimated volatility is based on historical volatility. The Company also considers implied volatility when there is
sufficient volume of freely traded options with comparable terms and exercise prices in the open market.
(4) The Company has not historically issued any dividends and does not expect to do so in the foreseeable future.
The Company periodically estimates forfeiture rates based on its historical experience within separate groups of employees
and adjusts the stock-based payment expense accordingly.
RSU Withholdings
For RSUs granted to employees, the number of shares issued on the date the RSUs vest is net of the tax withholding
requirements paid on behalf of the employees. In 2014, 2013 and 2012, the Company withheld 15,769, 24,249, and 14,974
shares of common stock, respectively, to satisfy its employees’ tax obligations of $156,000, $222,000, and $101,000,
respectively. The Company paid this amount in cash to the appropriate taxing authorities. Although shares withheld are not
issued, they are treated as common stock repurchases for accounting and disclosure purposes, as they reduce the number of
shares that would have been issued upon vesting.
Share Repurchase Program
On August 5, 2013, the Company’s Board of Directors modified Cutera, Inc.’s stock buyback program, originally adopted in
November 2012, to permit an additional $10 million of its issued and outstanding common shares to be repurchased. As
modified, the stock buyback program permits the Company to purchase an aggregate of $20 million of its common stock
through a 10b5-1 program based on predetermined pricing and volume as well as open-market purchases that are subject to
management discretion and regulatory restrictions
In the year ended December 31, 2013, the Company repurchased 1,060,447 shares of its common stock at an average price
of $9.43 per share, for approximately $10.0 million. The Company did not repurchase any shares of its common stock in
2014. As of December 31, 2014, there remained an additional $10.0 million of the Company's common stock to be purchased
under the modified stock buyback program. The number of shares to be repurchased and the timing of such repurchases will
be based on several factors, including the price of the Company's common stock, regulatory restrictions, and general market
and business conditions.
On February 18, 2015, the Company announced that its Board of Directors approved the expansion of its Stock Repurchase
Program from $10 million to $40 million, under which the Company is authorized to repurchase shares of its common stock.
The Company plans to make the repurchases from time to time through open market transactions at prevailing prices and/ or
through privately-negotiated transactions, and/ or through a pre-arranged Rule 10b5-1 trading plan.
70
NOTE 7—INCOME TAXES
The Company files income tax returns in the U.S. federal and various state and local jurisdictions and foreign jurisdictions.
The Company’s loss before provision for income taxes consisted of the following (in thousands):
U.S. .................................................................................................... $
Foreign ...............................................................................................
Loss before income taxes ............................................................... $
(10,592) $
199
(10,393) $
(4,919 ) $
118
(4,801 ) $
(6,767)
437
(6,330)
Year Ended December 31,
2013
2014
2012
The components of the provision for income taxes are as follows (in thousands):
Current:
Federal ......................................................................................... $
State .............................................................................................
Foreign ........................................................................................
Deferred:
Federal .........................................................................................
State .............................................................................................
Foreign ........................................................................................
Tax (benefit) provision .................................................................. $
Year Ended December 31,
2013
2014
2012
(7) $
19
110
122
32
—
65
97
219 $
(329 ) $
7
159
(163 )
33
—
76
109
(54 ) $
(13)
(56)
366
297
(12)
—
(67)
(79)
218
The Company’s deferred tax asset consists of the following (in thousands):
Net operating loss ............................................................................................................. $
Stock-based compensation ...............................................................................................
Other accruals and reserves ..............................................................................................
Credits ..............................................................................................................................
Foreign .............................................................................................................................
Accrued warranty .............................................................................................................
Depreciation and amortization .........................................................................................
Other.................................................................................................................................
Deferred tax asset before valuation allowance .............................................................
Valuation allowance .........................................................................................................
Deferred tax asset after valuation allowance ................................................................
Deferred tax liability on goodwill ....................................................................................
Net deferred tax asset .................................................................................................. $
December 31,
2014
2013
12,138 $
3,884
4,735
3,808
295
417
998
66
26,341
(26,046 )
295
(71 )
224 $
11,014
3,806
3,686
3,121
360
441
224
470
23,122
(22,762)
360
(39)
321
The Company’s deferred tax asset balance is reported in the following captions in the Consolidated Balance Sheets (in
thousands):
Deferred tax asset (current portion) .................................................................................. $
Deferred tax asset, net of current portion .........................................................................
Accrued liabilities (non-current deferred tax liability) .....................................................
Net deferred tax asset after valuation allowance .......................................................... $
26 $
269
(71 )
224 $
31
329
(39)
321
December 31,
2014
2013
71
The differences between the U.S. federal statutory income tax rates to the Company’s effective tax rate are as follows:
Year Ended December 31,
2013
2012
2014
U.S. federal statutory income tax rate ...............................................
State tax rate, net of federal benefit ...................................................
Benefit for research and development credit .....................................
Foreign rate differential .....................................................................
Changes in unrecognized tax benefits ...............................................
Foreign income inclusion ..................................................................
Income tax refund .............................................................................
Stock-based compensation ................................................................
Meals and entertainment ...................................................................
Tax effect of other comprehensive income .......................................
Valuation allowance ..........................................................................
Other..................................................................................................
Effective tax rate .........................................................................
34.00%
1.62
7.24
(1.04)
(0.53)
—
0.08
(5.56)
(1.11)
—
(36.58)
(0.22)
(2.10)%
35.00%
1.57
19.91
(4.53)
2.60
—
0.19
(34.33)
(2.10)
—
(17.82)
0.63
1.12%
35.00%
3.28
3.40
(1.49)
1.06
(0.05)
1.07
(21.31)
(1.68)
0.28
(21.15)
(1.86)
(3.45)%
The Company recognizes deferred tax assets for the expected future tax consequences of temporary differences between the
financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. The Company
records a valuation allowance to reduce the deferred tax assets to their estimated realizable value, when it is more likely than
not that it will not be able to generate sufficient future taxable income to realize the net carrying value. The Company has
recorded a full valuation allowance against its U.S. federal and state deferred tax assets due to its history of operating losses.
In the years ended December 31, 2014, 2013 and 2012, there was a net increase in the valuation allowance of $3.3 million,
$0.9 million, and $1.4 million, respectively.
As of December 31, 2014, the Company had cumulative net operating loss carry-forwards for federal and state income tax
reporting purposes of approximately $34.3 million and $10.4 million, respectively. The federal net operating loss carry-
forwards expire through the year 2034 and the state net operating loss carry-forwards expire at various dates through the year
2033. The Company maintained a valuation allowance against these net operating loss carry-forwards as of
December 31, 2014.
As of December 31, 2014, the Company had research and development tax credits for federal and state income tax purposes
of approximately $4.2 million and $5.1 million, respectively. The federal research and development tax credits expire through
the year 2034. The state research and development credits can be carried forward indefinitely, except for $284,000, which
will expire at various dates through the year 2020. The Company maintained a valuation allowance against these tax credits
as of December 31, 2014.
Included in the net operating loss and research and development tax credit carryforwards are approximately $4.2 million of
excess tax benefits from employee stock option exercises, for which the Company has not recorded a deferred tax asset.
When such excess tax benefits are ultimately realized, the Company will record the deferred tax asset and the credit to
additional paid in capital.
Utilization of U.S. net operating losses and tax credit carryforwards may be limited by “ownership change” rules, as defined
in Section 382 of the Internal Revenue Code. Similar rules may apply under state tax laws. The Company has not conducted
a study to-date to assess whether a limitation would apply under Section 382 of the Internal Revenue Code as and when it
starts utilizing its net operating losses and tax credits. The Company will continue to monitor activities in the future. In the
event the Company previously experienced an ownership change, or should experience an ownership change in the future,
the amount of net operating losses and research and development credit carryovers available in any taxable year could be
limited and may expire unutilized.
Undistributed earnings of the Company’s foreign subsidiaries at both December 31, 2014 and 2013 were approximately
$2.6 million, are considered to be indefinitely reinvested and, accordingly, no provision for federal and state income taxes
has been provided thereon. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability would
be reduced by any foreign income taxes previously paid on these earnings. Because of the availability of U.S. foreign tax
credits, the determination of the unrecognized deferred tax liability on these earnings is not practicable.
72
Uncertain Tax Positions
The Company establishes reserves for uncertain tax positions based on the largest amount that is more-likely-than-not to be
sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
The Company has provided taxes and related interest and penalties due for potential adjustments that may result from
examinations of open U.S. Federal, state and foreign tax years. If the Company ultimately determines that payment of these
amounts are not more-likely-than-not, the Company will reverse the liability and recognize a tax benefit during the period in
which the Company makes the determination. The Company will record an additional charge in the Company’s provision for
taxes in the period in which the Company determines that the recorded tax liability is less than the Company expects the
ultimate assessment to be. The Company’s policy is to include interest and penalties related to gross unrecognized tax benefits
within the provision for income taxes.
The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2004
through 2014 tax years generally remain subject to examination by U.S., federal and California state tax authorities due to
the Company’s net operating loss and credit carryforwards. For significant foreign jurisdictions, the 2009 through 2014 tax
years generally remain subject to examination by their respective tax authorities.
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits in December 31, 2012
to December 31, 2014 (in thousands):
Year Ended December 31,
2013
2014
2012
Balance at beginning of year .............................................................. $
Increases related to prior year tax positions .......................................
Increases related to current year tax positions ....................................
Decreases related to lapsing of statute of limitations .........................
Balance at end of year ........................................................................ $
535 $
—
62
—
597 $
536 $
36
116
(153 )
535 $
583
—
29
(76)
536
The Company’s total unrecognized tax benefits that, if recognized, would affect its effective tax rate at December 31, 2014
and 2013, were approximately $33,000. As of December 31, 2014 and 2013, the Company had accrued approximately
$41,000 and $37,000 for payment of interest, respectively. Interest included in the provision for income taxes was not
significant in all the periods presented. The Company has not accrued any penalties related to its uncertain tax positions as it
believes that it is more likely than not that there will not be any assessment of penalties. The Company expects that the
amount of unrecognized tax benefits will not materially change within the next 12 months.
NOTE 8—NET LOSS PER SHARE
Diluted earnings per share is the same as basic earnings per share for the periods presented because the inclusion of
outstanding common stock equivalents would be anti-dilutive. The following number of weighted shares outstanding, prior
to the application of the treasury stock method, were excluded from the computation of diluted net loss per common share
for the years presented because including them would have had an anti-dilutive effect (in thousands):
Options to purchase common stock ....................................................
Restricted stock units .........................................................................
Employee stock purchase plan shares ................................................
Performance stock units .....................................................................
Total ................................................................................................
NOTE 9—DEFINED CONTRIBUTION PLAN
Year Ended December 31,
2013
2014
2012
3,489
213
86
37
3,825
3,830
173
72
34
4,109
3,746
97
78
8
3,929
In the U.S., the Company has an employee savings plan (“401(k) Plan”) that qualifies as a deferred salary arrangement under
Section 401(k) of the Internal Revenue Code. Eligible employees may make voluntary contributions to the 401(k) Plan up to
100% of their annual compensation, subject to statutory annual limitations. In 2014, 2013 and 2012, the Company made
discretionary contributions under the 401(k) Plan of $211,000, $184,000 and $146,000 respectively.
73
For the Company’s Japanese subsidiary, it has established an employee retirement plan at its discretion. In addition, for some
of the Company’s other foreign subsidiaries, the Company deposits funds with insurance companies, third-party trustees, or
into government-managed accounts consistent with the requirements of local laws. The Company has fully funded or accrued
for its obligations as of December 31, 2014, and the related expense for each of the three years then ended was not significant.
NOTE 10—SEGMENT INFORMATION AND REVENUE BY GEOGRAPY AND PRODUCTS
Operating segments are identified as components of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate
resources and assess performance. The Company’s chief decision maker, as defined under the FASB’s ASC 280 guidance,
is a combination of the Chief Executive Officer and the Executive Vice President and Chief Financial Officer. To date, the
Company has viewed its operations, managed its business, and used one measurement of profitability for the one operating
segment – the sale of aesthetic medical equipment and services, and distribution of cosmeceutical and dermal filler products,
to qualified medical practitioners. In addition, substantially all of the Company’s long-lived assets are located in the U.S.
The following table summarizes revenue by geographic region, which is based on the shipping location of where the product
is delivered, and product category (in thousands):
Revenue mix by geography:
United States ................................................................................. $
Japan .............................................................................................
Asia, excluding Japan ...................................................................
Europe ...........................................................................................
Rest of the world ...........................................................................
Consolidated total ...................................................................... $
Revenue mix by product category:
Products and upgrades .................................................................. $
Titan and truSculpt hand piece refills ...........................................
Dermal filler and cosmeceuticals ..................................................
Total product revenue ................................................................
Service ..........................................................................................
Consolidated total ...................................................................... $
NOTE 11—COMMITMENTS AND CONTINGENCIES
Facility Leases
Year Ended December 31,
2013
2014
2012
35,494 $
13,328
11,023
7,792
10,501
78,138 $
53,106 $
3,714
3,479
60,299
17,839
78,138 $
31,487 $
14,205
11,263
7,358
10,281
74,594 $
48,374 $
4,267
4,264
56,905
17,689
74,594 $
31,949
17,826
8,902
4,958
13,642
77,277
49,605
4,807
5,645
60,057
17,220
77,277
As of December 31, 2014, the Company was committed to minimum lease payments for facilities and other leased assets
under long-term non-cancelable operating leases as follows (in thousands):
Year Ending December 31,
2015 .............................................................................................................................................................. $
2016 ..............................................................................................................................................................
2017 ..............................................................................................................................................................
2018 ..............................................................................................................................................................
2019 ..............................................................................................................................................................
Future minimum rental payments ................................................................................................................. $
Amount
1,821
1,745
1,722
78
2
5,368
Gross rent expense in 2014, 2013 and 2012 was $1.5 million, $1.6 million and $1.6 million, respectively.
74
Vehicle Leases
As of December 31, 2014, the Company was committed to minimum lease payments for leased vehicles under long-term
non-cancelable capital leases as follows (in thousands):
Year Ending December 31,
2015 .............................................................................................................................................................. $
2016 ..............................................................................................................................................................
2017 ..............................................................................................................................................................
Future minimum lease payments .................................................................................................................. $
Amount
167
211
24
402
Purchase Commitments
The Company maintains certain open inventory purchase commitments with its suppliers to ensure a smooth and continuous
supply for key components. The Company’s liability in these purchase commitments is generally restricted to a forecasted
time-horizon as agreed between the parties. These forecasted time-horizons can vary among different suppliers. The
Company’s open inventory purchase commitments with its suppliers were not significant at December 31, 2014 or 2013.
Indemnifications
In the normal course of business, the Company enters into agreements that contain a variety of representations, warranties,
and indemnification obligations. For example, the Company has entered into indemnification agreements with each of its
directors and executive officers and certain key employees. The Company’s exposure under its various indemnification
obligations is unknown and not reasonably estimable as they involve future claims that may be made against the Company.
As such, the Company has not accrued any amounts for such obligations.
Litigation and Litigation Settlements
The Company is named from time to time as a party to product liability and contractual lawsuits in the normal course of
business. The Company routinely assesses the likelihood of any adverse judgments or outcomes related to legal matters and
claims, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these
contingencies is made after analysis of each known issue, historical experience, whether it is more likely than not that the
Company shall incur a loss, and whether the loss is estimable. As of December, 2014, the Company had accrued $74,000
related to pending product liability and contractual lawsuits.
NOTE 12—SUBSEQUENT EVENTS
On February 18, 2015, the Company announced that its Board of Directors approved the expansion of its Stock Repurchase
Program from $10 million to $40 million, under which the Company is authorized to repurchase shares of its common stock.
The Company plans to make the repurchases from time to time through open market transactions at prevailing prices and/ or
through privately-negotiated transactions, and/ or through a pre-arranged Rule 10b5-1 trading plan.
75
SUPPLEMENTARY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share amounts)
Dec. 31,
2014
Sept. 30,
2014
Quarter ended:
Net revenue ........... $ 25,499 $ 18,726 $
7,935
Cost of revenue .....
10,791
Gross profit ...........
Operating
11,679
13,820
June 30,
2014
17,724 $
7,848
9,876
March 31,
2014
16,189 $
7,303
8,886
Dec. 31,
2013
22,239 $
9,202
13,037
June 30,
2013
Sept. 30,
2013
16,828 $ 19,560 $
8,442
11,118
7,651
9,177
March 31,
2013
15,967
7,417
8,550
expenses:
Sales and
marketing ............
9,356
7,805
7,754
7,331
7,804
6,554
7,170
6,456
Research and
development .......
2,649
2,628
2,622
2,644
2,438
2,440
2,217
2,121
General and
administrative .....
3,407
2,897
2,335
2,564
3,135
2,160
2,354
2,289
Total operating
expenses ..............
15,412
13,330
12,711
12,539
13,377
11,154
11,741
10,866
Income (loss) from
operations ...........
(1,592)
(2,539)
(2,835)
(3,653)
(340)
(1,977)
(623)
(2,316)
Interest and other
income, net .........
8
—
138
80
105
140
75
135
Income (loss)
before income
taxes ....................
Income tax
provision
(benefit) ..............
Net income (loss) .. $
Net income (loss)
(1,584)
(2,539)
(2,697)
(3,573)
(235)
(1,837)
(548)
(2,181)
41
(1,625) $
97
(2,636) $
44
(2,741) $
37
(3,610) $
43
(278) $
(169)
(1,668) $
90
(638) $
(18)
(2,163)
per share—basic . $
(0.11) $
(0.18) $
(0.19) $
(0.26) $
(0.02) $
(0.11) $
(0.04) $
(0.15)
Net income (loss)
per share—
diluted ................. $
Weighted average
number of shares
used in per share
calculations:
(0.11) $
(0.18) $
(0.19) $
(0.26) $
(0.02) $
(0.11) $
(0.04) $
(0.15)
Basic .............
Diluted ..........
14,425
14,425
14,334
14,334
14,231
14,231
14,021
14,021
14,016
14,016
14,541
14,541
14,723
14,723
14,408
14,408
76
SCHEDULE II
CUTERA, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
For the Years Ended December 31, 2014, 2013 and 2012
Deferred tax assets valuation allowance
Year ended December 31, 2014 ............................................. $
Year ended December 31, 2013 ............................................. $
Year ended December 31, 2012(1) .......................................... $
22,762 $
21,907 $
20,551 $
3,780 $
3,437 $
1,773 $
496 $
2,582 $
417 $
26,046
22,762
21,907
Balance at
Beginning
of Year Additions Deductions
Balance
at End of
Year
Balance at
Beginning
of Year Additions Deductions
Balance
at End of
Year
Allowance for doubtful accounts receivable
Year ended December 31, 2014 ............................................. $
Year ended December 31, 2013 ............................................. $
Year ended December 31, 2012 ............................................. $
19 $
— $
8 $
4 $
19 $
66 $
23 $
— $
74 $
—
19
—
(1)The Company revised the deferred tax assets valuation allowance balance for calendar year 2012 as a result of revisions
to its deferred tax assets relating to stock-based compensation and the resulting valuation allowance for them. These changes
had no impact to the Company’s balance sheets, statement of operations, earnings per share, statement of cash flows, or
statement of equity for any period presented. The beginning balance for 2012 was reduced by $723,000, and the deductions
for the year were increased by $276,000, which resulted in a net change in the ending balance for the year by $999,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Attached as exhibits to this Annual Report are certifications of the Company’s Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as
amended (Exchange Act). This Controls and Procedures section includes the information concerning the controls evaluation
referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding
of the topics presented.
The Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and
procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Exchange Act) (Disclosure Controls) as of the end of
the period covered by this Report required by Exchange Act Rules 13a-15(b) or 15d-15(b). The controls evaluation was
conducted under the supervision and with the participation of the Company’s management, including the CEO and CFO.
Based on this evaluation, the CEO and our CFO have concluded that as of the end of the period covered by this report the
Company’s disclosure controls and procedures were effective at a reasonable assurance level.
Definition of Disclosure Controls
Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in
the Company’s reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure
that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure. The Company’s Disclosure Controls include components
77
of its internal control over financial reporting, which consists of control processes designed to provide reasonable assurance
regarding the reliability of its financial reporting and the preparation of financial statements in accordance with generally
accepted accounting principles in the U.S. To the extent that components of the Company’s internal control over financial
reporting are included within its Disclosure Controls, they are included in the scope of the Company’s annual controls
evaluation.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the
participation of the Company’s management, including the CEO and CFO, the Company conducted an evaluation of the
effectiveness of its internal control over financial reporting based on criteria established in the framework in Internal
Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). Based on this evaluation, the Company’s management concluded that the Company’s internal control over
financial reporting was effective as of December 31, 2014. The effectiveness of our internal control over financial reporting
as of December 31, 2014 has been audited by BDO USA LLP, an Independent Registered Public Accounting Firm, as stated
in their report, which is included herein.
Limitations on the Effectiveness of Controls
The Company’s management, including the CEO and CFO, does not expect that the Company’s disclosure controls or internal
control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can
occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The design of any system of controls is based
in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of
changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the most recent fiscal
quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
78
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of Cutera, Inc.
We have audited Cutera, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established
in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Cutera, Inc.’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying “Item 9A, Management’s Report on Internal Control Over Financial Reporting”. Our responsibility is to
express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Cutera, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheet of Cutera, Inc.' as of December 31, 2014 and the related consolidated statements of operations,
comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2014 and our report dated
March 16, 2015 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
San Jose, California
March 16, 2015
ITEM 9B. OTHER INFORMATION
The Company has established that the 2015 Annual Meeting of Stockholders will be held at its principal executive offices
located at 3240 Bayshore Blvd., Brisbane, CA 94005-1021 on June 17, 2015 at 10:00 a.m. and the record date for the purposes
of voting in that meeting shall be April 20, 2015.
79
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a Definitive
Proxy Statement (the “Proxy Statement”) for our 2015 Annual Meeting of Stockholders with the Securities and Exchange
Commission within 120 days after the end of our fiscal year ended December 31, 2014.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated herein by reference to the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference to the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated herein by reference to the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein by reference to the Proxy Statement.
80
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(1)
(2)
(3)
The financial statements required by Item 15(a) are filed as Item 8 of this annual report.
The financial statement schedule required by Item 15(a) filed as Item 8 of this annual report.
Exhibits.
Exhibit No. Description
3.2(1) Amended and Restated Certificate of Incorporation of the Registrant (Delaware).
3.4(1) Bylaws of the Registrant.
4.1(4) Specimen Common Stock certificate of the Registrant.
10.1(1) Form of Indemnification Agreement for directors and executive officers.
10.2(1) 1998 Stock Plan.
10.4(5) 2004 Employee Stock Purchase Plan.
10.6(1)
10.10(2)
Brisbane Technology Park Lease dated August 5, 2003 by and between the Registrant and Gal-Brisbane, L.P.
for office space located at 3240 Bayshore Boulevard, Brisbane, California.
Settlement Agreement and Non-Exclusive Patent License, each between the Registrant and Palomar Medical
Technologies, Inc. dated June 2, 2006.
10.11(3) Form of Performance Unit Award Agreement.
10.14(6) 2004 Equity Incentive Plan, as amended by its Board of Directors on April 27, 2012.
10.19(7)
First Amendment to Brisbane Technology Park Lease dated August 11, 2010 by and between the Company and
BMR-Bayshore Boulevard LLC, as successor-in-interest to Gal-Brisbane, L.P., the original landlord, for office
space located at 3240 Bayshore Boulevard.
16.1(8) Letter regarding change in certifying accountants.
23.1(9) Consent of Independent Registered Public Accounting Firm.
23.2(9) Consent of Independent Registered Public Accounting Firm.
24.1 Power of Attorney.
31.1(9) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2(9) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(9)
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The following materials from Cutera Inc.’s Annual Report on Form 10-K for the year ended December 31,
2014, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii)
Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated
Statement of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated
Financial Statements, tagged at Level I through IV.
101(9)
(1) Incorporated by reference from our Registration Statement on Form S-1 (Registration No. 333-111928) which was
declared effective on March 30, 2004.
(2) Incorporated by reference from our Current Report on Form 8-K filed on June 2, 2006.
(3) Incorporated by reference from our Quarterly Report on Form 10-Q filed on November 14, 2005.
(4) Incorporated by reference from our Quarterly Report on Form 10-Q filed on November 8, 2006.
(5) Incorporated by reference from our 2006 Annual Report on Form 10-K filed on March 16, 2007.
(6) Incorporated by reference from our Definitive Proxy Statement on Form 14A filed with the SEC on April 30, 2012.
(7) Incorporated by reference from our Quarterly Report on Form 10-Q filed on November 1, 2010.
(8) Incorporated by reference from Current Report on Form 8-K filed April, 2, 2014.
(9) Filed herewith.
81
Pursuant to the requirements of Section 13 or 15(d) of The Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Brisbane, State of California,
on the 16th day of March, 2015.
SIGNATURES
CUTERA, INC.
By:
/s/ KEVIN P. CONNORS
Kevin P. Connors
President and Chief Executive Officer
Power of Attorney
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Kevin P. Connors, his attorney-in-fact, for him or her in any and all capacities, to sign any amendments to this
Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with
the U.S. Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute,
may do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ KEVIN P. CONNORS
Kevin P. Connors
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ RONALD J. SANTILLI
Ronald J. Santilli
Executive Vice President and Chief Financial Officer
(Principal Accounting Officer)
/s/ DAVID B. APFELBERG
David B. Apfelberg
Director
/s/ GREGORY A. BARRETT
Gregory A. Barrett
Director
/s/ DAVID A. GOLLNICK
David A. Gollnick
/s/ J. DANIEL PLANTS
J. Daniel Plants
/s/ CLINT H. SEVERSON
Clint H. Severson
/s/ TIM O’SHEA
Tim O’Shea
/s/ JERRY P. WIDMAN
Jerry P. Widman
Director
Director
Director
Director
Director
Date
March 16, 2015
March 16, 2015
March 16, 2015
March 16, 2015
March 16, 2015
March 16, 2015
March 16, 2015
March 16, 2015
March 16, 2015
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 15 U.S.C. SECTION 7241, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin P. Connors, certify that:
1.
I have reviewed this annual report on Form 10-K of Cutera, Inc.:
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 16, 2015
/s/ KEVIN P. CONNORS
Kevin P. Connors
President, Chief Executive Officer and Director
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 15 U.S.C. SECTION 7241, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald J. Santilli, certify that:
1.
I have reviewed this annual report on Form 10-K of Cutera, Inc.:
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 16, 2015
/s/ RONALD J. SANTILLI
Ronald J. Santilli
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit 32.1
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of Cutera, Inc. a Delaware corporation, for the period ended December
31, 2014, as filed with the Securities and Exchange Commission, each of the undersigned officers of Cutera, Inc. certifies
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his respective
knowledge:
(1)
(2)
the annual report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
the information contained in the annual report fairly presents, in all material respects, the financial
condition and results of operations of Cutera, Inc. for the periods presented therein.
Date: March 16, 2015
Date: March 16, 2015
/s/ Kevin P. Connors
Kevin P. Connors
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Ronald J. Santilli
Ronald J. Santilli
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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Corporate Information (as of April 27, 2015)
ABOUT US
Brisbane, California-based Cutera is a
leading provider of laser, light and other
energy-based aesthetic systems for
practitioners worldwide. Since 1998, we
have been developing innovative, easy-to-
use products that enable physicians and
other qualified practitioners to offer safe
and effective aesthetic treatments to their
patients. For more information, call 1-888-
4CUTERA or visit www.cutera.com.
BOARD OF DIRECTORS
Kevin P. Connors, President and Chief
Executive Officer, Cutera, Inc.
David B. Apfelberg, MD3,5, Adjunct
Clinical Professor of Plastic Surgery,
Stanford University Medical Center
Gregory Barrett4,5, President and Chief
Executive Officer, DFINE, Inc.
David A. Gollnick, Former Vice President
of North American Sales and Former
Executive Vice President of Research
and Development, Cutera, Inc.
Timothy J. O'Shea1,6,7, Former Managing
Director, Oxo Capital
J. Daniel Plants5,8, Managing Partner,
Voce Capital Management LLC
Clint H. Severson1, President and Chief
Executive Officer, Abaxis, Inc.
Jerry P. Widman2,3,5, Former Chief
Financial Officer, Ascension Health
1- Audit Committee member
2- Chairman of Audit Committee
3- Compensation Committee member
4- Chairman of Compensation Committee
5- Nominating and Corporate Governance
Committee member
6- Chairman of Nominating and Corporate
Governance Committee
7- Strategic Transactions Committee member
8- Chairman of Strategic Transactions Committee
MANAGEMENT TEAM
Kevin P. Connors, President, Chief
Executive Officer and Director
Ronald J. Santilli, Executive Vice
President and Chief Financial Officer
Larry E. Laber, Executive Vice President,
Sales, North America
Miguel A. Pardos, Executive Vice
President, International
Jonathan T. Pearson, Executive Vice
President, Marketing and Clinical
Development
Michael A. Karavitis, Vice President,
Research and Development
Rajesh Madan, Vice President, Finance
and Legal
Bradley J. Renton, Vice President,
Regulatory and Medical Affairs &
Compliance Officer
Stephen M. Singer, Vice President,
Manufacturing and Service
ANNUAL MEETING
Annual meeting of stockholders will be
held on June 17, 2015, 10:00 a.m. (PDT)
at: 3240 Bayshore Blvd., Brisbane,
California 94005.
TRANSFER AGENT
Computershare Trust Company, Inc.
350 Indiana St., Suite 800
Golden, Colorado 80401
303-262-0600
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
2014 and 2015: BDO USA, LLP,
San Jose, California
2012 and 2013: Ernst & Young LLP,
Redwood City, California
CORPORATE LEGAL COUNSEL
Wilson, Sonsini, Goodrich & Rosati, P.C.,
Palo Alto, California
CORPORATE/STOCKHOLDER
INFORMATION
Our Form 10-K was filed with the
Securities and Exchange Commission on
March 16, 2015. For additional copies of
this report, Form 10-K, or other financial
information, without charge, please visit
the Investor Relations page on our website
at: www.cutera.com or write to
ir@cutera.com.
STOCK LISTING
AND MARKET DATA
Our common stock is traded on The
NASDAQ Global market under the symbol
"CUTR." We have not declared or paid any
cash dividends on our capital stock since
our inception. We currently expect to retain
future earnings, if any, for use in the
operation and expansion of our business
and do not anticipate paying any cash
dividends in the foreseeable future. As of
April 27, 2015, we had approximately
1,900 holders of record of our common
stock.
The following table sets forth quarterly
high and low closing sales prices per
share of our common stock as reported on
The NASDAQ Global Market for the
periods indicated.
Common Stock
2014
2013
High Low High Low
4th Qtr. $ 11.04 $ 9.66 $ 10.56 $
8.39
3rd Qtr. 10.75 9.27 10.18
8.89
2nd Qtr. 11.73 9.25 13.70
8.62
1st Qtr. 11.24 9.00 13.03
8.95