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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
trademark
☒
☐
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For fiscal year ended December 31, 2023
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission file number: 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 No.)
3240 Bayshore Blvd., Brisbane, California 94005
(Address of principal executive offices)
(415) 657-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock ($0.001 par value)
Trading Symbol(s)
CUTR
Name of each exchange on which registered
The NASDAQ Stock Market, LLC
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
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 such files). Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated
filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging growth company
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☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-
Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by checkmark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued
financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant
recovery period pursuant to §240.10D-1(b). ☐
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, 2023 (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, 2023, was approximately 301 million.
The number of shares of Registrant’s common stock issued and outstanding as of May 8, 2024 was 20,072,096.
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10K Summary
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” that involve risks and uncertainties. The Company’s actual results could differ materially from those discussed in the
forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “might,” “expect,” “intend,” “may,”
“plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” or variations of these terms and similar expressions, or the negative of these terms or similar expressions intended to identify
forward-looking statements. Forward-looking statements are necessarily based on estimates and assumptions that, while considered reasonable by the Company and its management based on their
knowledge and understanding of the business and industry, are inherently uncertain.
Forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results
expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the
section titled “Risk Factors” included under Part I, Item 1A below. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, the Company
undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The following discussion and analysis should be read in
conjunction with and are qualified in their entirety by reference to the discussions included in Item 1A. Risk Factors, Item 7. Management’s Discussion & Analysis of Financial Condition and Results
of Operations, and elsewhere in this Annual Report on Form 10-K.
In this Annual Report on Form 10-K, unless the context otherwise requires, references to the “Company,” “Cutera,” “we,” “us” and “the Company’s” refers to Cutera, Inc.
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ITEM 1. BUSINESS
PART I
In this Annual Report on Form 10-K, “Cutera,” “the Company,” “we,” “us,” and “the Company’s” refer to Cutera, Inc. and its consolidated subsidiaries.
Company Background
Cutera was formed in 1998 as a Delaware corporation and is a global provider of aesthetic and dermatology solutions for medical practitioners worldwide. The Company develops, manufactures, and
markets energy-based product platforms for use by medical practitioners, enabling them to offer safe and effective treatments to their customers. The Company currently markets the following key
platforms: AviClear, Enlighten SR, Enlighten 3, excel V/V+, excel HR, truSculpt ID, truFlex, Secret RF, Secret Pro, Secret DUO, and Xeo — each of which enables medical practitioners to perform
safe and effective procedures, including treatment for acne, body contouring, skin resurfacing and revitalization, hair and tattoo removal, removal of benign pigmented lesions, and vascular
conditions. Several of the Company’s systems offer a variety of applications, enabling practitioners to treat a broad patient demographic. Some of the Company's devices also offer multiple hand
pieces offering customers the flexibility to upgrade their systems. The Company’s ongoing research and development activities primarily focus on developing new products and improving and
enhancing the Company’s portfolio of existing products within dermatology and aesthetics. The Company also explores ways to expand the Company’s product offerings through alternative
arrangements with other companies, such as distribution arrangements for third party developed products, as well as through mergers, acquisitions and investments. The Company introduced Secret
RF in January 2018, enlighten SR in April 2018, truSculpt ID in July 2018, excel V+ in February 2019 and truFlex in June 2019, Secret PRO in July 2020, and a product extension of excel V+ during
the fourth quarter of 2020. In 2021, the Company introduced truFlex+, a treatment mode that decreased the treatment time from approximately 45 minutes to 15 minutes. In March 2022, the
Company received 510(k) clearance from the U.S. Food and Drug Administration for the AviClear acne treatment device (“AviClear”), the first FDA-cleared energy-based treatment of mild,
moderate, and severe acne. The Company introduced AviClear commercially in April 2022. In September 2023, the Company introduced Secret DUO to further expand the Secret by Cutera portfolio.
The Company plans on launching xeo+ in April 2024.
The Company’s trademarks include: “ACUTIP 500®,” “AVI™,” “AVICLEAR®,” “AVICOOL®,” “AVIANALYTICS™,” “CUCF®,” “CUTERA®,” “CUTERA UNIVERSITY CLINICAL
FORUM®,” “ENLIGHTEN®,” “EXCEL HR®,” “EXCEL V®,” “GENESIS™,” “LASER GENESIS™,” “LIMELIGHT®,” “PICO GENESIS®,” “PICO TONING®,” “PROWAVE 770®,”
“SOLERA®,” “TITAN®,” “TRUBODY®,” “TRUSCULPT FLEX®,” “TRUFLEX™,” “TRUSCULPT®,” “TRUSCULPT ID®,” and “XEO®.” The Company’s logo and other Company trade
names, trademarks, and service marks appearing in this document are the Company’s 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, the Company’s trade names, trademarks and service marks referred to in this Annual Report on Form 10-K appear without the ® or
TM symbols, but those references are not intended to indicate, in any way, that the Company will not assert, to the fullest extent under applicable law, the Company’s rights, or the right of the
applicable licensor to these trade names, trademarks, and service marks.
A description of each of the Company’s devices and a summary of the features of the Company’s primary platforms are as follows:
• AviClear - In March 2022, AviClear was cleared by the United States (“U.S.”) Food and Drug Administration (“FDA”) for the treatment of mild, moderate, and severe inflammatory acne vulgaris.
In June 2023, the FDA expanded the AviClear clearance to include the long-term treatment of mild, moderate, and severe inflammatory acne vulgaris. AviClear uses a 1726nm laser to significantly
eliminate acne in three, 30-minute treatments. AviClear treats active acne by suppressing the sebaceous glands. AviClear was designed with the AviCool™ contact cooling technology that allows
for a safe and comfortable treatment experience for patients. AviClear offers a long-term durable solution for all severities of acne.
• Secret PRO – In 2020, the Company expanded its distribution of the Secret PRO device. Secret PRO features two clinically proven technologies – RF microneedling and fractional CO2 – in one
platform. Secret PRO utilizes fractional CO2 for skin resurfacing and radio frequency microneedling for skin revitalization. Both technologies provide practitioners the ability to tailor each
treatment for a patient's individual skin concerns. Each modality can be performed separately or within the same treatment session. Each time a RF microneedling procedure is performed, the
provider must use a new hand piece tip. The sale of the replacement tip results in recurring revenue.
• truFlex – In June 2019, the Company introduced the truFlex for the muscle-sculpting market. This product is a bio-electrical muscle stimulation device designed to strengthen, firm and tone the
abdomen, buttocks and thighs. The truFlex delivers Multi-Direction Stimulation with truControl, inducing muscle hypertrophy and hyperplasia. Johari Digital Healthcare Ltd. (the Company’s
contract manufacturing organization) received 510(k) clearance from the FDA for muscle conditioning in
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2013. It is sold in the USA, Canada, Japan, Australia, certain Asia Pacific markets, and in select markets within the European Union (“EU”) and is expected to be sold to a broader international
customer base upon required regulatory approvals. The truFlex includes consumable cycles and gel pads, truGels, that need to be "refilled" after a set number of treatments are performed, resulting
in recurring revenue. In 2021, the company introduced truFlex+, a treatment mode that decreased the treatment time from approximately 45 minutes to 15 minutes.
• excel V/V+ – In February 2019, the Company introduced the excel V+, a new iteration of the excel V vascular platform originally introduced in 2011. excel V+, is a high-performance, vascular and
benign pigmented lesion treatment platform explicitly designed for the market of dermatologists and plastic surgeons. The excel V+ has 50% more power than its predecessor and provides a greater
range of parameters for faster, more customizable treatments. The excel V and excel V+ are solid-state laser platforms providing a combination of the 532 nanometers (“nm”) green laser with 1064
nm Nd:YAG technology to provide a single, compact and efficient system that treats the entire range of cosmetic vascular and benign pigmented lesion conditions. In Q4 of 2020, the Company
introduced a product extension to its excel V+ platform, which included a new, 1 mm Dermastat hand piece and expanded specifications. The new excel V+, expanded treatment capabilities and
provided dermatologists and aesthetic providers a higher level of precision and versatility for vascular and pigmented lesions. The excel V+ device includes Cutera’s signature Laser Genesis
treatment, and introduced the ‘Green Genesis’ treatment – a micro-pulsed 532 treatment.
• truSculpt – In July 2018, the Company introduced a hands-free version of the Company’s truSculpt platform, the truSculpt ID, for the non-surgical body sculpting market. The name of this version
of the platform was shortened to truSculpt in 2023. It includes consumable cycles and decals that need to be ordered by the practitioner after a set number of treatments are performed, resulting in
recurring revenue. This product is a high-powered radio frequency (“RF”) system designed for circumferential reduction, lipolysis, and deep tissue heating and can treat all skin types. The truSculpt
delivers targeted energy at 2 MHz, causing subcutaneous adipose tissue lipolysis. The Company received 510(k) clearance from the FDA for lipolysis of abdominal fat in 2018. Prior truSculpt
platforms include the truSculpt 3D, a 2 MHz device for tissue heating and circumferential reduction of fat in the abdomen and flank, and the original truSculpt platform launched in August 2012
and delivered treatments at 1 MHz. In December 2016, the Company received 510(k) clearance from the FDA to market the truSculpt platform for the temporary reduction in circumference of the
abdomen. The truSculpt 3D includes a consumable that needs to be “refilled” after a set number of treatments are performed, resulting in recurring revenue.
• Secret RF – In January 2018, the Company introduced a new fractional RF microneedling device that delivers heat into the deeper layers of the skin using controlled RF energy via microneedles.
The targeted energy revitalizes the tissue, via hemostasis, and coagulation of the tissue, minimizing downtime. Each time a procedure is performed, the physician must use a new hand piece tip.
The sale of the replacement tips result in recurring revenue. The Company is the distributor of Secret RF in North America, United Kingdom, and select markets in the EU.
• Enlighten SR/III – In December 2014, the Company introduced the enlighten laser platform with a dual wavelength (1064 nm + 532 nm). In December 2016, the Company introduced a three
wavelength model (1064 nm + 532 nm + 670 nm), enlighten III. The enlighten system is a dual pulse duration (750 picoseconds, or “ps,” and two nanoseconds, or “ns”) laser system cleared for
multi-colored tattoo removal and the treatment of benign pigmented lesions and acne scars. In 2018, the Company introduced an expanded performance enlighten III, and in April 2018, the
Company introduced enlighten SR, a lighter version of enlighten with reduced optical performance. Clinical studies were conducted to support an FDA clearance in October 2018 for treatment of
acne scars on patients with Fitzpatrick skin types II-V when used with the PICO Genesis FX Micro Lens Array (“MLA”) hand piece attachment.
• Excel HR – In June 2014, the Company introduced the excel HR platform, a premium hair removal solution for all skin types, combining the Company’s proven long-pulse 1064 nm Nd:YAG laser
and a high-power 755 nm Alexandrite laser with sapphire contact cooling. The platform also has the capability to perform the Laser Genesis treatment.
• xeo – In 2003, the Company introduced the xeo platform, which combines intense pulsed light technology with 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 revitalization by treating discoloration, fine lines, and laxity.
• Secret DUO – In September 2023, the Company expanded the Secret by Cutera portfolio with the addition of Secret DUO. The Secret DUO is comprised of two dual non-ablative fractional
technologies, Secret Radio Frequency Microneedling with a 1540 nm erbium glass laser, all in one platform. Each modality can be used individually or in combination to target a variety of
aesthetic concerns and skin conditions on all skin types with little to no downtime.
In addition to the above-mentioned primary systems, the Company historically generated revenue from the distribution of skincare products, which are manufactured by ZO Skin Health, Inc. (“ZO”),
and were sold in the Japanese market. On February 28, 2024, the Company and its Japanese subsidiary, Cutera KK, entered into a termination agreement with ZO, which terminated all agreements
related to the distribution by the Company of ZO’s products in Japan.
The Company also generates revenue from the sale of post-warranty services.
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The Company offers its customers the ability to select the systems and applications that best fit their practice and subsequently upgrade their systems to add new applications. This upgrade path
allows the Company’s customers to cost-effectively build their aesthetic practices and provides the Company with a source of incremental revenue.
The Market for Non-Surgical Aesthetic Procedures
The Company believes several factors are contributing to the global growth of aesthetic treatment procedures and aesthetic laser equipment sales, including:
• Growing Improvement in Economic Environment, Aesthetic Accessibility, and Expanded Practitioner Base – The last decade has seen an increased demand for aesthetic procedures, which
has resulted in an expanding practitioner base to satisfy the demand. Despite worsening recent economic conditions, underlying market feedback continues to support steady patient traffic. An
expanding practitioner base paired with digital and mobile advancements has led to a broader range of accessibility options for potential patients.
• Aging Demographics of Industrialized Countries – The aging population of industrialized countries, the amount of discretionary income available to the “baby boomer” demographic segment ─
ages 59 to 77 as of 2023 ─ and their desire to retain a youthful appearance contribute to the increased demand for aesthetic procedures. With millennials entering their 40's the demand and
preference for non-invasive aesthetic treatments are also rising. Millennials who are currently entering their 30's, including those in their 30's, have been earlier adopters of aesthetic treatments in
comparison to older generations.
• Broader Range of Safe and Effective Treatments – Technical developments and an increase in treatable conditions due to new product introductions, 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 advancements enable practitioners to offer a broader range
of treatments. These technical developments reduce treatment and recovery times, leading to greater patient demand.
• Broader Base of Customers – Managed care and government payor reimbursement restrictions motivate physicians to establish or expand their elective aesthetic practices with procedures paid for
directly by patients. As a result, in addition to core practitioners such as dermatologists and plastic surgeons, many other practitioners, such as gynecologists, family practitioners, primary care
physicians, physicians performing aesthetic treatments in non-medical offices, and other qualified practitioners (“non-core practitioners”) expanded their practices to offer aesthetic procedures.
• Wide Acceptance of Aesthetic Procedures and Increased Focus on Body Image and Appearance – According to the American Society for Dermatologic Surgery seven out of ten consumers
were considering a cosmetic procedure in 2023 and the most bothersome cosmetic concerns for consumers were body image and skin texture.
Non-Surgical Aesthetic Procedures for Improving the Body and/or 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 common aesthetic procedures and their limitations are described below.
Acne – Treatments for acne include over-the-counter ("OTC") and prescription topicals, washes, oral antibiotics, and oral isotretinoin. Acne affects an estimated 50 million Americans according to
the American Academy of Dermatology. Previously, lasers have been used to treat acne albeit with varying levels of success. Few treatments have demonstrated a durable response, while new
approaches like AviClear, which target the sebaceous gland, offer renewed promise for treating acne at its source.
Non-Invasive Body Contouring – Treatments for non-invasive body sculpting can be done utilizing a variety of technologies, including radio frequency, laser, cooling, and ultrasound. Procedures
address the reduction of unwanted fat on the abdomen, flanks, arms, thighs, submentum, and back and can require one or more treatments. Systems with the ability to induce non-invasive lipolysis
(breakdown of fat) offer a more permanent solution with an average fat reduction of more than 20%. Common side effects of this approach may include paradoxical hyperplasia with cooling devices,
and nodules which typically resolve over time and the risk of burning the treatment area with radiofrequency devices. In June 2019, the Company introduced the truFlex, a bio-electrical muscle
stimulation device designed to strengthen, firm, and tone the abdomen, buttocks, and thighs. In 2021 the Company introduced truFlex+, a treatment mode that decreased the treatment time from
approximately 45 minutes to 15 minutes.
Tattoo removal – The most effective way to remove tattoos on the body is to utilize laser systems that deliver very short pulse durations with high peak power in order to break up the ink particles
that comprise tattoos.
The global tattoo removal market is projected to reach $219.0 million by 2026. According to market research, people tend to remove their tattoos due to career choices, social conditions, personal
situations, and more, which have been the key drivers for the tattoo removal market. Despite the effectiveness of lasers for tattoo removal, common complaints concerning laser tattoo
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removal include a low rate of complete clearance (sometimes no better than 50% after several treatments) as well as the high number of treatments for satisfactory clearance (often 10 or more
treatments spaced four to eight weeks apart). However, the latest generation of tattoo removal lasers produce picosecond pulse durations, (a trillionth of a second) and thereby, can meaningfully
improve tattoo clearance and reduce the total number of treatments. The Company introduced the enlighten system, a dual pulse duration laser system, that was cleared for multi-colored tattoo
removal.
Hair Removal – Techniques for hair removal include waxing, depilatories, tweezing, shaving, electrolysis, laser as well as other energy-based hair removal modalities. The only techniques that
provide a long-lasting solution are electrolysis, laser, and other energy-based technology such as Intense Pulsed Light (“IPL”). 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. In comparison, lasers can quickly treat large areas with a high degree of safety and efficacy. In 2003, the Company introduced the xeo system platform
utilized for hair removal, which combines intense pulse light technology with laser applications in a single system. In 2014, the Company introduced the excel HR platform, a premium hair removal
solution for all skin types, combining the Company’s proven long-pulse 1064 nm Nd:YAG laser and a high-power 755 nm Alexandrite laser with sapphire contact cooling.
Skin Revitalization – Skin revitalization treatments include a broad range of popular alternatives, including Botox and collagen injections, chemical peels, microdermabrasion, radio frequency
treatment and laser 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.
Other skin revitalization 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.
With many modalities available today for skin revitalization and resurfacing, the Company has developed a range of clinically proven solutions uniquely paired with a patient’s lifestyle and skin
concerns, such as Secret PRO, which utilizes fractional CO for skin resurfacing and radio frequency microneedling for deep dermal remodeling and Secret RF, a novel fractional RF microneedling
system for tissue coagulation and hemostasis designed to stimulate and remodel collagen and address the common signs of aging.
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RF Microneedling – Also known as collagen induction therapy, microneedling is a minimally invasive revitalization treatment that involves using fine needles to create hundreds of tiny, invisible
puncture wounds in the top layer of the skin, which stimulates the body's natural wound healing processes, resulting in cell turnover and increased collagen and elastin production via hemostasis and
tissue coagulation. In January 2018, the Company introduced Secret RF product, a RF fractional microneedling system. In 2020, the Company released the Secret PRO, which included the dual
modality treatment options of RF microneedling and CO laser.
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Leg and Facial Veins – Current aesthetic treatment methods for leg and facial veins include sclerotherapy, as well as 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. In 2019, the Company introduced the excel V+, a high-performance, vascular and benign pigmented lesion treatment platform designed specifically for the core-
market of dermatologists and plastic surgeons, which treats the entire range of cosmetic vascular and benign pigmented lesion conditions.
Laser and other energy-based non-surgical treatments for hair removal, veins, skin revitalization and body contouring are discussed in the following section.
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 resulted in a
well-established market for these procedures.
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Practitioners can use laser and other energy-based technologies to selectively target hair follicles, veins, melanin as well as other chromophores within the epidermis and dermis, 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. Ablative skin
resurfacing improves 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 improves the appearance of the skin by treating the underlying structure of the skin.
Safe and effective laser and energy-based treatments require an appropriate combination of 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
• Wavelength or Frequency – the position in the electromagnetic spectrum which impacts the absorption and 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.
Technology and Design of the Company’s Systems
The Company’s enlighten, excel V/V+, Secret PRO, Secret RF, Secret DUO, truSculpt, truFlex and xeo platforms provide the long-lasting benefits of laser and other energy-based aesthetic treatments.
The Company’s technology allows for a wide variety of applications in a single system. Key features of the Company’s solutions include:
• Multiple Applications Available in a Single System – Many of the Company’s 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 revitalization, which address discoloration, fine lines, and uneven texture. Because practitioners can use the
Company’s systems for multiple indications, the investment in a unit is spread across a greater number of patients and procedures, and the acquisition cost may be more rapidly recovered.
• Technology and Design Leadership – The Company’s innovative laser technology combines multiple wavelengths, adjustable energy levels, variable spot sizes and a wide range of pulse durations,
allowing practitioners to customize treatments for each patient and condition. The Company’s 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. The Company’s Titan hand piece utilizes a novel light source not previously used for
aesthetic treatments. The Company’s Pearl and Pearl Fractional hand pieces, with proprietary YSGG technology, represent the first application of the 2790 nm wavelength for minimally invasive
cosmetic dermatology.
• Upgradeable Platform – The Company’s xeo, excel V and truFlex products allow the Company’s customers to upgrade their system to the Company’s newest technologies or add new applications
to their system, each of which provide the Company with a source of incremental revenue. The Company believes that product upgradeability allows customers to take advantage of the Company’s
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 – For hair removal, the Company’s products are safe and effective on patients of all skin types, including harder-to-treat patients with
dark or tanned skin. In addition, the wide parameter range of the Company’s systems allows practitioners to effectively treat patients with both fine and coarse hair. Practitioners may use the
Company’s products to treat spider veins on the leg; to treat facial veins; and perform skin revitalization procedures for discoloration, texture, fine lines and wrinkles on any type of skin. The ability
to customize treatment parameters based on skin type enables practitioners to offer safe and effective therapies to a broad base of their patients.
• Ease of Use – The Company designs its products to be easy to use. The Company’s proprietary hand pieces are lightweight and ergonomic, minimize user fatigue, and facilitate clear views of the
treatment area, reducing the possibility of unintended damage and increasing the speed of application. The Company’s control console contains an intuitive user interface with
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simple, independently adjustable controls from which to select a wide range of treatment parameters to suit each patient’s profile. For instance, the clinical navigation user interface on the xeo
platform provides recommended clinical treatment parameter ranges based on patient criteria entered. The Company’s Pearl and Pearl Fractional hand pieces include a scanner with multiple scan
patterns to allow simple and fast treatments of the face. Finally, the Company’s truSculpt embodies the best of many of the above features. Unlike other body sculpting treatments on the market that
require certain body types, or pinchable fat, truSculpt is “body agnostic” with the ability to customize treatments to the patient's needs and body type. In addition, the Company’s proprietary
algorithms and navigation enable the practitioner to treat a 300cm area in only 15 minutes.
2
Business Strategy
The Company’s new vision is to be the premier provider of medical aesthetic technologies. The Company's mission is to improve lives through medical aesthetic technologies that are driven by
science and powered through partnerships. To achieve these goals, the Company plans on executing a strategic plan encompassing the following opportunities:
• Operational Excellence – The Company experienced product reliability, parts, and inventory challenges in 2023 that affected its ability to meet expectations. The Company made leadership
changes in 2023 and plans to return to historical standards for product reliability and service by mid-2024 and exceed those standards by the end of 2024.
• Launch of AviClear across all geographies – AviClear, is the first FDA-cleared energy-based device for the long-term treatment of mild, moderate, and severe acne. In the United States, there are
an estimated 50 million acne sufferers and AviClear offers a novel approach from traditional prescription topical and systemic treatments. AviClear was launched in North America in 2022, on a
lease model with a pay-per-patient fee charged to the medical provider. While this low barrier to entry model allowed quick uptake of over 1,200 devices to hit the market, it came at the expense of
significant working capital. In addition, key customers, aesthetic dermatologists, have articulated a desire for a traditional ownership model. The Company paused new leases of AviClear in August
2023 to revamp its business model, establish a global go-to-market strategy, and enhance product reliability. AviClear was relaunched in the United States in November 2023 with a direct sales
model and will execute a limited commercial release in early 2024 internationally, with a new capital and consumable model that mirrors other leading dermatologic franchises. This ensures
alignment to customer preferences while minimizing cash burn and overall business complexity for Cutera. These changes are designed to allow AviClear to fully capitalize on the excitement in the
marketplace.
• Profitable growth of the Company's core business – The Company’s robust portfolio and engineering prowess is one of its greatest strengths. Cutera sells and markets leading technologies
across several main franchises such as enlighten, excel V+, excel HR, xeo, truBody, and Secret by Cutera. Cutera technologies treat many dermatological concerns on the face and body. A key
strategic imperative in the future is to extract better margins, driving profitable growth of this core business. The Company believes that AviClear can act as a “hero product” and be a gateway for a
patient or practice to begin a journey that best supports their lifetime journey of healthy skin utilizing Cutera devices.
Products
The Company’s enlighten, excel, AviClear, Secret, truSculpt, and xeo platforms allow for the delivery of laser light and/or RF energy for aesthetic applications from a single system. With the
Company’s xeo platform, practitioners can purchase customized systems with a variety of the Company’s multi-technology applications. Each of the Company’s products consists of a control console
and one or more hand pieces, depending on the model.
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The following table lists the Company’s currently offered products. Each checked box represents the applications included in the product in the years noted.
Applications:
System
Platforms
xeo
Products
Nd:YAG
ProWave 770
AcuTip 500
Titan XL
LimeLight
Pearl
Pearl Fractional
ProWave LX
excel V
truSculpt
excel HR
enlighten(dual wavelength)
enlighten III (MLA)
Secret RF
truSculpt
truFlex
excel V+
Secret PRO
Secret DUO
AviClear
Energy Sources:
Year
2003
2005
2005
2006
2006
2007
2008
2013
2011
2012
2014
2014
2016
2018
2018
2019
2019
2020
2023
2022
Energy
Source
Hair
Removal
Vascular
Lesions
BPL’s
Dyschromia
& Melasma
Texture,
Lines and
Wrinkles
Acne Scars
Tattoo
Removal
Lipolysis*
Active Acne
Skin Revitalization
Noninvasive
Body
Contouring*
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
(a)
(b)
(b)
(c)
(b)
(d)
(d)
(b)
(e)
(f)
(g)
(h)
(i)
(j)
(f)
(f)
(e)
(k)
(l)
(m)
x
x
x
x
x
x**
x
x**
x**
x
x
x**
x**
x**
x
x
x
x
x*
x*
x
x
x
1064 nm Nd:YAG laser;
Visible and near-infrared Intense Pulsed Light;
Infrared Intense Pulsed Light;
2790 nm Er:YSGG laser;
Combined frequency-doubled 532 nm and 1064 nm Nd:YAG laser;
Radio frequency at 1 & 2 MHz – mono-polar
Combined 755 nm Alexandrite laser and 1064 nm Nd:YAG laser;
Dual wavelength 532 nm and 1064 nm Nd:YAG picosecond laser;
Three wavelength 532 nm, 670 nm, and 1064 nm Nd:YAG picosecond laser;
Radio frequency at 2 MHz mono-polar;
Radio frequency at 2 MHz Bi-polar and CO2 laser;
Radio frequency at 2 MHz Bi-polar and 1540 nm laser; and
1726nm wavelength
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
* The Company’s CE Mark allows it to market truSculpt in the European Union, Australia and certain other countries outside the U.S. for fat reduction, body shaping and body contouring. In the
U.S. the Company has 510(k) clearance for the reduction in circumference of the abdomen, non-invasive lipolysis (breakdown of fat) of the abdomen and 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.
** Via Hemostasis and Coagulation
Upgrades
The Company’s xeo, and truFlex products, are designed to allow customers to cost-effectively upgrade to the Company’s newest technologies or add applications to their system, each of which
provides the Company with a source of additional revenue.
Extended Contract Services and Support
The Company offers post-warranty services to its customers through extended service contracts that cover parts and labor for terms of one to four years. The Company also offers support service on a
time-and-materials basis for systems and detachable
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hand piece replacements. Revenue related to services performed on a time-and-materials basis is recognized when performed. These post-warranty services serve as additional sources of recurring
revenue from the Company’s installed product base.
The Company’s products are engineered to enable quick and efficient service and support. There are several separate components of the Company’s products, each of which can be removed and
replaced. The Company believes that quick and effective delivery of service is important to its customers. As of December 31, 2023, the Company had 56 Field Service employees.
In countries where the Company is represented by distribution partners, customers are serviced through the distributor. Distributors are generally provided warranty coverage for parts only, with labor
customarily provided to the end customer by the distributor. The Company’s Titan, truSculpt 3D, truSculpt, and truFlex hand pieces generally include a warranty for a set number of shots or cycles,
rather than for a period of time.
Training
Sales of systems to customers, except system sales through distributors, include training on the use of the system to be provided within 90 days of purchase. Additional training is available to
customers and separately on www.mycutera.com. The Company recognizes revenue for training once the training has been provided.
Consumables (Other accessories)
The Company treats its customers' purchases of replacement cycles for truSculpt and truFlex, as well as replacement Titan and truSculpt 3D hand pieces, as consumable revenue. The Company's
AviClear treatment fee revenue is also recorded as consumable revenue. Consumables provide the Company with a source of recurring revenue from existing customers. The Secret RF and Secret
PRO products have single use disposable tips, which must be replaced after every treatment. Sales of these consumable tips further enhance the Company’s recurring revenue.
Applications and Procedures
The Company’s 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 the Company’s customers to treat the broadest range of conditions available with a single energy-based system.
Non-Invasive Body Contouring – The Company’s truSculpt technology allows practitioners 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 15 minutes and two or more treatments may be required to obtain the desired aesthetic results. The Company’s CE Mark
allows the Company to market truSculpt in the EU, Australia and certain other countries outside the U.S. for fat reduction, body shaping, body contouring and circumferential reduction. In the U.S.,
truSculpt has 510(k) clearance for topical heating for the purpose of elevating tissue temperature for the treatment of selected medical conditions, such as relief of pain and muscle spasms and
increase in local circulation. Additionally, the 2 MHz setting for the 40 cm2 hand piece is indicated for reduction in circumference of the abdomen and non-invasive lipolysis (breakdown of fat) of the
abdomen. The truSculpt massage device is intended to provide a temporary reduction in the appearance of cellulite.
Tattoo Removal – The Company’s enlighten systems, delivering picosecond or dual picosecond and nanosecond pulse durations are used for tattoo removal, the treatment of benign pigmented lesions,
and a laser skin toning procedure that the Company refers to as PICO Genesis.
Hair Removal – The Company has two platforms, excel HR and xeo, which address hair removal for all skin types as well as hair thicknesses. The Company’s xeo platform allows practitioners to
select between the 1064 nm mode for darker, course hair, and the ProWave LX hand piece designed to address finer, vellus hair. Contact cooling is present on both hand pieces for epidermal
protection. excel HR employs both a 1064 nm Nd:YAG as well as a 755 nm Alexandrite for hair removal. Like the xeo, the 1064 nm wavelength addresses darker, course hair while the 755 nm
wavelength is used for finer, lighter hair. Both wavelengths are transmitted through the same CoolView hand piece with spot sizes up to 18 mm for the 755 nm wavelength and up to 16 mm for the
1064 nm wavelength. The CoolView hand piece employs sapphire as a means of contact cooling – epidermal protection. Both platforms are cleared for treating all skin types.
Vascular Lesions – Both the Company’s xeo as well as excel V and excel V+ platforms are capable of treating a wide range of aesthetic vein conditions, including spider and reticular veins, and small
facial veins. xeo employs the LimeLight hand piece for addressing small veins as well as vascular lesions while the Nd:YAG is appropriate for deeper, larger vessels. LimeLight is a
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fixed spot size IPL while the Nd:YAG has adjustable spot sizes up to 10mm. The excel V and excel V+ devices are is a dual wavelength laser – 1064 nm and 532 nm – with adjustable spot sizes
ranging from 2 mm to 12 mm for excel V and 1 mm - 16 mm for the excel V+. The 532 nm and 1064 wavelength can be used to treat over 20 conditions ranging from small veins and vessels to a
variety of vascular lesions. For both of these devices, patients receive on average between one and six treatments, with six weeks or longer between treatments.
Skin Revitalization – The Company’s xeo, excel V, excel HR and enlighten platforms, utilizing an Nd:YAG laser, allow the Company’s customers to perform non-invasive and minimally-invasive
treatments that reduce redness, dyschromia, fine lines, improve skin texture, and treat other aesthetic conditions. When using a 1064 nm Nd:YAG laser to improve skin texture 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 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 with a spacing of two to four weeks between treatments. Skin revitalization was expanded with introduction of 'green
genesis', a micro-pulsed 532 nm treatment on the excelV+.
Texture, Lines and Wrinkles – The xeo platform can address fine lines and wrinkles using the Pearl and Pearl Fractional hand pieces. When treating fine lines, texture and wrinkles 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 approximately 15 to 30 minutes. Patients receive on average between one and three
treatments at monthly intervals.
The Company’s Secret RF and Secret PRO platforms feature Radio Frequency microneedling device that employs fractionated RF energy (2 MHz) delivered at different pre-programmed depths in the
dermis to produce new collagen. The Secret devices come with four treatment tips: a 25-pin tip, both insulated and semi-insulated, and a semi-insulated 64-pin tip. The treatment has minimal side
effects, negligible downtime and results in improved skin tone and texture as well as improvement in acne scars. Additionally, Secret PRO and Secret DUO offer laser therapies, where Secret PRO
employs a CO laser for ablative fractional treatments and Secret DUO offers a 1540 nm laser for non-ablative fractional treatments.
2
Dyschromia – The Company’s pulsed-light technologies allow the Company’s customers to safely and effectively treat red and brown dyschromia (skin discoloration), benign pigmented lesions, and
rosacea. The practitioner delivers a narrow spectrum of light to the surface of the skin through the Company’s LimeLight hand pieces. These hand pieces include one of the Company’s proprietary
wavelength filters, which reduce the energy level required for therapeutic effect and minimize the risk of skin injury.
The 532 nm wavelength green laser option of the excel V and enlighten systems, as well as the 755 nm infrared wavelength of the excel HR, can be used to treat benign pigmented lesions in
substantially the same way.
In treating benign pigmented lesions, the hand piece is placed directly on the skin and then the 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.
Practitioners can also treat dyschromia and other skin conditions with the Company’s 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 Quality – The Company’s Titan technology allows the Company’s customers to use deep dermal heating to tighten lax skin. The practitioner delivers a spectrum of light to the skin through the
Company’s Titan hand piece. This hand piece includes the Company’s 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 compromised skin, 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 regrowth. 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.
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The Company’s CE Mark allows the Company to market the Titan in the EU, Australia and certain other countries outside the U.S. for the treatment of wrinkles through skin tightening. However, in
the U.S. the Company has a 510(k) clearance only for deep dermal heating.
Acne – The Company’s acne solution, AviClear, is a prescription-free, drug-free laser treatment that is safe for all skin types and tones and FDA-cleared for the long-term treatment of mild to severe
acne. The device can provide lasting clearance without significant side effects in three 30-minute treatment sessions. Acne forms when sebum, the oily substance on skin, combines with dead skin
cells and clogs pores. The Company’s treatment uses a 100-watt laser device with a 1726 nm wavelength to treat acne at the source by selectively targeting and damaging the sebaceous glands.
Research has indicated that at 1726 nm, pure sebum absorbs twice as much energy as compared to water. AviClear selectively targets this exact frequency to damage the sebocytes and decrease
sebum production. Additionally, AviClear is equipped with the AviCool™ sapphire skin cooling and smart sensory controls that cool the skin’s temperature during treatment for a more comfortable
and safe experience. After an AviClear treatment, patients can resume activities immediately. In addition, patients will produce less oil, helping improve the acne, and experience shorter breakouts
with fewer and less intense flare-ups. Acne clearance results are expected to continue to improve over time, demonstrating the long-term efficacy of this treatment.
Sales and Marketing
The Company markets, sells, and services the Company’s products through direct sales and service employees in North America, Australia, New Zealand, Austria, France, Germany, Hong Kong,
Japan, Switzerland, the United Kingdom and Ireland. International sales and services outside of these direct markets are made through a network of distributors in over 37 countries, as well as a direct
international sales force. The Company internally manages its U.S. and Canadian sales organization as one North American sales region.
The Company also sells certain items like hand piece refills, cycle refills, consumable tips, and marketing brochures through the Company’s web site www.mycutera.com.
Customers generally demand quality, performance, ease of use and high productivity in relation to the cost of ownership. The Company responds to these customer demands by introducing new
products focused on these requirements in the markets it serves. Specifically, the Company believes it introduces new products and applications that are innovative, address the specific aesthetic
procedures in demand, and are upgradeable on its customers’ existing systems. In addition, the Company provides attractive upgrade pricing to new product families. To increase market penetration,
the Company also markets to non-core practitioners in addition to the Company’s core specialties of plastic surgeons and dermatologists.
The Company seeks to establish strong ongoing relationships with its customers through the ability to upgrade select products, sales of extended service contracts, hand piece refills and replacement
disposable tips, ongoing training and support, and by distributing skincare products in Japan. The Company primarily targets its marketing efforts to practitioners through office visits, workshops,
trade shows, webinars, trade journals, public relations and media placements. The Company also markets to potential patients through brochures, workshops, advertising, and its website. In addition,
the Company offers clinical forums with recognized expert panelists to promote advanced treatment techniques using the Company’s products to further enhance customer loyalty and uncover new
sales opportunities.
Competition
The industry in which the Company operates is subject to intense competition. The Company’s products compete against conventional non-energy-based treatments, such as electrolysis, Botox and
collagen injections, chemical peels, microdermabrasion and sclerotherapy. The products also compete against laser and other energy-based products offered by other public companies, such as
Abbvie (acquired Allergan and its division Zeltiq), Bausch Health (formerly Valeant Pharmaceuticals), InMode and Lutronic, as well as private companies, including Sisram (the parent company of
Alma Lasers), Candela (formerly Syneron Candela, acquired in 2017 by an affiliate of private equity funds advised by Apax Partners), Sciton, BTL Industries, Accure Acne and several others. In late
2019, Clayton, Dubilier & Rice entered into an agreement under which its managed funds acquired Cynosure, LLC, a leader in medical aesthetics systems and technologies, from Hologic, Inc.
Cynosure develops, manufactures, and markets medical aesthetic treatment systems for dermatologists, plastic surgeons, medical spas and other healthcare practitioners, with sales and distribution
worldwide. In early 2020, the affiliated private equity funds of Baring Private Equity Asia completed the acquisition of Lumenis, a provider of specialty energy-based medical devices across the
fields of aesthetics, urology, ophthalmology, ENT and gynecology, with an international presence. The Company also competes against NA-based distribution companies, including Cartessa
Aesthetics, Reveal Lasers, and Aesthetic Management Partners (AMP).
Competition among providers of laser and other energy-based devices for the aesthetic market is characterized by extensive research and development efforts, and innovative technology. While the
Company attempts to protect its products through
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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 the
Company. There are many companies, both public and private, that are developing devices that use both energy-based and alternative technologies. Some of these competitors have greater resources
than the Company does or product applications for certain sub-markets in which the Company does not participate. Additional competitors may enter the market, and the Company is likely to
compete with new companies in the future. To compete effectively, the Company must demonstrate that the Company’s products are attractive alternatives to other devices and treatments by
differentiating the Company’s products on the basis of performance, brand name, service, price and physician return on investment. The Company has encountered, and expects to continue to
encounter, potential customers who, due to existing relationships with the Company’s competitors, are committed to, or prefer, the products offered by these competitors. Competitive pressures may
result in price reductions and reduced margins for the Company’s products.
Research and Development
The Company focuses its research and development efforts on innovation and improvement of products and services that align with its mission. The Company consistently strives to understand its
customers’ expectations for total excellence. The Company accomplishes this through its commitment to continuous improvement in design, manufacturing, and service, which the Company believes
provides for superior products and services to ensure on going customer satisfaction, trust and loyalty. The Company seeks to comply with all applicable domestic and international regulations to
maintain the highest quality.
The Company’s research and development activities are conducted by employees with a broad base of experience in lasers, optoelectronics, software, and other related disciplines. The Company
develops working relationships with outside contract engineering and design consultants, giving the Company’s team additional technical and creative breadth. The Company works closely with
thought leaders and customers, to understand unmet needs and emerging applications in aesthetic medicine.
Acquisitions, Investments, and Distribution Agreements
The Company’s strategy of providing a broad range of therapeutic capabilities requires a wide variety of technologies, products, and capabilities. The rapid pace of technological development in the
aesthetic device industry and the specialized expertise required in different areas make it challenging for the Company to develop a broad portfolio of technological solutions. In addition to internally
generated growth through research and development efforts, the Company has considered, and expects to continue to consider, acquisitions, investments, and distribution agreements to provide access
to new products and technologies in both new and existing markets.
The Company expects to further the Company’s strategic objectives and strengthen its existing businesses by making future acquisitions and investments, or by entering into new distribution
agreements in areas that the Company believes it can acquire or stimulate the development of new technologies and products. Mergers and acquisitions of medical technology companies, as well as
distribution relationships, are inherently risky and no assurance can be given that any acquisition will be successful or will not materially adversely affect the Company’s consolidated operations,
financial condition and cash flows.
Manufacturing
The Company manufactures its products with components and subassemblies supplied by vendors and assembles and tests each of its products at the Brisbane, California facility, and at third-party
contract manufacturers’ facilities. Quality control, cost reduction and inventory management are top priorities of the manufacturing operations.
The Company purchases certain components, subassemblies, and assembled systems from a limited number of suppliers. All Secret RF systems are manufactured by Ilooda Co. Ltd, who also
manages all related regulatory activities. The Company has flexibility with its suppliers to adjust the number of components and subassemblies as well as the delivery schedules. The forecasts 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. The potential for disruption of supply is reduced 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 the Company’s manufacturing.
Patents and Proprietary Technology
The Company relies on a combination of patent, copyright, trademark and trade secret laws, and non-disclosure, confidentiality, and invention assignment agreements to protect the Company’s
intellectual property rights. As of January 19, 2024, the Company had 30 issued and unexpired U.S. patents, 9 pending U.S. patent applications, and 14 pending international applications under the
Patent Cooperation Treaty ("PCT") or other national or regional patent offices. The Company intends to file for additional patents and trademarks to continue to strengthen the Company’s intellectual
property rights. Patents typically
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have a 20-year term from the application filing date. There can be no assurance that pending patent applications will result in the issuance of patents, that patents issued to or licensed by the Company
will not be challenged or circumvented by competitors, or that these patents will be found to be valid or sufficiently broad to protect the Company’s technology or to provide the Company with a
competitive advantage. The Company has also obtained certain trademarks and trade names for the Company’s products and maintain certain details about the Company’s processes, products, and
strategies as trade secrets. In the U.S. and several foreign countries, the Company registers its Company name and certain of its product names as trademarks, including Cutera, AVI360, AviCare,
AviClear, AviCool, AcuTip 500, CoolGlide, CUCF, Cutera University Clinical Forum, Enlighten, Excel HR, Excel V, Genesis, Laser Genesis, LimeLight, myQ, Pearl, PICO Genesis, ProWave 770,
Solera, Titan, truBody, truSculpt, truSculpt iD, truSculpt Flex, Vantage, and xeo. The Company may have common law rights in other product names, including excel V+, and truFlex.
The Company relies on non-disclosure and non-competition agreements with employees, technical consultants, and other parties to protect, in part, trade secrets and other proprietary technology. The
Company also requires them to agree to disclose and assign to the Company all inventions conceived in connection with the relationship. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, that others will not independently develop equivalent proprietary information or that third parties will not otherwise gain
access to the Company’s trade secrets and proprietary knowledge.
For additional information, please refer to Item 1A. Risk Factors of this Annual Report on Form 10-K, under the section entitled “Risk Factors - Intellectual property rights may not provide adequate
protection for some or all of the Company’s products, which may permit third parties to compete against the Company more effectively, and the Company may be involved in future costly intellectual
property litigation, which could impact the Company’s future business and financial performance.”
Government Regulation
United States
The Company’s products are medical devices subject to regulation by numerous government agencies, including the FDA and counterpart agencies outside the United States. To varying degrees, each
of these agencies requires the Company to comply with laws and regulations governing the research, development, testing, manufacturing, labeling, pre-market clearance or approval, marketing,
distribution, advertising, promotion, record keeping, reporting, tracking, and importing and exporting of medical devices. In the United States, FDA regulations govern the following activities, which
the Company performs 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;
• record keeping;
• pre-market clearance or approval;
• advertising and promotion;
• production;
• product sales and distribution; and
• complaint handling.
FDA’s Pre-market Clearance Requirements
Unless an exemption applies, each medical device the Company wishes to commercially distribute in the United States will require either prior 510(k) clearance or de novo 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. For Class II, the manufacturer must submit to the FDA a pre-market
notification requesting permission to commercially distribute the device. This process is 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 more rigorous pre-market approval. All of the Company’s current products are Class II devices.
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510(k) Clearance Pathway
When 510(k) clearance is required, the Company must submit a pre-market notification demonstrating that the Company’s 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 (“PMA”) applications. By regulation,
the FDA is required to clear or deny 510(k) pre-market notification within 90 days of submission of the application. As a practical matter, clearance may take significantly longer, as FDA may require
additional information. Laser devices used for aesthetic procedures, such as hair removal, have generally qualified for clearance under 510(k) procedures.
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The following table details the indications for which the Company received 510(k) clearances and when these clearances were received.
FDA Marketing Clearances:
Laser-based products:
- 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, treatment of vascular and benign pigmented lesions, and
treatment of wrinkles
addition of treatment of mild to moderate inflammatory acne vulgaris
enlighten picosecond and nanosecond 532/1064 nm for the treatment of benign pigmented lesions
enlighten picosecond and nanosecond 532/1064 nm for multi-colored tattoo removal
enlighten III picosecond and nanosecond 532/1064 nm for multi-colored tattoo removal and treatment of benign pigmented lesions and picosecond 670 nm
for benign pigmented lesions
enlighten III higher performance specifications for 532/1064 nm; addition of nanosecond mode for 670nm
enlighten III addition of tattoo removal for lighter colored inks (green and blue) for 670 nm
enlighten Micro Lens Array (MLA) for treatment of acne scars
–
– AviClear for treatment of mild to severe inflammatory acne vulgaris
– AviClear for long-term treatment of mild to severe inflammatory acne vulgaris
Pulsed-light technologies:
–
–
treatment of pigmented lesions
hair removal and vascular treatments
Date Received:
June 1999
March 2000
January 2001
June 2002
October 2002
April 2011
May 2013
December 2013
March 2016
August 2014
November 2014
October 2016
April 2016
October 2017
December 2018
March 2022
June 2023
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
February 2004
applied
Solera tabletop console:
–
–
for use with the Titan hand piece
for use with the Company’s pulsed-light hand pieces
Pearl product for the treatment of wrinkles
Pearl Fractional product for skin resurfacing and coagulation
truSculpt radio frequency product:
–
–
–
–
topical heating to elevate tissue temperature for the treatment of selected medical conditions such as relief of pain and muscle spasms and increase in local
circulation; massage device for temporary reduction in the appearance of cellulite
temporary reduction in circumference of the abdomen
reduction in circumference of the abdomen
non-invasive lipolysis of the abdomen and for reduction in circumference of the abdomen
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October 2004
January 2005
March 2007
August 2008
April 2008
December 2016
August 2017
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Product Modifications
Pursuant to FDA regulations, after a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended
use, labeling, or biocompatibility, requires a new clearance. The FDA requires manufacturers to make this determination initially, but the FDA can review any such decision and may disagree with a
manufacturer’s determination. To date, the Company has modified aspects of its products after receiving regulatory clearance and determined that new 510(k) clearances are not required for these
modifications. If the FDA disagrees with the Company’s determination not to seek a new 510(k) clearance, the FDA may retroactively require the Company to seek 510(k) clearance.
Clinical Trials
When FDA approval of a Class II device requires human clinical trials, only approval from the Institutional Review Board (“IRB”) is required to proceed with the planned and IRB approved clinical
trial/study.
Quality Requirements
The Company is required to manufacture the Company’s products in compliance with the FDA’s Quality System Regulation (“QSR”) and the international quality management standard for medical
systems ISO 13485:2016. The QSR and ISO 13485 cover the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping
of the Company’s products. Since 2017, the Company has been enrolled in the Medical Device Single Audit Program (“MDSAP”). The MDSAP allows a single audit of a medical device
manufacturer’s Quality Management System (“QMS”), which satisfies the requirements of five regulatory jurisdictions (FDA - US, Health Canada - Canada, Therapeutic Goods Administration
(“TGA”) - Australia, Pharmaceuticals and Medical Devices Agency (“PMDA”) - Japan, and Agência Nacional de Vigilancia Sanitária (“ANVISA”) - Brazil); and for the EU under Europäische Norm
(“EN”) International Standards Organization (“ISO”) 13485:2016 and Medical Device Directive (MDD)/EU Medical Device Regulation ("MDR”).
MDSAP re-certification occurs every three years with a surveillance audit taking place annually. Major findings during these audits or an increase in field reportable events could trigger regulatory
enforcement action including by the FDA. The Company’s manufacturing facility is ISO 13485 certified. The Company had a successful MDSAP re-certification audit in January 2024. There were
no significant findings or observations as a result of this audit. However, the Company’s failure to maintain compliance with the QSR requirements could result in the shutdown of the Company’s
manufacturing operations and the recall of the Company’s products, which would have a material adverse effect on the Company’s business. In the event that one of the Company’s suppliers fails to
maintain compliance with specified quality requirements, the Company may have to qualify a new supplier and could experience manufacturing delays as a result. The Company has opted to
maintain quality assurance and quality management certifications to enable the Company to market the Company’s products in the five MDSAP regulatory jurisdictions, as well as the member states
of the EU, the European Free Trade Association, and countries that have entered into Mutual Recognition Agreements with the EU.
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 reoccur; 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. The Company is subject to unannounced inspections by the FDA and the Food and Drug Branch of the California Department of
Health Services (CDHS), to determine the Company’s compliance with the QSR and other applicable regulations, which may include the manufacturing facilities of the Company’s subcontractors. In
the past, the Company’s 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. The Company’s responses to those observations have been accepted by the FDA and CDHS.
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The Company is 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 regulations also require 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 the Company’s products;
• Operating restrictions or partial suspension or total shutdown of production;
• Refusing the Company’s requests for 510(k) clearance of new products, new intended uses, or modifications to existing products;
• Withdrawing 510(k) clearance that have already been granted; and
• Criminal prosecution and penalties.
The FDA also has the authority to require the Company to repair, replace, or refund the cost of any medical device that it has manufactured or distributed. If any of these events were to occur, they
could have a material adverse effect on the Company’s business.
The Company is 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. The
Company believes that compliance with these laws and regulations as currently in effect will not have a material adverse effect on the Company’s 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 different than that required for FDA clearance, and the clearance or approval requirements may be different from those in the U.S.
In Japan, the Company is actively seeking approvals for products to supplement the Company’s existing approvals for enlighten, enlighten SR, enlighten III, excel HR, xeo SA and truFlex.
In the European Economic Area (EEA), which is composed of the 27 Member States of the EU plus Norway, Liechtenstein, and Iceland, a single regulatory approval process exists, and conformity
with the legal requirements is represented by the CE mark and corresponding EC certificate. The Company’s products are regulated in the EU as medical devices per the EU Medical Devices
Regulation (MDR). The Company's EC certificate under the EU Medical Devices Directive (MDD) expired on April 15, 2023; however, Regulation (EU) 2023/607 effectively extends the validity of
the Company’s EC certificate until December 31, 2028. The Company is in the process of obtaining MDR certification for its principal products sold in the EU and expects to have MDR certification
in 2024. In the UK, the implementation of the UK Conformity Assessed (UKCA) mark has been delayed, and the CE mark will continue to be accepted until June 2028 (for products certified under
MDD) and June 2030 (for products certified under MDR). The CE mark continues to be required for goods sold in Northern Ireland. Other countries, such as Switzerland, have entered into Mutual
Recognition Agreements and allow the marketing of medical devices that meet EU requirements.
Applicability of Anti-Corruption Laws and Regulations
The Company’s worldwide business is subject to the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), the United Kingdom Bribery Act of 2010 (the “UK Bribery Act”) and other anti-
corruption laws and regulations applicable in the jurisdictions where the Company operates. The FCPA can be used to prosecute companies in the U.S. for arrangements with physicians, or other
parties outside the U.S., if the physician or party is a government official of another country and the arrangement violates the law of that country. The UK Bribery Act prohibits both domestic and
international bribery, as well as bribery across both public and private sectors. There are similar laws and regulations applicable to the Company outside the U.S., all of which are subject to evolving
interpretations. For additional information, please refer to Item 1A. Risk Factors of this Annual Report on Form 10-K, under the sections entitled “Risk Factors – the Company’s failure to comply
with rules relating to bribery, foreign corrupt practices and privacy and security laws may subject the Company to penalties and adversely impact the Company’s reputation and business operations.”
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Patient Privacy and Security Laws
Various laws worldwide protect the confidentiality of certain patient health and other consumer information, including patient medical records, and restrict the use and disclosure of patient health
information by healthcare providers. Privacy standards in Europe and Asia are becoming increasingly strict, enforcement action and financial penalties related to privacy in the EU are growing, and
new laws and restrictions are being passed. The management of cross-border transfers of information among and outside of EU member countries is becoming more complex, which may complicate
the Company’s clinical research and commercial activities, as well as product offerings that involve transmission or use of data. The Company will continue its efforts to comply with those
requirements and to adapt the Company’s business processes to those standards.
In the U.S., the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology and Clinical Health Act (“HITECH”) and their respective
implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually
identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” defined as independent contractors or agents
of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil
and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys new general authority to file civil actions for damages or
injunctions in federal court to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security
of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts. The Company potentially operates as a business
associate to covered entities in a limited number of instances. In those cases, the patient data that the Company receives may include protected health information, as defined under HIPAA.
Enforcement actions can be costly and interrupt regular operations of its business. While the Company has not been named in any such actions, if a substantial breach or loss of data from the
Company’s records were to occur, the Company could become a target of such litigation.
In the EU, Regulation 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (“General Data Protection Regulation” or
“GDPR”) came into effect on May 25, 2018. The GDPR replaces Directive 95/46/EC (“Data Protection Directive”). While many of the principles of the GDPR reflect those of the Data Protection
Directive, for example in relation to the requirements relating to the privacy, security and transmission of individually identifiable health information, there are a number of changes. In particular: (1)
pro-active compliance measures are introduced, such as the requirement to carry out a Privacy Impact Assessment and to appoint a Data Protection Officer where health data is processed on a “large
scale;” and (2) the administrative fines that can be levied are significantly increased, the maximum being the higher of €20 million, or 4%, of the total worldwide annual turnover of the group in the
previous financial year. The Company will continue its efforts to comply with the GDPR requirements and to adapt the Company’s business processes to those requirements.
Environmental Health and Safety Laws
The Company is also subject to various environmental health and safety laws and regulations worldwide. Like other medical device companies, the Company’s manufacturing and other operations
involve the use and transportation of substances regulated under environmental health and safety laws including those related to the transportation of hazardous materials. To the best of the
Company’s knowledge at this time, the Company does not expect that compliance with environmental protection laws will have a material impact on the Company’s consolidated results of
operations, financial position or cash flows.
Employees and Human Capital
As of December 31, 2023, the Company had 430 employees, compared to 540 employees as of December 31, 2022. The Company believes that its future prosperity party relies on its sustained
capacity to attract, hire and retain qualified personnel. None of the Company’s employees are represented by a labor union, and the Company believes its employee relations are positive. The
Company is dedicated to cultivating a diverse and inclusive work environment, essential for attracting and retaining exceptional talent. Through ongoing employee development, comprehensive
compensation and benefits, employee assistance programs and a focus on health, safety and employee well-being, the Company strives to help its employees in all aspects of their lives so they can do
their best work.
Diversity, Equity and Inclusion
The Company is devoted to establishing and preserving a diverse and secure workplace that harnesses the ideas and viewpoints vital for innovation, facilitating the success of its workforce,
customers, and communities in shaping the future of medical aesthetics. The Company endeavors to foster an inclusive environment where individuals are empowered to design, produce,
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and market an extensive range of aesthetic laser and energy-based solutions, allowing practitioners to deliver safe and efficient treatments. This dedication to diversity and inclusion begins at the
uppermost echelons of the Company.
Employee Engagement
The Company regularly gathers input to enhance its understanding of the employee experience and to pinpoint areas where it can further reinforce its corporate culture. It is keen to determine the
aspects that are performing effectively, areas for improvement, and the extent to which its employees comprehend and embody the Company's cultural values. In 2023, approximately 76% of the
Company's workforce engaged in the annual employee survey. Additionally, the Company CEO and senior leadership host quarterly global employee townhall meetings to emphasize the Vision and
Strategy, build company culture, provide opportunity for employees to connect with leadership, two way transparent communication, employee recognition and critical updates.
Leadership development and training
The Company fosters an environment where its leaders can learn, develop, and realize their full potential through engaging and challenging work experiences at Cutera. It supports this growth by
providing a wealth of training resources, ensuring that employees have access to all the necessary tools for both personal and professional success. Employees at the Company are motivated to take
charge of their own growth, designing personalized learning plans that align with their individual needs and development objectives.
Health, Safety and Wellness
The physical health, financial stability, life balance, and mental wellness of its employees are crucial to the Company's success. To support these aspects, the Company champions wellness programs
aimed at improving physical, financial, and mental health for all staff members. In its commitment to maintaining a safe work environment, the Company has effectively instituted various safety
protocols and health-conscious adjustments within its facilities. These measures are particularly focused on safeguarding the well-being of those employees who need to be physically present on-site
to facilitate the Company's operations.
Available Information
The Company makes its periodic and current reports, including the Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments
to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as its charters for the Company's Audit, Compensation, Nominating and
Corporate Governance, and Enterprise Risk Committees and its Code of Ethics, Corporate Governance Guidelines, By-Laws, and Certificate of Incorporation, available free of charge, on the
Company’s website as soon as practicable after such material is electronically filed or furnished with the Securities and Exchange Commission (the “SEC”). The Company’s website address is
www.cutera.com and the reports are filed under “SEC Filings,” under “Financials” on the Investor Relations portion of the Company’s website. These reports and other information concerning the
Company may be accessed through the SEC’s website at www.sec.gov.
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ITEM 1A. RISK FACTORS
The Company operates in a rapidly changing economic and technological environment that presents numerous risks, many of which are driven by factors that the Company cannot control or predict.
The Company’s 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 the Company’s business, financial condition or results of operations, including causing the Company’s 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 the
Company, or that the Company currently deems immaterial, also may materially adversely affect the Company in future periods. You should carefully consider these risks and uncertainties before
investing in the Company’s securities.
Summary of Risk Factors
The Company’s business, financial condition, operating results and cash flows are subject to numerous risks and uncertainties that are summarized below. The below summary of risk factors should
be read together with the more detailed discussion of risks set forth following this section under the heading “Risk Factors,” as well as elsewhere in this Annual Report on Form 10-K.
Risks Related to the Company’s Business and its Industry
• The Company has recently experienced turnover in its executive management and board of directors, which creates uncertainties and could harm its business.
• The Company may need to raise additional capital to fund its operations.
• Global supply chain disruptions and inflation may have a material adverse effect on the Company's business, financial condition and results of operations.
• The trading price of the Company’s common stock may fluctuate substantially.
• The Company has a relatively limited number of shares of common stock outstanding, which could result in an increase in volatility of its stock price.
• The Company’s ability to report timely and accurate information could be negatively impacted by its recent implementation of a new accounting and enterprise resource planning (“ERP”) system.
• Reliance on contract manufacturers increases the risk that the Company will not have sufficient supply or that such supply will not be available to the Company at an acceptable cost.
• The Company’s annual and quarterly operating results may fluctuate in the future, which may cause the Company’s trading price to decline.
• Any defects in the design, material or workmanship of its products, defective design, material or workmanship or misuse of its products will cause additional costs, including product recalls and
product liability suits, and harm the Company’s reputation.
• The success and continuing development of the Company’s products depends, in part, upon maintaining strong relationships with physicians and other healthcare professionals.
• Failure in hiring, training and retaining sales professionals and skilled and experienced personnel, or changes to management could adversely affect the Company’s operations and financial results.
• The Company depends on skilled and experienced personnel to operate its global business effectively.
• Inability for the Company's new energy-based solution for the treatment of Acne to be widely adopted by customers or their patients.
• The aesthetic equipment market is characterized by rapid innovation and high competition, which may adversely affect the Company if it does not continue to innovate and develop new products
and applications.
• The Company competes against companies that offer alternative solutions to its products, have greater resources, or have a larger customer base and broader product offerings than the Company’s
offerings.
• The Company’s business is subject to regulatory requirements, laser performance standards, federal regulatory reforms, FDA and other government agencies’ regulation and oversight which may
negatively affect its business, financial condition and results of operations if the Company fails to comply with them.
• The Company's products may cause or contribute to adverse medical events or be subject to failures or malfunctions that would be subject to sanctions that could harm its reputation, business,
financial condition and results of operations.
• The Company may be unable to obtain or maintain international regulatory qualifications or approvals for its current or future products and indications, which could harm its business.
• The Company's business could be negatively affected by litigation initiated by potential actions of activist stockholders.
• The Company's business could be negatively affected as a result of the pending securities fraud action brought against the Company and certain former officers and directors.
• Failure in international expansion and economic and other risks associated with international sales and operations could adversely affect the Company’s business.
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• Some of the Company’s manufacturing operations are dependent upon third-party suppliers, making it vulnerable to supply shortages and price fluctuations, which could harm its business.
• Reduction or interruption in supply and an inability to develop alternative sources for supply may adversely affect the Company’s manufacturing operations and related product sales.
• If the Company fails to maintain or renew any of its distribution agreements before they expire, its revenues and cash flows may be adversely affected.
• To successfully market and sell third-party products internationally, the Company must address many issues that are unique to the related distribution arrangements, which could reduce the
Company’s available cash reserves and negatively impact the Company’s profitability.
• If customers are not trained and/or the Company’s products are used by non-licensed practitioners, it could result in product misuse and adverse treatment outcomes, which could harm the
Company’s reputation, result in product liability litigation, distract management and result in additional costs, all of which could harm the Company’s business.
• The Company’s products are sometimes subject to clinical trial processes which are lengthy and expensive and have uncertain outcomes. Delays or failures in the Company's clinical trials will
prevent it from commercializing any modified or new products.
• Intellectual property rights may not provide adequate protection for some or all the Company’s products, or the Company may be involved in future costly intellectual property litigation.
• The expense and potential unavailability of insurance coverage for the Company’s customers could adversely affect its ability to sell its products, and therefore adversely affect its financial
condition.
• Any acquisitions that the Company makes could result in operating difficulties, dilution, and other consequences that may adversely impact the Company’s business and results of operations.
• Adverse developments affecting the banking industry, such as actual events or concerns involving liquidity, defaults or non-performance, could adversely affect the Company's operations and
liquidity.
• Cash, cash equivalents and marketable securities could be adversely affected by the failure of Silicon Valley Bank or other financial institutions.
• Inability to access credit on favorable terms for the funding of the Company’s operations and capital projects may be limited due to changes in credit markets.
• Security breaches, cyber-security incidents and other disruptions could compromise the Company’s information and impact the Company’s business, financial condition or results of operations.
• Macroeconomic political and market conditions, and catastrophic events may adversely affect the Company’s business, results of operations, financial condition and the trading price of the
Company’s stock.
• Disaster or other similar events could cause damage to the Company’s facilities and equipment, which may require the Company to cease or curtail sales of these sole sourced platforms.
• Income tax audits or similar proceedings or changes in accounting standards may have a material adverse effect on the Company’s results of operations and financial position.
• The Company may be adversely affected by changes in U.S. tax laws, importation taxes and other changes that may be imposed by the current administration.
• Changes in accounting standards and estimates could have a material adverse effect on the Company’s results of operations and financial position.
• The Company has identified material weaknesses in its internal control over financial reporting related to information technology general controls ("ITGCs"); inventory controls; accounting for
expense related to equity-based awards; and the design, maintenance and monitoring of risk assessment program to timely implement new controls to respond to changes in the business and
leadership, which could, if not remediated, result in material misstatements in the Company's financial statements.
• Economic and other risks associated with international sales and operations could adversely affect the Company’s business.
• The Company offers credit terms to some qualified customers and also to leasing companies to finance the purchase of its products. In the event that any of these customers default on the amounts
payable to the Company, its earnings may be adversely affected.
• The Company’s ability to effectively compete and generate additional revenue from new and existing products depends upon the Company’s ability to distinguish the Company and its products
from the competitors and their products, and to develop and effectively market new and existing products.
• If there is not sufficient consumer demand for the procedures performed with the Company’s products, practitioner demand for its products could be inhibited, resulting in unfavorable operating
results and reduced growth potential.
• If the Company modifies one of its FDA-cleared devices, it may need to seek a new clearance, which, if not granted, would prevent the Company from selling its modified products or cause it to
redesign its products.
• If the Company cannot obtain and maintain Medical Device Regulation approvals, the Company will not be able to sell its products in the European Union.
• Any defects in the design, material or workmanship of its products may not be discovered prior to shipment to customers, which could materially increase its expenses, adversely impact
profitability and harm its business.
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• The Company's products may in the future be subject to product recalls that could harm its reputation, business and financial results.
• The results of the Company's clinical trials may not support its products claims or may result in the discovery of adverse side effects.
• Product liability suits could be brought against the Company due to a defective design, material or workmanship or misuse of its products and could result in expensive and time-consuming
litigation, payment of substantial damages and an increase in its insurance rates.
• Certain of the Company’s product platforms such as Enlighten, excel V and V+, excel HR, xeo, and AviClear are only capable of being produced at the single site in Brisbane, and as such the
occurrence of a catastrophic disaster or other similar event could cause damage to its facilities and equipment, which might require the Company to cease or curtail sales of these sole sourced
platforms.
• The Company may be involved in future costly intellectual property litigation, which could impact its future business and financial performance.
• The Company’s failure to comply with rules relating to bribery, foreign corrupt practices, and privacy and security laws may subject the Company to penalties and adversely impact its reputation
and business operations.
Risks Related to the Convertible Notes
• Servicing the Company’s debt, including the notes, may require a significant amount of cash, and the Company may not have sufficient cash flows from its business to pay its indebtedness.
• The Company may not have the ability to raise the funds necessary to settle conversions of the notes in cash or to repurchase the notes upon a fundamental change, and its future debt may contain
limitations on its ability to pay cash upon conversion or repurchase of the notes.
• The conditional conversion feature of the notes, if triggered, may adversely affect the Company's financial condition and operating results.
• Transactions relating to the notes may affect the value of the Company’s common stock.
• The Company is subject to counterparty risk with respect to the capped call transactions.
Risks Related to Ownership of the Company's Common Stock
• Anti-takeover provisions contained in the Company's amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a
takeover attempt.
• The Company's business could be negatively affected by activist shareholders.
• If securities or industry analysts do not publish or cease publishing research or reports about the Company, its business, its market or its competitors, or if they adversely change their
recommendations regarding the Company's common stock, the market price and trading volume of its common stock could decline.
• The Company does not expect to declare any dividends on its common stock in the foreseeable future.
• If the Company raises additional capital through the sale of shares of the Company’s common stock, convertible securities or debt in the future, its stockholders’ ownership in the Company could
be diluted and restrictions could be imposed on the Company’s business.
• The Company has implemented “sell-to-cover” in which shares of its common stock are sold into the market on behalf of RSU and PSU holders upon vesting of RSUs and PSUs to cover tax
withholding liabilities and such sales will result in dilution to its stockholders.
Risks Related to the Company’s Business and its Industry
The Company has recently experienced turnover in its executive management and board of directors, which creates uncertainties and could harm the Company's business.
The Company has experienced significant changes in its executive leadership and Board of Directors during 2023. On April 11, 2023, the Board of Directors terminated Mr. Plants as Executive
Chairman and Mr. Mowry as Chief Executive Officer, and appointed Ms. Widmann as Chair of the Board and Ms. Hopkins as Interim Chief Executive Officer. On May 3, 2023, Rohan Seth, the
Company’s Chief Financial Officer, resigned effective May 26, 2023 and Stuart Drummond was appointed as Interim Chief Financial Officer. Additionally, the Company appointed Kevin Cameron,
Taylor Harris, Nicholas Lewin and Keith Sullivan to the Board in May 2023 and each of Mr. Mowry, Mr. Plants and Joseph Whitters resigned from the board of directors and Gregory Barrett and
Timothy O’Shea did not stand for re-election at the 2023 annual meeting of stockholders. A new board of directors of Mmes. Hopkins, Widmann and Park, and Messrs. Cameron, Harris, Lewin and
Sullivan were elected by the Company’s stockholders on July 13, 2023. Taylor Harris was subsequently announced as the President and Chief Executive Officer on July 27, 2023. Ms. Widmann and
Ms. Park resigned from the board in November and December 2023, respectively.
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Changes to strategic or operating goals, which can often times occur with the appointment of new executives, can create uncertainty, may negatively impact the Company's ability to execute quickly
and effectively, and may ultimately be unsuccessful. In addition, executive leadership transition periods are often difficult as the new executives gain detailed knowledge of the Company's operations,
and friction can result from changes in strategy and management style. Management turnover inherently causes some loss of institutional knowledge, which can negatively affect strategy and
execution. If the Company does not integrate new executives and board members successfully, the Company may be unable to manage and grow its business, and its financial condition and
profitability may suffer as a result. In addition, to the extent the Company experiences additional management turnover, competition for top management is high and it may take months to find a
candidate that meets the Company's requirements. If the Company is unable to attract and retain qualified management personnel, its business could suffer.
The Company may need to raise additional capital to fund its operations.
Based on the Company's current plans, the Company believes that its current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet its anticipated cash
requirements for at least the next twelve months. If the Company's available cash resources and cash flow from operations are insufficient to satisfy its liquidity requirements including because of
lower demand for its products or the realization of other risks described in its Annual Report, the Company may be required to raise additional capital through the issuances of additional equity or
convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing.
The various ways the Company could raise additional capital carry potential risks. If the Company raises funds by issuing equity securities, dilution to its stockholders would result. If the Company
raises funds by issuing debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of the Company's common stock. The terms of debt securities
issued or borrowings pursuant to a credit agreement could impose significant restrictions on the Company's operations and present the risk of default. If the Company raises funds through
collaborations or licensing arrangements, the Company may be required to relinquish significant rights to its technologies or products or grant licenses on terms that are not favorable to the Company.
If the Company is unable to obtain adequate financing or financing on terms satisfactory to the Company, if the Company requires it, the Company's ability to continue to pursue its business
objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, and could have a material adverse effect on the Company's business,
financial condition, results of operations and prospects.
The trading price of the Company’s common stock may fluctuate substantially due to several factors, some of which are outside of its control. Further, the Company has a relatively 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 its stock price.
There has been recent volatility in the price of the Company’s common stock. As a result of the Company’s relatively limited public float, its 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 the Company’s common stock may have a greater impact on the trading price for the
Company’s shares than would be the case if the Company’s public float were larger. The public market price of the Company’s common stock has in the past fluctuated substantially and, due to the
current concentration of stockholders, the trading price of the common stock may continue to do so in the future. The market price for the Company’s common stock could also be affected by a
number of other factors, including the general market conditions unrelated to the Company’s operating performance.
The market price for the Company’s common stock could also be affected by a number of other factors, including:
• the general market conditions unrelated to the Company’s operating performance;
• sales of large blocks of the Company’s common stock, including sales by the Company’s executive officers, directors and large institutional investors;
• quarterly variations in the Company’s, or the Company’s competitors’, results of operations;
• actual or anticipated changes or fluctuations in the Company’s results of operations;
• actual or anticipated changes in analysts’ estimates, investors’ perceptions, recommendations by securities analysts or the Company’s failure to achieve analysts ‘estimates;
• the announcement of new products, service enhancements, distributor relationships or acquisitions by the Company;
• the announcement of the departure of a key employee or executive officer by the Company or the Company’s competitors;
• the amount of the Company’s debt (including convertible debt) and the perception held by investors on the Company's ability to repay, refinance or convert such debt;
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• regulatory developments or delays concerning the Company’s, or the Company’s competitors’ products; and
• the initiation of any litigation by the Company or against the Company, including the lawsuit initiated by the Company on January 31, 2020 in Federal District Court in California against Lutronic
Aesthetics, Inc. as previously disclosed on February 3, 2020, or against the Company.
Actual or perceived instability or volatility in the Company’s stock price could reduce demand from potential buyers of the Company’s stock, thereby causing the trading price of the Company’s notes
and stock to either remain depressed or to decline further. In addition, if the market for medical-device company stocks or the stock market in general experiences a loss of investor confidence, the
trading price of the Company’s notes and stock could decline for reasons unrelated to the Company’s business, results of operations or financial condition. The trading price of the Company’s notes
and common stock might also decline in reaction to events that affect other companies in the Company’s industry even if these events do not directly affect the Company. In the past, following
periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Any future securities litigation could result in
substantial costs and divert the Company’s management’s attention and resources from the Company’s business, which could have a material adverse effect on the Company’s business, results of
operations and financial condition.
The Company’s ability to report timely and accurate information could be negatively impacted by its recently implemented accounting and enterprise resource planning (“ERP”) system.
The Company recently completed the implementation of a new accounting and ERP system. If aspects of the implementation were not executed successfully, then the Company's ability to report
timely and accurate information could be negatively impacted. Such events could have a material adverse effect on the Company’s consolidated financial position and results of operation.
The Company relies on third-party contract manufacturers (“CMs”) to produce certain systems. This reliance on CMs increases the risk that the Company will not have sufficient supply or that
such supply will not be available to it at an acceptable cost, which may have a material adverse effect on its business.
The Company has entered into arrangements with third-party contract manufacturers to produce and deliver fully assembled systems ready for direct shipment to its customers. The Company may
experience supply shortfalls or delays in shipping products to its customers if its contract manufacturers experience delays, disruptions, quality control problems in their manufacturing operations, or
if the Company has to change or add manufacturers or contract manufacturing locations. Even if products are available, the Company may be unable to obtain sufficient quantities at an acceptable
cost or quality. The Company may not have adequate time to transition all of its manufacturing needs to an alternative manufacturer under comparable commercial terms. Additionally, a significant
portion of the Company's manufacturing is performed in foreign countries and is therefore subject to risks associated with doing business outside of the U.S., including import restrictions, export
restrictions, disruptions to its supply chain, cyberattacks, pandemics, regional climate-related events, or regional conflicts. The failure by the Company or its CMs to produce sufficient quantities at
acceptable cost and quality may have a material adverse effect on its business.
Global supply chain disruptions and inflation may have a material adverse effect on the Company's business, financial condition and results of operations.
Recent disruptions to the global economy have impeded global supply chains and resulted in longer lead times and increased component costs and freight expenses. In some instances, the Company
depends on a sole source supplier arrangement, and alternative suppliers may not be readily available. The supply of these components is critical to the Company's manufacturing needs. There can be
no assurances that unforeseen future events in the global supply chain, and inflationary pressures, will not have a material adverse effect on its business, financial condition, and results of operations.
The Company’s annual and quarterly operating results may fluctuate in the future, which may cause the Company’s trading price for the shares to decline.
The Company’s net sales, expenses and operating results may vary significantly from year to year and quarter to quarter for several reasons, including, without limitation:
• the ability of the Company’s sales force to effectively market and promote the Company’s products, and the extent to which those products gain market acceptance;
• the inability to meet the Company’s debt repayment obligations under its senior credit facility due to insufficient cash;
• the possibility that cybersecurity breaches, data breaches, and other disruptions could compromise the Company’s information or result in the unauthorized disclosure of confidential information;
• the existence and timing of any product approvals or changes;
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• the rate and size of expenditures incurred on the Company’s clinical, manufacturing, sales, marketing, and product development efforts;
• the Company’s ability to attract and retain personnel;
• the availability of key components, materials and contract services, which depends on the Company’s ability to forecast sales, among other things;
• investigations of the Company’s business and business-related activities by regulatory or other governmental authorities;
• variations in timing and quantity of product orders;
• temporary manufacturing interruptions or disruptions;
• the timing and success of new product and new market introductions, as well as delays in obtaining domestic or foreign regulatory approvals for such introductions;
• increased competition, patent expirations or new technologies or treatments;
• product recalls or safety alerts;
• litigation, including product liability, patent, employment, securities class action, stockholder derivative, general commercial and other lawsuits;
• volatility in the global market and worldwide economic conditions;
• changes in tax laws, including changes domestically and internationally, or exposure to additional income tax liabilities;
• the impact of the EU privacy regulations (GDPR) on the Company’s resources;
• the financial health of the Company’s customers and their ability to purchase the Company’s products in the current economic environment;
• other unusual or non-operating expenses, such as expenses related to mergers or acquisitions, may cause operating results to vary; and
• an epidemic or pandemic.
As a result of any of these factors, the Company’s consolidated results of operations may fluctuate significantly, which may in turn cause the trading price of the shares to fluctuate.
If defects are discovered in the Company’s products, the Company may incur additional unforeseen costs, customers may not purchase the Company’s product and the Company’s reputation
may suffer.
The Company’s success depends on the quality and reliability of its products. The Company’s products incorporate different components including optical components, and other medical device
software, any of which may contain errors or exhibit failures, especially when products are first introduced. In addition, new products or enhancements may contain undetected errors or performance
problems that, despite testing, are discovered only after commercial shipment. Because the Company’s products are designed to be used to perform complex surgical procedures, due to the serious
and costly consequences of product failure, the Company and its customers have an increased sensitivity to such defects. In the past, the Company has voluntarily recalled certain products. The
Company cannot provide assurance that its products will not experience component aging, errors, or performance problems. If the Company experiences product flaws or performance problems, any
or all of the following could occur:
• delays in product shipments;
• loss of revenue;
• delay in market acceptance;
• diversion of the Company’s resources;
• damage to the Company’s reputation;
• product recalls;
• regulatory actions;
• increased service or warranty costs; or
• product liability claims.
Costs associated with product flaws or performance problems could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
The success and continuing development of the Company’s products depends, in part, upon maintaining strong relationships with physicians and other healthcare professionals.
If the Company fails to maintain the Company’s working relationships with physicians and other ancillary healthcare and aesthetic professionals, the Company’s products may not be developed and
marketed in line with the needs and expectations of the professionals who use and support the Company’s products. Physicians assist the Company as researchers, marketing consultants, product
consultants, and public speakers, and the Company relies on these professionals to provide the Company with considerable knowledge and experience. If the Company is unable to maintain these
strong relationships, the development and
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marketing of the Company’s products could suffer, which could have a material adverse effect on the Company’s consolidated financial condition and results of operations.
The Company relies heavily on its sales professionals to market and sell its products worldwide. If the Company is unable to hire, effectively train, manage, improve the productivity of, and
retain the Company’s sales professionals, the Company’s business will be harmed, which would impair its future revenue and profitability.
The Company’s success largely depends on the Company’s ability to hire, train, manage, and improve the productivity levels of its sales professionals worldwide. Because of the Company’s focus
on non-core practitioners in the past, several of its sales professionals do not have established relationships with the core market, consisting of dermatologists and plastic surgeons, or where those
relationships exist, they are not appropriately strong.
Competition for sales professionals who are familiar with, and trained to sell in, the aesthetic equipment market continues to be robust. As a result, the Company occasionally loses its sales people to
competitors. The Company’s industry is characterized by a few established companies that compete vigorously for talented sales professionals. Some of its sales professionals leave the Company for
jobs that they perceive to be better opportunities, both within and outside of the aesthetic industry.
The ability to enforce measures to protect the Company’s proprietary and confidential information when employees leave the Company varies from jurisdiction to jurisdiction and the Company must
make a case-by-case decision regarding legal enforcement action. For instance, covenants not-to-compete are not allowed in many states, and if allowed, are difficult to enforce in many jurisdictions.
Furthermore, such legal enforcement actions are expensive and the Company cannot give any assurance that these enforcement actions will be successful.
However, the Company also continues to hire and train new sales people, including several from the Company’s competitors. When the Company’s sales employees and sales management are newly
hired or transferred into different roles, and it takes time for them to be fully trained to improve their productivity. In addition, due to the competition for sales professionals in the Company’s
industry, the Company also recruits sales professionals from outside the industry. Sales professionals from outside the industry typically take longer to train and become familiar with the Company’s
products and the procedures in which they are used. As a result of a lack of industry knowledge, these sales professionals may take longer to become productive members of the Company’s sales
force.
Measures the Company implements in an effort to recruit, retain, train and manage the Company’s sales professionals, strengthen their relationships with core market physicians, and improve their
productivity may not be successful and may instead contribute to instability in its operations, additional departures from the Company’s sales organization, or further reduce the Company’s revenue
and harm the Company’s business. If the Company is not able to improve the productivity and retention of the Company’s North American and international sales professionals, then the Company’s
total revenue, profitability and stock price may be adversely impacted.
The Company depends on skilled and experienced personnel to operate its global business effectively. Changes to management or the inability to recruit, hire, train and retain qualified
personnel, could harm the Company’s ability to successfully manage, develop and expand its business, which would impair the Company’s future revenue and profitability.
The Company’s success largely depends on the skills, experience and efforts of the Company’s senior management and other key employees. The loss of any of the Company’s executive officers
could weaken its management expertise and harm the Company’s business, and it may not be able to find adequate replacements on a timely basis, or at all. Except for Change of Control and
Severance Agreements for the Company’s executive officers and a few key employees, the Company does not have employment contracts with any of its officers or other key employees. Any of the
Company’s senior management and other key employees may terminate their employment at any time, with or without notice and their knowledge of the Company’s business and industry may be
difficult to replace. The Company does not have a succession plan in place for each of its senior management and key employees. In addition, the Company does not maintain “key person” life
insurance policies covering any of the Company’s employees.
In addition to dependence on the Company’s executive officers and key employees, the Company is highly dependent on other sales and scientific personnel. Additionally, the Company’s product
development plans depend, in part, on the Company’s ability to attract and retain engineers with experience in medical devices. Attracting and retaining qualified personnel will be critical to the
Company’s success, and competition for qualified personnel is intense. The Company may not be able to attract and retain personnel on acceptable terms given the competition for such personnel
among technology and healthcare companies and universities. The loss of any of these persons or the Company’s inability to attract, train and retain qualified personnel could harm the Company’s
business and the Company’s ability to compete.
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To induce valuable employees to remain at the Company, in addition to salary and cash incentives, the Company has provided stock options and restricted stock unit awards that vest over time, and,
for the Company’s executive officers and certain key employees, performance stock unit awards that vest based on achievement of performance-based vesting conditions. The value to employees of
such equity awards may be significantly affected by movements in the Company's stock price that are beyond its control, and may at any time be insufficient to counteract more lucrative offers from
other companies.
The Company recently launched AviClear, an energy-based solution for the treatment of Acne and can provide no assurance that the device will be widely adopted by customers or their patients.
The Company brought AviClear, an energy-based device for Acne, to market in 2022. This launch required, and any future sales expansion for AviClear may require, a considerable investment in
resources, including technical, financial, legal, sales, information technology and operation systems. Additionally, market acceptance of AviClear will be affected by a variety of factors, including but
not limited to usability, performance, reliability and customer preference. It is possible that demand for this device will not be as strong as anticipated. The Company may be unable to establish and
manage a sufficient or effective sales force in a timely or cost-effective manner, and any sales force the Company does establish may not be capable of generating demand for AviClear, therefore
hindering the Company’s ability to generate revenues and achieve or sustain profitability from AviClear. AviClear was launched with a low barrier to entry model that allowed quick uptake of over
1,200 devices to hit the market, it came at the expense of significant working capital. In addition, key customers, aesthetic dermatologists, have articulated a desire for a traditional ownership model.
As a result, the Company paused new leases of AviClear in August 2023 to revamp its business model, establish a global go-to-market strategy, and enhance product reliability. While AviClear was
relaunched in the United States in November 2023 with a direct sales model, the Company can offer no assurance that the new sales model will be well-received by customers or increase demand for
the AviClear device.
The aesthetic equipment market is characterized by rapid innovation. To compete effectively, the Company must develop and/or acquire new products, seek regulatory clearance, market them
successfully, and identify new markets for the Company’s technology.
The aesthetic light and energy-based treatment system industry is subject to continuous technological development and product innovation. If the Company does not continue to innovate and develop
new products and applications, the Company’s competitive position will likely deteriorate as other companies successfully design and commercialize new products and applications or enhancements
to the Company’s current products. The Company created products to apply the Company’s technology to body contouring, hair removal, treatment of veins, tattoo removal and skin revitalization,
including the treatment of diffuse redness, fine lines and wrinkles through hemostasis and coagulation, skin texture, pore size and benign pigmented lesions, and acne. To grow in the future, the
Company 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 the Company’s product offerings, the Company must, among other things:
• develop or otherwise acquire new products that either add to or significantly improve the Company’s current product offerings;
• obtain regulatory clearance for these new products;
• convince the Company’s existing and prospective customers that the Company’s product offerings are an attractive revenue-generating addition to their practice;
• sell the Company’s product offerings to a broad customer base;
• identify new markets and alternative applications for the Company’s technology;
• protect the Company’s 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 the Company’s financial performance. To be successful in the aesthetics industry, the Company believes it needs to continue
to innovate. The Company’s business strategy is based, in part, on its expectation that the Company will continue to increase or enhance its product offerings. The Company needs to continue to
devote substantial research and development resources to make new product introductions, which can be costly and time consuming to its organization.
The Company also believes that, to increase revenue from sales of new products, the Company needs to continue to develop its clinical support, further expand and nurture relationships with industry
thought leaders, and increase market awareness of the benefits of its new products. However, even with a significant investment in research and development, the Company may be unable to continue
to develop, acquire or effectively launch and market new products and technologies regularly, or at all. If the Company fails to successfully commercialize new products or enhancements, its business
may be harmed.
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There are few barriers to entry that would prevent new entrants or existing competitors from developing products that compete directly with the Company’s. The Company expects that any
competitive advantage the Company may enjoy from current and future innovations may diminish over time as companies successfully respond to the Company’s, or create their own, innovations.
Consequently, the Company believes that it will have to continuously innovate and improve the Company’s products and technology to compete successfully. If the Company is unable to innovate
successfully, its products could become obsolete and its revenue could decline as its customers and prospective customers purchase its competitors’ products.
Demand for the Company’s products in any of the Company’s markets could be weakened by several factors, including:
• inability to develop and market the Company’s products to the core market specialties of dermatologists and plastic surgeons;
• poor financial performance of market segments that attempt to introduce aesthetic procedures to their businesses;
• the inability to differentiate the Company’s products from those of the Company’s competitors;
• competitive threat from new innovations and product introductions;
• reduced patient demand for elective aesthetic procedures;
• failure to build and maintain relationships with key opinion leaders within the various market segments; and
• the lack of credit financing, or an increase in the cost of borrowing, for some of the Company’s potential customers.
If the Company does not achieve anticipated demand for the Company’s products, there could be a material adverse effect on its total revenue, profitability, employee retention and stock price.
The Company competes against companies that offer alternative solutions to its products, have greater resources, or have a larger installed base of customers and broader product offerings than
the Company’s. In addition, increased consolidation in the Company’s industry may lead to increased competition. If the Company is not able to effectively compete with these companies, it may
harm its business.
The medical technology and aesthetic product markets are highly competitive and dynamic and are characterized by rapid and substantial technology development and product innovations. The
Company’s products compete against conventional non-energy-based treatments, such as electrolysis, Botox and collagen injections, chemical peels, microdermabrasion and sclerotherapy. The
Company’s products also compete against laser and other energy- based products offered by other companies. Further, other companies could introduce new products that are in direct competition
with the Company’s products. The Company may also face competition from manufacturers of pharmaceutical and other products that have not yet been developed. Competition with these companies
could result in reduced selling prices, reduced profit margins and loss of market share, any of which would harm the Company’s business, financial condition and results of operations.
There has been consolidation in the aesthetic industry leading to companies combining their resources, which increases competition and could result in increased downward pressure on the
Company’s product prices. Consolidations have created newly-combined entities with greater financial resources, deeper sales channels and greater pricing flexibility than the Company. Rumored or
actual consolidation of the Company’s partners and competitors could cause uncertainty and disruption to the Company’s business and can cause the Company’s stock price to fluctuate.
The Company's products and its operations are subject to extensive government regulation and oversight in the United States. If the Company fails to obtain or maintain necessary regulatory
clearances or approvals for its products, or if approvals or clearances for future products are delayed or not issued, it will negatively affect its business, financial condition and results of
operations.
The Company's laser products are medical devices subject to extensive regulation in the United States and elsewhere, including by the FDA and its foreign counterparts. Government regulations
specific to medical devices are wide ranging and govern, among other things:
• product design, development, manufacture, and release;
• laboratory and clinical testing, labeling, packaging, storage and distribution;
• product safety and efficacy;
• pre-marketing clearance or approval;
• service operations;
• record keeping;
• product marketing, promotion and advertising, sales and distribution;
• post-marketing surveillance, including reporting of deaths or serious injuries and recalls and correction and removals;
• post-market approval studies; and
• product import and export.
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The FDA classifies medical devices into one of three classes on the basis of the intended use of the device, the risk associated with the use of the device for that indication, as determined by the FDA,
and on the controls deemed by the FDA to be necessary to reasonably ensure their safety and effectiveness.
Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which
include compliance with the applicable portions of the QSR facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and
promotional materials. Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These
special controls can include performance standards, post-market surveillance, patient registries and FDA guidance documents.
While most Class I devices are exempt from the premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under
Section 510(k) of the FDCA requesting permission to commercially distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is
generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatest risks, such as life sustaining, life supporting or some implantable devices, or devices that have a new intended
use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA application. Some pre-
amendment devices are unclassified, but are subject to FDA’s premarket notification and clearance process in order to be commercially distributed. The Company's currently marketed products are
Class II devices subject to 510(k) clearance, which the Company has obtained from the FDA.
Before a new medical device, or a new intended use of, claim for, or significant modification to an existing device, can be marketed in the United States, a company must first submit an application
for and receive either 510(k) clearance pursuant to a premarket notification submitted under Section 510(k) of the FDCA, or PMA approval from the FDA, unless an exemption applies. The
510(k), or PMA processes can be expensive, lengthy and unpredictable. The FDA’s 510(k) clearance process usually takes from three to 12 months, but can last longer. The process of obtaining a
PMA approval is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or even longer, from the time the application is filed with the FDA. In
addition, a PMA approval generally requires the performance of one or more clinical trials. Despite the time, effort and cost, a device may not be approved or cleared by the FDA. Any delay or
failure to obtain necessary regulatory clearances or approvals could harm its business. Furthermore, even if the Company is granted regulatory clearances or approvals, they may include significant
limitations on the indicated uses for the device, which may limit the market for the device.
The Company has obtained 510(k) clearances to market its products. The FDA or other regulators could delay, limit, or deny clearance or approval of a device for many reasons, including:
• the Company's inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that the Company's currently marketed devices, or any other future device,
and any accessories are substantially equivalent to a legally marketed predicate device or safe or effective for their proposed intended uses;
• the disagreement of the FDA with the design or implementation of any clinical trials or the interpretation of data from preclinical studies or clinical trials;
• serious and unexpected adverse device effects experienced by participants in its clinical trials;
• the insufficiency of the data from preclinical studies or clinical trials to support clearance or approval, where required;
• the Company's inability to demonstrate that the clinical and other benefits of the device outweigh the risks;
• the failure of its manufacturing process or facilities to meet applicable requirements; and
• the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering its clinical data or regulatory filings insufficient
for clearance or approval.
The regulations to which the Company is subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on the Company's ability to carry
on or expand its operations, higher than anticipated costs or lower than anticipated sales. The FDA enforces these regulatory requirements through, among other means, periodic unannounced
inspections. The Company does not know whether it will be found compliant in connection with any future regulatory inspections. Moreover, the FDA and state authorities have broad enforcement
powers. Its failure to comply with applicable regulatory requirements could result in enforcement action by any such agency. If any of these events were to occur, it would negatively affect the
Company's business, financial condition and results of operations.
If the Company fails to comply with applicable regulatory requirements, it could result in enforcement action by the U.S. FDA, federal and state agencies or international regulatory bodies and
the Company’s commercial operations would be harmed.
The Company’s 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. The FDA, state
authorities and international regulatory bodies have broad
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enforcement powers. If the Company fails 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, recall or seizure of the Company’s products;
• operating restrictions or partial suspension or total shutdown of production;
• refusing the Company’s requests for 510(k) clearance 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.
Federal regulatory reforms and changes occurring at the FDA could adversely affect the Company’s ability to sell its 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 the Company’s business and the Company’s 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 the Company’s
new products. In addition, it may require additional safety monitoring, labeling changes, restrictions on product distribution or use, or other measures after the introduction of the Company’s products
to market. Either of these changes lengthen the duration to market, increase the Company’s costs of doing business, adversely affect the future permitted uses of approved products, or otherwise
adversely affect the market for its products.
The Company supports any action that helps ensure patient safety going forward. The Company has a robust, multi-functional process that reviews its promotional claims and materials to ensure they
are truthful, not misleading, fair and balanced, and supported by sound scientific evidence.
If the Company fails to comply with the FDA’s Quality System Regulation and laser performance standards, the Company’s manufacturing operations could be halted, and its business would
suffer.
The Company is 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 the Company’s products. Because the Company’s products
involve the use of lasers, the Company’s 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. The Company has had multiple quality system inspections by the FDA, as well as audits the
Company’s Notified Body, and other foreign regulatory agencies, with the most recent inspection by the FDA occurring under the Medical Device Single Audit Program in January 2021. There were
no significant findings or observations as a result of this audit. Failure to take satisfactory corrective action in response to an adverse QSR inspection or its failure to comply with applicable laser
performance standards could result in enforcement actions, including a public warning letter, a shutdown of the Company’s manufacturing operations, a recall of its products, civil or criminal
penalties, or other sanctions, such as those described in the preceding paragraph, which would cause its sales and business to suffer.
The Company is subject to the FDA's Bioresearch Monitoring (BIMO) program. As such, the BIMO audits the Company and the Company is also subject to FDA regulations relating to the design
and conduct of clinical trials. The Company is subject to unannounced BIMO audits, with the most recent inspection by FDA completed over five years ago in August 2016. There were no significant
findings and only two observations as a result of this audit. The Company’s responses to these observations were accepted by the FDA. Failure to take satisfactory corrective action in response to an
adverse BIMO inspection or the Company’s failure to comply with Good Clinical Practices could result in the Company no longer being able to sponsor Biomedical Research, the reversal of 510(k)
clearances previously granted based on the results of clinical trials conducted to gain clinical data to support
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those 510(k) clearances, or enforcement actions, including a public warning letter, civil or criminal penalties, or other sanctions, such as those described in the preceding paragraph, which would
cause the Company’s sales and business to suffer.
The Company's products may cause or contribute to adverse medical events or be subject to failures or malfunctions that the Company is required to report to the FDA, and if the Company fails
to do so, the Company would be subject to sanctions that could harm its reputation, business, financial condition and results of operations. The discovery of serious safety issues with
its products, or a recall of the Company's products either voluntarily or at the direction of the FDA or another governmental authority, could have a negative impact on the Company.
The Company is subject to the FDA’s medical device reporting regulations and similar foreign regulations, which require the Company to report to the FDA when the Company receives or becomes
aware of information that reasonably suggests that one or more of its products may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to
recur, it could cause or contribute to a death or serious injury. The timing of its obligation to report is triggered by the date the Company becomes aware of the adverse event as well as the nature of
the event. The Company may fail to report adverse events of which it becomes aware within the prescribed timeframe. The Company may also fail to recognize that it has become aware of a
reportable adverse event, especially if it is not reported to the Company as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of the product. If the
Company fails to comply with its reporting obligations, the FDA could take action, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary
penalties, revocation of its device clearance or approval, seizure of its products or delay in clearance or approval of future products.
The FDA and foreign regulatory bodies have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in
the event that a product poses an unacceptable risk to health. The FDA’s authority to require a recall must be based on a finding that there is reasonable probability that the device could cause serious
injury or death. The Company may also choose to voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall by the Company could occur as a result
of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with
applicable regulations. Product defects or other errors may occur in the future.
Depending on the corrective action the Company takes to redress a product’s deficiencies or defects, the FDA may require, or the Company may decide, that it will need to obtain new clearances or
approvals for the device before the Company may market or distribute the corrected device. Seeking such clearances or approvals may delay its ability to replace the recalled devices in a timely
manner. Moreover, if the Company does not adequately address problems associated with its devices, the Company may face additional regulatory enforcement action, including FDA warning letters,
product seizure, injunctions, administrative penalties or civil or criminal fines.
Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA. The Company may initiate voluntary withdrawals or corrections for
its products in the future that the Company determines do not require notification of the FDA. If the FDA disagrees with its determinations, it could require the Company to report those actions as
recalls and the Company may be subject to enforcement action. A future recall announcement could harm its reputation with customers, potentially lead to product liability claims against the
Company and negatively affect its sales. Any corrective action, whether voluntary or involuntary, as well as defending itself in a lawsuit, will require the dedication of its time and capital, will distract
management from operating its business and may harm its reputation and financial results.
The Company may be unable to obtain or maintain international regulatory qualifications or approvals for its current or future products and indications, which could harm its business.
Sales of the Company’s 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. The Company may be unable to obtain or maintain regulatory qualifications, clearances or approvals in other countries. The Company may also incur significant costs in attempting to
obtain and in maintaining foreign regulatory approvals or qualifications. If the Company experience delays in receiving necessary qualifications, clearances or approvals to market its products outside
the U.S., or if the Company fails to receive those qualifications, clearances or approvals, the Company may be unable to market its products or enhancements in international markets effectively, or at
all, which could have a material adverse effect on the Company’s business and growth strategy.
The Company's business could be negatively affected by litigation initiated by potential actions of activist stockholders.
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On April 11, 2023, J. Daniel Plants and David H. Mowry, the Company's former Executive Chairperson and former Chief Executive Officer, respectively, filed a complaint in the Delaware Court of
Chancery against five of the Company’s independent directors, Gregory Barrett, Sheila Hopkins, Timothy O’Shea, Juliane Park and Janet Widmann, as defendants, and the Company, as nominal
defendant (the “Delaware Litigation”), seeking a declaration that the individual defendants breached their fiduciary duties and to enjoin them from enforcing the nomination deadline under the
Company’s bylaws in connection with the 2023 annual meeting of stockholders, or in the alternative, a declaration that the Company must hold a special meeting of the stockholders on June 2, 2023.
On May 16, 2023, Mr. Mowry filed a letter with the Court of Chancery disclosing that he had resolved his dispute with the defendants and agreed to dismiss his claims with prejudice. On May 17,
2023, the Court of Chancery granted an order for voluntary dismissal of Mr. Mowry as a plaintiff in the Delaware Litigation. The Delaware Litigation was initiated by Mr. Plants in connection with
the campaign of Mr. Plants and Voce Capital Management LLC to remove certain directors from the Company's board of directors at a special meeting of stockholders and subsequently nominate
new directors for election at the Company’s 2023 annual meeting of stockholders. Mr. Plants withdrew his demand for a special meeting of stockholders, and the Company held the 2023 annual
meeting of stockholders on July 13, 2023, having received no additional director nominations from Mr. Plants. Due to Plaintiff’s failure to amend his Complaint within the time required by the
Court’s order dated October 6, 2023, the matter is dismissed with prejudice and each party shall bear its own attorney’s fees and costs. Therefore, Cutera considers this matter closed
Activist campaigns that contest or conflict with the Company's strategic direction or seek changes in the composition of the Company's Board or management could have an adverse effect on its
operating results and financial condition. A proxy contest could require the Company to incur significant legal and advisory fees, proxy solicitation expenses and administrative and associated costs.
In addition, proxy contests require significant time and attention by the Company's Board and management to address stockholder matters, diverting their attention from executing on the Company's
business strategy. Any perceived uncertainties as to the Company's future direction and control, the Company's ability to execute on its strategy, or changes to the composition of its Board or senior
management team arising from a proxy contest could lead to the perception of a change in the direction of the Company's business or instability which may result in the loss of potential business
opportunities, be exploited by the Company's competitors, cause concern for those enrolling in the Company's clinical trials, make it more difficult to pursue the its strategic initiatives, or limit its
ability to attract and retain qualified personnel and business partners, any of which could adversely affect the Company's business and operating results.
Actions such as those described above could cause significant fluctuations in the Company's stock price based upon temporary or speculative market perceptions or other factors that do not
necessarily reflect the underlying fundamentals and prospects of the Company's business.
The Company's business could be negatively affected as a result of the pending securities fraud action brought against the Company and certain former officers and directors.
On May 24, 2023, purported shareholder Erie County Employees’ Retirement System filed a putative class action securities fraud complaint in the U.S. District Court for the Northern District of
California against the Company, David H. Mowry, Rohan Seth, and J. Daniel Plants, asserting claims for violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The case is
styled Erie County Employees’ Retirement System v. Cutera, Inc., et al., Case No. 4:23-cv-02560 (N.D. Cal.) (Tigar, J.).
The complaint purports to be brought on behalf of all investors who purchased or otherwise acquired Cutera stock between February 17, 2021 and May 9, 2023. According to the complaint, during
that time period, defendants allegedly made materially false and misleading statements in SEC filings and press releases and during investor calls. In particular, the complaint alleges that defendants
overstated the sustainability of the Company’s revenue growth and failed to disclose material adverse facts regarding conflicts among senior officers and the board of directors and regarding
weaknesses in the Company’s internal controls over financial reporting. Additional information concerning this action is publicly available in court filings in the Northern District of California under
docket number 4:23-cv-02560.
This action could divert the Company's management’s attention and resources from the Company's ordinary business operations, and the Company could incur significant expenses associated with
defending it (including, without limitation, substantial attorneys’ fees and other fees of professional advisors and potential obligations to indemnify current and former officers and directors who are
or may become parties to this action, to the extent not covered by insurance). There can also be no assurance that the Company will be successful in any defense.
The Company also may be required to pay material damages, consent to injunctions on future conduct and suffer other penalties, remedies or sanctions. In addition, the action could adversely impact
Company's reputation and harm its ability to generate revenue. Accordingly, the ultimate resolution of this matter could have a material adverse effect on the Company's business,
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financial condition, results of operations and cash flow and, consequently, could negatively impact the trading price of its common stock.
To successfully market and sell the Company’s products internationally, the Company must address many issues that are unique to the Company’s international business. Furthermore,
international expansion is a key component of the Company’s growth strategy, although the Company’s international operations and foreign transactions expose the Company to additional
operational challenges that the Company might not otherwise face.
The Company is focused on international expansion as a key component of its growth strategy and has identified specific areas of opportunity in various international markets. Revenue from
customers outside of North America is a material component of the Company’s business strategy and represented 50% of its total revenue in 2023 compared to 49% of the Company’s total revenue in
2022. The Company employs a direct sales force in the major markets throughout Europe as well as Canada, Japan and Australia/New Zealand while using third-party distributors to sell its products
in several other country in the Middle East, Asia, and South America in particular. The Company may be unable to increase or maintain its level of international revenue due to supply chain
disruptions or loss of distributor relationship.
While the Company continues to have a direct sales and service organization in Australia, New Zealand, Japan, France, Belgium, Spain, Germany, Switzerland and the United Kingdom, a significant
portion of its international revenue is generated through its network of distributors. Though the Company continues to evaluate and replace non-performing distributors and has recently brought
greater focus to collaboration with its distribution partners, there can be no assurance given that these initiatives will result in improved international revenue or profitability in the future.
To grow the Company’s business, it is essential to improve productivity in current sales territories and expand into new territories. However, direct sales productivity may not improve and distributors
may not accept the Company’s business or commit the necessary resources to market and sell the Company’s products at the Company’s expectations. If the Company is not able to increase or
maintain international revenue growth, the Company’s total revenue, profitability and stock price may be adversely impacted.
The Company’s manufacturing operations are dependent upon third-party suppliers, making its vulnerable to supply shortages and price fluctuations, which could harm its business.
Many of the components and materials that comprise the Company’s products are currently manufactured by a limited number of suppliers. A supply interruption or an increase in demand beyond the
Company’s current suppliers’ capabilities could harm the Company’s ability to manufacture its products until a new source of supply is identified and qualified. The Company’s reliance on these
suppliers subjects the Company to a number of risks that could harm its 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;
• lack of long-term supply arrangements for key components with the Company’s suppliers;
• inability to obtain adequate supply in a timely manner, or on reasonable terms;
• inability to redesign one or more components in the Company’s systems in the event that a supplier discontinues manufacturing such components and the Company’s inability to sources it from
other suppliers on reasonable terms;
• difficulty locating and qualifying alternative suppliers for the Company’s 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 the Company’s inability to obtain substitute components or materials from alternate sources at acceptable prices in a timely manner,
could impair its ability to meet the demand of the Company’s customers, which would have an adverse effect on the Company’s business.
Risks related to the reduction or interruption in supply and an inability to develop alternative sources for supply may adversely affect the Company’s manufacturing operations and related
product sales.
The Company maintains manufacturing operations at its facility in Brisbane, California, and purchases many of the components and raw materials used in manufacturing these products from
numerous suppliers in various countries. Any problem affecting a supplier (whether due to external or internal causes) could have a negative impact on the Company.
In limited cases, specific components and raw materials are purchased from primary or main suppliers (or in some cases, a single supplier) for reasons related to quality assurance, cost-effectiveness
ratio and availability. While the Company works closely with its suppliers to ensure supply continuity, the Company cannot guarantee that its efforts will always be successful. Moreover, due
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to strict standards and regulations governing the manufacture and marketing its products, it may not be able to quickly locate new supply sources in response to a supply reduction or interruption,
with negative effects on its ability to manufacture its products effectively and in a timely fashion.
If the Company fails to maintain or renew any of its distribution agreements before they expire, its revenues and cash flows may be adversely affected.
The Company distributes its products primarily through independent distributors in many countries outside of North America. The Company's business may suffer if any of its distribution partners
terminates or otherwise fails to renew its distribution agreement with the Company and the Company is otherwise unable to replace such agreement with a distribution agreement containing similar
terms. For example, in 2024, the Company terminated its relationship with ZO Skin Health (“ZO”) for the distribution of ZO’s skincare products after it could not agree on terms with ZO on an
extension of the existing distribution agreement. In the twelve months ended December 31, 2023, and 2022, revenue from the distribution of skincare products was $34.0 million and $42.5 million,
respectively, representing 16% and 17% of the Company’s consolidated revenue, respectively.
The distributors may sell competitors' products, and if they favor competitors' products for any reason, they may fail or reduce their effort to market and sell the Company's products as effectively or
to devote resources necessary to provide effective sales, which would adversely affect its financial performance.
The financial health of the Company's distributors and its continuing relationships with them are important to the Company's success. Some of these distributors, particularly smaller firms with
limited working capital and resources, may not be able to withstand adverse changes in business conditions or mitigate the negative impact of a prolonged economic downturn or recession. The
failure of the Company's distributors to maintain financial heath and success will impact its ability to generate revenues. In addition, these distributors order the Company’s products and maintain
their inventory based on forecasts of potential demands from end customers, and distributors may not be able to forecast such demand accurately, which may adversely affect the Company’s ability to
generate sales and revenue in a timely manner. In some cases, distributors may delay ordering systems until they receive confirmation of orders from end customers, and this delay may cause
disruption and make it more difficult for the Company to fill their orders timely and effectively, which may adversely affect the Company’s revenue and sales.
Furthermore, the Company's relationship with distributors may change or terminate due to other factors beyond its control, including but are not limited to, acquisition of distributors by third parties
may not be willing to continue the relationship with the Company; internal restructuring or a refocus of business strategies; and changes in management, all of which may negatively impact its ability
to continue to sell to such distributors. Finally, the Company generally does not have long-term agreements with distributors who purchase its products primarily through purchase orders. Without an
agreement, the Company is not able to guarantee that such distributors will not discontinue or terminate their relationship with the Company at any time, and any loss of distributor will negatively
impact the Company's financial condition and results of operations.
To successfully market and sell third-party products internationally, the Company must address many issues that are unique to the related distribution arrangements, which could reduce the
Company’s available cash reserves and negatively impact the Company’s profitability.
The Company has entered into distribution arrangements pursuant to which the Company utilizes its sales force and distributors to sell products manufactured by other companies. Each of these
agreements requires the Company to purchase annual minimum dollar amounts of their products. Additionally, the Company has entered into distribution arrangements with other companies to
promote and sell the Secret RF products.
Each of these distribution agreements presents its own unique risks and challenges. For example, to sell skincare products the Company needs to invest in creating a sales structure that is experienced
in the sale of such products and not in capital equipment. The Company needs to commit resources to train the Company’s sales force, obtain regulatory licenses, and develop new marketing
materials to promote the sale of these products. In addition, the minimum commitments and other costs of distributing products manufactured by these companies may exceed the incremental revenue
that the Company derives from the sale of their products, thereby negatively impacting the Company’s profitability and reducing the Company’s available cash reserves.
If the Company does not make the minimum purchases required in the distribution contracts, or if the third-party manufacturer revokes the Company’s distribution rights, the Company could lose the
distribution rights of the products, which would adversely affect the Company’s future revenue, results of operations, cash flows and its stock price.
If customers are not trained and/or the Company’s products are used by non-licensed practitioners, it could result in product misuse and adverse treatment outcomes, which could harm the
Company’s reputation, result in product liability litigation, distract management and result in additional costs, all of which could harm the Company’s business.
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If the Company's products are used by non-licensed or untrained practitioners, it could result in product misuse and adverse treatment outcomes, which could harm the Company’s reputation and the
Company’s business. U.S. federal regulations allow the Company to sell the Company’s products to or on the order of “licensed practitioners.” The definition of “licensed practitioners” varies from
state to state. As a result, the Company’s 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 its products. The Company does not supervise the
procedures performed with the Company’s products, nor does the Company require that direct medical supervision occur that is determined by state law. The Company and its distributors generally
offer but do not require product training to the purchasers or operators of the Company’s products. In addition, the Company sometimes sells its systems to companies that rent its systems to third
parties and that provide a technician to perform the procedures. The lack of training and the purchase and use of its products by non-physicians may result in product misuse and adverse treatment
outcomes, which could harm the Company’s reputation and its business, and, in the event these actions result in product liability litigation, distract management and subject the Company to liability,
including legal expenses.
Clinical trials may be necessary to support future product submissions to the FDA. The clinical trial process is lengthy and expensive with uncertain outcomes, and often requires the enrollment
of large numbers of patients, and suitable patients may be difficult to identify and recruit. Delays or failures in the Company's clinical trials will prevent it from commercializing any modified or
new products and will adversely affect its business, operating results and prospects.
The Company has conducted clinical trials in the past and will likely conduct clinical trials in the future. Initiating and completing clinical trials necessary to support any future products, will be time-
consuming and expensive and the outcome, uncertain. Moreover, the results of early clinical trials are not necessarily predictive of future results, and any product the Company advances into clinical
trials may not have favorable results in later clinical trials. The results of preclinical studies and clinical trials of its products conducted to date and ongoing or future studies and trials of its current,
planned or future products may not be predictive of the results of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. The Company's interpretation of data
and results from its clinical trials do not ensure that the Company will achieve similar results in future clinical trials. In addition, preclinical and clinical data are often susceptible to various
interpretations and analyses, and many companies that have believed their products performed satisfactorily in preclinical studies and earlier clinical trials have nonetheless failed to replicate results
in later clinical trials. Products in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and earlier clinical trials. Failure
can occur at any stage of clinical testing. The Company's clinical studies may produce negative or inconclusive results, and it may decide, or regulators may require the Company, to conduct
additional clinical and non-clinical testing in addition to those the Company has planned.
• the Company may be required to submit an IDE application to the FDA, which must become effective prior to commencing certain human clinical trials of medical devices, and the FDA may reject
the Company's IDE application and notify the Company that it may not begin clinical trials;
• regulators and other comparable foreign regulatory authorities may disagree as to the design or implementation of its clinical trials;
• regulators and/or an IRB, or other reviewing bodies may not authorize the Company or its investigators to commence a clinical trial, or to conduct or continue a clinical trial at a prospective or
specific trial site;
• the Company may not reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive
negotiation and may vary significantly among different CROs and trial sites;
• clinical trials may produce negative or inconclusive results, and the Company may decide, or regulators may require the Company to conduct additional clinical trials or abandon product
development programs;
• the number of subjects or patients required for clinical trials may be larger than the Company anticipates, enrollment in these clinical trials may be insufficient or slower than the Company
anticipates, and the number of clinical trials being conducted at any given time may be high and result in fewer available patients for any given clinical trial, or patients may drop out of these
clinical trials at a higher rate than the Company anticipates;
• the Company's third-party contractors, including those manufacturing products or conducting clinical trials on the Company's behalf, may fail to comply with regulatory requirements or meet their
contractual obligations to the Company in a timely manner, or at all;
• the Company might have to suspend or terminate clinical trials for various reasons, including a finding that the subjects are being exposed to unacceptable health risks;
• the Company may have to amend clinical trial protocols or conduct additional studies to reflect changes in regulatory requirements or guidance, which it may be required to submit to an IRB and/or
regulatory authorities for re-examination;
• regulators, IRBs, or other parties may require or recommend that the Company or its investigators suspend or terminate clinical research for various reasons, including safety signals or
noncompliance with regulatory requirements;
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• the cost of clinical trials may be greater than the Company anticipates;
• clinical sites may not adhere to the clinical protocol or may drop out of a clinical trial;
• the Company may be unable to recruit a sufficient number of clinical trial sites;
• regulators, IRBs, or other reviewing bodies may fail to approve or subsequently find fault with its manufacturing processes or facilities of third-party manufacturers with which the Company enters
into agreement for clinical and commercial supplies, the supply of devices or other materials necessary to conduct clinical trials may be insufficient, inadequate or not available at an acceptable
cost, or the Company may experience interruptions in supply;
• approval policies or regulations of the FDA or applicable foreign regulatory agencies may change in a manner rendering the Company's clinical data insufficient for approval;
• the Company's current or future products may have undesirable side effects or other unexpected characteristics; and
• impacts of regional or global public health crises could adversely affect any clinical trials the Company is conducting or plan to conduct, including delays or difficulties in enrolling or onboarding
patients, initiating clinical sites, or obtaining the requisite regulatory approvals, interruption of key clinical trial activities, or supply chain disruptions that delay or make it more difficult or costly to
obtain the supplies and materials the Company needs for clinical trials.
Any of these occurrences may significantly harm the Company's business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or
completion of clinical trials may also ultimately lead to the denial of regulatory approval of its products.
Clinical trials must be conducted in accordance with the laws and regulations of the FDA and other applicable regulatory authorities’ legal requirements, regulations or guidelines, and are subject to
oversight by these governmental agencies and IRBs at the medical institutions where the clinical trials are conducted. Conducting successful clinical studies will require the enrollment of large
numbers of patients, and suitable patients may be difficult to identify and recruit. Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors,
including the size of the patient population, the nature of the trial protocol, the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects, the
availability of appropriate clinical trial investigators, support staff, and proximity of patients to clinical sites and able to comply with the eligibility and exclusion criteria for participation in the
clinical trial and patient compliance. For example, patients may be discouraged from enrolling in its clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures
or follow-up to assess the safety and effectiveness of its products or if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable risks or
discomforts.
The Company depends on its collaborators and on medical institutions and CROs to conduct its clinical trials in compliance with good clinical practice ("GCP") requirements. To the extent
its collaborators or the CROs fail to enroll participants for its clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time in the execution of trials, including
achieving full enrollment, the Company may be affected by increased costs, program delays or both. In addition, clinical trials that are conducted in countries outside the United States may subject the
Company to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-U.S. CROs, as well as expose the Company to risks
associated with clinical investigators who are unknown to the FDA, and different standards of diagnosis, screening and medical care.
Development of sufficient and appropriate clinical protocols to demonstrate safety and efficacy are required and the Company may not adequately develop such protocols to support clearance and
approval. Further, the FDA may require the Company to submit data on a greater number of patients than the Company originally anticipated and/or for a longer follow-up period or change the data
collection requirements or data analysis applicable to the Company's clinical trials. Delays in patient enrollment or failure of patients to continue to participate in a clinical trial may cause an increase
in costs and delays in the approval and attempted commercialization of its products or result in the failure of the clinical trial. In addition, despite considerable time and expense invested in its clinical
trials, the FDA may not consider the Company's data adequate to demonstrate safety and efficacy. Such increased costs and delays or failures could adversely affect its business, operating results and
prospects.
Intellectual property rights may not provide adequate protection for some or all of the Company’s products, which may permit third parties to compete against the Company more effectively.
The Company relies on patent, copyright, trade secret and trademark laws and confidentiality agreements to protect the Company’s technology and products. As of January 19, 2024, the Company
had 30 issued and unexpired U.S. patents, 9 pending U.S. patent applications, and 14 pending international applications under the Patent Cooperation Treaty ("PCT") or other national or regional
patent offices. Some of the Company’s components, such as the Company’s laser module, electronic control system and high-voltage electronics, are not, and in the future may not be, protected by
patents. Additionally, the Company’s patent applications may not issue as patents or, if issued, may not issue in a form that will be advantageous to the Company. Any patents
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the Company obtains 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, the Company’s. The Company may not be able to prevent the unauthorized disclosure or use of the Company’s 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 the
Company’s intellectual property is difficult, and the Company does not know whether the steps it has taken to protect the Company’s intellectual property will be effective. Moreover, the laws of
many foreign countries will not protect the Company’s intellectual property rights to the same extent as the laws of the U.S.
The absence of complete intellectual property protection exposes the Company to a greater risk of direct competition. Competitors could purchase one of the Company’s products and attempt to
replicate some or all of the competitive advantages the Company derives from the Company’s development efforts, design around the Company’s protected technology, or develop their own
competitive technologies that fall outside of the Company’s intellectual property rights. If the Company’s intellectual property is not adequately protected against competitors’ products and methods,
the Company’s competitive position and its business could be adversely affected.
The expense and potential unavailability of liability insurance coverage for the Company’s customers could adversely affect its ability to sell its products, and therefore adversely affect its
financial condition.
Some of the Company’s customers and prospective customers have had difficulty procuring or maintaining liability insurance to cover their operation and use of its products. Medical malpractice
carriers are withdrawing coverage in certain states or substantially increasing premiums. If this trend continues or worsens, the Company’s customers may discontinue using the Company’s products
and potential customers may opt against purchasing laser-based products due to the cost or inability to procure insurance coverage. The unavailability of insurance coverage for the Company’s
customers and prospects could adversely affect its ability to sell its products, and that could harm its financial condition.
Any acquisitions that the Company makes could result in operating difficulties, dilution, and other consequences that may adversely impact the Company’s business and results of operations.
While the Company from time to time evaluates potential acquisitions of businesses, products and technologies, and anticipates continuing to make these evaluations, the Company has no present
understandings, commitments or agreements with respect to any material acquisitions or collaborative projects. The Company may not be able to identify appropriate acquisition candidates or
strategic partners, or successfully negotiate, finance or integrate any businesses, products or technologies that the Company acquire.
The Company has 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 the Company’s core business and disrupt the Company’s operations and it may incur significant legal, accounting and banking fees in connection with such a
transaction. Acquisitions could diminish the Company’s 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 its acquisitions or investments may not materialize and could result in an impairment of goodwill and/or purchased long-lived assets.
The Company’s failure to address these risks or other problems encountered in connection with the Company’s past or future acquisitions and investments could cause the Company to fail to realize
the anticipated benefits of such acquisitions
Adverse developments affecting the banking industry, such as actual events or concerns involving liquidity, defaults or non-performance, could adversely affect the Company's operations and
liquidity.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the
financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10,
2023, Silicon Valley Bank, or SVB, was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or the FDIC, as
receiver.
Although the U.S. Department of the Treasury, the Federal Reserve and the FDIC stated that all depositors of SVB would have access to all of their deposits and the Company and other depositors
with SVB received such access on March 13, 2023, uncertainty and liquidity concerns in the broader financial services industry remain. Inflation and rapid increases in interest rates have led to a
decline in the trading value of previously issued government securities with interest rates below current market interest rates. The U.S. Department of Treasury, FDIC and Federal Reserve Board have
announced a program to provide up to $25 billion of loans to financial institutions secured by such government securities held by financial institutions to mitigate the
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risk of potential losses on the sale of such instruments. However, widespread demands for customer withdrawals or other needs of financial institutions for immediate liquidity may exceed the
capacity of such program. There is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure
of other banks or financial institutions in a timely fashion or at all.
The Company’s customers’ and vendors’ access to cash and cash equivalents in amounts adequate to finance their operations could be significantly impaired by the financial institutions with which
they have arrangements directly facing liquidity constraints or failures. Any material decline in available funding could impact the payment of invoices and the Company’s supply chain.
The Company's cash, cash equivalents and marketable securities could be adversely affected by the failure of SVB or other financial institutions.
Defaults, non-performance, bankruptcy, receivership or other adverse developments that affect banking institutions where the Company has deposited its funds or other financial institutions, or
concerns or rumors about any events of these kinds or other similar risks, may result in liquidity issues for the Company. On March 10, 2023, California regulators closed Silicon Valley Bank
(“SVB”), and the FDIC was appointed as SVB’s receiver. On March 26, 2023, the FDIC announced that it had entered into a purchase and assumption agreement with First-Citizens Bank & Trust
Company under which all deposits of the former Silicon Valley Bank were assumed by First-Citizens Bank & Trust Company. Approximately $126.7 million of the Company’s total cash, and cash
equivalents balance of $143.6 million at December 31, 2023, was at SVB or SVB Asset Management. The Company now maintains these accounts and custodial arrangements with or through First-
Citizens Bank & Trust Company.
Currently, the Company has full access to all funds in deposit accounts or other money management arrangements with First-Citizens Bank & Trust Company and other banks. However, those funds
in bank deposit accounts in excess of the standard FDIC insurance limits are uninsured and subject to the risk of bank failure. Future adverse developments with respect to specific financial
institutions or the broader financial services industry may also lead to market-wide liquidity shortages. The failure of any bank in which the Company deposits its funds could reduce the amount of
cash the Company has available for its operations or delay its ability to access such funds. Any such failure may increase the possibility of a sustained deterioration of financial market liquidity, or
illiquidity at clearing, cash management and/or custodial financial institutions. In the event the Company has a commercial relationship with a bank that has failed or is otherwise distressed, the
Company may experience delays or other issues in meeting its financial obligations. If other banks and financial institutions enter receivership or become insolvent in the future in response to
financial conditions affecting the banking system and financial markets, the Company’s ability to access its cash and cash equivalents may be threatened and could have a material adverse effect on
the Company’s business and financial condition.
The Company’s ability to access credit on favorable terms, if necessary, for the funding of the Company’s operations and capital projects may be limited due to changes in credit markets.
The credit markets and the financial services industry have experienced disruption characterized by the bankruptcy, failure, collapse or sale of various financial institutions, increased volatility in
securities prices, diminished liquidity and credit availability and intervention from the U.S. and other governments. Continued concerns about the systemic impact of potential long-term or
widespread downturn, energy costs, geopolitical issues, the availability and cost of credit, the global commercial and residential real estate markets and related mortgage markets and reduced
consumer confidence have contributed to increased market volatility. The cost and availability of credit has been and may continue to be adversely affected by these conditions. The Company cannot
be certain that funding for the Company’s capital needs will be available from the Company’s existing financial institutions and the credit markets if needed, and if available, to the extent required
and on acceptable terms.
Security breaches, cyber-security incidents and other disruptions could compromise the Company’s information and impact the Company’s business, financial condition or results of operations.
The Company relies on networks, information management software and other technology, or information systems, including the Internet and third-party hosted services, to support a variety of
business processes and activities, including procurement and supply chain, manufacturing, distribution, invoicing, order processing and collection of payments. The Company uses information
systems to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. In addition, the
Company depends on information systems for digital marketing activities and electronic communications among the Company’s locations around the world and between company personnel as well
as customers and suppliers. Because information systems are critical to many of the Company’s operating activities, the Company’s business processes may be impacted by system shutdowns or
service disruptions. These disruptions may be caused by failures during routine operations such as system upgrades or user errors, as well as network or hardware failures, malicious or disruptive
software, computer hackers, geopolitical events, natural disasters, failures or impairments of telecommunications networks, or other catastrophic events. These events could result in unauthorized
disclosure of material confidential information.
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If the Company’s information systems suffer severe damage, disruption or shutdown and the Company business continuity plans do not effectively resolve the issues in a timely manner, the Company
could experience delays in reporting the Company’s financial results and the Company may lose revenue and profits as a result of the Company’s inability to timely manufacture, distribute, invoice
and collect payments. Misuse, leakage or falsification of information could result in a violation of data privacy laws and regulations and damage the Company’s reputation and credibility, and could
expose the Company to liability. The Company may also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace
networks and information systems. Like most major corporations, the Company’s information systems are a target of attacks.
A cyber security attack or other incident that bypasses the Company’s information systems security could cause a security breach which may lead to a material disruption to the Company’s
information systems infrastructure or business and may involve a significant loss of business or patient health information. If a cyber security attack or other unauthorized attempt to access the
Company’s systems or facilities were successful, it could result in the theft, destruction, loss, misappropriation or release of confidential information or intellectual property, and could cause
operational or business delays that may materially impact the Company’s ability to provide various healthcare services. Any successful cyber security attack or other unauthorized attempt to access
the Company’s systems or facilities also could result in negative publicity which could damage the Company’s reputation or brand with the Company’s patients, referral sources, payors or other third
parties and could subject the Company to a number of adverse consequences, the vast majority of which are not insurable, including but not limited to disruptions in the Company’s operations,
regulatory and other civil and criminal penalties, fines, investigations and enforcement actions (including, but not limited to, those arising from the SEC, Federal Trade Commission, Office of Civil
Rights, the Office of Inspector General or state attorneys general), fines, private litigation with those affected by the data breach, loss of customers, disputes with payors and increased operating
expense, which either individually or in the aggregate could have a material adverse effect on the Company’s business, financial position, results of operations and liquidity.
There can be no assurance that disruptions to the Company's information systems that have materially affected its business, financial condition or results of operations to the Company's may occur
and have a material adverse effect on the Company in the future.
Macroeconomic political and market conditions, and catastrophic events may adversely affect the Company’s business, results of operations, financial condition and the trading price of the
stock.
The Company’s business is influenced by a range of factors that are beyond the Company’s control, including:
• general macro-economic and business conditions in the Company’s key markets of North America, Japan, Asia Pacific, the Middle East, Europe and Australia;
• the lack of credit financing, or an increase in the cost of borrowing, for some of the Company’s potential customers due to increasing interest rates and lending requirements;
• the overall demand for the Company’s products by the core market specialties of dermatologists and plastic surgeons;
• the timing and success of new product introductions by the Company or the Company’s competitors or any other change in the competitive landscape of the market for non-surgical aesthetic
procedures, including consolidation among the Company’s competitors;
• the level of awareness of aesthetic procedures and the market adoption of the Company’s products;
• changes in the Company’s pricing policies or those of the Company’s competitors;
• governmental budgetary constraints or shifts in government spending priorities;
• general political developments, both domestic and in the Company’s foreign markets, including economic and political uncertainty caused by elections;
• natural disasters and public health events;
• tax law changes;
• currency exchange rate fluctuations; and
• any trade restrictions or higher import taxes that may be imposed by foreign countries against products sold internationally by U.S. companies.
Macroeconomic developments, like global recessions and financial crises could negatively affect the Company’s business, operating results, or financial condition which, in turn, could adversely
affect the Company’s 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 the
Company’s products and services or cause customers not to pay the Company or to delay paying the Company for previously purchased products and services.
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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 the Company’s results of operations and financial condition, including the
Company’s revenue growth and profitability.
Macroeconomic declines, negative political developments, including volatile market conditions due to investor concerns regarding inflation and Russia's invasion of Ukraine, adverse market
conditions and catastrophic events may cause a decline in the Company’s revenue, negatively affect the Company’s operating results, adversely affect the Company’s cash flows and could result in a
decline in the Company’s stock price.
Certain of the Company’s product platforms such as Enlighten and excel HR are only capable of being produced at the single site in Brisbane, and as such the occurrence of a catastrophic
disaster or other similar event could cause damage to its facilities and equipment, which might require the Company to cease or curtail sales of these sole sourced platforms.
The Company is vulnerable to damage from various types of disasters, including fires, earthquakes, terrorist acts, floods, power losses, communications failures, pandemics and similar events. If any
such disaster were to occur, the Company may not be able to operate the Company’s business at the Company’s facility in Brisbane, California. Before the Company could manufacture products from
a replacement facility, the Company’s manufacturing facilities which require regulatory agency approval, could require significant delays to obtain regulatory agency’s approval. The insurance the
Company maintains may not be adequate to cover the Company’s losses resulting from disasters or other business interruptions. Therefore, any such catastrophe could seriously harm the Company’s
business and consolidated results of operations.
From time to time the Company may become subject to income tax audits or similar proceedings, and as a result the Company may incur additional costs and expenses or owe additional taxes,
interest and penalties that may negatively impact its operating results.
The Company is subject to income taxes in the U.S. and certain foreign jurisdictions where it operates through a subsidiary, including Australia, Belgium, Canada, France, Germany, Hong Kong,
Japan, Spain, Switzerland, Italy and the United Kingdom. The Company’s determination of its tax liability is subject to review by applicable domestic and foreign tax authorities.
The Company had sales and income tax audits in the past. The final timing and resolution of any future tax examinations are subject to significant uncertainty and could result in the Company’s
having to pay amounts to the applicable tax authority in order to resolve examination of its tax positions. An increase or decrease of tax related to tax examination resolution could result in a change
in the Company’s income tax accrual and could negatively impact its financial position, results of operations or cash flows.
The Company may be adversely affected by changes in U.S. tax laws, importation taxes and other changes that may be imposed by the current administration.
The Company is subject to taxes in the U.S. and other jurisdictions. Tax rates in these jurisdictions may be subject to significant change due to economic and/or political conditions. A number of other
factors may also impact the Company’s future effective tax rate including:
• the jurisdictions in which profits are determined to be earned and taxed;
• the resolution of issues arising from tax audits with various tax authorities;
• changes in valuation of the Company’s deferred tax assets and liabilities;
• increases in expenses not deductible for tax purposes, including write-offs and impairment of goodwill in connection with acquisitions;
• changes in availability of tax credits, tax holidays, and tax deductions;
• changes in share-based compensation; and
• changes in tax laws or the interpretation of such tax laws and changes in generally accepted accounting principles.
Changes in accounting standards and estimates could have a material adverse effect on the Company’s results of operations and financial position.
Generally accepted accounting principles and the related authoritative guidance for many aspects of the Company’s business, including revenue recognition, inventories, warranties, leases, income
taxes, expected credit losses, fair-value measurements, and stock-based compensation, are complex and involve subjective judgments. Changes in these rules or changes in the underlying estimates,
assumptions or judgments by the Company’s management could have a material adverse effect on the Company’s results of operations and may retroactively affect previously reported results.
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The Company has identified material weaknesses in its internal control over financial reporting related to information technology general controls ("ITGCs"); inventory controls; accounting
for expense related to equity-based awards; and the design, maintenance and monitoring of a risk assessment program related to new and evolving risks, which could, if not remediated, result in
material misstatements in the Company's financial statements.
The Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act. As disclosed in Item
9A of this Annual Report on Form 10-K, the Company identified material weaknesses in its internal control over financial reporting relating to ITGCs, inventory controls, and controls related to
accounting for equity awards.
In addition to the material weaknesses above, and in conjunction with the restatements, management identified an additional material weakness. Specifically, the Company failed to design, maintain
and monitor a risk assessment program at a sufficiently precise level and therefore failed to identify new and evolving risks related to accounting policies, procedures and related controls performed
over areas including, but not limited to inventory, revenues and lease income, costs for leased devices, and testing of certain key reports used in controls. Consequently, the Company failed to timely
implement new controls to respond to changes in the business and leadership.
A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the
Company's annual or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, the Company concluded that its internal control over
financial reporting was not effective based on criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission in Internal Control-An Integrated Framework (2013).
The Company has begun the process of designing and implementing effective internal control measures to improve its internal controls over financial reporting and remediate these material
weaknesses. If these remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in the Company's internal control over
financial reporting are discovered or occur in the future, the Company's consolidated financial statements may contain material misstatements, and the Company could be required to restate its
financial results. In addition, if the Company is unable to successfully remediate the material weakness and is unable to produce accurate and timely financial statements, its stock price may be
adversely affected.
Economic and other risks associated with international sales and operations could adversely affect the Company’s business.
In 2023, 50% of the Company’s total revenue was from customers outside of North America. The Company expects its sales from international operations and export sales to continue to be a
significant portion of the Company’s revenue. The Company has placed a particular emphasis on increasing its growth and presence in international markets. The Company’s international operations
and sales are subject, in varying degrees, to risks inherent in doing business outside the U.S. These risks include:
• changes in trade protection measures, including embargoes, tariffs and other trade barriers, and import and export regulations and licensing requirements;
• instability and uncertainties arising from the global geopolitical environment, such as economic nationalism, populism, protectionism and anti-global sentiment;
• changes in tax laws and potential negative consequences from the interpretation, application and enforcement by governmental tax authorities of tax laws and policies;
• unanticipated changes in other laws and regulations or in how such provisions are interpreted or administered;
• reduced protection for intellectual property rights in some countries and practical difficulties of enforcing intellectual property and contract rights abroad;
• possibility of unfavorable circumstances arising from host country laws or regulations, including those related to infrastructure and data transmission, security and privacy;
• currency exchange rate fluctuations and restrictions on currency repatriation;
• difficulties and expenses related to implementing internal control over financial reporting and disclosure controls and procedures;
• disruption of sales from labor and political disturbances;
• regional safety and security considerations;
• increased costs and risks in developing, staffing and simultaneously managing global sales operations as a result of distance as well as language and cultural differences;
• increased management, travel, infrastructure and legal compliance costs associated with having multiple international operations;
• lengthy payment cycles and difficulty in collecting accounts receivable;
• preference for locally-produced products, as well as protectionist laws and business practices that favor local companies;
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• outbreak or escalation of insurrection, armed conflict, terrorism or war; and
• supply chain disruption or the loss of distributor relationships.
Changes in the geopolitical or economic environments in the countries in which the Company operates could have a material adverse effect on the Company’s financial condition, results of operations
or cash flows. For example, changes in U.S. policy regarding international trade, including import and export regulation and international trade agreements, could also negatively impact the
Company’s business. The U.S. has imposed tariffs on certain goods imported from China and certain other countries, which has resulted in retaliatory tariffs by China and other countries. Additional
tariffs imposed by the U.S. on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, could adversely impact the Company’s financial
condition and results of operations.
The Company’s global operations are required to comply with the U.S. Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), Chinese anti- corruption laws, U.K. Bribery Law, and similar
anti-bribery laws in other jurisdictions, and with U.S. and foreign export control, trade embargo and customs laws. If the Company fails to comply with any of these laws, the Company could suffer
civil and criminal sanctions.
In the European Economic Area (“EEA”), which is composed of the 27 Member States of the European Union (“EU”) plus Norway, Liechtenstein, and Iceland, a single regulatory approval process
exists, and conformity with the legal requirements is represented by the CE mark and corresponding EC certificate. The Company’s products are regulated in the EU as medical devices per the EU
Medical Devices Regulation (“MDR”). The Company's EC certificate under the EU Medical Devices Directive (“MDD”) expired on April 15, 2023. However, Regulation (EU) 2023/607 effectively
extends the validity of the Company’s EC certificate until December 31, 2028. The Company is in the process of obtaining MDR certification for its principal products sold in the EU and expects to
have MDR certification in 2024. In the UK, the implementation of the UK Conformity Assessed (“UKCA”) mark has been delayed, and the CE mark will continue to be accepted until June 2028 for
products certified under MDD and June 2030 for products certified under MDR. The CE mark continues to be required for goods sold in Northern Ireland. Other countries, such as Switzerland, have
entered into Mutual Recognition Agreements and allow the marketing of medical devices that meet EU requirements.
In addition to the general risks that the Company faces outside the U.S., the Company’s operations in emerging markets could involve additional uncertainties for the Company, including risks that
governments may impose withholding or other taxes on remittances and other payments to the Company, or the amount of any such taxes may increase; governments may seek to nationalize the
Company’s assets; or governments may impose or increase investment barriers or other restrictions affecting the Company’s business. In addition, emerging markets pose other uncertainties,
including the difficulty of enforcing agreements, challenges collecting receivables, protection of the Company’s intellectual property and other assets, pressure on the pricing of the Company’s
products and services, higher business conduct risks, ability to hire and retain qualified talent and risks of political instability. The Company cannot predict the impact such events might have on the
Company’s business, financial condition and results of operations.
In addition, compliance with laws and regulations applicable to the Company’s international operations increases the Company’s cost of doing business in foreign jurisdictions. The Company may be
unable to keep current with changes in foreign government requirements and laws as they change from time to time. Failure to comply with these regulations could have adverse effects on the
Company’s business. In many foreign countries it is common for others to engage in business practices that are prohibited by the Company’s internal policies and procedures or U.S. regulations
applicable to the Company. In addition, although the Company has implemented policies and procedures designed to ensure compliance with these laws and policies, there can be no assurance that all
of the Company’s employees, contractors, distributors and agents will comply with these laws and policies. Violations of laws or key control policies by the Company’s employees, contractors,
distributors or agents could result in delays in revenue recognition, financial reporting misstatements, fines, penalties, or the prohibition of the importation or exportation of the Company’s offerings
and could have a material adverse effect on the Company’s business operations and financial results.
The Company offers credit terms to some qualified customers and also to leasing companies to finance the purchase of its products. In the event that any of these customers default on the
amounts payable to the Company, its earnings may be adversely affected.
The Company generally offers credit terms of 30 to 90 days to qualified customers. In addition, from time to time, it offers certain key international distributors, with whom the Company has had an
extended period of relationship and payment history, payment terms that are significantly longer than the regular 30 to 90 day terms. This allows such international distribution partners to have its
products in stock and provide its products to customers on a timely basis.
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While the Company believes it has an adequate basis to ensure that it collects its accounts receivable, the Company cannot provide any assurance that the financial position of customers to whom it
has provided payment terms will not change adversely before the Company receives payment. In the event that there is a default by any of the customers to whom the Company has provided credit
terms, the Company may recognize a credit loss provision write-off charge in the Company’s general and administrative expenses. If this write-off charge is material, it could negatively affect the
Company’s future results of operations, cash flows and its stock price.
Additionally, in the event of deterioration of general business conditions or the availability of credit, the financial strength and stability of the Company’s customers and potential customers may
deteriorate over time, which may cause them to cancel or delay their purchase of its products. In addition, the Company may be subject to increased risk of non-payment of its accounts receivables.
The Company may also be adversely affected by bankruptcies or other business failures of the Company’s customers and potential customers. A significant delay in the collection of funds or a
reduction of funds collected may impact the Company’s liquidity or result in credit losses.
The Company’s ability to effectively compete and generate additional revenue from new and existing products depends upon the Company’s ability to distinguish the Company and its products
from the competitors and their products, and to develop and effectively market new and existing products. The Company’s success is dependent on many factors, including the following:
• speed of new and innovative product development;
• effective strategy and execution of new product launches;
• identification and development of clinical support for new indications of the Company’s existing products;
• product performance;
• product pricing;
• quality of customer support;
• development of successful distribution channels, both domestically and internationally; and
• intellectual property protection.
To compete effectively, the Company has to demonstrate that its new and existing products are attractive alternatives to other devices and treatments, by differentiating the Company’s 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 the Company’s competitors have newer or
different products and more established customer relationships than the Company does, which could inhibit the Company’s market penetration efforts. For example, the Company has encountered,
and expects to continue to encounter, situations where, due to pre-existing relationships, potential customers decide to purchase additional products from the Company’s competitors. Potential
customers also may need to recoup the cost of products that they have already purchased from the Company’s competitors and may decide not to purchase the Company’s products, or to delay such
purchases. If the Company is unable to increase the Company’s market penetration or compete effectively, its revenue and profitability will be adversely impacted.
If there is not sufficient consumer demand for the procedures performed with the Company’s products, practitioner demand for its 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 the Company’s business strategy. Most procedures performed using the
Company’s products are elective procedures not reimbursable through government or private health insurance, with the costs borne by the patient. The decision to utilize the Company’s products may
therefore be influenced by a number of factors, including:
• consumer disposable income and access to consumer credit, which as a result of an unstable economy, may be significantly impacted;
• 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 the Company’s sales and marketing efforts; and
• the education of the Company’s customers and patients on the benefits and uses of the Company’s products, compared to competitors’ products and technologies.
If, as a result of these factors, there is not sufficient demand for the procedures performed with the Company’s products, practitioner demand for the Company’s products could be reduced, which
could have a material adverse effect on the Company’s business, financial condition, revenue and result of operations.
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If the Company modifies one of its FDA-cleared devices, it may need to seek a new clearance, which, if not granted, would prevent the Company from selling its modified products or cause it to
redesign its products.
Any modifications to an FDA-cleared device that could 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. The Company may not be able to obtain additional 510(k) clearance or premarket approvals for new products or for modifications to, or additional indications for,
its existing products in a timely fashion, or at all. Delays in obtaining future clearance would adversely affect its ability to introduce new or enhanced products in a timely manner, which in turn would
harm its revenue and future profitability.
The Company has made modifications to its devices in the past and may make additional modifications in the future that it believes do not or will not require additional clearance or approvals. If the
FDA disagrees, and requires new clearances or approvals for the modifications, the Company may be required to recall and to stop marketing the modified devices, which could harm the Company’s
operating results and require it to redesign its products.
If the Company cannot obtain and maintain Medical Device Regulation approvals, the Company will not be able to sell its products in the European Union.
The Company’s products are regulated in the EU as medical devices per the MDR. The Company's EC certificate under the EU MDD expired on April 15, 2023. However, Regulation (EU) 2023/607
effectively extends the validity of the Company’s EC certificate until December 31, 2028. The Company is in the process of obtaining MDR certification for its principal products sold in the EU and
expects to have MDR certification in 2024.
Additionally, the Company is subject to local rules and regulations implemented by each EU Member State where it conducts business, which can increase the burden of compliance and expose the
Company to greater liabilities. If the Company is not successful in meeting the conditions for extension of its current certification in accordance with MDR and local rules and regulations, the
Company may be required to remove applicable medical devices from the EU market until they are certified under the MDR, which would adversely impact the Company’s revenue and results of
operations in Europe.
Any defects in the design, material or workmanship of its products may not be discovered prior to shipment to customers, which could materially increase its expenses, adversely impact
profitability and harm its business.
The design of the Company’s products is complex. To manufacture them successfully, the Company must procure quality components and employ individuals with a significant degree of technical
expertise. If the Company’s designs are defective, or the material components used in its products are subject to wearing out, or if suppliers fail to deliver components to specification, or if its
employees fail to properly assemble, test and package its products, the reliability and performance of its products could be adversely impacted.
If the Company’s products contain defects that cannot be repaired easily, inexpensively, or on a timely basis, the Company may experience:
• damage to the Company’s 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 the Company’s manufacturing and research and development departments into the Company’s service department;
• changes in share-based compensation; and
• legal action.
The occurrence of any one or more of the foregoing could materially increase expenses, adversely impact profitability and harm the Company’s business.
The Company's products may in the future be subject to product recalls that could harm its reputation, business and financial results.
Medical devices can experience performance problems in the field that require review and possible corrective action. The occurrence of component failures, manufacturing errors, software errors,
design defects or labeling inadequacies affecting a medical device could lead to a government-mandated or voluntary recall by the device manufacturer, in particular when such deficiencies may
endanger health. The FDA requires that certain classifications of recalls be reported to the FDA within 10 working days after the recall is initiated. Companies are required to maintain certain records
of recalls, even if they are not reportable to the FDA. The Company may initiate voluntary recalls involving its products in the future that the
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Company determines do not require notification of the FDA. If the FDA disagrees with its determinations, they could require the Company to report those actions as recalls. Product recalls may
divert management attention and financial resources, expose the Company to product liability or other claims, harm its reputation with customers and adversely impact its business, financial condition
and results of operations.
The results of the Company's clinical trials may not support its products claims or may result in the discovery of adverse side effects.
The Company cannot be certain that the results of its future clinical trials will support its future product claims or that the FDA will agree with its conclusions regarding them. Success in pre-
clinical studies and early clinical trials does not ensure that later clinical trials will be successful, and the Company cannot be sure that the later trials will replicate the results of prior trials and pre-
clinical studies. The clinical trial process may fail to demonstrate that its products are safe and effective for the proposed indicated uses, which could cause the Company to abandon a product and
may delay development of others. Any delay or termination of the Company's clinical trials will delay the filing of its product submissions and, ultimately, its ability to commercialize its products and
generate revenues. It is also possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the future product’s profile.
Product liability suits could be brought against the Company due to a defective design, material or workmanship or misuse of its products and could result in expensive and time-consuming
litigation, payment of substantial damages and an increase in its insurance rates.
If the Company’s products are defectively designed, manufactured or labeled, contain defective components or are misused, the Company may become subject to substantial and costly litigation by
the Company’s customers or their patients. Misusing the Company’s products or failing to adhere to operating guidelines could cause significant eye and skin damage, and underlying tissue damage.
In addition, if its operating guidelines are found to be inadequate, the Company may be subject to liability. The Company has been involved, and may in the future be involved, in litigation related to
the use of its products. Product liability claims could divert management’s attention from its core business, be expensive to defend and result in sizable damage awards against the Company. The
Company may not have sufficient insurance coverage for all future claims. The Company may not be able to obtain insurance in amounts or scope sufficient to provide the Company with adequate
coverage against all potential liabilities. Any product liability claims brought against the Company, with or without merit, could increase the Company’s product liability insurance rates or prevent the
Company from securing continuing coverage, could harm its reputation in the industry and could reduce product sales. In addition, the Company historically experienced steep increases in its product
liability insurance premiums as a percentage of revenue. If its premiums continue to rise, the Company may no longer be able to afford adequate insurance coverage.
The Company may be involved in future costly intellectual property litigation, which could impact its future business and financial performance.
The Company’s competitors or other patent holders may assert that the Company’s present or future products and the methods the Company employs are covered by their patents. In addition, the
Company does not know whether its competitors or other patent holders own or will obtain patents that they may claim prevent, limit or interfere with the Company’s ability to make, use, sell or
import the Company’s products. For example, in March 2023, Serendia, LLC (“Serendia”), filed patent infringement complaints against the Company with the International Trade Commission
(“ITC”) and in U.S. District Court for the District of Delaware alleging infringement of six Serendia patents by the Secret RF and Secret Pro systems, which the Company distributes in the U.S. on
behalf of Ilooda Co. Ltd., a Korean company (“ilooda”). The manufacturer of these products, ilooda, is obligated to defend the Company against these claims and, as a result, the Company has not
incurred significant external legal costs. Serendia and ilooda have agreed to a settlement of the ITC investigation, the Delaware litigation and any other past, present and future suits or claims related
to the six Serendia patents and the Secret RF and Secret Pro systems. The settlement of these matters includes a non-exclusive, worldwide, fully paid up license from Serendia to ilooda to the six
Serendia patents related to the Secret RF and Secret Pro systems, which are distributed by the Company. The ITC investigation as to ilooda and the Company was terminated as of April 10, 2024 and
the Delaware litigation was dismissed as of April 3, 2024.
The Company may also become involved in litigation not only as a result of alleged infringement of a third party’s intellectual property rights but also to protect the Company’s own intellectual
property. For example, the Company has been involved in litigation to protect the trademark rights associated with its company name or the names of its 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 its core business.
The Company’s failure to comply with rules relating to bribery, foreign corrupt practices, and privacy and security laws may subject the Company to penalties and adversely impact its reputation
and business operations.
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The Company’s business is subject to regulation and oversight worldwide including:
• the FCPA, which prohibits corporations and individuals from paying, offering to pay or authorizing the payment of anything of value to any foreign government official, government staff member,
political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity;
• the UK Bribery Act, which prohibits both domestic and international bribery, as well as bribery across both public and private sectors; and bribery provisions contained in the German Criminal
Code, which, pursuant to draft legislation being prepared by the German government, may make the corruption and corruptibility of physicians in private practice and other healthcare professionals
a criminal offense;
• Health Insurance Portability and Accountability Act of 1996, as amended by The Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain
electronic healthcare transactions and protects the security and privacy of protected health information; and
• analogous state and foreign law equivalents of each of the above laws, such as state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the
applicable compliance guidance promulgated by the federal government; and state laws governing the privacy and security of health information in certain circumstances, many of which differ
from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
The risk of being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to
a variety of interpretations. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of the Company’s
business activities, including the Company’s relationships with practitioners and thought leaders worldwide, some of whom recommend, purchase and/or use the Company’s devices, as well as the
Company’s sales agents and distributors, could be subject to challenge under one or more of such laws. The Company is also exposed to the risk that the Company’s employees, independent
contractors, principal investigators, consultants, vendors, independent sales agents and distributors may engage in fraudulent or other illegal activity. While the Company has policies and procedures
in place prohibiting such activity, misconduct by these parties could include, among other infractions or violations, intentional, reckless and/or negligent conduct or unauthorized activity that violates
FDA regulations, including those laws that require the reporting of true, complete and accurate information to the FDA, manufacturing standards, laws that require the true, complete and accurate
reporting of financial information or data or other commercial or regulatory laws or requirements. It is not always possible to identify and deter misconduct by the Company’s employees and other
third parties, and the precautions the Company takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting the Company from
governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
There are similar laws and regulations applicable to the Company outside the U.S., all of which are subject to evolving interpretations. Global enforcement of anti- corruption laws, including but not
limited to the UK Bribery Act, the Brazil Clean Companies Act, and continued enforcement in the Europe, Middle East and Asia Pacific has increased substantially in recent years, with more
frequent voluntary self-disclosures by companies, aggressive investigations and enforcement proceedings by governmental agencies, and assessment of significant fines and penalties against
companies and individuals. The Company’s operations create the risk of unauthorized payments or offers of payments by one of its employees, consultants, sales agents, or distributors because these
parties are not always subject to its control. It is the Company’s policy to implement safeguards to discourage these practices; however, its existing safeguards and any future improvements may prove
to be less than effective, and its employees, consultants, sales agents, or distributors may engage in conduct for which the Company might be held responsible. Any alleged or actual violations of
these regulations may subject the Company to government scrutiny, severe criminal or civil sanctions and other liabilities, and could negatively affect its business, reputation, operating results, and
financial condition.
In March 2021, the United Kingdom’s Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after June 30, 2023. These reforms may
cause LIBOR to cease to exist, new methods of calculating LIBOR to be established or the establishment of an alternative reference rate(s). These consequences cannot be entirely predicted and
could have an adverse impact on the market value for or value of LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by the Company. Changes in market
interest rates may influence returns on financial investments and could reduce its earnings and cash flows.
There can be no assurance that the policies and procedures will be followed at all times or will effectively detect and prevent violations of the applicable laws by one or more of its employees,
consultants, agents or partners and, as a result, the Company may be subject to penalties and material adverse consequences on its business, financial condition or results of operations.
Risks Related to the Company's Convertible Senior Notes
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Servicing the Company’s debt, including the notes, may require a significant amount of cash, and the Company may not have sufficient cash flows from its business to pay its indebtedness and
the price of its common stock may suffer as a result.
As of December 31, 2023, the Company had $429.1 million aggregate principal amount of the notes outstanding. The Company’s ability to make scheduled payments of the principal of, to pay
interest on or to refinance its indebtedness, including the notes, depends on its future performance, which is subject to economic, financial, competitive, and other factors beyond the Company’s
control. The Company’s business may not generate cash flows from operations in the future sufficient to service its debt and make necessary capital expenditures. If the Company is unable to
generate such cash flows, it may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional debt financing or equity capital on terms that may be
onerous or highly dilutive. Interest rates have increased and any refinancing would therefore occur at a higher cost to the Company. In addition, the Company’s ability to refinance any indebtedness
will depend on the capital markets and its financial condition at such time. The Company may not be able to engage in any of these activities or engage in these activities on desirable terms, which
could result in a default on its debt obligations. In addition, any of the Company’s future debt agreements may contain restrictive covenants that may prohibit the Company from adopting any of these
alternatives. The Company’s failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of its debt.
In addition, the Company’s indebtedness, combined with its other financial obligations and contractual commitments, could have other important consequences. For example, it could:
• make the Company more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulation;
• limit the Company’s flexibility in planning for, or reacting to, changes in its business and industry;
• place the Company at a disadvantage compared to its competitors who have less debt;
• limit the Company’s ability to borrow additional amounts to fund acquisitions, for working capital, and for other general corporate purposes; and
• make an acquisition of the Company less attractive or more difficult.
The significant amount of debt held by the Company creates an overhang that depresses the value of its common stock. Until such time as this debt is repaid or converted, this overhang on value may
persist. Any of the above factors could harm the Company’s business, results of operations, and financial condition. In addition, if the Company incurs additional indebtedness, the risks related to its
business and its ability to service or repay its indebtedness would increase.
The Company may not have the ability to raise the funds necessary to settle conversions of the notes in cash or to repurchase the notes upon a fundamental change, and its future debt may
contain limitations on its ability to pay cash upon conversion or repurchase of the notes.
Holders of the notes have the right to require the Company to repurchase all or a portion of their notes of the applicable series upon the occurrence of a fundamental change (as defined in the
applicable indenture governing such series of notes) before the applicable maturity date at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and
unpaid interest, if any. In addition, upon conversion of the notes, unless the Company elects to deliver solely shares of its common stock to settle such conversion (other than paying cash in lieu of
delivering any fractional share), the Company will be required to settle a portion or all of its conversion obligation in respect of the notes being converted in cash. Moreover, the Company will be
required to repay the notes in cash at their maturity unless earlier converted, redeemed or repurchased. However, the Company may not have enough available cash or be able to obtain financing at
the time the Company is required to make repurchases of notes surrendered therefor or pay cash with respect to notes being converted or at their maturity.
In addition, the Company's ability to repurchase notes or to pay cash upon conversions of notes or at their maturity may be limited by law, regulatory authority or agreements governing its future
indebtedness. The Company's failure to repurchase the notes of a series at a time when the repurchase is required by the applicable indenture or to pay cash upon conversions of notes or at their
maturity as required by such indenture would constitute a default under such indenture. A default under the indenture governing a series of notes or the fundamental change itself could also lead to a
default under agreements governing the Company's existing and future indebtedness. Moreover, the occurrence of a fundamental change under the indenture governing a series of notes could
constitute an event of default under any such agreement. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, the Company may not have
sufficient funds to repay the indebtedness. Any failure by the Company to repay indebtedness and repurchase the notes or make cash payments upon conversion thereof, in each case, when required
to do so pursuant to the terms of the applicable indenture, could have a material adverse effect on the Company’s business, financial condition, and results of operations.
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The conditional conversion features of the notes, if triggered, may adversely affect the Company's financial condition and operating results.
During the second, third, and fourth quarters of 2021 and the third and fourth quarters of 2022, a conversion feature related to the sale price of the Company’s common stock was triggered. No
conversion requests were submitted by the holders of any series of notes related to these triggering events. In the event the conditional conversion features of a series of notes are triggered, holders of
the applicable series of notes will be entitled to convert their notes at any time during specified periods at their option. If one or more holders elect to convert their notes, unless the Company elects to
satisfy the Company's conversion obligation by delivering solely shares of its common stock (other than paying cash in lieu of delivering any fractional share), the Company would be required to
settle a portion or all of its conversion obligation in cash, which could adversely affect the company's liquidity. In addition, even if holders of notes do not elect to convert their notes, the Company
could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which would result in a material
reduction of its net working capital.
Transactions relating to the notes may affect the value of the Company’s common stock.
The conversion of some or all of the notes would dilute the ownership interests of the Company’s existing stockholders to the extent the Company elects satisfy its conversion obligation by delivering
shares of the Company’s common stock upon any conversion of such notes. The notes may become convertible at the option of their holders under certain circumstances set forth in the applicable
indenture. If holders of the notes elect to convert their notes, the Company may settle its conversion obligation by delivering to them a significant number of shares of the Company’s common stock,
which would cause dilution to the existing stockholders.
In connection with the pricing of the notes, the Company entered into capped call transactions with the applicable option counterparties. The capped call transactions cover, subject to customary
adjustments, the number of shares of the Company's common stock initially underlying the applicable series of notes (excluding the 2028 notes issued to Voce Capital Management LLC). The capped
call transactions are expected generally to reduce the potential dilution to the Company's common stock upon any conversion of such notes and/or offset any cash payments the Company may be
required to make in excess of the principal amount of such converted notes, as the case may be, with such reduction and/or offset subject to a cap.
In connection with establishing their initial hedges of the capped call transactions, the applicable option counterparties or their respective affiliates entered into various derivative transactions with
respect to the Company’s common stock and/or purchased shares of the Company’s common stock concurrently with or shortly after the pricing of the applicable series of notes. From time to time,
the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to the Company’s common stock and/or
purchasing or selling the Company’s common stock or other securities of the Company in secondary market transactions prior to the maturity of the applicable series of notes (and are likely to do so
following any conversion, repurchase, or redemption of such notes, to the extent the Company exercises the relevant election under the applicable capped call transactions). This activity could also
cause a decrease and/or increased volatility in the market price of the Company’s common stock.
The Company is subject to counterparty risk with respect to the capped call transactions.
The counterparties to the capped call transactions that the Company entered into in connection with the pricing of the notes are financial institutions, and the Company will be subject to the risk that
one or more of the counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the capped call transactions. The Company's exposure to
the credit risk of the counterparties will not be secured by any collateral.
Global economic conditions have in the past resulted in the actual or perceived failure or financial difficulties of many financial institutions. If a counterparty to one or more capped call transactions
becomes subject to insolvency proceedings, the Company will become an unsecured creditor in those proceedings with a claim equal to its exposure at the time under such transaction. the Company's
exposure will depend on many factors but, generally, its exposure will increase if the market price or the volatility of the Company's common stock increases. In addition, upon a default or other
failure to perform, or a termination of obligations, by a counterparty, the counterparty may fail to deliver the consideration required to be delivered to the Company under the capped call transactions
and it may experience more dilution than the Company currently anticipates with respect to its common stock. The Company can provide no assurances as to the financial stability of the
counterparties.
Risks Related to Ownership of the Company's Common Stock
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Anti-takeover provisions contained in the Company's amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a
takeover attempt.
The Company's amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying
or preventing an acquisition deemed undesirable by the Company's board of directors. Among other things, the Company's amended and restated certificate of incorporation and amended and restated
bylaws include provisions:
• authorizing “blank check” preferred stock, which could be issued by the Company's board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights
superior to its common stock;
• limiting the liability of, and providing indemnification to, its directors and officers;
• limiting the ability of its stockholders to call and bring business before special meetings;
• requiring advance notice of stockholder proposals for business to be conducted at meetings of the Company's stockholders and for nominations of candidates for election to its board of directors;
and
• controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in the Company's management.
As a Delaware corporation, the Company is also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law (the “DGCL”), which prevents certain
stockholders holding more than 15% of its outstanding capital stock from engaging in certain business combinations without approval of the holders of at least two-thirds of the
Company's outstanding common stock not held by such stockholder.
Any provision of the Company's amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in
control could limit the opportunity for its stockholders to receive a premium for their shares of the Company's capital stock, and could also affect the price that some investors are willing to pay for
its common stock.
The Company's business could be negatively affected by activist shareholders.
Responding to actions by activist shareholders could be costly and time-consuming, disrupt the Company's operations and divert the attention of management and its employees. Additionally,
perceived uncertainties as to the Company's future direction as a result of shareholder activism or changes to the composition of its board of directors may lead to the perception of a change in the
direction of its business or other instability, which may be exploited by its competitors, cause concern to the Company's current or potential customers, and make it more difficult to attract and retain
qualified personnel. If customers choose to delay, defer or reduce transactions with the Company or do business with its competitors instead of the Company, then the Company's business, financial
condition and operating results would be adversely affected. In addition, the share price of its common stock could experience periods of increased volatility as a result of shareholder activism.
If securities or industry analysts do not publish or cease publishing research or reports about the Company, its business, its market or its competitors, or if they adversely change their
recommendations regarding the Company's common stock, the market price and trading volume of its common stock could decline.
The trading market for the Company's common stock will be influenced, to some extent, by the research and reports that securities or industry analysts publish about the Company, its business,
its market or its competitors. If any of the analysts who cover the Company adversely change their recommendations regarding its common stock or provide more favorable recommendations about
its competitors, the market price of the Company's common stock would likely decline. If any of the analysts who cover the Company cease coverage of the company or fail to regularly publish
reports on it, the Company could lose visibility in the financial markets, which in turn could cause the market price and trading volume of its common stock to decline.
The Company does not expect to declare any dividends on its common stock in the foreseeable future.
The Company does not anticipate declaring any cash dividends to holders of its common stock in the foreseeable future. Consequently, investors may need to rely on sales of its common stock after
price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase shares of its common stock.
If the Company raises additional capital through the sale of shares of the Company’s common stock, convertible securities or debt in the future, its stockholders’ ownership in the Company
could be diluted and restrictions could be imposed on the Company’s business.
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The Company may issue shares of its common stock or securities convertible into its common stock to raise additional capital in the future. To the extent the Company issues such securities, its
stockholders may experience substantial dilution and the trading price of the Company’s common stock could decline. If the Company obtains funds through a credit facility or through the issuance of
debt or preferred securities, such debt or preferred securities could have rights senior to the existing stockholders’ rights as a common shareholder, which could impair the value of the Company’s
common stock.
If the Company fails to maintain compliance with the listing requirements of the Nasdaq Global Select Market, the Company may be delisted and the price of the Company's common stock and
the Company's ability to access the capital markets could be negatively impacted.
To maintain the listing of the Company's common stock on the Nasdaq Global Select Market, the Company is required to meet certain listing requirements, including, among others, either: (i) a
minimum closing bid price of $1.00 per share, a market value of publicly held shares (excluding shares held by the Company's executive officers, directors and 10% or more stockholders) of at least
$5 million and stockholders’ equity of at least $10 million; or (ii) a minimum closing bid price of $1.00 per share, a market value of publicly held shares (excluding shares held by the Company's
executive officers, directors, affiliates and 10% or more stockholders) of at least $15 million and a total market value of listed securities of at least $50.0 million.
The Company may fail to satisfy one or more the Nasdaq Global Select Market requirements for continued listing of the Company's common stock in the future. There can be no assurance that the
Company will be successful in maintaining the listing of its common stock on the Nasdaq Global Select Market, or, if transferred, on the Nasdaq Capital Market. The delisting of the Company's
common stock from a national exchange could impair the liquidity and market price of the Company's common stock. It could also materially, adversely affect the Company's access to the capital
markets, and any limitation on market liquidity or reduction in the price of the Company's common stock as a result of that delisting could adversely affect the Company's ability to raise capital on
terms acceptable to the Company, or at all.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 1C. Cybersecurity
Risk Management and Strategy.
The Company has implemented and maintained various information security processes designed to identify, assess and manage material risks from cybersecurity threats to critical computer networks,
third-party hosted services, communications systems, hardware, lab equipment, software, and critical data includes confidential, personal, proprietary, and sensitive data. Accordingly, the Company
maintains certain risk assessment processes intended to identify cybersecurity threats, determines the likelihood of occurring, and assesses potential material impact to the Company's business. Based
on the Company's assessment, the Company implements and maintains risk management processes designed to protect the confidentiality, integrity, and availability of its information assets and
mitigate harm to its business. The Company's cybersecurity policies, standards, processes, and practices are based on recognized frameworks established by the Center for Internet Security (CIS), the
National Institute of Standards and Technology (NIST) and other applicable industry standards and are integrated into the Company's overall risk management system and processes.
The Company engages in processes designed to identify such threats by, among other things, monitoring the threat environment, conducting scans of the threat environment, evaluating the Company's
industry’s risk profile, evaluating threats reported to the Company, coordinating with law enforcement concerning threats, conducting threat assessments for internal and external threats, and
conducting vulnerability assessments to identify vulnerabilities.
The Company has not identified any risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or are reasonably likely to
materially affect the Company, including its operations, business strategy, results of operations, or financial condition. The Company faces certain ongoing risks from cybersecurity threats that, if
realized, are reasonably likely to materially affect the Company, including its operations, business strategy, results of operations, or financial condition. See “Risk Factors - Security breaches, cyber-
security incidents and other disruptions could compromise the Company’s information and impact the Company’s business, financial condition or results of operations.”
Governance.
The Board of Directors is responsible for oversight of the Company’s risk management process. The Board administers this oversight function directly through the Board of Directors as a whole, as
well as through the Audit Committee of the board. Areas of focus include economic risk, operational risk, financial risk (accounting, investment or liquidity, and tax), competitive risk, legal and
regulatory risk, cybersecurity risk and compliance and reputational risks. The Board of Directors is supported by regular reporting by leaders from the Company's finance, cyber security, privacy,
legal and compliance teams, who have an average of approximately 15 years of experience, which is designed to give the Board of Directors visibility over the Company’s operations and activities to
adequately identify key risks and understand management’s risk mitigation strategies.
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ITEM 2. PROPERTIES
United States
The Company occupies 66,000 square feet for its U.S. corporate office in Brisbane, California, under a lease which extends through January 31, 2028. The original lease expired on December 31,
2017, and the Company entered into a Second Amendment on July 6, 2017 that extended the term of the lease to January 31, 2023 and a Third Amendment on July 9, 2020 that extended the term of
the lease to January 31, 2028. The amendment provides for the following: a) the extension of the lease term, with the extended term to begin on February 1, 2023 and continue until January 31, 2028;
b) the abatement of the monthly base rent for the four month period beginning September 1, 2020 and ending December 31, 2020; c) the amendment of monthly base rent during the extension term to
approximately $0.2 million for January 2021 with annual increases of 3.5% thereafter; and d) the waiver by the Company of its early termination right in the lease. Pursuant to the terms of the Third
Amendment to the Lease Agreement, the Company has the option to extend the term of the lease by an additional 60 months.
On January 16, 2024, the Company entered into a 37-month lease agreement. The lease is for 53,000 square feet of warehouse space in Hayward, California. This space was leased to consolidate
current inventory locations in Northern California. The term of the lease expires on February 28, 2027, and requires total payments over the lease term of approximately $2.5 million.
International
In addition, the Company has leased office facilities in certain countries as follows:
Country
Japan
France
Belgium
Square Footage
Approximately 10,760
Approximately 2,239
Approximately 151
Lease termination or Expiration
Four leases, expiring between March 2025 and March 2027.
One lease, which expires in June 2031.
One lease, which expires in February 2026.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company may be involved in legal and administrative proceedings and claims of various types. For a description of material pending legal and regulatory proceedings and
settlements as of December 31, 2023, see Note 13 to the Company’s consolidated financial statements entitled “Commitments and Contingencies,” Part II Item 8, included in this Annual Report on
Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Stock Exchange Listing
The Company’s common stock trades on the NASDAQ Global Select Market under the symbol “CUTR.” As of May 8, 2024, the closing sale price of its common stock was $2.51 per share.
Common Stockholders
The Company had approximately 150 stockholders of record as of December 31, 2023. The Company believes the actual number of stockholders is greater than this number of record holders and
includes stockholders who are beneficial owners, but whose shares are held in “street” name by brokers and other nominees. This number of holders of record also does not include stockholders
whose shares may be held in trust by other entities.
Issuer Purchases of Equity Securities
There were no repurchases of the Company’s common stock in 2023 under the Company’s Stock Repurchase Program.
Sales of Unregistered Securities
None.
Dividends
For a discussion regarding the Company’s intentions with respect to dividends, see the section titled “Stock-based Compensation Expense” set forth in Part II Item 7 of 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
The graph below compares Cutera, Inc.'s cumulative 5-Year total shareholder return on common stock with the cumulative total returns of the NASDAQ Composite index and the NASDAQ Health
Care index. The graph tracks the performance of a $100 investment in the Company’s common stock and in each index (with the reinvestment of all dividends) from December 31, 2018 to
December 31, 2023.
*$100 invested on December 31, 2018 in stock or index, including reinvestment of dividends.
In accordance with SEC rules, the information contained under “Performance Graph” shall not be deemed to be “soliciting material,” or to be “filed” with the SEC or subject to the SEC’s Regulation
14A or 14C, other than as provided under Item 201(e) of Regulation S-K, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company
specifically request that the information be treated as soliciting material or specifically incorporate it by reference into a document filed under the Securities Act, or the Securities Exchange Act of
1934, as amended.
ITEM 6. [RESERVED]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company’s audited financial statements and notes thereto for the fiscal year ended December 31, 2023. 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 the Company’s current expectations, estimates and projections and that reflect the Company’s beliefs and assumptions based upon
information available to the Company at the date of this Report. In some cases, you can identify these statements by words such as “may,” “might,” “could,” “will,” “should,” “expects,” “plans,”
“anticipates,” “likely,” “believes,” “estimates,” “intends,” “forecasts,” “foresees,” “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. The Company’s 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 the Company’s future financial
performance, the ability to grow the Company’s business, increase the Company’s revenue, manage expenses, generate additional cash, achieve and maintain profitability, develop and commercialize
existing and new products and applications, improve the performance of the Company’s worldwide sales and distribution network, and to the outlook regarding long term prospects. The Company
cautions you not to 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. The Company undertakes
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 the Company’s results to differ materially from those in the Company’s forward-looking statements, and a discussion of other risks and uncertainties,
are discussed in Item 1A—Risk Factors. The Company encourages you to read that section carefully as well as other risks detailed from time to time in the Company’s filings with the SEC.
Introduction
The Management’s Discussion and Analysis (“MD&A”) is organized as follows:
• Executive Summary. This section provides a general description and history of the Company’s business, a brief discussion of the Company’s product lines and the opportunities, trends, challenges
and risks the Company focuses on in the operation of the Company’s business.
• Critical Accounting Policies and Estimates. This section describes the key accounting policies that are affected by critical accounting estimates.
• Results of Operations. This section provides the Company’s analysis and outlook for the significant line items on the Company’s Consolidated Statements of Operations.
• Liquidity and Capital Resources. This section provides an analysis of the Company’s liquidity and cash flows, as well as a discussion of the Company’s commitments that existed as of
December 31, 2023.
The Company has omitted discussion of 2022 results where it would be redundant to the discussion previously included in Management's Discussion and Analysis of Financial Condition and Results
of Operations on Form 10-K for the year ended December 31, 2022, which has been filed with the SEC.
Executive Summary
Company Description
Cutera, Inc. (“Cutera” or the “Company”) develops, manufactures, distributes, and markets energy-based product platforms for medical practitioners, enabling them to offer safe and effective
treatments to their customers. In addition, the Company distributes third-party manufactured skincare products. The Company currently markets the following system platforms: AviClear, enlighten,
excel, truSculpt, Secret PRO, Secret RF, and xeo — each of which enables medical practitioners to perform safe and effective procedures, including treatment for acne, body contouring, skin
resurfacing and revitalization, hair and tattoo removal, removal of benign pigmented lesions, and vascular conditions. Several of the Company’s systems offer multiple hand pieces and applications,
providing customers the flexibility to upgrade their systems.
The Company’s corporate headquarters and U.S. operations are located in Brisbane, California, where the Company conducts manufacturing, warehousing, research and development, regulatory,
sales and marketing, service, and administrative activities. The Company also maintains regional distribution centers (“RDCs”) in selection locations across the U.S. These RDCs serve as forward
warehousing for systems and service parts in various geographies. The Company markets sells and services the Company’s products through direct sales and service employees in North America
(including Canada), Australia, New Zealand,
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Austria, France, Germany, Hong Kong, Japan, Switzerland, the United Kingdom and Ireland. Sales and services outside of these direct markets are made through a worldwide distributor network in
over 37 countries. The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated.
The Company’s trademarks include: “ACUTIP 500®,” “AVI™,” “AVICLEAR®,” “AVICOOL®,” “AVIANALYTICS™,” “CUCF®,” “CUTERA®,” “CUTERA UNIVERSITY CLINICAL
FORUM®,” “ENLIGHTEN®,” “EXCEL HR®,” “EXCEL V®,” “GENESIS™,” “LASER GENESIS™,” “LIMELIGHT®,” “PICO GENESIS®,” “PICO TONING®,” “PROWAVE 770®,”
“SOLERA®,” “TITAN®,” “TRUBODY®,” “TRUSCULPT FLEX®,” “TRUFLEX™,” “TRUSCULPT®,” “TRUSCULPT ID®,” and “XEO®.” The Company’s logo and other Company trade
names, trademarks, and service marks appearing in this document are the Company’s 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, the Company’s trade names, trademarks and service marks referred to in this Annual Report on Form 10-K appear without the ® or
TM symbols, but those references are not intended to indicate, in any way, that the Company will not assert, to the fullest extent under applicable law, the Company’s rights, or the right of the
applicable licensor to these trade names, trademarks and service marks.
Products and Services
The Company derives revenue from the sale of products and services. Product revenue includes revenue from the sale of systems, hand pieces, upgrade of systems, and leasing and direct sales of
AviClear devices (collectively “Systems” revenue); replacement hand pieces, truSculpt cycle refills, truFlex cycle refills, AviClear treatment fees, and single use disposable tips applicable to Secret
RF (collectively “Consumables” revenue); and the sale of third-party manufactured skincare products (“Skincare” revenue). A system consists of a console that incorporates a universal graphic user
interface, a laser and (or) an 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 the Company’s Pearl and Pearl Fractional applications, instead of within the console.
The Company currently markets the following key platforms: AviClear, enlighten, excel, truSculpt, Secret PRO, Secret RF, and xeo — each of which enables medical practitioners to perform safe and
effective procedures, including treatment for acne, body contouring, skin resurfacing and revitalization, hair and tattoo removal, removal of benign pigmented lesions, and vascular conditions.
Several of the Company’s systems offer multiple hand pieces and applications, providing customers the flexibility to upgrade their systems whenever they choose and provides the Company with a
source of additional Systems revenue.
Skincare revenue relates to the distribution of ZO’s skincare products in Japan. The skincare products were purchased from a third-party manufacturer and sold to medical offices and licensed
physicians. On February 28, 2024, the Company and its Japanese subsidiary, Cutera KK, entered into a termination agreement with ZO, which terminated all agreements related to the distribution by
the Company of ZO’s products in Japan. The Company acted as the principal in this arrangement, as the Company determined the price to charge customers for the skincare products and controlled
the products before they were transferred to the customer.
Service includes prepaid service contracts, and labor, time and material on out-of-warranty products.
Significant Business Trends
The Company believes that the ability to grow revenue will be primarily impacted by the following:
• capturing market share in the Acne space and capitalizing on the momentum in AviClear;
• continuing to expand the Company’s product offerings, both through internal development and sourcing from other vendors;
• ongoing investment in the Company’s 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 Company’s products can be displayed and used to assist in selling efforts);
• customer demand for the Company’s products;
• consumer demand for the application of the Company’s products;
• marketing to physicians in the core dermatology and plastic surgeon specialties, as well as outside those specialties; and
• generating recurring revenue from the Company’s growing installed base of customers through the sale of system upgrades, services, hand piece refills, truSculpt cycles, skincare products and
replacement tips for Secret RF products.
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For a detailed discussion of the significant business trends impacting the Company’s business, please see the section titled “Results of Operations” below.
Critical Accounting Policies and Use of Estimates
The preparation of the Company’s audited consolidated financial statements and related notes requires the Company to make judgments, estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company has based its estimates on historical experience and on various other assumptions
that the Company believes to be reasonable under the circumstances. The Company periodically reviews its estimates and makes adjustments when facts and circumstances dictate. To the extent that
there are material differences between these estimates and actual results, its financial condition or results of operations will be affected.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if
different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial
statements. The Company believes that its critical accounting policies reflect the more significant estimates and assumptions used in the preparation of its audited consolidated financial statements.
The Company’s critical accounting policies are described in Note 1 “Summary of significant accounting policies”. The following critical accounting policies reflect the more significant estimates and
assumptions used in the preparation of the Company's consolidated financial statements.
Inventory Valuation
The Company estimates an excess and obsolete inventory reserve based on expected inventory usage. The Company’s estimate of inventory consumption is based on historic consumption and sales
patterns, expected future sales demand, and obsolescence, market opportunity, existent quality control issues, and actual and planned product releases. The Company develops an estimate of these
factors through analysis of historic and budgeted data, and inquiries of manufacturing and sales departmental leaders. The Company evaluates the excess and obsolete model and the resulting reserve
on a quarterly basis through review of historical inventory reserve and write-off patterns.
Income Taxes and Valuation Allowance
The Company estimates whether a valuation allowance is necessary for the Company’s deferred tax assets by evaluating evidence of the existence of sufficient taxable income within the permitted
carryback and carryforward periods. The most significant deferred tax assets relate to the Company’s accumulated net operating losses of $290.1 million at December 31, 2023, and unutilized tax
credit balance of $23.6 million at December 31, 2023. The Company considers positive and negative evidence in evaluating the likelihood that these net operating losses and tax credits can be utilized
and places greatest reliance on the most objective available evidence, including the Company’s recent operating loss history or profitability by tax jurisdiction, the timing of the expiration of net
operating losses, and credit carryforwards and potential reversal of deferred tax liabilities that would give rise to future taxable income.
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Results of Operations
The following table sets forth selected consolidated financial data expressed as a percentage of net revenue. Percentages in this table and throughout its discussion and analysis of financial condition
and results of operations may reflect rounding adjustments.
Year Ended December 31,
2023
2022
2021
Net revenue
Cost of revenue
Gross margin
Operating expenses:
Sales and marketing
Research and development
General and administrative
Total operating expenses
Income (loss) from operations
Amortization of debt issuance costs
Interest on convertible notes
Loss on extinguishment of convertible notes
Gain on extinguishment of PPP loan
Interest income (expense), net
Other expense, net
Income (loss) before income taxes
Income tax expense
Net income (loss)
100 %
80 %
20 %
53 %
10 %
30 %
93 %
(74)%
(1)%
(6)%
— %
— %
4 %
— %
(76)%
1 %
(77)%
100 %
45 %
55 %
42 %
10 %
18 %
71 %
(15)%
(1)%
(2)%
(14)%
— %
1 %
(2)%
(32)%
1 %
(33)%
100 %
42 %
58 %
33 %
9 %
14 %
57 %
1 %
— %
(1)%
— %
3 %
— %
(1)%
2 %
1 %
1 %
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Net Revenue
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:
North America
Japan
Rest of World
Consolidated total revenue
North America as a percentage of total revenue
Japan as a percentage of total revenue
Rest of World as a percentage of total revenue
Revenue mix by product category:
Systems - North America
Systems - Rest of World (including Japan)
Total Systems
Consumables
Skincare
Total Products
Service
Total Net revenue
Total Net Revenue
2023
% Change
2022
% Change
2021
Year Ended December 31,
$
$
$
$
106,786
52,134
53,449
212,369
50 %
25 %
25 %
75,206
55,322
130,528
25,302
33,983
189,813
22,556
212,369
(17)% $
(20)%
(10)%
(16)% $
(24)% $
(15)%
(21)%
16 %
(20)%
(17)%
(4)%
(16)% $
128,418
64,921
59,060
252,399
51 %
26 %
23 %
99,267
65,292
164,559
21,737
42,500
228,796
23,603
252,399
15 % $
(8)%
20 %
9 % $
15 % $
22 %
18 %
33 %
(14)%
11 %
(8)%
9 % $
111,621
70,235
49,414
231,270
48 %
31 %
21 %
86,100
53,533
139,633
16,401
49,669
205,703
25,567
231,270
The Company’s total revenue decreased by $40.0 million, or 15.9%, for the year ended December 31, 2023, compared to 2022, mainly due to a decrease in revenue from System sales of $34.0
million. Skincare revenue decreased $8.5 million, of which $5.6 million reflects increased competition from alternative products and procedures and $2.9 million relates to adverse impact from the
weakening Japanese Yen.
These decreases in total revenue were partially offset by an increase in consumables of $3.6 million, which was driven by an increase in AviClear treatment volumes of $6.9 million, partially offset by
a decrease in other consumables revenue of $3.3 million attributable to an industry wide slow down.
The Company received FDA clearance related to its AviClear device in March 2022. From April 2022 through November 2022, the Company earned revenue from a limited commercial release and
after November 2022 earned revenue from a full commercial release.
Foreign currency devaluations in Japan and Australia adversely impacted total revenue in 2023 by approximately $5.5 million.
Revenue by Geography
The Company’s North America revenue decreased by $21.6 million, or 16.8%, for the year ended December 31, 2023, compared to 2022. This decrease is due to a decrease of $24.1 million in
Systems revenue, attributable to the tightening financing and economic environment, partially offset by $4.0 million in Consumables revenue driven by AviClear treatment revenue.
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The Company's revenue in Japan decreased by $12.8 million, or 19.7%, for the year ended December 31, 2023, compared to 2022. This decrease was driven by a $8.5 million decrease in Skincare
revenue and $4.0 million in systems revenue due to lower volumes and the devaluation of the Japanese Yen in 2023.
The Company’s Rest of World revenue decreased by $5.6 million, or 9.5%, for the year ended December 31, 2023, compared to 2022, driven by system softness in all geographies, specifically in
global distributor markets and Australia.
Revenue by Product Type
Systems Revenue
Systems revenue in North America decreased by $24.1 million, or 24.2%, for the year ended December 31, 2023, compared to 2022, due to tightening financing markets and the macroeconomic
environment in North America. The Rest of the World systems revenue decreased by $10.0 million, or 15.3%, compared to 2022, for the same reason.
Consumables Revenue
Consumables revenue increased by $3.6 million, or 16.4%, for the year ended December 31, 2023, compared to 2022. The increase was driven by an increase in AviClear treatment volumes of $6.9
million, partially offset by a decrease in other consumables revenue of $3.3 million attributable to an industry-wide slow down.
Skincare Revenue
The Company’s revenue from Skincare products in Japan decreased $8.5 million, or 20.0%, for the year ended December 31, 2023, compared to 2022. This decrease is attributed to the competitive
environment and the adverse impact from the weakening Japanese Yen. On February 28, 2024, the Company and its Japanese subsidiary, Cutera KK, entered into a termination agreement with ZO,
which terminated all agreements related to the distribution by the Company of ZO’s products in Japan.
Service Revenue
The Company’s Service revenue decreased $1.0 million, or 4.4%, for the year ended December 31, 2023, compared to 2022. This decrease was due to reduced service contracts in North America.
Gross Profit
(Dollars in thousands)
Gross profit
As a percentage of total net revenue
2023
Change
Year Ended December 31,
2022
Change
2021
$
41,494
$
19.5 %
(98,335)
$
(35.9)%
139,829
$
55.4 %
6,724
$
(2.2)%
133,105
57.6 %
Gross profit as a percentage of revenue for the year ended December 31, 2023, was 19.5%, compared to 55.4% in 2022.
Geographic and product revenue mix and the decline in revenue adversely impacted the Company’s gross margin rate by 5.0 percentage points. Increases in material costs, lower cost absorption
attributable to lower production and inventory write-offs adversely impacted the Company’s gross margin rate by 11.3 percentage points. Increases in the Company’s reserve for excess inventory
parts adversely impacted the Company’s gross margin by 13.3 percentage points. In the fourth quarter of fiscal year 2023, the Company incurred a loss, equivalent to an adverse gross margin impact
of 2.7 percentage points, related to payments to be made to Jabil as compensation for expenses either previously incurred by Jabil or associated with the non-renewal of the Manufacturing Services
Agreement. Other factors, including freight and clinical training, adversely impacted the Company's gross margin rate by 3.6 percentage points.
Sales and Marketing
(Dollars in thousands)
Sales and marketing
As a percentage of total net revenue
2023
Change
Year Ended December 31,
2022
Change
2021
$
113,003
$
53.2 %
6,056
10.8 %
$
106,947
$
42.4 %
30,185
$
9.2 %
76,762
33.2 %
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Sales and marketing expenses consist primarily of personnel expenses, expenses associated with customer-attended workshops and trade shows, post-marketing studies, advertising, and training.
Sales and marketing expenses for the year ended December 31, 2023, increased $6.1 million, or 5.7%, compared to 2022.
The increase in sales and marketing expenses is attributable to headcount growth related to promoting and selling AviClear, particularly in relation to the increased sale commission expense, which
increased by $4.7 million in fiscal year 2023. Another factor contributing to the increase was increased spending on consulting services, which increased by $2.9 million in fiscal year 2023. These
increases were partially offset by a decrease in stock-based compensation expense of $1.6 million.
Research and Development (“R&D”)
(Dollars in thousands)
Research and development
As a percentage of total net revenue
2023
Change
Year Ended December 31,
2022
Change
2021
$
21,408
$
10.1 %
(3,747)
$
0.1 %
25,155
$
10.0 %
3,587
$
0.7 %
21,568
9.3 %
R&D expenses consist primarily of personnel expenses, clinical research, regulatory and material costs. R&D expenses decreased by $3.7 million, or 14.9%, for the year ended December 31, 2023,
compared to 2022.
The decrease in R&D expenses reflects a decrease in stock-based compensation expense of $1.3 million and a decrease in outside consultancy services utilized by the Company of $2.6 million.
General and Administrative (“G&A”)
(Dollars in thousands)
General and administrative
As a percentage of total net revenue
2023
Change
Year Ended December 31,
2022
Change
2021
$
63,313
$
29.8 %
17,396
$
11.6 %
45,917
$
18.2 %
12,972
$
4.0 %
32,945
14.2 %
G&A expenses consist primarily of personnel expenses, legal, accounting, audit and tax consulting fees, as well as other general and administrative expenses. G&A expenses increased by $17.4
million, or 37.9%, for the year ended December 31, 2023, compared to 2022.
The increase in G&A expenses was primarily due to $12.3 million incurred in connection with the Company's response to litigation and shareholder activism related to the Company's 2023 annual
meeting of stockholders. Increases in the Company's allowance for credit losses resulted in an increase in expense of $6.4 million. These increases were partially offset by a decrease in stock-based
compensation expense of $2.5 million, primarily resulting from the departure of several executives and Board directors during the year.
Interest and Other Income (Expense), Net
Interest and other income (expense), net, consists of the following:
(Dollars in thousands)
Amortization of debt issuance costs
Interest on convertible notes
Loss on extinguishment of convertible notes
Gain on extinguishment of PPP loan
Interest income
Other expense, net
Interest and other income (expense), net
2023
Change
Year Ended December 31,
2022
Change
2021
$
$
(2,236)
(11,780)
—
—
9,191
(244)
(5,069)
$
$
(881)
(6,122)
34,423
—
5,964
4,059
37,443
$
$
(1,355)
(5,658)
(34,423)
—
3,227
(4,303)
(42,512)
$
$
(645)
(3,144)
(34,423)
(7,185)
3,210
(1,880)
(44,067)
$
$
(710)
(2,514)
—
7,185
17
(2,423)
1,555
Interest and other income (expense), net, changed from a net expense of $42.5 million in 2022 to $5.1 million in 2023.
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In fiscal year 2022, the Company incurred a loss of $34.4 million associated with the partial extinguishment of the 2026 Notes. The increase in interest on convertible notes amounted to $6.1 million,
primarily due to the issuance timing of the 2028 Notes and 2029 Notes. This increase in interest expense was offset by a corresponding increase in interest income of $6.0 million derived from
marketable securities. Other expense, net, mainly consists of realized and unrealized foreign exchange gains and losses recognized during the fiscal year.
Income Tax Provision
(Dollars in thousands)
Income tax provision
2023
Change
Year Ended December 31,
2022
Change
2021
$
1,534
$
(104)
$
1,638
$
315
$
1,323
Income tax provision decreased $0.1 million, or 6.3%, for the year ended December 31, 2023, compared to 2022.
This decrease reflects reduced net earnings from the Company's foreign subsidiaries in 2023.
Liquidity and Capital Resources
Sources and Uses of Cash
The Company’s principal source of liquidity is cash generated from the issuance of convertible notes. The Company actively manages its cash usage to ensure the maintenance of sufficient funds to
meet its cash requirements. The majority of the Company’s cash and cash equivalents is 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.
As of December 31, 2023 and 2022, the Company had $181.4 million and $345.4 million of working capital, respectively. Cash and cash equivalents decreased by $2.3 million to $143.6 million as of
December 31, 2023, from $145.9 million as of December 31, 2022, due to cash outflows for operations and the purchase of parts for the manufacturing of AviClear devices, partially offset by net
proceeds from the maturities of marketable securities.
When preparing financial statements, management has the responsibility to evaluate if the Company has adequate liquidity to continue to operate for the next twelve months. In applying this
accounting guidance, management considered the Company's current financial condition and liquidity sources, including current funds, forecasted future cash flows and its unconditional obligations
due over the next twelve months. In addition, management evaluates the history of the Company's financial performance, and determined that the Company has had a historic trend of operating
losses, which continues to have an unfavorable impact on the Company's overall liquidity. Most recently, the Company reported net losses of $162.8 million and $82.3 million for fiscal year ended
December 31, 2023 and 2022, respectively.
The Company continues to develop plans and take proactive steps to grow its revenues and enhance its operations. These plans include a revised business model for AviClear and cost savings through
workforce reductions, restructuring supplier and manufacturing relationships, and implementing other cost reduction strategies. The Company has also undertaken initiatives to improve inventory and
receivables management. Company management’s current plans mitigate the unfavorable impact that the factors described above have had on the Company’s liquidity and believes that its current
cash and cash equivalents balances will be sufficient to enable the Company to meet its obligations for at least the next twelve months from the date of this report. However, the Company’s liquidity
assumptions may prove to be incorrect or it may fail to execute on its revised business model or its cost reduction strategies, and the Company could exhaust its available financial resources sooner
than it currently anticipates. Additional factors considered in the Company's assessment include its current cash on hand, its forecast of future operating results for the next twelve months from the
date of this report, and the actions the Company has taken to improve its liquidity.
The Company intends to continue to evaluate market conditions and may in the future pursue additional sources of funding to enhance its financial position and to execute on its business strategy. In
addition, should prevailing economic, financial, business or other factors adversely affect its ability to meet its operating cash requirements, the Company could be required to obtain funding though
the credit or capital markets. Any equity financing obtained by the Company would dilute existing stockholders and any debt financing could contain restrictive covenants, which would reduce
management’s flexibility to run the Company’s business or present a risk of default. If the Company raises funds through collaborations or licensing arrangements, the Company may be required to
relinquish significant rights to its technologies or products or grant licenses on terms that are not favorable to the Company. The Company cannot be certain that additional funds would be available to
it on favorable terms when required, or at all.
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Cash, Cash Equivalents, Restricted Cash and Marketable Investments
The following table summarizes the Company’s cash, cash equivalents and restricted cash (in thousands):
(Dollars in thousands)
Cash and cash equivalents
Restricted cash
Marketable investments
Cash and cash equivalents
Consolidated Cash Flow Data
In summary, the Company’s cash flows were as follows:
(Dollars in thousands)
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
Cash Flows from Operating Activities
Year ended December 31,
2023
2022
Change
143,612 $
—
—
143,612 $
145,924 $
700
171,390
318,014 $
(2,312)
(700)
(171,390)
(174,402)
Year ended December 31,
2023
2022
2021
(137,870) $
(66,995) $
137,426
(2,568)
(194,182)
242,937
(3,012) $
(18,240) $
1,235
(944)
117,526
117,817
$
$
$
$
Net cash used in operating activities for the year ended December 31, 2023, was $137.9 million, which reflected net loss, adjusted for non-cash items of $126.7 million.
The net cash used in operating activities was also adversely impacted by an increase in working capital of $11.2 million. The increase in the Company's working capital primarily resulted from the
decreases in accounts payable and accrued liabilities, reflecting proactive measures by the Company's management to reduce the aging of payables and obligations.
Cash Flows from Investing Activities
Net cash used in investing activities for the year ended December 31, 2023, was $137.4 million, due to net proceeds from the maturities of marketable securities of $170.4 million, partially offset by
capital expenditures of $33.0 million.
Cash Flows from Financing Activities
Net cash provided by financing activities for the year ended December 31, 2023, was $2.6 million, which relates primarily to taxes paid related to net share settlement of employee equity awards.
Adequacy of Cash Resources to Meet Future Needs
The Company had cash and cash equivalents, including marketable securities, of $143.6 million, as of December 31, 2023.
For the fiscal year ended December 31, 2023, the Company’s principal source of liquidity was cash generated from proceeds received from the issuance of the Convertible Notes in March 2021, May
2022, and December 2022. The Company has reported operating losses in recent quarters and intends to use its remaining cash resources to develop plans and take proactive steps to grow revenue
and enhance its operations as further explained in the preceding Sources and Uses of Cash section.
The Company believes that the existing cash and cash equivalents will be sufficient to meet the Company’s anticipated cash needs for at least the next 12 months from the date the financial statements
are issued.
Debt
In March 2021, the Company issued $138.3 million aggregate principal amount of 2026 Notes in a private placement offering. The 2026 Notes bear interest at a rate of 2.25% per year payable
semiannually in arrears on March 15 and September 15 of each year. Upon conversion, the 2026 Notes will be convertible into either cash, shares of the Company’s common stock or a combination
thereof, at the Company’s election. The convertible notes are presented as convertible notes, net of unamortized
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debt issuance costs, on the consolidated balance sheets. The aggregate proceeds from the offering were approximately $133.6 million, net of issuance costs, including initial purchasers’ fees.
In May 2022, the Company issued $240.0 million aggregate principal amount of 2028 Notes. The 2028 Notes bear interest at a rate of 2.25% per year payable semiannually in arrears on June 1 and
December 1 of each year. A total of $230.0 million of aggregate principal amount of 2028 Notes was issued in a private placement offering and concurrently with this private placement, the Company
entered into a purchase agreement with Voce Capital Management LLC, an entity affiliated with J. Daniel Plants, the Company’s former Executive Chairperson, pursuant to which the Company
issued to Voce $10.0 million aggregate principal amount of 2028 Notes on the same terms and conditions. The aggregate proceeds from the offering of 2028 Notes were approximately $232.4 million,
net of issuance costs, including initial purchasers fees.
In December 2022, the Company issued $120.0 million aggregate principal amount of 2029 Notes in a private placement offering. The 2029 Notes bear interest at a rate of 4.00% per year payable
semiannually in arrears on June 1 and December 1 of each year. Upon conversion, the 2029 Notes will be convertible into either cash, shares of the Company’s common stock or a combination
thereof, at the Company’s election. The Convertible notes are presented as Convertible notes, net of unamortized debt issuance costs, on the consolidated balance sheets. The aggregate proceeds from
the offering were approximately $115.8 million, net of issuance costs, including initial purchasers fees.
The Company's Loan and Security Agreement for the Revolving Line of Credit, which was entered on July 9, 2020, was terminated by the Company on April 3, 2024.
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 an agreed-upon period. Such time periods can vary among different suppliers. The Company believes it has adequate funds to fulfill any such commitments in
the future using the sources discussed in this Item 7 – Management’s Discussion & Analysis of Financial Condition and Results of Operations.
Other
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 the Company’s directors and executive officers. The Company’s exposure under the 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.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The conditional conversion feature of the convertible notes, if triggered, may adversely affect the Company's financial condition and operating results.
2026 Notes:
Holders may convert their Notes at their option prior to the close of business on the business day immediately preceding December 15, 2025, in multiples of $1,000 principal amount, only under the
following circumstances:
• During any fiscal quarter commencing after the fiscal quarter ended on June 30, 2021 (and only during such fiscal quarter), if the last reported sale price of the common stock for at least 20 trading
days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including, the last trading day of the immediately preceding fiscal quarter, is greater than or equal to
130% of the conversion price for the convertible notes on each applicable trading day;
• During the five-business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” per $1,000 principal amount of convertible notes for each
trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day;
• The Company calls such convertible notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
• Upon the occurrence of specified corporate events.
On or after December 15, 2025, and until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes, in
multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
The circumstances described in the bullets of the paragraph above were not met during any fiscal quarter during 2023. As of December 31, 2023, the 2026 Notes are not convertible. The 2026 Notes
may become convertible in future periods. Upon any conversion requests of the 2026 Notes, the Company would be required to pay or deliver cash, shares of its common stock, or a combination of
cash and shares of its common stock, at the Company’s election with respect to such conversion requests. To the extent there are any conversion requests during the twelve months ending December
31, 2024, the Company intends to settle such conversion requests in shares of common stock. Therefore, as of December 31, 2023, the 2026 Notes have been included as Long-term debt on the
consolidated balance sheets.
If one or more holders elect to convert their convertible notes, unless the Company elects to satisfy its conversion obligation by delivering solely shares of its common stock, the Company would be
required to settle a portion or all of its conversion obligation through the payment of cash, which could adversely affect the Company’s liquidity.
2028 Notes:
Holders may convert their 2028 Notes at their option prior to the close of business on the business day immediately preceding March 1, 2028, in multiples of $1,000 principal amount, only under the
following circumstances:
• During any fiscal quarter commencing after the fiscal quarter ending on September 30, 2022 (and only during such fiscal quarter), if the last reported sale price of the common stock for at least 20
trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including, the last trading day of the immediately preceding fiscal quarter, is greater than or
equal to 130% of the conversion price for the 2028 Notes on each applicable trading day;
• During the five-business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” per $1,000 principal amount of 2028 Notes for each
trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day;
• The Company calls such convertible notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
• Upon the occurrence of specified corporate events.
On or after March 1, 2028, and until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2028 Notes, in
multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
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The circumstances described in the bullets in the paragraph above were not met during any fiscal quarter during 2023. As of December 31, 2023, the 2028 Notes are not convertible. The 2028 Notes
may become convertible in future periods. Upon any conversion requests of the 2028 Notes, the Company would be required to pay or deliver, as the case may be, cash, shares of its common stock,
or a combination of cash and shares of its common stock, at the Company’s election with respect to such conversion requests. To the extent there are any conversion requests during the twelve months
ending December 31, 2024, the Company intends to settle such conversion requests in shares of common stock. Therefore, as of December 31, 2023, the 2028 Notes have been included as Long-term
debt on the consolidated balance sheets.
The Company may not redeem the 2028 Notes prior to June 5, 2025. On or after June 5, 2025, the Company may redeem for cash all or any portion of the 2028 Notes, at the Company’s option, if the
last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30
consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of
redemption at a redemption price equal to 100% of the principal amount of the 2028 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company
elects to redeem fewer than all of the outstanding 2028 Notes, at least $100.0 million aggregate principal amount of 2028 Notes must be outstanding and not subject to redemption as of the relevant
redemption notice date.
If a specified corporate event occurs, note holders have the option to require the Company to repurchase any portion or all of their 2028 Notes in $1,000 principal increments for cash. The price for
such repurchase is calculated as 100% of the principal amounts of 2028 Notes, plus accrued and unpaid interest to the day immediately preceding the Fundamental Change repurchase date.
Additionally, holders of the 2028 Notes who convert in connection with a fundamental change are, under certain circumstances, entitled to an increase in conversion rate.
The 2028 Notes are general senior unsecured obligations that rank senior to any of the Company’s indebtedness that is explicitly subordinated to the 2028 Notes. The 2028 Notes have equal rank in
right of payment with all existing and future unsecured indebtedness that is not subordinated to the 2028 Notes (including the 2026 Notes). The 2028 Notes will be junior to any of the Company’s
secured indebtedness to the extent of the value of the assets securing such indebtedness.
2029 Notes:
Holders may convert their 2029 Notes at their option prior to the close of business on the business day immediately preceding March 1, 2029, in multiples of $1,000 principal amount, only under the
following circumstances:
• During any fiscal quarter (and only during such fiscal quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30
consecutive trading days ending on and including, the last trading day of the immediately preceding fiscal quarter, is greater than or equal to 130% of the conversion price for the 2029 Notes on
each applicable trading day;
• During the five-business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” per $1,000 principal amount of 2029 Notes for each
trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day;
• The Company calls such 2029 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
• Upon the occurrence of specified corporate events.
On or after March 1, 2029, and until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2029 Notes, in
multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
The circumstances described in the bullets in the paragraph above were not met during any fiscal quarter during 2023. As of December 31, 2023, the 2029 Notes are not convertible.The 2029 Notes
may become convertible in future periods. Upon any conversion requests of the 2029 Notes, the Company would be required to pay or deliver, as the case may be, cash, shares of its common stock,
or a combination of cash and shares of its common stock, at the Company’s election with respect to such conversion requests. To the extent there are any conversion requests during the twelve months
ending December 31, 2024, the Company intends to settle such conversion requests in shares of common stock. Therefore, as of December 31, 2023, the 2029 Notes have been included as Long-term
debt on the consolidated balance sheets.
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The Company may not redeem the 2029 Notes prior to December 5, 2025. On or after December 5, 2025, the Company may redeem for cash all or any portion of the 2029 Notes, at the Company’s
option, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any
30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of
redemption at a redemption price equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company
elects to redeem fewer than all of the outstanding 2029 Notes, at least $100.0 million aggregate principal amount of 2029 Notes must be outstanding and not subject to redemption as of the relevant
redemption notice date.
If a specified corporate event occurs, 2029 Note holders have the option to require the Company to repurchase any portion or all of their 2029 Notes in $1,000 principal increments for cash. The price
for such repurchase is calculated as 100% of the principal amounts of 2029 Notes, plus accrued and unpaid interest to the day immediately preceding the Fundamental Change repurchase date.
Additionally, holders of the 2029 Notes who convert in connection with a fundamental change are, under certain circumstances, entitled to an increase in conversion rate.
The 2029 Notes are general senior unsecured obligations that rank senior to any of the Company’s indebtedness that is explicitly subordinated to the 2029 Notes. The 2029 Notes have equal rank in
right of payment with all existing and future unsecured indebtedness that is not subordinated to the 2029 Notes (including the 2026 Notes and 2028 Notes). The 2029 Notes will be junior to any of the
Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness.
Certain Covenants for the Convertible Notes
Pursuant to the terms of the indentures that govern the Convertible Notes, the Company is required to file with U.S. Bank Trust Company, National Association (the “Trustee”), as trustee under each
of the indentures governing the Convertible Notes, within 15 days after the same are required to be filed with the SEC (giving effect to any grace period provided by Rule 12b-25 under the Exchange
Act), copies of any annual report on Form 10-K or quarterly reports on Form 10-Q that the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. To the
extent the Company elects, the sole remedy for an event of default under the indenture governing a series of Convertible Notes relating to its failure to comply with this obligation (which shall occur
upon failure by the Company for 60 days after receipt of written notice from the Trustee or the holders of 25% in aggregate principal amount the Convertible Notes of such series to comply with this
obligation) shall, for the first 360 days after the occurrence of such an event of default, consist exclusively of the right for the holders of Convertible Notes of such series to receive additional interest
on their Convertible Notes at a rate equal to (i) 0.25% per year for each day during the first 180 days after the occurrence and during the continuance of such event of default and (ii) 0.50% per year
for each day from, and including, the 181st day to, but excluding, the 360th day after the occurrence and during the continuance of such event of default. On the 361st day after such event of default,
if not previously cured or waived, the Convertible Notes of the applicable series shall be subject to acceleration pursuant to the terms of the indenture governing the Convertible Notes of such series.
In the event the Company does not elect to pay additional interest on a series of Convertible Notes prior to the occurrence of an event of default relating to the Company’s failure to comply with this
obligation, or the Company elects to make such payment but does not pay the additional interest on such Convertible Notes when due, the Convertible Notes of such series shall be immediately
subject to acceleration at the election of either the Trustee or the holders of at least 25% in aggregate principal amount of the Convertible Notes of such series.
Additionally, if at any time during the six-month period beginning on, and including, the date that is six months after the last date of original issuance of a series of Convertible Notes, the Company
fails to timely file any document or report that it is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, as applicable (after giving effect to all applicable grace period
thereunder and other than reports on Form 8-K), or the Convertible Notes of such series are not otherwise freely tradable pursuant to Rule 144 as promulgated under the Securities Act of 1933, as
amended, the Company shall pay additional interest on such Convertible Notes at a rate of 0.50% per year for each day during such period for which the Company’s failure to file has occurred and is
continuing or such Convertible Notes are not otherwise freely tradable pursuant to Rule 144. Additional interest pursuant to the foregoing accrued on the outstanding principal amount of the 2029
Notes from November 24, 2023 to the one-year anniversary of the last date of original issuance of the 2029 Notes on December 12, 2023 was not material.
The Convertible Notes contain additional customary operating covenants, which include restrictions on the Company’s ability to undergo a merger or consolidation transaction, or transfer or lease
substantially all of the consolidated properties and assets of the Company. The Convertible Notes do not contain any financial covenants or restrictions on the payment of dividends, the issuance of
other indebtedness or the issuance or repurchase of securities by the Company.
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Interest Rate and Market Risk
As of December 31, 2023, the Company had not drawn on the Revolving Line of Credit. On April 3, 2024, the Loan and Security Agreement for the Revolving Line of Credit was terminated by the
Company. Interest rate sensitivity is primarily influenced by any amount borrowed on the line of credit and the prevailing interest rate on the line of credit facility. The effective interest rate on the
line of credit facility is based on a floating per annum rate equal to the Prime rate. The Prime rate was 8.50% as of December 31, 2023.
Inflation
The Company experienced inflationary pressure on its business, but the impact was mitigated through ongoing cost improvement initiatives. If the Company’s costs were to become subject to
significant inflationary pressures, the Company may not be able to fully offset such higher costs through price increases. The Company’s inability or failure to do so could harm the Company’s
business, financial condition, and results of operations.
Foreign Exchange Fluctuations
The Company generates revenue in Japanese Yen, Euros, Australian Dollars, Canadian Dollars, British Pounds, Swiss Francs, Hong Kong Dollars, and New Zealand Dollars. Additionally, a portion
of the Company’s operating expenses, and assets and liabilities are denominated in each of these currencies. Therefore, fluctuations in these currencies against the U.S. dollar could materially and
adversely affect the Company’s results of operations upon translation of the Company’s revenue denominated in these currencies, as well as the re-measurement of the Company’s international
subsidiaries’ financial statements into U.S. dollars.
In 2023, the Company experienced an adverse impact on revenues and net loss of devaluations in the currencies of Japan, Europe and Australia. These devaluations adversely impacted total revenue
and net loss in 2023 by approximately $5 million and $6 million, respectively. As of December 31, 2023, the effect of a hypothetical 10% unfavorable change in exchange rates on currencies
denominated in other than their functional currency would result in a potential reduction of future revenue and increase in the Company's net loss in the consolidated statements of operations of
approximately $5 million and $1 million, respectively.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Registrant and its subsidiaries are required to be included in Item 8:
CUTERA, INC. AND SUBSIDIARY COMPANIES
ANNUAL REPORT ON FORM 10-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
(BDO USA, P.C.; San Francisco, California; PCAOB ID#243)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Schedule II -Valuation and Qualifying Accounts
Page
72
76
77
78
79
80
81
123
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.
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Shareholders and Board of Directors
Cutera, Inc.
Brisbane, California
Opinion on the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Cutera, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and
comprehensive income (loss), stockholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and schedule (collectively referred to as
the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and
2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United
States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of
December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
and our report dated May 10, 2024 expressed an adverse opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on
our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to
the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters do not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition – Contracts with International Distributors
The Company recognized total net revenue of approximately $212.4 million for the year ended December 31, 2023. As described in Note 1 to the consolidated financial statements, the Company
recognizes revenue in a manner that best depicts the transfer of control of promised products or services to the customer, in an amount that reflects the consideration to which the Company expects to
be entitled. The Company’s contracts with customers may include, individually, or in combination, systems, extended service contracts, training, marketing support and accessories. Certain of the
Company’s contracts, which include some with international distributors, can include non-standard payment and other sales terms that can impact management’s conclusions as to the determination
of the transaction price and/or whether control has transferred to the customer. Management applies significant effort and judgment in evaluating the impact of these non-standard payment and sales
terms on revenue recognition.
We identified the accounting for revenue recognition in the Company’s contracts with international distributors as a critical audit matter. The principal considerations for our determination are the
judgments related to the identification and, if present,
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the evaluation of: (i) non-standard payment terms, and (ii) certain other sales terms related to the transfer of control. Auditing these elements involved subjective auditor judgment due to the nature
and extent of audit effort required to address these matters.
The primary procedures we performed to address this critical audit matter included:
•
•
Examining certain international distributor contracts, including amendments or modifications, for non-standard payment terms, and where such terms are present, assessing the impact on the
determination of the transaction price, based on a consideration of indicators of the international distributor’s collection and credit memo history.
Examining certain international distributor contracts, including amendments or modifications, for non-standard terms governing transfer of control, and where such terms are present,
assessing the transfer of control based on considerations including whether the international distributor has physical possession and legal title to the product, whether the Company has a
present right to payment, and other factors relevant to the determination of whether the international distributor has the ability to direct the use of and obtain substantially all of the remaining
benefit from the product.
Valuation of Long-Term Inventories
As described in Note 1 to the consolidated financial statements, the Company’s consolidated inventories are stated at the lower of cost or net realizable value. The cost basis of the Company’s
inventory is reduced for any products that are considered excessive or obsolete based upon assumptions about future demand and market conditions. As further described in Note 5, valuation
adjustments for excess and obsolete inventory, reflected as a reduction of long-term inventory at December 31, 2023, was $12.8 million. The Company’s long-term inventories relate to AviClear
devices, and parts for device manufacturing, not expected to be sold in the twelve months ended December 31, 2024.
We identified the valuation of long-term inventories as a critical audit matter due to the significant judgments and estimates required by management. Determining whether a decline in value has
occurred requires significant judgments related to: (i) the appropriateness of the inventory valuation methodology related to long-term inventories, (ii) the expected obsolescence, and (iii) the future
demand for units on hand over multiple years based on market size and historical sales of existing and legacy systems. Auditing these judgments was especially challenging and involved subjective
auditor judgment due to the nature and extent of audit effort required to address these matters.
The primary procedures we performed to address this critical audit matter included:
•
•
Evaluating the appropriateness of management’s inventory valuation methodology related to long-term inventories by considering certain qualitative and quantitative factors which include:
(i) assessing historical changes in product composition to determine expected obsolescence, (ii) verifying the reliability of historical data for existing and legacy systems, (iii) assessing
pricing trends of existing and legacy systems, and (iv) assessing potential changes in market and other conditions over the period during which the long-term inventory is expected to be sold.
Testing the completeness and accuracy of certain reports used in management’s long-term inventory valuation analysis by agreeing certain inputs to underlying support.
• Assessing the reasonableness of certain assumptions related to future demand by: (i) considering market opportunity based on review of relevant industry reports, (ii) comparing to sales
trends and total unit sales for existing and legacy systems, and (iii) comparing the forecast to available actual results.
/s/ BDO USA, P.C.
We have served as the Company's auditor since 2014.
San Francisco, California
May 10, 2024
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Shareholders and Board of Directors
Cutera, Inc.
Brisbane, California
Opinion on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
We have audited Cutera, Inc. (the “Company’s”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company did not maintain, in all material respects, effective internal
control over financial reporting as of December 31, 2023, based on the COSO criteria.
We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of
December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders’ deficit, and cash flows for each of the three years in the period ended
December 31, 2023, and the related notes and schedule (collectively referred to as “the consolidated financial statements”) and our report dated May 10, 2024, expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. 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 material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the
company’s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses have been identified and described in management’s assessment. These
material weaknesses related to Management’s failure to design and maintain effective controls over financial reporting, specifically related to the following: (1) information technology controls
(“ITGCs”) including segregation of duties, user access, and reports produced by certain information technology (“IT”) systems that support the Company’s financial reporting process including those
related to implementation of an Enterprise Resource Planning (“ERP”) system; (2) inventory controls related to completeness, existence, and cut-off of inventories held at third parties, inventories
held by sales personnel, and inventories in transit, and controls related to the calculation of adjustments to inventory for items considered excessive and obsolete; (3) controls related to completeness
and accuracy of expense for routine and non-routine equity-based awards; (4) the design, maintenance, and monitoring of a risk assessment program at a sufficiently precise level to identify new and
evolving risks related to accounting policies, procedures, and related controls performed over areas including, but not limited to, inventory, revenues and lease income, costs for leased devices, and
testing of certain key reports used in controls. Consequently, the Company failed to timely implement new controls to respond to changes in the business and leadership.
These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not
affect our report dated May 10, 2024 on those financial statements.
Definition and Limitations of Internal Control over Financial Reporting
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
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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.
/S/ BDO USA, P.C.
San Francisco, California
May 10, 2024
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Assets
Current assets:
Cash and cash equivalents
Marketable investments
CUTERA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
Accounts receivable, net of allowance for credit losses of $9,878 and $2,497, respectively
Inventories
Other current assets and prepaid expenses
Restricted cash
Total current assets
Long-term inventories
Property and equipment, net
Deferred tax assets
Operating lease right-of-use assets
Goodwill
Other long-term assets
Total assets
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable
Accrued liabilities
Operating lease liabilities
Deferred revenue
Total current liabilities
Deferred revenue, net of current portion
Operating lease liabilities, net of current portion
Convertible notes, net of unamortized debt issuance costs of $10,430 and $12,666, respectively
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 13).
Stockholders’ deficit:
Common stock, $0.001 par value: Authorized: 50,000,000 shares; Issued and outstanding: 19,960,622 and 19,668,603 shares at December 31, 2023
and 2022, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ deficit
Total liabilities and stockholders’ deficit
The accompanying notes are an integral part of these consolidated financial statements.
76
December 31,
2023
2022
$
$
$
$
143,612 $
—
43,121
62,600
19,852
—
269,185
16,283
37,275
579
10,055
1,339
11,575
346,291 $
19,829 $
55,055
2,441
10,422
87,747
1,494
8,887
418,695
1,298
518,121
20
131,496
—
(303,346)
(171,830)
346,291 $
145,924
171,390
45,562
63,628
24,036
700
451,240
—
40,368
590
12,831
1,339
14,620
520,988
33,736
57,452
2,810
11,841
105,839
1,657
11,352
416,459
862
536,169
20
125,406
(94)
(140,513)
(15,181)
520,988
Table of Contents
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
Income (loss) from operations
Interest and other income (expense), net:
Amortization of debt issuance costs
Interest on Convertible notes
Loss on extinguishment of convertible notes
Gain on extinguishment of PPP loan
Interest income
Other expense, net
Total interest and other income (expense)
Income (loss) before income taxes
Income tax expense
Net income (loss)
Net income (loss) per share:
Basic
Diluted
Weighted-average number of shares used in per share calculations:
Basic
Diluted
CUTERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
$
$
$
$
2023
Year Ended December 31,
2022
2021
189,813 $
22,556
212,369
228,796 $
23,603
252,399
158,299
12,576
170,875
41,494
113,003
21,408
63,313
197,724
(156,230)
(2,236)
(11,780)
—
—
9,191
(244)
(5,069)
(161,299)
1,534
(162,833) $
100,254
12,316
112,570
139,829
106,947
25,155
45,917
178,019
(38,190)
(1,355)
(5,658)
(34,423)
—
3,227
(4,303)
(42,512)
(80,702)
1,638
(82,340) $
(8.19) $
(8.19) $
(4.39) $
(4.39) $
19,885
19,885
18,747
18,747
205,703
25,567
231,270
83,048
15,117
98,165
133,105
76,762
21,568
32,945
131,275
1,830
(710)
(2,514)
—
7,185
17
(2,423)
1,555
3,385
1,323
2,062
0.12
0.11
17,891
18,362
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
CUTERA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Other comprehensive income (loss):
Net change in unrealized gain (loss) on available-for-sale investments
Other comprehensive income (loss), net of tax
Comprehensive income (loss)
2023
Year Ended December 31,
2022
(162,833) $
(82,340) $
2021
94
94
(162,739) $
(94)
(94)
(82,434) $
2,062
—
—
2,062
$
$
The accompanying notes are an integral part of these consolidated financial statements.
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CUTERA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share amounts)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity (Deficit)
Balance at December 31, 2020
Issuance of common stock for employee purchase plan
Exercise of stock options
Purchase of capped call
Issuance of common stock in settlement of restricted and
performance stock units, net of shares withheld for employee taxes
Stock-based compensation expense
Net income
Balance at December 31, 2021
Issuance of common stock for employee purchase plan
Exercise of stock options
Purchase of capped call, inclusive of issuance costs of $452
Issuance of common stock in settlement of restricted and
performance stock units, net of shares withheld for employee taxes
Stock-based compensation expense
Issuance of common stock in repayment of convertible notes
Net loss
Net change in unrealized gain (loss) on available-for-sale
investments
Balance at December 31, 2022
Issuance of common stock for employee purchase plan
Exercise of stock options
Issuance of common stock in settlement of restricted and
performance stock units, net of shares withheld for employee taxes
Stock-based compensation expense
Net loss
Net change in unrealized gain (loss) on available-for-sale
investments
Balance at December 31, 2023
17,679,232
59,635
71,798
—
184,679
—
—
17,995,344
$
$
49,306
39,960
—
229,645
—
1,354,348
—
—
19,668,603
$
51,786
42,234
197,999
—
—
—
19,960,622
$
18
—
—
—
—
—
18
—
—
—
—
—
2
—
—
20
—
—
—
—
—
—
20
$
$
$
$
$
$
117,097
1,184
1,581
(16,134)
(2,176)
13,172
—
114,724
1,873
850
(57,132)
(5,256)
14,400
55,947
—
(60,235)
—
—
—
—
—
2,062
(58,173)
$
$
—
—
—
—
—
—
(82,340)
—
125,406
$
—
(140,513)
$
711
612
(3,297)
8,064
—
—
—
—
—
(162,833)
—
131,496
$
—
(303,346)
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(94)
(94)
$
—
—
—
—
—
94
—
$
56,880
1,184
1,581
(16,134)
(2,176)
13,172
2,062
56,569
1,873
850
(57,132)
(5,256)
14,400
55,949
(82,340)
(94)
(15,181)
711
612
(3,297)
8,064
(162,833)
94
(171,830)
The accompanying notes are an integral part of these consolidated financial statements.
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CUTERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock-based compensation
Depreciation and amortization
Amortization of contract acquisition costs
Amortization of debt issuance costs
Unrealized loss on foreign exchange forward
Impairment of capitalized cloud computing costs
Change in deferred tax assets
Provision for credit losses
Accretion of discount on investment securities and investment income, net
Loss on disposal of property and equipment
Gain on extinguishment of PPP loan
Loss on extinguishment of convertible notes
Changes in assets and liabilities:
Accounts receivable
Inventories
Other current assets and prepaid expenses
Other long-term assets
Accounts payable
Accrued liabilities
Operating leases, net
Deferred revenue
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Acquisition of property and equipment
Disposal of property and equipment
Proceeds from maturities of marketable investments
Purchase of marketable investments
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan
Purchase of capped call
Payment of issuance costs of capped call
Proceeds from issuance of convertible notes
Payment of issuance costs of convertible notes
Extinguishment of convertible notes
Taxes paid related to net share settlement of equity awards
Payments on finance lease obligation
Net cash provided by (used in) financing activities
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of year
Cash, cash equivalents, and restricted cash at end of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for income taxes, net of refunds
Supplemental non-cash investing and financing activities:
Issuance of common stock in repayment of convertible notes
Assets acquired under finance lease
Assets acquired under operating lease
Extinguishment of PPP loan
Debt issuance cost accrued
Capped call costs accrued
Transfer of inventory to property and equipment
Transfer of property and equipment to inventory
Acquisition of property, equipment and software
Year Ended December 31,
2023
2022
2021
$
(162,833)
$
(82,340)
$
8,064
8,575
8,847
2,236
—
—
11
7,381
1,048
—
—
—
(4,940)
15,574
4,137
(6,243)
(14,866)
(3,221)
(58)
(1,582)
(137,870)
(33,010)
—
193,903
(23,467)
137,426
1,323
—
—
—
—
—
(3,297)
(594)
(2,568)
(3,012)
146,624
143,612
11,696
1,418
—
1,853
57
—
—
—
—
27,757
5,090
$
$
$
$
$
$
$
$
$
$
$
$
14,400
2,621
3,200
1,355
558
—
188
1,787
—
168
—
34,423
(15,900)
(36,305)
(10,049)
(8,091)
20,979
3,282
56
2,673
(66,995)
(22,698)
—
158,000
(329,484)
(194,182)
2,723
(56,680)
(352)
360,000
(11,202)
(45,776)
(5,256)
(520)
242,937
(18,240)
164,864
146,624
5,486
2,004
55,947
689
908
—
635
100
12,180
—
4,131
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,062
13,172
1,344
1,857
710
—
182
(135)
87
—
—
(7,185)
—
(9,574)
(10,936)
(5,765)
(7,128)
1,207
21,608
141
(412)
1,235
(1,015)
71
—
—
(944)
2,765
(16,134)
—
138,250
(4,717)
—
(2,176)
(462)
117,526
117,817
47,047
164,864
1,663
891
—
828
123
7,185
—
—
—
—
—
The accompanying notes are an integral part of these consolidated financial statements.
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Operations and Principles of Consolidation
CUTERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cutera, Inc. (“Cutera” or the “Company”) develops, manufactures, distributes, and markets energy-based product platforms for medical practitioners, enabling them to offer treatments to their
customers. In addition, the Company distributes third-party manufactured skincare products and Secret PRO and Secret RF systems and consumables. The Company currently markets the following
system platforms: AviClear, enlighten, excel, truSculpt, Secret PRO, Secret RF, and xeo — each of which enables medical practitioners to perform procedures including treatment for acne, body
contouring, skin resurfacing and revitalization, hair and tattoo removal, removal of benign pigmented lesions, and vascular conditions. Several of the Company’s systems offer multiple hand pieces
and applications, providing customers the flexibility to upgrade their systems. The sale of systems, hand pieces, upgrade of systems, and leasing and direct sales of AviClear devices (collectively
“Systems” revenue); replacement hand pieces, truSculpt cycle refills, truFlex cycle refills, AviClear treatment fees, and single use disposable tips applicable to Secret RF (“Consumables” revenue);
and the distribution of third-party manufactured skincare products (“Skincare”) revenue are collectively classified as “Products” revenue. In addition to Products revenue, the Company generates
revenue from the sale of post-warranty service contracts and service parts and labor for the repair and maintenance of products that are out of warranty, all of which are collectively classified as
“Service” revenue.
The Company’s corporate headquarters and U.S. operations are located in Brisbane, California, where the Company conducts manufacturing, warehousing, research and development, regulatory,
sales and marketing, service, and administrative activities. The Company also maintains regional distribution centers (“RDCs”) in selection locations across the U.S. These RDCs serve as forward
warehousing for systems and service parts in various geographies. The Company markets, sells and services the Company’s products through direct sales and service employees in North America
(including Canada), Australia, New Zealand, Austria, France, Germany, Hong Kong, Japan, Switzerland, the United Kingdom and Ireland. Sales and services outside of these direct markets are made
through a worldwide distributor network in over 37 countries. The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company transactions and
balances have been eliminated.
Liquidity and Management’s Plans
When preparing financial statements, management has the responsibility to evaluate if the Company has adequate liquidity to continue to operate for the next twelve months. In performing this
assessment, management considered the Company's current financial condition and liquidity sources, including current funds, forecasted future cash flows and unconditional obligations due over the
next twelve months. In addition, management evaluated the history of the Company's financial performance, and determined that the Company has had a historic trend of operating losses, which
continues to have an unfavorable impact on the Company's overall liquidity. Most recently, the Company reported net losses of $162.8 million and $82.3 million for the years ended December 31,
2023 and 2022.
The Company believes that it will continue as a going concern for the twelve months from the issuance of its consolidated financial statements. The accompanying consolidated financial statements
are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business.
The Company’s continued operations will depend on several factors, including but not limited to, growth of revenues from its revised business model for AviClear announced in November 2023,
which entails transitioning from a lease model to a direct sales model, maintaining or increasing revenues from sales of legacy systems, consumables and services, achieving cost savings as a result of
workforce reductions implemented in the fourth quarter of 2023, restructuring of supplier and manufacturing relationships, and initiatives to improve inventory and receivables management. Failure
to increase revenue, achieve cost savings, raise additional financing or re-finance the existing convertible notes when they become due, would adversely affect the Company’s ability to achieve its
intended business objectives. There can be no assurances that financing will be available on terms favorable to the Company, if at all, and delays may occur in completing the operating activities.
Basis of Presentation
The Consolidated Financial Statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
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Reclassification
Certain reclassifications of prior period amounts have been made in the Company's consolidated statement of cash flows to conform to the current period presentation. These reclassifications had no
effect on the reported net changes in operating, investing and financing activities, as well as net change in cash, cash equivalents, and restricted cash.
Certain reclassifications of prior period amounts have been made in the Company's consolidated statement of operations to conform to the current period presentation. These reclassifications had no
effect on the reported net income (loss).
Risks and Uncertainties
The Company's future results of operations involve a number of risks and uncertainties. Factors that could affect the Company's future operating results and cause actual results to vary materially
from expectations include, but are not limited to, rapid technological change, continued acceptance of the Company's products, stability of global financial markets, cybersecurity breaches and other
disruptions that could compromise the Company’s information or results, business disruptions that are caused by natural disasters or pandemic events, management of international activities,
competition from substitute products and larger companies, the Company's ability to obtain and maintain regulatory approvals, government regulations and oversight, patent and other types of
litigation, the Company's ability to protect proprietary technology from counterfeit versions of the Company's products and its intellectual property rights generally, the successful execution of new
product launches, the continuation of strategic relationships, such as the Company's distribution of third-party products, and dependence on key individuals.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the accompanying notes, and the reported amounts of revenue and expenses during
the reported periods. Actual results could differ materially from those estimates.
On an ongoing basis, management evaluates its estimates, including those related to warranty obligations, sales commissions, allowance for credit losses, sales allowances, fair value of investments,
valuation of inventories, fair value of goodwill, useful lives of property and equipment, impairment testing for long-lived assets, implicit and incremental borrowing rates related to the Company’s
leases, variables used in calculating the fair value of the Company's equity awards, expected achievement of performance-based vesting criteria and management performance bonuses, assumptions
used in operating and sales-type lease classifications, the standalone selling price of the Company's products and services, the period of benefit used to capitalize and amortize contract acquisition
costs, variable considerations, contingent liabilities, recoverability of deferred tax assets, residual value of leased equipment, lease term and effective income tax rates. Management bases 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.
Recently Issued Accounting Pronouncements Not Yet Adopted by the Company
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures,” to enhance the transparency and usefulness of income tax disclosures.
The update requires enhancements to the annual rate reconciliation, including disclosure of specific categories and additional information for reconciling items meeting a quantitative threshold. The
update also requires disclosure of income taxes paid disaggregated by federal, state and foreign taxes, and individual jurisdictions meeting a quantitative threshold. The amendments in this update are
effective for public business entities for annual periods beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is
currently evaluating the effect that the updated standard will have on the Company's financial statement disclosures.
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which will require the Company to disclose segment
expenses that are significant and regularly provided to the Company’s chief operating decision maker (“CODM”). In addition, ASU 2023-07 will require the Company to disclose the title and
position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources. The Company is currently evaluating the
effect that the updated standard will have on the Company's financial statement disclosures.
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Revenue recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for
promised goods or services. The Company’s performance obligations are satisfied either over time or at a point in time. Revenue from performance obligations that are transferred to customers over
time accounted for approximately 11%, 8%, and 11%, respectively, of the Company’s total revenue for the years ended December 31, 2023, 2022, and 2021.
The Company has certain system sale arrangements that contain multiple products and services. For these bundled sale arrangements, the Company accounts for individual products and services as
separate performance obligations if they are distinct. The Company’s products and services are distinct if a customer can benefit from the product or service on its own or with other resources that are
readily available to the customer, and if the Company’s promise to transfer the products or service to the customer is separately identifiable from other promises in the sale arrangements. The
Company’s system sale arrangements can include all or a combination of the following performance obligations: the system and software license (considered as one performance obligation), system
accessories (hand pieces), training, other accessories, extended service contracts, marketing services, and time and materials services.
For the Company’s system sale arrangements that include an extended service contract, the period of service commences at the expiration of the Company’s standard warranty offered at the time of
the system sale. The Company considers the extended service contracts terms in the arrangements that are legally enforceable to be performance obligations. Other than extended service contracts and
marketing services, which are satisfied over time, the Company generally satisfies all performance obligations at a point in time. Systems, system accessories (hand pieces), training, and time and
materials services are also sold on a stand-alone basis, and these performance obligations are satisfied at a point in time. For contracts with multiple performance obligations, the Company allocates
the transaction price of the contract to each performance obligation on a relative standalone selling price basis.
Nature of Products and Services
Systems
Systems revenue is generated from the sale of systems and from the sale of upgrades to existing systems. A system consists of a console that incorporates a universal graphic user interface, a laser or
other energy-based module, control system software and high voltage electronics, as well as one or more hand pieces. In certain applications, the laser or other energy-based module is contained in
the hand piece rather than within the console.
The Company offers 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 choose and provides the Company with a source of additional Systems revenue.
The system or upgrade and the right to use the embedded software represent a single performance obligation as the software license is integral to the functionality of the system or upgrade.
For systems sold directly to end-customers that are credit approved, revenue is recognized when the Company transfers control to the end-customer, which occurs when the product is shipped to the
customer or when the customer receives the product, depending on the nature of the arrangement. When collectability is not established in advance of receipt of payment from the customer, revenue
is recognized upon the later of the receipt of payment or the satisfaction of the performance obligation. For systems sold through credit approved distributors, revenue is recognized at the time of
shipment to the distributor.
The Company leases certain AviClear devices to customers and receives a fixed annual license fee over the term of the arrangement and variable lease income related to treatments performed by the
lessee. In the fourth quarter of 2023, the Company announced a change in the AviClear business strategy and moved towards a direct sales model rather than a leasing model, whereby certain existing
lessees were offered an option to purchase the leased AviClear device. For the devices under the leasing model, the Company classifies its lease income and direct sales as product revenue and
classifies the AviClear lease contracts as operating leases. The fixed annual license fee is recognized evenly over the period of the lease contract on a straight-line basis. The treatment fee is
recognized as consumable revenue in the period the treatment protocol is initiated.
The Company's payment terms for its system consoles and other accessories require payment within 30 days of shipment. Certain international distributor arrangements allow for longer payment
terms.
Consumables and other accessories
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The Company classifies its customers' purchases of replacement cycles for truSculpt and truFlex, as well as replacement hand pieces, xeo and truSculpt 3D hand pieces, AviClear treatment fee
revenue, and single use disposable tips applicable to Secret PRO, and Secret RF as Consumable revenue. The Secret PRO and Secret RF products' single use disposable tips must be replaced after
every treatment. The Company’s systems offer multiple hand pieces and applications, which allow customers to upgrade their systems. Revenue for consumables and other accessories is recognized
when products are shipped to customers.
Skincare products
The Company sold third-party manufactured skincare products in Japan. The skincare products were purchased from a third-party manufacturer and sold to medical offices and licensed physicians.
The Company warranted that the skincare products are free of significant defects in workmanship and materials for 90 days from shipment. On February 28, 2024, the Company and its Japanese
subsidiary, Cutera KK, entered into a termination agreement with ZO USA and its Japanese subsidiary, ZO Skin Health GK (“ZO Japan” and together with ZO USA and their affiliates, “ZO”), which
terminated all agreements related to the distribution by the Company of ZO’s products in Japan. The Company acted as the principal in this arrangement, as the Company determined the price to
charge customers for the skincare products and controlled the products before they were transferred to the customer. The Company recognized revenue for skincare products at a point in time upon
shipment.
Extended service contracts
The Company offers post-warranty services to its customers through extended service contracts that cover parts and labor for a term of one to three years. Service contract revenue is recognized over
time, using a time-based measure of progress, as customers benefit from the service throughout the service period. The Company also offers services on a time-and-materials basis for systems and
detachable hand piece replacements. Revenue related to services performed on a time-and-materials basis is recognized when performed.
Training
Sales of systems to customers include training on the use of the system to be provided within 90 days of purchase. The Company considers training a separate performance obligation as customers
can immediately benefit from the training together with the customer’s system. Training is also sold separately from systems. The Company recognizes revenue for training when the training is
provided.
Significant Judgments
The Company determines standalone selling price ("SSP") for each performance obligation as follows:
• Systems: The SSPs for systems are based on directly observable sales in similar circumstances to similar customers.
• Service contracts: SSP is based on observable price when sold on a standalone basis to similar customers.
Deferred Sales Commissions
Incremental costs of obtaining a contract which consist primarily of commissions and related payroll taxes, are capitalized, and amortized on a straight-line basis over the expected period of benefit,
except for costs that are recognized when product is sold. The Company uses the portfolio method to recognize the amortization expense related to these capitalized costs related to initial contracts
and such expense is recognized over a period associated with the revenue of the related portfolio, which is generally two to three years.
Total capitalized costs for the years ended December 31, 2023 and December 31, 2022 were $1.0 million and $2.0 million, respectively. Amortization expenses for these assets were $2.4 million, $2.4
million and $1.9 million, respectively, during the years ended December 31, 2023, 2022 and 2021 and were included in sales and marketing expense in the Company’s consolidated statement of
operations. Total capitalized costs as of December 31, 2023 and December 31, 2022 were $2.4 million and $3.8 million, respectively, and are included in Other long-term assets in the Company’s
consolidated balance sheet.
Cash and Cash Equivalents
The Company invests its cash primarily in money market funds. 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. Credit card receivables, that are collected in a short period of time are also
classified as cash and cash equivalents. The majority of the Company’s cash and investments are held in U.S.
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banks and the Company's foreign subsidiaries maintain a limited amount of cash in their local banks to cover short term operating expenses.
Fair Value of Financial Instruments
Fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. The fair value hierarchy contains three levels of inputs that may be used to measure fair value, in accordance with ASC 820,
as follows:
• Level 1: inputs, which include quoted prices in active markets for identical assets or liabilities;
• Level 2: inputs, which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets
that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. For available-for-sale securities, the
Company reviews trading activity and pricing as of the measurement date. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other
observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived
from observable market data; and
• Level 3: inputs, which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and
liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies, or similar valuation techniques, as well as significant
management judgment or estimation.
Financial instruments consist of cash and cash equivalents, restricted cash, accounts receivables, derivative financial instruments, accounts payables, and accrued liabilities. Cash and cash equivalents,
restricted cash, accounts receivables, accounts payables, and accrued liabilities are stated at their carrying value, which approximates fair value due to their short-term nature. Cash equivalents are
stated at fair value on a recurring basis as disclosed in Note 3 below.
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
considers counterparty credit risk in its assessment of fair value.
Allowance for Sales Returns and Credit Losses
The allowance for sales returns represents the Company’s estimate of potential future product returns and other allowances related to current period product revenue, based on the Company's analysis
of historical returns and current economic trends.
The allowance for credit losses on trade receivables is based on the credit quality of customers, current economic conditions, the age of the accounts receivable balances, historical loss information,
current conditions and forecasted information. The Company writes off trade receivables when they are deemed uncollectible.
Concentration of Credit Risk and Other Risks and Uncertainties
The Company operates in markets that are highly competitive and rapidly changing. Significant technological changes, shifting customer needs, the emergence of competitive products or services
with new capabilities and other factors could negatively impact the Company’s operating results.
The Company is also subject to risks related to changes in the value of the Company’s significant balance of financial instruments. 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 two 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 federally insured limits or any other insurance provided on such deposits, if any. The Company has accounts with Silicon Valley Bank (“SVB”). On March 10,
2023, California regulators shut down SVB and the FDIC was appointed as SVB’s receiver.
On March 26, 2023, the FDIC announced that it had entered into a purchase and assumption agreement with First-Citizens Bank & Trust Company under which all deposits of the former Silicon
Valley Bank were assumed by First-Citizens Bank & Trust Company. To date, the Company has not experienced any losses on its deposits of cash, cash equivalents, and marketable investments and
continues to have access to these funds.
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Accounts receivable are recorded net of an allowance for credit losses and are typically unsecured and are derived from revenue earned from worldwide customers. The Company controls credit risk
through credit approvals, credit limits, and monitoring procedures. The Company performs credit evaluations of its customers and maintains an allowance for potential credit losses. As of
December 31, 2023 and 2022, no customer represented more than 10% of the Company’s net accounts receivable. During the years ended December 31, 2023, 2022, and 2021, domestic revenue
accounted for 42%, 43%, and 42%, respectively, of total revenue, while international revenue accounted for 58%, 57% and 58%, respectively, of total revenue. No single customer represented more
than 10% of total revenue for any of the years ended December 31, 2023, 2022, and 2021.
Distribution of Third-Party Products
The Company generated revenue from the distribution of skincare products, which were manufactured by ZO Skin Health, Inc. (“ZO”), and sold in the Japanese market. In the years ended
December 31, 2023, 2022, and 2021 revenue from the distribution of skincare products was $34.0 million, $42.5 million, and $49.7 million, respectively, representing 16%, 17%, and 21% of the
Company’s consolidated revenue, respectively.
On February 28, 2024, the Company and its Japanese subsidiary, Cutera KK, entered into a termination agreement with ZO, which terminated all agreements related to the distribution by the
Company of ZO’s products in Japan, as further disclosed in Note 16. Subsequent Events to the Company's consolidated financial statements.
The Company generates revenue from the distribution of the Secret systems, which are manufactured by Ilooda Co. Ltd. (“ilooda”). The Company is the exclusive distributor for all systems sold in
North America and the United Kingdom; the exclusive distributor for certain systems in France and Spain; and the non-exclusive distributor for systems sold in Austria and Germany. In the years
ended December 31, 2023, 2022, and 2021, revenue from the distribution of Secret products was $9.2 million, $14.8 million, and $12.3 million, respectively, representing 4%, 6%, and 5% of the
Company’s consolidated revenue, respectively. The Company‘s ilooda distribution agreement expires on June 30, 2026.
In March 2023, Serendia, LLC (“Serendia”) filed patent infringement complaints against the Company regarding the Secret RF and Secret Pro systems distributed by the Company on behalf of
ilooda. The complaints alleged infringement of six Serendia patents. Serendia and ilooda have moved to terminate the ITC Investigation as to ilooda and Cutera on the basis of settlement with
Serendia. The ITC investigation as to ilooda and the Company was terminated as of April 10, 2024 and the Delaware litigation was dismissed as of April 3, 2024.
Supplier concentration
The Company relies on third parties for the supply of components of its products, as well as third-party logistics providers. In instances where these parties fail to perform their obligations, the
Company may be unable to find alternative suppliers or satisfactorily deliver its products to its customers. The Company largest supplier provided approximately 7%, 10% and 14% of the Company's
total purchases in the years ended December 31, 2023, 2022, and 2021, respectively.
Inventories
Inventories are stated at the lower of cost or net realizable value, cost being determined on a standard cost basis which approximates actual cost on a first-in, first-out basis. Net realizable value is the
estimated selling prices in the ordinary course of the Company’s business, less reasonably predictable costs of completion, disposal, and transportation. The cost basis of the Company’s inventory is
reduced for any products that are considered excessive or obsolete based upon assumptions about future demand and market conditions.
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 products cost of revenue or in the respective operating expense line based on which function and purpose for which the demonstration units are being used.
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 product cost of revenue. As of December 31, 2023 and
2022, demonstration inventories, net of accumulated depreciation, included in finished goods inventory was $5.8 million and $5.7 million, respectively.
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Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation expense recognized is on a straight-line basis over the estimated useful lives of the assets, generally as
follows:
Leasehold improvements
Equipment leasing
AviClear devices
Office equipment and furniture
Machinery and equipment
Useful Lives (Years)
Lesser of useful life or term of lease
4.5
7
3
3
Upon sale or retirement of property and equipment, 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 and equipment for the years ended December 31, 2023, 2022 and 2021, was $8.1 million, $2.2 million, and $1.3 million, respectively. Amortization expense
for vehicles leased under capital leases is included in depreciation expense.
Capitalized Cloud Computing Set-up Cost
The Company capitalizes certain set-up costs for the Company’s cloud computing arrangements. The capitalized implementation costs are then amortized over the term of the cloud computing
arrangement inclusive of expected contract renewals, which are generally three years to ten years. As of December 31, 2023 and 2022, the Company had capitalized cloud computing set-up costs with
a carrying amount of $0.4 million and $0.4 million, respectively, in Other current assets and prepaid expenses, and $3.1 million and $3.5 million, respectively, in Other long-term assets. During the
years ended December 31, 2023, 2022, and 2021, there was $0.4 million, $0.4 million, and zero, amortization expense recorded, respectively. The Company periodically assesses the capitalized asset
for impairment and, when required, will record an associated impairment loss.
Goodwill and Intangible Assets
Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment at least annually during the fourth quarter of the Company’s fiscal year, or if circumstances
indicate their value may no longer be recoverable. Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities.
As of December 31, 2023, there has been no impairment of goodwill. All acquired intangible assets have been fully amortized as of December 31, 2023.
Warranty Obligations
The Company provides a 12-month warranty for direct sales to customers. For sales to distributors, the Company generally provides a 14-month warranty for parts only, with labor being provided to
the end customer by the distributor.
After the original warranty period, maintenance and support are offered on an extended service contract basis or on a time and materials basis.
Leases
The Company incurs costs to fulfill its lease agreement obligations with its AviClear device lessees. These costs consist of freight, installation, and training. In addition to these mobilization costs, the
Company incurs commission costs associated with the placement of the AviClear device. The Company capitalizes commission costs and has made a policy election to capitalize the mobilization
costs.
Accounting for Leases as a Lessee
The Company adopted a right-of-use ("ROU") model requiring lessees to record a right-of-use asset ("ROU asset") and lease obligations on the balance sheet for all leases with terms longer than 12
months. The Company determines if an arrangement is a lease at inception. Where an arrangement is a lease the Company determines if it is an operating lease or a finance lease. At
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lease commencement, the Company records a lease liability and corresponding ROU asset. Lease liabilities represent the present value of the Company’s future lease payments over the expected
lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. The present value of the Company’s lease liability is determined using
its incremental collateralized borrowing rate at lease inception. ROU assets represent its right to control the use of the leased asset during the lease and are recognized in an amount equal to the lease
liability for leases with an initial term greater than 12 months. Over the lease term (operating leases only), the Company uses the effective interest rate method to account for the lease liability as lease
payments are made and the ROU asset is amortized to consolidated statements of operations in a manner that results in straight-line expense recognition. The Company does not apply lease
recognition requirements for short-term leases. Instead, the Company recognizes payments related to these arrangements in the consolidated statements of operations as lease costs on a straight-line
basis over the lease term.
Accounting for Leases as a Lessor
The Company leases certain AviClear devices to customers and receives a fixed annual license fee over the term of the arrangement and variable lease income related to treatments performed by the
lessee. The Company classifies its lease income as product revenue and classifies the AviClear contracts as operating leases. The fixed annual license fee is recognized evenly over the period of the
lease contract on a straight-line basis. The treatment fee is recognized as consumable revenue in the period the treatment protocol is initiated.
See Note 13 to the consolidated financial statements for more information regarding leasing arrangements.
Cost of Revenue
Cost of revenue consists primarily of material, finished and semi-finished products purchased from third-party manufacturers, labor including stock-based compensation expenses, overhead involved
in the Company's internal manufacturing processes, service contracts, technology license amortization and royalties, costs associated with equipment leasing, costs associated with product warranties
and any inventory 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 and
truSculpt 3D products and provides for the cost of refurbishment of these hand pieces as part of cost of revenue. When customers purchase a replacement hand piece or are provided a replacement
hand piece under a warranty or service contract, the Company ships the customer 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 service revenue includes the costs incurred to refurbish hand pieces.
Research and Development Expenditures
Research and development costs are expensed as incurred and include costs related to research, design, development, testing of products, salaries, benefits and other headcount related costs, facilities,
material, third-party contractors, regulatory affairs, clinical and development costs.
Advertising Costs
Advertising costs are included as part of sales and marketing expense and are expensed as incurred. Advertising expenses for 2023, 2022 and 2021 were $4.5 million, $4.9 million and $2.1 million,
respectively.
Stock-based Compensation
The Company accounts for stock-based employee compensation plans using the fair value recognition and measurement provisions under U.S. GAAP. The Company’s share-based compensation cost
is measured at the grant date, based on the fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period.
The fair value of restricted stock units (“RSUs”) granted are measured on the grant date. The fair value of Performance Stock Units (“PSUs”) that have operational measurement goals are measured
on the grant date using the closing price of the Company’s common shares on the grant date.
The fair value of each option is determined using the Black-Scholes option pricing model, which used the following inputs:
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Expected Term: The expected term represents the weighted-average period that the stock options are expected to be outstanding prior to being exercised. The Company determines expected term
based on historical exercise patterns and its expectation of the time it will take for employees to exercise options still outstanding.
Expected Volatility: For the underlying stock price volatility of the Company’s stock, the Company estimates volatility based on the historical volatility of the Company's stock price.
Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of grant for the expected term of the stock option.
The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Under ASC 718, the Company has made
an accounting policy to estimate forfeitures at the time awards are granted and revises, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company accounts for all stock options awarded to non-employees at the fair value of the award issued on the day of the grant.
See Note 8 - "Stockholders’ Equity, Stock Plans and Stock-Based Compensation Expense" for a detailed discussion of the Company’s stock plans and share-based compensation expense.
Income Taxes
The Company is subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining the Company’s provision for income taxes and income
tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.
The Company records a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, the Company
recognizes deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as
for loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and
liabilities are expected to be realized or settled. The Company recognizes the deferred income tax effects of a change in tax rates in the period of enactment. The Company records a valuation
allowance to reduce the Company’s deferred tax assets to the net amount that the Company believes is more likely than not to be realized.
The Company recognizes tax benefits from uncertain tax positions if the Company believes that it is more likely than not that the tax position will be sustained upon examination by the taxing
authorities based on the technical merits of the position. Although the Company believes it has adequately reserved for the Company’s uncertain tax positions (including net interest and penalties), the
Company can provide no assurance that the final tax outcome of these matters will not be different. The Company makes adjustments to these reserves in accordance with income tax accounting
guidance when facts and circumstances change, such as the closing of a tax audit. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences may
impact the provision for income taxes in the period in which such determination is made. The Company records interest and penalties related to the Company’s uncertain tax positions in the
Company’s provision for income taxes.
The Company’s effective tax rates have differed from the statutory rate primarily due to changes in the valuation allowance and certain benefits realized related to stock option activity. The
Company’s 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 Company’s future effective tax rates could be adversely affected by earnings being lower in countries where
the Company has lower statutory rates and being higher in countries where the Company has 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 its U.S. deferred tax assets. In addition, the Company is subject to the examination of
the Company’s income tax returns by the Internal Revenue Service and other tax authorities. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to
determine the adequacy of the Company’s provision for income taxes.
Undistributed earnings of the Company’s foreign subsidiaries at December 31, 2023 are considered to be indefinitely reinvested and, accordingly, no provision for state income taxes has been
provided thereon. Due to the Transition Tax and Global Intangible Low-Tax Income (“GILTI”) regimes as enacted by the 2017 Tax Act, those foreign earnings will not be subject to federal income
taxes when actually distributed in the form of a dividend or otherwise. The Company, however, could still be
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subject to state income taxes and withholding taxes payable to various foreign countries. The amounts of taxes which the Company could be subject to are not material to the accompanying financial
statements.
On March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act changed several of the existing U.S. corporate
income tax laws by, among other things, increasing the amount of deductible interest, allowing companies to carry back certain Net Operating Losses (“NOLs”) and increasing the amount of NOLs
that corporations can use to offset income. The CARES Act did not have a material impact on the Company's income tax provision, deferred tax assets and liabilities, and related taxes payable.
Computation of Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per share is
computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method and the
if-converted method. Dilutive potential common shares include outstanding stock options, restricted stock units, performance stock units, employee stock purchase plan (ESPP) shares and conversion
shares under the convertible notes. On January 1, 2021, the Company adopted the accounting standard update to simplify the accounting for convertible debt instruments. The Company now uses the
if-converted method for its convertible notes in calculating the diluted net income (loss) per share, and includes the effect of potential share settlement for the convertible notes, if the effect is dilutive.
The diluted net income per share is computed with the assumption that the Company will settle the convertible debt in shares, rather than cash.
Diluted earnings per share is the same as basic earnings per share for the periods in which the Company had a net loss because the inclusion of outstanding common stock equivalents would be anti-
dilutive.
Comprehensive Income (Loss)
Comprehensive income (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 and the Company’s reporting currency. 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. Gains resulting from foreign currency transactions included in net
income (loss) were $0.3 million in the year ended December 31, 2023 and losses were $3.6 million and $1.8 million in the years ended December 31, 2022 and 2021, respectively. The effect of
exchange rate changes on cash and cash equivalents was insignificant for the years ended December 31, 2023, 2022 and 2021.
Segments
The Company operates in one segment and reports segment information in accordance with ASC 280, Segment Reporting. Management uses one measure of profitability and does not segregate its
business for internal reporting. Revenue is attributed to a geographic region based on the location of the end customer. See Note 12. Segment Information and Revenue by Geography and Products for
details relating to revenue by geography.
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NOTE 2. CASH, CASH EQUIVALENTS, MARKETABLE SECURITIES, AND RESTRICTED CASH
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 securities. Investments with remaining maturities of 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 available-for-sale debt
securities are measured at fair value under the guidance in ASC 320. Credit losses on impaired available-for-sale debt securities are recognized through an allowance for credit losses. Under ASC
326, credit losses recognized on an available-for-sale debt security should not reduce the net carrying amount of the available-for-sale debt security below its fair value. Any changes in fair value
unrelated to credit are recognized as an unrealized gain or loss in other comprehensive income.
The Company's cash and cash equivalents was $143.6 million as of December 31, 2023. There were no marketable investments or restricted cash as of December 31, 2023. The following table
summarizes the Company's cash and cash equivalents and marketable investments (in thousands) as of December 31, 2022:
December 31, 2022
Cash and cash equivalents
Current restricted cash
Cash, cash equivalents, and restricted cash as reported within the Consolidated Statements of
Cash Flows
Marketable investments - U.S. Treasury
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Market
Value
N/A
N/A
N/A
171,484
171,484 $
$
N/A
N/A
N/A
8
8 $
N/A $
N/A
N/A
(102)
(102) $
145,924
700
146,624
171,390
318,014
At December 31, 2022, the net unrealized losses were $0.1 million, and were related to interest rate changes on available-for-sale marketable investments. No securities were in an unrealized loss
position for more than 12 months. The restricted cash balance related to an outstanding letter of credit for $0.7 million provided to a supplier.
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NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures certain financial assets at fair value, including cash and cash equivalents.
As of December 31, 2023, financial assets and liabilities measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described
above were as follows (in thousands):
December 31, 2023
Cash equivalents:
Money market funds
Total
Level 1
Level 2
$
$
123,387 $
123,387 $
—
—
As of December 31, 2022, financial assets and liabilities measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described
above were as follows (in thousands):
December 31, 2022
Cash equivalents:
Money market funds
Marketable investments:
Available-for-sale securities
Derivative liabilities:
Foreign exchange forward
Total
Level 1
Level 2
$
$
26,408 $
171,390
—
197,798 $
—
—
(558)
(558)
The Company's cash, accounts receivable, and accounts payable are reflected on the accompanying consolidated balance sheets at cost, which approximated estimated fair value due to short-term
nature of such accounts, using Level 1 inputs. The Company classifies its money market funds and available-for-sale securities within Level 1 because they are valued based on quoted market prices
in active markets.
The Company classifies its derivative financial instruments within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market,
including readily-available pricing sources for the identical underlying security which may not be actively traded. None of the Company's financial instruments were classified as Level 3 as of
December 31, 2023 and 2022.
See Note 14. Debt for the carrying amount and estimated fair value of the Company’s 2.25% Convertible Senior Notes due 2026 (the “2026 Notes”), 2.25% Convertible Senior Notes due 2028 (the
“2028 Notes”) and, 4.00% Convertible Senior Notes due 2029 (the “2029 Notes”), together with the 2026 Notes and 2028 Notes, (the “Convertible Notes”).
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NOTE 4. DERIVATIVE INSTRUMENTS
The Company uses foreign currency exchange forward contracts to manage the impact of currency exchange fluctuations on earnings and cash flows. The Company does not enter into derivative
instruments for speculative purposes. The Company is exposed to potential credit loss in the event of nonperformance by counterparties on its outstanding derivative instruments but the Company
does not anticipate nonperformance by any of its counterparties. Should a counterparty default, the Company's maximum loss exposure would be the potential asset balance of the instrument.
The cash flow effect of the derivative instruments settlement is recorded in cash flows from operations.
There were no derivative instruments outstanding as of December 31, 2023 and the dollar amounts of outstanding derivative instruments as of December 31, 2022 is presented in thousands below:
December 31, 2022
(Dollars in thousands)
Gross notional amount
Fair value
Unrealized loss
Classification
Foreign Exchange Forward
N/A
Accrued liabilities
Other income (expense), net
$
$
$
6,128
558
(558)
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NOTE 5. BALANCE SHEET DETAIL
Inventories
Valuation adjustments for excess and obsolete inventory, reflected as a reduction of inventory at December 31, 2023 and 2022, were $13.0 million and $3.6 million, respectively.
Inventories of these adjustments, consist of the following (in thousands):
Raw materials
Work in process
Finished goods
Total
Long-term inventories
December 31,
2023
2022
$
$
36,970 $
889
24,741
62,600 $
36,323
2,117
25,188
63,628
Valuation adjustments for excess and obsolete inventory, reflected as a reduction of long-term inventory at December 31, 2023, was $12.8 million. The Company’s long-term inventories relate to
AviClear devices, and parts for device manufacturing, not expected to be sold in the twelve months ended December 31, 2024.
Long-term inventories of these adjustments, consist of the following (in thousands):
Raw materials
Work in process
Finished goods
Total
Other current assets and prepaid expenses
Other current assets and a prepaid expenses, consists of the following (in thousands):
Deposits with vendors
Foreign tax receivable
Prepayments
Other
Total
Property and Equipment, net
Property and equipment, net, consists of the following (in thousands):
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December 31,
2023
2022
8,672 $
2,049
5,562
16,283 $
—
—
—
—
December 31,
2023
2022
9,501 $
6,307
3,819
225
19,852 $
13,917
7,147
2,972
—
24,036
$
$
$
$
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Leasehold improvements
AviClear devices
Office equipment and furniture
Machinery and equipment
Assets under construction
Less: Accumulated depreciation
Property and equipment, net
December 31,
2023
2022
$
$
1,010 $
38,490
1,884
4,944
1,274
47,602
(10,327)
37,275 $
793
19,904
1,936
5,106
17,876
45,615
(5,247)
40,368
In November 2023, the Company introduced a new business model for AviClear, providing for the purchase of the device upfront. From the FDA approval in April 2022 through October 2023,
AviClear devices were leased to customers, and parts and devices not yet placed in service were recorded as property and equipment on the consolidated balance sheet, and further categorized as
assets under construction. As a result of the new business model, the Company has determined to classify AviClear parts and devices not currently leased as inventories at December 31, 2023.
AviClear devices currently leased continue to be classified as property and equipment on the consolidated balance sheet.
The Company identified indicators of impairment during the twelve months ended December 31, 2023, including a decline in financial results and market capitalization. The Company evaluated its
long-lived assets, including property and equipment, for potential impairment and concluded that an impairment was not required. An impairment may potentially result in partial or full write-down
of these balances. The Company will continue to monitor financial results and market capitalization. Should the financial results continue to deteriorate, an impairment of long-lived assets, including
property and equipment, may become reasonably possible.
Goodwill
Goodwill is related to the acquisition of Iridex’s aesthetic business unit, and customer relationships in the Benelux countries acquired from a former distributor in 2013. Goodwill was $1.3 million as
of December 31, 2023 and 2022.
The Company assesses goodwill for impairment at the reporting unit level at least annually and may test more frequently if events or changes in circumstances indicate that the carrying value may not
be recoverable.
In the fourth quarter of 2023, the Company identified indicators of impairment, including a decline in the market capitalization. The Company performed an impairment test by comparing the fair
value with its carrying value, including goodwill, and concluded it is unlikely to have a fair value below the carrying value. The Company concluded that no impairment charges were required during
the year ended December 31, 2023.
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Bonus and payroll-related accruals
Accrued sales tax
Liability for inventory in transit
Sales and marketing accruals
Product warranty
Jabil settlement obligation, net (Note 16)
Other accrued liabilities
Total
December 31,
2023
2022
$
$
13,949 $
6,325
5,461
4,929
2,593
8,908
12,890
55,055 $
18,951
9,066
7,028
5,347
3,254
—
13,806
57,452
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NOTE 6. PRODUCT WARRANTY
The Company has a direct field service organization in North America (including Canada). Internationally, the Company provides direct service support in Australia, Austria, Belgium, France,
Germany, Hong Kong, Japan, the Netherlands, and Switzerland, as well as through third-party service providers in Spain and the United Kingdom. In several other countries, where the Company
does not have a direct presence, the Company provides service through a network of distributors and third-party service providers.
After the original warranty period, maintenance and support are offered on an extended service contract basis or on a time and materials basis. The Company provides the estimated cost to repair or
replace products under standard warranty at the time of sale. Costs in connection with extended service contracts are recognized at the time when costs are incurred. The following table provides the
changes in the product standard warranty accrual for the years ended December 31, 2023 and 2022 (in thousands):
Balance at beginning of year
Add: Accruals for warranties issued during the period
Less: Settlements made during the period
Balance at end of year
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December 31,
2023
2022
$
$
3,254 $
4,987
(5,648)
2,593 $
3,947
3,710
(4,403)
3,254
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NOTE 7. DEFERRED REVENUE
The Company records deferred revenue when revenue is to be recognized subsequent to invoicing. For extended service contracts, the Company generally invoices customers at the beginning of the
extended service contract term. The Company’s extended service contracts typically have one to three-year terms. The Company leases certain AviClear devices to customers and receives a fixed
annual license fee over the term of the arrangement and variable lease income related to treatments performed by the lessee. The fixed annual license fee is recognized evenly over the period of the
lease contract on a straight-line basis. Deferred revenue also includes payments for training not yet delivered. Approximately 87% of the Company’s deferred revenue balance of $11.9 million as of
December 31, 2023, will be recognized over the next 12 months.
The following table provides changes in the deferred revenue balance for the years ended December 31, 2023 and 2022 (in thousands):
Beginning balance
Add: Payments received from current period sales
Less: Revenue recognized from current period sales
Less: Revenue recognized from beginning balance
Ending balance
December 31,
2023
2022
$
$
13,498 $
21,040
(11,732)
(10,890)
11,916 $
10,825
21,984
(9,928)
(9,383)
13,498
The fixed annual license fees received related to the AviClear contracts are deferred and recognized over the annual lease period. The AviClear deferred license fee balance included in the total
deferred revenue balance as of December 31, 2023 and 2022, was $2.1 million and $2.3 million, respectively.
Costs for extended service contracts were $7.3 million, $6.3 million and $8.3 million, respectively, in cost of revenue on the consolidated statements of operations for the years ended December 31,
2023, 2022 and 2021.
Accounts receivable, net as of December 31, 2021 was $31.4 million.
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NOTE 8. STOCKHOLDERS’ EQUITY, STOCK PLANS AND STOCK-BASED COMPENSATION EXPENSE
As of December 31, 2023, the Company had one class of issued common stock with a par value of $0.001. Authorized capital stock consists of 55,000,000 shares comprised of two classes: (i)
50,000,000 shares of Common Stock, of which 19,960,622 shares are issued and outstanding as of December 31, 2023, and (ii) 5,000,000 shares of preferred stock, par value $0.001 per share
(“Preferred Stock”), of which no shares are issued and outstanding.
As of December 31, 2023, the Company had the following stock-based employee compensation plans:
2004 Equity Incentive 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.
In 2004, the Board of Directors (“the Board”) 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.
2019 Equity Incentive Plan
At the Company’s Annual Meeting of Stockholders in 2019, the Company’s stockholders approved the 2019 Equity Incentive Plan, which is an amendment and restatement of the 2004 Equity
Incentive Plan. The 2004 Equity Incentive Plan was amended to: (i) increase the number of shares available for future grant by 700,000 (in addition to the 9,701,192 shares provided under the 2004
Equity Incentive Plan); (ii) extend the term of the 2004 Equity Incentive Plan to the date of the Annual Meeting of the Company’s stockholders in 2029; (iii) amend the 2004 Equity Incentive Plan to
eliminate the requirement for awards granted on or after June 14, 2019 that any shares subject to awards with an exercise price less than fair market value on the date of such grant will be counted
against the Plan as 2.12 shares for each full value share awarded in accordance with the 2004 Equity Incentive Plan; (iv) amend the 2004 Equity Incentive Plan to remove the requirement that any
shares subject to awards with an exercise price less than fair market value on the date of such grant will be counted against the Plan as 2.12 shares for each full value share awarded; (v) amend the
2004 Equity Incentive Plan to remove certain provisions relating to the “performance based compensation” exception under Section 162(m) of the Internal Revenue Code of 1986, as amended; (vi)
include a minimum one-year vesting period with respect to awards granted under the 2004 Equity Incentive Plan.
Also in 2019, the Board also amended the Company’s Stock Ownership Guidelines to require all officers (as defined by Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) to hold at
least 50% of any shares received pursuant to stock options, stock appreciation rights, vested restricted stock awards (“RSAs”), restricted stock units (“RSUs”), or performance stock units (“PSUs”)
(net of taxes) for a minimum of one year following vesting and delivery.
In 2019, the Board also adopted a clawback policy to permit recovery of certain compensation paid to Named Executive Officers (as defined in Item 402 of Regulation S-K) of the Company if the
Compensation Committee of the Board determines that a Named Executive Officer (i) has violated law, the Company’s Code of Business Conduct and Ethics, or any significant ethics or compliance
policies, and (ii) such conduct results in material financial or reputational harm, or results in a need for a restatement of the Company’s consolidated financial statements. The Amended and Restated
Plan provides for the grant of incentive stock options, non-statutory stock options, RSAs, RSUs, stock appreciation rights, PSUs, and other stock or cash awards.
In 2020, the Company's stockholders approved an amendment and restatement of the 2019 Equity Incentive Plan and approved an additional 600,000 shares, available for future grants.
In June 2021, stockholders approved an amendment and restatement of the 2019 Equity Incentive Plan and approved an additional 450,000 shares, available for future grants.
In June 2022, stockholders approved an amendment and restatement of the 2019 Equity Incentive Plan and approved an additional 600,000 shares, available for future grants.
In July 2023, stockholders approved an amendment and restatement of the 2019 Equity Incentive Plan and approved an additional 1,300,000 shares, available for future grants.
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The Company’s non-employee directors are granted $150,000 of RSUs or non-statutory stock options annually on the date of the Company’s Annual Meeting of stockholders. These grants cliff-vest
on the one-year anniversary of the grant date. In the years ended December 31, 2023, 2022 and 2021, the Company issued 57,039, 12,496 and 41,301 RSUs, respectively, to its non-employee
directors. In the year ended December 31, 2023, the Company issued 73,964 non-statutory stock options to its non-employee directors.
In the years ended December 31, 2023, 2022 and 2021, the Company’s Board of Directors granted 533,981, 191,993 and 219,686 RSUs, respectively, to its executive officers, directors and certain
members of the Company’s management related to annual grants and new hire grants. The new hire RSUs vest quarterly on each of the first four annual anniversaries of the grant date and the annual
grant RSUs vest one quarter on the first annual anniversary and monthly thereafter for 36 months. The Company measured the fair market values of the underlying stock on the dates of grant and
recognizes the stock-based compensation expense over the vesting period. On the vesting date, the Company issues common stock, net of stock withheld to settle the recipient’s minimum statutory
tax liability.
In the years ended December 31, 2023, 2022 and 2021 the Company’s Board of Directors granted its executive officers and certain senior management employees 239,777, 169,785, and 178,222
PSUs, respectively, related to its annual grants. The 2020 grant vested on the first anniversary subject to the achievement of pre-established performance goals. The 2021 and 2022 grants vest one half
on the first anniversary subject to the achievement of pre-established performance goals and the remaining half vests on the second anniversary subject to the recipient’s continued service. In addition
to the 2021 annual PSU grants, in July 2021, the Company granted 265,002 PSUs to certain employees. This grant consists of four separate vesting tranches that will vest from April 2023 through
June 2025 upon the achievement of operational milestones associated with each tranche and continued service.
2023 Inducement Equity Incentive Plan
At the Company’s Annual Meeting of Stockholders in 2023, the Company stockholders approved the 2023 Inducement Equity Incentive Plan, which permits the grant of equity-based awards,
restricted stock units, restricted stock, stock appreciation rights, and performance awards to individuals not previously employees of the Company as an inducement material to the individuals’ entry
into employment with the Company. The maximum aggregate number of shares of common stock that may be awarded and sold under the 2023 Inducement Equity Incentive Plan is 2,500,000. In
2023, 2,500,000 shares were approved and reserved to be available for future grants. In the year ended December 31, 2023, the Company issued 95,920 incentive equity awards under the 2023
Inducement Equity Incentive Plan.
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 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:
• 600,000 shares;
• 2.0% of the outstanding shares of common stock on such date; or
• an amount as determined by the Board of Directors.
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 the six-month offering period. In the years ended December 31,
2023, 2022, and 2021, under the 2004 ESPP, the Company issued 51,786, 49,306, and 59,635 shares, respectively. At December 31, 2023, 326,800 shares remained available for future issuance.
Due to the late filing of the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2023, participation in the ESPP was suspended.
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Option and Award Activity
Activities under 2004 Equity Incentive Plan, 2019 Equity Incentive Plan and 2023 Inducement Equity Incentive Plan are summarized as follows:
Shares
Available
For Grant
Number of
Shares
Options Outstanding
Weighted-
Average
Exercise
Price
Weighted-Average
Remaining
Contractual Life
(in years)
(2)
Balances as of December 31, 2020
Additional shares reserved
Options granted
Options exercised
Options cancelled (expired or forfeited)
Stock awards granted
Stock awards cancelled (expired or forfeited)
(2)
Balances as of December 31, 2021
Additional shares reserved
Options granted
Options exercised
Options cancelled (expired or forfeited)
Stock awards granted
Stock awards cancelled (expired or forfeited)
(2)
Balances as of December 31, 2022
Additional shares reserved
Options granted
Options exercised
Options cancelled (expired or forfeited)
Stock awards granted
Stock awards cancelled (expired or forfeited)
Balances as of December 31, 2023
Exercisable as of December 31, 2023
Vested and expected to vest, net of estimated forfeitures, as
of December 31, 2023
1,085,170
450,000
(172,139)
—
30,173
(744,949)
299,092
947,347
600,000
(296,238)
—
29,518
(374,274)
164,572
1,070,925
3,800,000
—
—
288,536
(2,144,988)
540,064
3,554,537
217,007 $
172,139 $
(71,798) $
(30,173) $
—
—
287,175 $
296,238 $
(39,960) $
(29,518) $
—
—
513,935 $
1,099,075 $
(42,234) $
(288,536) $
—
—
1,282,240 $
190,997 $
1,180,944 $
22.35
30.71
22.02
37.14
—
—
25.89
40.95
21.28
34.91
—
—
34.41
13.10
14.50
29.21
—
—
17.97
36.39
18.37
Aggregate
Intrinsic
Value
(in millions )
(1)
3.75 $
1.47
4.92 $
4.46
6.63 $
5.99
8.21 $
3.36 $
8.11 $
—
—
—
(1) Based on the closing stock price of $3.53 of the Company’s stock on December 31, 2023, $44.22 on December 31, 2022, $41.32 on December 31, 2021 and $24.11 on December 31, 2020.
(2) Approved by the board of directors and stockholders in 2023, 2022 and 2021.
The equity plans deduct the shares available for issuance 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. Any RSU or PSU shares granted on or after July 13, 2023 are
counted against the shares available for grant at a ratio of 1.65 shares for every one share granted.
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The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value and is 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. The aggregate intrinsic amount changes based on the fair market value of the Company’s common stock. Total
intrinsic value of options exercised in 2023, 2022 and 2021 was $0.3 million, $1.1 million, and $1.3 million, respectively. The options outstanding and exercisable at December 31, 2023 were in the
following exercise price ranges:
Exercise Prices
$3.67
$11.02
——
$19.44
——
——
$39.88
$41.39
$47.40
$63.62
——
$18.55
$33.45
$39.30
$63.62
$14.04
$25.70
$36.55
$3.67
Number of Shares Outstanding
Contractual Life
(in years)
Number of Shares
Exercisable
31,256
735,295
87,001
147,455
187,927
30,881
2,187
21,220
4,745
34,273
1,282,240
6.85
9.63
8.81
9.15
3.37
1.20
5.00
8.18
0.96
7.13
8.21
—
—
3,250
—
121,909
30,881
1,393
10,168
4,745
18,651
190,997
Stock Awards (RSU and PSU) Activity Table
Information with respect to RSUs and PSUs activity is as follows:
Outstanding at December 31, 2020
Granted
(3)
Vested
Forfeited
Outstanding at December 31, 2021
Granted
(3)
Vested
Forfeited
Outstanding at December 31, 2022
Granted
(3)
Vested
Forfeited
Outstanding at December 31, 2023
Number of
Shares
Weighted-Average
Grant-
Date Fair
Value
Aggregate
(1)
Fair Value
(in thousands)
Aggregate
(2)
Intrinsic Value
(in thousands)
779,757 $
744,949 $
(254,946) $
(236,856) $
1,032,904 $
374,274 $
(340,836) $
(160,131) $
906,211 $
829,866 $
(298,485) $
(527,730) $
909,862 $
23.96
40.16
22.94 $
27.33
35.00
45.36
29.04 $
41.48
40.39
14.43
35.61 $
36.56
20.46
8,287
(4)
15,443
(5)
9,597
(6)
$
$
$
$
18,800
42,680
40,073
3,212
(1) Represents the value of the Company’s stock on the date that the restricted stock units and performance stock units vest.
(2) Based on the closing stock price of the Company’s stock of $3.53 on December 31, 2023, $44.22 on December 31, 2022, $41.32 on December 31, 2021, and $24.11 on December 31, 2020.
(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 $5.8 million.
(5) On the grant date, the fair value for these vested awards was $9.9 million.
(6) On the grant date, the fair value for these vested awards was $10.6 million.
Stock-Based Compensation
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Stock-based compensation expense for the years ended December 31, 2023, 2022 and 2021 was as follows (in thousands):
Stock options
RSUs
PSUs
ESPP
Total stock-based compensation expense
2023
Year Ended December 31,
2022
2021
2,227 $
6,100
(586)
323
8,064 $
2,175 $
6,979
4,430
816
14,400 $
782
5,305
6,591
494
13,172
$
$
Total stock-based compensation expense recognized during the years ended December 31, 2023, 2022 and 2021 was recorded in the Consolidated Statements of Operations as follows (in thousands):
Cost of revenue
Sales and marketing
Research and development
General and administrative
Total stock-based compensation expense
2023
Year Ended December 31,
2022
2021
751 $
3,387
1,082
2,844
8,064 $
1,665 $
4,998
2,405
5,332
14,400 $
1,408
3,160
2,784
5,820
13,172
$
$
In the year ended December 31, 2023, stock-based compensation expense was impacted by the Company reducing its estimate of the probability of certain performance stock unit grants vesting, and
by the reversal of previously reported stock-based compensation expense upon the forfeiture of unvested equity-based awards.
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 weighted average estimated fair values of the employee stock options and rights granted under the employee stock purchase plan and the weighted average assumptions used to
calculate the grant date fair values, are as follows:
Expected term (in years)
Risk-free interest rate
Volatility
Dividend yield
(1)
Weighted average estimated fair value at
grant date
$
2023
Stock Options
2022
2021
2023
Stock Purchase Plan (ESPP)
2022
2021
4.17
4.06 %
67 %
— %
4.03
1.99 %
66 %
— %
3.97
0.48 %
66 %
— %
0.50
4.70 %
70 %
— %
0.49
3.79 %
69 %
— %
7.04
$
19.76
$
15.09
$
14.83
$
15.77
$
0.50
0.14 %
36 %
— %
9.64
(1) The Company has not paid dividends since its inception.
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NOTE 9. 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 income (loss) before provision for income taxes consisted
of the following (in thousands):
U.S.
Foreign
Income (loss) before income taxes
The components of the provision for income taxes are as follows (in thousands):
Current:
Federal
State
Foreign
Total Current
Deferred:
Federal
State
Foreign
Total Deferred
Tax provision
The Company’s net deferred tax assets consist of the following (in thousands):
Net operating loss carryforwards
Stock-based compensation
Other accruals and reserves
Credits
Accrued warranty
Depreciation and amortization
Section 174 Costs
Other
Operating lease liability
Deferred tax asset before valuation allowance
Valuation allowance
Deferred tax asset after valuation allowance
Deferred contract acquisition costs
Goodwill
Right of use asset
Net deferred tax asset (liability)
103
2023
Year Ended December 31,
2022
2021
(165,784) $
4,485
(161,299) $
(84,189) $
3,487
(80,702) $
2023
Year Ended December 31,
2022
2021
— $
46
1,471
1,517
6
1
10
17
1,534 $
52 $
126
1,275
1,453
2
1
182
185
1,638 $
$
$
$
$
December 31,
2023
2022
$
$
47,406 $
2,014
12,552
18,614
759
1,241
13,391
2,965
2,842
101,784
(97,280)
4,504
(1,287)
(159)
(2,479)
579 $
(356)
3,741
3,385
—
(87)
1,512
1,425
2
1
(105)
(102)
1,323
21,443
2,594
4,592
14,908
778
1,857
7,578
1,541
3,384
58,675
(53,118)
5,557
(1,763)
(138)
(3,066)
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The differences between the U.S. federal statutory income tax rates to the Company’s effective tax rate are as follows:
U.S. federal statutory income tax rate
State tax rate
Meals and entertainment
Permanent differences
Stock-based compensation
Extinguishment of PPP loan
Debt extinguishment costs
Excess compensation
Foreign rate differential
General business credit
Valuation allowance
Change in prior year reserves
Deferred true-up
Effective tax rate
2023
Year Ended December 31,
2022
2021
21.00 %
(0.02)
(0.25)
0.24
(0.43)
(0.07)
—
(0.19)
(0.31)
0.71
(21.52)
—
(0.33)
(1.17)%
21.00 %
(0.16)
(0.47)
(0.07)
0.89
—
(8.48)
(1.34)
(0.76)
0.78
(11.41)
—
(2.02)
(2.04)%
21.00 %
(2.55)
9.28
1.11
(13.08)
(44.59)
—
7.88
17.03
(17.95)
72.82
(0.08)
(11.76)
39.11 %
As of December 31, 2023, the Company recorded a valuation allowance of $97.3 million for the portion of the deferred tax asset that it does not expect to be realized. The valuation allowance on the
Company’s net deferred taxes increased by $44.2 million and $12.6 million during the years ended December 31, 2023 and 2022, respectively. The changes in valuation allowance are primarily due
to additional U.S. deferred tax assets and liabilities incurred in the respective year. The Company has $0.6 million of net deferred tax assets in foreign jurisdictions, which management believes are
more-likely-than-not to be realized given the expectation of future earnings in these jurisdictions. The Company continues to monitor the realizability of the U.S. deferred tax assets taking into
account multiple factors, including the results of operations and magnitude of excess tax deductions for stock-based compensation. The Company intends to continue maintaining a full valuation
allowance on its U.S. deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of all, or a portion, of the valuation allowance
would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.
At December 31, 2023, the Company had approximately $190.7 million and $99.4 million of federal and state net operating loss carryforwards, respectively, available to offset future taxable income.
The federal and state net operating loss carryforwards, if not utilized, will generally begin to expire in 2030 through 2040, respectively. Approximately $154.2 million of total federal net operating
loss carryforwards were generated after December 31, 2017 and have no expiration. At December 31, 2023, the Company had research and development tax credits available to offset federal and
California tax liabilities in the amount of $11.5 million and $12.1 million, respectively. Federal credits will begin to expire in 2024 and California state tax credits have no expiration.
Federal and state laws can impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an “ownership change,” as defined in Section 382 of the
Internal Revenue Code. The Company has determined that no significant limitation would be placed on the utilization of the Company’s net operating loss and tax credit carryforwards due to prior
ownership changes.
No deferred tax liabilities have been recorded relating to the earnings of the Company’s foreign subsidiaries since all such earnings are intended to be indefinitely reinvested. The amount of the
unrecognized deferred tax liability associated with these earnings is immaterial.
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 performs 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.
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Although the Company believes it has adequately reserved for its uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. The Company
adjusts 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 and penalties.
The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. Tax years after 2009 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, tax years after 2018 remain subject to examination by their respective tax
authorities.
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits, excluding related interest and penalties, in December 31, 2021 to December 31, 2023 (in
thousands):
Balance at beginning of year
Increase (decrease) related to prior year tax positions
Increase related to current year tax positions
Balance at end of year
2023
Year Ended December 31,
2022
2021
$
$
3,725 $
258
1,013
4,996 $
2,746 $
(36)
1,015
3,725 $
1,864
(37)
919
2,746
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Table of Contents
NOTE 10. NET INCOME (LOSS) PER SHARE
As of December 31, 2023, the Company’s convertible notes were potentially convertible into 8,696,792 shares of common stock. The Company used the if-converted method to calculate the potential
dilutive effect of the conversion spread on diluted net income per share for the years ended December 31, 2023, 2022 and 2021.
The denominator for diluted net income (loss) per share does not include any effect from the capped call transactions the Company entered into concurrently with the issuance of the convertible
notes, as this effect would be anti-dilutive. In the event of conversion of a convertible note, shares delivered to the Company under the capped call will offset the dilutive effect of the shares that the
Company would issue under the convertible notes.
For the years ended December 31, 2023 and 2022, basic loss per common share and diluted loss per common share are the same in each respective period, as the inclusion of any potentially
issuable shares would be anti-dilutive.
The following table sets forth the computation of basic and diluted net loss and the weighted average number of shares used in computing basic and diluted net loss per share (in thousands, except per
share data):
Numerator:
Net income (loss)
Denominator:
Weighted average shares of common stock outstanding used in computing net income (loss) per share, basic
Dilutive effect of incremental shares and share equivalents:
Options
RSUs
PSUs
ESPP
Weighted average shares of common stock outstanding used in computing net income (loss) per share, diluted
Net income (loss) per share:
Net income (loss) per share, basic
Net income (loss) per share, diluted
2023
Year Ended December 31,
2022
2021
$
(162,833) $
(82,340) $
19,885
—
—
—
—
19,885
18,747
—
—
—
—
18,747
$
$
(8.19) $
(8.19) $
(4.39) $
(4.39) $
2,062
17,891
68
294
104
5
18,362
0.12
0.11
The following numbers of shares outstanding, prior to the application of the treasury stock method and the if-converted method, were excluded from the computation of diluted net income (loss) per
common share for the periods presented because including them would have had an anti-dilutive effect (in thousands):
Capped call
Convertible debt
Options to purchase common stock
Restricted stock units
Employee stock purchase plan shares
Performance stock units
Total
2023
Year Ended December 31,
2022
2021
10,780
8,697
1,282
682
—
227
21,668
10,780
8,697
514
460
38
446
20,935
4,167
4,167
166
32
—
120
8,652
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Table of Contents
NOTE 11. DEFINED CONTRIBUTION PLAN
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 the years ended December 31, 2023, 2022 and 2021, the Company
made discretionary contributions under the 401(k) Plan of $0.5 million, $0.5 million and $0.3 million, respectively.
For the Company’s Japanese subsidiary, a discretionary employee retirement plan has been established. 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, 2023, and the related expense for each of the three years then ended was not significant.
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Table of Contents
NOTE 12. SEGMENT INFORMATION AND REVENUE BY GEOGRAPHY AND PRODUCTS
Segment reporting is based on the “management approach,” following the method that management organizes the Company’s reportable segments for which separate financial information is made
available to, and evaluated regularly by, the chief operating decision maker in allocating resources and in assessing performance. The Company’s chief operating decision maker ("CODM") is its
Chief Executive Officer ("CEO"), who makes decisions on allocating resources and in assessing performance.
In the fourth quarter of fiscal year ending December 31, 2023, the Company concluded a realignment of its operating segments to further drive its long-term strategic objectives. At the direction of
the CEO, management reorganized its management reporting structure and began to manage its operations under one segment structure. The CEO, in making operating decisions, reviews
consolidated financial information, accompanied by disaggregated information about revenues by geography and product. All of the Company’s principal operations and decision-making functions
are located in the U.S. Substantially all of the Company's long-lived assets are located in the U.S.
The Company reassessed its reportable segments in the fourth quarter of fiscal year 2023 and determined it had one consolidated reportable segment beginning in the fourth quarter of fiscal year
ending December 31, 2023.
The following table presents a summary of revenue by geography and product category for the years ended December 31, 2023, 2022 and 2021 (in thousands):
Revenue mix by geography:
United States
Japan
Asia, excluding Japan
Europe
Rest of the world, other than United States, Asia and Europe
Total consolidated revenue
Revenue mix by product category:
Systems
Consumables
Skincare
Total product revenue
Service
Total consolidated revenue
As of December 31, 2023 and 2022, 99.6% and 99.8% of long-lived assets were in the United States, respectively.
108
2023
Year Ended December 31,
2022
2021
$
$
$
$
88,378 $
52,135
18,702
20,330
32,824
212,369 $
130,528 $
25,302
33,983
189,813
22,556
212,369 $
107,453 $
64,920
21,873
20,882
37,271
252,399 $
164,559 $
21,737
42,500
228,796
23,603
252,399 $
96,629
70,235
12,649
19,444
32,313
231,270
139,633
16,401
49,669
205,703
25,567
231,270
Table of Contents
NOTE 13. COMMITMENTS AND CONTINGENCIES
LEASES
Lessee
The Company is a party to certain operating and finance leases for vehicles, office space and storage facilities. The Company’s material operating leases consist of office space, as well as storage
facilities and finance leases consist of automobiles leases. The Company’s leases generally have remaining terms of one to 7 years, some of which include options to renew the leases for up to five
years. The Company leases space for operations in the United States, Japan, Belgium, France, and Spain.
The Company determines if a contract contains a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the
present value of lease payments not yet paid. Operating lease assets represent the right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued
lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company estimates the incremental
secured borrowing rates corresponding to the maturities of the leases. The Company based the rate estimates on prevailing financial market conditions, credit analysis, and management judgment.
Tenant incentives used to fund leasehold improvements are recognized when earned and reduce the Company’s right-of-use asset related to the lease. These are amortized through the right-of-use
asset as reductions of expense over the lease term.
Below is supplemental balance sheet information related to leases (in thousands):
Assets
Right-of-use assets
Finance lease
Total leased assets
Liabilities
Operating lease liabilities, current
Operating lease liabilities, non-current
Total Operating lease liabilities
Finance lease liabilities
Finance lease liabilities, current
Finance lease liabilities, non-current
Total Finance lease liabilities
Classification
Operating lease right-of-use assets
Property and equipment, net
Classification
Operating lease liabilities
Operating lease liabilities, net of current portion
Classification
Accrued liabilities
Other long-term liabilities
Year Ended December 31,
2023
2022
10,055 $
2,516
12,571 $
Year Ended December 31,
2023
2022
2,441 $
8,887
11,328 $
Year Ended December 31,
2023
2022
825 $
1,064
1,889 $
$
$
$
$
$
$
Lease costs during the twelve months ended December 31, 2023, 2022 and 2021 (in thousands):
Finance lease cost
Finance lease cost
Operating lease cost
Amortization expense
Interest for finance lease
Operating lease expense
$
$
$
790 $
116 $
3,598 $
643 $
76 $
3,560 $
Cash paid for amounts included in the measurement of lease liabilities during the twelve months ended December 31, 2023, 2022 and 2021 were as follows (in thousands):
Year Ended December 31,
2023
2022
2021
109
12,831
1,606
14,437
2,810
11,352
14,162
485
825
1,310
484
59
3,542
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Operating cash flows
Financing cash flows
Operating cash flows
Maturities of lease liabilities
Finance lease
Finance lease
Operating lease
Year Ended December 31,
2023
2022
2021
$
$
$
87 $
594 $
3,297 $
78 $
520 $
2,526 $
Maturities of operating lease liabilities were as follows as of December 31, 2023 (in thousands):
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less: imputed interest
Present value of lease liabilities
Vehicle Leases
Amount
$
$
As of December 31, 2023, the Company was committed to minimum lease payments for vehicles leased under long-term non-cancelable finance leases as follows (in thousands):
2024
2025
2026
2027
Total lease payments
Less: imputed interest
Present value of lease liabilities
Weighted-average remaining lease term and discount rate, as of December 31, 2023, were as follows:
Lease Term and Discount Rate
Weighted-average remaining lease term (years)
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
Lessor - AviClear
Lessor revenue
Amount
$
$
56
462
3,092
2,932
2,935
3,030
3,133
325
147
12,502
(1,174)
11,328
954
704
424
16
2,098
(209)
1,889
4.2
2.4
4.8 %
9.0 %
The Company leases certain AviClear devices to customers and receives a fixed annual license fee over the term of the arrangement and revenue related to treatments performed by the lessee. The
contractual term of the lease agreement is three years with a one-year autorenewal feature. Certain lease agreements' terms in excess of one year can be terminated without financial penalty, and these
agreements are accounted for as having a lease term of one year. The AviClear lease agreements are
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accounted for as operating leases. In the fourth quarter of 2023, the Company announced a change in the AviClear business strategy and moved towards a direct sales model rather than a leasing
model, whereby certain existing lessees were offered an option to purchase the leased AviClear device. For the devices under the leasing model, the Company concluded the classification of the
AviClear lease contracts remains as operating leases.
The fixed annual license fee is recognized evenly throughout the period of the lease agreement on a straight-line basis. The treatment revenue is recognized in the period the lessee has the ability to
perform the patient treatment.
The following table summarizes the amount of operating lease income included in product revenue in the accompanying consolidated statements of operations (in thousands):
AviClear operating lease license fee revenue
AviClear operating lease treatment revenue
Total AviClear revenue
The AviClear device being leased has a useful life of seven years.
Year Ended December
31, 2023
Year Ended December
31, 2022
$
$
5,386
10,451
15,837
$
$
922
3,534
4,456
The following is the minimum future lease payments as of December 31, 2023, under non-cancelable operating leases, assuming the minimum contractual lease term (in thousands):
2024
2025
Total
Practical Expedients
Amount
7,220
3,185
10,405
$
$
The Company elected a practical expedient applied to operating leases to elect not to separate lease and nonlease components as long as the lease and at least one nonlease component have the same
timing and pattern of transfer. As such, updates or upgrades on a when-and-if available basis to the AviClear device are combined with the operating lease revenue. The combined component is being
accounted for under ASC 842. Additionally, the Company made an accounting policy election to present AviClear revenue net of sales and other similar taxes.
Capitalized sales commissions
Sales commissions related to obtaining AviClear lease agreements are accounted for as initial direct costs and are capitalized and amortized on a straight-line basis over the lease term.
Total capitalized costs for the years ended December 31, 2023 and 2022 were $3.8 million for both fiscal years. Amortization expenses for these assets were $4.3 million and $0.5 million,
respectively during the fiscal years ended December 31, 2023 and 2022, and were included in sales and marketing expense in the Company’s consolidated statements of operations.
Total capitalized costs as of December 31, 2023 and 2022, were $2.7 million and $3.3 million, respectively, and were included in other long-term assets in the Company’s consolidated balance sheets.
Lease installment costs
The Company capitalizes fulfillment costs incurred before AviClear lease commencement and these costs include freight, installation, and training costs.
Total capitalized costs for the years ended December 31, 2023 and 2022 were $2.8 million and $1.7 million, respectively. Amortization expenses for these assets were $2.1 million and $0.3 million
during the fiscal years ended December 31, 2023, and were included in cost of revenue in the Company’s consolidated statements of operations.
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Total lease installment costs as of December 31, 2023 and 2022, were $2.1 million and $1.4 million, respectively, and were included in other long-term assets in the Company’s consolidated balance
sheets.
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 an agreed-upon period. These periods can vary among different suppliers. Although open purchase orders are considered enforceable and legally binding, the
terms generally allow the Company the option to cancel, reschedule, and adjust their requirements based on the Company's business needs prior to the delivery of goods or performance of services.
As of December 31, 2023, the Company had $10.7 million of non-cancelable inventory purchase obligations with a certain vendor due in 2024.
Indemnifications
In the normal course of the Company’s 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.
Contingencies
The Company is named from time to time as a party to other legal proceedings, product liability, intellectual property disputes, commercial disputes, employee disputes, and contractual lawsuits. A
liability and related charge are recorded to earnings in the Company’s consolidated financial statements for legal contingencies when the loss is considered probable and the amount can be reasonably
estimated. The assessment is re-evaluated each accounting period and is based on all available information, including discussion with outside legal counsel. If a reasonable estimate of a known or
probable loss cannot be made, but a range of probable losses can be estimated, the low-end of the range of losses is recognized if no amount within the range is a better estimate than any other. If a
material loss is reasonably possible, but not probable and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. The
Company expenses legal fees as incurred. Certain of the cases below are still in the preliminary stages, and the Company is not able to quantify the extent of its potential liability, if any, other than as
described. The outcome of litigation is inherently unpredictable and subject to significant uncertainties. If any of these matters are resolved adversely to the Company, this could have a material
adverse effect on its business, financial condition, results of operations, and cash flows. In addition, defending these legal proceedings is likely to be costly, which may have a material adverse effect
on the Company's financial condition, results of operations and cash flows, and may divert management's attention from the day-to-day operations of its business.
As of December 31, 2023 and 2022, the Company had accrued $3.3 million and $0.5 million, respectively, related to various pending commercial and product liability lawsuits. The Company does
not believe that a material loss in excess of accrued amounts is reasonably possible.
On January 31, 2020, Cutera filed a lawsuit against Lutronic Aesthetics in the United States District Court for the Eastern District of California. Lutronic employs numerous former Cutera employees.
The complaint against Lutronic generally alleges claims for (1) misappropriation of trade secrets in violation of state and federal law; (2) violation of the Racketeer Influenced and Corrupt
Organizations Act ("RICO"); (3) interference with contractual relations; (4) interference with prospective economic advantage; (5) unfair competition; and (6) aiding and abetting. On March 13,
2020, the court entered a temporary restraining order ("TRO") against Lutronic generally prohibiting it from using or disseminating Cutera confidential, proprietary, or trade secret information. The
order also prohibits Lutronic, for two years, from using such information for the purpose of soliciting, or conducting business with, certain specified customers. On April 9, 2020, the parties stipulated
to the entry of a preliminary injunction providing for the same relief afforded by the TRO. On August 4, 2022, Cutera filed a second amended complaint. In addition to the above referenced claims,
Cutera alleges claims for violation of the Lanham Act, unlawful business practices, false advertising and trademark infringement. Discovery is ongoing. No trial date has been scheduled. On April 27,
2023, Lutronic filed a complaint for trade libel, intentional interference with prospective economic advantage, misappropriation of trade secrets and unfair business practices against Cutera in
California State Court. Discovery has not yet commenced and no trial date has been scheduled. The Company denies the allegations of the complaint and has instructed counsel to defend the matter
vigorously. Discovery is ongoing and no trial date has been scheduled.
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In March 2023, Serendia, LLC (“Serendia”), filed patent infringement complaints against the Company with the International Trade Commission (“ITC”) and in U.S. District Court for the District of
Delaware alleging infringement of six Serendia patents by the Secret RF and Secret Pro systems, which the Company distributes in the U.S. on behalf of Ilooda Co. Ltd., a Korean company
(“ilooda”). The manufacturer of these products, ilooda, is obligated to defend the Company against these claims and, as a result, the Company has not incurred significant external legal costs.
Serendia and ilooda have agreed to a settlement of the ITC investigation, the Delaware litigation and any other past, present and future suits or claims related to the six Serendia patents and the Secret
RF and Secret Pro systems. The settlement of these matters includes a non-exclusive, worldwide, fully paid up license from Serendia to ilooda to the six Serendia patents related to the Secret RF and
Secret Pro systems, which are distributed by the Company. The ITC investigation as to ilooda and the Company was terminated as of April 10, 2024 and the Delaware litigation was dismissed as of
April 3, 2024.
On April 11, 2023, J. Daniel Plants, the Company’s former Executive Chairperson, and David Mowry, the Company’s former Chief Executive Officer, filed a complaint in the Delaware Court of
Chancery against directors Gregory Barrett, Sheila Hopkins, Timothy O’Shea, Juliane Park and Janet Widmann, as defendants, and the Company, as nominal defendant (the “Delaware Litigation”)
seeking a declaration that the individual defendants breached their fiduciary duties and enjoining them from enforcing the nomination deadline under the Company’s Amended and Restated Bylaws in
connection with the 2023 annual meeting of stockholders, or in the alternative, a declaration that the Company must hold a special meeting of the stockholders on June 2, 2023. Mr. Plants and Mr.
Mowry filed a motion for expedited proceedings with their complaint. Mr. Plants and Mr. Mowry subsequently agreed that the determination made by the Special Committee of the Board to hold a
special meeting of the stockholders on June 9, 2023 mooted their request in the Delaware Litigation for a declaration that the Company hold a special meeting of the stockholders. On April 18, 2023,
the Court of Chancery denied Mr. Plants and Mr. Mowry’s motion for expedited proceedings.
On May 16, 2023, Mr. Mowry filed a letter with the Court of Chancery disclosing that he had resolved his dispute with the defendants and agreed to dismiss his claims with prejudice. On May 17,
2023, the Court of Chancery granted an order for voluntary dismissal of Mr. Mowry as a plaintiff in the Delaware Litigation. Mr. Plants subsequently publicly voiced opposition to certain aspects of
the Company's corporate governance and strategy but did not submit a notice of nomination of director candidates for the Company’s 2023 annual meeting of stockholders and did not purport to
nominate any director candidates at the Company’s annual meeting of stockholders held on July 13, 2023. Due to Plaintiff’s failure to amend his Complaint within the time required by the Court’s
order dated October 6, 2023, the Delaware Litigation was dismissed with prejudice.
On October 5, 2023, Mr. Plants filed a Sarbanes-Oxley (“SOX”) discrimination claim (the “SOX Whistleblower Complaint”) with the U.S. Department of Labor Occupational Safety and Health
Administration (“OSHA”). Mr. Plants alleges that he was terminated on April 11, 2023, in retaliation for reporting to the Board of Directors (the “Board”) his concerns that budgeting and guiding to
higher forecasts for 2023 would be misleading to shareholders. The SOX Whistleblower Complaint referenced the April 3, 2023 letter from Mr. Plants to the Company’s Board that articulated Mr.
Plants’ concerns. The Company received notice of the SOX Whistleblower Complaint on November 8, 2023. On December 7, 2023, Mr. Plants made an arbitration demand in JAMS against the
Company, Mr. Barrett, Ms. Hopkins, Mr. O’Shea, Ms. Park and Ms. Widmann for claims related to the termination of his employment (the “Arbitration Demand”). Mr. Plants alleged several claims:
breach of his change of control and severance agreement; wrongful termination; retaliation in violation of California’s whistleblower laws; retaliation in violation of SOX; defamation/libel; tortious
interference with prospective economic advantage; and breach of oral contract. He sought compensatory, special, and punitive damages, as well as reinstatement, civil penalties, and attorneys’ fees
and costs. Mr. Plants and the Company have settled all claims against the Company and the parties listed in the Arbitration Demand. The Company paid Mr. Plants approximately $1 million in
settlement of all claims. The OSHA investigation was officially closed on April 26, 2024, and the JAMS arbitration was dismissed as of April 19, 2024.
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NOTE 14. DEBT
Convertible notes, net of unamortized debt issuance costs
The following table presents the outstanding principal amount and carrying value of the Company’s Convertible Notes (in thousands):
Notes due in 2026
Outstanding principal amount
Unamortized debt issuance costs
Carrying Value
Notes due in 2028
Outstanding principal amount
Unamortized debt issuance costs
Carrying Value
Notes due in 2029
Outstanding principal amount
Unamortized debt issuance costs
Carrying Value
Convertible notes, net
Issuance of convertible notes due in 2026
Year Ended December 31,
2023
2022
$
$
$
$
$
$
$
69,125
(1,084)
68,041
240,000
(5,714)
234,286
120,000
(3,632)
116,368
418,695
$
$
$
$
$
$
$
69,125
(1,553)
67,572
240,000
(6,908)
233,092
120,000
(4,205)
115,795
416,459
In March 2021, the Company issued $138.3 million aggregate principal amount of 2026 Notes in a private placement offering. The 2026 Notes bear interest at a rate of 2.25% per year payable
semiannually in arrears on March 15 and September 15 of each year. Upon conversion, the 2026 Notes will be convertible into either cash, shares of the Company’s common stock or a combination
thereof, at the Company’s election. The Convertible notes are presented as Convertible notes, net of unamortized debt issuance costs, on the consolidated balance sheets. The aggregate proceeds from
the offering were approximately $133.6 million, net of issuance costs, including initial purchasers fees.
Each $1,000 principal amount of the 2026 Notes is initially convertible into 30.1427 shares of the Company’s common stock, which is equivalent to a conversion price of approximately $33.18 per
share. The conversion rate for the 2026 Notes is subject to adjustment for certain events as set forth in the indenture governing the 2026 Notes. The 2026 Notes will mature on March 15, 2026, unless
earlier converted, redeemed, or repurchased in accordance with the terms of the 2026 Notes.
Issuance of convertible notes due in 2028
In May 2022, the Company issued $240.0 million aggregate principal amount of 2028 Notes. The 2028 Notes bear interest at a rate of 2.25% per year payable semiannually in arrears on June 1 and
December 1 of each year. A total of $230.0 million of aggregate principal amount of 2028 Notes was issued in a private placement offering and concurrently with this private placement, the Company
entered into a purchase agreement with Voce, an entity affiliated with J. Daniel Plants, the Company’s former Executive Chairperson, pursuant to which the Company issued to Voce $10.0 million
aggregate principal amount of 2028 Notes on the same terms and conditions. The aggregate proceeds from the offering of 2028 Notes were approximately $232.4 million, net of issuance costs,
including initial purchaser fees.
The 2028 Notes bear interest at a rate of 2.25% per year payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2022. Upon conversion, the 2028 Notes
will be convertible into either cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. Each $1,000 principal amount of the 2028 Notes is initially
convertible into 18.9860 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $52.67 per share. The conversion rate for the 2028 Notes is
subject to adjustment for certain events as
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set forth in the indenture governing the 2028 Notes. The 2028 Notes will mature on March 1, 2028, unless earlier converted, redeemed, or repurchased in accordance with the terms of the 2028 Notes.
Issuance of convertible notes due in 2029
In December 2022, the Company issued $120.0 million aggregate principal amount of 2029 Notes in a private placement offering. The 2029 Notes bear interest at a rate of 4.00% per year payable
semiannually in arrears on June 1 and December 1 of each year. Upon conversion, the 2029 Notes will be convertible into either cash, shares of the Company’s common stock or a combination
thereof, at the Company’s election. The Convertible notes are presented as Convertible notes, net of unamortized debt issuance costs, on the consolidated balance sheets. The aggregate proceeds from
the offering were approximately $115.8 million, net of issuance costs, including initial purchasers fees.
Each $1,000 principal amount of the 2029 Notes is initially convertible into 17.1378 shares of the Company’s common stock, which is equivalent to a conversion price of approximately $58.35 per
share. The conversion rate for the 2029 Notes is subject to adjustment for certain events as set forth in the indenture governing the 2029 Notes. The 2029 Notes will mature on June 1, 2029, unless
earlier converted, redeemed, or repurchased in accordance with the terms of the 2029 Notes.
2026 Notes exchange
In May 2022, the Company entered into privately-negotiated exchange agreements with certain holders of the Company’s outstanding 2026 Notes with respect to the exchange of $45.8 million in
cash (excluding $0.3 million in cash for the payment of accrued interest) and 1,354,348 shares of common stock for $69.1 million in aggregate principal amount of the Company’s outstanding 2026
Notes (the “2026 Notes Exchange”). Immediately following the closing of the 2026 Notes Exchange, approximately $69.1 million in aggregate principal amount of the 2026 Notes remained
outstanding.
The 2026 Notes Exchange was accounted for as an extinguishment of debt. The Company recorded the difference between the proceeds paid and the carrying amount of the debt as an extinguishment
loss, with a corresponding entry to common stock and Additional-paid-in capital for the issuance of the shares at the then-trading price of $41.31 per share. The table below presents the components
of the Loss on debt extinguishment recorded in the Company's consolidated statements of operations for the year ended December 31, 2022 (amounts in thousands, except share and per share
amounts):
Shares issued for repurchase
Closing price of Cutera common stock on May 24, 2022
Value of shares issued
Cash used for repurchase
Total shares and cash
2026 Note principal exchanged
Value of shares and cash exchanged
2026 Notes: Unamortized debt issuance costs on May 24, 2022
Portion of 2026 Note principal exchanged
Loss on debt extinguishment
Conversion and other features
2026 Notes
$
1,354,348
41.31
$
$
55,948
45,776
$
3,648
50 % $
101,724
(69,125)
32,599
1,824
$
34,423
Holders may convert their 2026 Notes at their option prior to the close of business on the business day immediately preceding December 15, 2025, in multiples of $1,000 principal amount, only under
the following circumstances:
• During any fiscal quarter (and only during such fiscal quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30
consecutive trading days ending on and including, the last trading day of the immediately preceding fiscal quarter, is greater than or equal to 130% of the conversion price for the 2026 Notes on
each applicable trading day;
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• During the five-business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” per $1,000 principal amount of 2026 Notes for each
trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day;
• The Company calls such convertible notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
• Upon the occurrence of specified corporate events.
On or after December 15, 2025, and until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2026
Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
The circumstances described in the bullets of the paragraph above were not met during any fiscal quarter during 2023. As of December 31, 2023, the 2026 Notes are convertible. The 2026 Notes may
also become convertible in future periods. Upon any conversion requests of the 2026 Notes, the Company would be required to pay or deliver cash, shares of its common stock, or a combination of
cash and shares of its common stock, at the Company’s election with respect to such conversion requests. To the extent there are any conversion requests during the twelve months ending December
31, 2024, the Company intends to settle such conversion requests in shares of common stock. Therefore, as of December 31, 2023, the 2026 Notes have been included as Long-term debt on the
consolidated balance sheets.
The Company may redeem for cash all or any portion of the 2026 Notes, at the Company’s option, if the last reported sale price of the Company’s common stock has been at least 130% of the
conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and
including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2026 Notes to be
redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company elects to redeem fewer than all of the outstanding 2026 Notes, at least $50.0 million aggregate
principal amount of 2026 Notes must be outstanding and not subject to redemption as of the relevant redemption notice date.
If a specified corporate event occurs, 2026 Note holders have the option to require the Company to repurchase any portion or all of their 2026 Notes in $1,000 principal increments for cash. The price
for such repurchase is calculated as 100% of the principal amounts of 2026 Notes, plus accrued and unpaid interest to the day immediately preceding the Fundamental Change repurchase date.
Additionally, holders of the 2026 Notes who convert in connection with a fundamental change are, under certain circumstances, entitled to an increase in conversion rate.
The 2026 Notes are general senior unsecured obligations that rank senior to any of the Company’s indebtedness that is explicitly subordinated to the 2026 Notes. The 2026 Notes have equal rank in
right of payment with all existing and future unsecured indebtedness that is not subordinated to the 2026 Notes (including the 2028 Notes and 2029 Notes). The 2026 Notes will be junior to any of the
Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness.
The estimated fair value of the 2026 Notes was approximately $29.9 million as of December 31, 2023, which the Company determined through consideration of market prices. The fair value
measurement is classified as Level 2, as defined in Note 3.
2028 Notes
Holders may convert their 2028 Notes at their option prior to the close of business on the business day immediately preceding March 1, 2028, in multiples of $1,000 principal amount, only under the
following circumstances:
• During any fiscal quarter commencing after the fiscal quarter ending on September 30, 2022 (and only during such fiscal quarter), if the last reported sale price of the common stock for at least 20
trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including, the last trading day of the immediately preceding fiscal quarter, is greater than or
equal to 130% of the conversion price for the 2028 Notes on each applicable trading day;
• During the five-business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” per $1,000 principal amount of 2028 Notes for each
trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day;
• The Company calls such 2028 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
• Upon the occurrence of specified corporate events.
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On or after March 1, 2028, and until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2028 Notes, in
multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
The circumstances described in the bullets of the paragraph above were not met during any fiscal quarter during 2023. As of December 31, 2023, the 2028 Notes are not convertible. The 2028 Notes
may become convertible in future periods. Upon any conversion requests of the 2028 Notes, the Company would be required to pay or deliver, as the case may be, cash, shares of its common stock,
or a combination of cash and shares of its common stock, at the Company’s election with respect to such conversion requests. To the extent there are any conversion requests during the twelve months
ending December 31, 2024, the Company intends to settle such conversion requests in shares of common stock. Therefore, as of December 31, 2023, the 2028 Notes have been included as long-term
debt on the consolidated balance sheets.
The Company may not redeem the 2028 Notes prior to June 5, 2025. On or after June 5, 2025, the Company may redeem for cash all or any portion of the 2028 Notes, at the Company’s option, if the
last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30
consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of
redemption at a redemption price equal to 100% of the principal amount of the 2028 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company
elects to redeem fewer than all of the outstanding 2028 Notes, at least $100.0 million aggregate principal amount of 2028 Notes must be outstanding and not subject to redemption as of the relevant
redemption notice date.
If a specified corporate event occurs, note holders have the option to require the Company to repurchase any portion or all of their 2028 Notes in $1,000 principal increments for cash. The price for
such repurchase is calculated as 100% of the principal amounts of 2028 Notes, plus accrued and unpaid interest to the day immediately preceding the Fundamental Change repurchase date.
Additionally, holders of the 2028 Notes who convert in connection with a fundamental change are, under certain circumstances, entitled to an increase in conversion rate.
The 2028 Notes are general senior unsecured obligations that rank senior to any of the Company’s indebtedness that is explicitly subordinated to the 2028 Notes. The 2028 Notes have equal rank in
right of payment with all existing and future unsecured indebtedness that is not subordinated to the 2028 Notes (including the 2026 Notes and 2029 Notes). The 2028 Notes will be junior to any of the
Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness.
The estimated fair value of the 2028 Notes was approximately $60.7 million as of December 31, 2023, which the Company determined through consideration of market prices. The fair value
measurement is classified as Level 2, as defined in Note 3.
2029 Notes
Holders may convert their 2029 Notes at their option prior to the close of business on the business day immediately preceding March 1, 2029 in multiples of $1,000 principal amount, only under the
following circumstances:
• During any fiscal quarter commencing after the fiscal quarter ending March 31, 2023 (and only during such fiscal quarter), if the last reported sale price of the common stock for at least 20 trading
days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including, the last trading day of the immediately preceding fiscal quarter, is greater than or equal to
130% of the conversion price for the 2029 Notes on each applicable trading day;
• During the five-business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” per $1,000 principal amount of 2029 Notes for each
trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day;
• The Company calls such 2029 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
• Upon the occurrence of specified corporate events.
On or after March 1, 2029, and until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2029 Notes, in
multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
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The circumstances described in the bullets in the paragraph above were not met during any fiscal quarter during 2023. As of December 31, 2023, the 2029 Notes are not convertible. The 2029 Notes
may become convertible in future periods. Upon any conversion requests of the 2029 Notes, the Company would be required to pay or deliver, as the case may be, cash, shares of its common stock,
or a combination of cash and shares of its common stock, at the Company’s election with respect to such conversion requests. To the extent there are any conversion requests during the twelve months
ending December 31, 2024, the Company intends to settle such conversion requests in shares of common stock. Therefore, as of December 31, 2023, the 2029 Notes have been included as Long-term
debt on the consolidated balance sheets.
The Company may not redeem the 2029 Notes prior to December 5, 2025. On or after December 5, 2025, the Company may redeem for cash all or any portion of the 2029 Notes, at the Company’s
option, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any
30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of
redemption at a redemption price equal to 100% of the principal amount of the 2029 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company
elects to redeem fewer than all of the outstanding 2029 Notes, at least $100.0 million aggregate principal amount of 2029 Notes must be outstanding and not subject to redemption as of the relevant
redemption notice date.
If a specified corporate event occurs, 2029 Note holders have the option to require the Company to repurchase any portion or all of their 2029 Notes in $1,000 principal increments for cash. The price
for such repurchase is calculated as 100% of the principal amounts of 2029 Notes, plus accrued and unpaid interest to the day immediately preceding the Fundamental Change repurchase date.
Additionally, holders of the 2029 Notes who convert in connection with a fundamental change are, under certain circumstances, entitled to an increase in conversion rate.
The 2029 Notes are general senior unsecured obligations that rank senior to any of the Company’s indebtedness that is explicitly subordinated to the 2029 Notes. The 2029 Notes have equal rank in
right of payment with all existing and future unsecured indebtedness that is not subordinated to the 2029 Notes (including the 2026 Notes and 2028 Notes). The 2029 Notes will be junior to any of the
Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness.
The estimated fair value of the 2029 Notes was approximately $27.4 million as of December 31, 2023, which the Company determined through consideration of market prices. The fair value
measurement is classified as Level 2, as defined in Note 3.
Certain Covenants for the Convertible Notes
Pursuant to the terms of the indentures that govern the Convertible Notes, the Company is required to file with U.S. Bank Trust Company, National Association (the “Trustee”), as trustee under each
of the indentures governing the Convertible Notes, within 15 days after the same are required to be filed with the SEC (giving effect to any grace period provided by Rule 12b-25 under the Exchange
Act), copies of any annual report on Form 10-K or quarterly reports on Form 10-Q that the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. To the
extent the Company elects, the sole remedy for an event of default under the indenture governing a series of Convertible Notes relating to its failure to comply with this obligation (which shall occur
upon failure by the Company for 60 days after receipt of written notice from the Trustee or the holders of 25% in aggregate principal amount the Convertible Notes of such series to comply with this
obligation) shall, for the first 360 days after the occurrence of such an event of default, consist exclusively of the right for the holders of Convertible Notes of such series to receive additional interest
on their Convertible Notes at a rate equal to (i) 0.25% per year for each day during the first 180 days after the occurrence and during the continuance of such event of default and (ii) 0.50% per year
for each day from, and including, the 181st day to, but excluding, the 360th day after the occurrence and during the continuance of such event of default. On the 361st day after such event of default,
if not previously cured or waived, the Convertible Notes of the applicable series shall be subject to acceleration pursuant to the terms of the indenture governing the Convertible Notes of such series.
In the event the Company does not elect to pay additional interest on a series of Convertible Notes prior to the occurrence of an event of default relating to the Company’s failure to comply with this
obligation, or the Company elects to make such payment but does not pay the additional interest on such Convertible Notes when due, the Convertible Notes of such series shall be immediately
subject to acceleration at the election of either the Trustee or the holders of at least 25% in aggregate principal amount of the Convertible Notes of such series.
Additionally, if at any time during the six-month period beginning on, and including, the date that is six months after the last date of original issuance of a series of Convertible Notes, the Company
fails to timely file any document or report that it is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, as applicable (after giving effect to all applicable grace period
thereunder and other than reports on Form 8-K), or the Convertible Notes of such series are not otherwise freely tradable pursuant to Rule 144 as promulgated under the Securities Act of 1933, as
amended, the Company
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shall pay additional interest on such Convertible Notes at a rate of 0.50% per year for each day during such period for which the Company’s failure to file has occurred and is continuing or such
Convertible Notes are not otherwise freely tradable pursuant to Rule 144. Additional interest pursuant to the foregoing accrued on the outstanding principal amount of the 2029 Notes from November
24, 2023 to the one-year anniversary of the last date of original issuance of the 2029 Notes on December 12, 2023 was not material.
The Convertible Notes contain additional customary operating covenants, which include restrictions on the Company’s ability to undergo a merger or consolidation transaction, or transfer or lease
substantially all of the consolidated properties and assets of the Company. The Convertible Notes do not contain any financial covenants or restrictions on the payment of dividends, the issuance of
other indebtedness or the issuance or repurchase of securities by the Company.
Capped Call Transactions
In connection with the issuance of each series of the Convertible Notes, the Company entered into capped call transactions with certain option counterparties. The capped call transactions are
generally intended to reduce the potential dilution of the Company's common stock upon any conversion or settlement of the applicable series of Convertible Notes or to offset any cash payment the
Company is required to make in excess of the principal amount upon conversion of the applicable series of Convertible Notes, as the case may be, with such reduction or offset subject to a cap based
on the cap price. If the market price per share of the Company’s common stock exceeds the cap price of the applicable capped call transactions, then the Company’s stock would experience some
dilution and/or such capped call transactions would not fully offset the potential cash payments, in each case, to the extent the then-market price per share of its common stock exceeds the applicable
cap price.
In connection with the offering of the 2026 Notes, the Company purchased from the option counterparties capped call options that in the aggregate relate to the total number of shares of the
Company's common stock underlying the convertible notes, with a strike price equal to the conversion price of the convertible notes and with an initial cap price equal to $45.535, which represented a
75% premium over the last reported sale price of the Company's common stock of $26.02 per share on March 4, 2021, with certain adjustments to the settlement terms that reflect standard anti-
dilution provisions. The capped call transactions expire over 40 consecutive scheduled trading days ending on March 12, 2026. The capped calls were purchased for $16.1 million.
In connection with the offering of the 2028 Notes, the Company purchased from the option counterparties capped call options that in the aggregate related to the total number of shares of the
Company's common stock underlying the 2028 Notes sold to the initial purchasers in the offering of 2028 Notes, with a strike price equal to the conversion price of the 2028 Notes and with an initial
cap price equal to $82.62, which represents a 100% premium over the last reported sale price of the Company's common stock of $41.31 per share on May 24, 2022, with certain adjustments to the
settlement terms that reflect standard anti-dilution provisions. These capped call transactions expire over 40 consecutive scheduled trading days ending on May 30, 2028. The capped calls were
purchased for $32.0 million, inclusive of issuance costs.
In connection with the offering of the 2029 Notes, the Company purchased from the option counterparties capped call options that in the aggregate related to the total number of shares of the
Company's common stock underlying the 2029 Notes sold to the initial purchasers in the offering of 2029 Notes, with a strike price equal to the conversion price of the 2029 Notes and with an initial
cap price equal to $99.32, which represents a 100% premium over the last reported sale price of the Company's common stock of $49.66 per share on December 7, 2022, with certain adjustments to
the settlement terms that reflect standard anti-dilution provisions. These capped call transactions expire over 40 consecutive scheduled trading days ending on May 30, 2029. The capped calls were
purchased for $25.1 million, inclusive of issuance costs
The Company evaluated the capped call transactions under authoritative accounting guidance and determined that they should be accounted for as a separate transaction and classified as a net
reduction to Additional paid-in capital within stockholders’ equity with no recurring fair value measurement recorded.
The Company early adopted ASU 2020-6, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) on
January 1, 2021. In accordance with Subtopic 470-20 and 815-40, as revised by ASU 2020-6, the Company records the convertible notes in long-term debt with no separation between the Convertible
Notes and the conversion option. Each reporting period, the Company will determine whether any criteria is met for the note holders to have the option to redeem the Notes early, which could result
in a change in the classification of the Notes to current liabilities.
Debt Issuance Costs
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The issuance costs are amortized using an effective interest method basis over the term of the Convertible Notes. During the year ended December 31, 2022, the Company incurred direct costs
associated with the issuance of convertible notes of $11.8 million. As noted under “2026 Notes Exchange” above, $1.8 million of unamortized debt issuance costs related to the 2026 Notes was
included in the loss on debt extinguishment during the year ended December 31, 2022.
The effective interest rate on the 2026 Notes, 2028 Notes, and 2029 Notes are 2.98%, 2.82%, and 4.63%, respectively. Interest expense for the year ended December 31, 2023, including the
amortization of debt issuance cost, totaled approximately $14.0 million. Interest expense for the years ended December 31, 2022 and December 31, 2021, including the amortization of debt issuance
cost, totaled approximately $7.0 million and $3.2 million, respectively.
Loan and Security Agreement
On July 9, 2020, the Company entered into the Loan and Security Agreement with Silicon Valley Bank for a four-year secured revolving loan facility (“SVB Revolving Line of Credit”) in an
aggregate principal amount of up to $30.0 million. The Revolving Line of Credit, originally set to mature on July 9, 2024, was terminated by the Company on April 3, 2024.
As of December 31, 2023, the Company had not drawn on the SVB Revolving Line of Credit.
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NOTE 15. QUARTERLY INFORMATION (UNAUDITED)
As previously reported, there was a restatement of the financial statements included in the Company’s Quarterly Report on Form 10-Q for the fiscal periods ended March 31, 2023 and June 30, 2023.
The following table sets forth the Company’s unaudited consolidated quarterly financial data. This information has been prepared on a basis consistent with that of the audited consolidated financial
statements. The Company believes that all necessary adjustments, consisting of normal recurring accruals and adjustments, have been included to present fairly the quarterly financial data. The
Company's quarterly results of operations for these periods are not necessary indicative of future results of operations.
Dec 31,
2023
Sep 30,
2023
Jun 30,
2023
Mar 31,
2023
Dec 31,
2022
Sep 30,
2022
Jun 30,
2022
Mar 31,
2022
(In thousands, except per share data)
Three Months ended,
Net revenue
Gross profit
Net loss
Net loss per share:
Basic
Diluted
Current assets
Long-term assets
Current liabilities
Long-term liabilities
$
$
$
$
$
$
$
$
$
49,540 $
(12,678) $
(57,233) $
(2.87) $
(2.87) $
269,185 $
77,106 $
87,747 $
430,374 $
46,478 $
6,457 $
(44,274) $
(2.22) $
(2.22) $
311,307 $
95,326 $
92,406 $
430,312 $
61,825 $
26,083 $
(33,278) $
(1.68) $
(1.68) $
365,944 $
93,080 $
102,923 $
429,902 $
121
54,526 $
21,632 $
(28,048) $
(1.42) $
(1.42) $
416,045 $
80,534 $
108,607 $
430,017 $
67,353 $
38,749 $
(7,788) $
(0.40) $
(0.40) $
451,240 $
69,748 $
105,839 $
430,330 $
62,808
34,248
(12,134)
(0.62)
(0.62)
366,312
61,845
98,258
314,405
$
$
$
$
$
$
$
$
$
64,224
35,044
(47,276)
(2.53)
(2.53)
373,313
50,779
85,716
314,502
$
$
$
$
$
$
$
$
$
58,014
31,788
(15,142)
(0.84)
(0.84)
236,784
29,907
74,037
149,494
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NOTE 16. SUBSEQUENT EVENTS
New warehouse facility
On January 16, 2024, the Company entered into a thirty-seven-month lease agreement. The lease is for 53,000 square feet of warehouse space in Hayward, California. This space was leased to
consolidate current inventory locations in Northern California. The term of the lease expires on February 28, 2027, and requires total payments over the lease term of approximately $2.5 million.
Termination of skincare distribution agreement
On February 28, 2024, the Company and its Japanese subsidiary, Cutera KK, entered into a termination agreement (the “Termination Agreement”) with ZO USA and its Japanese subsidiary, ZO Skin
Health GK (“ZO Japan” and together with ZO USA and their affiliates, “ZO”), which, among other things, (i) terminates all agreements related to the distribution by the Company of ZO’s products in
Japan effective immediately, (ii) provides for the orderly transition of the distribution of ZO products to ZO, (iii) transfers certain Company employees dedicated to the distribution of ZO products to
ZO, (iv) transfers certain customer contracts related to ZO products from the Company to ZO and (v) transfers certain inventory and assets related to the distribution of ZO products from the
Company to ZO. The Termination Agreement requires ZO to pay the Company $5.75 million within three business days of the execution of the Termination Agreement and make a second payment
of $5.75 million, less any offsets under the Termination Agreement (including, but not limited to, 42.2% of the Company’s net revenue for sales of ZO products under the Distribution Agreement
between January 1, 2024 and February 28, 2024), upon the earlier of (a) the completion the transition of regulatory and distribution activities such that ZO is able to fulfill product orders by
customers in Japan, as determined by ZO and the Company, and (b) June 14, 2024. The Company received the first payment of $5.75 million on February 29, 2024, and received the second payment
of $2.37 million on April 1, 2024, which was net of $1.6 million in amounts owed by Cutera.
In the twelve months ended December 31, 2023, 2022, and 2021 revenue from the distribution of skincare products was $34.0 million, $42.5 million, and $49.7 million, respectively, representing
16%, 17%, and 21% of the Company’s consolidated revenue, respectively.
Non-renewal of manufacturing service agreement with Jabil Inc. (“Jabil”)
In November 2023, the Company communicated its intention not to renew its existing manufacturing service agreement (“Manufacturing Service Agreement”) with Jabil Inc., a third-party
manufacturing provider that manufactured excel V+ and AviClear devices for the Company. At the time of the communication of non-renewal, the Company concluded that it would have an
obligation to purchase unshipped inventory from Jabil. The Company subsequently received claims from Jabil related to other amounts associated with the termination and entered into settlement
discussions with Jabil.
On February 28, 2024, the Company and Jabil signed a settlement agreement (“Settlement Agreement”) for the non-renewal of the Manufacturing Service Agreement. The Settlement Agreement
provided for a payment by Cutera to Jabil of $19.5 million, to be offset by $1.3 million in amounts owed by Jabil. The $19.5 million payment to Jabil relates to the Company's receipt of $13.5 million
of inventories, $0.3 million of equipment, and the payment of $5.7 million for expenses either previously incurred by Jabil or associated with the non-renewal of the Manufacturing Services
Agreement.
The Company recorded the net balance of the $19.5 million payment owed to Jabil and the $15.1 million aggregate of inventories, equipment, and other amounts owed to Cutera, in accrued liabilities
on the consolidated balance sheet at December 31, 2023. The Company also recorded an accrued loss of $4.6 million on inventories committed as a result of the Settlement Agreement, that
management determined to be in excess of its future demand, in accrued liabilities on the consolidated balance sheet at December 31, 2023. The $5.7 million for expenses incurred by Jabil was
recorded in cost of revenue on the consolidated statements of operations in the twelve months ended December 31, 2023.
Other
The Company has evaluated subsequent events through the date the financial statements were issued, and determined that there have been no other events that have occurred that would require
adjustments to its disclosures in the consolidated financial statements.
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Deferred tax assets valuation allowance
Year ended December 31, 2023
Year ended December 31, 2022
Year ended December 31, 2021
Allowance for credit losses, accounts receivable
Year ended December 31, 2023
Year ended December 31, 2022
Year ended December 31, 2021
SCHEDULE II CUTERA, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
For the Years Ended December 31, 2023, 2022 and 2021
Balance at
Beginning
of Year
Additions
Deductions
Balance
at End of
Year
53,118 $
40,485 $
38,321 $
48,666 $
18,153 $
7,503 $
4,504 $
5,520 $
5,339 $
97,280
53,118
40,485
Balance at
Beginning
of Year
Additions
Deductions
Balance
at End of
Year
2,497 $
899 $
1,598 $
8,525 $
1,787 $
271 $
1,144 $
189 $
970 $
9,878
2,497
899
$
$
$
$
$
$
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that
information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that
such information is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow for
timely decisions regarding required disclosure.
As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal
executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this
Annual Report on Form 10-K. Based on the foregoing, the Company’s Chief Executive Officer (“CEO”) and Interim Chief Financial Officer (“Interim CFO”) concluded that the Company’s
disclosure controls and procedures were not effective at the reasonable assurance level as a result of the material weaknesses disclosed below. Notwithstanding the material weakness, the Company’s
management, including the CEO and Interim CFO, has concluded that the consolidated financial statements, included in the 2023 Annual Report on Form 10-K, fairly present, in all material respects,
its financial condition, results of operations and cash-flows for the periods presented in conformity with generally accepted accounting principles.
Attached as exhibits to this Annual Report are certifications of the Company’s CEO and Interim 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.
Inherent Limitations Over Internal Controls
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with GAAP. The Company’s internal control over financial reporting includes those policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures
are being made only in accordance with authorizations of the Company’s management and directors; and
• 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.
Management, including the Company’s CEO and Interim CFO, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are 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. Due to the inherent limitations in all control systems, no evaluation of internal controls can
provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that
those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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) to
provide reasonable assurance regarding the reliability
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of the Company’s financial reporting and the preparation of Consolidated Financial Statements for external purposes in accordance with U.S. GAAP.
Management, including Company’s CEO and Interim CFO, assessed the Company’s internal control over financial reporting as of December 31, 2023. Management based its assessment on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included
evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and the Company's overall control environment.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the
Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Based on this assessment, management identified the following material weaknesses in the Company’s internal control over financial reporting:
• Information technology general controls (“ITGCs”) including, segregation of duties, user access, and reports produced by certain IT systems that support the Company's financial reporting process
including those related to the implementation of an ERP system;
• Inventory controls related to the completeness, existence, and cut-off of inventories held at third parties, inventories held by sales personnel, and inventories in transit, and controls related to the
calculation of adjustments to inventory for items considered excessive and obsolete;
• The completeness and accuracy of expense for routine and non-routine equity-based awards; and
• The design, maintenance and monitoring of a risk assessment program at a sufficiently precise level to identify new and evolving risks related to accounting policies, procedures and related controls
performed over areas including, but not limited to inventory, revenues and lease income, costs for leased devices, and testing of certain key reports used in controls. As a result the Company failed
to respond to changes in the business and leadership.
Although these material weaknesses did not result in any material misstatement of the Company's consolidated financial statements for the periods presented, any one of these weaknesses could lead
to a material misstatement of account balances or disclosures. Accordingly, management has concluded that these deficiencies constitute material weaknesses.
Based on the Company's assessment under the framework in Internal Control-Integrated Framework (2013 framework), the Company's management concluded that its internal control over financial
reporting was not effective as of December 31, 2023, due to the existence of the material weaknesses described above.
Management continues to review and make changes to the overall design of its internal control environment, including implementing additional internal controls over ITGCs, inventory, equity and its
risk assessment program over areas including but not limited to inventory, revenues and lease income, costs for leased devices, and certain key reports used in controls. The Company has added
internal and external resources to its finance and internal audit functions to enhance the effectiveness of internal controls over financial reporting. The material weakness will not be considered
remediated until the applicable remedial controls operate for a sufficient period. The Company has made progress in the remediation efforts related to the material weaknesses but cannot estimate
when these efforts will be completed.
The Company’s efforts include:
ITGC remediation actions:
• Developed a training program addressing ITGCs and policies, including educating control owners concerning the principles and requirements of each control, with a focus on those related to user
access and change-management over IT systems impacting financial reporting;
• Developed enhanced risk assessment procedures and controls related to changes in IT systems; and
• Implemented an IT management review and testing plan to monitor ITGCs with focus on systems supporting the financial reporting processes;
• Made progress towards remediation of segregation of duties (“SOD”) conflicts within the ERP system with an estimated completion by June 2024; and
• Determined the scope of and tested applications and tools, including but not limited to the company’s ERP system.
Inventory control remediation actions:
• Evaluated the effectiveness of the current annual inventory count program and controls;
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• Implemented a global inventory count policy and standard operating procedures to ensure consistent communication of the inventory count process and adherence to these policies at facilities
managed by the Company and third-party logistics service providers;
• Provided training of standard operating procedures and internal controls to key stakeholders within the supply chain, logistics, and inventory process; and
• Enhanced existing management review controls related to inventory reconciliation, inventory in transit, inventories held by sales personnel, and key reports used in in the inventory count process.
Evaluating the effectiveness of the current annual inventory count program and controls.
Equity-based awards expense calculation remediation actions:
• Enhanced current review controls around the calculation of stock-based compensation expense.
Risk assessment remediation actions:
• Engaged third-party professionals to evaluate the design and operating effectiveness of the Company's risk assessment process in relation to the timely identification and assessment of changes in
the business and leadership; and
• Provided training of standard operating procedures and internal controls to key stakeholders.
The actions the Company is taking are subject to ongoing executive management review and are also subject to audit committee oversight. If the Company is unable to successfully remediate these
material weaknesses, or if in the future, the Company identifies further material weaknesses in its internal control over financial reporting, the Company may not detect errors on a timely basis, and
its financial statements may be materially misstated.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, has been audited by an independent registered public accounting firm, as stated in their
attestation report, which is included in their annual report under “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
Other than the remediation action noted above, there were no changes in the Company’s internal control over financial reporting during the year ended December 31, 2023, that have materially
affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS
PART III
The table below lists the name, age and certain other information of each member of our Board of Directors (the “Board”) as of March 31, 2024. We have also included below a summary of the
business experience of each of our Directors and their educational background, including a discussion of the qualifications, attributes and skills that led our Board to the conclusion that each of our
Directors should serve as a Director of Cutera.
There are no family relationships among any of our Directors or executive officers.
Name
Age
Taylor C. Harris
Kevin J. Cameron
Sheila A Hopkins
Nicholas S. Lewin
(4)
Keith J. Sullivan
(1)
(2)
(3)
48
55
68
46
65
Principal Occupation
Chief Executive Officer and Director
(Principal Executive Officer)
Executive Chairman of the Board of Directors; Chairman of IonetixCorporation; Fouder Glass Lewis
Director; Former President, Global Vision Care for Bausch + Lomb
Director; Managing Partner at Crown Predator Holdings
Director; President and Chief Executive Officer of Neuronetics
Director Since
2023
2023
2021
2023
2023
(1) Chair of the Governance and Corporate Responsibility Committee; Member of the Audit Committee
(2) Member of the Governance and Corporate Responsibility Committee; Member of the Compensation Committee. Ms. Hopkins was appointed as the Company’s Interim Chief Executive Officer on April 11, 2023 and resigned from her committee
positions on April 11, 2023.
(3) Member of the Governance and Corporate Responsibility Committee; Chair of the Compensation Committee; Member of the Audit Committee
(4) Chair of the Audit Committee; Member of the Compensation Committee
Taylor C. Harris was appointed as the Company's Chief Executive Officer in July 2023 and a member of the Board in May 2023. Mr. Harris served as the Chief Financial Officer for MyoKardia,
Inc., from April 2018 until that company’s acquisition by Bristol Myers Squibb in November 2020. Prior to that, Mr. Harris served as Senior Vice President and Chief Financial Officer of Zeltiq
Aesthetics, Inc., until that company’s acquisition by Allergan plc. Mr. Harris also served as Vice President and Chief Financial Officer at Thoratec Corporation, which was acquired by St. Jude
Medical, Inc, and prior to that he worked at JPMorgan Chase & Co. for over a decade in several capacities, including as a Vice President in the firm’s Healthcare Investment Banking and Equity
Research departments. Mr. Harris holds a B.A. from the University of North Carolina at Chapel Hill, where he studied as a Morehead-Cain Scholar. We believe Mr. Harris is qualified to serve on our
Board because of his training and qualifications and the skills and experience he has developed during his extensive career in the medical devices industry.
Kevin J. Cameron was appointed as the Company's Chairman of the Board of Directors in May 2023. Mr. Cameron serves as Chairman and Co-Founder of Ionetix Corporation, a privately held
company that develops and operates cyclotrons for the production and distribution of radioisotopes used for diagnostic and therapeutic radiopharmaceuticals. Mr. Cameron is also the Executive
Chairman (and previously served as President) of Glass, Lewis & Co., a leading provider of corporate governance services to institutional investors. Prior to that, Mr. Cameron was General Counsel
at Moxi Digital and NorthPoint Communications (NASD: NPNT). Mr. Cameron currently serves as a board member of Pylum Biosciences, a private biotechnology company. He previously was on
the Board of Knight Therapeutics (TSE: GUD), Keryx Biopharmaceuticals (NASD: KERX), AvidBiotics, Reddy Ice (NYSE: FRZ), ECOtality (NASD: ECTY), and ProCure Treatment Centers. Mr.
Cameron earned a J.D. from the University of Chicago and a B.A. from McGill University. We believe that Mr. Cameron is qualified to serve on our Board because of his corporate marketing
knowledge as well as his diverse experience in the medical device industry working for a large medical device company.
Sheila A. Hopkins was appointed as a member of our Board of Directors in May 2021. Ms Hopkins serves as Interim Chief Executive Officer from April 11, 2023 to July 27, 2023. Ms. Hopkins
currently serves as a director for Prestige Consumer Healthcare, where she also serves on the Compensation and Governance and Corporate Responsibility Committees. Among her executive
leadership roles, Ms. Hopkins served as EVP and President, Global Vision Care for Bausch + Lomb. Prior to that, Ms. Hopkins held executive positions at Colgate-Palmolive, Procter & Gamble and
Tambrands. We believe that Ms. Hopkins is qualified to serve on our Board because of her experience in leadership roles at major consumer packaged goods and healthcare companies and her years
of experience serving on public company boards of directors.
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Nicholas S. Lewin was appointed as a member of our Board of Directors in May 2023. Mr. Lewin has been a Managing Partner at Crown Predator Holdings, an investment firm that invests in
growth-stage companies and special situations, and a private investor since 2000. He has invested across multiple industries, with a particular focus on companies with innovative technologies and
strong intellectual property. Mr. Lewin currently serves on the Board of two publicly traded companies, including Establishment Labs (NASDAQ: ESTA), a $1.3 billion market cap global, high-tech
medical device and aesthetics company, and FaZe Holdings (NASDAQ: FAZE), a lifestyle and media platform. Mr. Lewin was appointed to Chairman of Establishment Labs in 2017 and previously
provided consulting services to the Company. Mr. Lewin is also on the Board of Halo Maritime Defense Systems and previously served as a director as Dura Medic from 2006 to 2018. Mr. Lewin
earned a B.A. from Johns Hopkins University. We believe Mr. Lewin is qualified to serve on our Board because of his business leadership skills and experience in building and running global
financial organizations at listed companies will bring valuable expertise and perspective to the Board.
Keith J. Sullivan was appointed as a member of our Board of Directors in May 2023. Mr. Sullivan currently serves as President and Chief Executive Officer of Neuronetics (NASDAQ: STIM), a
publicly traded $105 million market cap company that develops non-invasive treatments for psychiatric disorders. Previously, he was Chief Commercial Officer and President (North America) of
ZELTIQ Aesthetics, Inc. until the acquisition of ZELTIQ by Allergan, Inc. in April 2017. Mr. Sullivan held various other roles at ZELTIQ, including, Senior Vice President of Worldwide Sales and
Marketing and Senior Vice President of Global Operation. Mr. Sullivan has also previously held leadership positions with Medicis Pharmaceuticals, Reliant Technologies, Medtronic (NYSE: MDT),
Vision Quest Laser Center and Coherent Medical. Mr. Sullivan currently serves on the Board of Neuronetics (NASDAQ: STIM) and Venus Concept (NASDAQ: VERO). Mr. Sullivan earned a B.A.
from the College of William and Mary where he currently serves as a Clinical Professor, a role he’s held since 2017. We believe Mr. Sullivan is qualified to serve on our Board because of his business
leadership skills and experience in building and running global financial organizations at listed companies will bring valuable expertise and perspective to the Board.
The following table sets forth certain information with respect to the Company’s executive officers as of March 31, 2024.
EXECUTIVE OFFICERS
Name
Taylor C. Harris
Stuart D. Drummond
Jeffrey S. Jones
Michael A. Karavitis
Stephana E. Patton
Age
48
58
67
54
53
Position
Chief Executive Officer and Director
(Principal Executive Officer)
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
Chief Operating Officer
Executive Vice President, Chief Technology Officer
Chief Legal Officer
Please see Part III, Item 10, above, for Taylor C. Harris’s biography.
Stuart D. Drummond was appointed as the Company's Interim Chief Financial Officer on May 5, 2023. Mr. Drummond has served as the Company’s Vice President and Corporate Controller since
July 2021. From November 2019 until June 2021, Mr. Drummond served as Senior Director, Corporate Controller at Sangamo Therapeutics, Inc. and from July 2016 to March 2019 he served as
Corporate Controller of CareDx, Inc. Mr. Drummond gained his bachelor’s degree from Otago University, New Zealand, and graduate accounting qualification from Victoria University, New
Zealand. Mr. Drummond obtained his Chartered Accounting certification in New Zealand with KPMG.
Jeffrey S. Jones was appointed as the Company’s Chief Operating Officer in August 2023. Mr. Jones has served as the Vice President of Operations and Supply Chain for Sientra Inc. since March
2019. Prior to that, Mr. Jones served as the Vice President of Quality and Commercial Operations at Earlens Corporation from October 2015 to March 2019; as Chief Operating Officer of Benvenue
Medical from March 2014 to October 2015; as Vice President of Operations/Research & Development at Acclarent, Inc. from 2009 to 2014; as Chief Operating Officer of Reliant Technologies, Inc.
from 2004 to 2009; as Chief Operating Officer of Lumend Inc. from 2001 to 2004; and as Vice President of Operations and Quality at EP Technologies from 1996 to 2001. Mr. Jones holds a
Bachelor’s Degree in Engineering from the U.S. Military Academy at West Point and an M.B.A. from Golden Gate University.
Michael A. Karavitis has served as the Company's Chief Technology Officer since August 2017. Dr. Karavitis directs research and development activities ranging from early phase R&D all the way
through product development. Previous to this role, Dr. Karavitis served as Vice President of Research and Development of Cutera from 2012 to 2015. Under his leadership, Cutera released multiple
innovative platforms, as well as product line extensions including Enlighten (the world’s first dual
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wavelength, dual pulse duration picosecond aesthetic laser) and Excel HR. In addition to starting his own company, Femtoblanc Inc., Dr. Karavitis has led various teams of engineers and scientists at
a number of successful early to mid-stage companies, including LenSx (acquired by Alcon), Newport Corporation and Intralase Corporation (acquired by Advanced Medical Optics). Dr. Karavitis
graduated with a B.S. in Chemistry from Indiana University, and completed his M.S. and Ph.D. in Chemical and Material Physics at the University of California, Irvine. Dr. Karavitis is the named
inventor in 10 U.S. patents, and is the author of 17 publications in peer-reviewed journals.
Stephana E. Patton, has served as the Company's Chief Legal Officer since November 2023. Dr. Patton was most recently Chief Legal Officer at InterVenn Biosciences. Prior to that, Dr. Patton
served as General Counsel, Corporate Secretary, and Chief Compliance Officer at Eiger Biopharmaceuticals (NASDAQ:EIGR) where she was responsible for all legal and compliance matters.
Previously, Dr. Patton was General Counsel, Corporate Secretary, and Chief Compliance Officer at BioTime, Inc. (NYSE:LCTX) and Vice President, General Counsel and Commercial Compliance
Officer at BioDelivery Sciences International, Inc. Dr. Patton began her life sciences industry career at Salix Pharmaceuticals, Inc., where she was Vice President of Intellectual Property and
Licensing, until the company was acquired by Valeant, Inc. in 2015. Dr. Patton earned a B.S. in Chemistry from Erskine College, a Ph.D. in Biochemistry and Cell and Developmental Biology from
Emory University, and a J.D. from Boston University School of Law.
Director Independence
CORPORATE GOVERNANCE
Our common stock is listed on the NASDAQ Stock Market (“NASDAQ”). Under the NASDAQ listing standards, independent directors must comprise a majority of a listed company’s board of
directors. In addition, the NASDAQ listing standards require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and corporate governance
committees be independent. Under the NASDAQ listing standards, a director will only qualify as an “independent director” if, in the opinion of that listed company’s board of directors, that director
does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Audit committee members must also satisfy the additional independence criteria set forth in Rule 10A-3 under the Exchange Act and the NASDAQ listing standards. Compensation committee
members must also satisfy the additional independence criteria set forth in Rule 10C-1 under the Exchange Act and the NASDAQ listing standards.
Our Board has undertaken a review of the independence of each of our directors. Based on information provided by each director concerning his or her background, employment and affiliations, our
Board has determined that each of the directors, other than Taylor C. Harris, our Chief Executive Officer and Sheila A Hopkins, our Former Chief Executive Officer, satisfy the current “independent
director” standards established by NASDAQ.
Board Leadership Structure
The roles of Chairperson of the Board and Chief Executive Officer are filled by separate individuals. Kevin Cameron was appointed to be Chairperson in July 2023. We believe that it is important
that the Board retain flexibility to determine whether these roles should be separate or combined based upon the Board’s assessment of our needs and our leadership at a given point in time. As such,
the Board does not have a policy mandating the separation of the roles of Chairperson and Chief Executive Officer, though one can be established by the Board. Our Board believes that the separation
of the offices of the Chairperson and Chief Executive Officer is appropriate at this time because it allows our Chief Executive Officer to focus primarily on our business strategy, operations and
corporate vision. Our Board elects our Chairperson and Chief Executive Officer, and each of these positions may be held by the same person or by different people.
As described in more detail below, the Board currently has three standing committees: an Audit Committee, a Compensation Committee, and a Governance and Corporate Responsibility Committee.
As deemed advisable by the Board, various ad hoc committees may be established from time to time to accomplish a specific goal or purpose and cease to exist when that goal or purpose is realized.
The Chairperson and each member of all committees are independent directors. 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 chairpersons are an important aspect of
our Board leadership and governance structure.
Risk Oversight and Analysis
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Risk is inherent with every business, and we face a number of risks, including strategic, financial, business and operational, political, regulatory, legal and compliance, and reputational. We have
designed and implemented processes to manage risk in our operations. Our management team 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.
Our Board believes that open communication between management and our Board is essential for effective risk management and oversight. Our Board meets with our Chief Executive Officer and
other members of the senior management team at meetings of our Board, where, among other topics, they discuss strategy and risks facing the Company, as well as at such other times as they deem
appropriate.
Our senior management team is responsible for risk management of the Company. While our Board has the ultimate oversight of risk management, various committees of the Board 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.
Excessive risk-taking has been discouraged at the Company. The Compensation Committee takes into account risk management, and attempts to minimize risk, when determining compensation. The
Governance and Corporate Responsibility Committee assists the Board in fulfilling its oversight responsibilities with respect to the management of risks associated with Board organization,
governance, membership and structure.
Board Meetings and Committees
Our Board has three standing committees: the Audit Committee, the Compensation Committee, and the Governance and Corporate Responsibility Committee. The membership during the last fiscal
year, and the function of each of the committees, are described below.
Name of Director
Non-Employee Directors:
Kevin J. Cameron
Sheila A. Hopkins
Nicholas S. Lewin
Keith J. Sullivan
Employee Director:
Taylor C. Harris
X= Committee member
*= Chairperson of Committee
There were 15 board meetings conducted during 2023
Audit Committee
Compensation
Committee
Governance and Corporate Responsibility
Committee
X
X
X*
X
X*
X
X*
X
X
Audit Committee. The Audit Committee oversees the Company’s accounting and financial reporting processes and the audits of its financial statements. The Audit Committee operates under a written
charter adopted by the Board and a copy of the charter can be found on the Investors page, under the Corporate Governance section of our website at www.cutera.com. 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 each member of the
Audit Committee meets the independence and financial literacy requirements of the NASDAQ rules and the independence requirements of the SEC. On June 6, 2023, our Board appointed Keith
Sullivan as Chairperson of the Audit Committee and determined that Mr. Sullivan qualifies as an “audit committee financial expert” as defined in the SEC rules.
Compensation Committee. The Compensation Committee establishes compensation for our Chief Executive Officer and the other executive officers and administers the Company’s 2004 Employee
Stock Purchase Plan, 2019 Equity Incentive Plan, which is an amendment and restatement of 2004 Equity Incentive Plan and 2023 Inducement Equity Incentive Plan. Each member of the
Compensation Committee meets the requirements for independence for compensation committee members
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under the NASDAQ listing standards and SEC rules and regulations, including Rule 10C-1 under the Exchange Act. Each member of our Compensation Committee is also a non-employee director,
as defined pursuant to Rule 16b-3 promulgated under the Exchange Act. Nicholas Lewin was appointed Chairperson of the Compensation Committee on July 14, 2023. The Compensation Committee
has a written charter, which was adopted by our Board, and can be found on the Investors page, under the Corporate Governance section of our website at www.cutera.com.
Governance and Corporate Responsibility Committee. The Governance and Corporate Responsibility Committee reviews and makes recommendations to the Board on matters concerning
environmental, social, corporate governance, Board composition, identification, evaluation and nomination of director candidates, Board committees, Board compensation, and conflicts of interest.
The Committee also has oversight on key environmental policies such as those relating to sustainability and climate change and social issues such as the Company’s progress on diversity, equity, and
inclusion initiatives. Each member of our Governance and Corporate Responsibility Committee meets the requirements for independence under the NASDAQ listing standards and SEC rules and
regulations. The Governance and Corporate Responsibility Committee has a written charter, which was adopted by our Board and can be found on the Investors page, under the Corporate Governance
section of our website at www.cutera.com.
Meetings Attended by Directors
Each of the directors attended at least 75% of the meetings of the Board or committee(s) on which he or she served during 2023.
The directors of the Company are encouraged to attend the Company’s Annual Meeting of Stockholders each year. In 2023, all of our directors at the time attended the Company’s Annual Meeting of
Stockholders virtually through the internet or telephonically.
Process for Recommending Candidates for Election to the Board of Directors
Director Qualifications. The Governance and Corporate Responsibility Committee considers the appropriate balance of experience, skills and characteristics required of members of the Board. While
the Governance and Corporate Responsibility Committee has not formalized specific minimum qualifications they believe must be met by a candidate to be recommended by the independent
members, the Governance and Corporate Responsibility Committee believes that candidates and nominees must reflect a Board that is comprised of directors who will increase overall Board
effectiveness and enhance long-term stockholder value, and meet other requirements as may be required by applicable rules, such as financial literacy or financial expertise with respect to Audit
Committee members. Candidates and nominees should have the highest professional and personal ethics and values, and conduct themselves consistent with our Code of Ethics.
The Company is currently in compliance with all applicable laws, and rules related to diversity, and the Governance and Corporate Responsibility Committee will continue to monitor the Company’s
compliance.
Stockholder Nominations and Recommendations. Our bylaws set forth the procedure for the proper submission of stockholder nominations for membership on our Board. In addition, the Governance
and Corporate Responsibility 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 Corporate Secretary at 3240 Bayshore Blvd., Brisbane, California 94005-1021 no later than the 2024
nomination deadline:
•
•
•
•
•
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 Governance and Corporate Responsibility Committee carefully reviews the qualifications of any
candidates who have been properly brought to its attention. Such a review may, in the Governance and Corporate Responsibility Committee’s discretion, include a review solely of information
provided to the Governance and Corporate Responsibility Committee or may also include discussion with persons familiar with the candidate, an interview with the candidate, or other actions that the
Governance and Corporate Responsibility Committee deems proper. The Governance and Corporate Responsibility Committee considers 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, the Governance and Corporate Responsibility Committee considers
many factors, including, experience, issues of character, judgment, diversity,
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independence, integrity, expertise, length of service, and other commitments. In addition, the Governance and Corporate Responsibility Committee takes into account professional experience, skills
and background in considering and evaluating candidates. Although diversity is one factor considered in the nomination process, the Company does not have a formal policy relating to diversity
except as required by applicable law. The Governance and Corporate Responsibility Committee and the Board consider diversity (including gender, race, and ethnicity) among other qualifications,
experience, attributes or skills in its process of identifying and evaluating candidates to be nominees to the Board. The Governance and Corporate Responsibility 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 Governance and Corporate
Responsibility Committee using the same criteria as other candidates. Candidates are not discriminated against on the basis of race, gender, religion, national origin, sexual orientation, disability or
any other basis proscribed by law.
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 Corporate 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, unless the communication is unduly
hostile, threatening, illegal, does not reasonably relate to us or our business, or is inappropriate. The Corporate Secretary has the authority to discard or disregard any inappropriate communications or
to take other appropriate actions with respect to any such inappropriate communications. The Board will endeavor to promptly respond to all appropriate communications and encourages all
stockholders and interested persons to use the aforementioned email and mailing address to send communications relating to our business to the Board and its members.
Code of Business Conduct and Ethics
The Board has adopted a Corporate Code of Business Conduct and Ethics (the “Code”) for all executive officers and other employees, agents and representatives. The Code is designed to deter
wrongdoing and to promote honest, ethical, and socially and environmentally responsible conduct, including the ethical handling of actual or apparent conflicts of interest between personal and
professional relationships; full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications made by us;
compliance with applicable governmental laws, rules and regulations; the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and
accountability for adherence to the Code. A copy of the Code is available on the Investors page, under the Corporate Governance section of our website at www.cutera.com. Any change to, or waiver
from, the code will be disclosed as required by applicable securities laws.
Clawback Policy
The SEC adopted final rules implementing the incentive-based compensation recovery provisions of the Dodd-Frank Act, and NASDAQ has adopted listing standards consistent with the SEC rules.
The Company has adopted the compensation recovery policy, or “clawback” policy, required by Section 10D of the Exchange Act and Rule 10D-1. Under the policy, in the event that the financial
results upon which a cash or equity-based incentive award was predicated become the subject of a financial restatement that is required because of material non-compliance with financial reporting
requirements, the Compensation Committee will conduct a review of awards covered by the policy and recoup any erroneously awarded incentive-based compensation to ensure that the ultimate
payout gives retroactive effect to the financial results as restated. The policy covers any cash or equity-based incentive compensation award that was paid, earned or granted to a covered officer
during the last completed three fiscal years immediately preceding the date on which the Company is required to prepare the accounting restatement.
Hedging Policy
According to our Insider Trading Compliance Program, employees of the Company, including, but not limited to, our executive officers and directors, are strongly discouraged from investing in
derivatives of the Company’s securities. This includes, but is not limited to, trading in put or call options related to securities of the Company or otherwise hedging or offsetting any decrease in the
market value of securities.
Compensation Committee Interlocks and Insider Participation
Currently, our Compensation Committee consists of Nicholas Lewin (Chairperson), Keith Sullivan and Sheila Hopkins. Gregory A. Barrett and Janet D. Widmann served on the committee until July
2023. No current, former or expected member of
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the Compensation Committee, nor any of our Named Executive Officers, has a relationship that would constitute an interlocking relationship with executive officers or directors of another entity.
No current or expected member of our Compensation Committee is or has been an officer or employee of the Company. None of our executive officers currently serves, or in the past year has served,
as a member of the Board or Compensation Committee (or other Board committee performing equivalent functions) of any entity that has one or more of its executive officers serving on our Board or
Compensation Committee.
Succession Planning
Succession planning is a top priority for the Board and our management team. More generally, the Governance and Corporate Responsibility Committee, pursuant to the committee’s charter, has the
responsibility for Chief Executive Officer and senior management succession planning. The committee is tasked with doing so in the context of the challenges and opportunities facing us, of the skills
and expertise likely to be required by us in the future and of the benefits of diversity in its widest sense. These processes enable the Board to address both long-term, planned occurrences, such as
retirement or change in roles, as well as short-term unexpected events.
Environmental, Sustainability and Corporate Social Responsibility
Corporate responsibility and sustainability are important to Cutera and guide our actions as a company. We have always focused on delivering strong financial results, but we are committed to doing
so in a way that respects the communities and environments in which we operate. In 2022, we engaged in a wide dialogue with investors on a variety of matters, including among other things, around
their growing interest in environmental, social and governance (“ESG”) performance and the impact on financial results. Since our last annual meeting, we have formalized, updated, and disclosed
several new initiatives, including our Anti-Corruption Employee Attestation, Enterprise-Level Environmental Policy, Enterprise-Level Human Rights Policy, Occupational Health and Safety Policy,
Supplier Environmental Policy, and Vendor Code of Conduct, which can all be found on the Investors page, under the Corporate Governance section of our website at www.cutera.com. We believe
these policies help codify and provide additional transparency into our commitment to corporate social responsibility and our environmental and sustainability initiatives. In addition to directly
positively impacting Cutera and our employees, some of these policies relate to our suppliers and vendors. We feel this helps ensure our impact in the communities and environments in which we
operate is positive.
Cyber and Information Security and Data Protection
Cyber and information security are key considerations for our enterprise risk management framework. We have adopted a cyber and information security policy. We also maintained our cyber
security training program that all employees and contractors must complete twice annually. We have implemented and maintained various information security processes designed to identify, assess
and manage material risks from cybersecurity threats to critical computer networks, third party hosted services, communications systems, hardware, lab equipment, software, and critical data includes
confidential, personal, proprietary, and sensitive data. Accordingly, we maintain certain risk assessment processes intended to identify cybersecurity threats, determine their likelihood of occurring,
and assess potential material impact to our business. Based on our assessment, we implement and maintain risk management processes designed to protect the confidentiality, integrity, and
availability of our information assets and mitigate harm to our business. Our cybersecurity policies, standards, processes, and practices are based on recognized frameworks established by the Center
for Internet Security (CIS), the National Institute of Standards and Technology (NIST) and other applicable industry standards and are integrated into our overall risk management system and
processes.
We engage in processes designed to identify such threats by, among other things, monitoring the threat environment, conducting scans of the threat environment, evaluating our and our industry’s risk
profile, evaluating threats reported to us, coordinating with law enforcement concerning threats, conducting threat assessments for internal and external threats, and conducting vulnerability
assessments to identify vulnerabilities.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors, certain 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) Statement of Changes of Beneficial Ownership of Securities forms they file (SEC
Forms 3, 4, and 5).
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Based solely on our review of the copies of such forms received by us, or written representations from our executive officers, directors and 10% stockholders, we believe that during our fiscal year
ended December 31, 2023, all Section 16(a) filing requirements were satisfied on a timely basis, with the exception of the following reports:
Name
Kevin J. Cameron
Nicholas S. Lewin
Stuart D. Drummond
Michael A. Karavitis
Sheila A. Hopkins
Sheila A. Hopkins
Juliane T. Park (1)
Janet D. Widmann (2)
(1) Ms. Park was director on the Company's board until November 2, 2023
(2) Ms. Widmann was director on the Company board until October 3, 2023
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Transaction Date
5/19/2023
5/19/2023
7/3/2023
7/3/2023
7/3/2023
7/14/2023
7/14/2023
7/14/2023
Filing Date
5/30/2023
5/24/2023
7/6/2023
7/6/2023
7/6/2023
10/18/2023
10/18/2023
10/18/2023
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ITEM 11. EXECUTIVE COMPENSATION
This Compensation Discussion and Analysis (“CD&A”) explains our executive compensation program and philosophy, the decisions the Compensation Committee of our Board made under this
program during 2023 and the factors considered in making those decisions. The Compensation Committee has the principal responsibility for establishing, implementing and continually monitoring
adherence to our compensation philosophy and objectives. The Compensation Committee’s duties include evaluating the performance and advising the Board on the compensation of our Chief
Executive Officer and setting the compensation of our other executive officers. This CD&A focuses on the compensation of our Named Executive Officers for 2023:
COMPENSATION DISCUSSION AND ANALYSIS
Our named executive officers (“Named Executive Officers”) during fiscal 2023, were:
Taylor C. Harris
Stuart D. Drummond
Jeffrey S. Jones
Michael A. Karavitis
Stephana E. Patton
Sheila A Hopkins
David H. Mowry
Daniel J. Plants
Rohan R. Seth
Chief Executive Officer and Director (Principal Executive Officer)
Interim Chief Financial Officer (Principal Financial and Accounting Officer)
Executive Vice President, Chief Operating Officer
Executive Vice President, Chief Technology Officer
Chief Legal Officer
Former Chief Executive Officer
Former Chief Executive Officer
Former Executive Chairperson
Former Chief Financial Officer
(1)
(2)
(3)
(4)
(1) Ms. Hopkins ceased to serve as the Company's Chief Executive Officer as of July 27, 2023.
(2) Mr. Mowry was succeeded by Ms. Hopkins as the Company’s Chief Executive Officer as of April 11, 2023.
(3) Mr. Plants was succeeded by Ms. Widmann as the Company’s Chairman of the Board as of April 11, 2023.
(4) Mr. Seth was succeeded by Mr. Drummond as the Company’s Chief Financial Officer as of May 26, 2023.
Executive Compensation Program Philosophy and Process
Our Compensation Committee reviews the compensation of our executive officers, including our Named Executive Officers and strikes a balance between fixed base pay and pay-for-performance
programs that tie compensation directly to specific business goals and management objectives. Our Compensation Committee designs our executive compensation program to support our near-term
financial and strategic objectives and promote the long-term growth of our Company.
Our executive compensation program aims to recruit and retain key executive officers responsible for our success and to help motivate these executive officers to enhance long-term stockholder
value. To achieve these ends, the Compensation Committee’s executive compensation decisions are based on the following principal objectives:
Supporting our key financial and strategic goals that relate to our corporate performance;
•
• Aligning the interests of our executive officers with the interests of our stockholders;
•
•
Providing a total compensation package that is competitive and enables us to attract, motivate, reward and retain talented executive officers and employees;
Based, in large part, on pay-for-performance principles, such that changes in our revenue, operating results, product launches, and stock price, all significantly affect the compensation of our
executive officers; and
Balancing the components of compensation so that both short-term (annual) and long-term performance objectives are recognized.
•
We believe the compensation of our executive officers and employees should reflect our performance as an organization, and their performance as individuals, in attaining key financial and operating
objectives established by our Board. In addition, we strive to promote an ownership mentality among our employees, including our executive officers, which we believe is best achieved through our
equity incentive program and the Employee Stock Purchase Plan. Also, as our Company matures and we lay the foundation for longer term growth and sustained profitability, we endeavor to
conserve our cash resources. To that end, one important aspect of our overall compensation philosophy is to set base salaries that are competitive relative to compensation in a peer group of
companies (the “Peer Group”), in addition to equity and performance-based incentive compensation, which we believe best aligns the interests of our employees and our stockholders.
Advisory Vote on Named Executive Officer Compensation
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We believe that it is important for our stockholders to have an opportunity for an advisory vote on Named Executive Officer compensation on an annual basis as a means to express their views
regarding our executive compensation program and philosophy, our compensation policies and programs, and our decisions regarding executive compensation. The Compensation Committee
considers the outcome of the annual “Say-on-Pay” advisory vote when making decisions regarding our executive compensation program. At the Company’s 2023 Annual Meeting of Stockholders,
approximately 88.1% of the votes cast on the “Say-on-Pay” advisory vote, excluding broker non-votes, were cast in favor of approving the compensation of our Named Executive Officers. The Board
and the Compensation Committee viewed the outcome of the “Say-on-Pay” vote as indicative that a significant majority of our stockholders view that the Compensation Committee’s approach to
executive compensation favorably.
Our stockholder engagement efforts, including ongoing conversations between management and Board members and stockholders on a variety of matters, reflect our commitment to strong corporate
governance and our goal of seeking input directly from our stockholders, which we believe allows us to better understand our stockholders’ perspectives. As a result of the Compensation Committee’s
evaluation of the results of the “Say-on-Pay” vote, the feedback received from stockholders and the advice from the Compensation Committee’s compensation consultant, the Compensation
Committee determined that significant changes to the design of our executive compensation and equity programs were not warranted at this time.
Compensation Consultant
The Compensation Committee engages a compensation consultant periodically based on the need for additional guidance resulting from changes in our Named Executive Officers’ roles and
responsibilities, our corporate profile relative to our peers (e.g., type of business, market capitalization, annual revenue, profitability, etc.), Named Executive Officer turnover, and other factors as
determined by our Compensation Committee. The Compensation Committee has engaged Compensia, a national compensation consulting firm, periodically to advise it on various compensation
matters related to our Named Executive Officers, the Board, and other members of senior management. In 2024, the Compensation Committee hired Alpine Rewards as a compensation consultant to
replace Compensia.
In 2022 and 2023, in connection with the Company’s development of recommended pay levels and structures for our Named Executive Officers, the Compensation Committee directed Compensia to
perform the following activities:
• 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 the compensation of both directors and executive officers of the Peer Group and at comparably sized/valued companies in the broader
technology and life science markets;
• Assess elements of our Named Executive Officers’ compensation including base salary, target annual cash bonus, target total cash compensation and annual equity grant values relative to the
practices at the Peer Group and in the broader competitive market; and
• Review and provide input to the Compensation Committee on the Company’s recommended adjustments for cash-based and equity-based compensation for our directors and Named
Executive Officers, including pay levels and pay structures (such as short-term and long-term variable compensation components).
Based on the consideration of the factors specified in the rules of the SEC and the listing standards of NASDAQ, and a review of these factors for 2023, the Compensation Committee determined that
its relationship with Compensia and the independent work of Compensia on behalf of the Compensation Committee does not raise any conflict of interest. The Compensation Committee reviews the
compensation consultant’s independence annually.
Competitive Positioning
In developing, reviewing, and approving the annual compensation for our Named Executive Officers, the Compensation Committee, with the assistance of its compensation consultant, develops and
maintains the Peer Group from which to gather competitive market data. After consulting with Compensia, the Compensation Committee approved the following set of selection criteria for
determining the companies to comprise the Peer Group:
(i) U.S.-based companies with a primary focus on medical device, health care equipment and services;
(ii) Annual revenue generally between 0.4 times to 2.5 times that of Cutera;
(iii) Market capitalization generally between 0.25 times to 4.0 times that of Cutera; and
(iv) Secondary focus on parameters including peer business model and complexity, international presence, headcount and location.
In November 2023, in connection with the development of additional compensation assessments that the Compensation Committee requested related to executive compensation and our Named
Executive Officer compensation levels, the
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Compensation Committee, after consulting with Compensia, updated the Peer Group based on the selection criteria referenced above to include the following companies:
AngioDynamics
Anika Therapeutics
Artivion
Accuray
AxoGen
NanoString Technologies
SI-BONE
Tactile Systems Technology
AirSculpt Technologies
Apyx Medical
Bioventus
Cerus
Nevro
Orthofix Medical
Outset Medical
Revance Therapeutics
Silk Road Medical
Establishment Labs Holdings
The Beauty Health Company
Evolus
Zynex
We do not believe that it is appropriate to make compensation decisions, whether regarding base salaries or short-term or long-term incentive compensation, solely based upon benchmarking to a peer
or other representative group of companies. However, the Compensation Committee believes that information regarding the compensation practices at other companies is useful in at least two
respects. First, the Compensation Committee recognizes that our compensation policies and practices must be competitive in the marketplace. Second, this information is useful in assessing the
reasonableness and appropriateness of individual executive compensation elements and of our overall executive compensation packages. This information is only one of several factors that the
compensation committee considers, however, in making its decisions with respect to the compensation of our executive officers.
Key Features of Our Executive Compensation Program
WHAT WE DO
✓ Pay for Performance: We link the cash compensation of our executive officers to our performance
and stockholder interests by heavily weighting their target total cash compensation opportunities to
the achievement of strong financial performance tied to a balanced mix of pre-established
performance measures and long- term equity awards that align their interests with those of our
stockholders.
WHAT WE DON’T DO
☒ No Special Perquisites or Benefits: We do not ordinarily provide special perquisites or other
personal benefits to our executive officers, such as company cars*, club memberships, supplemental
executive retirement plans or supplemental executive health benefits.
* We provide our sales executives with a car allowance given their extended use of a vehicle other
than simply commuting to and from the office in Brisbane.
✓ Independent Compensation Advisor: The Compensation Committee selects and engages its own
independent advisor to evaluate compensation on an annual basis.
☒ No Guaranteed Bonuses: We do not provide guaranteed minimum bonuses. Bonuses are contingent
on the achievement of key strategic Company goals.
✓ Stock Ownership Guidelines: Our Named Executive Officers, members of senior management, and
the non-employee members of our Board are subject to stock ownership guidelines equal to a
multiple of their respective annual base salaries (3x for our Chief Executive
Officer and 1x for other Named Executive Officers and members of senior management) or Board
service retainers (3x for directors).
✓ Competitive and market-based compensation: We pay fair and reasonable compensation that allows
us to attract, motivate, retain and reward the key employees whose knowledge, skills and
performance are necessary for our future growth and success.
✓ Compensation Recovery (“Clawback”) Policy: Our Clawback Policy, which covers all executive
officers, allows for recovery of performance-based compensation if a Named Executive Officer’s
intentional misconduct.
2023 Compensation Overview
☒ No Excise Tax Gross-Ups: We do not provide any tax reimbursement payments or
“gross-ups” payments in connection with any excise taxes that are imposed in connection with any
change in control payments or benefits
When designing our 2023 executive compensation program, the Compensation Committee considered the program philosophy and objectives set forth above and the intense competition for executive
talent within the medical device industry and the broader technology industry in Silicon Valley, California.
Executive Officer Compensation
The objectives of our executive officer compensation program are to attract, retain, motivate and reward key personnel who possess the necessary leadership and management skills through
competitive base salary, annual cash bonus incentives, long-term equity incentive compensation, and various benefits generally available to employees of the Company.
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Summary of the Key Features of our 2023 Executive Compensation Program
• Our Named Executive Officers are compensated with a base salary (cash), incentive cash bonuses, equity awards, and other customary employee benefits.
• The compensation of our Named Executive Officers is reviewed annually (or more frequently as circumstances may dictate) by the Compensation Committee, and adjustments are made to
reflect performance-based factors and competitive conditions.
• We evaluate and reward our Named Executive Officers 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.
• Our Compensation Committee engages an outside compensation consultant to review our executive compensation program on an “as needed” basis, in comparison to the Peer Group, and
recommend modifications at reasonable intervals when warranted.
• Our employment arrangements with our Named Executive Officers include participation in our Executive Change in Control and Severance Policy.
• We have stock ownership guidelines equal to a multiple of their respective annual base salaries (3x for our Chief Executive Officer and 1x for our other Named Executive Officers.
Compensation-Setting Process Committee’s Roles and Responsibilities
Role of the Compensation Committee in Setting Executive Compensation
• Provide oversight of our compensation programs, policies, practices and benefit plans;
• Assist our Board in discharging its responsibilities relating to (i) the oversight of the compensation of our CEO, our CFO and the other members of executive management, and (ii) approving
and evaluating our Executive Management compensation programs, policies, practices and plans; and
• Assist our Board in administering our equity compensation plans for our employees.
Compensation Committee Members
The members of the Compensation Committee are appointed by our Board. The chairperson of the committee is Nicholas Lewin and the other members are Keith Sullivan and Sheila Hopkins.
Gregory A. Barrett and Janet D. Widemann served on the Compensation Committee in 2023 until June 9, 2023 and July 14, 2023, respectively. Each member of the Compensation Committee is a
“non-employee director” for purposes of Exchange Act Rule 16b-3, and satisfies the independence requirements imposed by the NASDAQ listing standards.
Compensation Committee Charter
The Compensation Committee has a written charter, which can be found on the Investors page, under the Corporate Governance section of our website at www.cutera.com.
Duties of the Compensation Committee
The responsibilities of the Compensation Committee include:
(i) Establishing the following compensation elements for our 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, 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 equity awards to our employees are determined; and
(b) other policies and plans for the provision of compensation to our employees and consultants.
(iii) Acting as Administrator of our 2019 Equity Incentive Plan, our 2023 Inducement Equity Incentive Plan and our 2004 Employee Stock Purchase Plan, and any other equity compensation plans
adopted by our Board;
(iv) Reviewing our policies relating to the issuance of equity compensation to our employees and consultants;
(v) Preparing the report that accompanies this Compensation Discussion and Analysis.
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We do not believe that it is appropriate to make compensation decisions, whether regarding base salaries or short-term or long-term incentive compensation, solely based upon benchmarking to a peer
or other representative group of companies. However, the Compensation Committee believes that information regarding the compensation practices at other companies is useful in at least two
respects. First, the Compensation Committee recognizes that our compensation policies and practices must be competitive in the marketplace. Second, this information is useful in assessing the
reasonableness and appropriateness of individual executive compensation elements and of our overall executive compensation packages. This information is only one of several factors that the
compensation committee considers, however, in making its decisions with respect to the compensation of our executive officers.
Compensation Components
Our Named Executive Officers are compensated with cash, short-term incentives and long-term incentive in the form of equity awards, and other customary employee benefits.
Cash Compensation
Cash compensation consists of:
• Base salary;
• Discretionary spot bonus;
• Participation in a Management Bonus Program for non-sales employees (the “Management Bonus Program”).and
• With respect to Michael Karavitis participation in a special retention bonus arrangement, as described in more detail below under the section titled "Employment Agreements".
Our cash compensation goals for our Named Executive Officers are based upon a number of principles, including:
• Although we do not believe that it is appropriate to make compensation decisions upon any type of benchmarking to a peer or other representative group of companies, the compensation
committee believes that information regarding the compensation practices at other companies is useful in at least two respects. First, the compensation committee recognizes that our
compensation policies and practices must be competitive in the marketplace. Second, this information is useful in assessing the reasonableness and appropriateness of individual executive
compensation elements and of our overall executive compensation packages. This information is only one of several factors that the compensation committee considers, however, in making
its decisions with respect to the compensation of our Named Executive Officers. Additional considerations include:
Base salary should reflect the individual’s experience (in both the role he or she is performing, and the aesthetics industry more broadly), performance, and potential; and
The amount of bonuses payable to our Named Executive Officers should be based on corporate performance measures established by the Compensation Committee and approved by our
Board that align the bonus payment with the achievement of specified goals contained in our annual operating plan that are intended to enhance long-term stockholder value.
•
•
Base Salary
We believe that a competitive base salary is a necessary element of our executive compensation program, so that we can attract and retain a world class management team that is focused on building a
sustainable enterprise for the future. The Compensation Committee seeks to set competitive base salaries, comparable to market standards, that are equitable across the executive team based on level
of impact and contributions.
The Compensation Committee reviews the base salaries of our executive officers, including our Named Executive Officers, annually and makes adjustments to their base salaries as it determines to
be necessary or appropriate.
In 2023, the Compensation Committee reviewed the base salaries of our executive officers, including our Named Executive Officers, taking into consideration a competitive market analysis
performed by Compensia, as well as the other factors described above. Following this review, the Compensation Committee set the base salaries of our executive officers for 2023 at levels that it
believed were appropriate to maintain their competitiveness.
The base salaries paid to our named executive officers were as follows:
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Named Executive Officer
Taylor C. Harris
Stuart D. Drummond
Jeffrey S. Jones
Michael A. Karavitis
Stephana E. Patton
David H. Mowry
(1)
Daniel J. Plants
Rohan R. Seth
Sheila A. Hopkins
(1) Effective July 1, 2022.
Management Bonus Plan
$
$
$
$
$
2022 Base Salary
(1)
2023 Base Salary
Percentage Adjustment
280,000
N/A $
$
N/A $
$
N/A $
$
$
$
N/A $
457,496
696,800
260,000
390,000
675,000
292,000
370,000
457,496
425,000
696,800
260,000
390,000
696,792
N/A
4.3 %
N/A
— %
N/A
— %
— %
— %
— %
We use annual cash bonuses to motivate our executive officers, including our Named Executive Officers, to achieve our short-term financial and operational objectives while making progress towards
our longer-term growth and other goals. Consistent with our executive compensation philosophy, these annual cash bonuses are intended to help us to deliver a competitive total direct compensation
opportunity to our executive officers. Annual cash bonuses are entirely performance-based, are not guaranteed, and may vary materially from year-to-year.
Typically, the Compensation Committee establishes target cash bonus opportunities pursuant to a formal cash bonus plan that measures and rewards our executive officers for our actual corporate
performance over our fiscal year. The cash bonus plan is designed to pay above-target cash bonuses when we exceed our annual corporate objectives and below-target cash bonuses when we do not
achieve these objectives. The Compensation Committee, also from time to time, may award one-time discretionary bonuses based on extraordinary individual performance outside of corporate-wide
performance objectives.
In 2023, the Compensation Committee determined to award cash bonus opportunities to our executive officers, including our Named Executive Officers, pursuant to the 2023 Management Bonus
Plan. Under the 2023 Management Bonus Plan, our Board had the authority to select the performance measures and related target levels applicable to the target cash bonus opportunities for our
executive officers.
Target Cash Bonus Opportunities
For 2023, the target cash bonus opportunities were designed to reward our Named Executive Officers based on our overall financial and operational performance and were established after the
Compensation Committee consulted with its compensation consultant. As in prior years, the Compensation Committee determined that the target cash bonus opportunities for the Named Executive
Officers should be determined as a percentage of their base salary. The target cash bonus opportunities are reviewed annually by the Compensation Committee and are based on several factors,
including the scope of the Named Executive Officers’ performance, contributions, responsibilities, experience, prior years’ target cash bonus and market conditions. In 2023, the Compensation
Committee did not make any changes to our Named Executive Officers’ target cash bonus opportunities.
For 2023, the target cash bonus opportunities for each of our Named Executive Officers were as follows:
Named Executive Officer
Taylor C. Harris
Stuart D. Drummond
Jeffrey S. Jones
Michael A. Karavitis
Stephana E. Patton
David H. Mowry
(1)
Daniel J. Plants
Rohan R. Seth
Sheila A. Hopkins
2023 Target Cash Bonus Opportunity (as a percentage of base
salary)
2023 Target Cash Bonus Opportunity
100 % $
40 % $
50 % $
60 % $
50 % $
100 % $
39 % $
50 % $
100 % $
675,000
116,800
185,000
274,498
195,000
698,800
100,000
195,000
225,402
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(1) Mr. Plants’ target cash bonus opportunity was set as a fixed dollar amount of $100,000 per his employment agreement. Mr. Plants’ annual base salary for 2022 was $260,000.
The target cash bonus opportunities of our executive officers, including our Named Executive Officers, were weighted 100% on corporate performance objectives. The Compensation Committee
determined this allocation to be appropriate to focus our executive officers on our short-term financial objectives as reflected in our annual operating plan.
Corporate Performance Measures-related:
For 2023, the Compensation Committee established the following corporate performance measures for determining the bonuses payable to our Named Executive Officers, and the overall weighting
of each corporate performance measure, as follows:
1)
2)
3)
4)
2023 AviClear revenue measured against a pre-established target amount
2023 Non-AviClear revenue measured against a pre-established target amount
2023 Non-GAAP gross margin measured against a pre-established target amount
2024 Non-GAAP operating income measured against a pre-established target amount
(1)
(1)
25 %
25 %
25 %
25 %
(1) For a full reconciliation for Non-GAAP Gross Margin and Non-GAAP Operating Income to the most directly comparable financial measure stated in accordance with GAAP, please see our Current Report on Form 8-K filed with the SEC on
March 21, 2024.
Our Board believed that these corporate performance measures aligned the Named Executive Officers’ bonus payment with the achievement of our annual operating goals, which would enhance
long-term stockholder value creation.
The Compensation Committee weighted each corporate performance measure as set forth above, such that the given percentage of the bonus was “at risk” based on the level of achievement of the
specific performance measure. Performance achievement of each of the specific performance measures was based on a sliding scale. With respect to the Revenue performance measures, the
applicable payout scaled linearly from 50% to 100% between 90% of the target Revenue attainment goal and 100% of the target Revenue attainment goal, and the applicable payout scaled linearly
between 100% and 200% between 100% of the target Revenue attainment goal and 125% of the target Revenue attainment goal. With respect to the Non-GAAP Gross Margin performance measure,
the applicable payout scaled linearly from 50% to 100% between 95% of the target Non-GAAP Gross Margin attainment goal and 100% of the target Non-GAAP Gross Margin attainment goal, and
the payout scaled linearly between 100% to 150% between 100% of the target Gross Margin attainment goal and 110% of the target Gross Margin attainment goal. With respect to the Non-GAAP
Operating Income performance measure, the applicable payout scaled linearly from 50% to 100% between 70% of the target Non-GAAP Operating Income attainment goal and 100% of the target
Non-GAAP Operating Income attainment goal, and the payout scaled linearly from 100% to 125% between 100% of the target Non-GAAP Operating Income attainment goal and 225% of the Non-
GAAP Operating Income attainment goal.
2023 Performance Results and Bonus Decisions
On April 25, 2024 the Compensation Committee determined that we did not achieve the corporate performance measures under the 2023 Management Bonus Plan and therefore no payments were
made to our Named Executive Officers.
Long-Term Incentive Compensation
We believe that equity-based compensation promotes and encourages long-term successful performance by our Named Executive Officers that is aligned with the organization’s goals and the
generation of stockholder value. Our equity compensation goals for our Named Executive Officers are based upon the following principles:
• Stockholder and Named Executive Officer interests should be aligned;
• Key and high-performing employees, who have a demonstrable impact on our performance or stockholder value, should be compensated in this manner;
• 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 the Peer Group awards for the respective position; and
• Actual awards should be tailored to reflect individual performance and attraction/retention objectives.
• Actual awards also tie to recommendations from our Chief Executive Officer and other management, competitive compensation market data (as described above), internal pay equity based on
the impact on our business and performance; and existing equity holdings including unvested equity for each Named Executive Officer.
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There is no predetermined formula or weighting of these factors. Instead, our Compensation Committee considers all of this information in light of our business objectives.
The performance metrics established for the PSU awards are described below in the section titled “Equity Awards.”
The Compensation Committee concluded that the changes to the compensation of our Named Executive Officers strengthened the alignment of their interests with those of our stockholders, were
sufficient to maintain competitiveness with the executives in comparable positions at the companies in our Peer Group, promoted retention and achieved the motivation and continuity desired.
Further, the Compensation Committee also took into consideration the fact that, consistent with our compensation objectives, the equity awards granted to our Named Executive Officers increased
their stake in the Company, thereby reinforcing their incentive to manage our business as owners and subjected a significant portion of their target total direct compensation to fluctuations in the
market price of our common stock in alignment with stockholder interests.
Equity Awards
Under our 2019 Equity Incentive Plan and the 2023 Inducement Equity Incentive Plan , we generally grant RSU awards, PSU awards, and options to our executive officers, employees and the non-
employee members of our Board. We grant annual equity awards to our Named Executive Officers and certain members of management with a vesting start date of January 1. All awards are subject
to a minimum one-year vesting period from the date of grant. Awards with time-based vesting, such as RSU awards and options, typically vest as to 25% of the shares subject to the award after the
first twelve months of service and in equal quarterly installments thereafter with full vesting in four years. Awards with performance-based vesting typically vest contingent on achievement of
corporate goals or other financial targets set as of the grant date, with 50% of the shares subject to the award vesting after the first twelve months of service and 50% vesting on the second anniversary
of the grant date. Aside from our annual equity awards practices, the Compensation Committee approves equity awards to new and recently hired or promoted employees once each quarter at the
Compensation Committee meeting with the grant date fair value to be calculated as of the date of the award.
Summary of Equity Award Grants
(1)
(2)
(3)
(4)
(5)
Mr. Harris was granted equity awards with a grant date fair value of $6,997,690 in 2023. The equity awards were comprised of stock options and restricted stock units (“RSUs”) with a
grant date fair value of $4,250,000 and $2,747,690, respectively.
Mr. Drummond was granted equity awards with a grant date fair value of $236,587 in 2023. The equity awards were comprised of stock options, PSUs and RSUs with a grant date fair
value of $27,500, $59,098, and $149,989, respectively.
Mr. Jones was granted equity awards with a grant date fair value of $232,688 in 2023. The equity awards were comprised of stock options and restricted stock units (“RSUs”) with a
grant date fair value of $187,505 and $45,163, respectively.
Mr. Karavitis was granted equity awards with a grant date fair value of $393,622 in 2023, compared to $560,724 in 2022. The equity awards were comprised of stock options, PSUs
and RSUs with a grant date fair value of $125,000, $179,081, and $89,541, respectively.
Mr. Mowry was granted equity awards with grant date fair value of $663,265 compared to $1,530,185 in 2022. The equity awards were comprised of performance stock units.
Performance Stock Unit Awards—Corporate Performance Measures-related:
In February 2023, our Compensation Committee granted PSU awards to our Named Executive Officers and other members of management and selected performance targets for these awards. The
number of units subject to the PSU awards granted to our Named Executive Officers vest in equal amounts upon the filing of our 10-K for the year ended December 31, 2023, based on the
performance targets being met and subject to approval by our Board, and December 31, 2024, subject to the Named Executive Officer continuing to provide service through to this vesting date. The
following metrics were the 2023 corporate performance measures to be achieved by December 31, 2023:
Metric
Weighting of Goal
(1) AviClear commercial goals
truBody growth targets
(2)
(3)
Product development milestones
(4) Cash, inventory and accounts receivable targets
40 %
20 %
15 %
25 %
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The following table presents the quantities of the Corporate Performance Measure-related PSU grants awarded to the Named Executive Officers:
Stuart D. Drummond
Michael A. Karavitis
Name
Grant Quantity
Grant Date Value
(1)
2,027 $
9,212 $
39,405
179,081
(1)
For purposes of this table, “Grant Date Value” generally means the aggregate grant date fair value of the PSU award granted to the applicable Named Executive Officer during 2023 calculated in accordance with ASC Topic 718.
The following table sets forth the number of units that potentially could have vested for our Named Executive Officers upon filing our Annual Report on Form 10-K for 2023, subject to our Board’s
certification that the performance criteria were met based on the level of achievement (or failure to achieve) each of the performance targets discussed above.
Stuart D. Drummond
Michael A. Karavitis
Name
If Minimum Thresholds are Not Met
—
—
At 100% of Target Performance
Actual Vested Shares
1,014
4,606
101
460
Each unit granted pursuant to the PSU awards represents a contingent right to receive one share of our common stock for each unit that was earned and vested. All vested shares were released upon
our Board’s affirmative finding that the performance measures were met based on the level of achievement (or failure to achieve) each of the performance targets, and upon our timely filing of our
Annual Report on Form 10-K which did not occur.
Health and Welfare Benefits
We provide the following health and welfare benefits to our Named Executive Officers generally on the same basis as the health and welfare 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;
A Section 401(k) plan with 25% employer matching contributions, capped at 6% of total employee eligible contributions;
ESPP participation eligibility (see below); and
Flexible Spending Accounts.
Employee Stock Purchase Plan
We maintain a 2019 Employee Stock Purchase Plan (“ESPP”) that provides eligible employees with the opportunity to purchase shares of our 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. Due to the late filing of our Quarterly Report on Form 10-Q for the three months ended September 30, 2023,
participation in the ESPP was suspended until further consideration.
Post-Employment Compensation
Our employment agreements with our Named Executive Officers include COC Agreements. The purpose of these COC Agreements is to provide incentives to our Named Executive Officers to
continue their employment with the Company and not be distracted by the possibility of loss of employment as a result of a potential acquisition of the Company. For a summary of the material terms
and conditions of these COC Agreements, see “Potential Payments Upon Termination or Change in Control” below.
Internal Revenue Code Section 162(m) and Limitations on Executive Compensation
For federal income tax purposes, publicly-traded companies may be prohibited under Section 162(m) of the Code from deducting employee enumeration in excess of $1 million paid to their chief
executive officer, chief financial officer, any other executive officer whose total compensation is required to be reported to stockholders under the Exchange Act by reason of such individual being
among the three highest compensated executive officers for the tax year, and any executive officer who was subject to the deduction limit in any tax year beginning after December 31, 2016.
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The Compensation Committee believes that, in establishing the cash and equity incentive compensation plans and arrangements for our executive officers, the potential deductibility of the
compensation payable under those plans and arrangements is one relevant factor to consider. For that reason, the Compensation Committee may deem it appropriate to provide one or more of our
executive officers with the opportunity to earn incentive compensation, whether through cash incentive awards tied to our financial performance or equity incentive awards tied to the executive
officer’s continued service, which may be in excess of the amount deductible by reason of Section 162(m) of the Code. The Compensation Committee believes it is important to maintain cash and
equity incentive compensation at the requisite level to attract and retain the individuals essential to our financial success, even if all or part of that compensation may not be deductible by reason of
the Section 162(m) limitation.
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.
Executive Stock Ownership Guidelines
We maintain Amended and Restated Stock Ownership Guidelines for our non-employee directors and officers (as defined by Rule 16a-1(f) of the Exchange Act) (“Executives”). These guidelines are
designed to align our non-employee directors’ and Executives’ interests with our stockholders’ long-term interests by promoting long- term ownership of our common stock, which our Board
believes reduces the incentive for excessive short-term risk taking. These guidelines provide that our Chief Executive Officer and our other Executives must hold shares of our common stock having a
value not less than three times and one time, respectively, of their annual base salary. Each Executive has five years from the date of his or her appointment, or if an Executive at the time of the
adoption of the Stock Ownership Guidelines, four years from the adoption of the Stock Ownership Guidelines (July 28, 2017), to attain such level of ownership.
In addition, our Executives must hold at least 50% of any shares received pursuant to stock options, stock appreciation rights, vested restricted stock awards, restricted stock unit awards, performance
share or performance stock unit awards (net of taxes) for a minimum of one year following vesting and delivery.
As of March 31, 2024, our Named Executive Officers’ equity holdings and target guidelines were as follows:
Named Executive Officer
Stock Ownership as of March 31, 2024
Minimum Stock Ownership Required
(1)
Tylor C. Harris
Stuart D. Drummond
Jeffery S. Jones
Michael A. Karavitis
Stephana E. Patton
(1) Based on the closing stock price of $1.47 per share on March 28, 2024.
30,000
9,421
—
37,393
—
1,377,551
198,639
251,701
311,222
289,116
The Board also recognizes the importance of fostering a culture of ownership and aligning the broader employee population with stockholders. In 2021 we implemented an employee equity
ownership initiative to ensure that all our U.S. employees were granted equity in our Company to share in our success and long-term value creation. In addition to creating alignment between
stockholders and employees, we believe this recognizes and reflects the importance of our employees to our continued success.
As of March 31, 2023, the non-employee directors’ holdings and target guidelines were as follows:
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Non-Employee Directors
Kevin J. Cameron
Sheila A. Hopkins
Nicholas S. Lewin
Keith J. Sullivan
Insider Trading Compliance Program
Stock Beneficial Ownership as of March 31, 2024
—
31,188
—
3,964
Minimum Stock Ownership Required
5,200
5,200
5,200
5,200
According to our Insider Trading Compliance Program, all employees of the Company, including, but not limited to, our executive officers and the non-employee members of our Board, are strongly
discouraged from investing in derivatives of the Company’s securities. This includes, but is not limited to, trading in put or call options related to securities of the Company or otherwise hedging or
offsetting any decrease in the market value of securities.
Compensation Recovery (“Clawback”) Policy
Our Clawback Policy, which covers all executive officers, allows for recovery of performance-based compensation if a Named Executive Officer’s intentional misconduct:
•
•
•
•
•
violates the law, our Code of Business Conduct and Ethics, or any significant Company ethics or compliance policy; and
results in material financial or reputational harm, or results in a need for a restatement of our consolidated financial statements.
The compensation elements that are subject to recovery under this policy include:
all amounts paid under the Management Bonus Program which were awarded on or after June 14, 2019; and
all awards under the 2019 Equity Incentive Plan and any successor equity incentive plans, whether exercised, vested, unvested, or deferred, which were awarded on or after June 14, 2019.
All recoveries are determined in the sole discretion of the Compensation Committee. We will amend our Clawback Policy to comply with the requirements of Section 954 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act once applicable Nasdaq listing standards have become effective
2023 Summary Compensation Table
The following table sets forth summary compensation information for the fiscal years ended December 31, 2023, 2022, and 2021 for the Named Executive Officers.
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Table of Contents
Name, Principal Position, and Year
Salary
($)
Option
Awards
($)(1)
Stock
Awards
($)(1)
Non-Equity Incentive Plan
Compensation
($)(2)
All Other
Compensation
($)
Total ($)
Taylor C. Harris
Chief Executive Officer
2023
Stuart D. Drummond
Interim Chief Financial Officer
2023
Jeffrey S. Jones
Chief Operating Officer
2023
Michael A. Karavitis,
Chief Technology Officer
2023
2022
2021
Stephana E. Patton
Chief Legal Officer
2023
Sheila A. Hopkins
Former Chief Executive Officer
2023
David H. Mowry,
Former Chief Executive Officer
2023
2022
2021
Daniel J. Plants
Former Executive Chairperson
2023
2022
2021
Rohan R. Seth
Former Chief Financial Officer
2023
2022
2021
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
271,023
$
4,250,008
$
2,747,683 (3) $
—
$
11,100 (4)
$
7,279,814
293,030
$
27,500
$
209,087
128,472
$
187,505
$
45,163
457,496
444,548
423,300
$
$
$
125,000
149,991
118,758
$
$
$
268,622
410,733
2,862,976
57,955
$
—
$
—
225,402
$
74,996
$
696,366
194,523
683,400
660,000
72,583
255,000
154,356
158,438
375,833
355,250
$
$
$
$
$
$
$
$
$
—
799,938
200,000
—
249,979
—
—
199,976
112,503
$
$
$
$
$
$
$
$
$
663,265
730,247
2,393,961
—
228,196
772,382
—
182,537
1,512,265
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
94,368
$
—
$
248,218
151,248
388,590
$
$
$
—
$
—
—
—
—
—
—
$
$
$
$
$
$
623,985
361,140
1,099,336
1,156,520
3,793,624
57,955
225,402
$
54,125
(5) $
1,276,291
376,553
383,937
807,840
56,202
55,100
94,466
191,097
195,000
271,766
$
$
$
$
$
$
$
$
$
480,562 (6)
—
3,825 (7)
—
—
—
—
—
1,531 (7)
$
$
$
$
$
$
$
$
$
1,714,903
2,597,522
4,065,626
128,785
788,275
1,021,204
349,535
953,346
2,253,315
1.
2.
3.
The amounts reported in this column represent the aggregate grant date fair value of equity awards granted during the applicable fiscal year calculated in accordance with ASC Topic 718.
The amounts reported in this column represent the amounts earned in accordance with our Management Bonus Program for our Named Executive Officer.
In August 2023, the Board of Directors approved a grant of restricted stock units and a grant of market-based stock options to Taylor Harris, who joined as the Company’s Chief Executive Officer on August 7, 2023. The restricted stock
grant of 249,336 shares vests over four years, subject to the continued employment of Mr. Harris. The grant of restricted stock units entitles Mr.Harris to receive one share of Common Stock per one restricted stock unit. One-fourth of the
restricted stock units shall vest on August 7, 2024 and 1/12 of the restricted stock units shall vest each quarter thereafter, subject to Mr. Harris continuing as a service provider through each such date. The vesting of the market-based
stock option is dependent upon price targets of the Company’s common stock. One quarter of the grant quantity of 735,295 will be eligible to vest upon the date the 30 calendar-day trailing average closing price of the Company's
Common Stock first meets each of the following levels within four years of the grant date: $20.00, $25.00, $30.00, and
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$35.00. Once a level is attained, one-fourth of the options subject to such tranche will vest on the later of (i) the date such level is attained or (ii) August 7, 2024. The remaining options in such tranche will vest over the next 12 quarters,
subject to Mr. Harris continuing as a service provider through each such date. Exercise price of the stock option is $11.02.
Amount paid is the consulting fee to Mr. Harris.
Director compensation to Ms. Hopkins
Includes $399,000 consulting fee, $25,000 relocation, $56,562 legal fees paid to Mr. Mowry
Amounts represent vested Section 401(k) plan employer-matching contributions.
4.
5.
6.
7.
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Table of Contents
Grants of Plan-Based Awards Table
The following table lists grants of plan-based option, RSU, and PSU awards made to our Named Executive Officers during the fiscal year ended December 31, 2023.
Name
Taylor C. Harris
.
Stuart D. Drummond
Jeffrey S. Jones
Michael A. Karavitis
Stephana E. Patton
Sheila A. Hopkins
David H. Mowry
Grant Date
5/19/2023
8/18/2023
8/18/2023
8/18/2023
8/18/2023
8/18/2023
8/18/2023
4/12/2023
4/12/2023
4/12/2023
8/18/2023
11/7/2023
11/7/2023
$
— $
4/12/2023
4/12/2023
4/12/2023
— $
— $
7/14/2023
4/27/2023
7/3/2023
8/1/2023
7/14/2023 $
5/11/2023
5/11/2023
— $
Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards (1)
Target
Maximum
Threshold
—
—
—
—
—
—
—
337,500
—
—
—
58,400
—
—
92,500
—
—
—
137,250
—
97,500
—
—
—
—
—
—
—
348,400
$
$
$
$
$
$
—
—
—
—
—
—
—
675,000
—
—
—
116,800
—
—
185,000
—
—
—
274,500
—
195,000
—
—
—
—
—
—
—
696,800
—
—
—
—
—
—
—
1,012,500
—
—
—
175,200
—
—
277,500
—
—
—
411,750
—
292,500
—
—
—
—
—
—
—
1,045,200
$
$
$
$
$
$
Estimated Future
Payouts Under
Equity Incentive
Plan
Awards
Stock Awards:
Number of Shares
of Stock or Units
Option Awards:
Number of
Securities
Underlying Options
Base Price
of Awards
($)
Grant Date Fair Value
of Awards
($) (2)
—
—
—
—
—
—
—
—
—
2,027
—
—
—
—
—
9,212
4,606
—
—
—
—
—
—
—
—
6,666
—
—
—
—
—
—
—
—
249,336
—
—
1,013
6,687
—
12,306
—
—
—
—
17,085
8,170
6,368
4,507
—
40,241
—
—
25,327 $
183,827 $
183,824 $
183,824 $
183,823 $
—
—
2,519
—
—
— $
31,256 $
11,450 $
—
—
— $
—
7,770 $
—
—
—
—
—
—
—
16.84 $
11.02 $
11.02 $
11.02
11.02
— $
—
16.84
— $
— $
— $
3.67 $
$
19.44 $
$
$
—
— $
—
15.83 $
— $
— $
—
—
— $
— $
—
250,003
10,000,003
10,000,003
10,000,003
999,997
2,747,683
—
250,003
39,405
149,989
—
187,505
45,163
125,000
179,081
89,541
—
—
—
74,996
375,016
125,001
125,004
71,346
94,257
569,008
—
1.
2.
Amounts in the “Estimated Future Payouts Under Non-Equity Incentive Plan Awards” columns relate to cash incentive opportunities under our 2023 Management Bonus Plan based upon the achievement of corporate performance goals
over fiscal year 2023. Under the 2023 Management Bonus Plan, payments are determined by multiplying each participant’s target cash bonus by a factor determined by the achievement of the corporate performance goals, capped at
200%. The actual amounts paid to our named executive officers are set forth in the “2023 Summary Compensation Table” above, and the calculation of the actual amounts paid is discussed more fully in the section titled “Executive
Officer Compensation—2023 Performance Results and Bonus Decisions.”
The amounts reported in this column reflect the fair value of equity awards calculated in accordance with ASC Topic 718. See Note 8 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for the
fiscal year ended December 31, 2023, for a discussion of the valuation assumptions used for calculating the grant date fair value of our stock-based compensation.
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Table of Contents
2023 Outstanding Equity Awards at Fiscal Year-End Table
The following table lists the outstanding equity awards held by our Named Executive Officers as of December 31, 2023.
Option Awards
Stock Awards
Name
Taylor C. Harris
Stuart D. Drummond
Jeffrey S. Jones
Michael A. Karavitis
Sheila A. Hopkins
David H. Mowry
Grant Date
8/18/2023
2/20/2022
2/20/2022
4/12/2023
7/28/2021
2/20/2022
4/12/2023
4/15/2023
11/7/2023
2/21/2021
2/20/2022
2/20/2022
4/12/2023
2/24/2020
2/12/2021
2/20/2022
4/12/2023
6/16/2022
5/17/2021
4/27/2023
7/3/2023
8/1/2023
7/14/2023
2/12/2021
2/20/2022
Number of
Securities
Underlying
Unexercised
Earned Options
Exercisable
Number of Securities
Underlying
Unexercised
Unearned Options
Unexercisable
Option
Exercise
Price ($)
Option
Expiration
Date
Number of Shares
or Units of Stock
that Have Not
Vested
Market Value of
Shares or Units of
Stock that Have Not
Vested ($)
249,336
(1) $
880,156
1,414
1,535 (2)
$
33.45
2/20/2029
Equity Incentive Plan
Awards: Number of
Unearned Shares,
Units or Other Rights
That Have Not Vested
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units or Other Rights
That Have Not Vested
($)
577
203
(3) $
(4) $
2,035
716
5,468
4,241
2,031 (10)
4,608
$
(11) $
32.87
33.45
2/12/2028
2/20/2029
3,627
—
$
36.55
6/16/2029
9,209
22,614
3,420
24,580
(20) $
(21) $
32.87
33.45
2/12/2028
2/20/2029
1,874
710
1,013
6,687 (8)
(5) $
(6) $
(7) $
$
12,306 (9)
$
1,832
1,310
2,131
4,606
$
$
$
(14) $
2,737
17,085
8,170
6,368
4,507
(15) $
(16) $
(17) $
(18) $
(19) $
6,615
2,506
3,576
23,605
43,440
6,467
4,624
7,522
16,259
9,662
60,310
28,840
22,479
15,910
1,729
(12) $
921 (13) $
6,103
3,252
(1) One-fourth of the total number of shares subject to the award shall vest on the first anniversary of the Vesting Commencement Date and the remaining shares will vest over the next twelve quarters in equal quarterly
amounts thereafter, until all such shares have vested, subject to the Named Executive Officer remaining employed on each such vesting date.
(2) One-fourth of the total number of shares subject to the option shall vest one full calendar year following the Vesting Commencement Date and one thirty-sixth of the total number of shares subject to the option shall
vest on the last day of each full calendar month thereafter, until all such shares have vested,
(3) One-fourth of the total number of shares subject to the award shall vest one full calendar year following the Vesting Commencement Date and one thirty-sixth of the total number of shares subject to the award shall
vest on the last day of each full calendar month thereafter.
(4) One-fourth of the total number of shares subject to the award shall vest one full calendar year following the Vesting Commencement Date and one thirty-sixth of the total number of shares subject to the award shall
vest on the last day of each full calendar month thereafter.
(5) Twenty-five percent (25%) of the Restricted Stock Units will vest on each of the first four anniversaries of the Vesting Commencement Date.
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(6) One-fourth of the total number of shares subject to the award shall vest one full calendar year following the Vesting Commencement Date and one thirty-sixth of the total number of shares subject to the award shall
vest on the last day of each full calendar month thereafter.
(7) One-fourth of the total number of shares subject to the award shall vest one full calendar year following the Vesting Commencement Date and one thirty-sixth of the total number of shares subject to the award shall
vest on the last day of each full calendar month thereafter, until all such shares have vested,.
(8) Twenty-five percent (25%) of the Restricted Stock Units will vest on each of the first four anniversaries of the Vesting Commencement Date,
(9) Twenty-five percent (25%) of the total number of shares subject to the award shall vest one full calendar year following the Vesting commencement Date. The remaining shares subject to the award will vest over the
next 12 quarters, in equal quarterly amounts, subject to the Named Executive Officer remaining employed on each such vesting date.
(10) One-fourth of the total number of shares subject to the option shall vest one full calendar year following the Vesting Commencement Date and one thirty-sixth of the total number of shares subject to the option shall
vest on the last day of each full calendar month thereafter, until all such shares have vested, subject to the Named Executive Officer remaining employed on each such vesting date.
(11) One-fourth of the total number of shares subject to the option shall vest one full calendar year following the Vesting Commencement Date and one thirty-sixth of the total number of shares subject to the option shall
vest on the last day of each full calendar month thereafter, until all such shares have vested, subject to the Named Executive Officer remaining employed on each such vesting date.
(12) One-fourth of the total number of shares subject to the option shall vest one full calendar year following the Vesting Commencement Date and one thirty-sixth of the total number of shares subject to the option shall
vest on the last day of each full calendar month thereafter, until all such shares have vested.
(13) One-fourth of the total number of shares subject to the award shall vest one full calendar year following the Vesting Commencement Date and one thirty-sixth of the total number of shares subject to the award shall
vest on the last day of each full calendar month thereafter, until all such shares have vested,.
(14) One-fourth of the total number of shares subject to the award shall vest one full calendar year following the Vesting Commencement Date and one thirty-sixth of the total number of shares subject to the award shall
vest on the last day of each full calendar month thereafter, until all such shares have vested,.
(15) One-third of the Restricted Stock Units will vest on each of the first three anniversaries of the Vesting Commencement Date.
(16) 100% of the total number of shares subject to the award shall vest twelve months from the Vesting Commencement Date.
(17) 100% of the total number of shares subject to the award shall vest twelve months from the Vesting Commencement Date.
(18) 100% of the total number of shares subject to the award shall vest twelve months from the Vesting Commencement Date.
(19) 100% of the total number of shares subject to the award shall vest twelve months from the Vesting Commencement Date.
(20) One-fourth of the total number of shares subject to the option shall vest one full calendar year following the Vesting Commencement Date and one thirty-sixth of the total number of shares subject to the option shall
vest on the last day of each full calendar month thereafter, until all such shares have vested, subject to the Named Executive Officer remaining employed on each such vesting date.
(21) One-fourth of the total number of shares subject to the option shall vest one full calendar year following the Vesting Commencement Date and one thirty-sixith of the total number of shares subject to the option shall
vest on the last day of each full calendar month thereafter, subject to the Named Executive Officer remaining employed on each such vesting date.
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2023 Options Exercised and Stock Vested Table
The following table lists the stock options exercised and stock awards that vested for our Named Executive Officers in the fiscal year ended December 31, 2023.
Name
Rohan R. Seth
Pension Benefits
Option Awards
Stock Awards
Number of Shares Acquired on
Exercise
Value Realized on Exercise ($)
Number of Shares Acquired on
Vesting
Value Realized Upon Vesting
33,000
$
202,950
—
—
We did not sponsor any defined benefit pension or other actuarial plan for our executive officers, including our Named Executive Officers, during 2023.
Nonqualified Deferred Compensation
We did not maintain any nonqualified defined contribution or other deferred compensation plans or arrangements for our executive officers, including our Named Executive Officers, during 2023.
Executive Equity Award Election Program
On November 23, 2021, our Board approved a program permitting certain of our executive officers, including each of our Named Executive Officers, to make an annual election, or the Executive
Equity Election, to (i) receive any annual equity awards subject to time-based vesting in the form of stock options or RSU awards, and (ii) defer settlement of these RSU awards that would otherwise
be delivered to such executive officer on or following the date such award vests. Each Executive Equity Election will cover equity awards granted to the applicable executive officer for services
performed in the fiscal year following the calendar year in which the Executive Equity Election is executed. An executive officer must execute an Executive Equity Election prior to December 31 of a
calendar year, or such earlier deadline as established by our Board or the Compensation Committee. Any Executive Equity Election will be irrevocable, and will be subject to such rules, conditions
and procedures as are determined by our Board or the Compensation Committee.
Employment Agreements
Our employment arrangements with our currently employed Named Executive Officers (Messrs. Harris, Drummond, Jones, Karavitis and Ms. Patton) include participation Agreements under our
Executive Change in Control and Severance Policy, as described below under the section titled “Potential Payments Upon Termination or Change in Control”.
On April 25, 2023, we entered into an offer letter with Ms. Hopkins regarding her appointment as Interim CEO. The offer letter provided Ms. Hopkins with an annual base salary and discretionary
bonus opportunity. Per the terms of the offer letter, we promptly reimbursed Ms. Hopkins for (i) reasonable business expenses (including, without limitation, meals, car rental and any other local
transportation), (ii) reasonable travel expenses between Ms. Hopkins’ permanent residence and her office at the Company (on a weekly basis), and (iii) the reasonable rent and other associated costs
incurred by Ms. Hopkins for renting a furnished two bedroom apartment located near the Company’s Brisbane, California offices or, in the alternative, hotel accommodations. In addition, with respect
to the reimbursements in subclauses (ii) and (iii) above (the “Relocation Reimbursements”), the Company will provide to Ms. Hopkins an amount or amounts (the “Tax Neutrality Payment”),
determined by the Company after consultation with Ms. Hopkins, to be necessary to pay federal, state, and local income and employment taxes, if any, incurred by Ms. Hopkins (x) arising as a result
of the Relocation Reimbursements, and (y) arising from the payments made to Ms. Hopkins to cover such taxes.
On May 11, 2023, we entered into a consulting agreement with Mr. Mowry. Pursuant to the terms of the consulting agreement, Mr. Mowry served as a consultant to the Company and performed
consulting and advisory services for the Company through December 31, 2023. Under the consulting agreement, Mr. Mowry was entitled to (i) compensation during the term of the consulting
agreement of $60,000 per month payable in cash on the last day of the applicable month, and pro-rated for any partial month in which the consulting services were provided; (ii) an award of 40,241
time-based RSUs; and (iii) an award of 6,666 PSUs, in each case, subject to our 2019 Equity Incentive Plan and our standard form of time-based RSU award agreement and July 20, 2021 form of
PSU award agreement thereunder, as applicable.
On May 12, 2023, we entered into an offer letter with Mr. Drummond. The offer letter provided Mr. Drummond with an annual base salary and annual target discretionary bonus opportunity. Per the
terms of the offer letter, Mr. Drummond will be eligible to
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Table of Contents
receive a series of retention bonuses if Mr. Drummond remains an employee through the applicable retention dates. Mr. Drummond may earn (i) the first retention bonus of $60,000 upon the
appointment of a new Chief financial Officer, (ii) the second retention bonus of $40,000 on the six-month anniversary of the appointment of a new Chief Financial Officer, and (iii) the third retention
bonus of $70,000 on the one year anniversary of the appointment of a new Chief Financial Officer. In each instance, the applicable retention bonus will be paid, less applicable withholdings, within
ten business days following the applicable retention date.
On May 12, 2023, we entered into a retention bonus letter with Mr. Karavitis. Per the terms of the retention bonus letter, Mr. Karavitis became eligible to receive a series of retention bonuses by
remaining an employee in good standing through the applicable retention dates. Mr. Karavitis earned (i) the first retention bonus of $56,250 on July 3, 2023, (ii) the second retention bonus of $45,000
on October 3, 2023, and (iii) the third retention bonus of $56,250 on January 2, 2024, and (iv) the fourth retention bonus of $67,500 on April 2, 2024.
Potential Payments Upon Termination or Change in Control
On April 28, 2023, our Board approved a new Executive Change in Control and Severance Policy (the “Severance Policy”), which provides a standardized approach for the receipt of change in
control and severance payments and benefits by certain key employees to be designated by the Compensation Committee of our Board or by our Chief Executive Officer. Generally, the Severance
Policy is intended to replace the individual change of control and severance agreements which we had previously entered into with certain key employees. We have entered into a participation
agreement under the Severance Policy with each of Messrs. Harris, Drummond, Jones, Karavitis and Ms. Patton.
Termination of Employment Not Involving a Change of Control
The Severance Policy provides that if the applicable Named Executive Officer’s employment with the Company is terminated by the Company without “cause” (as defined in the Severance Policy)
(excluding by way of death or disability) or by the Named Executive Officer for “good reason” (as defined in the Severance Policy) not in connection with a change of control (either prior to three
months before or after 12 months following a change in control, as defined in the Severance Policy) of the Company, the Named Executive Officer will receive, subject to signing and not revoking a
release of claims in favor of the Company, the following severance payments and benefits based on their status as of December 31, 2023:
Named Executive Officer
Taylor C. Harris
Stuart D. Drummond
Jeffrey S. Jones
Michael A. Karavitis
Stephana E. Patton
Lump Sum Severance Payments
150% base salary; 18 months of Cobra reimbursement
50% base salary; 6 months of Cobra reimbursement
100% base salary; 12 months of Cobra reimbursement
100% base salary; 12 months of Cobra reimbursement
100% base salary; 12 months of Cobra reimbursement
Termination of Employment Involving a Change of Control
The Severance Policy further provides that if the applicable Named Executive Officer’s employment with the Company is terminated by the Company without “cause” (excluding by way of death or
disability) 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 in control of
the Company (commonly referred to as “double trigger” arrangement), the Named Executive Officer will receive, subject to signing and not revoking a release of claims in favor of the Company the
following severance payments and benefits based on their status as of December 31, 2023:
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Named Executive Officer
Taylor C. Harris
Stuart D. Drummond
Jeffrey S. Jones
Michael A. Karavitis
Stephana E. Patton
Lump Sum Severance Payments
150% base salary; 150% of target bonus; 18 months of Cobra reimbursement; 100% acceleration of equity awards (with any
applicable performance goals deemed achieved at target levels, unless provided otherwise in the applicable award agreement or with
respect to awards designated as “Aviclear” or “special” at the time of grant) (“Equity Acceleration”).
50% base salary; 50% of target bonus; 6 months of Cobra reimbursement; 100% Equity Acceleration.
100% base salary; 100% of target bonus; 12 months of Cobra reimbursement; 100% Equity Acceleration.
100% base salary; 100% of target bonus; 12 months of Cobra reimbursement; 100% Equity Acceleration
100% base salary; 100% of target bonus; 12 months of Cobra reimbursement; 100% Equity Acceleration
For purposes of the Severance Policy Agreements, “cause” means a Named Executive Officer’s termination of employment only upon:
(i) The Named Executive Officer’s willful failure to substantially perform his or her duties with respect to the Company (subject to notice and a reasonable period to cure), other than a failure
resulting from his or her complete or partial incapacity due to physical or mental illness or impairment;
(ii) The Named Executive Officer’s willful act which constitutes gross misconduct and which is injurious to the Company;
(iii) The Named Executive Officer’s willful breach of a material provision of any material written agreement between the Named Executive Officer and the Company (subject to notice and
reasonable period to cure);
(iv) The Named Executive Officer’s knowing, material and willful violation of a federal or state law or regulation applicable to the business of the Company or any affiliate of the Company; or
(v) The Named Executive Officer’s conviction of, or plea of guilty or nolo contendre to, a felony, any crime involving fraud, embezzlement or any other act of moral turpitude, or any crime that
results in, or is reasonably expected to result in, a material adverse effect on the business or reputation of the Company.
For purposes of the Severance Policy, “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 or her consent:
(i) A material reduction in the Named Executive Officer’s authority, duties, or responsibilities relative to duties, position or responsibilities in effect immediately prior to such reduction;
(ii) A material reduction in the Named Executive Officer’s cash compensation as in effect immediately prior to such reduction;
(iii) A material change in the geographic location at which the Named Executive Officer must perform services (in other words, the relocation of the Named Executive Officer to a facility that
is more than 50 miles from the Named Executive Officer’s then-current location).
The following table lists our Named Executive Officers 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, 2023, not in connection with a change of control of the Company. Messrs. Mowry, Hopkins, Seth and Plants are not listed in
the table as each such Named Executive Officer’s employment was terminated in 2023 and each such Named Executive Officer did not receive any severance benefits in connection with such
termination of employment.
Named Executive Officer
Taylor C. Harris
Stuart D. Drummond
Jeffrey S. Jones
Michael A. Karavitis
Stephana E. Patton
Estimated Total Value of Cash Payment
Estimated Total Value of Health Coverage Continuation
$
$
$
$
$
1,028,135
169,304
376,016
507,645
428,343
$
$
$
$
$
50,746
4,078
24,782
11,135
—
The following table lists our Named Executive Officers 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 of control of the Company on December 31, 2023. Messrs. Mowry, Hopkins, Seth and Plants are not
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listed in the table as each such Named Executive Officer’s employment was terminated in 2023 and each such Named Executive Officer did not receive any severance benefits in connection with
such termination of employment.
Named Executive Officer
Taylor C. Harris
Stuart D. Drummond
Jeffrey S. Jones
Michael A. Karavitis
Stephana E. Patton
Estimated Total Value of Cash Payment
Estimated Total Value of Health Coverage
Continuation
Value of Accelerated Equity (1)
$
$
$
$
$
2,040,635
229,304
561,016
782,142
640,843
$
$
$
$
$
50,746
4,078
24,782
11,135
—
$
$
$
$
$
880,156
46,589
153,774
147,381
—
The Severance Policy does not provide for an excise tax gross-up. Rather, in the event of a change in control, our Named Executive Officers are entitled to receive either (i) the full benefits payable in
connection with a change in control or (ii) a reduced amount which would result in no portion of such benefits being subject to the excise tax under Section 4999 of the Internal Revenue Code,
whichever amount generates the greater after-tax value for the executive.
Severance payments upon a termination of employment or change in control would be payable to the recipient under the Severance Policy only if the Named Executive Officer signs and does not
revoke a release of claims in favor of the Company (in a form reasonably acceptable to the Company) and provided that such release of claims becomes effective no later than 60 days following the
termination date. In addition, the Named Executive Officer would need to have complied and agreed to comply with the terms of any confidential information agreement executed by Named
Executive Officer in favor of the Company and the provisions of the Severance Policy.
Securities Authorized for Issuance Under Equity Compensation Plans
Our stockholders have approved 2019 Equity Incentive Plan (the “2019 Plan”), which is an amendment and restatement of 2004 Equity Incentive Plan. On July 17, 2023, the Board of Directors
adopted the Cutera, Inc. 2023 Inducement Equity Incentive Plan (the “Inducement Plan”) and, subject to the adjustment provisions of the Inducement Plan, reserved 2,500,000 shares of the
Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan was adopted without stockholder approval pursuant to the applicable
NASDAQ Listing Rules. The Inducement Plan provides for the grant of equity-based awards, including nonstatutory stock options, restricted stock units, restricted stock, stock appreciation rights,
and performance awards, and its terms are substantially similar to the 2019 Plan, including with respect to treatment of equity awards in the event of a “merger” or “change in control” as defined
under the Inducement Plan, but with such other terms and conditions intended to comply with the NASDAQ inducement award exception or to comply with the NASDAQ acquisition and merger
exception. In accordance with the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employees or non-employee directors of the Company (or
following such individuals’ bona fide period of non-employment with the Company), as an inducement material to the individuals’ entry into employment with the Company, or, to the extent
permitted by the Nasdaq Listing Rules, in connection with a merger or acquisition.
The following table provides information regarding the shares of our common stock that may be issued upon the exercise of stock options, RSUs, PSUs, and the projected ESPP contributions under
our equity compensation plans as of December 31, 2023.
Plan Category
Equity compensation plans approved by security holders
Equity compensation plan not approved by security holders
Total
Principal Executive Officer Pay Ratio Disclosure
Number of securities to be issued upon
exercise of outstanding options, warrants
and rights
(a)
Weighted average exercise price of
outstanding options, warrants and
rights
(b)
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a))
(c)
27.54
—
27.54
1,397,725
—
1,397,725
127,863
—
127,863
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Pursuant to Item 402(u) of Regulation S-K, we are providing the following information about the relationship between the median of the annual total compensation of all our employees (other than
our current and former Chief Executive Officer) and the annual total compensation of our current and former Chief Executive Officer,
For 2023:
•
•
the median of the annual total compensation of all our employees (other than our current and former Chief Executive Officer) was $102,795;
the annual total compensation of our current and former Chief Executive Officer, as reported in the 2023 Summary Compensation Table included in this Proxy Statement, was $8,994,717;
and
the ratio of our former Chief Executive Officer’s annual total compensation to the median of the annual total compensation of all our employees was 87.5:1.
•
This pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.
To identify our median employee, we used the following methodology:
•
•
To determine our total employee population, we included all full-time, part-time, temporary, and seasonal employees as of December 31, 2023, exclusive of our current and former Chief
Executive Officer. As of December 31, 2023, we and our consolidated subsidiaries employed approximately 461 individuals. We did not include any contractors or other non-employee
workers in our employee population.
To identify our median employee from our employee population, we calculated the aggregate amount of each employee’s base salary or wages and 2021 cash bonus or sales commission, as
appropriate, for the period from January 1, 2022 through December 31, 2022, which compensation measures were consistently applied. We elected not to include the grant date fair value of
equity awards granted in 2022 in determining the median employee because we determined that equity awards are not widely granted throughout the organization.
• We annualized the base salary or wages of all permanent (full-time and part-time) employees who were employed by us for less than the entire calendar year.
• All compensation not paid in U.S. dollars was concerted to U.S. dollars using the historic exchange rate made available by the United States Federal Reserve System as of December 31,
2023.
Using this approach, we identified our median employee. Once the median employee was identified, we then calculated the annual total compensation of this employee for 2023 using the same
methodology we use for calculating the annual total compensation of our Named Executive Officers in accordance with the requirements of the Summary Compensation Table.
We determined our Chief Executive Officer’s annual total compensation for 2023 as reported in our 2023 Summary Compensation Table, provided that we annualized Mr. Harris' annual base salary
and annual target bonus.
Pay Versus Performance
The following table sets forth the compensation for Taylor Harris, David Mowry and Sheila Hopkins, each a Chief Executive Officer and principal executive officer (“PEO”) for a period in 2023, and
the average compensation for our non-PEO Named Executive Officers (“non-PEO NEOs”) for 2023, 2022, 2021 and 2020 (each a “Covered Year”), both as reported in the Summary Compensation
Table and with certain adjustments to reflect the “compensation actually paid” to such individuals, as calculated in accordance with rules adopted by the SEC in August 2022. “Compensation actually
paid” does not reflect amounts actually realized by our PEOs and Non-PEOs NEOs and may be higher or lower than amounts, if any, that are actually realized by such individuals. The table below
also provides information for each Covered Year regarding our cumulative total shareholder return (“TSR”), the cumulative TSR of our peer group (the Nasdaq Healthcare Index), our net income, and
our Company selected measure, revenue. Additional information regarding our compensation philosophy, the structure of our performance-based compensation programs, and compensation decisions
made this year is described above in our “Compensation Discussion and Analysis.”
Fiscal Year
SCT for PEO
CAP to PEO
Average SCT for NEOs
Average CAP to NEOs
1
(b)
2
(c)
3
(d)
2
(e)
Value of Initial Fixed $100
Investment Based On:
TSR
4
(f)
Peer Group TSR
4
(g)
Net Income (Loss)
($M)
5
(h)
Revenue ($M)
6
(i)
7,279,813
2,597,552
4,065,626
1,334,582
$
$
$
$
2,111,276
2,761,857
6,422,427
(350,182)
$
$
$
$
663,439
966,115
2,356,048
1,062,163
$
$
$
$
(312,230)
673,736
2,997,001
853,506
$
$
$
$
9.9
123.5
115.4
67.3
$
$
$
$
106.3
99.8
125.4
130.0
$
$
$
$
(162.8)
(82.3)
2.1
(23.9)
$
$
$
$
212.4
252.4
231.3
147.7
155
(a)
2023
2022
2021
2020
$
$
$
$
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1.
2.
The dollar amounts reported in column (b) are the amounts of total compensation reported for the Chief Executive Officer and PEO, for each corresponding year in the “Total” column of the Summary Compensation Table.
The dollar amounts reported in column (c) and (e) represent the amount of “compensation actually paid”, as computed in accordance with SEC rules. “Compensation actually paid” does not necessarily represent cash and/or equity value
transferred to the applicable NEO without restriction, but rather is a value calculated under applicable SEC rules, as shown in the adjustment table below. We do not have a defined benefit plan so no adjustment for pension benefits is
included in the table below. Similarly, no adjustment is made for dividends as none were paid during the measurement period.
3. The dollar amounts reported in column (d) are the average amounts of total compensation reported for the other NEOs for each corresponding year in the “Total” column of the Summary Compensation Table. Refer to our Summary
Compensation Table in this section for each of 2023, 2022 2021, and 2020, the Non-PEO NEOs were:
2023
Stuart D. Drummond
Jeffrey S. Jones
Michael A. Karavitis
Stephana E. Patton
2022
Daniel J. Plants
Rohan R. Seth
Michael A. Karavitis
2021
Daniel J. Plants
Rohan R. Seth
Michael A. Karavitis
2020
Jasor R. Richey
Rohan R. Seth
Faud Ahmad
4. TSR is calculated by assuming that a $100 investment was made at the close of trading on December 31, 2019 and reinvesting all dividends until the last day of each Covered Year. The TSR peer group consists of the Nasdaq Health Care
Index, as used in our performance graph in our annual report.
5. The dollar amounts reported are the Company’s net income or loss reflected in the Company’s audited financial statements.
6. Our Company Selected Measure, based on our assessment of the most important financial performance measure used by us in 2023 to link compensation actually paid to performance, is revenue, consistent with the most heavily weighted
metric in our Short-Term Incentive Program. The dollar amounts reported are our revenue reflected in our audited financial statements.
The following table details the adjustments described in note 2 above:
Fiscal Year
Executives
SCT
Minus Grant Date
Fair Value of Equity
Awards in Summary
Compensation Table
Plus Year End Fair
Value of Equity
Awards Granted
During Year That
Are Outstanding and
Unvested at Fiscal
Year End
2023
PEO
Non-PEO NEOs
2022
PEO
Non-PEO NEOs
2021
PEO
2020
Non-PEO NEOs
PEO
Non-PEO NEOs
$
$
$
$
$
$
$
$
(a)
7,279,813 $
663,439 $
2,597,552 $
966,115 $
4,065,626 $
2,356,048 $
1,334,582 $
1,062,163 $
(b)
6,997,690 $
287,188 $
1,530,185 $
473,804 $
2,593,961 $
1,792,962 $
673,024 $
449,147 $
(i)
1,829,153 $
63,625 $
1,838,392 $
559,128 $
2,677,682 $
1,746,178 $
628,451 $
668,106 $
Plus Year over Year
Change in Fair Value
of Outstanding and
Unvested Equity
Awards
(ii)
Plus Fair Value as of
Vesting Date of
Equity Awards
Granted and Vested
in the Year
(iii)
Plus Year over Year
Change in Fair Value
or Equity Awards
Granted in Prior
Years that Vested in
the Year
Total Equity CAP
CAP
(iv)
(c)=(i)+(ii)+(iii)+(iv)
(d)=(a)-(b)+(c)
— $
(614,062)
(1,399,323) $
(568,799) $
1,484,535 $
406,446 $
(1,278,038) $
(250,739) $
— $
$
— $
— $
— $
— $
— $
— $
— $
(138,044) $
1,255,421 $
191,096 $
788,545 $
281,291 $
(362,153) $
(176,877) $
1,829,153 $
(688,481) $
1,694,490 $
181,425 $
4,950,762 $
2,433,915 $
(1,011,740) $
240,490 $
2,111,276
(312,230)
2,761,857
673,736
6,422,427
2,997,001
(350,182)
853,506
(a) The dollar amounts reported in the Summary Compensation Table for the applicable Covered Year.
(b) The grant date fair value of equity awards represents the total of the amounts reported in the “Stock Awards” and “Option Awards” columns of the Summary Compensation Table for the applicable Covered Year.
(c) The recalculated value of equity awards for each applicable Covered Year includes the addition (or subtraction, as applicable) of the following:
(i) the year-end fair value of any equity awards granted in the applicable Covered Year that are outstanding and unvested as of the end of the Covered Year;
(ii) the amount of change as of the end of the applicable Covered Year (from the end of the prior fiscal year) in fair value of any equity awards granted in prior fiscal years that are outstanding and unvested as of the end of the applicable
Covered Year;
(iii) the fair value as of the vesting date of any equity awards granted in the applicable Covered Year that vested in the Covered Year; and
(iv) for equity awards granted in a prior fiscal year that vest in the applicable Covered Year, the change in the fair value as of the vesting date from the beginning of the applicable Covered Year.
(d) Compensation actually paid” is a value calculated under applicable SEC rules and may be higher or lower than amounts, if any, that are actually realized by our NEOs.
For purposes of the adjustments to determine “compensation actually paid”, we computed the fair value of stock option awards and restricted stock units in accordance with FASB ASC Topic 718 as
of the end of the relevant fiscal year, other than fair values
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of equity awards that vested in the Covered Year, which are valued as of the applicable vesting date. Most valuation assumptions and processes used to recalculate fair values for this purpose did not
materially differ from those disclosed in Note 8—Stockholders’ Equity, Stock Plans and Stock-Based Compensation Expense in this Annual Report on Form 10-K for the fiscal year ended December
31, 2023.
Option award fair values were recalculated as of each Covered Year end and vesting date, as applicable, based on the following assumptions:
Fiscal Year
2023
2022
2021
2020
Expected Term
5.3 - 7.0 years
2.1 - 3.7 years
0.7 - 3.5 years
1.4 - 2.3 years
Volatility
66.1% - 81.2%
67.0 %
67.0 %
67.0 %
Risk-Free Rate
4.00% - 4.25%
3.00 %
0.86 %
0.53 %
Performance-based award fair values were recalculated to value performance awards at target until board approval.
Relationship Between “Compensation Actually Paid” and Performance Measures
We believe the table above shows the alignment between compensation actually paid to the NEOs and the Company’s performance, consistent with our compensation philosophy as described in our
CD&A. A large portion of NEO compensation is reliant on stock price and as such “compensation actually paid” was aligned with TSR performance. The Compensation Committee evaluates
performance based on a broad range of company objectives and measures that could cause deviations in this relationship in the future. The charts below show the relationship between the PEO and
Non-PEO NEO “compensation actually paid” and (i) the Company’s TSR and the Peer Group TSR; (ii) the Company’s net income (loss); and (iii) the Company Selected Measure, Revenue.
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Director Compensation
We use a combination of cash and equity compensation to attract and retain qualified candidates to serve on our Board.
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The following table sets forth a summary of the cash compensation paid, and the grant date fair value of shares of Cutera common stock awarded to our non-employee directors in the fiscal year
ended December 31, 2023.
2023 Director Compensation Table*
Name
Gregory A. Barrett
Kevin J. Cameron
Nicholas S. Lewin
Timothy J. O'Shea
Julian T. Park
Keith J. Sullivan
Joseph E. Whitters
Janet D. Widmann
Fees Earned or Paid in Cash
(1)
Option Awards
Stock Awards(2)
$
$
$
$
$
$
$
$
97,500
35,397
187,784
65,625
100,250
19,750
42,500
91,989
$
$
$
$
$
$
$
$
—
250,003
250,003
—
—
—
—
149,992
$
$
$
$
$
$
$
$
—
—
—
—
142,707
200,295
—
—
All Other Compensation (3)
—
—
—
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Total
97,500
285,400
437,787
65,625
242,957
220,045
42,500
241,981
*Sheila Hopkins served as our interim Chief Executive Officer from April 2023 through July 2023. Accordingly, her compensation for services as a member of our Board is disclosed in the Summary
Compensation Table for Named Executive Officers.
(1) The amounts reported in this column were earned in connection with serving on our Board and its various committees and include service as Board or Committee Chairperson.
(2) The amounts reported in this column represent the aggregate grant date fair value of stock option grants restricted shares awarded during the fiscal year ended December 31, 2023 to each of the non-employee directors, calculated in
accordance with ASC Topic 718. See Note 8 of the Consolidated Notes to Financial Statements included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2023, for a discussion of the valuation assumptions for
stock-based compensation.
(3) The amounts reported in this column represent fees for services provided for other than serving on our Board or its committees.
Outstanding Equity Awards Held by Non-Employee Directors as of December 31, 2023
Name
Kevin J. Cameron
Nicholas S. Lewin
Keith J. Sullivan
Janet D. Widmann
Cash Compensation Paid to Non-Employee Directors in 2023
Grant Date
5/19/2023
5/19/2023
5/19/2023
6/16/2022
Number of Shares or Units of Stock that Have Not
Vested
Market Value of Shares or Units of Stock that Have
Not Vested
25,327
25,327
11,894
7,254
$37,991
$37,991
$41,986
$10,881
Effective as of April 29, 2021, on the recommendation of the Compensation Committee after consultation with the Compensation Committee’s external compensation consultant, Compensia, and its
review of our peer Board compensation market practices and Board member roles, duties and time commitments, the Board approved certain revisions to Board compensation effective starting at our
2021 Annual Meeting of Stockholders (the “April 2021 Director Compensation Revisions”). Following the effectiveness of these revisions, each non-employee director received annual cash retainer
payments, paid quarterly in arrears on a prorated basis, in the same amounts as set forth below in the section titled “Outside Director Compensation Policy—Cash Compensation”.
Outside Director Compensation Policy
Effective November 23, 2021, the Board approved a new compensation policy for our non-employee directors to codify our standard compensation practices with respect to non-employee directors.
It is designed to provide a total compensation package that enables us to attract and retain qualified and experienced individuals to serve as directors and to align our directors’ interests with those of
our stockholders.
Under this compensation policy, each non-employee director will receive the cash and equity compensation for Board services described below. We will continue to reimburse our non-employee
directors for reasonable, customary and documented travel expenses to Board or Board committee meetings.
The compensation policy and the 2019 Plan include a maximum annual limit of $400,000 of equity awards that may be paid, issued, or granted to a non-employee director in any fiscal year. For
purposes of this limitation, the value of equity awards is
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based on the grant date fair value (determined in accordance with GAAP). Any equity awards or other compensation provided to a person for their services as an employee, or for their services as
consultant (other than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards
to our non-employee directors.
Cash Compensation
Each non-employee director will be entitled to receive the following annual cash retainer payments for their services under the outside director compensation policy, payable quarterly in arrears on a
prorated basis:
•
•
•
•
•
•
•
•
•
$55,000 for service as the Chairperson of the Board;
$60,000 for service as a Board member;
$40,000 for services as the Lead Independent Director (if applicable);
$35,000 additionally for service as Chairperson of the Audit Committee;
$7,500 additionally for service as an Audit Committee member;
$20,000 additionally for service as Chairperson of the Compensation Committee;
$7,000 additionally for service as a Compensation Committee member;
$10,000 additionally for service as Chairperson of the Governance and Corporate Responsibility Committee; and
$7,000 additionally for service as a Governance and Corporate Responsibility Committee member.
For clarity, each non-employee director who serves as the chair of a committee will receive only the additional annual fee as the chair of the committee and not the additional annual fee as a member
of such committee while serving as such chair, provided that the non-employee director who serves as the Chairperson of the Board or the Lead Independent Director will receive the annual fee as
non-employee director and the additional annual fee as the Chairperson of the Board or the Lead Independent Director, as applicable.
Election to Receive Stock Options or Restricted Stock Units in lieu of Cash Compensation
Each non-employee director may elect to convert 100% or 50% of his or her annual cash retainer payments into either an option to purchase a number of shares of our common stock, or an award
covering a number of restricted stock units (either such award, a “Retainer Award”), with a grant date fair value (determined in accordance with GAAP) equal to the amount of the applicable annual
cash retainer payment to which the Retainer Award relates (such election, a “Retainer Election”).
Each non-employee director must make a Retainer Election with respect to annual cash retainer payments relating to services to be performed in a fiscal year following the calendar year in which the
Retainer Election is made by no later than December 31 of such calendar year, or such earlier deadline as established by our Board or the compensation committee of our Board, or the applicable
election deadline.
If a non-employee director makes a Retainer Election with respect to a fiscal year, but, after the applicable Retainer Award is granted, (i) the non-employee director’s cash retainers are increased
during such fiscal year, the non-employee director must receive the increased amount of cash retainers in cash on the applicable payment dates, or (ii) the non-employee director’s cash retainers are
decreased during such period, no change will be made to the applicable Retainer Award.
Retainer Awards will be granted on the first trading day of the fiscal year to which they relate. Each Retainer Award will vest in full on the twelve (12) month anniversary of the applicable grant date,
subject to the non-employee director remaining a non-employee director through such vesting date.
Initial Awards
Each person who first becomes a non-employee director after the date of the effective date of the policy will receive, on the first trading date on or after the date on which the person first becomes a
non-employee director, an initial award of restricted stock units, or an Initial Award, covering a number of shares of our common stock having a grant date fair value (determined in accordance with
GAAP, and incorporating the moving average price of a share of our common stock for the fifty (50) trading days immediately prior to the applicable date of grant) equal to $250,000; provided that
any resulting fraction will be rounded down to the nearest whole share. The Initial Award will vest in three (3) equal installments on each of the one (1), two (2) and three (3) year anniversaries of the
grant date, subject to the non-employee director continuing to be a non-employee director through the applicable vesting date. If the person was a member of our Board and also an employee,
becoming a non-employee director due to termination of employment will not entitle them to an Initial Award.
Before the date an individual first becomes a non-employee director, such individual may elect to receive the Initial Award in the form of a stock option with a grant date fair value of $250,000,
instead of in the form of restricted stock units.
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Annual Awards
Each non-employee director automatically will receive, on the date of each annual meeting of our stockholders following the effective date of the policy, an annual award of restricted stock units, or
an Annual Award, covering a number of shares of our common stock having a grant date fair value (determined in accordance with GAAP, and incorporating the moving average price of a share of
our common stock for the fifty (50) trading days immediately prior to the applicable date of grant); provided that any resulting fraction will be rounded down to the nearest whole share. Each Annual
Award will vest in its entirety on the earlier of (x) the one (1) year anniversary of the Annual Award’s grant date, or (y) the day immediately before the date of the next annual meeting of our
stockholders that follows the grant date of the Annual Award, subject to the non-employee director continuing to be a non-employee director through the applicable vesting date.
Before the applicable annual election deadline, each individual who otherwise is eligible to receive an Annual Award for the next calendar year may elect to receive the Annual Award to be granted to
him or her in the immediately following calendar year in the form of a stock option with a grant date fair value of $150,000, instead of in the form of restricted stock units.
Deferral of Settlement of Restricted Stock Units
Each non-employee director may elect to defer the delivery of the shares subject to any restricted stock units granted under our outside director compensation policy pursuant to a Retainer Award,
Initial Award or Annual Award that would otherwise be delivered to such non-employee director on or following the date such award vests, or the Deferral Election. Any Deferral Election will be
irrevocable, and will be subject to such rules, conditions and procedures as shall be determined by the Board or the compensation committee of the Board, in its sole discretion.
Change in Control
Upon a change in control of Cutera, each equity award granted under our outside director compensation policy will be treated as set forth in the 2019 Plan.
Information on Compensation Risk Assessment
Management periodically reviews our incentive compensation programs at all levels within the organization. Employee cash bonuses are based on company-wide and individual performance, and
management (with respect to our non-executive employees), our Compensation Committee (with respect to our executive officers, other than our CEO), and the Board (with respect to our CEO) have
discretion to adjust bonus payouts. Equity awards for new hires are based on the employee’s position, prior experience, qualifications, and the market for particular types of talent, and any additional
grants are based on employee performance and retention requirements. Equity awards have long-term vesting requirements to ensure that recipients’ focus is on our long-term success.
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 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.
Nicholas S. Lewin, Chairperson
Sheila A. Hopkins
Keith J. Sullivan
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table provides information relating to the beneficial ownership of our common stock as of March 31, 2024, by:
•
•
•
•
each stockholder known by us to own beneficially more than 5% of our common stock;
each of our current named executive officers (including our Chief Executive Officer, Interim Chief Financial Officer and Chairperson)
each of our current directors; and
our current directors and executive officers 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 March 31, 2024, through the exercise of any stock option or other right. The number and percentage of shares beneficially owned is
computed on the basis of 20,013,041 shares of our common stock outstanding as of March 31, 2024 plus, for each beneficial owner, the amount of shares issuable to such beneficial owner upon the
exercise of warrants and options that are exercisable within 60 days. 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/A, 13G and 13G/A filed with the SEC.
Shares of our common stock that a person has the right to acquire within 60 days of March 31, 2024 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.
Beneficial Owner
RTW Investments, LP
40 10th Avenue, 7th Floor
Yew York, NY 10106
GAMCO Investors, Inc
One Corporate Center
Rye, NY 10580
BlackRock, Inc
55 East 52nd Street
New York, NY 10055
Pura Vida Investments, LLC
887 7th Avenue, 6th Floor
New York, NY 10106
The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355
Michael A. Karavitis
Stuart D. Drummond
Sheila A. Hopkins
Kevin J. Cameron
Nicholas S. Lewin
Keith J. Sullivan
All other directors and executive officers as a group (13 persons)
* Less than 1%
Number of Shares Beneficially
Owned
Warrants and Options
Exercisable Within 60 days
Approximate Percent Owned
1,817,585
(1)
1,526,026
(2)
1,323,489
(3)
1,270,494
(4)
(5)
1,012,287
37,393
9,421
31,188
—
—
3,964
111,966
9.1 %
7.6 %
6.6 %
6.3 %
5.1 %
*
*
*
*
*
*
35,228
2,561
3,627
8,443
8,443
—
66,745
*
162
Table of Contents
(1) As reported in Amendment No. 3 to Schedule 13G filed by BlackRock, Inc. on January 26, 2024 with the SEC. Such beneficial owner reported that it has sole power to vote or direct the vote over 1,286,632 shares of our common stock, the
shared power to vote or direct the vote over 0 shares of our common stock, the sole power to dispose or direct the disposition of 1,323,489 shares of our common stock, and the shared power to dispose or direct the disposition of 0 shares of our
common stock.
(2) As reported in Amendment No. 15 to Schedule 13D filed by GAMCO Investors, Inc. on December 27, 2023 with the SEC. The aggregate number of shares reported relates to 1,505,026 shares owned as follows: 473,798 by Gabelli Funds, LLC
(“Gabelli Funds”), 893,568 by GAMCO Asset Management Inc. (“GAMCO”), and 137,660 by Teton Advisors, Inc. 10,000 by Gabelli Foundation, Inc., 7,000 by MJG Associates, Inc. and 4,000 by Associated Capital Group, Inc.. Mario
Gabelli is deemed to have beneficial ownership of the shares owned beneficially by each of the foregoing persons. G.research, LLC. Associated Capital Group, Inc. (“AC”), GAMCO Investors, Inc. (“GBL”) and GGCP, Inc. (“GGCP”) are
deemed to have beneficial ownership of the shares owned beneficially by each of the foregoing persons other than Mario Gabelli and the Gabelli Foundation, Inc. Each of the foregoing persons has the sole power to vote or direct the vote and
sole power to dispose or to direct the disposition of the shares reported for it, either for its own benefit or for the benefit of its investment clients or its partners, as the case may be, except that (i) GAMCO does not have authority to vote 20,500
of the reported shares, (ii) Gabelli Funds has sole dispositive and voting power with respect to the shares of the Company held by the Funds so long as the aggregate voting interest of all joint filers does not exceed 25% of their total voting
interest in the Company and, in that event, the Proxy Voting Committee of each Fund shall respectively vote that Fund’s shares, (iii) at any time, the Proxy Voting Committee of each such Fund may take and exercise in its sole discretion the
entire voting power with respect to the shares held by such fund under special circumstances such as regulatory considerations, and (iv) the power of Mario Gabelli, AC, GBL, and GGCP is indirect with respect to shares beneficially owned
directly by the other persons.
(3) As reported in Amendment No. 7 to Schedule 13D filed by Pura Vida Investments, LLC and Efrem Kamen on December 29, 2023, with the SEC. The aggregate number of shares reported relates to shares held in one or more private funds (the
“Pura Vida Funds”) managed by Pura Vida Investments, LLC (“Pura Vida”). Pura Vida in its capacity as the investment manager of the Pura Vida Funds, has the power to vote and the power to direct the disposition of all shares held by the
Pura Vida Funds. Mr. Kamen, as the managing member of Pura Vida, may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) all the shares held by the Pura Vida
Funds.
(4) As reported in Schedule 13D filed by RTW Investments, LP on January 19, 2024 with the SEC. The aggregate number of shares reported relates to shares held in one or more private funds (the “RTW Funds”) managed by RTW Investments, LP.
(“RTW”). RTW in its capacity as the investment manager of the RTW Funds, has the power to vote and the power to direct the disposition of all shares held by the RTW Funds.
(5) As reported in Amendment No. 5 to Schedule 13G filed by The Vanguard Group on February 12, 2024 with the SEC. Such beneficial owner reported that it has sole power to vote or direct the vote over 0 shares of our common stock, the shared
power to vote or direct the vote over 11,175 shares of our common stock, the sole power to dispose or direct the disposition of 994,929 shares of our common stock, and the shared power to dispose or direct the disposition of 17,358 shares of
our common stock.
Securities Authorized for Issuance under Equity Compensation Plans
Our stockholders have approved 2019 Equity Incentive Plan, which is an amendment and restatement of 2004 Equity Incentive Plan. On July 17, 2023, the Board of Directors adopted the Cutera, Inc.
2023 Inducement Equity Incentive Plan (the“Inducement Plan”) and, subject to the adjustment provisions of the Inducement Plan, reserved 2,500,000 shares of the Company’s common stock for
issuance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan was adopted without stockholder approval pursuant to the applicable Nasdaq Listing Rules.
The following table provides information regarding the shares of our common stock that may be issued upon the exercise of stock options, RSUs, PSUs, and the projected ESPP contributions under
our equity compensation plans as of December 31, 2023.
Plan Category
Equity compensation plans approved by security
holders
Equity compensation plan not approved by security
holders
Total
Number of securities to be issued upon exercise of
outstanding options, warrants and rights
(a)
Weighted average exercise price of outstanding
options, warrants and rights
(b)
Number of securities remaining available for future
issuance under equity compensation plans
(excluding securities reflected in column (a))
(c)
127,863
—
127,863
163
27.54
—
27.54
1,397,725
—
1,397,725
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
There were no transactions or series of similar transactions, since the beginning of our last fiscal year, to which we were a party or will be a party, in which:
•
•
the amounts involved exceeded or are expected to exceed $120,000; and
any of our directors, nominees for director, executive officers or beneficial holders of more than 5% of our outstanding common stock, or any immediate family member of, or person sharing
the household with, any of these individuals or entities (each, a related party), had or will have a direct or indirect material interest.
We have entered into change of control and severance agreements with our Named Executive Officers. See “Compensation Discussion and Analysis—Potential Payments Upon Termination or
Change in Control.”
We have entered into indemnification agreements with our directors and executive officers. The indemnification agreements and our Charter and Bylaws require us to indemnify our directors and
executive officers to the fullest extent permitted by Delaware law.
Policies and Procedures for Related Party Transactions
Our Board has adopted a written policy that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our common stock and any
members of the immediate family of any of the foregoing persons are not permitted to enter into a related person transaction with us without the prior consent of our Audit Committee. Any request
for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of any class of our common stock or any member of the
immediate family of any of the foregoing persons in which the amount involved exceeds $120,000 and such person would have a direct or indirect interest must first be presented to our Audit
Committee for review, consideration and approval. In approving or rejecting any such proposal, our Audit Committee is to consider the material facts of the transaction, including, but not limited to,
whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related person’s interest
in the transaction. There were no related party transactions entered into after presentation, consideration and approval by our Board and/or our Audit Committee.
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND 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.
All of the services provided by BDO USA, P.C. 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 2023 and 2022 were as follows:
Service Category
BDO USA, P.C.:
Audit Fees
Audit-Related Fees
Tax Fees
Non-Audit Fees
(1)
Total BDO USA, P.C.
2023
2022
$
$
4,060,323
—
—
—
4,060,323
$
$
3,558,176
—
—
—
3,558,176
(1) In accordance with the SEC’s definitions and rules, audit fees are comprised of billed fees and fees expected to be billed for professional services related to the audit of financial statements and internal control over financial reporting for the
Company’s 2023 and 2022 fiscal years as included in this 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.
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed in Part II of the Annual Report on the Original 10-K:
PART IV
1. Financial Statements: Financial Statements: See "Index to Consolidated Financial Statements" within the Consolidated Financial Statements.
2. Financial Statement Schedules: Financial Statement Schedules; not applicable or the required information is otherwise included in the Consolidated Financial Statements and accompanying
notes.
3. Exhibits: The exhibits listed in the accompanying index to exhibits are filed, furnished, or incorporated by reference as part of this Form 10-K. The following is a list of such Exhibits:
Exhibit No.
3.1
3.2
4.1
4.2
4.3*
4.4*
4.5*
4.6*
4.7*
4.8*
4.9*
4.10*
10.1*
10.2*
Exhibit Index
Description
Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.5 to the Company’s Quarterly Report on Form 10-Q filed on
November 7, 2017 and incorporated herein by reference)
Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.1 on Form 8-K filed on November 16, 2023 and incorporated herein by
reference)
Specimen Common Stock certificate of the Registrant (filed as Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed on March 25, 2005
and incorporated herein by reference)
Description of the Registrant’s Securities (filed as Exhibit 4.2 to the Company’s Annual Report on Form 10-K filed on March 16, 2020 and
incorporated herein by reference)
Employment Offer Letter dated July 19, 2017 by and between Cutera, Inc. and Michael Karavitis (filed as Exhibit 4.2 to the Company’s Quarterly
Report on Form 10-Q filed on May 10, 2022 and incorporated herein by reference)
Change of Control and Severance Agreement dated February 1, 2018 by and between Cutera, Inc. and Michael Karavitis (filed as Exhibit 4.3 to the
Company’s Quarterly Report on Form 10-Q filed on May 10, 2022 and incorporated herein by reference)
Indenture, dated as of March 9, 2021, between Cutera, Inc. and U.S. Bank Trust Company, National Association, as trustee (filed as Exhibit 4.1 Form
8-K filed on March 4, 2021 and incorporated herein by reference).
Form of 2.25% Convertible Senior Notes due 2026 (filed as Exhibit 4.2 on Form 8-K filed on March 4, 2021 and incorporated herein by reference).
Indenture, dated as of May 27, 2022, between Cutera, Inc. and U.S. Bank Trust Company, National Association, as trustee (filed as Exhibit 4.1 Form
8-K filed on May 31, 2022 and incorporated herein by reference).
Form of 2.25% Convertible Senior Notes due 2028 (filed as Exhibit 4.2 on Form 8-K filed on May 31, 2022 and incorporated herein by reference).
Indenture, dated as of December 12, 2022, between Cutera, Inc. and U.S. Bank Trust Company, National Association, as trustee (filed as Exhibit 4.1
Form 8-K filed on December 12, 2022 and incorporated herein by reference).
Form of 4.00% Convertible Senior Notes due 2029 (filed as Exhibit 4.2 on Form 8-K filed on December 12, 2022 and incorporated herein by
reference).
Form of Indemnification Agreement for directors and executive officers (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
on February 21, 2019 and incorporated herein by reference)
2004 Employee Stock Purchase Plan (filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K filed on March 16, 2007 and incorporated
herein by reference)
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Table of Contents
10.3
10.4*
10.5
10.6*
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
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 (filed as Exhibit 10.6 to the Company’s registration statement on Form S-1 filed on January 15, 2004 and
incorporated herein by reference)
Form of Performance Unit Award Agreement (filed as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2005
and incorporated herein by reference)
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 (filed as Exhibit 10.19 to the
Company’s Quarterly Report on Form 10-Q filed on November 1, 2010 and incorporated herein by reference)
Form of Performance Stock Unit Award Agreement (filed as Exhibit 10.22 to the Company’s Quarterly Report on Form 10-Q filed on August 1,
2016 and incorporated herein by reference)
Second Amendment to Lease dated July 6, 2017 by and between the Company and BMR-Bayshore Boulevard LP (filed as Exhibit 10.27 to the
Company’s Quarterly Report on Form 10-Q filed on August 7, 2017 and incorporated herein by reference)
Loan and Security Agreement, dated as of July 9, 2020, by and among Cutera, Inc., as borrower, and Silicon Valley Bank, as lender (filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on July 13, 2020 and incorporated herein by reference)
Third Amendment to Lease by and between Cutera, Inc. and BMR-Bayshore Boulevard LP, successor-in-interest Gal-Brisbane, L.P. (filed as Exhibit
10.2 to the Company’s Current Report on Form 8-K filed on July 13, 2020 and incorporated herein by reference)
Indenture, dated as of March 9, 2021, between Cutera, Inc. and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to the Company’s
Current Report on Form 8-K filed on March 9, 2021 and incorporated herein by reference)
Form of Capped Call Transaction Confirmation (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 9, 2021 and
incorporated herein by reference)
Amendment No. 1, dated March 4, 2021, to the Loan and Security Agreement, dated July 9, 2020 by and between Cutera, Inc., and Silicon Valley
Bank ((filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 9, 2021 and incorporated herein by reference))
Cutera, Inc. 2019 Equity Incentive Plan (amended and restated as of June 15, 2021) (filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on June 21, 2021 and incorporated herein by reference)
ZO Medical and Cutera Agreement 5 Aug 2013 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2021 and
incorporated herein by reference)
ZO Skin Health Amendment 21 Aug 2013 (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2021 and
incorporated herein by reference)
ZO Skin Health Amendment 25 Jan 2021 (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2021 and
incorporated herein by reference)
ZO Skin Health Amendment 14 Jun 2021 (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2021 and
incorporated herein by reference)
Amendment, effective January 1, 2022, to Distribution Agreement dated August 5, 2013, between Cutera Inc., and ZO Skin Health, Inc. (filed as
Exhibit 10.41 to the Company’s Annual Report on Form 10-K filed on March 1, 2022 and incorporated herein by reference)
Third Amendment, dated May 24, 2022 to the Loan and Security Agreement, dated July 9, 2020 by and between Cutera, Inc., and Silicon Valley
Bank (filed as Exhibit 10.27 to the Company’s Annual Report on Form 10-K filed on April 7, 2023 and incorporated herein by reference)
Fourth Amendment, dated August 10, 2022 to the Loan and Security Agreement, dated July 9, 2020 by and between Cutera, Inc., and Silicon Valley
Bank (filed as Exhibit 10.28 to the Company’s Annual Report on Form 10-K filed on April 7, 2023 and incorporated herein by reference)
167
Table of Contents
10.21
10.22
10.23
10.24*
10.25*
10.26*
10.27+*
10.28+
10.29+
10.30+#
10.31*
21.1+
23.1+
24.1
31.1+
31.2+
32.1+
97.1+
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Fifth Amendment, dated December 7, 2022, to the Loan and Security Agreement, dated July 9, 2020 by and between Cutera, Inc., and Silicon Valley
Bank (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 12, 2022 and incorporated herein by reference)
Cooperation Agreement, dated as of May 9, 2023, between Cutera, Inc. and Pura Vida Investments, LLC (filed as Exhibit 10.1 on Form 8-K filed on
May 9, 2023 and incorporated herein by reference)
Cooperation Agreement, dated as of May 9, 2023, between Cutera, Inc. and RTW Investments, LP (filed as Exhibit 10.2 on Form 8-K filed on May
9, 2023 and incorporated herein by reference)
Interim CFO Offer Letter dated May 12, 2023 by and between Cutera, Inc. and Stuart Drummond (filed as Exhibit 10.1 on Form 8-K filed on May
16, 2023 and incorporated herein by reference)
Executive Change in Control and Severance Policy (filed as Exhibit 10.3 on Form 8-K filed on May 16, 2023 and incorporated herein by reference)
CEO Offer Letter dated July 25, 2023 by and between Cutera, Inc. and Taylor Harris (filed as Exhibit 10.1 on Form 8-K filed on July 31, 2023 and
incorporated herein by reference)
2023 Inducement Equity Incentive Plan
Business Transfer and Termination Agreement by and among ZO Skin Health, Inc. and ZO Skin Health GK and Cutera, Inc. and Cutera KK dated
February 28, 2024
Settlement Agreement by and between Cutera, Inc. and Jabil Inc. dated February 28, 2024
International Distributor Agreement by and between Cutera, Inc. and Ilooda Co., Ltd. dated February 1, 2018, as amended.
CLO Offer Letter dated October 11, 2023 by and between Cutera, Inc. and Stephana Patton
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm
Power of Attorney
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
Clawback Policy
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Management contract or compensatory plan
+ Filed herewith
# Confidential treatment has been requested for portions of this exhibit. These portions have been omitted and have been filed separately with the Securities and Exchange Commission.
ITEM 16. FORM 10-K SUMMARY
None
168
Table of Contents
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 10th day of May, 2024.
SIGNATURES
CUTERA, INC.
By:
Power of Attorney
/s/ Taylor C. Harris
Taylor C. Harris
Chief Executive Officer
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Taylor C. Harris, and Stuart Drummond, and each of
them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place, and stead, in any and all capacities to
sign any and all 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, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith,
as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
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
/s/ TAYLOR C. HARRIS
Taylor C. Harris
/s/ STUART DRUMMOND
Stuart Drummond
/s/ KEVIN J. CAMERON
Kevin J Cameron
/s/ SHEILA A. HOPKINS
Sheila A. Hopkins
/s/ NICHOLAS S. LEWIN
Nicholas S. Lewin
/s/ KEITH J. SULLIVAN
Keith J. Sullivan
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
Executive Chairman of the Board of Directors
Director
Director
Director
169
Date
May 10, 2024
May 10, 2024
May 10, 2024
May 10, 2024
May 10, 2024
May 10, 2024
CUTERA, INC.
2023 INDUCEMENT EQUITY INCENTIVE PLAN
The Cutera, Inc. 2023 Inducement Equity Incentive Plan is hereby effective as of July 17, 2023.
1. Purposes of the Plan. The purpose of this Plan is to attract and retain the best available personnel for positions of substantial responsibility by providing an inducement material to
individuals entering into employment with the Company or any Parent or Subsidiary of the Company.
The Plan permits the grant of 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. Each Award under the Plan is intended to qualify as an employment inducement grant under Nasdaq Listing Rule 5635(c)(4) and the official
regulations thereunder (together, the “Inducement Listing Rule”) or to qualify under the exception to plans or arrangements relating to an acquisition or merger under Nasdaq Listing Rule 5635(c)(3)
and the official guidance thereunder.
2. Definitions. As used herein, the following definitions will apply:
(a) “Administrator” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan.
(b) “Affiliated SAR” means an 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.
(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.
(e) “Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is
subject to the terms and conditions of the Plan.
(f) “Board” means the Board of Directors of the Company.
(g) “Change in Control” means the occurrence of any of the following events:
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
(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
(ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;
(iii) A change in the composition of the Board occurring within a two-year period, as a result of which less 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.
(h) “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.
(i) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 hereof.
(j) “Common Stock” means the common stock of the Company.
(k) “Company” means Cutera, Inc., a Delaware corporation, or any successor thereto.
(l) “Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.
(m) “Determination Date” means the latest possible date established by the Administrator, in its discretion, for the calculation of a Performance Goal.
(n) “Director” means a member of the Board.
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(o) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that, 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.
(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. However, for the avoidance of doubt, although a person who is an Employee also may be a
Director, a person who already is serving as a Director prior to becoming an Employee will not be eligible to be granted an Award under the Plan unless permitted under the Inducement Listing Rule.
The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual’s
employment or termination of employment, as the case may be. For purposes of an individual’s rights, if any, under the Plan as of the time of the Company’s determination, all such determinations by
the Company shall be final, binding and conclusive, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination
(q) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(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 may not institute an Exchange Program.
(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;
(iii) In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.
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(t) “Fiscal Year” means the fiscal year of the Company.
(u) “Freestanding SAR” means a SAR that is granted independently of any Option.
(v) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated
thereunder.
(w) “Inside Director” means a Director who is an Employee.
(x) “Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
(y) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(z) “Option” means a stock option granted pursuant to the Plan; provided that all Options granted under the Plan will be Nonstatutory Stock Options.
(aa) “Outside Director” means a Director who is not an Employee.
(bb) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(cc) “Participant” means the holder of an outstanding Award.
(dd) “Performance Goals” will have the meaning set forth in Section 12 of the Plan.
(ee) “Performance Period” means any Fiscal Year or such other period as determined by the Administrator in its sole discretion.
(ff) “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.
(gg) “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.
(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.
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(ii) “Plan” means this 2023 Inducement Equity Incentive Plan.
(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.
(kk) “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.
(ll) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.
(mm) “Section 16(b) “ means Section 16(b) of the Exchange Act.
(nn) “Service Provider” means an Employee, Director or Consultant.
(oo) “Share” means a share of the Common Stock, as adjusted in accordance with Section 17 of the Plan.
(pp) “Stock Appreciation Right” or “SAR” means an Award, granted alone or in connection with an Option, that pursuant to Section 9 is designated as a SAR.
(qq) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.
(rr) “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).
(ss) “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.
3. Stock Subject to the Plan.
(a) Stock Subject to the Plan. Subject to the provisions of Section 16 of the Plan, the maximum aggregate number of shares of common stock that may be awarded and sold under the
Plan is 2,500,000.
(b) 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
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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.
(c) Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the
Plan.
4. Administration of the Plan.
(a) Procedure.
otherwise by the Board, the Compensation Committee of the Board will have full authority to act as Administrator.
(i) Multiple Administrative Bodies. Different Committees with respect to different groups of Employees or Participants may administer the Plan. Until and unless determined
Compensation Committee of the Board, in each case acting as the Administrator.
(ii) Approval. Awards granted under the Plan must be approved by a majority of the Company’s “Independent Directors” (as defined under the Nasdaq Listing Rules) or the
requirements for exemption under Rule 16b-3.
(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
Applicable Laws.
(iv) Other Administration. Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy
(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
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Administrator will have the authority, in its discretion:
(i) to determine the Fair Market Value;
becoming an Employee or to otherwise be permitted under Nasdaq Listing Rule 5635(c) and the official guidance thereunder);
(ii) to select the individuals to whom Awards may be granted hereunder, subject to Section 5 (which Awards will be intended as a material inducement to the individual
(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;
the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or
(v) 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,
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;
(vi) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;
applicable foreign laws;
(vii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying
longer than is otherwise provided for in the Plan;
(viii) to modify or amend each Award (subject to Section 22(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Awards
(ix) 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);
(x) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;
procedures as the Administrator may determine; and
(xi) 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
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(xii) to make all other determinations deemed necessary or advisable for administering the Plan.
(c) No Exchange Program. Notwithstanding anything herein to the contrary, the Administrator may not institute an Exchange Program.
(d) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards.
5. Eligibility and Minimum Vesting.
(a) 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 Employees, so long as the following requirements are met:
fide period of non-employment (within the meaning of the Inducement Listing Rule); and
(i) The Employee was not previously an Employee or Director, or the Employee is to become employed by the Company or any of its Parents or Subsidiaries following a bona-
Inducement Listing Rule.
(ii) The grant of an Award is an inducement material to the Employee’s entering into employment with the Company or any of its Parents or Subsidiaries in accordance with the
Notwithstanding the foregoing, an Employee may be granted an Award in connection with a merger or acquisition to the extent permitted by Nasdaq Listing Rule 5635(c)(3) and the official
guidance thereunder.
(b) Minimum Vesting. All Awards that are designated to be settled in Shares shall be subject to the following minimum vesting requirements. All such time-based Awards shall vest
over a period of at least one year from the date the Award was granted. All such performance-based Awards shall vest over a Performance Period of not less than one year, which may include the
Fiscal Year during which the Award is granted. The foregoing minimum vesting requirements shall not apply: (i) with respect to 5% of the Shares which remain available for future awards as set forth
in Section 3(a) (such 5% being the “Carve-Out Exception”), and (ii) to the vesting of an Award that is accelerated as a result of a Participant’s death or Disability, a Change in Control under terms
consistent with this Plan or the Administrator’s exercise of discretion in accordance with the terms of this Plan. To the extent Section 3(a) is amended to increase the number of Shares reserved
therein, then 5% of the Shares subject to such increase shall be added to, and increase, the number of Shares subject to the Carve-Out Exception.
6. Stock Options.
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(a) Grant of Options. The Administrator, in its sole discretion and subject to the terms and conditions of the Plan, may grant Options to any individual as a material inducement to the
individual becoming an Employee or as otherwise permitted under Section 5 in connection with a merger or acquisition, in each case, which grant shall become effective only if the individual actually
becomes an Employee. Subject to this Section 6 and the other terms and conditions of the Plan, the Administrator will have complete discretion to determine the number of Shares covered by an
Option granted to any Employee. Each Option shall be evidenced by an Award Agreement (which may be in electronic form) that shall specify the exercise price, the expiration date of the Option, the
number of Shares covered by the Option, any conditions to exercise the Option, and such other terms and conditions as the Administrator, in its discretion, shall determine.
(b) Limitations.
(i) Each Option shall be evidenced by an Award Agreement (which may be in electronic form) that shall specify the exercise price, the expiration date of the Option, the number
of Shares covered by the Option, any conditions to exercise the Option, and such other terms and conditions as the Administrator, in its discretion, shall determine. Each Option will be designated in
the Award Agreement a Nonstatutory Stock Option.
(ii) The following limitations will apply to grants of Options:
(1) No Employee will be granted, in any Fiscal Year, Options to purchase more than 2,000,000 Shares.
(2) The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 16.
will be counted against the limits set forth in subsections (1) and (2) above.
(3) 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 16), the cancelled Option
(c) 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.
(d) Option Exercise Price and Consideration.
(i) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option will be determined by the Administrator; provided, that 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. 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.
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conditions that must be satisfied before the Option may be exercised.
(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
(iii) Form of Consideration. The Administrator will determine the acceptable form(s) of consideration for exercising an Option, including the method of payment. 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.
(e) Exercise of Option.
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.
(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
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 16 of the Plan.
as to which the Option is exercised.
Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares
Participant’s death or Disability, the Participant may exercise his or her Option within such period of
(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
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
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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.
(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 in such
amounts as the Administrator, in its sole discretion, will determine, to any individual as a material inducement to the individual becoming an Employee or as otherwise permitted under Section 5 in
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connection with a merger or acquisition, in each case, which grant shall become effective only if the individual actually becomes an Employee, at any time and from time to time as will be
determined by the Administrator, in its sole discretion..
(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, 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, 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.
(c) Transferability. Except as provided in this Section 7, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction.
(d) Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.
(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.
(g) Dividends and Other Distributions. During the Period of Restriction, Service Providers holding Shares of Restricted Stock will not be entitled to receive dividends or other
distributions paid with respect to such Shares. Following the lapse of the Period of Restriction, Service Providers will be entitled to receive all dividends or other distributions paid with respect to
such Shares that accrue after the lapse of the Period of Restrictions. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability as the
Shares 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) Performance Restrictions. The Administrator, in its discretion, may set restrictions based upon the achievement of Performance Goals. The Performance Goals will be set by the
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Administrator.
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 to any individual as a material inducement to the individual
becoming an Employee or as otherwise permitted under Section 5 in connection with a merger or acquisition, in each case, which grant shall become effective only if the individual actually becomes
an Employee. 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), 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, 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.
(c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant will be entitled to receive a payout as specified in the Award Agreement.
(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) Cancellation. On the date set forth in the Award Agreement, all unearned Restricted Stock Units will be forfeited to the Company.
(f) Performance Restrictions. The Administrator, in its discretion, may set restrictions based upon the achievement of Performance Goals. The Performance Goals will be set by the
Administrator.
9. Stock Appreciation Rights.
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(a) Grant of SARs. Subject to the terms and conditions of the Plan, a SAR may be granted at any time and from time to time as will be determined by the Administrator, in its sole
discretion to any individual as a material inducement to the individual becoming an Employee or as otherwise permitted under Section 5 in connection with a merger or acquisition, in each case,
which grant shall become effective only if the individual actually becomes an Employee, 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 individual; provided, however, no individual will be granted,
in any Fiscal Year, SARs covering more than 2,000,000 Shares. The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described
in Section 16. 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 16), 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.
(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 as the Administrator, in its sole discretion, will determine.
(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.
(i) Payment of SAR Amount. Upon exercise of an SAR, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:
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(i) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times
(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 at any time and from time to time, as will be determined by the Administrator, in
its sole discretion to any individual as a material inducement to the individual becoming an Employee or as otherwise permitted under Section 5 in connection with a merger or acquisition, in each
case, which grant shall become effective only if the individual actually becomes an Employee, 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.
(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.
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(f) 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.
(g) Performance Restrictions. The Administrator, in its discretion, may set restrictions based upon the achievement of Performance Goals. The Performance Goals will be set by the
Administrator.
11. Reserved.
12. 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 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.
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.
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. Dividends. To the extent an Award permits the payment of dividends or other distributions on the Shares underlying the Award, Participants will not be entitled to receive such dividends
or other distributions until such Award vests. For the avoidance of doubt, Participants will never be entitled to receive dividends or other distributions paid with respect to Shares underlying an Award
that accrue prior to the vesting of such Award.
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16. 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 the Plan.
(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.
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
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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 16(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.
17. 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).
(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
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(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.
18. 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.
19. 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.
20. Term of Plan. Subject to Section 24 of the Plan, the Plan will become effective upon its adoption by the Board. It will continue in effect until the date of the annual meeting of the
stockholders of the Company in 2033, unless terminated earlier under Section 21 of the Plan.
21. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Administrator may at any time amend, alter, suspend or terminate the Plan.
(b) 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.
22. 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.
(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
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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.
(c) Company Policy. Any Shares received by a Participant pursuant to an Award, shall, to the extent applicable, be subject to the terms of the Company’s Stock Ownership Guidelines,
as amended. Further, any amounts, whether in cash or Shares, received by a Participant pursuant to an Award shall, to the extent applicable, be subject to a right of recoupment by the Company under
the terms of the Company’s Clawback Policy adopted by the Board and as further amended from time to time hereafter.
23. 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.
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CUTERA, INC.
2023 INDUCEMENT EQUITY INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT
Unless otherwise defined herein, the terms defined in the Cutera, Inc. 2023 Inducement Equity Incentive Plan, as amended (the “Plan”) will have the same defined meanings in this Stock
Option Award Agreement (the “Award Agreement”).
I.
NOTICE OF STOCK OPTION GRANT
Participant Name:
Address:
You have been granted an Option to purchase Common Stock of Cutera, Inc. (the “Company”), subject to the terms and conditions of the Plan and this Award Agreement, as follows:
Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price per Share
$
Total Number of Shares Granted
Total Exercise Price
$
Type of Option:
Term/Expiration Date:
Vesting Schedule:
Nonstatutory Stock Option
Subject to any acceleration provisions contained in the Plan or set forth below, this Option may be exercised, in whole or in part, in accordance with the following schedule:
[INSERT VESTING SCHEDULE]
Termination Period:
This Option will be exercisable for [three (3) months] after Participant ceases to be a Service Provider, unless such termination is due to Participant’s death or Disability, in which case this
Option will be exercisable for [twelve (12) months] after Participant ceases to be a Service Provider. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the
Term/Expiration Date as provided above and may be subject to earlier termination as provided in Section 16(c) of the Plan.
By Participant’s signature and the signature of the Company’s representative below, Participant and the Company agree that this Option is granted under and governed by the terms and
conditions of the Plan and this Award Agreement, including the Terms and Conditions of Stock Option Grant, attached hereto as Exhibit A, all of which are made a part of this document. Participant
has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understands all provisions
of the Plan and Award Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and
Award Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.
PARTICIPANT:
Signature
Print Name
Residence Address:
CUTERA, INC.
By
Title
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EXHIBIT A
TERMS AND CONDITIONS OF STOCK OPTION GRANT
1. Grant of Option. The Company hereby grants to the Participant named in the Notice of Grant attached as Part I of this Award Agreement (the “Participant”) an option (the “Option”) to
purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the “Exercise Price”), subject to all of the terms and conditions in
this Award Agreement and the Plan, which is incorporated herein by reference. Subject to Section 21(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the
terms and conditions of this Award Agreement, the terms and conditions of the Plan will prevail.
2. Vesting Schedule. Except as provided in Section 3, the Option awarded by this Award Agreement will vest in accordance with the vesting provisions set forth in the Notice of Grant. Shares
scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest in Participant in accordance with any of the provisions of this Award Agreement, unless Participant will
have been continuously a Service Provider from the Date of Grant until the date such vesting occurs.
3. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Option at any time, subject to
the terms of the Plan. If so accelerated, such Option will be considered as having vested as of the date specified by the Administrator.
4. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable cumulatively according to the vesting schedule set forth in the Notice of Grant. This Option may not be exercised for a fraction
of a Share.
(b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit B (the “Exercise Notice”) or in a manner and pursuant to such
procedures as the Administrator may determine, which will state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”),
and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice will be completed by Participant and delivered to the
Company. The Exercise Notice will be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares together with any applicable tax withholding. This Option will be deemed
to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.
5. Method of Payment. Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of Participant.
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
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(d) surrender of other Shares which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares, provided that accepting such
Shares, in the sole discretion of the Administrator, will not result in any adverse accounting consequences to the Company.
6. Tax Obligations.
(a) Withholding Taxes. Notwithstanding any contrary provision of this Award Agreement, no certificate representing the Shares will be issued to Participant, unless and until
satisfactory arrangements (as determined by the Administrator) will have been made by Participant with respect to the payment of income, employment and other taxes which the Company
determines must be withheld with respect to such Shares. To the extent determined appropriate by the Company in its discretion, it will have the right (but not the obligation) to satisfy any tax
withholding obligations by reducing the number of Shares otherwise deliverable to Participant. If Participant fails to make satisfactory arrangements for the payment of any required tax withholding
obligations hereunder at the time of the Option exercise, Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if such withholding
amounts are not delivered at the time of exercise.
(c) Code Section 409A. Under Section 409A, an option that vests after December 31, 2004 (or that vested on or prior to such date but which was materially modified after October 3,
2004) that was granted with a per Share exercise price that is determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share on the date of grant (a “Discount
Option”) may be considered “deferred compensation.” A Discount Option may result in (i) income recognition by Participant prior to the exercise of the option, (ii) an additional twenty percent
(20%) federal income tax, and (iii) potential penalty and interest charges. The Discount Option may also result in additional state income, penalty and interest charges to the Participant. Participant
acknowledges that the Company cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the Fair Market Value of a Share on the Date
of Grant in a later examination. Participant agrees that if the IRS determines that the Option was granted with a per Share exercise price that was less than the Fair Market Value of a Share on the date
of grant, Participant will be solely responsible for Participant’s costs related to such a determination;
7. Rights as Stockholder. Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any
Shares deliverable hereunder unless and until certificates representing such Shares will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to
Participant. After such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and
distributions on such Shares.
8. No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE
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HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING
PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN
DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND WILL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR
RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
9. Address for Notices. Any notice to be given to the Company under the terms of this Award Agreement will be addressed to the Company, in care of its Stock Administrator at Cutera, Inc.,
3240 Bayshore Blvd., Brisbane, California 94005 or at such other address as the Company may hereafter designate in writing.
10. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime
of Participant only by Participant.
11. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Award Agreement will be binding upon and inure to the benefit of the heirs, legatees,
legal representatives, successors and assigns of the parties hereto.
12. Additional Conditions to Issuance of Stock. If at any time the Company will determine, in its discretion, that the listing, registration or qualification of the Shares upon any securities
exchange or under any state or federal law, or the consent or approval of any governmental regulatory authority is necessary or desirable as a condition to the issuance of Shares to Participant (or his
or her estate), such issuance will not occur unless and until such listing, registration, qualification, consent or approval will have been effected or obtained free of any conditions not acceptable to the
Company. The Company will make all reasonable efforts to meet the requirements of any such state or federal law or securities exchange and to obtain any such consent or approval of any such
governmental authority. Assuming such compliance, for income tax purposes the Exercised Shares will be considered transferred to Participant on the date the Option is exercised with respect to such
Exercised Shares.
13. Plan Governs. This Award Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Award Agreement and one or
more provisions of the Plan, the provisions of the Plan will govern. Capitalized terms used and not defined in this Award Agreement will have the meaning set forth in the Plan.
14. Administrator Authority. The Administrator will have the power to interpret the Plan and this Award Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke any such rules
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(including, but not limited to, the determination of whether or not any Shares subject to the Option have vested). All actions taken and all interpretations and determinations made by the
Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons. No member of the Administrator will be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or this Award Agreement.
15. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Options awarded under the Plan or future Options that may be awarded under the
Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to
participate in the Plan through any on-line or electronic system established and maintained by the Company or another third party designated by the Company.
16. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Award Agreement.
17. Agreement Severable. In the event that any provision in this Award Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or
unenforceability will not be construed to have any effect on, the remaining provisions of this Award Agreement.
18. Modifications to the Agreement. This Award Agreement constitutes the entire understanding of the parties on the subjects covered. Participant expressly warrants that he or she is not
accepting this Award Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Award Agreement or the Plan can be made only
in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Award Agreement, the Company reserves the right to
revise this Award Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Code Section 409A or to otherwise avoid imposition of
any additional tax or income recognition under Section 409A of the Code in connection to this Option.
19. Amendment, Suspension or Termination of the Plan. By accepting this Award, Participant expressly warrants that he or she has received an Option under the Plan, and has received, read
and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.
20. Governing Law. This Award Agreement will be governed by the laws of the State of California, without giving effect to the conflict of law principles thereof. For purposes of litigating
any dispute that arises under this Option or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California, and agree that such litigation will be
conducted in the courts of San Mateo County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this Option is made and/or to be
performed.
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EXHIBIT B
CUTERA, INC.
2023 INDUCEMENT EQUITY INCENTIVE PLAN
EXERCISE NOTICE
Cutera, Inc.
3240 Bayshore Blvd.
Brisbane, California, 94005
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, , , the undersigned (“Purchaser”) hereby elects to purchase shares (the “Shares”) of the Common Stock of Cutera,
Inc. (the “Company”) under and pursuant to the 2023 Inducement Equity Incentive Plan, as amended (the “Plan”) and the Stock Option Award Agreement dated (the “Award Agreement”).
The purchase price for the Shares will be $ , as required by the Award Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price of the Shares and any required tax withholding to be paid in connection with the exercise of the
Option.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Award Agreement and agrees to abide by and be bound by their
terms and conditions.
4. Rights as Stockholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right
to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to the Option, notwithstanding the exercise of the Option. The Shares so acquired will be
issued to Participant as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as
provided in Section 16 of the Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents that
Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax
advice.
6. Entire Agreement; Governing Law. The Plan and Award Agreement are incorporated herein by reference. This Exercise Notice, the Plan and the Award Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company
and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser’s interest except by means of a writing signed by the Company and Purchaser. This
agreement is governed by the internal substantive laws, but not the choice of law rules, of the State of California.
Submitted by:
PURCHASER
Signature
Print Name
Address:
Accepted by:
CUTERA, INC.
By
Title
Date Received
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CUTERA, INC.
2023 INDUCEMENT EQUITY INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT – EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Cutera, Inc. 2023 Inducement Equity Incentive Plan, as amended (the “Plan”) will have the same defined meanings in this Stock
Option Award Agreement – Early Exercise (the “Award Agreement”).
I.
NOTICE OF STOCK OPTION GRANT
Participant Name:
Address:
You have been granted an Option to purchase Common Stock of Cutera, Inc. (the “Company”), subject to the terms and conditions of the Plan and this Award Agreement, as follows:
Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price per Share
$
Total Number of Shares Granted
Total Exercise Price
$
Type of Option:
Nonstatutory Stock Option
Term/Expiration Date:
Vesting Schedule:
Subject to any acceleration provisions contained in the Plan or set forth below, this Option may be exercised, in whole or in part, in accordance with the following schedule:
[INSERT VESTING SCHEDULE]
Termination Period:
This Option will be exercisable for [three (3) months] after Participant ceases to be a Service Provider, unless such termination is due to Participant’s death or Disability, in which case this
Option will be exercisable for [twelve (12) months] after Participant ceases to be a Service Provider. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the
Term/Expiration Date as provided above and may be subject to earlier termination as provided in Section 16(c) of the Plan.
By Participant’s signature and the signature of the Company’s representative below, Participant and the Company agree that this Option is granted under and governed by the terms and
conditions of the Plan and this Award Agreement, including the Terms and Conditions of Stock Option Grant, attached hereto as Exhibit A, all of which are made a part of this document. Participant
has reviewed the Plan and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Award Agreement and fully understands all provisions
of the Plan and Award Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and
Award Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.
PARTICIPANT:
CUTERA, INC.
Signature
Print Name
Residence Address:
By
Title
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EXHIBIT A
TERMS AND CONDITIONS OF STOCK OPTION GRANT
1. Grant of Option. The Company hereby grants to the Participant named in the Notice of Grant attached as Part I of this Award Agreement (the “Participant”) an option (the “Option”) to
purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the “Exercise Price”), subject to all of the terms and conditions in
this Award Agreement and the Plan, which is incorporated herein by reference. Subject to Section 21(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the
terms and conditions of this Award Agreement, the terms and conditions of the Plan will prevail.
2. Vesting Schedule. Except as provided in Section 3, the Option awarded by this Award Agreement will vest in accordance with the vesting provisions set forth in the Notice of Grant. Shares
scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest in Participant in accordance with any of the provisions of this Award Agreement, unless Participant will
have been continuously a Service Provider from the Date of Grant until the date such vesting occurs.
3. Administrator Discretion. The Administrator, in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the unvested Option at any time, subject to
the terms of the Plan. If so accelerated, such Option will be considered as having vested as of the date specified by the Administrator.
4. Exercise of Option.
(a) Right to Exercise.
(i) Subject to subsections 4(a)(ii) and 4(a)(iii) below, this Option shall be exercisable cumulatively according to the vesting schedule set forth in the Notice of Grant.
Alternatively, at the election of Participant, this Option may be exercised in whole or in part at any time as to Shares that have not yet vested. Vested Shares shall not be subject to the Company’s
repurchase right (as set forth in the Restricted Stock Purchase Agreement, attached hereto as Exhibit C-1).
(ii) As a condition to exercising this Option for unvested Shares, Participant shall execute the Restricted Stock Purchase Agreement.
(iii) This Option may not be exercised for a fraction of a Share.
(b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit B (the “Exercise Notice”) or in a manner and pursuant to such
procedures as the Administrator may determine, which will state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”),
and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice will be completed by Participant and delivered to the
Company. The Exercise Notice will be accompanied by payment of the aggregate Exercise Price as
to all Exercised Shares together with any applicable tax withholding. This Option will be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied
by such aggregate Exercise Price.
5. Method of Payment. Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of Participant.
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(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) surrender of other Shares which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares, provided that accepting such
Shares, in the sole discretion of the Administrator, will not result in any adverse accounting consequences to the Company.
6. Tax Obligations.
(a) Withholding Taxes. Notwithstanding any contrary provision of this Award Agreement, no certificate representing the Shares will be issued to Participant, unless and until
satisfactory arrangements (as determined by the Administrator) will have been made by Participant with respect to the payment of income, employment and other taxes which the Company
determines must be withheld with respect to such Shares. To the extent determined appropriate by the Company in its discretion, it will have the right (but not the obligation) to satisfy any tax
withholding obligations by reducing the number of Shares otherwise deliverable to Participant. If Participant fails to make satisfactory arrangements for the payment of any required tax withholding
obligations hereunder at the time of the Option exercise, Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if such withholding
amounts are not delivered at the time of exercise.
(c) Code Section 409A. Under Section 409A, an option that vests after December 31, 2004 (or that vested on or prior to such date but which was materially modified after October 3,
2004) that was granted with a per Share exercise price that is determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share on the date of grant (a “Discount
Option”) may be considered “deferred compensation.” A Discount Option may result in (i) income recognition by Participant prior to the exercise of the option, (ii) an additional twenty percent
(20%) federal income tax, and (iii) potential penalty and interest charges. The Discount Option may also result in additional state income, penalty and interest charges to the Participant. Participant
acknowledges that the Company cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the Fair Market Value of a Share on the Date
of Grant in a later examination. Participant agrees that if the IRS determines that the Option was granted with a per Share exercise price that was less than the Fair Market Value of a Share on the date
of grant, Participant will be solely responsible for Participant’s costs related to such a determination;
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7. Rights as Stockholder. Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any
Shares deliverable hereunder unless and until certificates representing such Shares will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to
Participant. After such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and
distributions on such Shares.
8. No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF
IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING
PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN
DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND WILL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR
RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
9. Address for Notices. Any notice to be given to the Company under the terms of this Award Agreement will be addressed to the Company, in care of its Stock Administrator at Cutera, Inc.,
3240 Bayshore Blvd., Brisbane, California 94005 or at such other address as the Company may hereafter designate in writing.
10. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime
of Participant only by Participant.
11. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Award Agreement will be binding upon and inure to the benefit of the heirs, legatees,
legal representatives, successors and assigns of the parties hereto.
12. Additional Conditions to Issuance of Stock. If at any time the Company will determine, in its discretion, that the listing, registration or qualification of the Shares upon any securities
exchange or under any state or federal law, or the consent or approval of any governmental regulatory authority is necessary or desirable as a condition to the issuance of Shares to Participant (or his
or her estate), such issuance will not occur unless and until such listing, registration, qualification, consent or approval will have been effected or obtained free of any conditions not acceptable to the
Company. The Company will make all reasonable efforts to meet the requirements of any such state or federal law or securities exchange and to obtain any such consent or approval of any such
governmental authority. Assuming such compliance, for income tax purposes the Exercised Shares will be considered transferred to Participant on the date the Option is exercised with respect to such
Exercised Shares.
13. Plan Governs. This Award Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Award Agreement and one or
more provisions of the Plan, the provisions of the Plan will govern. Capitalized terms used and not defined in this Award Agreement will have the meaning set forth in the Plan.
14. Administrator Authority. The Administrator will have the power to interpret the Plan and this Award Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Shares subject to the Option have
vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Company and all other interested
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persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Award Agreement.
15. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Options awarded under the Plan or future Options that may be awarded under the
Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to
participate in the Plan through any on-line or electronic system established and maintained by the Company or another third party designated by the Company.
16. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Award Agreement.
17. Agreement Severable. In the event that any provision in this Award Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or
unenforceability will not be construed to have any effect on, the remaining provisions of this Award Agreement.
18. Modifications to the Agreement. This Award Agreement constitutes the entire understanding of the parties on the subjects covered. Participant expressly warrants that he or she is not
accepting this Award Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Award Agreement or the Plan can be made only
in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Award Agreement, the Company reserves the right to
revise this Award Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Code Section 409A or to otherwise avoid imposition of
any additional tax or income recognition under Section 409A of the Code in connection to this Option.
19. Amendment, Suspension or Termination of the Plan. By accepting this Award, Participant expressly warrants that he or she has received an Option under the Plan, and has received, read
and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.
20. Governing Law. This Award Agreement will be governed by the laws of the State of California, without giving effect to the conflict of law principles thereof. For purposes of litigating
any dispute that arises under this Option or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of the State of California, and agree that such litigation will be
conducted in the courts of San Mateo County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this Option is made and/or to be
performed.
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EXHIBIT B
CUTERA, INC.
2023 INDUCEMENT EQUITY INCENTIVE PLAN
EXERCISE NOTICE
Cutera, Inc.
3240 Bayshore Blvd.
Brisbane, California, 94005
Attention: Stock Administrator
1. Exercise of Option. Effective as of today, , , the undersigned (“Purchaser”) hereby elects to purchase shares (the “Shares”) of the Common Stock of Cutera,
Inc. (the “Company”) under and pursuant to the 2023 Inducement Equity Incentive Plan, as amended (the “Plan”) and the Stock Option Award Agreement – Early Exercise dated (the
“Award Agreement”). The purchase price for the Shares will be $ , as required by the Award Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price of the Shares and any required tax withholding to be paid in connection with the exercise of the
Option.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Award Agreement and agrees to abide by and be bound by their
terms and conditions.
4. Rights as Stockholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right
to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to the Option, notwithstanding the exercise of the Option. The Shares so acquired will be
issued to Participant as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as
provided in Section 16 of the Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents that
Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax
advice.
6. Entire Agreement; Governing Law. The Plan and Award Agreement are incorporated herein by reference. This Exercise Notice, the Plan and the Award Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser’s interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive
laws, but not the choice of law rules, of the State of California.
Submitted by:
PURCHASER
Signature
Print Name
Address:
Accepted by:
CUTERA, INC.
By
Title
Date Received
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EXHIBIT C-1
CUTERA, INC.
2023 INDUCEMENT EQUITY INCENTIVE PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
1. THIS RESTRICTED STOCK PURCHASE AGREEMENT (the “Agreement”) is made between (the “Purchaser”) and Cutera, Inc. (the “Company”) or its
assignees of rights hereunder as of , .
2. Unless otherwise defined herein, the terms defined in the 2023 Inducement Equity Incentive Plan, as amended shall have the same defined meanings in this Agreement.
RECITALS
3. A. Pursuant to the exercise of the option granted to Purchaser under the Plan and pursuant to the Stock Option Award Agreement – Early Exercise (the “Award Agreement”)
dated , by and between the Company and Purchaser with respect to such grant (the “Option”), which Plan and Award Agreement are hereby incorporated by reference, Purchaser
has elected to purchase of those shares of Common Stock which have not become vested under the vesting schedule set forth in the Award Agreement (“Unvested Shares”). The Unvested
Shares and the shares subject to the Award Agreement, which have become vested are sometimes collectively referred to herein as the “Shares.”
4. B. As required by the Award Agreement, as a condition to Purchaser’s election to exercise the option, Purchaser must execute this Agreement, which sets forth the rights and obligations of
the parties with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
(a) If Purchaser’s status as a Service Provider is terminated for any reason, including for death and Disability, the Company shall have the right and option for ninety (90) days from
such date to purchase from Purchaser, or Purchaser’s personal representative, as the case may be, all of the Purchaser’s Unvested Shares as of the date of such termination at the price paid by the
Purchaser for such Shares (the “Repurchase Option”).
(b) Upon the occurrence of such termination, the Company may exercise its Repurchase Option by delivering personally or by registered mail, to Purchaser (or his or her transferee or
legal representative, as the case may be) with a copy to the escrow agent described in Section 2 below, a notice in writing indicating the Company’s intention to exercise the Repurchase Option AND,
at the Company’s option, (i) by delivering to the Purchaser (or the Purchaser’s transferee or legal representative) a check in the amount of the aggregate repurchase price, or (ii) by the Company
canceling an amount of the Purchaser’s indebtedness to the Company equal to the
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aggregate repurchase price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals such aggregate repurchase price. Upon delivery of such
notice and payment of the aggregate repurchase price in any of the ways described above, the Company shall become the legal and beneficial owner of the Unvested Shares being repurchased and the
rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Unvested Shares being repurchased by the Company.
(c) Whenever the Company shall have the right to repurchase Unvested Shares hereunder, the Company may designate and assign one or more employees, officers, directors or
stockholders of the Company or other persons or organizations to exercise all or a part of the Company’s Repurchase Option under this Agreement and purchase all or a part of such Unvested Shares.
(d) If the Company does not elect to exercise the Repurchase Option conferred above by giving the requisite notice within ninety (90) days following the termination, the Repurchase
Option shall terminate.
(e) The Repurchase Option shall terminate in accordance with the vesting schedule contained in Purchaser’s Award Agreement.
2. Transferability of the Shares; Escrow.
(a) Purchaser hereby authorizes and directs the Secretary of the Company, or such other person designated by the Company, to transfer the Unvested Shares as to which the
Repurchase Option has been exercised from Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser’s Unvested Shares upon repurchase by the Company pursuant to the Repurchase Option under Section 1, Purchaser hereby
appoints the Secretary, or any other person designated by the Company as escrow agent (the “Escrow Agent”), as its attorney-in-fact to sell, assign and transfer unto the Company, such Unvested
Shares, if any, repurchased by the Company pursuant to the Repurchase Option and shall, upon execution of this Agreement, deliver and deposit with the Escrow Agent, the share certificates
representing the Unvested Shares, together with the stock assignment duly endorsed in blank, attached hereto as Exhibit C-2. The Unvested Shares and stock assignment shall be held by the Escrow
Agent in escrow, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached as Exhibit C-3 hereto, until the Company exercises its Repurchase Option, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect. Upon vesting of the Unvested Shares, the Escrow Agent shall promptly deliver to the Purchaser the certificate or
certificates representing such Shares in the Escrow Agent’s possession belonging to the Purchaser, and the Escrow Agent shall be discharged of all further obligations hereunder; provided, however,
that the Escrow Agent shall nevertheless retain such certificate or certificates as Escrow Agent if so required pursuant to other restrictions imposed pursuant to this Agreement.
(c) Neither the Company nor the Escrow Agent shall be liable for any act it may do or omit to do with respect to holding the Shares in escrow and while acting in good faith and in the
exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on transfer imposed by any applicable state and federal securities laws. Any transferee shall hold such Shares subject to all
the provisions hereof and the
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Exercise Notice executed by the Purchaser with respect to any Unvested Shares purchased by Purchaser and shall acknowledge the same by signing a copy of this Agreement.
3. Ownership, Voting Rights, Duties. This Agreement shall not affect in any way the ownership, voting rights or other rights or duties of Purchaser, except as specifically provided herein.
4. Legends. The share certificate evidencing the Shares issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable federal and state
securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH
IN AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
5. Adjustment for Stock Split. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock
dividend or other change in the Shares, which may be made by the Company pursuant to Section 16 of the Plan after the date of this Agreement.
6. Notices. Notices required hereunder shall be given in person or by registered mail to the address of Purchaser shown on the records of the Company, and to the Company at their respective
principal executive offices.
7. Survival of Terms. This Agreement shall apply to and bind Purchaser and the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators
and legal successors.
8. Section 83(b) Election. Purchaser hereby acknowledges that he or she has been informed that, with respect to the exercise of an Option for Unvested Shares, an election (the “Election”)
may be filed by the Purchaser with the Internal Revenue Service, within thirty (30) days of the purchase of the exercised Shares, electing pursuant to Section 83(b) of the Code to be taxed currently
on any difference between the purchase price of the exercised Shares and their Fair Market Value on the date of purchase. In the case of a Nonstatutory Stock Option, this will result in the recognition
of taxable income to the Purchaser on the date of exercise, measured by the excess, if any, of the Fair Market Value of the exercised Shares, at the time the Option is exercised over the purchase price
for the exercised Shares. Absent such an Election, taxable income will be measured and recognized by Purchaser at the time or times on which the Company’s Repurchase Option lapses. Absent such
an Election, alternative minimum taxable income will be measured and recognized by Purchaser at the time or times on which the Company’s Repurchase Option lapses.
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This discussion is intended only as a summary of the general United States income tax laws that apply to exercising Options as to Shares that have not yet vested and is accurate only as of the
date this form Agreement was approved by the Board. The federal, state and local tax consequences to any particular taxpayer will depend upon his or her individual circumstances. Purchaser is
strongly encouraged to seek the advice of his or her own tax consultants in connection with the purchase of the Shares and the advisability of filing of the Election under Section 83(b) of the Code. A
form of Election under Section 83(b) is attached hereto as Exhibit C-4 for reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b)
OF THE CODE, EVEN IF PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER’S BEHALF.
9. Representations. Purchaser has reviewed with his or her own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this
Agreement. Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. Purchaser understands that he or she (and not the Company)
shall be responsible for his or her own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.
10. Entire Agreement; Governing Law. The Plan and Award Agreement are incorporated herein by reference. The Plan, the Award Agreement, the Exercise Notice, this Agreement, and the
Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the
Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser’s interest except by means of a writing signed by the Company and Purchaser.
This Agreement is governed by the internal substantive laws but not the choice of law rules of California.
Purchaser represents that he or she has read this Agreement and is familiar with its terms and provisions. Purchaser hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board upon any questions arising under this Agreement.
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set forth above.
PARTICIPANT
Signature
Print Name
Residence Address
Dated: ,
CUTERA, INC.
By
Print Name
Title
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EXHIBIT C-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, , hereby sell, assign and transfer unto Cutera, Inc. shares of the Common Stock of Cutera, Inc. standing in my
name of the books of said corporation represented by Certificate No. herewith and do hereby irrevocably constitute and appoint to transfer the said stock on the
books of the within named corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement between Cutera, Inc. and the undersigned dated , (the
“Agreement”).
Dated: ,
Signature:
INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its “repurchase option,” as set forth in the
Agreement, without requiring additional signatures on the part of the Purchaser.
EXHIBIT C-3
JOINT ESCROW INSTRUCTIONS
,
Corporate Secretary
Cutera, Inc.
3240 Bayshore Blvd.
Brisbane, California, 94005
Dear :
As Escrow Agent for both Cutera, Inc. (the “Company”), and the undersigned purchaser of stock of the Company (the “Purchaser”), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement (the “Agreement”) between the Company and the undersigned, in accordance with the
following instructions:
1.
2.
3.
In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the “Company”) exercises the Company’s repurchase option set forth in the
Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at
the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver the stock
assignments, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company’s repurchase option.
Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as
defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser’s attorney-in-fact and agent for the term of this escrow to execute with respect to such
securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any
applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all
rights and privileges of a stockholder of the Company while the stock is held by you.
4.
Upon written request of the Purchaser, but no more than once per calendar year, unless the Company’s repurchase option has been exercised, you shall deliver to Purchaser a certificate or
certificates representing so many shares of stock as are not then subject to the Company’s repurchase option. Within one hundred and twenty (120) days after cessation of Purchaser’s
continuous employment by or services to the Company, or any parent or subsidiary of the Company, you shall deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company’s repurchase option.
5.
If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to
Purchaser and shall be discharged of all further obligations hereunder.
6.
Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto.
7.
8.
9.
You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument
reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be
conclusive evidence of such good faith.
You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of
law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction.
You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents
or papers deposited or called for hereunder.
10.
You shall not be liable for the outlawing of any rights under the Statute of Limitations with respect to these Joint Escrow Instructions or any documents deposited with you.
11.
12.
13.
14.
You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the
advice of such counsel, and may pay such counsel reasonable compensation therefor.
Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event
of any such termination, the Company shall appoint a successor Escrow Agent.
If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing
such instruments.
It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and
directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties
concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.
-2-
15.
Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may
designate by ten (10) days’ advance written notice to each of the other parties hereto.
16.
By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement.
17.
This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns.
18.
These Joint Escrow Instructions shall be governed by the internal substantive laws, but not the choice of law rules, of California.
PURCHASER
Signature
Print Name
Residence Address
ESCROW AGENT
Corporate Secretary
CUTERA, INC.
By
Print Name
Title
Dated:
-3-
EXHIBIT C-4
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Sections 55 and 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer’s gross income or alternative minimum taxable
income, as the case may be, for the current taxable year the amount of any compensation taxable to taxpayer in connection with taxpayer’s receipt of the property described below.
1.
The name, address, taxpayer identification number and taxable year of the undersigned are as follows:
TAXPAYER
SPOUSE
NAME:
ADDRESS:
TAX ID NO.:
TAXABLE YEAR:
2.
3.
4.
5.
The property with respect to which the election is made is described as follows: shares (the “Shares”) of the Common Stock of Cutera, Inc. (the “Company”).
The date on which the property was transferred is: , .
The property is subject to the following restrictions:
The Shares may not be transferred and are subject to forfeiture under the terms of an agreement between the taxpayer and the Company. These restrictions lapse upon the satisfaction of certain
conditions contained in such agreement.
The Fair Market Value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms shall never lapse, of such property is:
$ .
6.
The amount (if any) paid for such property is: $ .
The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned’s receipt of the above-described property. The
transferee of such property is the person performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner.
Dated: ,
The undersigned spouse of taxpayer joins in this election.
Dated: ,
Taxpayer
Spouse of Taxpayer
CUTERA, INC.
2023 INDUCEMENT EQUITY INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK UNIT AWARD AND
RESTICTED STOCK UNIT AGREEMENT
Cutera, Inc. (the “Company”) hereby grants you (the “Participant”), an award of Restricted Stock Units (“RSUs”) under the Cutera, Inc. 2023 Inducement Equity Incentive Plan, as amended
(the “Plan”). Unless otherwise defined in this Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement (the “Notice of Grant”) or the Terms and Conditions of Restricted Stock
Unit Award attached hereto as Exhibit A (all together, the “Award Agreement”), capitalized terms herein or in Exhibit A have the defined meanings ascribed to them in the Plan. Subject to the
provisions of Exhibit A and of the Plan, the principal features of this Award are as follows:
Participant Name
Number of RSUs Granted
Grant Date
Vesting Commencement Date
Vesting Schedule:
[INSERT VESTING SCHEDULE]
In the event Participant ceases to be a Service Provider for any or no reason before RSUs vest as set forth herein, such RSUs and the Participant’s right to acquire any Shares hereunder will
immediately terminate on the date Participant ceases to be a Service Provider.
By Participant’s signature and the signature of the Company’s representative below, Participant and the Company agree that this Award of RSUs is granted under and governed by the terms and
conditions of this Award Agreement and the Plan, which is made a part of this document.
PARTICIPANT:
Signature
Print Name
Residence Address:
CUTERA, INC.
By
Title
EXHIBIT A
TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT AWARD
1. Grant. The Company hereby grants to the Participant named in the attached Notice of Grant an Award of RSUs, subject to all of the terms and conditions in this Award Agreement and the
Plan, which is incorporated herein by reference. Subject to Section 21(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Award
Agreement, the terms and conditions of the Plan will prevail.
2. Company’s Obligation to Pay. Each RSU represents the right to receive a Share on the date it vests. Unless and until the RSUs will have vested in the manner set forth in Section 3,
Participant will have no right to payment of any such RSUs. Prior to actual payment of any vested RSUs, such RSUs will represent an unsecured obligation of the Company, payable (if at all) only
from the general assets of the Company. Subject to the provisions of this Section 2 and notwithstanding anything in the Plan to the contrary, each vested RSU that has met all requirements for
settlement under this Award Agreement will be settled no later than the applicable Settlement Deadline.
Notwithstanding anything in the Plan or this Award Agreement to the contrary, if the vesting of the balance, or some lesser portion of the balance, of the RSUs is accelerated in connection with
Participant’s termination as a Service Provider (provided that such termination is a “separation from service” within the meaning of Section 409A as determined by the Company), other than due to
death, and if (x) Participant is a “specified employee” within the meaning of Section 409A at the time of such termination, and (y) the payment of such accelerated RSUs will result in the imposition
of additional tax under Section 409A if paid to Participant on or within the six (6) month period following Participant’s termination, then the payment of such accelerated RSUs will not be made until
the date six
(6) months and one (1) day following the date of Participant’s termination, unless the Participant dies following his or her termination, in which case, the RSUs will be paid in Shares to the
Participant’s estate as soon as practicable following his or her death. It is the intent of this Award Agreement to comply with the requirements of Section 409A so that none of the RSUs provided
under this Award Agreement or Shares issuable thereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. For purposes
of this Award Agreement, “Section 409A” means Section 409A of the Code, and any proposed, temporary or final U.S. Treasury Regulations and U.S. Internal Revenue Service guidance thereunder,
as each may be amended from time to time.
3. Vesting Schedule. Subject to Section 5, the RSUs awarded by this Award Agreement will vest in accordance with the vesting provisions set forth in the Notice of Grant. RSUs scheduled to
vest on a certain date or upon the occurrence of a certain condition will not vest in Participant in accordance with any of the provisions of this Award Agreement, unless Participant will have been
continuously a Service Provider from the Date of Grant until the date such vesting occurs.
4. Payment after Vesting. Subject to Section 7, any RSUs that vest will be paid to Participant (or in the event of Participant’s death, to his or her properly designated beneficiary or estate) in
whole Shares as soon as practicable after vesting, but in each such case within fourteen (14) days from the date the RSUs vest.
5. Forfeiture upon Termination of Status as a Service Provider. Notwithstanding any contrary provision of this Award Agreement, the balance of the RSUs that have not vested as of the time
of Participant’s termination as a Service Provider for any or no reason and Participant’s right to acquire any Shares hereunder will immediately terminate.
6. Death of Participant. Any distribution or delivery to be made to Participant under this Award Agreement will, if Participant is then deceased, be made to Participant’s designated
beneficiary, or if no beneficiary survives Participant, the administrator or executor of Participant’s estate. Any such transferee must furnish the Company with (a) written notice of his or her status as
transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.
7. Withholding of Taxes. Notwithstanding any contrary provision of this Award Agreement, no certificate representing the Shares will be issued to Participant, unless and until satisfactory
arrangements (as determined by the Administrator) will have been made by Participant with respect to the payment of income, employment and other taxes which the Company determines must be
withheld with respect to such Shares. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit Participant to satisfy such tax
withholding obligation, in whole or in part (without limitation) by (a) paying cash, (b) electing to have the Company withhold otherwise deliverable Shares having a Fair Market Value equal to the
minimum amount required to be withheld, (c) delivering to the Company already vested and owned Shares having a Fair Market Value equal to the amount required to be withheld, or (d) selling a
sufficient number of such Shares otherwise deliverable to Participant through such means as the Company may determine in its sole discretion (whether through a broker or otherwise) equal to the
amount required to be withheld. To the extent determined appropriate by the Company in its discretion, it shall have the right (but not the obligation) to satisfy any tax withholding obligations by
reducing the number of Shares otherwise deliverable to Participant. If Participant fails to make satisfactory arrangements for the payment of any required tax withholding obligations hereunder at the
time any applicable RSUs otherwise are scheduled to vest and be settled pursuant to Section 3, Participant will permanently forfeit such RSUs and any right to receive Shares thereunder and the
RSUs will be returned to the Company at no cost to the Company.
8. Rights as Stockholder. Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any
Shares deliverable hereunder unless and until certificates representing such Shares will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to
Participant. After such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and
distributions on such Shares.
9. No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF THE RSUS PURSUANT TO THE VESTING SCHEDULE
HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING
PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS AWARD OF RSUS OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AWARD AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN
DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD,
FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY
EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
10. Address for Notices. Any notice to be given to the Company under the terms of this Award Agreement will be addressed to the Company at Cutera, Inc., 3240 Bayshore Boulevard
Brisbane, CA 94005, or at such other address as the Company may hereafter designate in writing.
11. Grant is Not Transferable. Except to the limited extent provided in Section 6, this grant and the rights and privileges conferred hereby will not be transferred, assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and
privileges conferred hereby immediately will become null and void.
12. Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Award Agreement will be binding upon and inure to the benefit of the heirs, legatees,
legal representatives, successors and assigns of the parties hereto.
13. Additional Conditions to Issuance of Stock. If at any time the Company will determine, in its discretion, that the listing, registration or qualification of the Shares upon any securities
exchange or under any state or federal law, or the consent or approval of any governmental regulatory authority is necessary or desirable as a condition to the issuance of Shares to Participant (or his
or her estate), such issuance will not occur unless and until such listing, registration, qualification, consent or approval will have been effected or obtained free of any conditions not acceptable to the
Company. Where the Company determines that the delivery of the payment of any Shares will violate federal securities laws or other applicable laws, the Company will defer delivery until the
earliest date at which the Company reasonably anticipates that the delivery of Shares will no longer cause such violation. The Company will make all reasonable efforts to meet the requirements of
any such state or federal law or securities exchange and to obtain any such consent or approval of any such governmental authority.
14. Plan Governs. This Award Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Award Agreement and one or
more provisions of the Plan, the provisions of the Plan will govern. Capitalized terms used and not defined in this Award Agreement will have the meaning set forth in the Plan.
15. Administrator Authority. The Administrator will have the power to interpret the Plan and this Award Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any RSUs have vested). All actions taken
and all interpretations and determinations made by the Administrator in good faith will be final and binding upon Participant, the Company and all other interested persons. No member of the
Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Award Agreement.
16. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to RSUs awarded under the Plan or future RSUs that may be awarded under the Plan
by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to
participate in the Plan through any on-line or electronic system established and maintained by the Company or another third party designated by the Company.
17. Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Award Agreement.
18. Agreement Severable. In the event that any provision in this Award Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or
unenforceability will not be construed to have any effect on, the remaining provisions of this Award Agreement.
19. Modifications to the Agreement. This Award Agreement constitutes the entire understanding of the parties on the subjects covered. Participant expressly warrants that he or she is not
accepting this Award Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Award Agreement or the Plan can be made only
in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Award Agreement, the Company reserves the right to
revise this Award Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Section 409A or to otherwise avoid imposition of any
additional tax or income recognition under Section 409A in connection to this Award of RSUs.
20. Amendment, Suspension or Termination of the Plan. By accepting this Award, Participant expressly warrants that he or she has received an Award of RSUs under the Plan, and has
received, read and understood a description of the Plan. Participant understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.
21. Governing Law. This Award Agreement shall be governed by the laws of the State of California, without giving effect to the conflict of law principles thereof. For purposes of litigating
any dispute that arises under this Award of RSUs or this Award Agreement, the parties hereby submit to and consent to the jurisdiction of California, and agree that such litigation shall be conducted
in the courts of San Mateo County, California, or the federal courts for the United States for the San Mateo County of California, and no other courts, where this Award of RSUs is made and/or to be
performed.
EXECUTION VERSION BUSINESS TRANSFER AND TERMINATION AGREEMENT by and among ZO SKIN HEALTH, INC. AND ZO SKIN HEALTH GK AND CUTERA, INC. AND CUTERA KK Dated as of February 28, 2024 DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
TABLE OF CONTENTS ARTICLE I DEFINITIONS ..................................................................................................................... 1 1.1 Definitions. .....................................................................................................................1 1.2 Interpretation. ..................................................................................................................5 ARTICLE II TERMINATION OF DISTRIBUTION AGREEMENTS .................................................. 5 2.1 Termination of Distribution Agreements. .......................................................................5 2.2 Releases. .........................................................................................................................6 ARTICLE III BUSINESS TRANSFER ................................................................................................... 7 3.1 Transactions. ...................................................................................................................7 3.2 Termination Payment. .....................................................................................................7 3.3 Covenants. ......................................................................................................................8 3.4 Conditions Precedent. ................................................................................................... 13 3.5 Closing. ......................................................................................................................... 14 ARTICLE IV REPRESENTATIONS AND WARRANTIES ............................................................... 14 4.1 Representations and Warranties of Cutera. ................................................................... 14 4.2 Representations and Warranties of ZO. ........................................................................ 15 ARTICLE V TERMINATION ............................................................................................................... 16 5.1 Termination Event. ....................................................................................................... 16 5.2 Effect of Termination. .................................................................................................. 16 ARTICLE VI MISCELLANEOUS PROVISIONS
............................................................................... 16 6.1 Governing Law; Dispute Resolution. ........................................................................... 16 6.2 Notices and Other Communications. ............................................................................ 16 6.3 Severability. .................................................................................................................. 17 6.4 Language and Headings. ............................................................................................... 17 6.5 Further Assurances; Cooperation. ................................................................................. 17 6.6 Expenses. ...................................................................................................................... 17 6.7 Entire Agreement; Amendments and Waivers. ............................................................ 18 6.8 Successors and Assigns. ............................................................................................... 18 6.9 Confidentiality and Publicity. ....................................................................................... 18 6.10 Counterparts; Effect of Facsimiles or PDFs. ................................................................ 18 DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
BUSINESS TRANSFER AND TERMINATION AGREEMENT This Business Transfer and Termination Agreement (this “Agreement”) is dated as of February 28, 2024, by and among (i) ZO Skin Health, Inc., a California corporation (“ZO USA”), (ii) ZO Skin Health GK, a Japanese company (“ZO Japan”, and together with ZO USA, “ZO”), (iii) Cutera, Inc., a Delaware corporation (“Cutera USA”), and (iv) Cutera KK, a Japanese corporation (“Cutera Japan, and together with Cutera USA, “Cutera”). Each of ZO USA, ZO Japan, Cutera USA and Cutera Japan is individually referred to herein as a “Party” and collectively as the “Parties.” RECITALS A. ZO USA and Cutera USA entered into the Distribution Agreements pursuant to which, among other things, ZO USA granted Cutera USA the exclusive right to promote, market, sell and distribute in Japan a line of skin care products produced by or for ZO known as “ZO Skin Health” and “ZO Medical” (such products, the “ZO Skin Products”) and certain products related to the “ZO Skin Health” and “ZO Medical” product lines (such related products, the “ZO Related Products”), in each case, as listed on the relevant exhibit attached to the relevant agreement, as updated by ZO USA from time to time. B. The Distribution Agreements expire in accordance with their terms on June 14, 2024, at which point Cutera will no longer have the right to distribute ZO Products and therefore, in absence of the transactions contemplated hereby, would be subject to obligations and liabilities that could be detrimental to their ongoing business. C. The Parties desire to, pursuant to the terms and provisions of this Agreement: (i) cooperate with each other to facilitate the orderly and expeditious transition of the distribution of ZO Products in Japan (the “ZO
Business”) from Cutera and their Affiliates to ZO and their Affiliates under a direct business model (the “Transition”); (ii) terminate the Distribution Agreements; (iii) cooperate with each other to facilitate the employment or retention by ZO Japan of certain employees and contractors of Cutera or their Affiliates; (iv) cooperate with the assignment of Cutera’s existing contracts with Yamato, Yamato CF and/or Atago to ZO (or one of their Affiliates) or, alternatively, cooperate with ZO Japan’s entry into new logistics, payment support and warehousing service agreements with Yamato, Yamato CF and/or Atago, as the case may be; and (v) transfer inventory and assets from Cutera (or their Affiliates) to ZO (or one of their Affiliates). NOW, THEREFORE, the Parties intending to be legally bound agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Unless the context otherwise requires, capitalized terms used in this Agreement (including the recitals) shall have the meanings assigned to them in this Section 1.1. “Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person. For purposes of this definition, “control,” “controlling,” and “controlled by” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies (whether through ownership of securities or other ownership interests, by contract or otherwise) of another Person. “Agreement” is defined in the preamble. “Applicable Laws” means, in respect of any Person, any laws, rules, regulations, ordinances, directives, publicly announced guidelines or guidance, treaties, decrees or orders of any competent Government Authority and to which such Person is subject. DocuSign Envelope ID:
AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 2 - “Atago” means Atagosoko Co., Ltd., a company organized under the laws of Japan. “Business Day” means any day (except Saturdays, Sundays and public holidays) on which deposit-taking banks are open in each of Tokyo, Japan and Los Angeles, California (United States of America) for the normal business of over-the-counter deposit taking. “Closing” means the First Closing or the Second Closing, as the case may be. “Customer Notification” is defined in Section 3.3(a)(vi). “Customers” means any customer who purchases ZO Products, including any ZO Customer. “Cutera” is defined in the preamble. “Cutera Account” means the bank account for which the details are set forth in ANNEX A. “Cutera Indemnitees” is defined in Section 3.3(a)(ix)(2). “Cutera Japan” is defined in the preamble. “Cutera Released Claims” is defined in Section 2.2(a). “Cutera Releasors” is defined in Section 2.2(a). “Cutera USA” is defined in the preamble. “Distribution Agreements” means all agreements between ZO USA and Cutera USA relating to or involving ZO Products, including those listed on EXHIBIT A. “Due Diligence Documents” means the documents and information listed on EXHIBIT C. “Encumbrance” means any charge, claim, pledge, lien, option, collateral assignment, security interest, adverse claim, option, restrictive covenant, or any similar restriction to the foregoing, including any restriction on use, transfer or exercise of any other attribute of ownership. “Existing Atago Agreement” means the agreement, dated September 1, 2013, between Atago and Cutera Japan for the provision of services by Atago to Cutera Japan (or its Affiliates) in connection with the distribution of ZO Products by Cutera Japan pursuant to the Distribution Agreements. “Existing Yamato CF Agreement” means
the agreement, dated September 1, 2023, between Yamato CF and Cutera Japan for the provision of credit and guarantee services by Yamato CF to Cutera Japan (or its Affiliates) in connection with the distribution of ZO Products by Cutera Japan pursuant to the Distribution Agreements. “Existing Yamato Logistics Agreement” means the agreement, dated September 1, 2023, between Yamato and Cutera Japan for the provision of logistics and related services by Yamato to Cutera Japan (or its Affiliates) in connection with the distribution of ZO Products by Cutera Japan pursuant to the Distribution Agreements. “First Closing” is defined in Section 3.5(a). “First Closing Date” is defined in Section 3.5(a). DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 3 - “First Closing Transferred Inventory” means all of Cutera’s inventory of ZO Products (including those held at the premises of Atago and Yamato) as of the First Closing Date that are deemed sellable by ZO USA at its sole discretion, as listed on EXHIBIT D. “First Tranche Payment” equals 50% of the Termination Payment, subject to Section 3.2(c). “Government Authority” means any (a) government, governmental entity, government authority, ministry, commission, board, accreditation body, agency or instrumentality, whether national, regional, prefectural, provincial, local or foreign, of any country; (b) court, tribunal or judicial body of any country; and (c) stock exchange or regulated over-the-counter market on which the securities of a Party or any of its Affiliates are listed or are admitted to trading. “Insolvency Event” means, in respect of a Person, any event where such Person or any of its subsidiaries makes a general assignment for the benefit of creditors, or any proceeding shall be instituted by or against such Person or any of its subsidiaries seeking to adjudicate any of them a bankrupt or insolvent, or seeking liquidation, winding up or reorganization, arrangement, adjustment, protection, relief or composition of their debts under any Applicable Law relating to bankruptcy, insolvency or reorganization. “New Atago Agreement” means the agreement between Atago and ZO Japan for the provision of warehouse and related services. “New Yamato Logistics Agreement” means either (a) an agreement between Yamato and ZO Japan for the provision of logistics and related services, or (b) an assignment agreement between Yamato, Cutera Japan and ZO Japan for the assignment of the Existing Yamato Logistics Agreement to ZO Japan. “Non-Sellable Inventory” is defined in Section
3.3(a)(iv). “Party” and “Parties” are defined in the preamble. “Person” means a natural person, corporation, partnership, limited liability company, trust or other entities which are given, or are recognized as having, a legal personality by Applicable Law. “Reduction Amount” means the amount equal to 42.2% of Cutera’s net revenue for sales of ZO Products in Japan in accordance with the Distribution Agreements during the period commencing on January 1, 2024 and ending on the First Closing Date. “Released Cutera Persons” is defined in Section 2.2(b). “Released ZO Persons” is defined in Section 2.2(a). “Second Closing” is defined in Section 3.5(b). “Second Closing Date” is defined in Section 3.5(b). “Second Closing Transferred Inventory” means all of Cutera’s inventory of ZO Products (including those held at the premises of Atago and Yamato) as of the Second Closing Date that are deemed sellable by ZO USA at its sole discretion, as listed on EXHIBIT D. “Second Tranche Payment” is the amount equal to 50% of the Termination Payment less the Reduction Amount, subject to Section 3.2(c). “Target Employees” means the employees and contractors of Cutera or their Affiliates listed on EXHIBIT B. DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 4 - “Termination Payment” equals the amount of Eleven Million Five Hundred Thousand US Dollars (USD 11,500,000.00). “Transferred Assets” means the assets listed on EXHIBIT E. “Transferring Employees” means the Target Employees who have agreed to (and who in fact do) cease their employment or service relationship with Cutera and to enter into direct employment or service relationships with ZO Japan on or prior to the First Closing Date or as promptly as possible after the First Closing Date as needed for the Target Employee to fully transition to a direct employment or service relationship with ZO Japan. “Transition” is defined in the recitals. “Transition Completion Date” means the earlier of (A) the first Business Day following the date upon which ZO Japan has (i) entered into the New Atago Agreement, (ii) entered into the New Yamato Logistics Agreement, (iii) entered into the Yamato CF Assignment Agreement, and (iv) each of Atago, Yamato and Yamato CF are fully performing the services under such relevant agreement in substantially the manner such services were previously provided to Cutera in order to allow ZO to fulfill ZO Product orders made by Customers in Japan from order entry through product delivery autonomously without support from Cutera and their Affiliates, as determined by ZO USA and Cutera USA following good faith discussions, and (B) June 14, 2024. “USD” or “US Dollars” means United States dollars, the lawful currency of the United States of America. “Yamato” means Yamato Transport Co., Ltd., a company organized under the laws of Japan. “Yamato CF Assignment Agreement” means the assignment agreement to be entered into among Yamato CF, Cutera Japan and ZO Japan for the assignment of the Existing Yamato CF Agreement
to ZO Japan. “Yamato CF” means Yamato Credit & Finance Co., Ltd., a company organized under the laws of Japan. “ZO” is defined in the preamble. “ZO Business” is defined in the recitals. “ZO Customer” means any account, clinic, business or Person that has purchased ZO Products from Cutera or their Affiliates at any time since January 1, 2019, regardless of whether such customer meets the definition of “Customer” under the Distribution Agreements. “ZO Employment Agreement” means an employment or service agreement to be entered into between ZO Japan and each Transferring Employee on terms mutually acceptable to both ZO Japan and such Transferring Employee. “ZO Japan” is defined in the preamble. “ZO Products” means ZO Skin Products and ZO Related Products, individually and collectively, as the case may be. “ZO Related Products” is defined in the recitals. “ZO Released Claims” is defined in Section 2.2(b). DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 5 - “ZO Releasors” is defined in Section 2.2(b). “ZO Skin Products” is defined in the recitals. “ZO Team” means those persons designated in writing from time to time by ZO USA to Cutera USA, it being understood that the ZO Team initially consists of Nicole Tan, Ayumi Ito, Ikumi Kunimura, John Yasuji Aoyagi, Nami Sakai, Drew Bordages and Kristen Flynn. “ZO USA” is defined in the preamble. “ZOMD Distribution Agreement” is defined in EXHIBIT A. “ZOSH Distribution Agreement” is defined in EXHIBIT A. 1.2 Interpretation. Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement and not merely to the specific Article or Section where such terms may appear; (iv) the term “including” shall mean “including, but not limited to”; (v) the term “or” shall not be exclusive; (vi) references to any Applicable Law are to be construed as including all statutory or regulatory provisions consolidating, amending, replacing, succeeding or supplementing such Applicable Law; (vii) all references to any period of days shall be deemed to be the relevant number of calendar days, unless otherwise specified as a Business Day; (viii) with respect to any determination of any period of time, “from” means “from and including,” “to” means “to but excluding” and “through” means “through and including”; and (ix) references to “Articles”, “Sections”, “Exhibits” and “Annexes” refer to the Articles of, Sections of, the Exhibits to and Annexes to this Agreement. ARTICLE II TERMINATION OF DISTRIBUTION AGREEMENTS 2.1 Termination of
Distribution Agreements. (a) Subject to Section 2.1(b), effective as of the First Closing, each Party agrees that it shall have no further rights or obligations under any of the Distribution Agreements (as the case may be), and the Distribution Agreements shall terminate and all provisions of the Distribution Agreements, including any that expressly state that they will survive the expiration, termination, or cancellation of such Distribution Agreement, shall be terminated and be of no further force or effect without the need for any further action by the Parties. The Parties waive any rights to notice of termination and the period of time before such termination notice may become effective in connection with their collective desire to terminate the Distribution Agreements as of the First Closing, and agree that the execution of this Agreement shall constitute a written waiver to allow the termination of the Distribution Agreements pursuant to the terms and provisions of this Agreement. The Parties further agree that the termination of the Distribution Agreements shall only be effective as of and after the First Closing, and shall not affect the validity of any transaction conducted under the Distribution Agreements before such termination; provided, however, that in no event shall the foregoing in anyway limit the scope of the releases provided for in Section 2.2. (b) Notwithstanding the termination of the Distribution Agreements and any provisions therein, the Parties agree that the following obligations shall survive: (i) Sections 2.4, 4.2(i), 12, 13, 14.4 (without regard to the exception for sales made in accordance with Section 8.3(c)), 16.1 through 16.7 and 16.9 through 16.14 of the Distribution Agreements; DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 6 - (ii) Section 4.2(h) of the Distribution Agreements, but only until the Second Closing at which time Section 4.2(h) of the Distribution Agreements shall terminate; (iii) Cutera shall, and shall cause their Affiliates to, promptly destroy all of ZO’s sales and technical literature and materials and all “Proprietary Information” (as such term is defined in the Distribution Agreements) of ZO in the possession of Cutera and their Affiliates, and Cutera shall promptly certify such destruction in writing to ZO USA; and (iv) except as otherwise agreed in writing by ZO USA, Cutera shall, and shall cause their Affiliates to (1) promptly remove from Cutera’s and their Affiliates’ facilities all signs, billboards and other similar items bearing any of the “ZO SKIN HEALTH Marks” (as such term is defined in the Distribution Agreements) or identifying Cutera or any of their Affiliates as an authorized distributor of ZO Products, and (2) withdraw or cancel all registrations or filings with Government Authorities relating to the use by Cutera or any of their Affiliates of the ZO SKIN HEALTH Marks. 2.2 Releases. (a) Except as set forth in Section 2.2(c), effective as of the First Closing, Cutera USA and Cutera Japan, on each of its own behalf and on behalf of each of its Affiliates and each of its and their representatives, successors and assigns (collectively, the “Cutera Releasors”), hereby unconditionally and irrevocably releases and forever discharges each of ZO USA and ZO Japan, each of their Affiliates, and all of each of its and their respective present and former equity holders, stockholders, shareholders, members, directors, officers, managers, statutory auditors, agents, and employees (collectively, the “Released ZO Persons”), from any and all costs, expenses, damages, liabilities, obligations, losses, claims,
demands, actions, rights of action, and causes of action of any kind, whether known or unknown, contingent or matured, and whether arising pursuant to statute, contract, or tort, now existing or hereafter acquired, arising from or in any way, directly or indirectly, connected with any acts or omissions under any of the Distribution Agreements by any Released ZO Persons that occurred at any time on or prior to the First Closing (collectively, the “Cutera Released Claims”). From the First Closing, the Cutera Releasors irrevocably agree to refrain from directly or indirectly asserting any claim or demand or commencing (or causing to be commenced) any claim or demand of any kind, in any court or before any tribunal (governmental or otherwise), against any Released ZO Persons based upon any Cutera Released Claims. (b) Except as set forth in Section 2.2(c), effective as of the First Closing, ZO USA and ZO Japan, on each of its own behalf and on behalf of each of its Affiliates and each of its and their representatives, successors and assigns (collectively, the “ZO Releasors”) hereby unconditionally and irrevocably releases and forever discharges each of Cutera USA and Cutera Japan, each of their Affiliates, and all of each of its and their respective present and former equity holders, stockholders, shareholders, members, directors, officers, managers, statutory auditors, agents, and employees (collectively, the “Released Cutera Persons”), from any and all costs, expenses, damages, liabilities, obligations, losses, claims, demands, actions, rights of action, and causes of action of any kind, whether known or unknown, contingent or matured, and whether arising pursuant to statute, contract, or tort, now existing or hereafter acquired, arising from or in any way, directly or indirectly, connected with any
acts or omissions under any of the Distribution Agreements by any Released Cutera Persons that occurred at any time on or prior to the First Closing (collectively, the “ZO Released Claims”). From the First Closing, the ZO Releasors irrevocably agree to refrain from directly or indirectly asserting any claim or demand or commencing (or causing to be commenced) any claim or demand of any kind, in any court or before any tribunal (governmental or otherwise), against any Released Cutera Persons based upon any ZO Released Claims. DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 7 - (c) The releases set forth in this Section 2.2 shall not release any Party from breaches of or any other obligations or liabilities created by this Agreement. ARTICLE III BUSINESS TRANSFER 3.1 Transactions. (a) First Closing. Subject to the terms and conditions of this Agreement, upon the First Closing: (i) the Distribution Agreements shall be terminated in accordance with Section 2.1; (ii) each Party shall grant the mutual releases in accordance with Section 2.2; (iii) Cutera shall or shall cause their Affiliates to sell, transfer, assign and convey to ZO (or an Affiliate of ZO designated in writing by ZO USA to Cutera USA), and ZO shall or shall cause their designated Affiliate to acquire, accept and take title from Cutera or their Affiliates, the First Closing Transferred Inventory and the Transferred Assets; (iv) ZO Japan and the Transferring Employees shall enter into the ZO Employment Agreements (except for those Transferring Employees who can only fully transition to a direct employment or service relationship with ZO Japan after the First Closing Date in accordance with Section 3.3(a)(iii); and (v) within three (3) Business Days after the First Closing, ZO (or an Affiliate of ZO designated by ZO USA) shall make the First Tranche Payment to the Cutera Account. (b) Second Closing. Subject to the terms and conditions of this Agreement, upon the Second Closing: (i) ZO (or an Affiliate of ZO designated by ZO USA) shall (i) make the Second Tranche Payment to the Cutera Account in accordance with Section 3.2(b), (ii) acquire, accept and take title from Cutera or their Affiliates the Second Closing Transferred Inventory, and (iii) make the payment to the Cutera Account for the amounts incurred under Section 3.3(a)(v)(1); and (ii) Cutera USA shall provide to ZO USA documentary
evidence to the satisfaction of ZO USA that the Second Closing Transferred Inventory is held by Yamato and Atago for the benefit of ZO (or their Affiliates) on and from the Second Closing Date. (c) The Parties acknowledge and agree that, from and after March 1, 2024 and regardless of the status of the overall Transition, all sales of ZO Products in Japan shall be made by ZO Japan, and ZO Japan shall recognize all revenue from the sale thereof in compliance with Applicable Law and accounting standards. For the avoidance of doubt, from January 1, 2024 through February 29, 2024, Cutera will recognize all revenue from the sales of ZO Products and such sales shall be subject to the Reduction Amount. 3.2 Termination Payment. (a) In consideration for Cutera’s fulfillment of Cutera’s obligations in this Agreement, ZO shall (or ZO shall cause their Affiliate to) pay to Cutera USA a total amount equal to DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 8 - the Termination Payment less the Reduction Amount, which sum shall be payable in two installments and subject to Section 3.2(c). (b) Subject to the terms and conditions of this Agreement, the Termination Payment will be paid in the following instalments by ZO (or their Affiliate): (i) within three (3) Business Days after the First Closing Date, the First Tranche Payment will be paid to the Cutera Account; and (ii) on the earlier of the Second Closing Date and June 14, 2024, the Second Tranche Payment will be paid to the Cutera Account. (c) At its option and in accordance with Applicable Laws, ZO shall have the right to set-off against the First Tranche Payment and the Second Tranche Payment all amounts owed to them and their Affiliates by Cutera and their Affiliates for orders of ZO Products placed by Cutera and their Affiliates with ZO and their Affiliates prior to January 1, 2024 (i) that have not been paid in full by the First Closing Date (if ZO elects to make a set-off against the First Tranche Payment) or (ii) that have not been paid in full by the Second Closing Date or set-off against the First Tranche Payment (if ZO elects to make a set-off against the Second Tranche Payment). 3.3 Covenants. The Parties agree as follows: (a) Covenants from the First Closing until the Second Closing. (i) First Tranche Payment. Within three (3) Business Days after the First Closing, ZO (or an Affiliate of ZO designated by ZO USA) shall make the First Tranche Payment in full to the Cutera Account. (ii) Business. (1) To the extent that any Transferring Employees have not fully transitioned to a direct employment or service relationship with ZO Japan on or prior to the First Closing, Cutera shall, and shall cause their Affiliates to, permit the ZO Team to work directly with such Transferring
Employees to allow for coordinated sales efforts and a smooth transition of sales of ZO Products from Cutera and their Affiliates to ZO Japan in connection with the Transition. (2) Cutera shall, and shall cause their Affiliates to, (x) promptly provide ZO with Due Diligence Documents to the extent not already provided to ZO prior to the First Closing Date, and (y) promptly respond to all reasonable questions posed by ZO or their Affiliates concerning information contained in the Due Diligence Documents (or related thereto). (iii) Employees. (1) To the extent that ZO Japan’s discussions with Target Employees regarding potential employment or retention by ZO Japan have not concluded prior to the First Closing, Cutera shall, and shall cause their Affiliates to, continue to make such Target Employees available to ZO Japan to discuss the potential employment or retention of the Target Employees by ZO Japan as promptly as possible after the First Closing Date, and cooperate with ZO Japan in hiring or retaining the Transferring Employees. DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 9 - (2) Cutera shall, and shall cause their Affiliates to, fully cooperate with ZO Japan in the discussions under Section 3.3(a)(iii)(1). For the avoidance of doubt, the Parties acknowledge that Cutera or their Affiliates may make an offer of continuing employment to any Target Employee, which will not be considered a breach of this Section 3.3(a)(iii). (3) Cutera hereby fully releases (and shall cause their Affiliates to fully release) the Transferring Employees from any notice periods, non- competition obligations and all other employment obligations with Cutera or their Affiliates under any existing employment agreements or service contracts between the Transferring Employees and Cutera or their Affiliates, or internal work rules and regulations or any other document or agreement applicable to such Transferring Employees. The Parties acknowledge that the Transferring Employees will continue to work for Cutera or their Affiliates until the First Closing Date or until as soon as possible after the First Closing Date when the Transferring Employees can be fully transitioned to a direct employment or service relationship with ZO Japan, and will commence working for ZO Japan on and from the First Closing Date or on or from that date as soon as possible after the First Closing Date when the Transferring Employees can be fully transitioned to a direct employment or service relationship with ZO Japan. (4) Cutera shall, and shall cause its Affiliates to, cooperate with ZO Japan in transferring the mobile phone numbers of the Transferring Employees to their respective mobile phones to be issued by ZO Japan; provided, however, ZO Japan shall be responsible for providing the Transferring Employees with all equipment and resources necessary to fulfill their employment obligations with ZO
Japan, including providing the Transferring Employees with computers and mobile phones. (5) Notwithstanding anything contained herein to the contrary, nothing in this Agreement shall be construed as imposing any obligation on ZO or their Affiliates to hire or engage the services of any employees or contractors of Cutera or their Affiliates, including the Target Employees; provided, however ZO and its Affiliates will use commercially reasonable efforts to hire the Target Employees. In furtherance and not in limitation of the foregoing, ZO shall have no obligation to offer employment terms and conditions that are requested by any Person in order to retain a Target Employee (even if such term or condition is currently being offered by Cutera or any of their Affiliates to a Target Employee) or convert a person from the status of a contractor to a full-time employee. Cutera acknowledges and agrees that any Target Employees not hired or engaged by ZO, and any obligations that Cutera and their Affiliates have to a Transferring Employee by nature of such Transferring Employee’s voluntary resignation from Cutera or their Affiliates, shall remain the full responsibility of Cutera and their Affiliates. (iv) Inventory. Neither ZO nor their Affiliates will acquire or take title to any of Cutera’s inventory of ZO Products (including those held at the premises of Atago and Yamato) deemed non-sellable by ZO USA in its sole and absolute discretion (“Non-Sellable Inventory”). Cutera shall, and shall cause their Affiliates to, destroy all Non-Sellable Inventory within thirty (30) days of a written request by ZO USA for no compensation payable by ZO or any of their Affiliates, and shall promptly certify such destruction in writing to ZO USA. DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-
2C0DD3EC62DB
- 10 - (v) Third Party Support. (1) From the First Closing until the Second Closing, Cutera shall, and shall cause their Affiliates to, continue to work with ZO and their Affiliates to ensure that ZO and their Affiliates secure, at ZO’s sole cost and expense to be charged by Cutera to ZO USA (or an Affiliate of ZO designated in writing by ZO USA to Cutera USA) at the actual out-of-pocket third-party cost and incurred by Cutera, support from Yamato, Yamato CF and Atago, respectively, substantially similar to the support currently provided to Cutera USA or Cutera Japan as of the First Closing Date by Yamato, Yamato CF and Atago, respectively, in order to allow ZO and their Affiliates to directly sell ZO Products in Japan. In the event that any Transferring Employee remains on Cutera’s payroll past the First Closing Date, ZO shall reimburse Cutera for the actual out-of-pocket costs of employing such Transferring Employee (including salary and actual benefits costs) for the period between the First Closing Date and the date such Transferring Employee commences employment with ZO. ZO shall further pay to Cutera the actual out-of-pocket costs incurred by Cutera under Section 3.3(a)(ix)(1). Cutera USA shall promptly provide ZO USA with all reasonably requested documentation to support the amount of any payments required to be made by ZO (or their Affiliate) hereunder. (2) Cutera shall, and shall cause their Affiliates to, waive any confidentiality obligations of Yamato, Yamato CF and Atago owed to Cutera and their Affiliates to the extent necessary to give effect to Section 3.3(a)(v)(1). (3) In furtherance of Section 3.3(a)(iv)(1), at ZO’s option (and subject to the terms of the Existing Atago Agreement, the Existing Yamato CF Agreement and the Existing Yamato Logistics
Agreement): (i) Cutera and their Affiliates will assign, and ZO Japan will assume, the Existing Yamato CF Agreement pursuant to Yamato CF Assignment Agreement; and (ii) Cutera shall, and shall cause their Affiliates to, cooperate with ZO Japan in order for ZO Japan to enter into the New Atago Agreement and the New Yamato Logistics Agreement with Atago and Yamato, respectively. (4) Notwithstanding anything contained herein and notwithstanding ZO and their Affiliates’ relationships with Yamato, Yamato CF and Atago, Cutera shall be entitled to continue its relationship with Yamato, Yamato CF and Atago with respect to its business (excluding the ZO Business) in its sole and absolute discretion. (vi) Customer Communications. On the First Closing Date, the Parties shall issue a mutually agreeable joint communication to the ZO Customers designated by ZO (the “Customer Notification”): (i) notifying such ZO Customers of the Transition; (ii) introducing such ZO Customers to the ZO Team; (iii) assuring such ZO Customers of the continuous availability of ZO Products and customer support; and (iv) authorizing and instructing such ZO Customers to commence direct communications with the ZO Team. (vii) Reduction Amount DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 11 - By no later than ten (10) Business Days after the First Closing Date, Cutera USA shall deliver its estimate of the Reduction Amount to ZO USA along with supporting documentation, and shall promptly respond to all reasonable questions and backup materials reasonably requested by ZO USA concerning the calculation of the Reduction Amount. (viii) Physical Deliveries (1) By the seventh (7th) Business Day after the First Closing, Cutera shall, and shall cause their Affiliates to, deliver to ZO (or an Affiliate of ZO designated in writing by ZO USA to Cutera USA), all tangible items and original agreements, including the following, to the extent that such items and agreements could not be delivered on the First Closing Date: (I) documentary evidence to the satisfaction of ZO that the First Closing Transferred Inventory is held by Yamato and Atago for the benefit of ZO (or their Affiliates) on and from the First Closing Date; and (II) the Transferred Assets. (ix) Transition Efforts (1) From the First Closing Date until the Second Closing Date, Cutera shall, and shall cause their Affiliates to, provide ongoing support to ZO and their Affiliates to ensure a full and smooth Transition. Specifically, Cutera shall, and shall cause their Affiliates to, at the direction of ZO (or an Affiliate of ZO designated in writing by ZO USA to Cutera USA): (I) order ZO Products in quantities specified by ZO (or their designated Affiliate); (II) import such ZO Products on behalf of ZO (or their designated Affiliate); (III) over-label such ZO Products with labels specified by ZO (or their designated Affiliate); (IV) transfer such over-labelled products to ZO (or their designated Affiliate) for delivery by ZO (or their designated Affiliate) to Customers in Japan; and (V) take all such other actions required by this
Agreement. (2) After the First Closing, ZO and their Affiliates shall have the exclusive right to sell the existing inventory of ZO Products with labeling of Cutera and their Affiliates (including those held at the premises of Atago and Yamato) deemed sellable by ZO USA, and Cutera shall, and shall cause their Affiliates to, comply with the instructions of ZO and their Affiliates in connection with the exercise of the rights of ZO and their Affiliates hereunder; provided, however, ZO USA shall indemnify, defend, and hold harmless Cutera USA, its Affiliates, and all of its and their respective present and former equity holders, stockholders, shareholders, members, directors, officers, managers, and employees (collectively the “Cutera Indemnitees”) from and against any and all costs, expenses (including reasonable attorneys’ DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 12 - fees and expenses of litigation), damages, liabilities, obligations, and losses incurred by or imposed upon any of the Cutera Indemnitees from any claims, suits, actions, demands or judgments under any theory of liability (including without limitation actions in the form of tort, warranty, or strict liability) resulting from or arising out of ZO’s or its Affiliates’ sale of the existing inventory of ZO Products pursuant to this Section 3.3(a)(ix)(2) to the extent any such cost, expense (including reasonable attorneys’ fees and expenses of litigation), damage, liability, obligation, or loss did not result from or arise out of any grossly negligent act or omission by a Cutera Indemnitee. (b) Covenants from the First Closing. (i) Other Assets. From the First Closing Date until the Second Closing Date, if Cutera discovers an asset used exclusively by Cutera to undertake the ZO Business that has not been transferred to ZO Japan as part of the Transferred Assets, then Cutera agrees to promptly transfer (or cause the transfer) to ZO Japan such asset for no compensation or other obligation. (ii) Customer Communications. From the First Closing until June 14, 2024, Cutera shall, and shall cause their Affiliates to, promptly (1) refer all communications from Customers to ZO Japan or to the Transferring Employees, as directed by ZO USA or ZO Japan, and shall fulfill orders and requests from Customers only at the express direction and instruction of ZO USA or ZO Japan, and (2) forward to ZO USA (or to an Affiliate of ZO USA that ZO USA designates in writing to Cutera USA) all mail (electronic and regular/hard copy) relating to the ZO Business that is delivered to or received by Cutera or their Affiliates after the First Closing Date. (iii) Payments. In recognition that, following the First Closing, Cutera and
their Affiliates may receive payments for sales of ZO Products that were made after the First Closing, Cutera shall, and shall cause their Affiliates to, remit promptly to the bank account of ZO USA informed in writing by ZO USA to Cutera USA (or to the bank account of an Affiliate of ZO USA that ZO USA designates in writing to Cutera USA) the full amount of all revenues received by Cutera and their Affiliates from the sale of ZO Products made after the First Closing. Cutera further agrees to cooperate with ZO USA and its Affiliates to inform such Customers of the correct bank account details of ZO USA or its Affiliate (as directed by ZO USA) for which payments should be made for ZO Products purchased after the First Closing. (iv) Non-solicit. For a period of two (2) years commencing on the First Closing Date, Cutera shall not, and shall not permit any of their Affiliates to, directly or indirectly, hire or solicit for employment any Transferring Employee or encourage any such employee to leave employment with ZO Japan. Notwithstanding the foregoing, nothing herein shall prevent Cutera or any of their Affiliates from (1) placing general solicitations of employment not specifically directed toward the Transferring Employees or (2) hiring any Transferring Employee who is discharged from employment by ZO Japan. Cutera acknowledges that a breach or threatened breach of this sub-clause would give rise to irreparable harm to ZO and their Affiliates, for which monetary damages would not be an adequate remedy, and hereby agrees that in the event of a breach or a threatened breach by Cutera of any such obligations, ZO and their Affiliates shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to seek the granting
of equitable relief, including a temporary restraining order, an injunction, DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 13 - specific performance and any other relief that may be available from a court of competent jurisdiction. (c) General Covenants. Subject to the terms and conditions herein provided, the Parties shall use their respective best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary, proper or advisable under Applicable Law to consummate and make effective as promptly as practicable the Second Closing, including the satisfaction, but not waiver, of the conditions precedents set forth in Sections 3.4(a)(i) and (ii). Notwithstanding the foregoing or anything to the contrary in this Agreement, in the event that the Transition Completion Date has not occurred before June 14, 2024, (i) ZO shall be automatically deemed to have waived as of June 14, 2024 all of the conditions precedent set forth in Sections 3.4(a)(ii)c., d., f. and g.; (ii) subject to satisfaction of the conditions of Sections 3.4(a)(ii)a., b. and e. (provided that for purposes of this Section 3.3(c), the condition set forth in Section 3.4(a)(ii)b. shall be satisfied so long as Cutera has performed or complied with all material obligations and covenants required by this Agreement in all material respects), the Second Tranche Payment shall become immediately due and payable on June 14, 2024; and (iii) ZO shall make the Second Tranche Payment to the Cutera Account on June 14, 2024. 3.4 Conditions Precedent. (a) Second Closing Conditions Precedent. (i) Cutera's obligation to perform the Second Closing is expressly conditional upon the fulfilment, to the satisfaction of Cutera USA (or waiver by Cutera USA) of the following conditions: a. each of the representations and warranties of ZO under Section 4.2 shall be true and correct at and as of the Second Closing Date; b. ZO shall have
performed or complied with all obligations and covenants required by this Agreement to be performed or complied with on or prior to the Second Closing Date; c. the First Closing shall have occurred and Cutera shall have received the First Tranche Payment; and d. Cutera USA shall have agreed to the amount of the Reduction Amount. (ii) Subject to Section 3.3(c), ZO’s obligation to perform the Second Closing is expressly conditional upon the fulfilment, to the satisfaction of ZO USA (or waiver by ZO USA, including pursuant to Section 3.3(c)) of the following conditions: a. each of the representations and warranties of Cutera under Section 4.1 shall be true and correct at and as of the Second Closing Date; b. Cutera shall have performed or complied with all obligations and covenants required by this Agreement to be performed or complied with on or prior to the Second Closing Date; c. the First Closing shall have occurred; d. ZO USA shall have agreed to the amount of the Reduction Amount; DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 14 - e. the Second Closing Transferred Inventory shall be held by Yamato and Atago for the benefit of ZO (or their Affiliates); f. ZO Japan shall have entered into the New Atago Agreement, the New Yamato Logistics Agreement, and the Yamato CF Assignment Agreement; and g. the Transition Completion Date shall have occurred. 3.5 Closing. (a) First Closing. Subject to the terms and conditions of this Agreement, the consummation of the transactions under Section 3.1(a) (the “First Closing”) shall take place simultaneously with the execution of this Agreement (the “First Closing Date”), except where noted. The First Closing shall be effected remotely by exchange of documents and signatures (or their electronic counterparts). (b) Second Closing. Subject to the terms and conditions of this Agreement, the consummation of the transactions under Section 3.1(b) (the “Second Closing”) shall take place on the third (3rd) Business Day after the satisfaction or waiver of the conditions set forth in Section 3.4(a), including the limited automatic waiver pursuant to Section 3.3(c) (other than those conditions with respect to actions each Party is required to take at the Second Closing), or at such other time or date as ZO USA and Cutera USA may agree upon in writing (the actual date of the Second Closing being referred to as the “Second Closing Date”). The Parties shall use their respective reasonable efforts to cause the Second Closing Date to occur as soon as possible after the Transition Completion Date, but in no event later than seven (7) days after the Transition Completion Date. Subject to Section 3.3(c), ZO USA and Cutera USA shall notify the other in writing of the satisfaction in full of the conditions precedent applicable to it under Section 3.4(a). The Second Closing shall be effected
remotely by exchange of documents and signatures (or their electronic counterparts). ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of Cutera. Cutera represents and warrants to ZO as of the First Closing Date and the Second Closing Date as follows: (a) Organization. It is a company duly organized and validly existing under the laws of its jurisdiction of formation, and has all requisite power and authority to own its assets and carry on its business as now conducted and as contemplated under this Agreement. (b) Authorization. All corporate action on the part of itself necessary for the authorization, execution and delivery of this Agreement and for the performance of all of its obligations hereunder has been taken. (c) Consents. No consent, authorization, license, permit, registration or approval of, or exemption or other action by, any Government Authority or any other Person is required in connection with its execution, delivery and performance of this Agreement and for the performance of all of its obligations hereunder. (d) Binding Effect. This Agreement is a valid and binding obligation of it, and this Agreement is enforceable in accordance with its terms, except as such enforceability may be limited by Applicable Laws relating to bankruptcy, insolvency, reorganization, restructuring, moratorium or other similar laws relating to or affecting creditors’ rights generally. DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 15 - (e) No Conflicts or Violations. The execution, delivery and performance by it of this Agreement did not and will not (i) violate or conflict with any rules of a Government Authority affecting or binding upon it, (ii) violate, conflict with or cause a breach under any provision of any indenture, mortgage or contract to which it is a party or result in a breach of or constitute (with notice or lapse of time or both) a default, which violation, conflict, breach or default would have a material adverse effect on this Agreement, (iii) result in the creation or imposition of any charges on its assets, or (iv) violate, conflict with or cause a breach under its organizational documents. (f) No Encumbrances. Cutera has good and valid title to and has the right to sell all of the First Closing Transferred Inventory, the Second Closing Transferred Inventory and the Transferred Assets, in each case, free and clear of any Encumbrances. Upon the consummation of the transactions contemplated by this Agreement (including the payment to Cutera of the First Tranche Payment and the Second Tranche Payment), ZO or its designated Affiliate will acquire the exclusive legal ownership of the First Closing Transferred Inventory, the Second Closing Transferred Inventory and the Transferred Assets, in each case, free and clear of any Encumbrances. (g) Full Disclosure. All information which has been provided by or on behalf of Cutera or their authorised representatives to ZO and their advisers or agents in the course of the due diligence conducted by ZO and the negotiations leading to this Agreement is, to Cutera’s knowledge, true, complete and accurate in all material respects and not misleading in any material respect. There is no fact that materially affects, or in the future might reasonably be expected to have a material
adverse effect on the ZO Business that is known by Cutera or any of their Affiliates and that has not been disclosed in writing prior to the First Closing Date by Cutera to ZO. 4.2 Representations and Warranties of ZO. ZO represents and warrants to Cutera as of the First Closing Date and the Second Closing Date as follows: (a) Organization. It is a company duly organized and validly existing under the laws of its jurisdiction of formation, and has all requisite power and authority to own its assets and carry on its business as now conducted and as contemplated under this Agreement. (b) Authorization. All corporate action on the part of itself necessary for the authorization, execution and delivery of this Agreement and for the performance of all of its obligations hereunder has been taken. (c) Consents. No consent, authorization, license, permit, registration or approval of, or exemption or other action by, any Government Authority or any other Person is required in connection with its execution, delivery and performance of this Agreement and for the performance of all of its obligations hereunder. (d) Binding Effect. This Agreement is a valid and binding obligation of it, and this Agreement is enforceable in accordance with its terms, except as such enforceability may be limited by Applicable Laws relating to bankruptcy, insolvency, reorganization, restructuring, moratorium or other similar laws relating to or affecting creditors’ rights generally. (e) No Conflicts or Violations. The execution, delivery and performance by it of this Agreement did not and will not (i) violate or conflict with any rules of a Government Authority affecting or binding upon it, (ii) violate, conflict with or cause a breach under any provision of any indenture, mortgage or contract to which it is a party or result in a breach of
or constitute (with notice or lapse of time or both) a default, which violation, conflict, breach or default would have a material adverse effect on this Agreement, (iii) result in the creation or imposition of any charges on its assets, or (iv) violate, conflict with or cause a breach under its organizational documents. DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 16 - ARTICLE V TERMINATION 5.1 Termination Event. This Agreement may be terminated prior to the Second Closing: (a) by ZO USA, immediately by written notice to Cutera USA, if: (i) an Insolvency Event occurs with respect to Cutera USA or Cutera Japan; or (ii) the Second Closing does not occur within thirty (30) Business Days after the Transition Completion Date and such delay is not caused by ZO or any of their Affiliates; (b) by Cutera USA, immediately by written notice to ZO USA, if an Insolvency Event occurs with respect to ZO USA or ZO Japan; (c) by either ZO USA or Cutera USA, immediately by written notice to the other if any Party receives a notice of any injunction, judgment, order, decree, ruling, verdict or other decision issued, promulgated or entered by or with any Government Authority of competent jurisdiction restraining or prohibiting the consummation of the transactions contemplated by this Agreement, or notice that any of the foregoing is pending or threatened; or (d) if ZO USA and Cutera USA mutually agree in writing to terminate this Agreement, then this Agreement shall terminate on the date mutually agreed by ZO USA and Cutera USA. 5.2 Effect of Termination. If this Agreement is terminated in accordance with ARTICLE V, then all rights and obligations of ZO and Cutera under this Agreement shall end (except for the provisions of ARTICLE II, this Section 5.2, and ARTICLE VI, and, in event of a termination not caused by a breach or default of ZO, Sections 3.3(b)(iii) and (iv), which shall remain in full force and effect in accordance with their terms). ARTICLE VI MISCELLANEOUS PROVISIONS 6.1 Governing Law; Dispute Resolution. (a) This Agreement, and any claim that may arise from or result under this Agreement, whether in
contract, tort, or otherwise, shall be governed by and construed in accordance with the laws of the State of California, United States of America. (b) Any dispute, claim or controversy that arises out of or relates to this Agreement (whether in contract, tort or otherwise), including a dispute with respect to issues regarding or in respect of this Agreement’s negotiation, execution, performance, subject matter, or any course of conduct or dealing or actions under or in respect of this Agreement, shall be submitted to final, binding arbitration under the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with said Rules. The Expedited Procedure Provisions shall not apply. The seat, or legal place, of the arbitration shall be California. The language to be used in the arbitral proceedings shall be English. No award or procedural order made in the arbitration shall be published. The law of this arbitration clause shall be the laws of the State of California, United States of America. 6.2 Notices and Other Communications. DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 17 - (a) Any notice, request, instruction or other document to be given under this Agreement by a Party shall be in writing and in English, and shall be deemed to have been duly given: (i) when received if given in person, (ii) on the date of transmission if sent by facsimile, e-mail or other wire transmission so long as the recipient acknowledges receipt of the message by reply e-mail or other form of written communication (except that return emails automatically generated shall not constitute an acknowledgement or reply); or (iii) three (3) Business Days after it is mailed by certified or registered first class mail, postage prepaid and return receipt requested, or if sent by express delivery service (receipt requested), on the date received by the addressee, to the following addresses (or to such other address for a Party as shall be specified by notice pursuant to this Section 6.2, with such change of address being effective only upon receipt by all Parties): (i) If to ZO USA or ZO Japan: ZO Skin Health, Inc. 9685 Research Drive Irvine, CA 92618 Attention: Drew Bordages, EVP & General Counsel E-mail: dbordages@ZOSkinHealth.com (ii) If to Cutera USA or Cutera Japan: Cutera, Inc. 3240 Bayshore Blvd. Brisbane, CA 94005 Attention: Stephana E. Patton, Chief Legal Officer E-mail: spatton@cutera.com (b) All notices, requests, instructions and other documents shall be deemed received on the date of receipt by the recipient if received prior to 5 PM on a Business Day in the place of receipt. Otherwise, any such notice, request, instruction and other document shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. 6.3 Severability. If any provision in this Agreement is found to be invalid or unenforceable, then the meaning of such provision shall
be construed, to the extent feasible, so as to render the provision enforceable, and if no feasible interpretation would save such provision, then it shall be severed from the remainder of this Agreement, which shall remain in full force and effect unless the severed provision is essential and material to the rights or benefits received by any Party. In such event, ZO USA and Cutera USA shall use their best efforts to negotiate, in good faith, a substitute, valid and enforceable provision or agreement that most nearly corresponds to the spirit and intent of the invalid or unenforceable provision. 6.4 Language and Headings. This Agreement is in the English language only, which language shall be controlling in all respects, and all versions of this Agreement in any other language shall be for accommodation only and shall not be binding upon the Parties. The titles of Articles and Sections of this Agreement are for convenience only and shall not be interpreted to limit or otherwise affect the provisions of this Agreement. 6.5 Further Assurances; Cooperation. The Parties shall each perform such acts, execute and deliver such instruments and documents, and do all such other things as may be reasonably necessary to accomplish the transactions contemplated in this Agreement. 6.6 Expenses. Each Party shall be responsible for its own fees, costs and expenses incurred in connection with the negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby (including the fees, costs and expenses of its legal counsel, accountants, brokers, financial advisors, consultants, and other representatives). DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
- 18 - 6.7 Entire Agreement; Amendments and Waivers. (a) The terms and conditions contained in this Agreement (including the Exhibits and Annexes) constitute the entire agreement among the Parties and supersede all previous agreements and understandings among or relating to the Parties with respect to the subject matter hereof, including the non-binding term sheet, dated January 15, 2024, by and between ZO USA and Cutera USA. The provisions of this Agreement may not be explained, supplemented or qualified through evidence of trade usage or a prior course of dealing. There have been no representations or statements, oral or written, that have been relied on by any Party, except those expressly set forth in this Agreement. (b) Any provision of this Agreement may be amended or waived, but only if such amendment or waiver is in a written agreement specifically prepared for such purpose (and not an e- mail or other electronic communication) and such written agreement is signed (i) by each Party in the case of an amendment, or (ii) by the Party against whom the waiver is to be effective in the case of a waiver (whose consent may be withheld or conditioned at its sole discretion). 6.8 Successors and Assigns. No Party may assign any of its rights or delegate any of its obligations under this Agreement, by operation of Applicable Law or otherwise, without the prior written consent of ZO USA and Cutera USA. This Agreement is binding upon the Parties and shall inure to the benefit of the Parties and their respective successors and permitted assigns. 6.9 Confidentiality and Publicity. (a) The Parties agree to treat this Agreement as confidential and shall not disclose its contents to any third party, except that the contents of this Agreement may be disclosed by a Party (i) to any of its
Affiliates and its and their respective professional advisers and auditors, so long as such Persons agree to the confidentiality provisions of this Section 6.9, or (ii) when disclosure is required under Applicable Law. The Parties agree that copies of this Agreement shall not be publicly filed or otherwise made available to the public, except when such filing is required by Applicable Law, in which case the disclosing Party agrees to use its commercially reasonable efforts to obtain “confidential treatment” (or the equivalent treatment) of this Agreement with the relevant Government Authority and to redact such terms of this Agreement to the extent reasonably practical. (b) Except for the Customer Notification, no Party shall issue a press release or make a public announcement concerning this Agreement without the prior written approval of ZO USA and Cutera USA, which approval shall not be unreasonably withheld, conditioned or delayed; provided, that to the extent a Party is required to make an announcement, disclosure or filing pursuant to any Applicable Law or the rules and regulations of any stock exchange, such Party shall be permitted to do so without an approval of the other Parties; provided, further, that such disclosing Party has consulted with the other Parties in good faith in advance and the other Parties shall be entitled to publicly disclose the same information. 6.10 Counterparts; Effect of Facsimiles or PDFs. This Agreement may be executed by the Parties in multiple counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument. Signatures to this Agreement transmitted by fax, by email in “portable document format” (“.pdf”) or by any other electronic means intended to preserve the original graphic and
pictorial appearance of this Agreement shall have the same effect as physical delivery of the paper document bearing an original signature. All signatures need not be on the same counterpart. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
[Signature Page of Business Transfer and Termination Agreement] IN WITNESS WHEREOF, each Party has caused this Agreement to be duly executed by its authorized representative as of the date first written above. ZO SKIN HEALTH, INC. By: Name: Mark A. Williams Title: CEO & President ZO SKIN HEALTH GK By: Name: Mark Williams Managing Member: ZO Skin Health Ireland Limited Title: Executive Manager CUTERA, INC. By: Name: Title: CUTERA KK By:____________________________________ Name: Title: Representative Director DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB Takeshi Fujiwara CEO Taylor Harris
EXHIBIT A Distribution Agreements 1. Distribution Agreement, dated August 5, 2013, between ZO USA and Cutera USA, in respect of the line of products known as “ZO Skin Health” (the “ZOSH Distribution Agreement,” which was subsequently amended from time to time); 2. Distribution Agreement, dated August 5, 2013, between ZO USA and Cutera USA, in respect of the line of products known as “ZO Medical” (the “ZOMD Distribution Agreement,” which was subsequently amended from time to time); 3. Amendment to the ZOSH Distribution Agreement, with effect from August 21, 2013, between ZO USA and Cutera USA; 4. Amendment to the ZOMD Distribution Agreement, with effect from August 21, 2013, between ZO USA and Cutera USA; 5. Omnibus Amendment to the ZOSH Distribution Agreement and the ZOMD Distribution Agreement, with effect from January 25, 2021, between ZO USA and Cutera USA; 6. Amendment to the ZOSH Distribution Agreement, with effect from June 14, 2021, between ZO USA and Cutera USA; 7. Amendment to the ZOSH Distribution Agreement, with effect from January 1, 2022, between ZO USA and Cutera USA; and 8. Any amendment or restatement of any agreement listed on this EXHIBIT A. DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
EXHIBIT B Target Employees Dept. Name Current title New title proposal Sales Mr. Kazuya Fujii 藤井 和 也 National Sales Manager National Field Sales Manager ナショナル フィ ールドセールス マネージャー Sales Ms. Kyoko Miyama 美山 恭 子 Area Sales Manager Area Sales Manager エリアセールス マネージャー Sales Ms. Satoko Yoshida 吉田 聡 子 Area Sales Manager Area Sales Manager エリアセールス マネージャー Sales Mr. Toru Takei 武井 徹 Area Sales Manager Area Sales Manager エリアセールス マネージャー Sales Ms. Mai Yanagisawa 柳澤 翠 薫 Area Sales Manager Area Sales Manager エリアセールス マネージャー Sales Ms. Sakiko Iwashita 岩下 祥 子 Area Sales Manager Area Sales Manager エリアセールス マネージャー Sales Ms. Minako Inoue 井上 美 奈子 Area Sales Manager Area Sales Manager エリアセールス マネージャー Mgmt Ms. Kaori Mori 森 可央 里 - Sales Assistant セールス アシス タント Contractors: • Mr. Masanori Yamada DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
EXHIBIT C Due Diligence Documents 1. ZO Customer master list including all contact information as of January 15, 2024; 2. Current ZO Customer contracts and Customer contract template(s) as of January 15, 2024; 3. Current ZO Customer order forms as of January 15, 2024; 4. Historical sales data in both quantity and pricing, including discounts, by clinic and by stock keeping unit for 2023; 5. QA Product Information File (PIF: Seihin Hyoujunsho); 6. RA Product Notification to Tokyo Metropolitan Government; 7. RA Formula Translation/Compliance Review Document; 8. data file and hard copy of all brochures, leaflets, and other materials provided to ZO Customers at any time during 2023 (training material, marketing materials, detailing kits, etc.); 9. Data file for all label artwork; and 10. All employment and labor information pertaining to the Target Employees to the extent disclosure to a third party is permissible under Applicable Law. DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
EXHIBIT D Transferred Inventory First Closing Transferred Inventory Sku Description Qty To Keep Location 1003 ? 2048 Yamato 1004 ? 347 Yamato 1005 ? 2583 Yamato 1006 ? 3142 Yamato 3001 ? 322 Yamato 3002 ? 323 Yamato 3003 ? 81 Yamato 3004 ? 61 Yamato 3005 ? 112 Yamato 3006 ? 94 Yamato 193004 PMP 28/410 PP lotion pump - A02 3.5cc 134 Atago 600127 2022 November GWP GBL 1998 Atago 600139 2023 January GWP Japan 360 Atago 600140 2023 February GWP GBL 1337 Yamato 900400 Exfoliating Polish 65g GBL 3560 Atago 900400 Exfoliating Polish 65g GBL 588 Yamato 904000 10% Vitamin C 50mL GBL 2084 Atago 904000 10% Vitamin C 50mL GBL 298 Yamato 904400 Growth Factor Serum 30mL GBL 127 Yamato 905400 Pigment Control CrÃ☐me 4% 80mL US 4746 Atago 905400 Pigment Control CrÃ☐me 4% 80mL US 1209 Yamato 905700 Pigment Control + Blending CrÃ☐me 4% 80mL US 3930 Atago 905700 Pigment Control + Blending CrÃ☐me 4% 80mL US 599 Yamato 906200 Brightalive 50mL GBL 372 Atago 906200 Brightalive 50mL GBL 343 Yamato 912700 Firming Serum 47mL GBL 99 Atago 912700 Firming Serum 47mL GBL 99 Yamato 916100 Balancing Cleansing Emulsion 200mL GBL 96 Atago 916100 Balancing Cleansing Emulsion 200mL GBL 36 Yamato 916900 Sheer Fluid Broad-Spectrum SPF50 50mL INTL 96 Atago 916900 Sheer Fluid Broad-Spectrum SPF50 50mL INTL 23 Yamato 917000 Body Emulsion 240mL GBL 479 Atago 917000 Body Emulsion 240mL GBL 113 Yamato 918300 Eye Brightening CrÃ☐me 15 g / 0.5 OZ GBL 416 Atago 918300 Eye Brightening CrÃ☐me 15 g / 0.5 OZ GBL 180 Yamato 919300 Sunscreen + Primer SPF30 30mL INTL 195 Yamato 919800 Sunscreen + Primer SPF30
75mL INTL 36 Atago 919800 Sunscreen + Primer SPF30 75mL INTL 23 Yamato 928600 Calming Toner 180mL GBL 17359 Atago DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
928600 Calming Toner 180mL GBL 1294 Yamato 930300 Firming Serum Accelerated Kit GBL (6pk) 45 Atago 930300 Firming Serum Accelerated Kit GBL (6pk) 40 Yamato 940600 Broad-Spectrum Sunscreen SPF50 118g INTL 608 Atago 940600 Broad-Spectrum Sunscreen SPF50 118g INTL 293 Yamato 941800 Instant Pore Refiner 29g GBL 120 Atago 941800 Instant Pore Refiner 29g GBL 89 Yamato 950100 Recovery CrÃ☐me 50mL GBL 10268 Atago 950100 Recovery CrÃ☐me 50mL GBL 717 Yamato 950200 Renewal CrÃ☐me 50mL GBL 879 Atago 950200 Renewal CrÃ☐me 50mL GBL 178 Yamato 950300 Retinol Skin Brightener 0.5% 50mL GBL 276 Atago 950300 Retinol Skin Brightener 0.5% 50mL GBL 174 Yamato 950400 Retinol Skin Brightener 0.25% 50mL GBL 503 Atago 950400 Retinol Skin Brightener 0.25% 50mL GBL 456 Yamato 950500 Retinol Skin Brightener 1% 50mL GBL 568 Atago 950500 Retinol Skin Brightener 1% 50mL GBL 344 Yamato 961000 Radical Night Repair 60mL GBL 132 Atago 961000 Radical Night Repair 60mL GBL 176 Yamato 967100 Exfoliating Cleanser 200mL GBL 2340 Atago 967100 Exfoliating Cleanser 200mL GBL 773 Yamato 968600 Hydrating Cleanser 200mL GBL 852 Atago 968600 Hydrating Cleanser 200mL GBL 477 Yamato 969300 Wrinkle + Texture Repair 50mL GBL 565 Atago 969300 Wrinkle + Texture Repair 50mL GBL 129 Yamato 969600 Illuminating AOX Serum 50mL GBL 1438 Atago 969600 Illuminating AOX Serum 50mL GBL 9 Yamato 969700 Daily Power Defense 50mL GBL 5709 Atago 969700 Daily Power Defense 50mL GBL 1364 Yamato 970000 Daily Power Defense 75mL GBL 304 Atago 970000 Daily Power Defense 75mL GBL 103 Yamato 972500 Sunscreen + Powder Broad-
Spectrum Medium 2.7g SPF30 INTL 792 Atago 972500 Sunscreen + Powder Broad-Spectrum Medium 2.7g SPF30 INTL 434 Yamato 973130 Growth Factor Eye Serum 15 mL GBL 351 Atago 973130 Growth Factor Eye Serum 15 mL GBL 161 Yamato 973480 Gentle Cleanser (Bundle) 88 Yamato 973600 Gentle Cleanser 200mL GBL 1507 Atago 973600 Gentle Cleanser 200mL GBL 235 Yamato Inventory from PO numbers 317, 318MA, 319 and 320MA, not yet reflected in Atago’s inventory system: Row Labels Sum of Qty Shipped 2/7/2024 4426 SO1469115 4426 PO #317 and #318MA 4426 830032-02 1 DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
906200 2268 918300 324 930300 45 940600 972 968600 816 2/13/2024 60271 SO1475288 60271 PO #319 and #320MA 60271 193004 80 900400 1728 904000 1944 904400 504 905400 7080 905700 3360 906200 2052 912700 504 917000 156 918300 432 919300 1548 919800 25 928600 7776 930300 54 940600 972 941800 396 950100 12096 950200 688 950300 900 950400 864 950500 36 961000 108 967100 3072 968600 2080 969300 504 969700 9072 970000 264 973130 360 973230 80 973600 1536 2/16/2024 324 SO1479641 324 Overshipped 906200 // PO #319 #320MA 324 906200 324 Grand Total 65021 Second Closing Transferred Inventory [ ] [ ] [ ] [ ] All other sellable inventory of ZO Products owned by Cutera that is not included in the First Closing Transferred Inventory. DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
EXHIBIT E Transferred Assets • Accounts payable with respect to orders placed by Cutera from ZO on or after January 2, 2024 • SIM card from the Cutera mobile phone of each Transferring Employee; provided, however, that following the First Closing Date, ZO will promptly transfer the accounts for the phone numbers associated with such SIM cards from Cutera to ZO Japan and, after the First Closing Date, ZO will be fully responsible for all charges attributable to the phone numbers associated with such SIM cards • ZO Customer master list, including all Customer contact information and rights in the underlying Customer data held by or on behalf of Cutera and utilized in the ZO Business; provided, however, that Cutera retains the right to use all such customer data in Cutera’s ongoing business • All filings, records, and reports with respect to the ZO Business or the ZO Products held by Cutera, including all ZO Product registrations and dossiers, regulatory filings and QA product information files • All records, performance reviews, disciplinary action findings, and whistle blower reports related to the ZO Business held by Cutera relating to or involving the Transferring Employees • Rights in and to any other assets held by or on behalf of Cutera that are used exclusively in the ZO Business DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
ANNEX A Cutera Account DOMESTIC WIRE TRANSFER Instruct the paying financial institution or the payor to route all domestic wire transfers via FEDWIRE to the following ABA number: PAY TO SVB, a division of First-Citizens Bank 3003 TASMAN DRIVE, SANTA CLARA, CA 95054 ROUTING & TRANSIT # 121140399 FOR CREDIT OF: CUTERA INC ADDRESS: 3240 BAYSHORE BOULEVARD, BRISBANE CA 94005 CREDIT ACCOUNT # 3300101624 INTERNATIONAL WIRE TRANSFER Instruct the paying financial institution to advise their U.S. correspondent to pay as follows: PAY TO SILICON VALLEY BANK 3003 TASMAN DRIVE, SANTA CLARA, CA 95054, USA ROUTING & TRANSIT # 121140399 SWIFT CODE SVBKUS6S FOR CREDIT OF: CUTERA INC ADDRESS:3240 BAYSHORE BOULEVARD, BRISBANE CA 94005 FINAL CREDIT ACCOUNT # 3300101624 IMPORTANT: Wire instructions MUST designate your FULL TEN-DIGIT ACCOUNT NUMBER. Wires received by Silicon Valley Bank, a division of First-Citizens Bank with INCOMPLETE or INVALID ACCOUNT NUMBERS may be delayed and could possibly require return to the sending bank due to new regulations. DocuSign Envelope ID: AA34735C-CA62-4A7F-881F-2C0DD3EC62DB
CONFIDENTIAL Execution Version Page 1 of 26 SETTLEMENT AGREEMENT This Settlement Agreement (the “Agreement”) is made and entered into this 28th day of, February 2024 (“Effective Date”), by and between Cutera, Inc., on behalf of itself and its affiliated and subsidiary companies and divisions, predecessors, successors, assigns and all other related entities (collectively “Cutera”) and Jabil Inc., of itself and its affiliated and subsidiary companies and divisions, predecessors, successors, assigns and all other related entities (collectively “Jabil”). Cutera and Jabil may be referred to herein collectively as the “Parties” and individually as “Party”. WHEREAS, Jabil and Cutera entered into the Manufacturing Service Agreement, dated March 10, 2021 (“MSA”); WHEREAS, pursuant to the MSA, Jabil performed certain Manufacturing Services for the benefit of Cutera, including without limitation the manufacture of Products and the purchase of Components to be used in the manufacture of Products; WHEREAS, pursuant to the MSA, Cutera agreed to undertake specified obligations including, without limitation, the obligation to pay Jabil for Products manufactured as well as for certain raw materials and components Jabil procured for the manufacture of Cutera’s Products pursuant to Cutera’s issued Forecasts. WHEREAS, the Parties are agreeing that the MSA was not being renewed by Cutera and Jabil has ceased the manufacture of Products on behalf of Cutera (“Termination”); WHEREAS, while the Parties acknowledge that as a result of Termination, there are outstanding balance amounts Cutera owes Jabil under the MSA and Jabil owes Cutera (collectively “Amounts Owed”) the Parties did not agree on the exact balance each Party owed the other (the “Dispute”); and WHEREAS, in lieu of the expense and time involved in litigation, the Parties have agreed to the resolution, compromise and settlement of the Dispute as well as all other dispute
and differences related to the Amounts Owed, any identified Inventory and the Termination. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and for other good and valuable consideration, the sufficiency and adequacy of which is expressly acknowledged by the Parties’ signatures affixed herein below and the receipt of all such consideration is hereby acknowledged, the Parties agree hereto a full and final settlement between the Parties as follows: SETTLEMENT TERMS The foregoing recitals are incorporated herein by reference as if fully set forth herein at length. 1. Definitions. Capitalized terms used in this Agreement, including any of the above recitals, will have the applicable meanings set forth in the MSA, unless otherwise defined in this Agreement. 2. Settlement Terms. A. Payments. a. Payments to Jabil. Upon the execution of this Agreement, Cutera shall owe to Jabil the amount of nineteen million, four hundred fifty thousand United States Dollars ($19,450,000.00 USD) (hereinafter the “Settlement Amount”), which Cutera shall remit payment of Eighteen Million, Seven Hundred Thousand United States Dollars ($18,700,000.00 USD) (“First Jabil Payment”) and ensure that the First Jabil Payment is received by Jabil no later than noon (U.S. Eastern Time) on February 29, 2024. No later than 5:00 pm (U.S. Pacific Time) on the day three days after Purchased Assets (as defined below in Section 2.D), have been received by Cutera and a full reconciliation has been conducted pursuant to Section 2.B below, Cutera shall pay seven hundred
CONFIDENTIAL Execution Version Page 2 of 26 fifty thousand United States Dollars ($750,000.00 USD) less any True-Up Amount (as defined in Section 2.B.) (“Final Jabil Payment”). b. Payments to Cutera. No later than 5:00 pm (U.S. Pacific Time) on March 15, 2024, Jabil shall issue a payment to Cutera in the amount of One Million, Three Hundred Thousand, United States Dollars ($1,300,000.00 USD). B. Inventory Disposition. Upon payment of the Settlement Amount, the Parties agree that Jabil hereby irrevocably sells, assigns, transfers, conveys, grants bargains, and delivers to Cutera, all of its right, title, and interest in and to the assets listed in Attachment 1 to this Agreement (“Purchased Assets”). Incoterms 2020 “EXW” (Ex Works) will apply to the shipment of the Purchased Assets and will be deemed delivered in accordance thereto. Cutera shall arrange for a courier to pick up the Purchased Assets from Jabil’s facilities no later than 4:00 pm April 26, 2024 (local time to Jabil’s facility). Cutera may request a delay in pick-up after April 26, 2024, provided that any extension must be mutually agreed upon in writing. For the avoidance of doubt, once the First Jabil Payment has been received by Jabil, title to the Purchased Assets will transfer to Cutera and thereafter held by Jabil in consignment until Cutera arranges for its removal from Jabil’s facility in accordance with the foregoing. Cutera will be responsible for all costs associated with transporting the Purchased Assets to Cutera’s desired location. Cutera may, before the removal of the Purchased Assets from Jabil’s facility, conduct a count of the Purchased Assets to ensure such Purchased Assets are present. Cutera shall conduct a count of all Purchased Assets received at the facility designated by Cutera and the Parties shall conduct a reconciliation of the items received to the inventory list included in Attachment 1. Jabil has a right to be present for the count and reconciliation at Cutera’s
facilities, and Cutera shall permit representatives from Jabil to be present for such count and reconciliation. Jabil shall cooperate with the reconciliation and provide all reasonable documentation to verify the Purchased Assets in Attachment 1. If, during such count and reconciliation thereof to the inventory list of Purchased Assets found in Attachment 1, there is a discrepancy in the quantity of the Purchased Assets, received by Cutera from what is identified in Attachment 1, or a discrepancy in the valuation of the Purchased Assets, then Jabil shall true-up Cutera for the amount of missing Purchased Assets or valuations thereof (“True-Up Amount”). For the avoidance of doubt, Final Jabil Payment and the True-up Amount shall not be affected if any quantity of Purchased Assets are lost or damaged during transit to Cutera’s facility. Cutera shall complete any such count and reconciliation within thirty (30) business days from the receipt of the last of the Purchased Assets into Cutera’s facilities, provided that Cutera shall not purposely delay its receipt of such Purchased Assets. In accordance with the foregoing, Cutera may deduct the True-Up Amount from the Final Jabil Payment, and any remaining amounts, if any, will be paid to Cutera by Jabil no later than 5:00 pm (U.S. Pacific Time) on the day three days after all of the Purchased Assets, have been received by Cutera and a full reconciliation has been conducted by Cutera. For the avoidance of doubt, Cutera shall not owe more than the Settlement Amount. THE PURCHASED ASSETS ARE PROVIDED “AS IS” AND JABIL PROVIDES NO WARRANTY OF ANY KIND TO CUTERA, OR TO ANY OTHER PARTY, AND EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. D. Equipment and Consigned Disposition. Pursuant to the MSA, Cutera supplied certain Loaned Equipment, Molds, and/or Automation, each as
defined in the MSA, Purchased Assets, together with Loaned Equipment, Molds, and/or Automation, may be referred to here as “Cutera Assets”. Cutera shall arrange, at its cost, for the Loaned Equipment, Molds, and/or Automation to be collected, packaged, and removed from Jabil’s or its supplier’s facilities. Cutera will be responsible for all costs associated with transporting such Loaned Equipment, Molds, and/or Automation to Cutera’s desired location. Cutera shall arrange for the collection, packaging, and removal of such Loaned Equipment, Molds, and/or Automation to take place no later than April 26, 2024. For the avoidance of doubt, Jabil has already loaded Cutera Assets onto pallets, and Cutera may, prior to shipment of Cutera Assets and no later than two weeks from the Effective Date, determine additional packaging may be needed, at its cost with its carriers. C. Termination. The Parties hereby agree that the MSA and any executed quality agreement between the Parties or their respective affiliates related to the Products are hereby terminated as of the Effective Date, except for the following Sections of the MSA which shall survive the Termination except as specifically modified in this Agreement: Section 1 (Definitions), Section 7 (Limitation of Damages), Section 14 (Confidentiality), Section 15 (Intellectual Property Rights), Section 16 (Indemnification), and Section 19 (Publicity). The Parties agree that this Section 2.C. of the Agreement shall supersede Section 12 of the MSA and that only the provisions of the MSA expressly referenced herein shall survive and will continue to bind the Parties. Notwithstanding the foregoing, the Parties’ respective indemnification obligations outlined in Section 16 of the MSA shall survive termination of the
CONFIDENTIAL Execution Version Page 3 of 26 MSA. For the avoidance of doubt, Jabil has already returned the device history file to Cutera and is no longer obligated to retain any further records under any such quality agreements. D. Release. In exchange for the payment of the Settlement Amount outlined in Section 1 above and for other valuable consideration, the receipt and adequacy of which is hereby acknowledged, upon execution of this Agreement, except as to the obligations set forth in this Agreement, Jabil and Cutera each hereby fully and forever automatically and irrevocably expressly release, acquit and forever discharge each other, and their past and present subsidiaries, parent companies, affiliates and distributors or brokers, as well as their past and present employees, officers, directors, stockholders, attorneys, successors and assigns and concessionaires (collectively the “Released Parties”) from any and all actions, causes of action, claims or demands, liabilities, losses, damages, attorneys’ fees, court costs, or any other form of claim or compensation for claims or liability, whether known or unknown, which a Released Party now has or may hereafter have against the other, including but not limited to that which relates to or arises from, based on the facts presented, could have been brought before the Effective Date in connection with or in any way relating to the MSA, Dispute, the Amounts Owed, the Termination, and the Purchased Assets (“Released Claims”), provided, however, that Jabil and Cutera do not release each other from any claims that they may bring under this Settlement Agreement, or are unrelated to the Released Claims. The Parties mutually and expressly acknowledge and agree that this Agreement fully and finally releases and fully resolves their respective Released Claims, including those that are unknown. The Parties mutually and expressly waive all of their rights under California Civil Code §1542, which provides
that: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR (“UNKNOWN CLAIMS”). The Parties also mutually and expressly waive all rights under any other statutes, legal decisions, or common law principles of similar effect. 3. No Admission. Nothing in this Agreement constitutes nor shall be deemed to constitute an admission of outstanding balance, wrongdoing, liability, or fault by any party and such liability or wrongdoing is expressly denied and disputed, and the Parties hereto agree that legal liability and damages for all claims are disputed by the persons and Parties released herein, and this release is a compromise and shall never be treated as an admission of liability or responsibility at any time for any purpose. 4. Governing Law, Venue, Fees, and Jurisdiction. This Agreement shall be governed and construed in accordance with Florida law without resort to its conflicts of law provisions. The Parties agree that all disputes and matters whatsoever arising under, in connection with, or incidental to this Agreement shall be litigated, if at all, in and before the United States District Court for Delaware (or as to those lawsuits to which the federal courts of the United States lack subject matter jurisdiction, before a court located in Wilmington, Delaware) to the exclusion of the courts of any other state, territory or country. The Parties hereby consent to such jurisdiction and waive any venue or other objection that either may have to any such action or proceeding being brought in the applicable court in Wilmington, Delaware. In any litigation arising out of, or relating to, this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees and
costs. 5. Jury Trial Waiver. EACH PARTY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHT WHICH SUCH PARTY HAS OR MAY HAVE TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM, LITIGATION, OR PROCEEDING BASED ON OR ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR FROM THIS AGREEMENT OR ANY DOCUMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT, INCLUDING, BY WAY OF EXAMPLE BUT NOT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, VERBAL OR WRITTEN STATEMENTS, OR ACTS OR OMISSIONS OF ANY PARTY THAT IN ANY WAY RELATE TO THIS AGREEMENT OR OTHER SUCH DOCUMENT. FURTHERMORE, EACH PARTY AGREES THAT SUCH PARTY WILL NOT SEEK TO CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. THE PARTIES HAVE
CONFIDENTIAL Execution Version Page 4 of 26 SPECIFICALLY DISCUSSED AND NEGOTIATED FOR THIS WAIVER, INTEND THAT IT BE GIVEN THE BROADEST POSSIBLE EFFECT ALLOWED BY DELAWARE LAW, AND UNDERSTAND ITS LEGAL CONSEQUENCES. 6. Modification. No modification, amendment, termination, or waiver of this Agreement shall be valid unless made in writing and signed by the Parties hereto. 7. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. If any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, said provision shall be ineffective only to the extent of said prohibition or invalidity, and said prohibition or invalidity shall not invalidate the remainder of said provision or any other provision of this Agreement. 8. Entire Agreement. This Agreement contains the entire agreement and understanding among the Parties with respect to the terms and conditions contemplated hereunder. This Agreement is the complete, final, and exclusive statement of those terms and conditions notwithstanding any prior agreements, representations, or statements to the contrary, except as expressly herein provided to the contrary. The Parties further agree and acknowledge that this Agreement is unconditional and that no promise or inducement has been made or offered except as set forth herein. 9. No Precedent. The Parties warrant, represent, covenant, and agree that the terms, provisions, agreements, covenants, conditions, warranties, representations, and considerations set forth in this Agreement are without precedential value, and are not intended to be, nor shall they be, construed as an interpretation of any provision of any agreement between the Parties or any governing terms and conditions between the Parties, their predecessors, parents, subsidiaries, and/or its affiliates. No
shall the terms, provisions, agreements, covenants, conditions, warranties, representations, and considerations set forth in this Agreement, including all communications and negotiations relating thereto, be used as evidence, or be admissible in any other manner, in any court, suit, action or other dispute resolution proceedings, to create, prove, or interpret the obligations of the Parties related hereto, except as shall be necessary to enforce the terms of this Agreement. 10. Headings. The headings in this Agreement are for reference purposes only and shall not be used in construing or interpreting this Agreement. 11. Authorship. Both Parties actively participated in the drafting of this Agreement and will be deemed to have drafted the Agreement jointly. No inference or presumption of authorship shall exist as to its meaning or interpretation and no rule of construction will be applied against either Party, and any potential uncertainty or ambiguity will not be construed for or against either Party based upon attribution of drafting to either party. 12. Confidentiality. This Agreement and all of its terms and conditions, including its existence, shall remain confidential and shall not be disclosed to anyone except as follows: (a) As necessary to effectuate and/or enforce this Agreement; (b) To Jabil's or Cutera's employees, attorneys, accountants, insurers, auditors, and tax advisors, as necessary; (c) To Cutera’s or Jabil’s insurance carriers; (d) As required by law, including filings required by the SEC; or (e) By written, mutual agreement of the Parties. Any unauthorized disclosure by either Party shall be presumed to cause harm that may be redressed in a damage action as provided by law. 13. Power and Authority. Each Party represents and warrants to the other Party that it has the power and authority to enter this Agreement and perform the terms hereof, and that the person executing this Agreement on behalf of the Party has the authority to enter this Agreement and to bind
the Party hereto. 14. Legal Representation. The undersigned hereby represent that they have read this Agreement in its entirety and have been represented by legal counsel throughout the negotiation of this Agreement. Each Party further acknowledges that it and its counsel have had adequate opportunity to make whatever investigation or inquiry they may deem
CONFIDENTIAL Execution Version Page 5 of 26 necessary or desirable in connection with the subject matter of this Agreement prior to the execution hereof and the delivery and acceptance of the consideration specified herein. 15. Counterparts. This Agreement, together with any amendment thereto, may be executed in one or more counterparts, each of which shall be deemed an original agreement, but all of which, taken together, shall constitute one and the same Agreement. 16. Separate Fees. The Parties shall each bear their respective costs and fees with respect to the preparation and negotiation of this Agreement. By signing below, each Party represents and warrants that such execution is duly authorized by all necessary and appropriate corporate or other action, is duly executed by, or on behalf of, such Party, and such Party is legally bound by all the terms and conditions of this Agreement.
CONFIDENTIAL Execution Version Page 6 of 26 IN WITNESS WHEREOF, the Parties hereto have executed this Settlement Agreement as of the day and year first written above. CUTERA, INC. By: ________________________________ Print name: Taylor Harris Title: CEO Date: ________________________________ JABIL INC. By:________________________________ Print name: __________________________ Title: ________________________________ Date: ________________________________ Feb 28, 2024 VP, Global Business Units James O'Gorman Feb 28, 2024
CONFIDENTIAL Execution Version Page 7 of 26 Attachment 1 to Settlement Agreement
Jabil Baja Cutera Materials Item Description Unit price QTY AMOUNT Cancel Fee CPN3008731 Diode Laser Module, 1726.9nm, 100W, #8 S 13,209.00$ 195 2,575,755.00$ -$ CPN3008371 Weight, Narrow, Counter Balance, .06 Thk $ 13.76 12207 $ 167,968.32 -$ CPN1005202 CW Laser Diode Driver 640.00$ 757 484,480.00$ -$ CPN7002711 ASM, Fiber Coupled LASER, Alice 19,811.10$ 22 435,844.23$ -$ CPN3008528 ASM, FRAME, G3, ALICE 604.95$ 495 299,450.25$ -$ CPN1005308 PUMP, KNF, DC-BRUSHLESS, 24V, 4-WIRE 399.15$ 739 294,971.85$ -$ CPN3005013 CABLE ASM, KYSW, EMERG SW-AC PWR 111.29$ 2409 268,089.18$ -$ CPN1005307 PSU, 24V, 1500W, Cosel PCA1500F-24-F2 436.19$ 530 231,180.38$ -$ CPN7002712 PCBA, LASER THERMAL CONTROLLER 816.85$ 270 220,549.50$ -$ CPN3008334 Pole, Alice 277.87$ 703 195,342.61$ -$ CPN7002728 PCBA, DISPLAY ADAPTER 588.15$ 300 176,445.00$ -$ CPN1003184 CASTER, 3IN, TWIN, 3/8-16 X 3/4 15.20$ 10427 158,490.40$ -$ CPN3008044 PUMP, HP cooling 62.00$ 2439 151,218.00$ -$ CPN7002750 PCBA, AC CONTROL, ALICE 480.79$ 294 141,352.26$ -$ CPN7004333 PCBA Display IoT DVI and DF9 1,000.84$ 132 132,110.88$ -$ CPN1005260 POWER LINE FILTER, 20A 250V, M4 Studs 45.41$ 2398 108,884.55$ -$ CPN7002729 PCBA, HUMIDITY 760.32$ 138 104,924.16$ -$ CPN3008583 Heatsink, Laser, Alice 485.00$ 183 88,755.00$ -$ CPN3008182 Cable ASM, laser, TEC, Alice 85.00$ 1041 88,485.00$ -$ CPN7000418 ASS'Y., PCBA, FOOTSWITCH LEMO 57.68$ 1510 87,096.80$ -$ CPN3008768 SHIPPING BOX, CORRUGATED, AviClear 421.14$ 206 86,754.84$ -$ CPN3008271 Skin, Side, EMI, Alice 92.00$ 937 86,204.00$ -$ CPN3007206 MOUNT, LBO, TEC 155.40$ 535 83,139.00$ -$ CPN3007164 CRYSTAL, LBO, 50 deg C 790.00$ 105 82,950.00$ -$ CPN3007275 FRAME, CONSOLE, EV
427.80$ 189 80,854.20$ -$ CPN7002737 Bracket, Display to Console, Alice 1,474.76$ 53 78,162.43$ -$ CPN3008261 TIM, Thermal Interface Material, Alice 1.64$ 45989 75,329.98$ -$ CPN3003458 CABLE ASM, FLOW SWITCH, EV 64.67$ 1056 68,286.24$ -$ CPN3006504 MIRROR FLAT HR AT 532NM 1064NM EV 222.00$ 307 68,154.00$ -$ CPN1003191 Q-SW, AO, 1064NM, 4MM, 1GW 702.00$ 95 66,690.00$ -$ CPN1003167 FTG, COUPLING INSERT, 1/4 TUBE 16.11$ 4133 66,582.63$ -$ CPN3008047 Display, TFT LCD Panel, Alice 375.00$ 176 66,000.00$ -$ CPN3007205 COVER, LBO, EV 100.04$ 604 60,424.16$ -$ CPN7002613 PCBA EV3 POWER MONITOR OPTO 256.39$ 235 60,251.65$ -$ CPN3006773 HEATSINK ASM EV2 109.55$ 526 57,621.83$ -$ CPN3008272 Skin, Side, EMI, Alice 92.00$ 612 56,304.00$ -$ CPN7002900 PCBA Main Controller Avi 808.62$ 60 48,517.20$ -$ CPN7002739 SUB ASM, FLOWER POT CONN, FRAME, ALICE 249.00$ 186 46,314.00$ -$ CPN1005293 Power Entry Connector Receptacle, Male B 30.95$ 1452 44,934.32$ -$ CPN7002734 ASM, Terminal Block, Alice 238.00$ 188 44,744.00$ 40,438.68$ CPN3008146 HANDLE REAR BAR. 75 IN AL, Alice 65.50$ 683 44,736.50$ -$ CPN5100RBN Ribbon 2.5" UDI 3.43$ 12748 43,751.14$ -$ CPN3008729 HEATSINK, DEHUMIDIFIER, TESTED 218.24$ 198 43,211.52$ 7,155.00$ CPN1003503 DISPLAY, LED TFT-LCD W LED BACK LT 136.89$ 303 41,478.58$ -$ CPN1005200 Radiator/Heat Exchanger, Alice 74.77$ 548 40,973.96$ -$ CPN3008269 CABLE ASSY, ALICE SPEAKER 30.00$ 1315 39,450.00$ -$ CPN3002731 TRANSFORMER, TOROIDAL 321.12$ 121 38,855.52$ -$ CPN1005752 Noise Muffler Air Purifier 1/8 NPT Male, 90.00$ 430 38,700.00$ -$ CPN370005664 TUBING, HEAT SHRINK .125 0.97$ 39855 38,615.51$ -$ CPN3006588 HOUSING, LBO, EV 151.38$ 252 38,147.76$ -$
CPN1003151 MOTOR, STEP, 4:1, 25A 186.32$ 201 37,449.86$ -$ CPN3008428 Cable ASM, Extrusion Dehumidifier, TEC, 35.00$ 1060 37,100.00$ -$ CPN3008248 CABLE ASM, laser diode driver to laser p 39.00$ 936 36,504.00$ -$ CPN3007697 XENON LAMP, PULSED 174.00$ 205 35,670.00$ -$ CPN750005563 WIRE 10 AWG RED 18.00$ 1919.6 34,552.80$ -$ CPN147005355 REFLECTOR, CERAMIC, 5 IN ROD 249.55$ 137 34,188.35$ -$ CPN3008256 CABLE ASM, FIBER ID, ALICE 8" 41.00$ 816 33,456.00$ -$ CPN7002596 ASM, FRAME, EV3 11,070.15$ 3 33,210.46$ -$ CPN7002588 ASM, LASER CAVITY, EV3 2,254.64$ 14 31,564.95$ -$ CPN3004901 CABLE ASM, PURGE PUMP, EN 177.16$ 173 30,648.68$ -$ CPN7002185 ASM, LBO HOUSING, EV2 2,750.25$ 11 30,252.74$ -$ CPN1005444 WASHER, BELLEVILLE, #8, .344"OD X .045HT 3.84$ 7808 29,982.72$ -$ CPN3002620 BASE PLATE, LASER, EV 221.76$ 135 29,937.60$ -$ CPN1005919 CONNECTOR, ORIFICE, 0.0039, 1/4 OD 36.08$ 800 28,862.08$ -$ CPN3008504 MOUNT, HEATSINK, DEHUMIDIFIER, ALICE 16.70$ 1625 27,137.50$ -$ CPN7002814 ASM, PSU, COSEL, ALICE 1,505.32$ 18 27,095.69$ -$ CPN3008741 CABLE ASM, DOUBLE FAN , 2 WIRE, ALICE 146.00$ 183 26,718.00$ -$ CPN7002591 VASCULAR HANDPIECE EV3 3,194.55$ 8 25,556.44$ -$ CPN1000521 SWITCH,EMER PUSHBUTTON (MUSHROOM) 9.26$ 2756 25,528.83$ -$ CPN3002307 MIR FLAT HT 1064 HR-532 113.00$ 224 25,312.00$ -$ CPN3008160 Cover, Front, Console, EV2 112.00$ 222 24,864.00$ -$ CPN3002775 Shipping Crate, Cardboard, EV Cart 476.42$ 52 24,773.84$ 8,100.00$ CPN3008246 CABLE ASM, power supply to terminal bloc 22.00$ 1099 24,178.00$ 2,294.61$ Confidential Execution Version Page 8 of 26 12,249,323.77$ $ 244,806.07
CPN3008605 Cover, Front, Console, Alice 101.80$ 234 23,821.20$ -$ CPN3006498 END BLOCK, ROD/LAMP, .390 DISTANCE, EV3 103.63$ 229 23,731.27$ -$ CPN7000669 PCBA, HALL EFFECT, SENSOR ID 15.95$ 1458 23,255.10$ -$ CPN3007234 COVER, BACKPACK, CONSOLE, EV2 122.00$ 186 22,692.00$ -$ CPN3002767 CABLE ASM, HP COMM, GV 52.89$ 748 22,636.92$ -$ CPN3008647 Base, Fiber Connector, Alice 33.50$ 671 22,478.50$ -$ CPN3008247 CABLE ASM, power supply to terminal bloc 22.00$ 1019 22,418.00$ 2,294.61$ CPN1005549 USB TYPE A COUPLER, FEMALE BULKHEAD / LA 13.23$ 1695 22,416.38$ -$ CPN1005601 Inline Filter for 1/4" Tube ID, AviClear 24.50$ 913 22,371.88$ -$ CPN3008258 CABLE ASM, EMI FILTER TO GND, ALICE 10.00$ 2198 21,980.00$ -$ CPN3008274 Skin, Side, Bottom, EMI, Alice 26.50$ 825 21,862.50$ -$ CPN7002585 FINAL ASM, EV3 21,364.68$ 1 21,364.68$ -$ CPN1003196 MOTOR, MIRCO, 24VDC, PRELOAD BB 90.80$ 235 21,338.00$ -$ CPN3008543 Mount, FC Laser, Alice 42.20$ 495 20,889.00$ -$ CPN1005755 Mount, Isolator, Lord Plateform, 100PDL- 4.95$ 4203 20,794.76$ -$ CPN3002326 MIRROR, FLT, HR 99.00$ 207 20,493.00$ -$ CPN1000062 TOUCH SCREEN ANALOG RESISTIVE 85.88$ 238 20,439.44$ -$ CPN7002210 GREENGENESIS HANDPIECE 1,692.66$ 12 20,311.88$ -$ CPN7002745 ASM, OPTICAL FIBER CON, ALICE 848.13$ 23 19,507.01$ -$ CPN3008115 Cable, Ribbon, 30 pin, Laser thermal con 15.00$ 1293 19,395.00$ -$ CPN7002611 ASM, TOP COVER, EV3 2,151.85$ 9 19,366.66$ -$ CPN3007117 BODY OPTICS ASSEMBLY HANDPIECE EV2 43.80$ 442 19,359.60$ -$ CPN7002184 ASM, LBO, EV2 1,603.99$ 12 19,247.93$ -$ CPN3002634 PUMP, DIAPHRAGM, 24VDC, 50PSI 93.00$ 205 19,065.00$ -$ CPN3007856-FA ND FILTER ND210B INTO 1.00” X 0.50" 67.78$ 280 18,978.40$
-$ CPN380005015 HEAT EXCHANGER 90.00$ 210 18,900.00$ -$ CPN3008509 Cover, Rear, Console, Alice 106.85$ 176 18,805.60$ -$ CPN3008145 SUPT HANDLE REAR BAR. 5IN AL, Alice 25.50$ 721 18,385.50$ -$ CPN3002525 CORDWRAP, CONSOLE, EV 14.00$ 1283 17,962.00$ -$ CPN3008042-FA OPTICAL FIBER INTERFACE CONNECTOR, ALICE 34.41$ 510 17,549.10$ -$ CPN3008263 Cable, Ribbon, 14 pin, Laser thermal con 22.00$ 790 17,380.00$ 7,047.70$ CPN3008848 Mount, Control Bd & Dehumidifier, AV 34.60$ 483 16,711.80$ -$ CPN3008041 SMA RECEPTACLE ADAPTER, ALICE 58.00$ 286 16,588.00$ -$ CPN3008349 BUS BAR, GROUNDING 18.05$ 905 16,335.25$ -$ CPN3000500 CABLE ASS'Y., KEYSWITCH, TT 87.34$ 186 16,245.24$ -$ CPN3008435 Hsg, Left, Console, Alice 76.23$ 213 16,236.99$ -$ CPN3008436 Hsg, Right, Console, Alice 76.23$ 213 16,236.99$ -$ CPN552005697 EMI RFI POWER LINE FILTER 59.36$ 269 15,968.92$ -$ CPN3007924 CABLE ASM, MEZZ-FP, CONSOLE, EV3 62.30$ 244 15,201.20$ -$ CPN1003227 CABLE ASM, USB, MINI A - MINI B 15.23$ 987 15,032.01$ -$ CPN3008333 CABLE ASM, AC PWR PCB TO EMI filter, lug 13.00$ 1147 14,911.00$ 1,779.63$ CPN1005276 CABLE ASSY HD15 SHLD BLK 3 ft 6.12$ 2422 14,827.24$ -$ CPN3008542 SKIN, FRONT, EMI, ALICE 79.45$ 185 14,698.25$ -$ CPN3008638 Insert, Mast Hub, Alice 70.00$ 209 14,630.00$ -$ CPN3002552 CABLE ASM, CIR BRKR, ILLUM, GRN 60.18$ 241 14,503.38$ -$ CPN3008154 CONNECTOR PLATE, ALICE 30.50$ 475 14,487.50$ -$ CPN1005110 O-RING, 1.29MM 6.32MM FFKM 70A CLR-TRNSL 26.53$ 545 14,458.85$ -$ CPN3001887 CABLE ASM, WATER SENSOR, TS 70.00$ 205 14,350.00$ 29,508.26$ CPN1004333 TBG, 1/4ID X 3/8OD, FEP (LENGTH:2FT) 9.11$ 1573 14,323.42$ -$ CPN5168RBN Ribbon 5.5" UDI 0.10$ 143208.84
14,320.88$ -$ CPN3008123 Cable ASM, Fan, PS, Alice 35.00$ 406 14,210.00$ 8,318.00$ CPN3002885 CABLE ASM, DISPLAY MEZZ-FP, CONSOLE 55.40$ 250 13,850.00$ -$ CPN7002870 ASM, Humidity Sensor, Alice 1,064.74$ 13 13,841.66$ -$ CPN7002592 ASM, FIBER FOCUS, EV3 765.36$ 18 13,776.43$ -$ CPN1003502 FTG CPLG BODY 1/4" X 3/8"T 10.22$ 1347 13,766.34$ -$ CPN1003489 FTG CPLG BODY 1/4" X 1/4"T 10.16$ 1348 13,695.68$ -$ CPN3002297 Window, Pick-off, 532nm, 1064nm 103.00$ 130 13,390.00$ -$ CPN280005206 SOLENOID SAFETY SHUTTER 57.56$ 230 13,238.80$ -$ CPN3008411 Mtg. Bracket, Laser Unit, Alice 26.80$ 486 13,024.80$ -$ CPN1004488 LENS ACHROMATIC 20MM DIA 40MM FL 56.00$ 230 12,880.00$ -$ CPN3008744 FOAM PAD KIT, DEHUMIDIFIER, AVICLEAR 41.80$ 296 12,372.80$ 1,500.00$ CPN7000681 PCBA, MEZZANIN, DISPLAY, RF 63.75$ 189 12,048.75$ -$ CPN3003250 BODY, SMA HOUSING, EV 25.64$ 469 12,025.16$ -$ CPN3006619 RF LASER COVER ASSEMBY, LBO 86.86$ 138 11,986.96$ -$ CPN3002370 NUT, .14 X 20.8, MOD 55.58$ 204 11,337.85$ -$ CPN3008512 Clamp, Dish Pan, Console, Alice 7.95$ 1413 11,233.35$ -$ CPN3008462 Cable ASM, Air Pump, Pwr and Ctl, AL 25.00$ 449 11,225.00$ 324.24$ CPN0602440 Clear packaging tape 72mm width 0.13$ 85529 11,118.82$ -$ CPN3002318 MIRROR, OC, 1064NM 93.00$ 116 10,788.00$ -$ CPN3002320 MIR CONC R-100CM HR 118.00$ 91 10,738.00$ -$ CPN3008313 Bottle, Reservoir, 500 ml, Alice 49.00$ 216 10,584.00$ 27,838.75$ CPN1005614 STDF, M/F, 1/4HEX X 15/32LG, 8-32, SS 2.15$ 4912 10,577.99$ -$ CPN7000701 PCBA, SAFETY SHUTTER BOARD, EV 66.16$ 158 10,453.28$ -$ CPN3002445 UMBILICAL, MONOCOIL, 0.32OD 10.61$ 984 10,440.24$ -$ CPN7002136 ASM, Q-SWITCH, EV 1,043.21$ 10 10,432.10$ -$ CPN3008448 Cable ASM,
Humidity Sensor, Alice 15.00$ 684 10,260.00$ 898.48$ CPN3008267 CABLE ASM, Interlock ALICE 12.00$ 840 10,080.00$ -$ CPN7000687 PCBA, MOTOR POSITION SENSOR 42.96$ 232 9,966.72$ -$ Confidential Execution Version Page 9 of 26
CPN1000715 FAN 10IN DIA ORION 56.15$ 177 9,938.55$ -$ CPN3008265 CABLE ASM, 12V Disp Adapter to main cont 12.00$ 822 9,864.00$ -$ CPN3002648 FIBER MAST ASM, EV 75.70$ 130 9,841.00$ -$ CPN3006109 TEC 2.44 X .74 DUAL MOUNT EH 60.06$ 162 9,729.72$ -$ CPN3002376 Shaft Coupling, 2mm X 3mm Bore, Mod 48.09$ 202 9,714.75$ -$ CPN3008352 Support, KNF Pump, Alice 17.45$ 552 9,632.40$ -$ CPN3002369 MIR, FLT, HR532, 1064 106.00$ 90 9,540.00$ -$ CPN3008539 HOLDER, RESERVOIR, ALICE 11.40$ 836 9,530.40$ -$ CPN3008123-FA CABLE ASM, FAN, PS, ALICE 94.23$ 100 9,423.00$ -$ CPN1005231 SMA ADAPTER, HASMA, HP, ALICE 7.54$ 1250 9,420.25$ -$ CPN3005571 DISC, MACOR, 25MM X 2.0MM, EN 38.85$ 242 9,401.70$ -$ CPN3009347 CABLE ASM, 4 FAN, LASER, AV 64.16$ 145 9,303.20$ -$ CPN3008628 Clamp, Reservoir, Alice, G3 10.95$ 836 9,154.20$ -$ CPN1003201 ADJUSTER, 1/4-100 X 3/4 LG, HEX HD 5.46$ 1629 8,894.34$ -$ CPN3007077 FTG, EL, 10-32 X 1/4T, CLEANED 75.06$ 118 8,856.73$ -$ CPN3008601 COLDPALTE, .375 THK, DEHUMIDIFIER, ALICE 47.00$ 186 8,742.00$ -$ CPN3009236 Support, Corner, Frame, AV 9.55$ 914 8,728.70$ -$ CPN3003301 SCR CAP W/LK WHSR, 8-32 X 1/2SS 1.06$ 8028 8,509.68$ -$ CPN1003230 SPACER, 1/2 ID X 5/8 OD X 3/16, SS 2.44$ 3416 8,324.79$ -$ CPN410005449 SCR 8-32 X 3/8 PH PN HD SEMS 0.08$ 107451 8,273.73$ -$ CPN7002212 DERMASTAT 2MM HANDPIECE 919.06$ 9 8,271.53$ -$ CPN3008232 CABLE AC SWITCH BLUE ALICE 7.50$ 1099 8,242.50$ -$ CPN3003255 Y MIRROR MNT, RT HAND, EV LSR HD 13.78$ 596 8,212.88$ -$ CPN3008231 CABLE AC SWITCH BROWN, ALICE 7.50$ 1094 8,205.00$ -$ CPN7002130 ASM, DIVERTER, EV 512.15$ 16 8,194.39$ -$ CPN400005472 ADHESIVE LOCTITE 242 47.41$ 170.94 8,104.44$ -$
CPN7002820 ASM, PUMP, KNF 897.26$ 9 8,075.31$ -$ CPN1005754 SCR, 8-32 Thread, 3/8" Long Black-Oxide 0.31$ 25572 8,016.82$ -$ CPN1005703 GPS antenna, AviClear 11.55$ 685 7,911.75$ -$ CPN3002506 MIRROR, CONC, R-1M,HR,1064 90.00$ 87 7,830.00$ -$ CPN3008243 LASER ROD 6.35MM X 129 MM, EV 869.00$ 9 7,821.00$ -$ CPN3008577 BRACKET, SUPPORT, UPPER, ELECTRONICS, AL 16.05$ 486 7,800.30$ -$ CPN7002595 ASM, BAREBONE, EV3 3,898.18$ 2 7,796.36$ -$ CPN3008273 kin, Fan, EMI, Alice 27.60$ 282 7,783.20$ -$ CPN171005089 INSULATION BLOCK 42.87$ 180 7,716.60$ -$ CPN7002587 ASM, LASER HEAD, EV3 7,578.68$ 1 7,578.68$ -$ CPN7002593 ASM, POWER MONITOR, EV3 576.63$ 13 7,496.24$ -$ CPN1005112 POWER SUPPLY, 24VDC, 13.4A, 321.6W 44.09$ 168 7,406.45$ -$ CPN1005526 ORIFICE, .010" 1/4T PTC 12.08$ 601 7,260.26$ -$ CPN3008510 Spacer, Caster, Console, Alice 9.45$ 767 7,248.15$ 606.48$ CPN411005675 TAPE, TEFLON 2.85$ 2542 7,244.70$ -$ CPN3007755 HOUSING, BACK, DERMASTAT 17.96$ 399 7,167.96$ -$ CPN1003166 FTG, COUPLING BODY, 5/32 TUBE 9.78$ 699 6,836.22$ -$ CPN3008018 Enclosure, Heat Exchanger, Alice 18.43$ 364 6,708.52$ -$ CPN3008114 Cable, Display to display adapter, Alice 42.62$ 157 6,691.34$ -$ CPN3002371 MOD, THREADED ROD, 0.14"-20.8, HP, EV 32.30$ 207 6,686.27$ -$ CPN1005269 FTG elbow 3/8" Plug-In Elbow 7.60$ 870 6,612.00$ -$ CPN1004299 COOLANT, DOWFROST, 40% 1GAL 110.00$ 60 6,600.00$ -$ CPN3008260 Cable ASM, 4 Fan, laser, Alice 40.00$ 165 6,600.00$ 66,468.72$ CPN7002123 ASM, OPTIC MOUNT, LM3, EV 312.67$ 21 6,565.99$ -$ CPN3006585 PLATE, END, WINDOW, EV 30.62$ 211 6,460.40$ -$ CPN7002125 ASM, OPTIC MOUNT, LM5, EV 337.99$ 19 6,421.78$ -$ CPN3007061 BEZEL FRONT HANDPIECE EV2 28.00$ 228
6,383.09$ -$ CPN3008493 Cable, ASM, Dehumidifier thermistor with 34.00$ 186 6,324.00$ -$ CPN3002472 BLADE, SAFETY SHUTTER, EV 53.40$ 118 6,301.20$ -$ CPN3006430 TILT PLATE, EV 26.79$ 235 6,295.65$ -$ CPN3007536 Cable ASM, Thermistor, HP, EV 24.65$ 255 6,285.75$ -$ CPN1003459 FERR RND CBL SNAP 8.5-10MM GRY 5.18$ 1207 6,252.26$ -$ CPN7001991 ASM, LM9, LBO HSG, EV 510.88$ 12 6,130.56$ -$ CPN3003254 Y MIRROR MNT. LT HAND, EV LSR HD 16.28$ 373 6,072.44$ -$ CPN1000182 STAND-OFF, M/F 8-32 1/4HEX, 1/2L 2.07$ 2910 6,023.70$ -$ CPN7000919 PCBA HP GV NXP LED 33.87$ 177 5,994.99$ -$ CPN3006791 CABLE ASM, AC GND, TSID 1.21$ 4921 5,962.78$ -$ CPN3002742 CABLE ASM, CIR BRKR-EMI BUNDLE, EV 13.40$ 439 5,882.60$ -$ CPN1005267 FTG elbow 3/8" Tube OD x 1/4 Pipe 4.62$ 1267 5,853.29$ -$ CPN3005061 HEAT EXCHANGER, CLEANED, EH 90.00$ 65 5,850.00$ -$ CPN3006580 LID, LBO HSG, EV 22.58$ 259 5,848.74$ -$ CPN1004517 LENS, CONVEX, 6MM DIA, 7.5MM FL 23.45$ 244 5,721.80$ -$ CPN7002893 ASM, TREE, AVICLEAR 438.64$ 13 5,702.32$ -$ CPN3008415 Hsg, Top, Rear, Optical, Console, Alice 14.23$ 394 5,606.62$ -$ CPN3008537 MOUNT, PSU, COSEL, ALICE 22.70$ 243 5,516.10$ 1,305.48$ CPN7001992 ASM, LM10, LBO HSG, EV 423.17$ 13 5,501.19$ -$ CPN3002490 RESERVOIR, EV 97.87$ 54 5,284.98$ -$ CPN7002126 ASM, OPTIC MOUNT, LM6, EV 329.13$ 16 5,266.01$ -$ CPN3007246 DECK, FLOWERPOT, EV2 14.87$ 354 5,263.98$ -$ CPN7002124 ASM, OPTIC MOUNT, LM4, EV 347.48$ 15 5,212.27$ -$ CPN1005746 FTG, ADAPTER, 1/4T X 1/16MNPT 5.51$ 941 5,183.03$ -$ CPN1005704 CELL/GPS bulkhead adapter, AviClear 12.25$ 421 5,157.25$ -$ Confidential Execution Version Page 10 of 26
CPN7002137 ASM, SAFETY SHUTTER, EV 321.21$ 16 5,139.34$ -$ CPN3002713 CABLE ASM, HVPS/EMI 11.48$ 439 5,039.72$ -$ CPN3008148 Bracket, LCD, Display, Alice 22.35$ 225 5,028.75$ 616.20$ CPN1000177 KAPTON TAPE 3/4W 0.43$ 11744 5,023.85$ -$ CPN3003610 Cover, HVPS, ASM 57.00$ 87 4,959.00$ -$ CPN3002723 CABLE ASM, TERMISTOR, HP, EV 24.65$ 199 4,905.35$ -$ CPN3008496 Cable ASM, Thermistor w/ Lug, Laser, Ali 28.00$ 175 4,900.00$ -$ CPN3008541 Mount, KNF Pump-Muffler, Alice 25.40$ 191 4,851.40$ 1,363.62$ CPN3002298 MIRROR OC 532 112.00$ 43 4,816.00$ -$ CPN3006475 MOUNT, DIVERTER, LEFT, EV LH 28.46$ 169 4,809.74$ -$ CPN7002127 ASM, OPTIC MOUNT, LM7, EV 341.15$ 14 4,776.15$ -$ CPN1005274 HDMI Cable 1ft - 18Gbps Black, Alice 12.14$ 393 4,770.23$ -$ CPN3006586 TILT PLATE, THK, EV 25.60$ 185 4,736.00$ -$ CPN3008648 Foam, Seal, Fiber Conn, Alice 3.96$ 1185 4,692.60$ -$ CPN3006583 BASE, LBO MOUNT 24.71$ 185 4,571.35$ -$ CPN1000461 ELECTRICAL TAPE VINYL 5.45$ 838 4,564.59$ -$ CPN3002060 TUBING, COPPER, .375 OD, THERMISTOR 1.88$ 2414 4,547.98$ -$ CPN7002133 ASM, INTERCAVITY SHUTTER, EV 302.46$ 15 4,536.85$ -$ CPN7002122 ASM, OPTIC MOUNT, LM2, EV 320.26$ 14 4,483.68$ -$ CPN1003769 ADHESIVE, THERMAL EPOXY, SUPREME1/2PINT 280.00$ 16 4,479.98$ -$ CPN7002881 ASM, RESERVOIR, AVICLEAR 258.24$ 17 4,390.10$ -$ CPN1005219 Fan guard&filter 1.25$ 3518 4,381.67$ -$ CPN3002651 INSERT, MAST HUB, EV 16.87$ 259 4,369.33$ -$ CPN3006223 RETAINER, LEVEL SENSOR 1.82$ 2405 4,367.72$ -$ CPN3009180 ASM, SAPPHIRE WINDOW HOLDER, EV2 484.68$ 9 4,362.12$ -$ CPN3002773 BOX/ FOAM SET, SHIPPING, GV & EV HP 32.12$ 135 4,336.20$ -$ CPN3002690 CABLE ASM, FIBER ID, EV 36.00$ 120
4,320.00$ -$ CPN1005740 Valve, Pressure Relief, AviClear 7.98$ 532 4,245.36$ -$ CPN3007936 Chassis, Top Cover, EV3 42.11$ 100 4,211.30$ -$ CPN3002306 MIR CONC R-15CM HR DUAL 161.00$ 26 4,186.00$ -$ CPN3006429 PLATE, END, EV 23.40$ 178 4,165.20$ -$ CPN3007236 CLAMP, CRADLE, EV2 3.11$ 1330 4,132.31$ -$ CPN3003270 SMA RECEPTACLE, EV 41.54$ 99 4,112.46$ -$ CPN3002643 PLATE, CONNECTOR, FP, HP, EV 6.48$ 632 4,095.36$ -$ CPN3006581 CLAMP, LBO BASE, EV 21.32$ 192 4,093.44$ -$ CPN3003253 HOLDER, MIRROR MNT. EV 4.25$ 958 4,071.50$ -$ CPN7000707 PCBA, EV STARTER 24.76$ 164 4,060.64$ -$ CPN7002121 ASM, OPTIC MOUNT, LM1, EV 312.03$ 13 4,056.43$ -$ CPN7002128 ASM, OPTIC MOUNT, LM8, EV 336.72$ 12 4,040.67$ -$ CPN3000514 THERMISTOR ASSY, TT 9.47$ 417 3,948.99$ -$ CPN3002715 CABLE ASM, KEY/EMO-HVPS, EV 15.85$ 249 3,946.65$ -$ CPN1003424 TUBING, PU 1/4OD X .045 WALL, WHITE 2.08$ 1872 3,884.40$ -$ CPN151005381 CABLE WATER FLOW INTERLOCK 3.60$ 1073 3,864.41$ -$ CPN1005775 CABLE HOLDER, TWIST LOCK, .75" BUNDLE DI 0.46$ 8198 3,779.28$ -$ CPN3002613 HANDLE, TOPCOVER, EV 29.01$ 129 3,742.03$ -$ CPN340005229 CARTRIDGE DEIONIZER 27.45$ 136 3,733.20$ -$ CPN7002211P DERMASTAT 1MM HANDPIECE EV3, PURCHASED 910.53$ 4 3,642.10$ -$ CPN3002488 CABLE ASM, SENSOR, THERMAL, GP 34.27$ 104 3,564.38$ -$ CPN7002134 ASM, BEAM PICK-OFF, EV 235.72$ 15 3,535.74$ -$ CPN3007247 COVER, LEFT, FLOWERPOT, EV2 9.80$ 357 3,499.67$ -$ CPN3008348 Console connector, Scorpion, female, Ali 6.94$ 500 3,470.00$ -$ CPN510005624 CONN DIN SAFETY INTERLOCK 2.69$ 1257 3,381.33$ -$ CPN3008593 Bracket, Display to Console, Alice 13.85$ 244 3,379.40$ 247.10$ CPN3008417 racket, Electronic
Support, Alice 18.15$ 186 3,375.90$ 332.37$ CPN3002670 LATCH PIN, SOUTHCO, MODIFIED, EV 9.56$ 353 3,374.68$ -$ CPN1003257 TUBING, 1/2 OD X .09 WALL, PU 2.37$ 1422 3,370.14$ -$ CPN3007119 ASM HOLDER SAPPHIRE WINDOW EV2 414.84$ 8 3,318.72$ -$ CPN7002193 ASM, LEFT COVER, EV2 331.00$ 10 3,310.04$ -$ CPN7000374 ASS'Y, PCB USB CONNECTOR 19.50$ 169 3,295.50$ -$ CPN7002880 ASM, COOLING PUMP, AVICLEAR 191.66$ 17 3,258.27$ -$ CPN7002879 SM, HEAT EXCHANGER, AVICLEAR 403.96$ 8 3,231.65$ -$ CPN1005362 FTG, ADPTR, 1/4T X 1/8NPT 1.56$ 2055 3,210.57$ -$ CPN1004176 FILTER CARTRIDGE, 10.1CFM, 1/4T, PVDF 29.69$ 108 3,206.41$ -$ CPN1005109 LENS,CONVEX,9mmDia.x27mmFLCoated,Double 25.55$ 124 3,168.20$ -$ CPN3007277 SNAP ASM, FP, EV2 4.29$ 732 3,142.48$ -$ CPN1005108 LENS,CONVEX 9.0mmDiax22.0mm FL,CoatPlano 25.55$ 122 3,117.10$ -$ CPN1003804 SCR, SEMS, PPH, M3-.5 X 6MM LG, SS 0.48$ 6495 3,116.30$ -$ CPN3007055 CAP, NO STANDOFF, DERMASTAT, 2MM 6.85$ 454 3,109.90$ -$ CPN3007248 COVER, RIGHT, FLOWERPOT, EV2 8.71$ 355 3,093.47$ -$ CPN1004542 Indicator, TiltWatch Plus 3.52$ 875 3,080.00$ -$ CPN3002509 CABLE ASM, AIM DIODE, GP 18.79$ 163 3,062.77$ -$ CPN1000329 FITTING 90DEG 3/8 INST X 3/8 MALE T 4.94$ 606 2,996.19$ -$ CPN1005373 Cable, 4G, 3G, 2G Cell Antenna, Alice 2.95$ 1006 2,967.70$ -$ CPN1000188 CONN, 90DEG ELBOW, 3/8 ITF,1/4 ITF 5.38$ 550 2,959.44$ -$ CPN3008350 Strip, Rubber, KNF Pump Mount 3.10$ 952 2,951.20$ -$ CPN1003770 ADHESIVE, ELASTOMERIC EPOXY, 206.68$ 14 2,893.52$ -$ CPN3008416 Hsg, Flowerpot, Console, Alice 12.43$ 232 2,883.76$ -$ CPN3002611 BEZEL, LCD, EV 15.94$ 180 2,868.66$ -$ Confidential Execution Version Page 11 of 26
CPN3007315 CAP, REAR, SMA HOUSING, EV2, GV 16.77$ 171 2,867.67$ -$ CPN3007257 HANDLE, FRONT, CHASSIS, EV2 41.56$ 69 2,867.64$ -$ CPN1000634 SCR, 8-32 X 5/8, PPH, SEMS, SS 0.54$ 5321 2,846.74$ -$ CPN1005439 1/8" HB Filtered Orifice Connector 4.28$ 664 2,841.92$ -$ CPN3006480 HOLDER, MOTOR- DIVERTER, EV LH 25.81$ 110 2,839.10$ -$ CPN7002882 ASM, FIBER MAST HUB, AVICLEAR 201.39$ 14 2,819.53$ -$ CPN1005705 WiFi bulkhead adapter, AviClear 14.00$ 201 2,814.00$ -$ CPN1006351 CELL/GPS Bulkhead Adapter, D, AV 12.25$ 226 2,768.50$ -$ CPN1003299 CLAMP, CABLE, 5/8 DIA 0.96$ 2860 2,745.60$ -$ CPN1005063 Tubing, .250 OD X .125 ID X .062 Wall, T 1.82$ 1510 2,743.97$ -$ CPN3008601-FA COLDPALTE, .375 THK, DEHUMIDIFIER, ALICE 21.18$ 129 2,732.22$ -$ CPN3003150 BASE, ISO MOUNT, EV 4.72$ 566 2,671.52$ -$ CPN7002197 ASM, AIMING DIODE, EV2 190.47$ 14 2,666.65$ -$ CPN3002484 UMBILICAL, TUBE LINER, 0.475 OD, PU 8.10$ 326 2,640.60$ -$ CPN3004927 WINDOW, PLANE, 1"DIA X .12THK, EN 10.50$ 250 2,625.00$ -$ CPN7002736 ASM, EMO / KeySwitch 255.69$ 10 2,556.87$ -$ CPN750005564 WIRE 10 AWG BLACK 1.37$ 1867 2,554.06$ -$ CPN3008729-FA HEATSINK, DEHUMIDIFIER, TESTED 633.60$ 4 2,534.40$ -$ CPN7002594 ASM, 24V PSU, EV3 505.77$ 5 2,528.84$ -$ CPN3003134 BEZEL, HP, GV 15.01$ 168 2,521.68$ -$ CPN3004543 CABLE ASM, LASER DIOSE, AIM, EH 24.65$ 102 2,514.30$ -$ CPN3007272 CLAMP, LAMP, ULTEM 7.13$ 349 2,488.37$ -$ CPN3000631 SHIPPING CONTAINER HVPS FOAM 25.26$ 98 2,475.48$ -$ CPN401005196 KAPTON TAPE 2 MIL X 2 IN 4.13$ 597 2,466.80$ -$ CPN3008639 BOOM HOLDER, BRACKET, ALICE 11.70$ 209 2,445.30$ 205.29$ CPN1003802 ADHESIVE, FLEXIBLE EPOXY EPO-TEK 58.33$ 40 2,333.20$ -$
CPN320005253 CONN ST 1/2 ITF X 3/8 ITF 2.86$ 806 2,306.77$ -$ CPN1004464 FSG, .02"H X .157"W X 48"L 2.31$ 994.1 2,296.67$ -$ CPN3007140 CAP, STANDOFF, DERMASTAT, 1MM 3.97$ 577 2,291.84$ -$ CPN3007078 FTG, 10-32 X 1/4T, CLEANED 32.25$ 71 2,289.68$ -$ CPN3008266 CABLE ASM, VAC Sense, ALICE 12.00$ 190 2,280.00$ -$ CPN3007258 SHAFT, HANDLE, FRONT, CHASSIS, EV2 23.34$ 97 2,263.98$ -$ CPN3002725 CABLE ASM, LEVEL SW, RESERVOIR, EV 15.81$ 143 2,260.83$ -$ CPN1004408 FTG, 10-32 X 1/4T 32.25$ 70 2,257.43$ -$ CPN3002642 PLATE, CONNECTOR, FP, CONSOLE, EV 9.47$ 232 2,197.04$ -$ CPN1000375 SCREW, PH PN HD, SEMS, 8-32 X 1 LG 0.69$ 3168 2,196.69$ -$ CPN1003250 SCR, PPH, M4 X 6, SEMS, SS 0.79$ 2784 2,185.44$ -$ CPN330005197 O-RING .239 X .051 TEFLON 9.26$ 234 2,166.84$ -$ CPN1004185 WASHER, BELLEVILLE, #6 0.86$ 2508 2,165.42$ -$ CPN1004519 LENS, YAG-BBAR,9MMDIAX12MMFL,PLCX,COAT 26.25$ 82 2,152.50$ -$ CPN1003999 ADJUSTER,1/4-100X3/4 LGHEX HD,SS CLEAN 5.10$ 420 2,142.00$ -$ CPN7002189 ASM, RIGHT COVER FLOWERPOT DECK, EV2 527.60$ 4 2,110.41$ -$ CPN3002714 CABLE ASM, STARTER WIRE, EV 3.05$ 691 2,107.55$ -$ CPN3008575 Box, Antenna, Alice 11.35$ 185 2,099.75$ 1,004.40$ CPN1005250 WiFi antenna, Alice 3.75$ 556 2,085.00$ -$ CPN1003252 FITTING, PTC, 1/4 X1/4, 90 EL 1.39$ 1493 2,081.24$ -$ CPN7002887 ASM, FLOW SWITCH, ALICE 259.88$ 8 2,079.06$ -$ CPN3006541 ADAPTER PLATE, PURGE SYSTEM, EV 24.39$ 83 2,024.37$ -$ CPN1003163 CONN, HSG, MALE, SIZE 16/22, GFSH89 3.01$ 663 1,995.63$ -$ CPN1005251 4G, 3G, 2G Cell Antenna, Black, AV 2.95$ 676 1,994.20$ -$ CPN1003251 FITTING, PTC, 3/8 X 3/8 COUPL 3.41$ 584 1,993.78$ -$ CPN3007317 CAP, REAR, SMA HOUSING, EV2, 1MM
11.98$ 166 1,988.96$ -$ CPN3002801 TUBE, FLARED, LATCH GUIDE 12.45$ 158 1,967.10$ -$ CPN3007508 Panel Filler, Handle, EV2 10.66$ 184 1,961.44$ -$ CPN1005372 Cable, WiFi antenna, Alice 3.50$ 560 1,960.00$ -$ CPN3002753 MAGNET STRIP, HIGH ENERGY, EV 0.56$ 3478 1,947.68$ -$ CPN1004177 TBG, 1/8"ID X 1/4"OD, FEP 2.73$ 710 1,940.43$ -$ CPN3007314 CAP, REAR, SMA HOUSING, EV2, CV 9.34$ 207 1,933.38$ -$ CPN1003951 Label, Impact Indicator, 25G 3.17$ 607 1,922.98$ -$ CPN3001090 CABLE ASSY, EMER OFF BLOCK 16.34$ 117 1,911.78$ -$ CPN400005473 LUBRICANT APIEZON AP101 76.67$ 24.69 1,892.88$ -$ CPN3008439 Hsg,Top, Rear, Upper, Console, Alice 7.92$ 237 1,877.04$ -$ CPN7002139 ASM, RESERVOIR, EV 234.35$ 8 1,874.81$ -$ CPN3007240 COVER-B, SMA HOUSING, EV2 2.72$ 685 1,865.26$ -$ CPN1004546 Heatshrink Tubing, Polyolefin, 2-1, .19 11.67$ 159 1,855.64$ -$ CPN1000009 FERRITE CLAMP ON ASSEMBLY 1.13$ 1632 1,847.42$ -$ CPN1004315 CLAMP, HOSE, .28-.30 BUNDLE DIA, POM, WH 1.08$ 1704 1,836.91$ -$ CPN3007136 MOUNT SPACER PCBA RETROFIT HP EV2 2.71$ 673 1,822.75$ -$ CPN1003428 SCREW, PLASTITE. 8-16 X 3-8L 0.43$ 4201 1,817.35$ -$ CPN3008649 Cover, PCBA, Fiber Conn, Alice 3.61$ 494 1,783.34$ -$ CPN1003481 SPRING, EXT, .188OD X .50LG, .031MW 0.65$ 2752 1,775.04$ -$ CPN3006438 BLOCK, SPRING RETAINER, EV 9.75$ 182 1,774.50$ -$ CPN1003198 ADHESIVE, OPTICAL, UV CURE, GEL 197.00$ 9 1,773.00$ -$ CPN1000340 FITTING 90DEG 1/4 STEM X 1/4 INSTA 2.91$ 606 1,766.25$ -$ CPN430005801 SCR, PH PN HD, SEMS 2-56 7 /16 LG S 2.07$ 833 1,722.64$ -$ CPN3007739 Holder, Lens, L1, EV, 9mm 7.39$ 232 1,714.94$ -$ CPN3002564 HINGE PIN, TOP COVER, EV 7.63$ 222 1,693.86$ -$ CPN3007224 DOUBLE CLIP UMBILICAL, EV2 1.84$ 913
1,676.27$ -$ Confidential Execution Version Page 12 of 26
CPN3007116 HOLDER LENS L2 EV2 7.20$ 232 1,670.40$ -$ CPN1000293 KAPTON TAPE 1-4W 36 YD 0.14$ 12101 1,669.94$ -$ CPN3007110 Tube, Genesis HP, EV2 9.97$ 167 1,664.99$ -$ CPN3007316 CAP, REAR, SMA HOUSING, EV2, 2MM 9.35$ 177 1,654.95$ -$ CPN3007109 CLAMP, TUBE, GENESIS HP, EV 9.85$ 168 1,654.80$ -$ CPN1004392 LABEL, BLANK, 4 X 2 0.08$ 20650 1,652.00$ -$ CPN3007108 HOLDER, TUBE, GENESIS HP, EV 9.84$ 167 1,643.28$ -$ CPN3003087 MOUNT, AIM-DIODE, HP, GP 9.92$ 164 1,626.88$ -$ CPN1000231 TERM CRIMP BUTT SPLICE 10-12 AWG 9.90$ 163 1,613.70$ -$ CPN3002612 BEZEL, KEY SW/EMO, EV 9.33$ 172 1,604.76$ -$ CPN7002148 ASM, PURGE PUMP, EV 313.87$ 5 1,569.36$ -$ CPN3002427 MOUNT, FRT, PWR MTR, EV 8.47$ 185 1,566.95$ -$ CPN3002733 CABLE ASM, Q-SW DRIVER, COAX, EV 8.56$ 183 1,566.48$ -$ CPN3002734 BLADE, DIVERTER, EV 14.34$ 109 1,563.06$ -$ CPN3002796 LABEL, CAUTION, LASER RAD 0.41$ 3766 1,555.36$ -$ CPN3007239 COVER-A, SMA HOUSING, EV2 2.29$ 680 1,555.16$ -$ CPN1003222 TUBING, .158 OD X .118 ID, PTFE 0.36$ 4340 1,549.38$ -$ CPN1005923 CONN, 45 ELBOW, 1/4 OD 3.88$ 397 1,541.55$ -$ CPN3007500 3007500 r1 Cradle, hp, EV2 4.21$ 365 1,536.65$ -$ CPN3006492 BRACKET, PURGE PUMP, EV 17.85$ 86 1,535.10$ -$ CPN430005966 SCR, 2-56 X 5/16 PH PN HD SEM SS 0.09$ 17500 1,530.17$ -$ CPN3007158 LENS BICONCAVE 10MM DIA. X 14.7MM FL, 5.72$ 265 1,516.86$ -$ CPN3002476 X-Y PLATE, FIBER FOCUS, EV 15.79$ 96 1,515.84$ -$ CPN3002426 END REFLECT, PWR MTR, EV 15.40$ 96 1,478.40$ -$ CPN1003294 TUBING, 3/32 ID X 1/32 WALL, PVC 15.50$ 95.2 1,475.60$ -$ CPN3007084 ADJUSTER,1/4-100 X 3/4 LG,HEXHD,SS,CLEAN 5.10$ 288 1,468.80$ -$ CPN3002549 FRONT LATCH PLATE, TOPCOVER,
EV 10.92$ 134 1,463.28$ -$ CPN3005718X WINDOW, COATED,1.0DIA,1064-532-450NM,EN3 10.50$ 139 1,459.50$ -$ CPN3007873 BASE, POWER MONITOR, EV3 13.13$ 111 1,457.87$ -$ CPN3007241 CAP, FRONT, SMA HOUSING, EV2 2.18$ 667 1,452.73$ -$ CPN1003220 CABLE ASM, FLAT FLEX, DISPLY, 6 IN 8.66$ 165 1,428.74$ -$ CPN3002464 BASE, Q-SW MNT, EV 13.95$ 102 1,422.90$ -$ CPN402006100 ALUMINA THERMAL COMPOUND 236.23$ 6 1,417.38$ -$ CPN3007114 BRACKET HEATSINK TO LENS CELL EV2 6.85$ 205 1,405.15$ -$ CPN1005268 FTG elbow 1/4" Tube OD x 1/4 Pipe 3.26$ 430 1,401.11$ -$ CPN1003534 FTG CPLG 1/4T X 1/4T GRAY 2.70$ 517 1,393.32$ -$ CPN3008438 Hsg, Display, Alice 6.48$ 215 1,393.20$ -$ CPN3002365 BASE, ICS, EV 12.40$ 112 1,388.80$ -$ CPN171005100 CLAMP, LASER ROD 4.75$ 291 1,382.25$ -$ CPN1005211 SCREW, SHC, M4 X 0.7mm THD X 22mm LG 0.16$ 8350 1,371.54$ -$ CPN3002624 PANEL, PWR SUPPLY, CONSOLE, EV 10.97$ 125 1,371.38$ -$ CPN3002425 BODY, PWR MTR, EV 6.96$ 196 1,364.16$ -$ CPN1000232 SCR, SEMS 8-32,1-4L,SS, PH PN HD 0.32$ 4301 1,359.12$ -$ CPN1000219 TAPE DAMPENING .025 THICK 24.59$ 55 1,352.34$ -$ CPN1005730 SCR, PLASTITE, 6-19 X 1/4"LG, SS 0.36$ 3703 1,347.15$ -$ CPN1005756 Male-Female Threaded Hex Standoff 1/4" H 0.59$ 2265 1,336.35$ -$ CPN3007290 SMA STRAIN RELIEF DERMASTAT 3.81$ 350 1,334.20$ -$ CPN1006187 TUBING, PU 1/4OD X .045 WALL, CLEAR 3.08$ 432 1,330.56$ -$ CPN1003274 FITTING, COUPLING, 1/2" BULKHEAD 10.78$ 123 1,325.82$ -$ CPN3007056 CAP, STANDOFF, DERMASTAT, 2MM 7.32$ 181 1,324.92$ -$ CPN1000069 SPEAKER,PERM MAG, ,XEO 4.53$ 290 1,313.70$ -$ CPN3008584 COVER PLATE FIN DEHUMIDIFIER, ALICE 6.71$ 194 1,301.74$ -$ CPN3008509-FA COVER, REAR,
CONSOLE, ALICE 259.65$ 5 1,298.25$ -$ CPN3006302 CABLE ASM, RECTIFIER 24V PS POWER, EV 11.79$ 109 1,285.11$ -$ CPN3000215 CABLE ASSY, XEO SPEAKER 12.43$ 102 1,267.86$ -$ CPN3002610 BEZEL, FIBER POLE, EV 7.57$ 167 1,263.59$ -$ CPN1004399 SCR, SHOULDER, 4-40, 1/8DIA X 7/16, SS 2.66$ 475 1,263.50$ -$ CPN1005123 CABLE, CAT5E, ANGLED, 7FT, BLUE 6.94$ 181 1,256.14$ -$ CPN3007021 CLAMP MOTOR HANDPIECE EV2 6.61$ 190 1,255.52$ -$ CPN3008437 Hsg, Top Rear, Console, Alice 5.35$ 233 1,246.55$ -$ CPN7002194 ASM, RIGHT COVER, EV2 248.40$ 5 1,241.98$ -$ CPN3007926 Housing, Lens Cell, Dermastat 1mm 4.44$ 279 1,237.42$ -$ CPN1004173 FTG, ADAPTER, 1/4T X 1/8MNPT 3.53$ 349 1,230.64$ -$ CPN3008583-FA Heatsink, Laser, Alice 246.00$ 5 1,230.00$ -$ CPN1005611 HEATSHRINK EPS200 3/4"X4' BLACK 13.44$ 91 1,223.04$ -$ CPN1000076 CONN REDUCING STRAIGHT 3/8 X1/4 3.44$ 353 1,213.26$ -$ CPN3007111 LENS CELL, GENESIS HP, EV 7.86$ 154 1,210.44$ -$ CPN1003212 FTG, PTC, 1/2 X 1/4 X 1/2 TEE, BLK 12.94$ 92 1,190.48$ -$ CPN3008117 FOAM SEAL FIBER COUPLER, ACNE 0.95$ 1250 1,187.50$ -$ CPN320006010 CONN ST, 1/4 MPT X 1/4 QR CR-BRASS 22.20$ 53 1,176.60$ -$ CPN320005252 CONN T 1/2 ITF X 1/2 ITF X 3/8 I 3.98$ 294 1,170.12$ -$ CPN1004530 SCREW, PAN HD, #2-56 X 5/16" LG, NYLON 1.80$ 651 1,168.55$ -$ CPN3002636 MOUNT, PICKOFF, VERT, EV 10.42$ 112 1,167.04$ -$ CPN171005935 NUT, KEYSWITCH 1.35$ 862 1,163.70$ -$ CPN1004186 CABLE ASM, CAT5E 350MHZ, RJ45 M/M, YEL, 1.32$ 876 1,160.61$ -$ CPN3007054 LENS CELL, DERMASTAT 2.52$ 460 1,159.20$ -$ CPN3007008 MOUNT OPTICS ASSEMBLY HANDPIECE EV2 5.60$ 205 1,148.00$ -$ CPN7002739-FA SUB ASM, FLOWER POT CONN, FRAME, ALICE 229.05$ 5
1,145.25$ 19,498.45$ Confidential Execution Version Page 13 of 26
CPN7002195 ASM, TREE, EV2 227.91$ 5 1,139.55$ -$ CPN1003259 KEEPER, LATCH, FLOATING, SOUTHCO 4.74$ 240 1,136.40$ -$ CPNLBLBLN 1"X0.5" label 3 per row" 0.02$ 47303 1,135.27$ -$ CPN1004543 WIRE, 1 COND, STRND, 20AWG, RED, PTFE 1.22$ 930 1,134.97$ -$ CPN1003979 ADHESIVE, ELASTOMERIC EPOXY, MILBOND A&B 81.00$ 14 1,134.00$ -$ CPN1005365 Washer, fiber, #6 screw, Alice 0.15$ 7800 1,131.17$ -$ CPN3001196 MOUNT LCD XEO NUI 10.94$ 102 1,115.47$ -$ CPN1005371 SCR, PPH, 8-32 X 3/4"LG, SS, SEMS 0.46$ 2411 1,110.02$ -$ CPN1005729 FTG, ADPTR, 1/4T X 1/8FNPT 5.36$ 207 1,108.86$ -$ CPN3003163 FOAM SEAL FIBER EXIT 3.45$ 319 1,100.55$ -$ CPN3002666 CLAMP, CABLE FEEDTHRU, EV 6.08$ 180 1,094.40$ -$ CPN1005154 FERRITE, 220OHM, SNAP ON 18.80MM 2.31$ 472 1,090.32$ -$ CPN3002700 FITTING, 1/4-28 X 1/4 STEM, Q-SW 4.87$ 224 1,090.21$ -$ CPN1004529 RETAINING RING, M12.5 X. 0.5 - SM12RR 12.11$ 90 1,090.02$ -$ CPN3002958 APERTURE, AIM DIODE, HP, GP 7.74$ 140 1,083.60$ -$ CPN1003213 FITTING, PTC, 1/2 STEM X 1/2 90 EL 5.28$ 205 1,081.99$ -$ CPN1000209 LABELDANGER HIGH VOLTAGE 4.25$ 253 1,075.25$ -$ CPN1005738 SCR, 8-32 Thread, 3/8" Long Black-Oxide 0.08$ 13210 1,073.97$ -$ CPN3007843 T-Bar, Saddle, Cable, EV2 5.87$ 181 1,061.84$ -$ CPN1005312 Mount, Isolator, Lord Plateform, 100PDL- 5.29$ 200 1,058.00$ -$ CPN1005261 Spring, .36 Dia, .50 Lg, .026 Wire Dia 5.20$ 200 1,039.34$ -$ CPN3003221 LABEL, ARROW, FLOWERPOT, EV 4.13$ 251 1,036.63$ -$ CPN3007005 COVER A HANDPIECE EV2 VASCULAR 14.33$ 72 1,031.76$ -$ CPN1005321 FITTING, PTC, WYE, FOR 5/32" Tube OD (57 5.17$ 198 1,023.34$ -$ CPN3008548 LABEL, WINDOW, REAR, EV 5.84$ 175 1,022.18$ -$ CPN7002883 ASM, Flowerpot Console Con, Alice 508.32$
2 1,016.64$ -$ CPN3007756 END CAP, DERMASTAT 5.55$ 183 1,015.65$ -$ CPN3007527 BOX/ FOAM SET, SHIPPING, DERMASTAT HP 18.26$ 55 1,004.30$ -$ CPN7001939 ASM, WATER PUMP, EV 200.06$ 5 1,000.32$ -$ CPN3007039 MOUNT LEAD NUT HANDPIECE EV2 4.76$ 209 995.24$ -$ CPN1004090 SCR, SHC, 6-32 X 5/8"LG, SS 0.04$ 27512 993.40$ -$ CPN1000449 HEAT SHRINK TUBING, 3/8 EXP ID, BLK 2.50$ 395 987.50$ -$ CPN1003901 RETAINER RING, SM1 4.87$ 200 974.00$ -$ CPN3008721 LABEL, WINDOW, REAR, AVICLEAR 5.66$ 171 967.86$ -$ CPN320006096 CONN. ST, 5/32 ITF X 5/32 ITF 2.17$ 442 959.67$ -$ CPN1005679 CONN HSG PLUG 2POS 7.50MM BLACK 0.66$ 1440 950.40$ -$ CPN1005361 STDF, M/F, 1/4HEX X 3/8"LG, 8-32, ALUM 0.59$ 1590 935.24$ -$ CPN1003153 FTG, PTC, 5/32 COUPLING, NYL, BLK 1.05$ 887 931.35$ -$ CPN1005886 Filter Mount, Dehumidifier, AviClear 2.23$ 416 928.93$ -$ CPN3002463 MOUNT, Q-SWITCH, EV 8.12$ 114 925.68$ -$ CPN1005653 DISH PAN, 4", OCTAGON 2.95$ 314 925.61$ -$ CPN7002145 ASM, FLOW SWITCH, EV 184.00$ 5 920.02$ -$ CPN7002141 ASM, FILTER HOUSING, EV 152.81$ 6 916.83$ -$ CPN1000411 400A / 1200V DUAL SPT IGBT MODULE 75.79$ 12 909.48$ -$ CPN7002150 ASM, 2ND STAGE FILTER, EV 180.54$ 5 902.68$ -$ CPN3008807 CRADLE, SINGLE, HP, ALICE 4.58$ 195 893.10$ -$ CPN1004484 ADHESIVE, TS 800 MB-2, CYANOACRYLATE 80.00$ 11 880.00$ -$ CPN1000559 FERRITE CORE, FLAT CABLE 12.50$ 70 875.00$ -$ CPN3008597 Spacer, Antenna, Bulkhead, Alice 0.37$ 2356 871.72$ -$ CPN3000231 SPACER. CASTER 1.04$ 828 861.12$ -$ CPN1006251 FTG, ADAPTER, 1/4T X 1/8MNPT 1.95$ 440 858.00$ -$ CPNS24184 Anti-Static Pallet Covers 2.20$ 383 842.60$ -$ CPN7002147 ASM, PURGE MOUNTING PLATE, EV 137.93$ 6 827.56$ -$
CPN7002175 ASM, COVER A, HP, EV2 26.45$ 31 819.95$ -$ CPN3002716 CABLE ASM, DISPLAY/LAMP START PWR, EV 7.15$ 114 815.10$ -$ CPN1003997 MOUNT, CABLE TIE, ADHESIVE BASE 0.25$ 3163 802.45$ -$ CPN1005328 Scorpion female pin 0.80$ 1000 800.00$ -$ CPN7002176 ASM, COVER B, HP, EV2 28.42$ 28 795.76$ -$ CPN1004544 WIRE, 1 COND, STRND, 20AWG, BLK, PTFE 1.22$ 650 793.26$ -$ CPN3007006 COVER B HAND PIECE EV2 16.21$ 47 761.87$ -$ CPN171005096 SPACER RODS 5 IN ROD 2.14$ 352 753.28$ -$ CPN7002138 ASM, FAN, EV 150.40$ 5 752.01$ -$ CPN3002366 BLADE, ICS, EV 7.22$ 104 750.88$ -$ CPN3002630 BRKT, RESERVOIR, EV 8.01$ 93 744.93$ -$ CPN1000033 ROUND CABLE EMI SUPPRESSION CORE 0.65$ 1144 743.60$ -$ CPN7002734-FA ASM, Terminal Block, Alice 147.36$ 5 736.80$ -$ CPN1004532 NUT, 2-56 X 1/16" LG, Nylon, Off-White 1.83$ 402 736.46$ -$ CPN3002724 COVER, FIBER EXIT, EV 8.17$ 89 727.13$ -$ CPN3004128 TUBE, XEO FILTER 6.22$ 116 721.98$ -$ CPN1005921 CLAMP, 3/4" TO 7/8" ID, ADJUSTABLE, NYL 1.76$ 410 721.60$ -$ CPN1003214 FITTING, PTC, 1/2 X 1/2 90 DEG EL 5.14$ 140 720.16$ -$ CPN3008111 Cable, Console, Display adapter, Alice 4.33$ 164 710.12$ -$ CPN7002149 ASM, 1ST STAGE FILTER, EV 141.70$ 5 708.48$ -$ CPN7002155 ASM, STARTER, EV LBO 117.37$ 6 704.22$ -$ CPN1005599 High-Flow Muffler 1/8 NPT Male 14.08$ 50 703.87$ -$ CPN3008744-FA FOAM PAD KIT, DEHUMIDIFIER, AVICLEAR 140.56$ 5 702.80$ -$ CPN3002380 Shoulder Screw, 2-56 X .094 X 3/8 Lg, Mo 1.59$ 441 701.37$ -$ CPN3002707 CABLE ASM, PWR MTR-DTR BD, PUR/GRN 2.15$ 324 696.60$ -$ Confidential Execution Version Page 14 of 26
CPNS15350 Poly Strapping-1⁄2"x.020"x5,800',Black 0.02$ 34685 693.70$ -$ CPN1004419 SCR, PPH, 8-32 X 3/8, SEMS-INT, SS 0.33$ 2096 691.68$ -$ CPN1003194 SCR, FLAT HD, PHILLIPS, M1.6 X 3MM, SS 0.16$ 4366 687.65$ -$ CPN1003192 SPRING PLUNGER, 1/4-20 X .75 LG 7.53$ 91 685.32$ -$ CPN1000034 SCR, SL, PN HD,#2 56X1/4, NYL 7.20$ 94 676.80$ -$ CPN3007281 LOAD PLATE, SMA HOUSING, HP, EV2 1.48$ 457 675.63$ -$ CPN340005255 FILTER HOUSING 15.96$ 42 670.32$ -$ CPN10034 RETAINER, SAF-T-LOK R01 16.98$ 39 662.10$ -$ CPN3007238 BEZEL, USB, CONSOLE, EV2 3.69$ 178 657.18$ -$ CPN7002140 ASM, DEIONIZER, EV 130.93$ 5 654.63$ -$ CPN3002790 BRKT, CABLE, FP DECK 6.96$ 94 654.24$ -$ CPN1006560 Lockwasher 0.32$ 2039 652.48$ -$ CPN7002884 ASM, Front Panel, AviClear 325.86$ 2 651.72$ -$ CPN1005612 Bronze Hex Head Screw 1/4"-20 Thread Siz 0.54$ 1198 647.76$ -$ CPN1003190 CONTACT, MALE, SIZE 16, 20-24AWG 0.48$ 1321 640.29$ -$ CPN3002786 CABLE ASM, LED/HP PCB, GV 6.58$ 96 631.68$ -$ CPN3002650 BRKT, MAST HUB, EV 7.67$ 82 628.94$ -$ CPN3007053 HOUSING, LENS CELL, DERMASTAT 3.33$ 187 622.04$ -$ CPN3007501 3007501 r1 Cradle, dermastat, EV2 3.47$ 178 617.66$ -$ CUT-1004 ALPHASWAB WITH LONG HANDLE 100 SWABS/BAG, 308.00$ 2 616.00$ -$ CPN7002143 ASM, FIBER MAST, EV 101.96$ 6 611.76$ -$ CPN3002562 BRKT, H2O FILTER, EV 4.89$ 125 611.25$ -$ CPN1003203 Phillips Rounded Head Thread-Forming Scr 0.19$ 3200 606.08$ -$ CPN1006770 SCR, SEMS, PPH, M3-.5 X 8MM LG, SS 0.27$ 2234 598.93$ -$ CPN7002847 ASM, DEHUMIDIFIER, ALICE 596.79$ 1 596.79$ -$ CPN1000151 WIRE NICROME 80 30AWG BARE 2.80$ 209 585.20$ -$ CPN3008646 Support, Corner, Frame, Alice 23.15$ 25 578.75$ -$ CPN1000455 SCR, SEMS, PH PN HD,
8-32 X 1/2 LG 0.10$ 5985 573.96$ -$ CPN3002719 CABLE ASM, FOOTSW-HVPS, RED 4.89$ 116 567.24$ -$ CPN3002705 COVER, FIBER FOCUS PCBA, EV 4.29$ 131 562.12$ -$ CPN3008542-FA SKIN, FRONT, EMI, ALICE 111.38$ 5 556.90$ -$ CPN1005728 Washer, fiber, #8 screw, 3/8" OD x .172" 0.14$ 3929 555.95$ -$ CPN1005145 sABLE, RJ45 8P8C, GRAY, 1 FT 0.78$ 708 553.66$ -$ CPN3007842 Saddle, Cable, EV2 3.04$ 182 553.64$ -$ CPN1005302 Bronze Hex Nut 1/4"-20 Thread Size, 7/16 0.45$ 1208 540.34$ -$ CPN440005278 WSHR BELLEVILLE #2 1.32$ 408 538.01$ -$ CPN1006166 Spacer, 1/4" OD, 9/16" Long, Nylon, off- 0.17$ 3212 534.80$ -$ CPN1003239 SCR, 2-56 X 3/16, FHP, SS 0.06$ 9376 534.43$ -$ CPN1004407 Fitting, Plug, 3/8-24 3.56$ 150 534.00$ -$ CPN1005747 PLUG, 1/16NPT, 5/32HEX-DR, W/SEALANT 0.95$ 554 524.36$ -$ CPN3002563 HINGE BRKT, TOP COVER, EV 2.54$ 203 515.62$ -$ CPN510005232 CONN POWER ENTRY 3.58$ 144 515.52$ -$ CPN10012 TITANIUM DIOXIDE, TI-PURE 0.58$ 881.849 508.30$ -$ CPN3007090 SCR,SHOULDER,4-40,1/8DIA X 7/16,SS,CLEAN 2.66$ 191 508.06$ -$ CPN320005249 CONN 90 1/2 ITF X 3/8 ITF ACETA 3.47$ 145 503.15$ -$ CPN1000691 KAPTON TAPE, 1"WD, 36YD ROLL 1.02$ 478 488.71$ -$ CPN3002710 CABLE ASM, KTP-DTR BD, RED/GRN 4.13$ 118 487.34$ -$ CPN3008647-FA Base, Fiber Connector, Alice 37.18$ 13 483.34$ -$ CPN3002708 CABLE ASM, ICS-DTR BD, BLU/GRN 2.47$ 194 479.18$ -$ CPN1003656 SCR SHC 8-32 X 3/4 SS 0.16$ 3079 478.17$ -$ CUT-1009 SMOOTHFLOW TAPERED DISPENSING TIP, 18 GAUGE 59.65$ 8 477.20$ -$ CPN3002709 CABLE ASM, AIM DIODE-DTR BD, BLK/GRN 2.47$ 193 476.71$ -$ CPN10004 ADHES LOCTITE 271 THREADLOCK PERM 38.27$ 12.45 476.46$ -$ CPN452005606 WIRE CLIP 0.26$ 1858 475.65$ -$ CPN1003179 FOAM
PU, ADHSV BACK, BLK, 3/16" x 3/16" 1.84$ 259 475.39$ -$ CPN1005235 SCR, SHC, M3 X 35L ASM 0.23$ 2063 474.49$ -$ CPN3008582 Fan Funnel, Alice 1.19$ 396 472.43$ -$ CPN1004356 CLIP, 1.5IN DIAMETER 1.76$ 268 471.68$ -$ CPN3002667 COVER, CABLE FEEDTHRU, EV 2.69$ 175 470.75$ -$ CPN1000304 QUICK DISCONN 3/8 STRAIGHT, PUMP 1.50$ 306 459.00$ -$ CPN1006561 PROTECTIVE FILM 75.29$ 6.02 453.25$ -$ CPN3002655 MOUNT, SOLENOID, SAFETY SHUT, EV 5.57$ 81 451.17$ -$ CPN3008350-FA Strip, Rubber, KNF Pump Mount 90.11$ 5 450.55$ -$ CPN1000061 WSHR,EXT TOOTH #3 0.29$ 1543 447.47$ -$ CPN1000189 ADHESIVE THERMAL, ARCTIC ALUMINA 220.00$ 2 440.00$ -$ CPN1004406 O-RING, 2-156, VIT 2.93$ 150 439.65$ -$ CPN451005526 STANDOFF - MF #2-56 X 3/8 2.74$ 160 438.40$ -$ CPN3007836 CABLE, UCNTRL TO TEC DR LBO BOARD, EV3 8.54$ 51 435.54$ -$ CPN3002422 TIE-BAR, PWR MTR, EV 1.03$ 423 434.25$ -$ CPN1003228 BUSHING, ISOL, 260 ID X .469 OD 1.11$ 391 434.01$ -$ CPN1003226 FTG, PTC, 1/2 X 3/8NPT, 90 EL, SVL 7.80$ 55 429.00$ -$ CPN1004174 FTG, ADAPTER, 1/4T X 10-32 FEMALE 4.61$ 93 428.54$ -$ CPN3002423 APERTURE, PWR MTR, EV 1.93$ 222 428.46$ -$ CPN1004155 ADJUSTER, 1/4-100 X 1/2 LG, HEX HD, SS 4.75$ 90 427.50$ -$ CPN3002576 BRKT, LATCH PIN, RH PANEL, EV 1.89$ 225 425.25$ -$ CPN410005475 Screw, 8-32 x 3/4, Ph, Pn hd, SEMS 0.05$ 8481 424.05$ -$ CPN1003861 SCR SEMS PPH 8-32 X 1-3/8LG, ZP STL 0.07$ 6269 411.87$ -$ CPN10017 SAF T LOK PRIMER T 40.97$ 10 409.66$ -$ Confidential Execution Version Page 15 of 26
CPN1004360 FITTING, ELBOW, 1/4"OD PTC, 1/4"MNPT 5.24$ 78 409.03$ -$ CPN3002577 BRKT, LATCH PIN, LH PANEL, EV 2.35$ 174 408.90$ -$ CPN3008434 Bezel, Estop-Key, Console, Alice 1.95$ 209 407.55$ -$ CPN1003271 SPRING, COMP, .531OD X .63LG 2.35$ 173 406.55$ -$ CPN3008537-FA MOUNT, PSU, COSEL, ALICE 80.87$ 5 404.35$ -$ CPN3002852 LIGHTSHIELD, LASER BRICK, EV 4.87$ 83 404.21$ -$ CPN1003306 CAP, 1.125 ID, VINYL 0.35$ 1111 388.85$ -$ CPN3008042 OPTICAL FIBER INTERFACE CONNECTOR, ALICE 2.10$ 185 388.50$ -$ CPN3002601 CABLE ASM, GND, DISPLAY, EV 0.89$ 434 387.56$ -$ CPN3008543-FA Mount, FC Laser, Alice 77.42$ 5 387.10$ -$ CPN3007079 FTG, PLUG, 3/8-24, CLEANED 3.56$ 108 384.48$ -$ CPN1000528 EMI GASKET, .3" THICK 6.05$ 63 381.28$ -$ CPN1003224 FTG, PTC, 3/8 X 3/8 X 3/8NPT, TEE 6.93$ 55 381.10$ -$ CPN3009233 CABLE ASM, 50MM FAN, PUMP, AV 38.00$ 10 380.00$ -$ CPN3002633 COVER, SAFETY, EV 4.13$ 92 379.96$ -$ CPN3007139 CAP, NO STANDOFF, DERMASTAT, 1MM 2.60$ 146 379.60$ -$ CPN3002706 CABLE ASM, HVPS-PWR MONITOR, PUR 1.95$ 192 374.40$ -$ CPN3001453 PIN, SPRING ATTACHMENT, PF 1.09$ 341 371.69$ -$ CPN452005223 CLIP DE-IONIZER 0.84$ 442 369.95$ -$ CPN1004032 NUT, HEX, 5/8-18 X 3/8 THK, SS 0.61$ 603 367.95$ -$ CPN3007085 RETAINER RING, SM1, CLEANED 4.64$ 79 366.56$ -$ CPN1005753 Tight-Grip Push-In Bumper for 1/8" ID, S 0.55$ 660 363.86$ -$ CPN3002698 CABLE ASM, SAFETY SHUTTER-HVPS, WHT 1.98$ 183 362.34$ -$ CPN1003311 MAGNET, DISC, 3/8D X 1/10 THK, NEOD 0.75$ 481 360.75$ -$ CPN3007122 BRACKET, PCBA, GENESIS HP, EV 7.84$ 46 360.64$ -$ CPN1003295 FERRITE, CLIP ON, 10MM CORE 0.76$ 463 352.34$ -$ CPN3008575-FA Box, Antenna, Alice 69.13$ 5 345.65$ -$
CPN1003282 STANDOFF, 8-32 X 3/8, FF, HEX, AL 1.37$ 251 343.87$ -$ CPN3000250 CABLE ASM DISPLAY TO SPEAKER 3.23$ 106 342.80$ -$ CPN1005117 Cover, Terminal Block, 24V PSU 1.58$ 216 341.28$ -$ CPN400005958 ADHESIVE, 5 MIN EPOXY 13.63$ 24.83 338.51$ -$ CPN3007854 END CAP, DERMASTAT, 1MM 2.42$ 139 336.38$ -$ CPN3002775-FA Shipping Crate, Cardboard, EV Cart 328.10$ 1 328.10$ -$ CPN1003188 CONTACT, MALE, SIZE 22, 22 AWG. 0.42$ 781 326.93$ -$ CPN1003241 SPRING, EXT, .172OD X .31LG X .016 1.13$ 284 320.92$ -$ CPN3002692 CABLE ASM, PWR, 24V PS-DTR, EV 2.87$ 111 318.13$ -$ CPN1004184 LABEL, BLANK, 2” x 1”, UDI 0.02$ 16710 317.49$ -$ CPN1000419 HOSE CLAMP 5/16W 7/32-5/8ID 0.72$ 439 316.96$ -$ CPN3002691 CABLE ASM, PWR, 24V PS-Q-SW DRVR, EV 2.85$ 111 316.35$ -$ CPN1000191 TUBING,HEATSHRINK,3/16EXP-ID,POLYO 2.72$ 116.25 316.14$ -$ CPN5168X Pre-Print LABEL, MAIN LABEL, EV2 1.66$ 190 315.21$ -$ CPN3008334-FA Pole, Alice 62.93$ 5 314.65$ -$ CPN1003406 SCR, SHDR, 1/4ODX3/4LGX10-24THD 1.47$ 211 310.17$ -$ CPN3007083 ADJUSTER, 1/4-100 X 1/2 LGHEX HD,SSCLEAN 4.75$ 65 308.75$ -$ CPN320005246 CONN ST 1/2 MPT X 1/2 ITF ACETA 2.25$ 131 295.27$ -$ CPN3008371-FA Weight, Narrow, Counter Balance, .06 Thk $ 13.76 5 $ 68.80 -$ CPN3008271-FA Skin, Side, EMI, Alice 58.77$ 5 293.85$ -$ CPN1003269 CAP, .600 ID, VINYL, BLK, EZ 0.29$ 1022 292.29$ -$ CPN3008148-FA Bracket, LCD, Display, Alice 58.25$ 5 291.25$ -$ CPN1000348 WASHER FENDER, #8, 3/4OD 0.07$ 4320 289.44$ -$ CPN1000359 IGBT 100A, 1200V 18.00$ 16 288.00$ -$ CPN1003291 CONN, PLUG, 2 CIR, 3.81MM CL 1.73$ 164 283.72$ -$ CPN3008352-FA Support, KNF Pump, Alice 56.74$ 5 283.70$ -$ CPN1004175 FTG, ADAPTER, 1/8BARB X 10-32 MALE 2.85$
99 281.66$ -$ CPN1005153 FERRITE, 90OHM, Hinged 15.49mm 0.99$ 284 281.16$ -$ CPN1000466 TUBING PVC 1/8ID,1/4OD,1/16W,CLEAR 0.40$ 700 280.84$ -$ CPN3008593-FA Bracket, Display to Console, Alice 55.77$ 5 278.85$ -$ CPN510005373 TERM BLOCK 3 POS 2.38$ 117 278.46$ -$ CPN1004414 SCR, PPH, 10-32 X 3/8, SEMS 0.11$ 2400 273.57$ -$ CPN3007087 O-RING, 2-156, VIT, CLEANED 2.93$ 93 272.58$ -$ CPN3003793 CABLE ASM BACKLIGHT PCBA TO DISPLAY 2.45$ 109 266.51$ -$ CPN1000138 WASHER SPLIT LOCK 3/8 ZINC PLATE 0.03$ 8107 265.91$ -$ CPN1004400 SPRING, COMPRESSION, .180OD X .50FL 0.44$ 598 263.12$ -$ CPN3007086 O-RING, 2-139, VIT, CLEANED 1.28$ 205 261.58$ -$ CPN1005369 SCR, PPH, 8-32 X 7/8"LG, SS 0.30$ 854 260.38$ -$ CPN1000362 STANDOFF NYL .5 IN DIA .875L 2.60$ 100 259.72$ -$ CPN3008272-FA Skin, Side, EMI, Alice 51.77$ 5 258.85$ -$ CPN1000330 FITTING , TEE, 3/8 INST 4.54$ 57 258.84$ -$ CPN1004033 WASHER, LOCK-INT, #5/8 X 1.071OD, STL 0.36$ 702 254.55$ -$ CPN3002508 CABLE ASM, HP COMM, MEZZ, GP 2.31$ 110 254.10$ -$ CPN1004171 FTG, UNION, 1/4"T 4.68$ 54 252.45$ -$ CPN1004359 FITTING, 1/4"OD PTC, 1/4"MNPT 4.06$ 62 251.72$ -$ CPN3008639-FA BOOM HOLDER, BRACKET, ALICE 50.04$ 5 250.20$ -$ CPN3008566-FA GASKET, HUMIDITY SENSOR, ALICE 50.00$ 5 250.00$ -$ CPN1006255 ADHESIVE, LOCTITE 425 24.95$ 10 249.50$ -$ CPN3008512-FA Clamp, Dish Pan, Console, Alice 48.90$ 5 244.50$ -$ CPN3008336 Saddle, Umbilical, Alice 1.27$ 191 242.57$ -$ CPN1004405 O-RING, 2-139, VIT 1.28$ 190 242.44$ -$ Confidential Execution Version Page 16 of 26
CPN1004388 4.33" 5095 Resin Ribbon 0.10$ 2420 242.00$ -$ CPN3008863 CRADLE, SCANNER, AV 1.35$ 179 241.65$ -$ CPN1006178 SCR, PPH, M3 X 45MM LG, 18-8 SS 0.10$ 2360 240.48$ -$ CPN151005503 CABLE AC SWITCH BLUE 2.05$ 117 240.20$ -$ CPN151005504 CABLE AC SWITCH BROWN 2.04$ 117 238.68$ -$ CPN760005238 FAN CORD 24 IN 45 DEG 1.09$ 216 235.87$ -$ CPN3008566 Gasket, Humidity Sensor, Alice 1.55$ 152 235.60$ -$ CPN1003436 SPRING, COMP, .360 OD X .026 WIRE 1.70$ 138 234.30$ -$ CPN3008256-FA CABLE ASM, FIBER ID, ALICE 8" 46.54$ 5 232.70$ -$ CPN1004510 SCR SHOULDER 3/32DIA X 3/8LG 2-56 SS 5.63$ 41 230.70$ -$ CPN1005004 POLYBAG, 12" X 12" 4MIL 0.24$ 953 227.48$ -$ CPN1000360 DIODE, DUAL 60A, 1200V 9.41$ 24 225.84$ -$ CPN3002669 FOAM, FEEDTHRU, EV 2.19$ 103 225.16$ -$ CPN1003654 TUBING SHRINK 2:1 1" POLYOLEFIN 2.31$ 96.5 223.24$ -$ CPN3001388 LABEL CUTERA WITH ADDRESS 2.22$ 92 203.92$ -$ CPN3007856 ND Filter ND210B into 1.00” X 0.50" 3.90$ 52 202.80$ -$ CPN3002421 SHEILD, PWR MTR, EV 1.63$ 123 200.49$ -$ CPN320005250 CONN 90 1/4 MPT X 3/8 ITF ACETA 4.32$ 46 198.63$ -$ CPN1000725 Foam End Cap, Laser Handpiece 0.82$ 241 196.42$ -$ CPN1005915 CLIP, TWIST LOCK 0.38$ 518 194.25$ -$ CUT-1006 Plastic Portion Cups - 2 oz 96.00$ 2 192.00$ -$ CPN10011 KIT, SILICONE RUBBER, RTV615, CLEAR 12.00$ 16 192.00$ -$ CPN1003208 SPRING, COMP, CONICAL .42 OD X 3/8L 3.42$ 56 191.46$ -$ CPN1004152 SCR, SHC, 8-32 X 7/8"LG, SS 0.11$ 1800 191.16$ -$ CPN410005452 SCR 10 X 3/4 SELF TAPPING 0.03$ 7465 190.36$ -$ CPN3003489 CABLE ASM, CONVERTER, LCD DISPLAY 1.70$ 109 184.86$ -$ CPN1003223 BOLT, HX HD, 1/2-13 X 4, STL, ZN 1.38$ 131 180.78$ -$ CPN1004421 PLUG, 1/4T STEM 1.36$ 132 179.78$
-$ CPN3008146-FA HANDLE REAR BAR. 75 IN AL, Alice 35.34$ 5 176.70$ -$ CPN3002497 CLIP DIODE GP 3.81$ 45 171.36$ -$ CPN1005443 SCR, PPH, M2-.4 X 4MM, SS 0.08$ 2190 169.73$ -$ CPN0010006 ADHESIVE LOCTITE 4471 MED VISC. CYA 34.79$ 4.8 166.99$ -$ CPN3007741 Spacer, L1-L2, Handpiece, EV 0.87$ 191 166.86$ -$ CPN1000017 SCR DIODE 1500VP, 150A 13.87$ 12 166.44$ -$ CPN3008274-FA Skin, Side, Bottom, EMI, Alice 32.61$ 5 163.05$ -$ CPN1000060 SCREW,3-48X.125L,PHIL 0.09$ 1779 162.78$ -$ CPN340005256 SUBMICRON FILTER 4.28$ 38 162.64$ -$ CPN1005005 CABLE TIE, BEADED, 4.25"LG, PE 0.02$ 7474 162.19$ -$ CPN1000393 TIE WRAP, 2.8" 0.12$ 1394 161.01$ -$ CPN420005451 NUT 8-32 KEP 0.02$ 9098 159.22$ -$ CPN3008384 600 um fiber mode scrambler, Alice 0.31$ 507 156.16$ -$ CPN1005381 SCREW, 4-40 1/4" long External-Tooth 0.17$ 913 156.03$ -$ CPN3007082 SPRING, COMP, .219OD X .50FL, CLEANED 0.88$ 177 155.76$ -$ CPN3002644 ADAPTER TUBE, AIM DIODE, EV 1.38$ 113 155.60$ -$ CPN151005961 CABLE GROUND LASER HEAD 0.85$ 182 154.70$ -$ CPN3008386 Cover, 600 um fiber mode scrambler, Alic 0.32$ 480 153.60$ -$ CPN3008273-FA kin, Fan, EMI, Alice 30.56$ 5 152.80$ -$ CPNS3474 Strap guards 0.11$ 1427 149.84$ -$ CPN3008448-FA Cable ASM, Humidity Sensor, Alice 29.85$ 5 149.25$ -$ CPN1005272 SCR, PPH, M3 X 45MM LG 0.19$ 800 149.15$ -$ CPN1003260 SCR, SHLDR, SLTD, 8-32 X 1/4, 1/4 0.92$ 161 148.12$ -$ CPN1005600 Routing Clamp Polypropylene Plastic, 1-1 0.71$ 208 147.97$ -$ CPN1004438 CLAMP, LOOP, 3/16ID, 3/4LG, SS 1.14$ 130 147.55$ -$ CPN1003824 SCREW, PAN HD, #2-56 X 3/8" LG, NYLON 1.80$ 80 143.84$ -$ CPN1000584 Loctite 609 38.60$ 3.7 142.82$ -$ CUT-1002 AGUA DESTILADA O DEIONIZADA LIBRE DE CO2 BOTE 20.40$ 7 142.80$ -$
CPN320005251 CONN ST 1/4 MPT X 3/8 ITF ACETA 2.79$ 51 142.24$ -$ CPN750006061 WIRE 22GA, WHITE, TEFLON 0.18$ 790 142.20$ -$ CPN370005921 HEAT SHRINK TUBE 0.25 EXP-ID 0.78$ 180 140.94$ -$ CPN1003735 TBG 1/8ID X 1/4OD X 1/16WAL BLK VIT 4.67$ 30 140.10$ -$ CPN1005681 ERM RING, CRIMP, #8, 14-16AWG, INSUL 0.10$ 1381 138.10$ -$ CPN3002694 CABLE ASM, GND, 24V, PS 1.25$ 110 137.50$ -$ CPN3008904-FA Mount, Control Bd & Dehumidifier, AV 26.45$ 5 132.25$ -$ CPN430006103 SCREW, PH. PNHD, #2-56X1/2 SST 0.01$ 10000 130.98$ -$ CPN1004086 WASHER, FLAT, M3, 3.2MM ID X 9MM OD X .7 0.06$ 2246 130.66$ -$ CPN3002352 BUSHING, L2, EV 0.65$ 201 130.57$ -$ CPN1006277 BUMPER,13/16"OD,1/8"HT,65APU BLK,AD-BACK 0.20$ 615 125.77$ -$ CPN1000358 SCR, DUAL 50A 1200V 10.26$ 12 123.12$ -$ CPN1003238 SCR, 2-56 X 3/16, BNDNG HD SLT, SS 0.06$ 2238 123.09$ -$ CPN780005495 CABLE TIE SMALL 4L X 0.1W 0.03$ 4366 122.25$ -$ CPN1003345 BALL, 7/32 DIA, SST 0.28$ 433 122.11$ -$ CPN1000079 SCREW, SEMS, PH PN HD, 2-56 X 1/2 0.35$ 348 121.70$ -$ CPN3008504-FA MOUNT, HEATSINK, DEHUMIDIFIER, ALICE 24.17$ 5 120.85$ -$ CPN1005009 Label, Keep From Freezing, 6”x4” 0.24$ 500 120.00$ -$ CPN1005734 SCR, PLASTITE, PPH, 2-28 X 3/8 LG,STL 0.10$ 1176 118.78$ -$ CPN3004675 CBL ASM 15V DG45 TO MEZZANINE 1.09$ 109 118.59$ -$ CPN1005301 Bronze Hex Head Screw 1/4"-20 Thread Siz 0.58$ 200 115.64$ -$ CPN420005277 WSHR FIBER #2 0.40$ 284 112.66$ -$ Confidential Execution Version Page 17 of 26
CPN3007887 Clamp, Cradle, AviClear 0.57$ 194 110.58$ -$ CPN1000679 SCR, SEMS, PPH, INT LW,2-56 X 3/16" 0.28$ 400 110.54$ -$ CPN1003871 SCR, SEMS PPH 8-32 X 1/4LG, ZP STL 0.09$ 1193 109.99$ -$ CPN1005882 HHCS, 1/4-20 X 1/2, ZS 0.26$ 424 109.60$ -$ CPN1000564 SKT SET SCRE, #2-56X3/16"LG 0.52$ 203 106.37$ -$ CPN1003237 SPRING, COMP, 1/4OD X 1.38LG X .02W 0.75$ 141 105.52$ -$ CPN1000568 SKT SET SCR, #4-40X3/32"LG 1.53$ 66 100.91$ -$ CPN1000595 SCREW, PLASTITE, #2-28X1/4" LG 0.12$ 800 99.59$ -$ CPN1003412 SCREW, PLASTITE 4-20X0.5 LONG 0.33$ 300 99.09$ -$ CPN440005690 WASHER, BELLEVILLE #4 0.62$ 160 98.62$ -$ CPN370005240 HOSE .375 OD PE 0.29$ 330 97.02$ -$ CPN1004512 SPRING, WAVE, .367OD X .303ID 0.46$ 208 95.95$ -$ CPN1000828 GROMMET STRP, METAL BLK 0.79$ 122 95.77$ -$ CPN420005453 WSHR 1/2 FLAT 0.05$ 1697 92.66$ -$ CPN1000612 DOWEL PIN 1-16 X 3-8 0.11$ 830 92.13$ -$ CPN1000729 FITTING, QCK DIS, 3/8 ELBOW ,14MMOD 1.50$ 61 91.50$ -$ CPN430005527 SCR 2-56 X 1/4 PH PN HD SEMS 0.04$ 2144 90.05$ -$ CPN1003323 STRAP, 9IN, FLEXIBLE PLASTIC LOOP 0.22$ 401 89.02$ -$ CPN1003426 LABEL WARRANTY VOID IF REMOVED 0.36$ 250 89.00$ -$ CPN330005198 O-RING 1.237 X .103 BUNA 0.39$ 215 83.85$ -$ CPN400005456 LUBRICANT KY JELLY 1.75$ 47 82.39$ -$ CPN1003240 SET SCR, 8-32 X 3/8, NYL TIP 1.19$ 66 78.54$ -$ CPN3000130 FOAM, DUST SEAL, LCD 0.37$ 214 78.11$ -$ CPN3007081 SPRING, COMP, .180 X 1.25FL, CLEANED 0.40$ 194 77.60$ -$ CPN1003434 WSHR, SHLDR, LONG BARREL #6 X 3/8 0.08$ 889 72.28$ -$ CPN430005899 SCR, PH PN HD, SEMS 2-56 X 3/16 SS 0.06$ 1260 71.82$ -$ CPN1000377 SCREW FLAT UNDECUT PH 8-32 3-8L 0.08$ 943 71.67$ -$ CPN1003435 WSHR, SHLDR, LONG BARREL
#8 X 3/8 0.08$ 870 67.43$ -$ CPN3007080 SPRING, COMPRESSION.180OD X .50FL CLEAN 0.44$ 150 66.00$ -$ CPN1000082 CABLE TIE 51/2X.14 NATURAL 0.02$ 2978 65.52$ -$ CPN400006135 ADHESIVE, LOCTITE 495 43.09$ 1.5 64.64$ -$ CPN1000771 SCR PPH SEMS 440 X 3/4 0.16$ 400 63.63$ -$ CPN1006252 SCREW, SET, 8-32 X 1-1/2"LG, NYLON 0.12$ 524 62.88$ -$ CPN3008154-FA CONNECTOR PLATE, ALICE 12.26$ 5 61.30$ -$ CPN3008638-FA Insert, Mast Hub, Alice 12.26$ 5 61.30$ -$ CPN3008564 Hsg, Upper, Humidity Sensor, Alice 0.30$ 203 60.49$ -$ CPN1006439 Screw, 8-32 Thread Size, 3/8" Long 2.96$ 20 59.20$ -$ CPN1003231 SCR, 8-32 X 1-1/8, SHC, SS 0.22$ 264 59.00$ -$ CPN3008145-FA SUPT HANDLE REAR BAR. 5IN AL, Alice 11.49$ 5 57.45$ -$ CPN1003506 SCR PLASTITE PPH 8-16 X 5/8L STL 0.13$ 448 56.90$ -$ CPN1004116 WASHER, FLAT, #8, 3/8OD, SS 0.02$ 2332 55.50$ -$ CPN3008565 Hsg, Lower, Humidity Sensor, Alice 0.31$ 174 53.59$ -$ CPN1004447 SCR, SEMS, PPH, 1/4-20 X 5/8 LG, ZP STL 0.47$ 115 53.59$ -$ CPN1005733 SCR, PFH, 8-32 X 7/16"LG, SS, BO 0.13$ 400 50.55$ -$ CPN3007088 O-RING, 2-019,.801"IDX .070"CS,VIT,CLEAN 0.30$ 169 50.36$ -$ CPN1000190 SCR, INT-SEMS, PH PN HD, 2-56,3/8 0.27$ 177 47.42$ -$ CPN1004145 SCR, SHC, 6-32 X 1/4, SS 0.07$ 667 47.36$ -$ CPN3008417-FA Bracket, Electronic Support, Alice 9.46$ 5 47.29$ -$ CPN1004082 O-RING, 2-019, .801"ID X .070"CS, VIT 0.30$ 156 46.49$ -$ CPN1003242 SET SCR, 2-56 X 1/2, CUP PNT, SS 0.20$ 232 46.40$ -$ CPN1004045 WASHER, FLAT, #8, .750"OD X .120"THK 0.62$ 74 45.66$ -$ CPN3008246-FA CABLE ASM, power supply to terminal bloc 8.72$ 5 43.58$ -$ CPN3008247-FA CABLE ASM, power supply to terminal bloc 8.72$ 5 43.58$ -$ CPN330005322 O-RING .487 X .094 BUNA 0.32$ 133 42.56$ -$ CPN1000229
TAPE,FOAM,1/2"W,2SIDE,BLK 0.10$ 416 41.60$ -$ CPN3007097 CLAMP, LOOP, 3/16ID, 3/4LG, SS, CLEANED 1.14$ 36 40.86$ -$ CPN1005776 SCR, PPH, 4-40 X 3/8"LG, SS, BLK-OX 0.09$ 433 40.27$ -$ CPN1005238 WSHR, FLAT, #M3 SCREW, 3.2mm ID X 7mm OD 0.02$ 2100 40.14$ -$ CPN3008462-FA Cable ASM, Air Pump, Pwr and Ctl, AL 7.79$ 5 38.95$ -$ CPN3008510-FA Spacer, Caster, Console, Alice 7.63$ 5 38.15$ -$ CPN3008248-FA CABLE ASM, laser diode driver to laser p 7.63$ 5 38.14$ -$ CPN3008333-FA CABLE ASM, AC PWR PCB TO EMI filter, lug 7.34$ 5 36.70$ -$ CPN1000249 PLUG, 5/32 IN. TUBE O.D. 0.62$ 59 36.40$ -$ CPN1005329 SCREW, 2-56 x 1/4" L, , PPH, NYL (93135A 0.17$ 200 33.94$ -$ CPN1000580 SCREW, PH PN HD, NYLON 8-32 X .5 0.03$ 1158 33.58$ -$ CPN3008266-FA CABLE ASM, VAC SENSE, ALICE 6.48$ 5 32.40$ -$ CPN1005237 WSHR, SPLIT LK, #M3 SCREW, 3.4mm ID X 6. 0.02$ 2100 32.21$ -$ CPN3007096 WSHR #8 FLAT, CLEANED 0.02$ 1361 31.30$ -$ CPN1000839 SCR, PLASTIC, 4-20 X 1/4 LG, STL 0.08$ 376 31.17$ -$ CPN1003316 Foam Blk 75 thk Neoprene 0.83$ 37 30.78$ -$ CPN1000511 SCR, 4-20 X 3-8 PLASTITE 0.09$ 347 29.84$ -$ CPN1003741 SCR, SHC, 6-32 X 3/8LG, SS 0.07$ 407 29.71$ -$ CPN1005266 Screws 100 Degree Countersink Angle, 10- 0.15$ 200 29.26$ -$ CPN1004089 SCR, SHC, 6-32 X 1/2"LG, SS 0.09$ 330 28.71$ -$ CPN1004527 SET SCREW, CUP, 4-40, 3/32" 0.03$ 979 28.20$ -$ CPN1000152 SCR, CAP SOCKET HD, #2-56 1/4L, SS 0.02$ 1390 27.80$ -$ CPN1000193 SCR, SEMS PH PN HD 4-40 0.08$ 350 27.65$ -$ CPN1004091 WSHR FL#6, .267 OD X .143IDX.015THKSS 0.07$ 418 27.59$ -$ Confidential Execution Version Page 18 of 26
CPN1004247 WSHR, LOCK, EXT. TOTH, NO. 8, SS 0.02$ 1368 27.36$ -$ CPNS13108 SHIPPING ENVELOPES 0.04$ 694 27.07$ -$ CPN1003407 SCR, SET, 10-24THDX5/8LG 0.23$ 114 26.66$ -$ CPN1003643 TERM FERRULE 10AWG INSUL YEL 0.11$ 247 26.18$ -$ CPN420005450 WSHR #8 FLAT 0.02$ 1136 26.13$ -$ CPN1006190 WSHR, External Tooth, #M4, 4.3mm ID X 8m 0.04$ 674 26.02$ -$ CPN3008231-FA CABLE AC SWITCH BROWN, ALICE 4.78$ 5 23.90$ -$ CPN1000368 SCREW 4-40X1/4L 0.08$ 302 23.56$ -$ CPN1003267 SCR, 6-32 X 1/2, PPH, SEMS, SS 0.32$ 70 22.26$ -$ CPN3005379 REFLECTOR, CERAMIC 0.21$ 94 19.74$ -$ CPN1003772 SCR, SHC, 4-40 X 3/8LG, SS 0.10$ 200 19.35$ -$ CPN1003685 TERM BUTT SPLICE 22-18AWG NON-INSUL 0.13$ 152 19.06$ -$ CPN1003626 BALL, 3/16 DIA, HARDENED 440C SS 0.10$ 200 19.00$ -$ CPN1003637 2CR SHC 8-32 X 5/8 SS 0.13$ 145 18.78$ -$ CPN3007093 SCR, SHC, 6-32 X 1/2"LG, SS, CLEANED 0.09$ 209 18.18$ -$ CPN3007095 WSHR FL#6, .267ODX.143IDX.015THKSSCLEAN 0.07$ 271 17.89$ -$ CPN1000577 SCREW, PLASTITE #4-20X5/8 LONG 0.10$ 185 17.59$ -$ CPN430005848 SCR, PH PN HD, 2-56 X 3/32, SST 0.05$ 360 17.28$ -$ CPN510005841 CONN STRT LOCKING HEADR 0.11$ 156 16.85$ -$ CPN3008267-FA CABLE ASM, Interlock ALICE 3.35$ 5 16.75$ -$ CPN1003635 TAPE, TEFLON 1/4"WIDE 1.67$ 10 16.70$ -$ CPN1003302 WIRE, 1 COND, 22 AWG, RED 0.15$ 110 16.53$ -$ CPNS512 Open Seal 0.03$ 609 16.44$ -$ CPN1004450 SCR, PFH, 10-24 X 7/16 LG, ZP STL 0.10$ 168 16.13$ -$ CPN1003206 RETAINING RING, 5/8 BORE, SELF LOCK 0.11$ 139 15.50$ -$ CPN1004401 SCR, SHC, 40-40 X 3/16, SS 0.06$ 280 15.40$ -$ CPN1003232 CAP, THUMB SCR, #8 SHC, BLK 0.15$ 95 14.23$ -$ CPN1004528 SCR PH SLOTTED 2-56 X 1/8LG Nylon, Off 0.08$ 183 14.13$ -$
CPN1000543 SCREW, SOCKET CAP #2-56 X 3/8 0.09$ 158 13.78$ -$ CPN1003170 SET SCR, 2-56 X 1/8, CUP PT, SS 0.10$ 134 13.57$ -$ CPN3008265-FA CABLE ASM, 12V Disp Adapter to main cont 2.68$ 5 13.40$ -$ CPN1003249 WSHR, 1/2 ID X .87 OD, SPRING LOCK 0.11$ 121 13.19$ -$ CPN440005957 WASHER, SPLIT LOCK, #8, SS 0.01$ 989 12.86$ -$ CPN1003753 BALL, 3/32DIA, SLIPPERY PTFE 0.15$ 86 12.81$ -$ CPN3007089 BALL, 3/16 DIA, HARDENED 440C SS, CLEAN 0.10$ 133 12.64$ -$ CPN1000766 SCR, PPH, 4-40 X 1/2, SEMS, SS 0.19$ 65 12.42$ -$ CPN1005680 TERM BLADE MALE 14-16AWG TIN 0.09$ 130 12.22$ -$ CPN1003255 NUT, 6-32, KEPS, STL, ZN 0.03$ 349 11.87$ -$ CPN1004151 SCR, PPH, 8-32 X 5/16"LG, SS 0.10$ 119 11.80$ -$ CPN3007094 SCR SHC 8-32 X 5/8 SS, CLEANED 0.13$ 86 11.14$ -$ CPN1005105 ORING, 3.4MM ID X 7.2MM OD 1.9MM WIDE, 0.19$ 60 11.10$ -$ CPN1003272 SET SCR, 2-56 X 3/32, CUP PNT, SS 0.15$ 74 10.77$ -$ CPN1000423 NUT, HEX, #2-56, 5/32 W X 1/16 H, S 0.04$ 256 10.75$ -$ CPN1003739 SCR, SET, CUP-PT, 6-32 X 1/4LG, SS 0.07$ 141 10.41$ -$ CPN1004396 SCR, BTN, M3 X 5, SS 0.07$ 139 9.73$ -$ CPN1003247 RETAINING RING, SELF LOCK, 5/8 SHFT 0.19$ 52 9.68$ -$ CPN1000289 FLAT WASHER, 1/4 SCREW 0.08$ 121 9.56$ -$ CPN1000420 WSHR, FLT, #2 X 1/4 ODX.028 THK 0.02$ 566 9.34$ -$ CPN1000081 WASHER, EXT. TOOTH, #2 0.03$ 327 9.16$ -$ CPN1004509 NUT SQUARE 2-56 0.06$ 141 8.91$ -$ CPN1003531 SCREW, SHC, 4-40 X 1/4LG, SS 0.04$ 200 8.60$ -$ CPN1003847 WASHER FLAT .09ID X .25OD SS 0.02$ 500 8.38$ -$ CPN1005303 SCR, BHSC, 8-32 X 1/4"LG, SS 0.08$ 100 8.12$ -$ CPN3008232-FA CABLE AC SWITCH BLUE ALICE 1.54$ 5 7.70$ -$ CPN1003874 CR, SHC, 8-32 X 3/8LG, SS 0.07$ 109 7.41$ -$ CPN3008258-FA CABLE ASM, EMI FILTER TO
GND, ALICE 1.47$ 5 7.35$ -$ CPN3007091 SCR, BTN, 6-32 X 1/4LG, SS, CLEANED 0.04$ 146 5.40$ -$ CPN440006032 WASHER, FLAT, #8, 3/8 SS 0.05$ 108 5.40$ -$ CPN3007092 SCREW, SHC, 4-40 X 1/4LG, SS, CLEANED 0.04$ 93 4.00$ -$ CPN410005448 SCR 6-32 X 3/8 PH PN HD SEMS 0.01$ 477 3.82$ -$ CPN1003265 SCR, 2-56 X 1/8, PPH, SEMS, SS 0.07$ 50 3.73$ -$ CPN1004439 SCR, BTN, 6-32 X 1/4LG, SS 0.04$ 100 3.70$ -$ CPN1000156 WASHER,#4,SPLITLOCK 0.02$ 200 3.45$ -$ CPN3008614 Label, Storage and Transportation Limits 0.01$ 142 1.42$ -$ CPN3003144 WINDOW, LED, GV HP 0.00$ 250 1.14$ -$ CPN3006328 BEZEL NO-BUTTON HP EV2 0.00$ 136 0.30$ -$ CPN1004531 SPACER, #2 X 1/8" LG, NYLON 1.10$ 0 -$ -$ CPN1004533 SCREW, FHP, #2-56 X 1/8" LG, 18-8 SST 1.52$ 0 -$ -$ CPN3005582 Label, Storage and Transportation Limits 1.10$ 0 -$ -$ CPN3000632 SHIPPING CONTAINERHVPS WOOD PLATE 44.44$ 0 -$ -$ CPN3003448 BRACKET, ADAPTER, EV PS COVER 7.95$ 0 -$ -$ CPN3008493-FA CABLE, ASM, DEHUMIDIFIER THERMISTOR WITH 22.83$ 0 -$ -$ CPN3008496-FA CABLE ASM, THERMISTOR W/ LUG, LASER, ALI 23.04$ 0 -$ -$ CPN3008541-FA MOUNT, KNF PUMP-MUFFLER, ALICE 88.59$ 0 -$ -$ CPN3008646-FA SUPPORT, CORNER, FRAME, ALICE 87.71$ 0 -$ -$ CPN1006352 WIFI BULKHEAD ADAPTER, D, AV 14.55$ 0 -$ -$ CPN1003246 SPACER 166 ID X 1-4 0D X 1-8 THK 0.34$ 0 -$ -$ CPN3008260-FA CABLE ASM, 4 FAN, LASER, ALICE 66.28$ 0 -$ -$ Confidential Execution Version Page 19 of 26
CPN3008263-FA CABLE, RIBBON, 14 PIN, LASER THERMAL CON 17.48$ 0 -$ -$ CPN3008721-FA LABEL, WINDOW, REAR, AVICLEAR 6.93$ 0 -$ -$ CPN3009347-FA CABLE ASM, 4 FAN, LASER, AV 119.72$ 0 -$ -$ CPN7002712-FA PCBA, LASER THERMAL CONTROLLER 198.95$ 0 -$ -$ CPN3008313-FA BOTTLE, RESERVOIR, 500 ML, ALICE 1,268.00$ 0 -$ -$ CPN3008741-FA CABLE ASM, DOUBLE FAN , 2 WIRE, ALICE 121.86$ 0 -$ 9,285.00$ CPN3002490-FA RESERVOIR, EV 92.26$ 0 -$ 6,375.00$ CPN1003301 WIRE, 1 COND, 22 AWG, BLK 0.10$ 0 -$ CPN3007225 SADDLE, CABLE, EV2 2.99$ 0 -$ CPN3007237 T-BAR, SADDLE, EV2 4.18$ 0 -$ CPN1004355 FILTER, 4A SIEVE, 80CC, 1.5TUBE X 5.91LG 44.00$ 0 -$ CPN1003258 TUBING, 3/8 OD X .065 WALL, PU 1.21$ 0 -$ CPN3007917 Cover, Display Side 8.94$ 0 -$ CPN3007222 RETAINER, UMBILICAL, EV2 1.95$ 0 -$ CPN3007165 CABLE ASM, TEC-THERM, LBO, EV 104.05$ 0 -$ CPN3002653 BASE, FIBER FOCUS, HSG, EV 22.58$ 0 -$ CPN3007231 COVER, LEFT, CONSOLE, EV2 171.00$ 0 -$ CPN3007235 COVER, TOP, CONSOLE, EV2 225.00$ 0 -$ CPN3007232 COVER, RIGHT, CONSOLE EV2 196.00$ 0 -$ CPN1004402 FTG, EL, 10-32 X 1/4T 39.06$ 0 -$ CPN3007823 Bracket, Ferrite Mount, EV Display 4.76$ 0 -$ CPN7001958 PCBA, TEC CONNECTOR, EV 23.30$ 111 2,586.30$ -$ CPN7000711 PCBA, AIM DIODE CONNECTION 17.09$ 112 1,914.08$ -$ CPN7000967 35,580.00 ACKLIGHT CONVERTER 39.40$ 115 4,531.00$ -$ CPN7000636 PCBA, EV HANDPIECE 61.89$ 227 14,049.03$ -$ CPN7000908 PCBA HP GV 1NF IC2 44.92$ 44 1,976.48$ -$ CPN3007154 ASM UMBILICAL HP EV2 76.55$ 623 47,690.65$ -$ CPN7002600 PCBA Q-Switch Driver, Wide output 200.90$ 94 18,884.60$ -$ CPN3007179 FIBER ASM, 600 MICRON, SS MONOCOIL 320.00$ 530 169,600.00$ -$
CPN3007162 FIBER ASM 600 MICRON PTFE TUBING 242.00$ 418 101,156.00$ -$ CPN3007847 FIBER FOCUS HOLDER AND LENS, EV3 305.00$ 184 56,120.00$ -$ CPN3008004 FIBER, 600UM, .760M, CONSOLE, ALICE 475.00$ 477 226,575.00$ -$ CPN7002597PJHB ASM, HVPS, EV3, PURCHASED 3,375.12$ 54 182,256.48$ -$ Confidential Execution Version Page 20 of 26
Jabil - Cutera CUU Inventory 1,306,471.73$ Item Description Unit price QTY AMOUNT CUT1006141 DC DC CONVERTER 24V 300W 278.25$ 1,459.00 405,966.75$ CUT6002684_RA PCB FAB, ALICE CONSOL CONTROLLER 161.51$ 1,026.00 165,705.36$ CUT1005341 CELLULAR MODEM LTE NORTH AMERICA 110.78$ 1,050.00 116,319.00$ CUT1006293 RELAY, SOLID STATE, SPST-NO 40A 48-530V 51.23$ 2,066.00 105,832.92$ CUT6002569_RA PCB FAB, WIFI MODULE 38.42$ 1,650.00 63,397.95$ CUT6002729_RA PCB FAB, HUMIDITY SENSOR, AVICLEAR 63.73$ 832.00 53,025.86$ CUT1006052 IC REG BUCK ADJ 2.5A 28TSSOP 7.27$ 5,949.00 43,236.14$ CUT6002750_RA PCB, FAB, AC CONTROL, AVICLEAR 33.42$ 768.00 25,666.56$ CUT1005934 CONN D-SUB HD RCPT 15P R/A SLDR 10.82$ 1,676.00 18,138.51$ CUT1006051 IC REDRIVER LVDS 4CH 48TQFP 8.34$ 2,167.00 18,065.41$ CUT1006115 IC OSC SILICON PROG TSOT23-6 30.84$ 500.00 15,420.00$ CUT1005942 CONN HDR 2POS 7.50MM PCB SLDR 0.53$ 25,000.00 13,190.63$ CUT1006047 IC I/O EXPANDER SPI 16B 28SSOP 3.04$ 4,200.00 12,786.90$ CUT6002728_2 PCB FAB, LCD DISPLAY ADAPTER, AVICLEAR 46.92$ 256.00 12,011.52$ CUT1006099 MOSFET N-CH 40V 50A TO252-3 2.23$ 5,000.00 11,135.00$ CUT1006137 DC DC CONVERTER 15V 1W 4.33$ 2,500.00 10,831.00$ CUT1006138 DC DC CONVERTER 3.3V 2W 8.15$ 1,211.00 9,869.65$ CUT6002729_1 PCB FAB, HUMIDITY SENSOR, AVICLEAR 63.73$ 148.00 9,432.48$ CUT1006029 IC OPAMP DIFF 1 CIRCUIT 8VSSOP 2.51$ 3,750.00 9,428.25$ CUT1006102 DGTL ISO 5.7KV GATE DRVR 16SOIC 1.78$ 5,003.00 8,929.15$ CUT1006038 IC TRANSCEIVER HALF 1/1 8MSOP 1.61$ 5,500.00 8,827.50$ CUT1006042 IC ISOLATED GATE DRIVER 2-CH SOIC-16 2.09$ 3,869.00 8,097.51$ CUT1005809 CAP ALUM
47UF 20% 50V SMD 1.08$ 7,485.00 8,083.05$ CUT1006168 THERMAL PAD 44.64$ 177.00 7,900.92$ CUT1006118 SSR RELAY SPST-NO 5A 30V 8.35$ 942.00 7,862.12$ CUT1006026 IC MCU 32BIT 64KB FLASH 64LQFP 85DEGC 3.97$ 1,960.00 7,781.20$ CUT1006170 HEATSINK MAXI 0.9" THRU/TRANS 28.45$ 249.00 7,084.20$ CUT1005945 CONN HEADER R/A 30POS 2.54MM 3.95$ 1,676.00 6,611.82$ CUT6002750_RB PCB, FAB, AC CONTROL, AviClear Revision 12.48$ 500.00 6,239.00$ CUT6002712_RA PCB FAB, LASER THERMAL CONTROLLER 27.01$ 220.00 5,943.15$ CUT6002569_R2 PCB FAB, WIFI MODULE 38.42$ 148.00 5,686.60$ CUT6002728_RA PCB FAB, LCD DISPLAY ADAPTER, AVICLEAR 11.27$ 500.00 5,635.00$ CUT1006028 IC AUDIO AMP MONO HIFI SOP8 SMD 0.94$ 5,872.00 5,541.64$ CUT1006302 HEADER CONNECTOR, PCB MOUNT, RECEPT, 8 C 0.68$ 7,884.00 5,380.83$ CUT1006136 DCDC CONVERTER IN 6-42V OUT 5-30V 2A 6.73$ 750.00 5,047.52$ CUT3008357 CABLE ASM, JUMPER, POWER, 300W HP POWER 2.75$ 1,500.00 4,125.00$ CUT1006114 OSC XO 48.0MHZ 3.3V SMD 1.33$ 3,000.00 3,978.60$ CUT1006000 PTC RESET FUSE 6V 750MA 0805 0.91$ 4,000.00 3,638.00$ CUT1005965 CONN HDR 40POS 0.5MM SMD GOLD MODULE 1.86$ 1,920.00 3,568.32$ CUT1006039 IC INTERFACE SPECIALIZED 20SSOP 4.78$ 735.00 3,513.74$ CUT3008514 CABLE ASM, JUMPER, CONTROL ENABLE, HP PO 2.18$ 1,500.00 3,270.00$ CUT1006030 IC OPAMP ZER-DRIFT 1CIRC SOT23-5 0.86$ 2,935.00 2,518.64$ CUT1006025 IC REG LIN 3.3V 400MA SOT223-6 0.92$ 2,700.00 2,475.87$ CUT1005377 CONN MULTI-PURPOSE RCPT 41P R/A SMD 1.80$ 1,262.00 2,265.92$ CUT1005517 CONN HEADER VERT 4POS 4.2MM 0.43$ 5,047.00 2,188.38$ CUT1005998 LED RED DIFFUSED CHIP 0603 SMD 0.20$
10,226.00 2,066.67$ CUT1005782 CAP TANT POLY 68UF 6.3V 0805 0.46$ 4,000.00 1,849.12$ CUT1006106 DGTL ISO 5000VRMS 2CH GP 8SOIC 21.01$ 88.00 1,848.84$ CUT1006171 STANDOFFS 4 #40 KIT 7.23$ 217.00 1,568.91$ CUT1005791 CAP CER 6.8UF 50V X7R 1812 0.55$ 2,780.00 1,518.16$ CUT1005778 CAP CER 10UF 50V X7R 1210 0.17$ 9,000.00 1,508.76$ CUT1006253 HEXHEAD BOLT NUT WASHER 2-56X1/2 1.04$ 1,430.00 1,492.06$ CUT1005524 IC REG LINEAR 3.3V 100MA SOT23-5 0.65$ 2,257.00 1,473.14$ CUT1005344 IND 3.3UH 6A 20.9 MOHM SMD 1.79$ 729.00 1,305.77$ CUT1005972 IC DAC 12BIT V-OUT 14TSSOP 4.93$ 250.00 1,232.25$ CUT1005946 CONN HDR 2POS 7.50MM PCB SLDR 30A 0.78$ 1,524.00 1,193.11$ CUT1006089 SWITCH SLIDE DIP-SW SPST 100MA 1.39$ 783.00 1,088.37$ CUT1005944 CONN JACK 1PORT 100 BASE-T PCB 3.35$ 300.00 1,004.85$ CUT1005792 CAP CER 10UF 100V X7R 2220 0.64$ 1,500.00 967.44$ CUT1005608 CR 200V 1.5A TO92 1.09$ 850.00 926.50$ Total Jabil Owned Confidential Execution Version Page 21 of 26
CUT1005460 CAP ALUM 470UF 20% 35V RADIAL 0.31$ 2,605.00 820.47$ CUT1006140 DC DC CONVERTER 12V 1.5A 3.14$ 260.00 815.50$ CUT1005963 CONN HEADER VERT 4POS 3MM 0.93$ 857.00 800.87$ CUT1006003 FUSE BLOCK BLADE 500V 30A PCB 0.39$ 2,000.00 781.31$ CUT1005833 RES 0 OHM JUMPER 0805 0.15$ 5,000.00 738.45$ CUT1005783 CAP ALUM 470UF 20% 63V SMD 0.73$ 1,000.00 732.59$ CUT1006122 BATT LITH 3V 45MAH COIN 20.0MM 1.52$ 483.00 732.13$ CUT1006011 IND 27UH 20A 8 MOHM TV 5.19$ 140.00 726.53$ CUT1005935 CONN HEADER VERT 20POS 2.54MM 1.24$ 525.00 650.48$ CUT1006020 IC REG BUCK 3.3V 1.2A 10MSOP 3.96$ 150.00 594.66$ CUT1006160 IC GATE OR 1CH 2-INP SC70-5 0.32$ 1,759.00 569.92$ CUT1005960 CONN HEADER VERT 19POS 1.27MM 1.84$ 303.00 557.21$ CUT1005830 RES 27.4K OHM 0.1% 0.15W 0603 0.18$ 3,000.00 546.75$ CUT1005785 CAP CER 220PF 50V C0G/NP0 0603 0.05$ 12,000.00 544.07$ CUT1005974 IC ADC 12BIT SAR 38TSSOP 3.88$ 138.00 535.38$ CUT1005461 CONN SKT SODIMM 200POS R/A SMD 1.13$ 470.00 529.86$ CUT1006054 IC REG LINEAR 20V 500MA TO252-3 0.26$ 2,000.00 523.68$ CUT1005559 VARISTOR, 430V 10KA 1 CIRCUIT THROUGH HO 0.24$ 2,139.00 503.52$ CUT1005385 IND FERRITE BEAD 785 OHM 1812 1LN 0.24$ 2,000.00 485.60$ CUT1006040 IC RMII TRANSCEIVER FULL 1/1 32QFN 1.50$ 307.00 460.52$ CUT1005871 RES SMD 1K OHM 0.1% 1/5W 0603 0.04$ 10,000.00 421.88$ CUT1006024 IC REG LINEAR 5V 150MA SOT89-3 0.55$ 720.00 392.90$ CUT1006104 FUSE AUTOMOTIVE 30A 32VDC BLADE 0.17$ 2,100.00 359.52$ CUT1005928 CONN HEADER R/A 4POS 3MM, 2ROW 0.71$ 500.00 353.22$ CUT1005516 CONN HEADER VERT 2POS 1.26$ 275.00 346.50$ CUT1006103 FUSE AUTOMOTIVE 20A
32VDC BLADE 0.17$ 2,000.00 342.40$ CUT1005669 DIODE_BRIDGE, BRIDGE RECT 1PHASE 400V 1A 0.29$ 1,135.00 334.03$ CUT1005638 LED BLUE CLEAR 5MM T/H 0.30$ 1,073.00 318.90$ CUT1006041 IC SWITCH SPDT SOT23-6 50MA 0.11$ 3,000.00 317.79$ CUT1006128 OPTOISO 4.17KV OPN COLL 6SMD 0.21$ 1,441.00 306.52$ CUT1006094 PC TEST POINT MINIATURE WHITE 0.10$ 3,000.00 293.27$ CUT1005982 DIODE SCHOTTKY 30V 2A SMA 0.06$ 5,000.00 288.31$ CUT1005795 CAP ALUM 100UF 20% 25V SMD 0.13$ 2,250.00 281.25$ CUT1005863 RES 0.005 OHM 1% 2W 2512 0.07$ 4,000.00 270.00$ CUT1006062 IC BUFFER NON-INVERT SCHIMTT 8VSSOP 0.13$ 2,100.00 264.89$ CUT1005967 CONN HDR 3POS 7.50MM PCB SLDR 0.85$ 300.00 256.41$ CUT1006100 MOSFET 2N-CH 60V 0.23A SOT-363 0.03$ 9,910.00 250.25$ CUT1006055 IC REG LINEAR 3.3V 250MA SOT23-5 0.47$ 500.00 233.26$ CUT1005962 CONN RCPT USB2.0 TYPEA 4POS VERT 0.60$ 378.00 227.42$ CUT1006004 PTC RESET FUSE 8V 500MA 0603 1.18$ 192.00 225.98$ CUT1006095 PC TEST POINT COMPACT RED 0.10$ 2,000.00 196.77$ CUT1006116 IC SILICON SERIAL NUMBER SOT23-5 1.20$ 162.00 193.97$ CUT1006061 IC FF D-TYPE SNGL 1BIT 8VSSOP 0.13$ 1,500.00 189.21$ CUT1006278 RES SMD 5.9K OHM 0.1% 1/10W 0603 0.04$ 5,000.00 176.50$ CUT1005779 CAP CER 0.47UF 10% 50V X7R 0603 0.02$ 8,000.00 172.21$ CUT1005350 CAP CER 0.1UF 50V X7R 0603 0.00$ 38,814.00 162.67$ CUT1005971 CONN HEADER VERT 6POS 1.25MM 0.14$ 1,170.00 160.44$ CUT1005936 CONN SOCKET 8POS 0.1 GOLD PCB 0.30$ 505.00 153.77$ CUT1005925 CAP CER 1500PF 50V X7R 0603 0.01$ 28,000.00 145.80$ CUT1005948 CONN HEADER VERT 8POS 3MM 0.57$ 256.00 144.80$ CUT1005531 CAP CER 10000PF 50V X7R 0603 0.01$
24,000.00 140.21$ CUT1005802 CAP CER 4700PF 5% 50V C0G/NP0 0805 0.42$ 322.00 134.95$ CUT1005360 CAP CER 10UF 25V X5R 1206 0.07$ 2,000.00 132.72$ CUT1005437 IC SUPERVISOR COMPLEMENTARY 1 CHANNEL SO 0.70$ 186.00 129.72$ CUT1005847 RES 6.49K OHM 0.1% 1/10W 0603 0.03$ 5,000.00 128.25$ CUT1006031 IC CURR SENSE 1 CIRCUIT TSOT23-5 5.78$ 20.00 115.60$ CUT1005937 CONN MOD JACK 8P8C VERT UNSHLD 0.68$ 158.00 106.97$ CUT1005933 CONN HDR 3POS 7.50MM PCB SLDR 30A 3.03$ 32.00 97.10$ CUT1006032 IC AMP CLASS D MONO 6.7W 24WQFN 1.06$ 83.00 88.28$ CUT1005430 IC REG BUCK ADJ 3A POWERSO-8 0.58$ 150.00 87.02$ CUT1005959 MICRO B SKT, VERTICAL, SMT, 30", 0.66$ 131.00 86.66$ CUT1005816 RES 1.5K OHM 0.1% 1/10W 0603 0.02$ 5,000.00 82.35$ CUT1005828 RES 4.87K OHM 0.1% 1/10W 0603 0.02$ 5,000.00 82.35$ CUT1005849 RES 4.99K OHM 0.1% 1/10W 0603 0.02$ 5,000.00 82.35$ CUT1005859 RES 4.75K OHM 0.1% 1/10W 0603 0.02$ 5,000.00 82.35$ CUT1005876 RES 4.12K OHM 0.1% 1/10W 0603 0.02$ 5,000.00 82.35$ Confidential Execution Version Page 22 of 26
CUT1006292 RES 0 OHM 5% 1/2W AXIAL 0.02$ 4,239.00 78.63$ CUT1005837 RES SMD 49.9 OHM 1% 1/10W 0603 0.00$ 32,004.00 76.04$ CUT1005794 CAP CER 100PF 50V X7R 0603 0.01$ 12,000.00 75.29$ CUT1005941 CONN RCPT USB2.0 TYPEA 4POS R/A 0.29$ 250.00 73.50$ CUT1005819 RES 10 OHM 1% 1/5W 0603 0.01$ 5,000.00 64.13$ CUT1005843 RES SMD 976K OHM 1% 1/10W 0603 0.00$ 26,723.00 63.49$ CUT1006069 IC LOGIC GATE UHS 2-INP INV SC70-6 0.31$ 200.00 61.48$ CUT1005590 RES SMD 200 OHM 1% 1/10W 0603 0.00$ 25,000.00 59.40$ CUT1005873 RES SMD 330 OHM 1% 1/10W 0603 0.00$ 25,000.00 59.40$ CUT1006076 RES SMD 39 OHM 1% 1/10W 0603 0.00$ 25,000.00 59.40$ CUT1006078 RES SMD 124K OHM 1% 1/10W 0603 0.00$ 25,000.00 59.40$ CUT1006083 RES SMD 68 OHM 1% 1/10W 0603 0.00$ 25,000.00 59.40$ CUT1006084 RES SMD 332 OHM 1% 1/10W 0603 0.00$ 25,000.00 59.40$ CUT1006085 RES SMD 4.75K OHM 1% 1/10W 0603 0.00$ 25,000.00 59.40$ CUT1006119 RES SMD 23.7K OHM 1% 1/10W 0603 0.00$ 25,000.00 59.40$ CUT1005931 CONN HEADER VERT 2POS 3.96MM 0.05$ 1,148.00 57.36$ CUT1005513 CONN HEADER R/A 4POS 2.54MM 0.04$ 1,554.00 57.11$ CUT1005955 CONN HEADER VERT 2POS 2.5MM 0.04$ 1,388.00 53.92$ CUT1005869 RES SMD 20K OHM 1% 1/10W 0603 0.01$ 5,000.00 50.50$ CUT1005400 RES SMD 10K OHM 1% 1/10W 0603 0.00$ 10,000.00 45.90$ CUT1006001 PTC RESET FUSE 24V 3A 2SMD 0.43$ 100.00 42.80$ CUT1005595 RES 680 OHM 5% 1/2W AXIAL 0.01$ 6,640.00 34.24$ CUT1005924 CAP CER 470PF 50V X7R 0603 0.00$ 12,000.00 32.00$ CUT1006005 FERRITE BEAD 120 OHM 0603 1LN_1 0.03$ 1,000.00 31.30$ CUT1005952 CONN HEADER VERT 2POS 4.20MM 0.12$ 246.00 28.99$ CUT1006053 IC REG LINEAR POS ADJ 2A HRP-5 1.09$ 25.00
27.13$ CUT1005927 CONN HEADER VERT 4POS 2.54MM LOCK 0.02$ 1,255.00 26.36$ CUT1005992 LED YELLOW DIFFUSED SMD 0.05$ 500.00 25.79$ CUT1005940 CONN HEADER VERT 3POS 2.54MM 0.02$ 1,524.00 24.00$ CUT1005836 RES SMD 510 OHM 1% 1/10W 0603 0.00$ 5,000.00 22.95$ CUT1005855 RES SMD 6.8K OHM 1% 1/10W 0603 0.00$ 5,000.00 22.95$ CUT1005860 RES SMD 470 OHM 1% 1/10W 0603 0.00$ 5,000.00 22.95$ CUT1006065 IC INVERTER 1CH 1-INP SOT23-5 0.03$ 700.00 20.03$ CUT1005842 RES SMD 120 OHM 1% 1/10W 0603 0.00$ 7,747.00 18.41$ CUT1006079 RES SMD 1.6K OHM 0.5% 1/16W 0603 0.02$ 1,000.00 16.20$ CUT1005949 CONN HEADER VERT 2POS 2.54MM 0.01$ 1,300.00 13.65$ CUT1006093 SWITCH SMD 2.45N 6.2X6.2MM TOP ACTUATED 0.13$ 100.00 12.70$ CUT1005354 CAP CER 100PF 50V 0603 0.00$ 4,000.00 8.03$ CUT1005777 CAP CER 270PF 50V X7R 0603 0.00$ 3,050.00 6.89$ CUT1005994 LED YELLOW CLEAR CHIP 0603 SMD 0.01$ 632.00 5.34$ CUT1005978 DIODE ZENER 3.3V 500MW SOD123 0.01$ 350.00 4.73$ CUT1005991 LED GREEN CLEAR CHIP 0603 SMD 0.01$ 532.00 4.27$ CUT1005394 RES SMD 100 OHM 1% 1/10W 0603 0.00$ 364.00 0.39$ Confidential Execution Version Page 23 of 26
Cutera Shutdown - Baja Equipment 253,784.96$ Item Items Pricing 1 3 Aluminum Laser Cabins 31,715.05$ 2 2.0 Suministro e instalacion de cabina fabricada co… 24,970.00$ 3 2.0 Suministro e instalacion de cabina fabricada co… 24,832.90$ 4 6.0 Four Feet Clean Bench hood, Vertical air Lamina... 12,090.00$ 5 Convection CLEAN ROOM OVEN 11,985.00$ 6 CLASS 100 FLOW HOOD 10,395.00$ 7 Laser Cabin 9,784.54$ 8 1.0 Uv Oven 7,408.82$ 9 4.0 laser optic sensor 6,361.80$ 10 6.0 Integrated Fan Filter module. 2'x4', low sound,... 6,240.00$ 11 1.0 LVS-9580 Handheld, 1D & 2D Barcode Verification 6,085.00$ 12 11.0 ORGANIZADOR MÓVIL DE PANEL PARA GAVETAS ESTIBAB... 5,269.00$ 13 Pull Tester service 5,220.03$ 14 8.0 HEPA filter, H14, 595x1205x69 mm, Aluminum frame 5,200.00$ 15 4.0 MICROSCOPIO ULTIMATE ZOOM 2X-45X CON SOPORTE DE... 5,123.60$ 16 1.0 SUPER COLD COUNTER TOP FREEZER 115V/60HZ 4,955.00$ 17 4.0 laser energy meter 4,669.00$ 18 6.0 Stand with Caster for 4 Feet Economic Vertical 4,452.00$ 19 1.0 -MESA DE ELEVACIÓN ELÉCTRICA - 2,000 LB., 48 X 28 3,810.00$ 20 1.0 -MESA DE ELEVACIÓN ELÉCTRICA - 2,000 LB., 48 X 28 3,810.00$ 21 2.0 DINOLITE AM7515MZT1P MICROSCOPE 3,525.00$ 22 2.0 7Z01550 NOVA II METER ASSY, RoHS Versatile Hand 3,484.00$ 23 1.0 Guarda de seguridad tipo cabina, con puerta. 3,448.10$ 24 2.0 7Z02793 L40(250)A-BB-50 CW power up to 35W, int 3,326.00$ 25 1.0 20708.1 CHROMA HIPOT TESTER MFG Prod: CHR 19052 3,323.00$ 26 1.0 Thermal Laser Power Sensor L40(250)A-LP2-50 3,203.58$ 27 1.0 ELECTRIC LIFT TABLE - 2,000 LB, 48 X 28" 3,175.00$ 28 1.0 laser optic sensor 2,581.75$ 29 1.0 TK58219656T Refrigerator, Under Counter, Color 2,579.00$ 30 Oscilloscope Tektronix TBS2000B 2,439.13$ 31 1.0 Infrared Viewer 2,261.75$ 32 1.0 safety tester 1,867.00$ 33 2.0 LASER OPTIC
SENSOR 1,814.70$ 34 6.0 Static Dissipative PVC side windows 1,770.00$ 35 1.0 optic breadboard 1,654.56$ 36 1.0 Protective Guard 1,610.00$ 37 1.0 Vaccum Oven 1,495.00$ 38 1.0 Imperial Breadboard 1,488.91$ 39 2.0 optic breadboard light 1,385.10$ 40 3.0 Microscope 1,356.00$ 41 1.0 Shimpo TTC-I-50 Torque Tool Tester, 50 N-m 1,325.00$ 42 1.0 TORQUIMETRO 1,323.00$ 43 1.0 Si-Sensor Power Meter with Bluetooth and USB 1,321.86$ 44 3.0 Multimetro Fluke-115 1,093.53$ 45 1.0 ID:MXW116213324. Esta mesa elevadora tipo tijer 1,054.10$ 46 3.0 Hot Plate Heaters 1,035.00$ 47 6.0 Hospital-Grade Power Strip four outlet 110V- 60 Hz 990.00$ 48 4.0 PONTENTE ILUMINADOR DE CUELLO DE CISNE DOBLE LE 782.00$ 49 1.0 VACUUM PUMP 660.00$ Confidential Execution Version Page 24 of 26
50 1.0 Fuente de Voltaje Instek SPS-3610 624.24$ 51 6.0 Swing Vane Manometer 450.00$ 52 5.0 Mounting Post 282.85$ 53 5.0 Mounting Post 270.55$ 54 1.0 Adjustable Height Post 107.41$ 55 1.0 Clamping Fork 82.00$ 56 1.0 Clamping fork 80.00$ 57 5.0 Pedestal Base Adapter 70.40$ 58 5.0 Pedestal Base Adapter 68.70$ 59 1.0 3007238, 3002612 tooling -$ 60 1.0 3003134, BEZEL, HP, GV fixture for plating -$ 61 1.0 3007500 fixture for measurement -$ 62 1.0 3007501 fixture for measurement -$ 63 1.0 3007237 fixture for heatstaking -$ 64 1.0 3007225 SADDLE, CABLE, EV2 fixture for measurement -$ 65 1.0 3007006, COVER B HAND PIECE EV2 fixture -$ 66 1.0 3007005, COVER A HANDPIECE fixture -$ 67 1.0 3007246 fixture for painting -$ 68 1.0 tooling1 -$ 69 1.0 3007261, COVER A, HP, EV2 fixture -$ 70 1.0 3007262, COVER B, HP, EV2 fixture is for measur -$ 71 1.0 3007314&3007315&3007316&3007317 CAP, REAR, SMA -$ 72 1.0 3002648 -$ 73 1.0 TOOLING CLAMP MOTOR HANDPIECE EV2 -$ 74 1.0 3007290, SMA STRAIN RELIEFDERMASTAT TOOLING -$ 75 1.0 3007314, CAP, REAR, SMA HOUSING, EV2,CV tooling -$ 76 1.0 3007225 tooling -$ 77 1.0 3007222, 3007224 Tooling -$ 78 1.0 3007239, 3007240 COVER-A, SMA HOUSING, EV2 TOOLING -$ 79 1.0 3003144, 3006328 WINDOW, LED, GV HPBEZEL NO-BUT -$ 80 1.0 3003134,3007241 BEZEL, HP, GVCAP, FRONT, SMA HO. -$ 81 1.0 3007277 Tooling -$ 82 1.0 3002611 Tooling -$ 83 1.0 3002610, 3007236, 3007237 tooling -$ 84 1.0 3007500, 3007501 tooling -$ 85 1.0 3007246 Tooling -$ 86 1.0 3007006, 3007005 COVER B HAND PIECE EV2COVER A -$ 87 1.0 3007261, 3007262 COVER A,B HP, EV2 TOOLING -$ 88 1.0 3007247,3007248 COVER, LEFT, FLOWERPOT, EV2COVER -$ 89 Sensor de Energia / Energy Sensor -$ 90 Sensor de Energia / Energy Sensor -$ 91 Sensor de Energia / Energy Sensor -$ 92 Sensor de
Potencia y Energia / Power & Energy Sensor -$ 93 Sensor de Potencia y Energia / Power & Energy Sensor -$ 94 Sensor de Potencia y Energia / Power & Energy Sensor -$ 95 Sensor de Potencia y Energia / Power & Energy Sensor -$ 96 Probador de Unidad a Tierra / Ground Bond Tester -$ 97 Probador de Alta Potencia / Hi-Pot Tester -$ 98 Medidor de Flujo / Flow Meter -$ 99 Multimetro / Multimeter -$ 100 Medidor de potencia y energia / Power & Energy Meter -$ 101 Medidor de potencia y energia / Power & Energy Meter -$ Confidential Execution Version Page 25 of 26
102 Sensor de potencia / Power and Energy Sensor -$ 103 Sensor de potencia / Power and Energy Sensor -$ 104 Osciloscopio / Oscilloscope -$ 105 Osciloscopio / Oscilloscope -$ 106 Analizador de espectro laser / Laser Spectrum Analyzer -$ 107 Probador De Validación Funcional / Validation Tester -$ 108 Probador De Validación Funcional / Validation Tester -$ 109 Pieza De Mano Falsa / Dummy Handpiece -$ 110 Pieza De Mano Falsa / Dummy Handpiece -$ 111 Pieza De Mano Falsa / Dummy Handpiece -$ 112 Pieza De Mano Falsa / Dummy Handpiece -$ 113 Pieza De Mano Falsa / Dummy Handpiece -$ 114 Pieza De Mano Falsa / Dummy Handpiece -$ 115 Probador De Corriente De Fugas / Leakage Current Tester -$ 116 Probador D Seguridad, Comprobación D Funciones / Security Tester, Function -$ 117 Termoregulador / Thermoregulator -$ 118 Probador De Fuga / Leak Tester -$ 119 Probador De Fuga / Leak Tester -$ 120 Equipo De Cutera Exel V / Cutera Exel V Equipment -$ 121 Probador De Validación Funcional / Functional Validation Tester -$ 122 Fibra Óptica Guía 600µm / Fiber Optic Guide 600µm -$ 123 Aplicador pieza de mano / Handpiece Applicator -$ 124 Aplicador pieza de mano / Handpiece Applicator -$ 125 Aplicador pieza de mano / Handpiece Applicator -$ 126 Aplicador pieza de mano / Handpiece Applicator -$ 127 Probador de fuga de corriente / Leakage Current Test -$ 128 CAJA DE CARGA / LOAD BOX -$ 129 CAJA DE CARGA / LOAD BOX -$ 130 Osciloscopio / Oscilloscope -$ 131 Osciloscopio / Oscilloscope -$ 132 Analizador de Espectro Laser / Laser Spectrum Analyzer -$ 133 Medidor de Potencia y Energia / Power & Energy Meter -$ 134 Medidor de Potencia y Energia / Power & Energy Meter -$ 135 Medidor de Potencia y Energia / Power & Energy Meter -$ 136 Medidor de Potencia y Energia / Power & Energy Meter -$ 137 Tablero de circuitos / BreadBoard -$ 138 Interfaz / Interface -$ 139 Interfaz /
Interface -$ 140 Manometro / Manometer -$ 141 Medidor de Potencia y Energia / Power & Energy Meter -$ 142 Medidor de Potencia y Energia / Power & Energy Meter -$ 143 Medidor de Potencia y Energia / Power & Energy Meter -$ 144 Sensor de Potencia y Energia / Power & Energy Sensor -$ 145 Sensor de Potencia y Energia / Power & Energy Sensor -$ 146 Sensor de Potencia y Energía / Power & Energy Sensor -$ 147 Sensor De Potencia Y Energía / Energy & Power Sensor -$ 148 3002789 Accesorio Para Cable, Consola / 3002789 Cable Accessory, Console -$ 149 3002542 Accesorio Para Cable / 3002542 Fixture Cable Asm -$ 150 7000766 Filtro De Fibra / 7000766 Fiber Filter -$ 151 7000766 Filtro De Fibra / 7000766 Fiber Filter -$ 152 3003367 Accesorio Bomba De Alimentacion / 3003367 Pump Power -$ 153 Estacion de prueba / Test Station -$ Confidential Execution Version Page 26 of 26
SAN FRANSISCO HEADQUARTERS 3240 Bayshore Boulevard, Brisbane, CA 94005 Phone: 415-657-5500 | Fax: 415-330-2444 | www.cutera.com October 11, 2023 Stephana E. Patton 894 De Haro Street San Francisco, CA 94017 Dear Stephana: It is with great pleasure that we extend this offer to join Cutera, Inc. (the “Company” or “Cutera”) on the terms and conditions outlined in this offer letter (the “Agreement”). 1. Position and Duties. Your position with the Company will be Chief Legal Officer, and you will report to the Company’s Chief Executive Officer (the “CEO”). You will be responsible for providing services that are consistent with your position within the Company and as will be reasonably assigned to you by the CEO. You will work primarily from our corporate headquarters in Brisbane, CA. 2. Commencement Date. Your employment with the Company will commence on , or as otherwise agreed upon by you and the Company (the “Commencement Date”). 3. Compensation and Benefits. (a) Base Salary. Upon your commencement of employment with the Company, you will receive an annual base salary of $425,000 (the “Base Salary”), which will be paid in accordance with the Company's normal payroll procedures and subject to applicable withholdings. As a full-time, salaried, exempt employee, you will be expected to work the Company’s normal business hours and additional hours as required by your job duties, and you will not be eligible for overtime pay. (b) Annual Bonus Opportunity. Starting on January 1, 2024, you will be eligible to earn an annual target bonus of up to 50% of your Base Salary, as then in effect, based on achievement of performance objectives to be established by the Board (the “Target Bonus”). The Target Bonus shall be subject to review and may be adjusted based on the Company’s normal performance review practices. Your actual bonus shall be based upon the achievement of performance objectives to be
determined by the Board in its sole and absolute discretion. To be eligible for and to earn any bonus, you must be employed by the Company on the date such bonus is paid. (c) New Hire Inducement Restricted Stock Unit Award. As a material inducement for you to join the Company, it will be recommended to the Compensation Committee to award you 25,000 restricted stock units (the “New Hire Inducement RSUs”). The New Hire Inducement RSUs will be subject to the terms and conditions of the Company’s 2023 Inducement Equity Incentive Plan and applicable standard form of restricted stock unit award agreement thereunder. Twenty-five percent (25%) of the shares subject to the New Hire Inducement RSUs will vest 12 months after the Commencement Date, subject to your continuing DocuSign Envelope ID: A9E5D548-9CC1-444D-B88B-300F6538ED5C November 13, 2023
-2- to be an employee of the Company through such vesting date, and no shares will vest prior to such vesting date. The remaining shares subject to the New Hire Inducement RSUs will vest over the next 12 quarters, in equal quarterly amounts, subject to your continuing to be an employee of the Company through each vesting date. No right to any equity is earned or accrued until such time that vesting occurs, nor does the grant of any equity award confer any right to you to continued vesting and/or being an employee. (d) New Hire Inducement Performance Stock Unit Award I. As a material inducement for you to join the Company, it will be recommended to the Compensation Committee to award you 25,000 performance stock units (the “New Hire Inducement PSUs”) based on the achievement of a $10.00 share stock price. The award will be eligible to begin vesting upon the date the 30-trading day trailing average closing price of the Company's Common Stock first meets $10.00 within four years of the grant date. Once the level is attained, one-fourth of the award will vest on the later of (i) the date such level is attained or (ii) the Commencement Date + 1 year. By way of example, if the 30-trading day trailing average meets or exceeds $10.00 on the date that is 18 months after the Commencement Date and you continue to be an employee of the Company, 37.5% of the award quantity will vest immediately, and the remaining 62.5% of the award quantity shall vest in equal quarterly amounts over the next 10 quarters subject to your continued service as an employee (e) New Hire Inducement Performance Stock Unit Award II. As a material inducement for you to join the Company, it will be recommended to the Compensation Committee to award you 30,000 New Hire Inducement PSUs based on the achievement of a $20.00 share stock price. The award will be eligible to begin vesting upon the date the 30-trading day trailing average closing price of the
Company's Common Stock first meets $20.00 within four years of the grant date. Once the level is attained, one-fourth of the award will vest on the later of (i) the date such level is attained or (ii) the Commencement Date + 1 year. By way of example, if the 30-trading day trailing average meets or exceeds $20.00 on the date that is 24 months after the Commencement Date, and you continue to be an employee of the Company, 50.0% of the award quantity will vest immediately, and the remaining 50.0% of the award quantity shall vest in equal quarterly amounts over the next 8 quarters subject to your continued service as an employee (f) New Hire Inducement Option Award. As a material inducement for you to join the Company, it will be recommended to the Compensation Committee to award you 30,000 New Hire Inducement Options (the “New Hire Inducement Options”). Twenty-five percent (25%) of the shares subject to the New Hire Inducement Option will vest 12 months after the Commencement Date, subject to your continuing to be an employee of the Company through such vesting date, and no shares will vest prior to such vesting date. The remaining shares, subject to the New Hire Inducement Option, will vest over the next 36 months in equal monthly amounts, subject to your continuing to be an employee of the Company through each vesting date. The New Hire Inducement Option will be subject to the terms and conditions of the Company’s 2023 Inducement Equity Incentive Plan and applicable standard form of stock option agreement thereunder. No right to any equity is earned or accrued until such time that vesting occurs, nor does the grant of any equity award confer any right to you to continued vesting and/or being an employee. (g) Equity Awards. You will be eligible to receive compensatory equity awards such as stock options or restricted stock unit awards from the Company on the terms and conditions determined by the Board in
its sole discretion. In addition, you will be eligible to participate in the 2024 Annual Long-Term Incentive Program as approved by the Compensation Committee of the Board of Directors. (h) Employee Benefits. You will be eligible to participate in the Company’s standard benefit plans as in effect from time to time, on the same basis as those benefit plans are generally made available to other similarly situated executives of the Company. Such benefit plans are subject to change and may be supplemented, altered, or eliminated, in part or entirely. Any eligibility to participate in such benefits plans, as DocuSign Envelope ID: A9E5D548-9CC1-444D-B88B-300F6538ED5C
-3- well as the terms thereof, shall be as set forth in the governing documents for such plans, or there are no such governing documents in the Company’s policies. (i) Expenses. You will be entitled to receive prompt reimbursement for all reasonable expenses incurred by you in the furtherance of or in connection with the performance of your duties hereunder, in accordance with the applicable policy of the Company, as in effect from time to time. In the event that any expense reimbursements are taxable to you, such reimbursements will be made in the time frame specified by Treasury Regulation Section 1.409A-3(i)(1)(iv) unless another time frame that complies with or is exempt from Section 409A is specified in the Company’s expense reimbursement policy. (j) Paid Time Off. You will be eligible to participate in the Company’s paid time off policy. You acknowledge that your use of paid time off will be subject to the terms and conditions of the vacation policies in place at the Company. 4. Severance & Change of Control Benefits. You will be eligible to receive certain benefits in the event of a qualifying employment termination pursuant to the terms and conditions of the Company’s Executive Change in Control and Severance Policy (the “Severance Policy”) and a participation agreement thereunder between you and the Company (the “Severance Participation Agreement”). A copy of the Severance Policy and Severance Participation Agreement are enclosed for your review. For the avoidance of doubt, you will be eligible to participate in the Severance Policy at the Tier 2 (as such term is defined in the Severance Policy) tier of severance benefits. 5. At-Will Employment. You acknowledge and agree that your employment with the Company will be “at-will” employment and may be terminated at any time with or without cause or notice. You understand and agree that neither your job performance nor commendations, bonuses, or the like from the Company
give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of your employment with the Company. You further acknowledge and agree that the Company may modify job titles, salaries and benefits from time to time as it deems necessary. However, as described in this Agreement, you may be eligible to receive severance benefits under the Severance Policy depending on the circumstances of the termination of your employment with the Company. 6. Confidentiality. As a condition of your employment with the Company, you are also required to sign and comply with the Company’s Employee Proprietary Information Agreement (the “Confidentiality Agreement”), which requires, among other provisions, the assignment of patent rights to any invention made during your employment at the Company, and non-disclosure of Company proprietary information. In the event of any dispute or claim relating to or arising out of our employment relationship, you and the Company agree that (i) any and all disputes between you and the Company shall be fully and finally resolved by binding arbitration, (ii) you are waiving any and all rights to a jury trial but all court remedies will be available in arbitration, (iii) all disputes shall be resolved by a neutral arbitrator who shall issue a written opinion, (iv) the arbitration shall provide for adequate discovery, and (v) the Company shall pay all the arbitration fees, except an amount equal to the filing fees you would have paid had you filed a complaint in a court of law. A copy of the Confidentiality Agreement is enclosed for your review and signature. Please note that we must receive your signed Confidentiality Agreement before your first day of employment. 7. Conflicting Obligations. As a Company employee, you will be expected to abide by the Company’s rules and standards. We also ask that, if you have not already done so, you disclose to the Company any and all
agreements relating to your prior employment that may affect your eligibility to be employed by the Company or limit the manner in which you may be employed. It is the Company’s understanding that any such agreements will not prevent you from performing the duties of your position and you represent that such is the case. Moreover, you agree that, during the term of your employment with the Company, you will not engage in DocuSign Envelope ID: A9E5D548-9CC1-444D-B88B-300F6538ED5C
-4- any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of your employment, nor will you engage in any other activities that conflict with your obligations to the Company. Similarly, you agree not to bring any third-party confidential information to the Company, including that of your former employer, and that in performing your duties for the Company you will not in any way utilize any such information. 8. Restrictive Covenants. (a) Non-Solicitation. During the Noncompete Period, you shall not, directly or indirectly, through another entity (i) solicit or attempt to solicit any employee of the Company to leave the employ of the Company, or (ii) solicit or attempt to solicit any customer, supplier, licensee or other business relation of the Company to transact business with a Competitive Enterprise or to cease doing business with the Company or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company. For purposes of this Section 8(b), references to the Company shall include references to any subsidiary of the Company. (b) Enforcement. If a court holds that the restrictions stated in this Section 8 are unreasonable under circumstances then existing, the parties hereto agree that the maximum duration, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law. Because your services are unique and because you have access to confidential information, the parties hereto agree that money damages would be an inadequate remedy for any breach of this Section 8. Therefore, in the event a breach or threatened breach of this Section 8, the Company may, in addition to othe
rights and remedies existing in its favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions hereof (without posting a bond or other security). (c) Additional Acknowledgments. You acknowledge that the provisions of this Section 8 are in consideration of: (i) employment with the Company, and (ii) additional good and valuable consideration as set forth in this Agreement. In addition, you agree and acknowledge that the restrictions contained in this Section 8 do not preclude you from earning a livelihood, nor do they unreasonably impose limitations on your ability to earn a living. In addition, you acknowledge (i) that the business of the Company will be international in scope and without geographical limitation, and (ii) notwithstanding the state of incorporation or principal office of the Company, any of its affiliates or any of their respective executives or employees (including you), it is expected that the Company, will have business activities and have valuable business relationships within its industry throughout the world. You acknowledge and agree that each and every restraint imposed by this Section 8 is reasonable with respect to subject matter, time period and geographical area. 9. Tax Matters. (a) Withholding. All payments made under this Agreement shall be subject to reduction to reflect taxes or other charges required to be withheld by law, and you will be solely responsible for any and all taxes arising in connection with this Agreement and compensation paid or payable to you, including but not limited to any taxes, penalties and interest, if any, arising under Section 409A. (b) Section 409A. The Company intends that all payments and benefits provided under this Agreement or otherwise are exempt from, or comply with, the requirements of Section 409A of the Internal DocuSign Envelope ID: A9E5D548-9CC1-444D-B88B-
300F6538ED5C
-5- Revenue Code of 1986, as amended, and any final regulations and guidance thereunder and any applicable state law equivalent, as each may be amended or promulgated from time to time (“Section 409A”) so that none of the payments or benefits will be subject to the additional tax imposed under Section 409A, and any ambiguities will be interpreted to so be exempt or comply. Each payment and benefit payable under this Agreement is intended to constitute a separate payment for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations. (c) Tax Advice. You are encouraged to obtain your own tax advice regarding your compensation from the Company. You agree that the Company does not have a duty to design its compensation policies in a manner that minimizes your tax liabilities. 10. Entire Agreement, Amendment and Enforcement. This Agreement, the Severance Policy and Severance Participation Agreement, and the Confidentiality Agreement set forth the terms of your employment with the Company and supersede any prior representations or agreements including, but not limited to, any representations made during your recruitment, interviews or pre-employment negotiations, whether written or oral. This Agreement may not be amended or modified, except by an express written agreement signed by both you and a duly authorized officer of the Company. 11. Miscellaneous. (a) Background Check. The Company reserves the right to conduct background investigations and/or reference checks on all of its potential employees. Your job offer, therefore, is contingent upon a clearance of such a background investigation and/or reference check, if any. (b) Form I-9 Requirements. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of the
Commencement Date, or our employment relationship with you may be terminated. In addition, prior to your transfer to Australia, you will be required to provide to the Company documentary evidence of your eligibility for employment in Australia. (c) Governing Law. This Agreement shall be governed and construed by the laws of the State of Delaware without regard to the principles of conflict of laws thereof. (d) Severability. If a court or other body of competent jurisdiction finds, or the parties to this Agreement mutually believe, any provision of this Agreement, or portion thereof, to be invalid or unenforceable, such provision will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect. (e) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (f) Acknowledgment. You acknowledge that you have had the opportunity to discuss this Agreement with and you have obtained advice from your private attorney, have had sufficient time to, and have carefully read and fully understand all the provisions of this Agreement, and are knowingly and voluntarily entering into this Agreement. * * * * * DocuSign Envelope ID: A9E5D548-9CC1-444D-B88B-300F6538ED5C
-6- This offer will remain open until October 13, 2023. Please indicate your acceptance of this Agreement and confirmation that it contains our complete agreement regarding the terms and conditions of your employment, by signing the bottom portion of this Agreement and returning a copy to me. We are looking forward to you joining the Cutera team! Very truly yours, CUTERA, INC. By: Taylor Harris CEO Enclosures (cid:0) PIIA (cid:0) Change in Control & Severance Policy Offer Accepted By: Stephana E. Patton Dated: DocuSign Envelope ID: A9E5D548-9CC1-444D-B88B-300F6538ED5C 10/11/2023 | 11:21 AM PDT
Subsidiaries of Cutera, Inc. (DE)
Exhibit 21.1
Name State or Country of Incorpora on or Organiza on
Cutera Australia Party Limited Australia
Cutera SPRL Belgium
Cutera Canada, Inc. Canada
Cutera Limited England & Wales
Cutera Impor ng Limited England & Wales
Cutera France SarL France
Cutera Germany GmbH Germany
Cutera HK Limited Hong Kong
Cutera Japan K.K. Japan
Cutera Spain S.L. Spain
Cutera Switzerland GmbH Switzerland
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
Cutera, Inc.
Brisbane, California
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-237552) and Form S-8 (No. 333-114149, 333-123495, 333-132583, 333-141376, 333-
149703, 333-158160, 333-187502, 333-206864, 333-221542, 333-258283, 333-271214, and 333-273924) of Cutera, Inc. (the “Company”) of our reports dated May 10, 2024, relating to the
consolidated financial statements and schedule, and the effectiveness of the Company’s internal control over financial reporting, which appear in this Annual Report on Form 10-K. Our report on the
effectiveness of internal control over financial reporting expresses an adverse opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023.
/s/ BDO USA, P.C.
San Francisco, California
May 10, 2024
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
Exhibit 31.3
I, Taylor C. Harris, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Cutera, Inc.:
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;
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;
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 the Company’s supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to the Company 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 the Company’s 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 the Company’s 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 the Company’s 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: May 10, 2024
/s/ Taylor C. Harris
Taylor C. Harris
Chief Executive Officer
(Principal Executive Officer)
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
Exhibit 31.4
I, Stuart Drummond, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Cutera, Inc.:
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;
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;
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 the Company’s supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to the Company 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 the Company’s 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 the Company’s 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 the Company’s 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: May 10, 2024
/s/ Stuart Drummond
Stuart Drummond
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
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
Exhibit 32.1
In connection with the annual report on Form 10-K of Cutera, Inc. a Delaware corporation, for the period ended December 31, 2023, as filed with the Securities and Exchange Commission,
each of the undersigned officers of Cutera, Inc. certifies pursuant to section 1350 of chapter 63 of title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to his respective knowledge:
(1)
(2)
the annual report of Cutera, Inc. on Form 10-K for the period ended December 31, 2023, 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: May 10, 2024
Date: May 10, 2024
/s/ Taylor C. Harris
Taylor C. Harris
Chief Executive Officer
(Principal Executive Officer)
/s/ Stuart Drummond
Stuart Drummond
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
CUTERA, INC.
COMPENSATION RECOVERY POLICY
As adopted on October 26, 2023
Cutera, Inc. (the “Company”) is commi ed to strong corporate governance. As part of this commitment, the Company’s Board of Directors (the “Board”) has adopted this clawback policy called
the Compensa on Recovery Policy (the “Policy”). The Policy is intended to further the Company’s pay-for-performance philosophy and to comply with applicable laws by providing rules rela ng to the
reasonably prompt recovery of certain compensa on received by Covered Execu ves in the event of an Accoun ng Restatement. The applica on of the Policy to Covered Execu ves is not discre onary,
except to the limited extent provided below, and applies without regard to whether a Covered Execu ve was at fault. Capitalized terms used in the Policy are defined below, and the defini ons have
substan ve impact on its applica on so reviewing them carefully is important to your understanding.
The Policy is intended to comply with, and will be interpreted in a manner consistent with, Sec on 10D of the Securi es Exchange Act of 1934 (the “Exchange Act”), with Exchange Act Rule
10D-1 and with the lis ng standards of the na onal securi es exchange (the “Exchange”) on which the securi es of the Company are listed, including any interpre ve guidance provided by the
Exchange.
Persons Covered by the Policy
The Policy is binding and enforceable against all “Covered Execu ves.” A Covered Execu ve is each individual who is or was ever designated as an “officer” by the Board in accordance with
Exchange Act Rule 16a-1(f) (a “Sec on 16 Officer”). The Commi ee may (but is not obligated to) require a Covered Execu ve to sign and return to the Company an acknowledgement that such Covered
Execu ve will be bound by the terms and comply with the Policy. The Policy is binding on each Covered Execu ve whether or not the Covered Execu ve signs and/or returns any acknowledgment.
Administra on of the Policy
The Compensa on Commi ee (the “Commi ee”) of the Board has full delegated authority to administer the Policy. The Commi ee is authorized to interpret and construe the Policy and to make all
determina ons necessary, appropriate, or advisable for the administra on of the Policy. In addi on, if determined in the discre on of the Board, the Policy may be administered by the independent
members of the Board or another commi ee of the Board made up of independent members of the Board, in which case all references to the Commi ee will be deemed to refer to the independent
members of the Board or the other Board commi ee. All determina ons of the Commi ee will be final and binding and will be given the maximum deference permi ed by law.
Accoun ng Restatements Requiring Applica on of the Policy
If the Company is required to prepare an accoun ng restatement due to the material noncompliance of the Company with any financial repor ng requirement under the securi es laws,
including any required accoun ng restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material
misstatement if the error were corrected in the current period or le uncorrected in the current period (an “Accoun ng Restatement”), then the Commi ee must determine the Excess Compensa on, if
any, that must be recovered. The Company’s obliga on to recover Excess Compensa on is not dependent on if or when restated financial statements are filed.
Compensa on Covered by the Policy
The Policy applies to certain Incen ve-Based Compensa on (certain terms used in this Sec on are defined below) that is Received on or a er October 2, 2023 (the “Effec ve Date”), during the
Covered Period while the Company has a class of securi es listed on a na onal securi es exchange. Incen ve-Based Compensa on is considered “Clawback Eligible Incen ve-Based Compensa on” if
the Incen ve-Based Compensa on is Received
by a person a er such person became a Sec on 16 Officer and the person served as a Sec on 16 Officer at any me during the performance period for the Incen ve-Based Compensa on. “Excess
Compensa on” means the amount of Clawback Eligible Incen ve-Based Compensa on that exceeds the amount of Clawback Eligible Incen ve-Based Compensa on that otherwise would have been
Received had such Clawback Eligible Incen ve-Based Compensa on been determined based on the restated amounts. Excess Compensa on must be computed without regard to any taxes paid and is
referred to in the lis ngs standards as “erroneously awarded incen ve-based compensa on”.
To determine the amount of Excess Compensa on for Incen ve-Based Compensa on based on stock price or total shareholder return, where it is not subject to mathema cal recalcula on
directly from the informa on in an Accoun ng Restatement, the amount must be based on a reasonable es mate of the effect of the Accoun ng Restatement on the stock price or total shareholder
return upon which the Incen ve-Based Compensa on was Received and the Company must maintain documenta on of the determina on of that reasonable es mate and provide that documenta on
to the Exchange.
“Incen ve-Based Compensa on” means any compensa on that is granted, earned, or vested based wholly or in part upon the a ainment of a Financial Repor ng Measure. For the avoidance
of doubt, no compensa on that is poten ally subject to recovery under the Policy will be earned un l the Company’s right to recover under the Policy has lapsed.
“Financial Repor ng Measures” are measures that are determined and presented in accordance with the accoun ng principles used in preparing the Company’s financial statements, and any
measures that are derived wholly or in part from such measures. Stock price and total shareholder return are also Financial Repor ng Measures. A Financial Repor ng Measure need not be presented
within the financial statements or included in a filing with the Securi es and Exchange Commission.
Incen ve-Based Compensa on is “Received” under the Policy in the Company’s fiscal period during which the Financial Repor ng Measure specified in the Incen ve-Based Compensa on
award is a ained, even if the payment, ves ng, se lement or grant of the Incen ve-Based Compensa on occurs a er the end of that period. For the avoidance of doubt, the Policy does not apply to
Incen ve-Based Compensa on for which the Financial Repor ng Measure is a ained prior to the Effec ve Date.
“Covered Period” means the three completed fiscal years immediately preceding the Accoun ng Restatement Determina on Date. In addi on, Covered Period can include certain transi on
periods resul ng from a change in the Company’s fiscal year.
“Accoun ng Restatement Determina on Date” means the earliest to occur of: (a) the date the Board, a commi ee of the Board, or one or more of the officers of the Company authorized to
take such ac on if Board ac on is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an Accoun ng Restatement; and (b) the date a court, regulator,
or other legally authorized body directs the Company to prepare an Accoun ng Restatement.
Repayment of Excess Compensa on
The Company must recover Excess Compensa on reasonably promptly and Covered Execu ves are required to repay Excess Compensa on to the Company. Subject to applicable law, the
Company may recover Excess Compensa on by requiring the Covered Execu ve to repay such amount to the Company by direct payment to the Company or such other means or combina on of means
as the Commi ee determines to be appropriate (these determina ons do not need to be iden cal as to each Covered Execu ve). These means include (but are not limited to):
a.
b.
requiring reimbursement of cash Incen ve-Based Compensa on previously paid;
seeking recovery of any gain realized on the ves ng, exercise, se lement, sale, transfer, or other disposi on of any equity-based awards (including, but not limited to, me-based ves ng
awards), without
regard to whether such awards are Incen ve-Based Compensa on or vest based on the achievement of performance goals;
c.
d.
offse ng the amount to be recovered from any unpaid or future compensa on to be paid by the Company or any affiliate of the Company to the Covered Execu ve, including (but not limited
to) payments of severance that might otherwise be due in connec on with a Covered Execu ve’s termina on of employment and without regard to whether such amounts are Incen ve-Based
Compensa on;
cancelling outstanding vested or unvested equity awards (including, but not limited to, me-based ves ng awards), without regard to whether such awards are Incen ve-Based Compensa on;
and/or
e.
taking any other remedial and recovery ac on permi ed by law, as determined by the Commi ee.
The repayment of Excess Compensa on must be made by a Covered Execu ve notwithstanding any Covered Execu ve’s belief (whether or not legi mate) that the Excess Compensa on had
been previously earned under applicable law and therefore is not subject to clawback.
In addi on to its rights to recovery under the Policy, the Company or any affiliate of the Company may take any legal ac ons it determines appropriate to enforce a Covered Execu ve’s
obliga ons to the Company or to discipline a Covered Execu ve. Failure of a Covered Execu ve to comply with their obliga ons under the Policy may result in (without limita on) termina on of that
Covered Execu ve’s employment, ins tu on of civil proceedings, repor ng of misconduct to appropriate governmental authori es, reduc on of future compensa on opportuni es or change in role.
The decision to take any ac ons described in the preceding sentence will not be subject to the approval of the Commi ee and can be made by the Board, any commi ee of the Board, or any duly
authorized officer of the Company or of any applicable affiliate of the Company. For avoidance of doubt, any decisions of the Company or the Covered Execu ve’s employer to discipline a Covered
Execu ve or terminate the employment of a Covered Execu ve are independent of determina ons under this Policy. For example, if a Covered Execu ve was involved in ac vi es that led to an
Accoun ng Restatement, the Company’s decision as to whether to not to terminate such Covered Execu ve’s employment would be made under its employment arrangements with such Covered
Execu ve and the requirement to apply this no-fault and non-discre onary clawback policy will not be determina ve of whether any such termina on is for cause, although failure to comply with the
Policy might be something that could result in a termina on for cause depending on the terms of such arrangements.
Limited Excep ons to the Policy
The Company must recover the Excess Compensa on in accordance with the Policy except to the limited extent that any of the condi ons set forth below is met, and the Commi ee determines
that recovery of the Excess Compensa on would be imprac cable:
a.
The direct expense paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered. Before reaching this conclusion, the Company must make a reasonable
a empt to recover such Excess Compensa on, document such reasonable a empt(s) to recover, and provide that documenta on to the Exchange; or
b. Recovery would likely cause an otherwise tax-qualified re rement plan, under which benefits are broadly available to employees of the Company, to fail to meet the legal requirements as such.
Other Important Informa on in the Policy
The Policy is in addi on to the requirements of Sec on 304 of the Sarbanes-Oxley Act of 2002 that are applicable to the Company’s Chief Execu ve Officer and Chief Financial Officer, as well as
any other applicable laws, regulatory requirements, rules, or pursuant to the terms of any exis ng Company policy or agreement providing for the recovery of compensa on.
Notwithstanding the terms of any of the Company’s organiza onal documents (including, but not limited to, the Company’s bylaws), any corporate policy or any contract (including, but not
limited to, any indemnifica on agreement), neither the Company nor any affiliate of the Company will indemnify or provide advancement for any Covered Execu ve against any loss of Excess
Compensa on. Neither the Company nor any affiliate of the Company will pay for or reimburse insurance premiums for an insurance policy that covers poten al recovery obliga ons. In the event that
the Company is required to recover Excess Compensa on pursuant to the Policy from a Covered Execu ve who is no longer an employee pursuant to the Policy, the Company will be en tled to seek
recovery in order to comply with applicable law, regardless of the terms of any release of claims or separa on agreement that individual may have signed.
The Commi ee or Board may review and modify the Policy from me to me.
If any provision of the Policy or the applica on of any such provision to any Covered Execu ve is adjudicated to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability will not affect any other provisions of the Policy or the applica on of such provision to another Covered Execu ve, and the invalid, illegal or unenforceable provisions will be deemed
amended to the minimum extent necessary to render any such provision or applica on enforceable.
The Policy will terminate and no longer be enforceable when the Company ceases to be listed issuer within the meaning of Sec on 10D of the Exchange Act.
ACKNOWLEDGEMENT
•
•
•
•
•
•
•
•
I acknowledge that I have received and read the Compensa on Recovery Policy (the “Policy”) of Cutera, Inc. (the “Company”).
I understand and acknowledge that the Policy applies to me, and all of my beneficiaries, heirs, executors, administrators or other legal representa ves and that the Company’s right to recovery
in order to comply with applicable law will apply, regardless of the terms of any release of claims or separa on agreement I have signed or will sign in the future.
I agree to be bound by and to comply with the Policy and understand that determina ons of the Commi ee (as such term is used in the Policy) will be final and binding and will be given the
maximum deference permi ed by law.
I understand and agree that my current indemnifica on rights, whether in an individual agreement or the Company’s organiza onal documents, exclude the right to be indemnified for amounts
required to be recovered under the Policy.
I understand that my failure to comply in all respects with the Policy is a basis for termina on of my employment with the Company and any affiliate of the Company as well as any other
appropriate discipline.
I understand that neither the Policy, nor the applica on of the Policy to me, gives rise to a resigna on for good reason (or similar concept) by me under any applicable employment agreement
or arrangement.
I acknowledge that if I have ques ons concerning the meaning or applica on of the Policy, it is my responsibility to seek guidance from the General Counsel, Human Resources or my own
personal advisers.
I acknowledge that neither this Acknowledgement nor the Policy is meant to cons tute an employment contract.
Please review, sign and return this form to Human Resources.
Covered Execu ve
(print name)
(signature)
(print name)
(signature)
(date)