-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GghuHfiEcaRS7zAbNKpJqlzJ02P5nhGWgk3SX3VqT4ZTtFy+6+YqsP2d40a+C1eJ yKT9IrsyEfzMsDqXz0qXag== 0000912057-01-515511.txt : 20010516 0000912057-01-515511.hdr.sgml : 20010516 ACCESSION NUMBER: 0000912057-01-515511 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLC SYSTEMS INC CENTRAL INDEX KEY: 0000879682 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 043153858 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11388 FILM NUMBER: 1634403 BUSINESS ADDRESS: STREET 1: 10 FORGE PK CITY: FRANKLIN STATE: MA ZIP: 02038 BUSINESS PHONE: 5085418800 MAIL ADDRESS: STREET 1: 10 FORGE PARK CITY: FRANKLIN STATE: MA ZIP: 02038 10-Q 1 a2047827z10-q.txt FORM 10-Q - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2001. [ ] 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 1-11388 PLC SYSTEMS INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) YUKON TERRITORY, CANADA 04-3153858 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 10 FORGE PARK, FRANKLIN, MASSACHUSETTS 02038 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (508) 541-8800 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT MAY 11, 2001 ----- ---------------------------- Common Stock, no par value 29,298,667 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PLC SYSTEMS INC. INDEX
Part I. Financial Information: Item 1. Financial Statements Condensed Consolidated Balance Sheets (unaudited)............................................3 Condensed Consolidated Statements of Operations (unaudited)..................................4 Condensed Consolidated Statements of Cash Flows (unaudited)..................................5 Notes to Condensed Consolidated Financial Statements (unaudited).............................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................9 Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................13 Part II. Other Information: Item 1. Legal Proceedings...........................................................................14 Item 2. Changes in Securities and Use of Proceeds...................................................14 Item 3. Defaults Upon Senior Securities.............................................................14 Item 4. Submission of Matters to a Vote of Security Holders.........................................14 Item 5. Other Information...........................................................................14 Item 6. Exhibits and Reports on Form 8-K............................................................14
-2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PLC SYSTEMS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
March 31, December 31, 2001 2000 ---------- ------------ ASSETS Current assets: Cash and cash equivalents......................................... $ 7,247 $ 5,726 Marketable securities............................................. 269 288 Accounts receivable, net.......................................... 1,741 1,400 Lease receivables, net............................................ 1,763 1,680 Inventories, net.................................................. 1,471 1,440 Prepaid expenses and other current assets......................... 286 259 ------- ------- Total current assets.......................................... 12,777 10,793 Equipment, furniture and leasehold improvements, net................... 924 1,049 Lease receivables, net................................................. 2,377 2,836 Other assets........................................................... 359 400 ------- ------- Total assets.................................................. $16,437 $15,078 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................................. $ 804 $1,276 Accrued clinical costs............................................ 451 576 Accrued compensation.............................................. 353 799 Accrued expenses.................................................. 733 626 Deferred revenue.................................................. 578 531 Secured borrowings................................................ 2,055 1,975 ------- ------- Total current liabilities..................................... 4,974 5,783 Secured borrowings..................................................... 2,543 3,079 Commitments and contingencies Stockholders' equity: Preferred stock, no par value, unlimited shares authorized, no shares issued and outstanding..................................... - - Common stock, no par value, unlimited shares authorized, 29,299 and 23,965 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively................ 93,316 89,417 Accumulated deficit.................................................... (83,277) (82,101) Accumulated other comprehensive loss................................... (1,119) (1,100) ------- ------- Total stockholders' equity........................................ 8,920 6,216 ------- ------- Total liabilities and stockholders' equity............................. $16,437 $15,078 ======= =======
The accompanying notes are an integral part of the condensed consolidated financial statements. -3- PLC SYSTEMS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended March 31, --------------------------- 2001 2000 ---- ---- Revenues: Product sales...................................................... $ 1,857 $ 894 Placement and service fees......................................... 484 848 ------- ----- Total revenues................................................. 2,341 1,742 Cost of revenues: Product sales...................................................... 994 300 Placement and service fees......................................... 154 686 ------- ----- Total cost of revenues......................................... 1,148 986 ------- ----- Gross profit............................................................ 1,193 756 Operating expenses: Selling, general and administrative................................ 2,230 2,512 Research and development........................................... 240 524 ------- ----- Total operating expenses....................................... 2,470 3,036 ------- ----- Loss from operations.................................................... (1,277) (2,280) Other income, net....................................................... 101 97 ------- ----- Net loss................................................................ $(1,176) $(2,183) ======= ======= Basic and diluted loss per share........................................ $ (.04) $ (.10) Shares used to compute basic and diluted loss per share..................................................... 28,765 21,341
The accompanying notes are an integral part of the condensed consolidated financial statements. -4- PLC SYSTEMS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Three Months Ended March 31, -------------------------- 2001 2000 ---- ---- Operating activities: Net loss.......................................................... $(1,176) $(2,183) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization................................. 181 627 Change in assets and liabilities: Accounts receivable......................................... (345) 689 Inventory................................................... (40) 226 Prepaid expenses and other assets........................... 12 (173) Accounts payable............................................ (473) 556 Deferred revenue............................................ 12 (31) Accrued liabilities......................................... (480) (347) -------- -------- Net cash used for operating activities................................. (2,309) (636) Investing activities: Purchase of equipment............................................. (67) (780) Proceeds from disposition of equipment............................ 10 - -------- -------- Net cash used by investing activities.................................. (57) (780) Financing activities: Net proceeds from sales of common shares.......................... 3,899 5,075 Secured borrowings................................................ (80) (46) -------- -------- Net cash provided by financing activities.............................. 3,819 5,029 Effect of exchange rate changes on cash and cash equivalents........... 68 5 -------- -------- Net increase in cash and cash equivalents.............................. 1,521 3,618 Cash and cash equivalents at beginning of period....................... 5,726 4,467 -------- -------- Cash and cash equivalents at end of period............................. $ 7,247 $ 8,085 ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. -5- PLC SYSTEMS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of PLC Systems Inc. ("PLC" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. Certain prior period items have been reclassified to conform with current period presentations. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000. 2. NET LOSS PER SHARE Basic and diluted loss per share have been computed using only the weighted average number of common shares outstanding during the period without giving effect to any potential future issues of common stock related to stock option programs and warrants since their inclusion would be antidilutive. 3. COMPREHENSIVE LOSS Total comprehensive loss for the three-month period ended March 31, 2001 amounted to $1,195,000, as compared to $2,207,000 for the three-month period ended March 31, 2000. 4. INVENTORIES Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method and consist of the following (in thousands): -6- PLC SYSTEMS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, December 31, 2001 2000 --------- ------------ Raw materials.................. $1,076 $ 946 Work in progress............... 136 43 Finished goods................. 259 451 ------ ------ $1,471 $1,440 ====== ======
At each of March 31, 2001 and December 31, 2000, inventories are stated net of a reserve of $1,374,000 for potentially obsolete inventory. 5. LEGAL PROCEEDINGS In July 1997, a United States Food and Drug Administration ("FDA") advisory panel recommended against approval of the Company's application to market the Company's first generation carbon-dioxide ("CO2") TMR laser ("HL1") in the United States. Following this recommendation, the Company was named as defendant in 21 purported class action lawsuits filed between August 1997 and November 1997 in the United States District Court for the District of Massachusetts. The lawsuits sought an unspecified amount of damages in connection with alleged violations of the federal securities laws based on the Company's failure to obtain a favorable FDA panel recommendation in 1997. Nineteen of these complaints were consolidated by the court into a single action for pretrial purposes (hereafter referred to as the "federal suit"). Two of these suits were voluntarily dismissed. The Company moved to dismiss all claims in the federal suit. On March 26, 1999, the court issued an order dismissing some, but not all, of the claims in the federal suit. The parties filed cross motions for reconsideration and on October 12, 1999, the court dismissed additional, but not all, remaining claims in the federal suit. On February 9, 2001, the Court issued an Order approving the settlement of the federal suit and entered a judgment of dismissal. The settlement of the federal suit did not have a material impact on the Company's financial statements. 6. STOCKHOLDERS' EQUITY In January 2001, the Company entered into an exclusive five-year agreement with Edwards Lifesciences LLC, a subsidiary of Edwards Lifesciences Corporation (collectively referred to as "Edwards"). Pursuant to the agreement, Edwards distributes the Company's next generation CO2 TMR laser ("HL2") (which was approved on January 9, 2001 by the FDA) and all associated TMR disposable components to hospitals throughout the United States. In conjunction with this agreement, the Company issued 5,333,333 shares of common stock to Edwards at $.75 per share, resulting in net proceeds of approximately $3,900,000. Edwards has certain preemptive rights to maintain their ownership position relative to future stock offerings. The Company also issued to Edwards a warrant to purchase 1,000,000 shares of common stock at $1.50 per share, a warrant to purchase 1,000,000 shares of common stock at $2.50 per share, and a warrant to purchase 1,000,000 shares of common stock at $3.50 per share. These warrants expire in January 2004, January 2005 and January 2006, respectively. -7- 7. LEASE RECEIVABLES The Company has entered into third-party financing arrangements to provide an array of lease financing alternatives to hospitals interested in acquiring products which are not covered under the Edwards distribution arrangement. The lease financing alternatives available complement the Company's traditional placement and sales strategies. Under these arrangements, the Company receives payment from the leasing company equal to the present value of guaranteed minimum procedure payments due from the customer after customer acceptance. In transactions where the Company has transferred substantially all of the risks and rewards of ownership to the customer and the customer has accepted the product, the Company recognizes revenues, which are reported as a component of product sales. The Company recognizes a lease receivable equal to the present value of the guaranteed minimum lease payments until such time as the Company can legally isolate the lease receivables. The payment received from the leasing company is recognized as a secured borrowing. Interest income and interest expense related to the lease receivables and secured borrowing, respectively, are recognized over time using the effective interest method. Equal amounts of interest income and interest expense are included as a component of other income, net in the condensed consolidated statements of operations. -8- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "plans", "expects", "anticipates", "intends", "estimates" and similar expressions contain uncertainty and are intended to identify forward-looking statements. Forward-looking statements are based on current plans and expectations and involve known and unknown important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Such important factors and uncertainties include, but are not limited to: the successful ability to secure any required financing; the ability to convince health care professionals and third party payers of the medical and economic benefits of the Company's products; the absence of reimbursement for health care providers who use the Company's products, or the risk that reimbursement, if provided, will be inadequate; restrictions imposed by regulatory agencies such as the FDA; competitive developments; business conditions, growth in certain market segments, and the general economy; uncertainty that any patent protection will exclude competitors or that the Company's products do not infringe any intellectual property rights of others; and the risk factors incorporated herein from the Company's annual report on Form 10-K and attached hereto as exhibit 99.1 and Item 2 and Item 3 herein. OVERVIEW In January 2001, the Company obtained FDA approval to market its next generation laser, the HL2. The HL2 is less than half the weight and size of the Company's first generation laser, the HL1, but delivers the equivalent laser energy, wavelength and beam characteristics. The HL1 and the HL2 collectively are referred to throughout this report as the "Heart Laser Systems". In January 2001, the Company also entered into a strategic marketing alliance and exclusive distribution arrangement with Edwards. Under this arrangement, Edwards is marketing and distributing the HL2, as well as all disposable TMR kits and accessories, to customers in the United States. The Company intends to maintain its sales force, at least through 2001, to assist Edwards in marketing the HL2 in the United States. The Company sells the HL2 and TMR kits to Edwards at a discount to list price and Edwards remarkets the HL2 and TMR kits to hospitals. Edwards' sales force is principally responsible for driving increased TMR procedures and kit utilization, as well as providing the Company's capital sales force with HL2 sales leads. Prior to entering into the exclusive distribution arrangement with Edwards, the Company offered placement, purchase and leasing alternatives to domestic and international customers interested in acquiring the Heart Laser Systems. Beginning in 2001, Edwards will determine the best programs, including sale, lease and rental offerings, which it believes will be most effective in the United States in marketing the HL2 and related TMR kits to hospitals. The Company will sell these products directly to Edwards at a discount to list price and will generally recognize product sales at the time of shipment to Edwards. The Company will continue with the existing programs to customers outside of the United States as described below. The Company expects that its revenues and gross profit in subsequent quarters of 2001 will likely be lower than corresponding quarters in 2000 (excluding the impact on gross margin -9- of a non-recurring charge in the fourth quarter of 2000) as a result of the discounted sale price of lasers and TMR procedural kits when sold to Edwards, until such time, if ever, that Edwards' marketing efforts result in substantially increased TMR procedural volumes and corresponding kit sales. The Company offers placement, purchase and leasing alternatives to customers interested in acquiring the Heart Laser Systems outside of the Edwards arrangement. The Company has developed a strategy to address the challenges of marketing high cost capital equipment by offering the Heart Laser Systems on a usage basis to hospitals. The particular structure of a usage based contract, including the length of contract, price billed per procedure and end of term options for purchase, depends primarily on whether the hospital is willing and able to commit to a certain minimum volume of procedures over a defined period of time. If the hospital cannot commit to a sufficient number of procedures, the Heart Laser Systems may be installed with usage fees billed as agreed upon with the hospital. The Company refers to this type of usage arrangement as a retained placement contract. Under a retained placement contract, placement and service fee revenues are recorded over the term of the usage agreement and the Heart Laser Systems remain the property of the Company and are depreciated over the term of the usage agreement. If the hospital is willing and able to commit to a sufficient number of procedures at a sufficient procedural fee, such that the substantial risks and benefits of ownership of the Heart Laser Systems have transferred to the hospital, then the Company classifies the usage agreement as a minimum procedure sales contract (qualifying as a sales type lease). Under a minimum procedure sales contract, the Company records product revenues, at a discounted present value of the guaranteed minimum procedure payments, and records product cost of sale at the time of acceptance of the Heart Laser Systems. The Company believes that retained placement and minimum procedure sales contracts are appealing to hospitals when capital equipment funds are scarce or unavailable or when it is difficult to predict early usage, as is the case with new technology such as TMR. The Company's financing arrangements with leasing vendors has enabled the Company to monetize future payment streams associated with certain agreements. If utilization becomes more predictable, the Company expects a significant number of new accounts to opt for conventional leasing, or direct purchase. The Heart Laser Systems are also sold directly to customers, and the related sterile handpieces and other disposables are sold separately. These sales are classified as product sales. Customers are given the option to purchase service contracts to cover the cost of maintaining the Heart Laser Systems beyond the applicable warranty period. These service revenues are recorded ratably over the service contract and are classified as a component of placement and service fees. A portion of the Company's operations is conducted outside of the United States. Historically the impact of foreign currency fluctuations on the Company's overall consolidated results of operations has not been material. RESULTS OF OPERATIONS Total revenues for the three-month period ended March 31, 2001 were $2,341,000, an increase of $599,000 when compared with total revenues of $1,742,000 for the three-month period ended March 31, 2000. Product sales for the three-month period ended March 31, 2001 were $1,857,000, an increase of $963,000 when compared with product sales of $894,000 for the three- -10- month period ended March 31, 2000. For the three-month period ended March 31, 2001, Heart Laser System revenues and disposable revenues, both components of product sales, increased as compared to the three-month period ended March 31, 2000 due to increased volume offset by a lower average selling price to Edwards, as well as lower royalty revenues. Prior to 2001, the Company recorded disposable revenues either as product sales (if the disposable kit was shipped to a customer who had either purchased their Heart Laser System or who otherwise qualified for sales type lease treatment) or as placement fees (if the disposable kit was shipped to a customer with a retained placement contract). In the first quarter of 2001, all disposable kit shipments were accounted for as product sales since all kits were shipped to Edwards. As such, the Company expects product sales related to disposable kits to increase in 2001 compared to 2000, while placement fee revenues are expected to decrease. Placement and service fees for the three-month period ended March 31, 2001 were $484,000, a decrease of $364,000 when compared with placement and service fees of $848,000 for the three-month period ended March 31, 2000. The decrease in placement fees is primarily due to all United States TMR kit shipments being accounted for as product sales in the first quarter of 2001 as discussed above. Management of the Company monitors disposable kit shipments to end-users as an important metric in evaluating its business. Management believes kit shipments to end users, although not a direct measure, is a reasonable indicator of the pace of the adoption of TMR as a therapy in the marketplace. For the three-month period ended March 31, 2001, 311 disposable kits were shipped to end users by Edwards, a decrease of 100 disposable kits from the 411 disposable kits shipped to end users during the three-month period ended March 31, 2000. Management believes the overall decrease is attributable to the Company's temporary shift in focus from driving kit utilization in order to promote the successful implementation, transition and development of the Edwards partnership. Total gross margin for the three-month period ended March 31, 2001 was $1,193,000, or 51% of revenues, as compared to $756,000, or 43% of revenues, for the comparable period in 2000. In the three-month period ended March 31, 2001, overall gross margin increased as a result of overall higher total revenues and a favorable product mix of higher margin disposables sold to Edwards in the period, as well as manufacturing cost savings realized in the production of the newly designed HL2. Selling, general and administrative expenditures were $2,230,000 for the three-month period ended March 31, 2001, a decrease of $282,000 when compared to expenditures of $2,512,000 in the three-month period ended March 31, 2000. This decline is mainly attributable to a decrease in corporate marketing expenses, both domestically and internationally, and lower general and administrative expenditures, including a reduction in certain travel and relocation expenses. Research and development expenditures for the three-month period ended March 31, 2001 were $240,000, a decrease of $284,000 when compared with expenditures of $524,000 for the three-month period ended March 31, 2000. The reduction in research and development expenses reflects a decrease in HL2 project-related expenditures and a reduction in clinical study expenses. -11- Other income for the three-month period ended March 31, 2001 was $101,000, an increase of $4,000 when compared with other income of $97,000 in the three-month period ended March 31, 2000. The increase is a result of higher average cash balances offset by lower rates of interest. The Company incurred a net loss of $1,176,000 for the three-month period ended March 31, 2001, compared to a net loss of $2,183,000 for the three-month period ended March 31, 2000. The smaller net loss resulted from higher total revenues, a higher gross margin and lower overall operating expenses in 2001 when compared to 2000. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, the Company had cash, cash equivalents and marketable securities of $7,516,000. Over the past three years, the Company incurred significant operating losses and utilized significant amounts of cash to fund operations. During 1999 and 2000, the Company implemented a number of programs to reduce its consumption of cash, including operating expense reductions and the establishment of third party financing alliances to enable the Company to monetize certain of its minimum procedure sales contracts. In January 2001, the Company entered into a strategic marketing alliance and exclusive distribution agreement with Edwards to distribute the new HL2 laser and all disposable TMR kits throughout the United States. In conjunction with this agreement, the Company received net proceeds of $3,900,000 through the sale of 5,333,333 newly issued shares of common stock at $.75 per share and issued warrants to purchase an additional 3,000,000 shares at exercise prices ranging from $1.50 to $3.50. See Note 6 in the notes to the condensed consolidated financial statements. During the three-month period ended March 31, 2001, the Company incurred a net loss of $1,176,000, which resulted in the use of approximately $2,309,000 of its cash resources to support operations. Cash used by investing activities was approximately $57,000 and primarily related to the purchase of equipment in the manufacturing area. Cash provided by financing activities was approximately $3,819,000 and primarily related to the net proceeds of $3,899,000 obtained from the sale of the Company's common stock to Edwards. The Company believes that its existing cash resources will meet its working capital requirements through December 31, 2001. However, the Company expects that its revenues and gross profit in subsequent quarters of 2001 will likely be lower than corresponding quarters in 2000 (excluding the impact on gross margin of the non-recurring charge in the fourth quarter of 2000) as a result of the discounted sale price of lasers and TMR procedural kits when sold to Edwards, until such time, if ever, that Edwards' marketing efforts result in substantially increased TMR procedural volumes and corresponding kit sales. Should TMR procedural volume not increase sufficiently to offset the impact of selling lasers and kits to Edwards at a discounted price, the Company's liquidity and capital resources will be negatively impacted. Additionally, other unanticipated decreases in operating revenues or increases in expenses, the inability to monetize usage agreements or further delays in third party reimbursement to healthcare providers using the Company's products may adversely impact the Company's cash position and require further cost reductions or the need to obtain additional financing. No assurance can be given that -12- the Company will be successful in achieving broad commercial acceptance of the Heart Laser Systems or that the Company will be able to operate profitably on a consistent basis. The Company may need to raise additional capital to fund operations during the next twelve months. There can be no assurance that, should the Company require additional financing, such financing will be available on terms and conditions acceptable to the Company, or at all. Should additional financing not be available on terms and conditions acceptable to the Company, additional actions may be required that could adversely impact the Company's ability to continue to realize assets and satisfy liabilities in the normal course of business. The Company has seen an increasing trend on the part of its hospital customers to acquire the Heart Laser Systems on a usage basis rather than as a capital equipment purchase. The Company believes that this trend is the result of limitations many hospitals currently have on acquiring expensive capital equipment as well as competitive pressures in the marketplace. This shift to a usage business model may result in the deferral of both revenues and the receipt of cash. The Company's cash position and its need for additional financing to fund operations will be dependent in part upon the number of hospitals that acquire Heart Laser Systems on a usage basis and the number and frequency of TMR procedures performed by these hospitals. No assurance can be given that a usage based sales model will be successful, whether implemented by the Company or Edwards. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A portion of the Company's operations consists of sales activities in foreign jurisdictions. The Company manufactures its products exclusively in the United States and sells the products in the United States and abroad. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company distributes its products. The Company's operating results are exposed to changes in exchange rates between the United States dollar and foreign currencies, especially the Swiss Franc and the German Mark. When the United States dollar strengthens against the Franc or Mark, the value of nonfunctional currency sales decreases. When the United States dollar weakens, the functional currency amount of sales increases. In the past, the Company's support of its foreign operations has benefited from a stronger United States dollar, but has been adversely affected by a weaker United States dollar relative to major currencies worldwide. No assurance can be given that foreign currency fluctuations in the future may not adversely affect the Company's financial condition and results of operations. However, at the present, the Company does not believe that its exposure is significant. The Company's interest income and expense are most sensitive to changes in the general level of United States interest rates. In this regard, changes in United States interest rates affect the interest earned on the Company's cash equivalents and marketable securities. -13- PLC SYSTEMS INC. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 5 to Notes to Condensed Consolidated Financial Statements filed with this Form 10-Q, which is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES (c) On January 9, 2001, the Company sold 5,333,333 shares of its common stock for an aggregate of $4,000,000 to Edwards in connection with an exclusive distribution agreement. In addition, the Company issued to Edwards a warrant to purchase 1,000,000 shares of common stock at a price of $1.50 per share, a warrant to purchase 1,000,000 shares of common stock at a price of $2.50 per share, and a warrant to purchase 1,000,000 shares of common stock at a price of $3.50 per share. These warrants expire on January 9, 2004, January 9, 2005 and January 9, 2006, respectively. These warrants are exercisable at any time prior to expiration at the option of the holder into shares of the Company's common stock at the exercise prices discussed above. These securities were exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, because there was no public offering of the securities sold and issued. No underwriters were involved in the sale and issuance of these securities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) EXHIBITS 10.1+ Distribution Agreement, dated January 9, 2001, by and among the Registrant, PLC Medical Systems, Inc. and Edwards Lifesciences LLC. 10.2 Shareholders Agreement, dated January 9, 2001, by and between the Registrant and Edwards Lifesciences Corporation. - -------------------- + Confidential treatment is requested for certain portions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act of 1933, as amended, which portions are omitted and filed separately with the Securities and Exchange Commission. -14- 99.1 Risk Factors set forth on pages 22 through 28 of the Company's Annual Report on Form 10-K for the year ended December 31, 2000 as filed with the Securities and Exchange Commission. b) Reports on Form 8-K None. -15- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PLC SYSTEMS INC. Date: May 14, 2001 By: /s/ James G. Thomasch ------------------- -------------------------------- Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) -16- EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION 10.1+ Distribution Agreement, dated January 9, 2001, by and among the Registrant, PLC Medical Systems, Inc. and Edwards Lifesciences LLC. 10.2 Shareholders Agreement, dated January 9, 2001, by and between the Registrant and Edwards Lifesciences Corporation. 99.1 Risk Factors set forth on pages 22 through 28 of the Company's Annual Report on Form 10-K for the year ended December 31, 2000 as filed with the Securities and Exchange Commission.
- --------------------------- + Confidential treatment is requested for certain portions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act of 1933, as amended, which portions are omitted and filed separately with the Securities and Exchange Commission. -17- EX-10.1 2 a2047827zex-10_1.txt EXHIBIT 10.1 =============================================================================== EXHIBIT 10.1 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. DISTRIBUTION AGREEMENT BY AND AMONG PLC SYSTEMS INC., PLC MEDICAL SYSTEMS, INC. AND EDWARDS LIFESCIENCES LLC DATED JANUARY 9, 2001 =============================================================================== TABLE OF CONTENTS ARTICLE I Definitions..............................................................................1 ARTICLE II Appointment.............................................................................4 SECTION 2.1. Appointment.....................................................................4 SECTION 2.2. Competition.....................................................................4 ARTICLE III Obligations of Distributor.............................................................5 SECTION 3.1. General Obligations of Edwards..................................................5 SECTION 3.2. Costs and Expenses..............................................................5 SECTION 3.3. Sales and Marketing Option......................................................5 ARTICLE IV Obligations of PLC......................................................................6 SECTION 4.1. Transition Services.............................................................6 SECTION 4.2. Approvals.......................................................................6 SECTION 4.3. Labeling of Products............................................................6 SECTION 4.4. Clinical or Marketing Studies...................................................6 SECTION 4.5. Installation Services and Services Provided under Extended Service Agreements...6 SECTUIB 4.6. Warranty and Preventive Maintenance Services....................................7 SECTION 4.7. Recall of Products..............................................................7 SECTION 4.8. Product Liability Insurance.....................................................7 SECTION 4.9. Costs and Expenses..............................................................8 ARTICLE V Sales and Marketing......................................................................8 SECTION 5.1. Marketing Plan..................................................................8 SECTION 5.2. Sales Plan......................................................................8 SECTION 5.3. Sales Material and Literature...................................................8 SECTION 5.4. Training and Retention of Sales Personnel.......................................8 SECTION 5.5. Performance Record of Sales Personnel...........................................9 i
ARTICLE VI Purchase Arrangements.................................................................. 9 SECTION 6.1. Purchase Forecasts for Products................................................ 9 SECTION 6.2. Purchaser Orders; No Minimum Product Quantities................................ 9 SECTION 6.3. Placement of Orders............................................................10 ARTICLE VII Pricing, Payment, Shipping............................................................10 SECTION 7.1. TMR Disposable Kits............................................................10 SECTION 7.2. HL-1 Laser Systems.............................................................11 SECTION 7.3. HL-2 Laser Systems.............................................................11 SECTION 7.4. Product Accessories............................................................12 SECTION 7.5. Shipping.......................................................................12 SECTION 7.6. Payment........................................................................12 ARTICLE VIII Term and Termination; Annual Meeting.................................................12 SECTION 8.1. Term and Renewal...............................................................12 SECTION 8.2. Immediate Termination..........................................................13 SECTION 8.3. Annual Meeting.................................................................13 ARTICLE IX Warranties and Indemnification.........................................................13 SECTION 9.1. Warranties.....................................................................13 SECTION 9.2. Indemnification by PLC.........................................................13 SECTION 9.3. Indemnification by Edwards.....................................................14 SECTION 9.4. Indemnification Procedures.....................................................14 ARTICLE X Intellectual Property Rights and Confidentiality........................................15 SECTION 10.1. Trademarks.....................................................................15 SECTION 10.2. Confidential Information.......................................................15 ARTICLE XI MISCELLANEOUS..........................................................................16 SECTION 11.1. Relationship...................................................................16 SECTION 11.2. No Conflict....................................................................16 SECTION 11.3. Governing Law..................................................................16 SECTION 11.4. Escalation.....................................................................17 ii SECTION 11.5. Jurisdiction and Consent to Service............................................17 SECTION 11.6. Notices........................................................................18 SECTION 11.7. Interpretation.................................................................19 SECTION 11.8. Severability...................................................................19 SECTION 11.9. Counterparts...................................................................19 SECTION 11.10. Entire Agreement; No Third Party Beneficiaries.................................19 SECTION 11.11. Amendments and Modifications; Waivers and Extensions...........................20 SECTION 11.12. Assignment.....................................................................20 SECTION 11.13. Exhibits.......................................................................20 SECTION 11.14. Expenses.......................................................................20 SECTION 11.15. No Consequential or Punitive Damages...........................................21
EXHIBITS AND SCHEDULES Exhibit A Description of Products Schedule 2.1 Distributors Schedule 3.3 Sales Personnel Schedule 4.1 Transition Services Schedule 4.5 Installation Services and Services Relating to Extended Service Agreements Schedule 4.6 Warranty and Preventive Maintenance Services Schedule 4.8 Product Liability Insurance Schedule 5.1 Marketing Plan Schedule 5.2 Sales Plan Schedule 7.3 HL-2 Laser System Customers Schedule 7.4 Product Accessories iii DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT, dated as of January 9, 2001 this "Agreement"), by and among Edwards Lifesciences LLC, a Delaware corporation ("Edwards"), PLC Systems Inc., a Yukon Territory corporation ("PLC Parent"), and PLC Medical Systems, Inc., a Delaware corporation ("PLC"), which is a wholly owned subsidiary of PLC Parent. WHEREAS, PLC has developed a carbon dioxide laser system and related accessories described in EXHIBIT A hereto (as set forth in Exhibit A, the "Products"), and desires that the sale and use of the Products be actively promoted in the fifty states of the United States of America and the District of Columbia (the "Territory"); WHEREAS, Edwards is a company in the medical devices field with experience and expertise in the commercialization and distribution of medical devices; WHEREAS, PLC desires to engage Edwards to purchase, resell and distribute the Products in the Territory; and WHEREAS, Edwards desires to obtain rights to purchase, resell and distribute the Products in the Territory; NOW, THEREFORE, in consideration of the mutual agreements and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: "Agreement" shall have the meaning set forth in the Recitals. "Automatic Renewal Threshold" shall have the meaning set forth in Section 8.1. "Average End User Price" shall have the meaning set forth in Section 7.1. "Damages" shall have the meaning set forth in Section 9.2. "DBMR" shall have the meaning set forth in Section 2.2. "Dispute" shall have the meaning set forth in Section 11.4. "Edwards" shall have the meaning set forth in the Recitals. "Edwards Facility" shall have the meaning set forth in Section 7.5. "Effective Date" shall have the meaning set forth in Section 8.1. "Escalation Notice" shall have the meaning set forth in Section 11.4. "Estimated End User Price" shall have the meaning set forth in Section 7.1. "ETL" shall have the meaning set forth in Section 4.2. "FDA" shall have the meaning set forth in Section 4.2. "HL-1 Laser System" shall have the meaning set forth in EXHIBIT A. "HL-2 Laser System" shall have the meaning set forth in EXHIBIT A. "HL-2 Purchase Price" shall have the meaning set forth in Section 7.3. "Indemnified Party" shall have the meaning set forth in Section 9.3. "Indemnifying Party" shall have the meaning set forth in Section 9.3. "Initial Term" shall have the meaning set forth in Section 8.1. "PLC" shall have the meaning set forth in the Recitals. "PLC Parent" shall have the meaning set forth in the Recitals. -2- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Products" shall have the meaning set forth in the Recitals. "Sales and Marketing Option" shall have the meaning set forth in Section 3.3. "Scheduled Employees" shall have the meaning set forth in Section 3.3 "Services" shall have the meaning set forth in Section 4.5. "Territory" shall have the meaning set forth in the Recitals. "TMR Disposable Kit" shall have the meaning set forth in EXHIBIT A. "Transaction Agreements" shall have the meaning set forth in Section 11.10. "Usage Premium" shall mean, with respect to each contract pursuant to which an HL-1 Laser System or HL-2 Laser System is sold, the dollar amount by which the per-usage charge set forth in such contract exceeds the TMR Disposable Kit price set forth in such contract or if the TMR Disposable Kit price is not explicitly stated in such contract, the list price of a TMR Disposable Kit at the time the contract was entered into. In addition, Usage Premium shall also include the amount of any additional payments related exclusively to the use of the applicable Laser System, including, but not limited to, rental or lease payments. "Warehouse Retesting" shall mean retesting an HL-2 Laser System to its original factory specifications due to the fact that it has been warehoused by Edwards for longer than the Warehouse Life. "Warehouse Life" shall mean [**], unless PLC reasonably determines, at any time during the term of this Agreement, that such period may be extended, but in no event shall such period be extended to more than [**]; provided, however that PLC shall provide Edwards with the data upon which it makes the determination to extend or maintain the Warehouse Life. -3- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. "Warranty Period" shall mean in the event (a) an HL-2 Laser System is shipped before the expiration of the Warehouse Life, the period from the date of installation until the [**] anniversary of such installation, but not to exceed [**] from the date of shipment to the end user; (b) an HL-2 Laser System is shipped after the expiration of the Warehouse Life and PLC has requested that such HL-2 Laser System be Warehouse Retested and Edwards ships without such Warehouse Retesting, the period from the date of sale to Edwards until the date which is [**] plus the Warehouse Life; (c) a proposed shipment of an HL-2 Laser System would occur after the expiration of the Warehouse Life, and Edwards and PLC agree to the Warehouse Retesting of such HL-2 Laser System, the period from the date of installation until the [**] anniversary of such installation, but not to exceed [**] from the date of shipment to the end user; and (d) a proposed shipment of an HL-2 Laser System would occur after the expiration of the Warehouse Life, and Edwards and PLC agree that Warehouse Retesting of such HL-2 Laser System is not necessary, the period from the date of installation until the [**] anniversary of such installation, but not to exceed [**] from the date of shipment to the end user. ARTICLE II APPOINTMENT SECTION 2.1. APPOINTMENT. Subject to the terms and conditions contained in this Agreement, PLC hereby appoints Edwards as PLC's exclusive independent distributor of the Products in the Territory. Edwards may not appoint a secondary or sub-distributor to sell the Products without PLC's prior written consent, other than those set forth on Schedule 2.1. PLC shall not appoint any other agents, representatives, or distributors for the purpose of selling the Products in the Territory. SECTION 2.2. COMPETITION. Edwards shall not sell any devices in the Territory which directly compete with the Products in the field of myocardial revascularization either intraoperative or percutaneous that uses a device-based channeling means ("DBMR") during the term of this Agreement. Edwards may market and sell medical devices, including, without limitation, products that may be used in connection with revascularization of the heart, as long as such medical devices are not within the field of DBMR and all other medical devices which it is selling as of the date hereof. Edwards does not currently sell any devices in the field of DBMR. -4- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. ARTICLE III OBLIGATIONS OF DISTRIBUTOR SECTION 3.1. GENERAL OBLIGATIONS OF EDWARDS. Edwards shall use commercially reasonable efforts to distribute and sell the Products in the Territory including, without limitation, the following: Promote the sale and use of Products in the Territory; Provide customer service, including responding to customer inquiries and requests for quotes on Product pricing; and Provide invoices to customers and manage accounts receivable and collection responsibilities for sales by Edwards of the Products. SECTION 3.2. COSTS AND EXPENSES. Edwards shall bear all the costs and expenses associated with its obligations set forth in this Agreement. SECTION 3.3. SALES AND MARKETING OPTION. Edwards shall have the option (the "Sales and Marketing Option") which must be exercised, if at all, upon [**] prior written notice to PLC given during or before the [**] period following the [**]anniversary of the date hereof, to assume full sales and marketing responsibility for the Products in the Territory and to offer employment, subject to Edwards' standard employment qualifications, with base compensation, commission and benefits substantially competitive to those provided by PLC immediately prior to such offer to each PLC employee set forth on Schedule 3.3 (the "Scheduled Employees"), provided they meet the performance criteria set forth on Schedule 3.3. Upon exercise of the Sales and Marketing Option, PLC shall release performance reviews of the Scheduled Employees to Edwards, subject to the waiver of each such employee. If such Scheduled Employee refuses to waive access to his or her performance reviews, such refusal shall constitute a rejection of an offer of employment from Edwards and Edwards shall have no further obligations with respect to such employee and PLC shall be responsible for any severance pay pursuant to the last sentence of this section. If Edwards chooses not to offer employment to any Scheduled Employee that meets the performance criteria set forth on Schedule 3.3 and Edwards' standard employment qualifications, Edwards shall pay to PLC the amount on Schedule 3.3 per such employee. In the event a Scheduled Employee rejects the employment offer by Edwards, PLC shall be responsible for severance pay to such employee, if any, pursuant to PLC's then existing severance policy, if any. -5- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. ARTICLE IV OBLIGATIONS OF PLC SECTION 4.1. TRANSITION SERVICES. PLC shall and PLC Parent shall cause PLC to provide to Edwards [**] the transition services set forth on Schedule 4.1 for a period of up to [**] from the Effective Date which services Edwards may terminate in whole or in part at any time prior to the expiration of such [**]period. SECTION 4.2. APPROVALS. PLC shall and PLC Parent shall cause PLC to use commercially reasonable efforts to obtain and maintain all approvals and clearances required with respect to the sale of the Products in the Territory, including, without limitation, approvals from the Food and Drug Administration (the "FDA") and the Electrical Testing Laboratory ("ETL"). SECTION 4.3. LABELING OF PRODUCTS. PLC shall and PLC Parent shall cause PLC to provide and to assume regulatory responsibility for all finished Product and Product-related labeling, including all sales and marketing literature, such that it complies with all applicable laws and regulations in the Territory during the term of this Agreement. All labeling for the Products shall include the statement "Distributed by Edwards Lifesciences LLC, Manufactured by PLC Medical Systems, Inc." SECTION 4.4. CLINICAL OR MARKETING STUDIES. PLC shall and PLC Parent shall cause PLC to use commercially reasonable efforts to conduct any clinical study with respect to the Products required by the FDA or other governmental agencies to sell or market the Products in the Territory. All other clinical or marketing studies with respect to the Products that are conducted within the Territory will be approved, funded, and conducted on terms and conditions mutually agreed to by PLC and Edwards. SECTION 4.5. INSTALLATION SERVICES AND SERVICES PROVIDED UNDER EXTENDED SERVICE AGREEMENTS. PLC shall and PLC Parent shall cause PLC to provide the services and technical support relating to the Products as set forth on Schedule 4.5 (the "Schedule 4.5 Services"). PLC shall retain all service fees and revenues that it receives from end users for providing the Schedule 4.5 Services, PROVIDED that PLC shall pay to Edwards a commission of [**]% of all such fees and revenues. If and to the extent that PLC fails to perform its obligation in the first sentence of this Section 4.5, Edwards may provide those Schedule 4.5 Services or contract with a third party to provide those Schedule 4.5 Services. In such event, Edwards shall keep all service fees and revenues resulting therefrom and PLC shall train the personnel (at a rate of $[**] per day) -6- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. performing such Schedule 4.5 Services (whether employed by Edwards or a third party) and provide factory support, including, without limitation, spare parts, technical troubleshooting, and processing product returns. PLC shall also provide Edwards with monthly reports with respect to Product returns and complaints. Edwards shall log in any Products returned by customers to Edwards and return such Products to PLC. If an HL-2 Laser System is installed and the price to be paid by the end user for such installation is less than $[**] per day, PLC shall install such HL-2 Laser System and Edwards shall pay PLC the difference between $[**] and the amount to be paid by the end user per day for such installation, but in no event shall Edwards' payment exceed $[**] per installation. SECTION 4.6. WARRANTY AND PREVENTIVE MAINTENANCE SERVICES. PLC shall and PLC Parent shall cause PLC to provide all warranty and two scheduled preventive maintenance services on all HL-2 Laser Systems as set forth on Schedule 4.6 during the Warranty Period. Edwards shall reimburse PLC for the costs set forth on Schedule 4.6 incurred by PLC in the performance of its obligation in the prior sentence during the Warranty Period, but in no event shall such reimbursement exceed $[**] per HL-2 Laser System. In the event PLC is required to conduct Warehouse Retesting on an HL-2 Laser System, Edwards shall reimburse PLC $[**] per such HL-2 Laser System, upon completion of Warehouse Retesting. SECTION 4.7. RECALL OF PRODUCTS. In the event of a recall of any of the Products, PLC shall and PLC Parent shall cause PLC to bear all costs and expenses of such recall, including, without limitation, expenses or obligations to third parties, the cost of notifying customers and end users, and costs associated with the shipment of recalled Products from customers to PLC. Edwards shall cooperate with PLC in effecting any recall of the Products sold by Edwards by producing customer lists and assisting with the notification of customers and end users of the recalled Products. SECTION 4.8. PRODUCT LIABILITY INSURANCE. Set forth on Schedule 4.8 is a copy of PLC's product liability insurance policy which is in full force and effect. PLC shall and PLC Parent shall cause PLC to obtain and keep in force during the term of this Agreement a product liability insurance policy in an amount not less than $10,000,000 in a form reasonably acceptable to Edwards. During the term of this Agreement and for a period of [**] following the expiration or termination of this Agreement, such insurance policy shall evidence Edwards and all of its affiliates as additional insured entities and shall provide for written notification to Edwards by the insurer not less than 30 days prior to cancellation, expiration or modification. PLC shall and PLC Parent shall cause PLC to provide a certificate of insurance evidencing compliance with this Section 4.8 to Edwards within 30 days of the date hereof. -7- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. SECTION 4.9. COSTS AND EXPENSES. PLC shall and PLC Parent shall cause PLC to bear all the costs and expenses associated with PLC's obligations set forth in this Agreement. ARTICLE V SALES AND MARKETING SECTION 5.1. MARKETING PLAN. PLC and Edwards shall jointly execute the marketing plan for the Products set forth in Schedule 5.1 and fund such plan based on the percentages set forth on such schedule during the first six months of the term of this Agreement. During such period, PLC and Edwards shall jointly develop a marketing plan for the Products for the next six months and PLC shall provide [**]% of the funding for such plan and Edwards shall provide the remaining [**]% of the funding. PLC and Edwards shall continue to jointly develop a marketing plan for the Products and provide funding for such plan according to mutually agreeable allocations until such time as Edwards exercises the Sales and Marketing Option. SECTION 5.2. SALES PLAN. Edwards and PLC agree to the sales plan set forth on Schedule 5.2. Edwards shall reimburse any out-of-pocket costs for travel incurred by PLC in connection with training Edwards' sales personnel beyond the scope of the training requirements anticipated in Schedule 5.2. SECTION 5.3. SALES MATERIAL AND LITERATURE. PLC shall initially provide all sales material and literature for the Products. PLC and Edwards shall jointly develop any new literature. The costs and expenses associated with developing and producing any new literature shall be paid jointly by PLC and Edwards according to the funding percentages set forth in Section 5.1 until such time as Edwards exercises the Sales and Marketing Option. If Edwards exercises such option, Edwards thereafter shall be solely responsible for paying the cost of such literature. Nothing in this Section 5.3 shall have any effects on PLC's obligations set forth in Section 4.3. SECTION 5.4. TRAINING AND RETENTION OF SALES PERSONNEL. PLC shall provide products and sales training to all PLC and Edwards sales personnel that are engaged in marketing and selling the Products in the Territory. PLC shall use commercially reasonable efforts to retain the sales personnel set forth on Schedule 3.3. During the term of this Agreement and for a period of [**] after the termination or expiration of this Agreement, neither PLC Parent nor PLC shall hire or solicit for -8- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. employment any of Edwards' personnel without the prior written consent of Edwards. During the term of this Agreement and for a period of one year after the termination or expiration of this Agreement, Edwards shall not hire or solicit for employment any personnel of PLC Parent or PLC without the prior written consent of PLC; PROVIDED, HOWEVER, that if Edwards exercises the Sales and Marketing Option, the foregoing limitations shall be inapplicable to personnel listed or otherwise referenced on Schedule 3.3. SECTION 5.5. PERFORMANCE RECORD OF SALES PERSONNEL. PLC shall keep an accurate and complete record of the performance of all Scheduled Employees, including the sales figures for each Scheduled Employee, and will provide quarterly updates to Edwards of the sales figures for each territory. ARTICLE VI PURCHASE ARRANGEMENTS SECTION 6.1. PURCHASE FORECASTS FOR PRODUCTS. PLC and Edwards shall confer monthly and jointly produce a [**] forecast of the expected demand for the Products until such time as Edwards exercises the Sales and Marketing Option. After Edwards exercises such option, for the remaining term of the Agreement, Edwards shall provide quarterly to PLC a [**]forecast of the expected demand for the Products. SECTION 6.2. PURCHASER ORDERS; NO MINIMUM PRODUCT QUANTITIES. Edwards shall submit a non-cancelable purchase order to PLC for TMR Disposal Kits for the upcoming calendar quarter on the first day of the month preceding such quarter except that until June 30, 2001, Edwards shall submit non-cancelable purchase orders on a monthly basis for TMR Disposal Kits. Until such time as Edwards exercises the Sales and Marketing Option, Edwards shall submit non-cancelable purchase orders to PLC for HL-2 Laser Systems on an as needed basis. If Edwards exercises such option, thereafter, Edwards shall submit a non-cancelable purchase order to PLC for HL-2 Laser Systems for the upcoming calendar quarter on the first day of the month preceding such quarter. Notwithstanding its provision of demand forecasts for the Products and anything else set forth herein, Edwards shall determine in its sole discretion the quantity of Products it shall purchase and there shall be no minimum purchase requirements for any Products. To the extent that the terms of any purchase order and the terms of this Agreement conflict, the terms of this Agreement shall control. -9- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. SECTION 6.3. PLACEMENT OF ORDERS. All orders for Products submitted by Edwards shall be initiated by written purchase orders sent to PLC which shall specify the desired delivery date, location and method of transportation for the Products included in such order. With respect to any Product for which Edwards may submit purchase orders to PLC on an as needed basis, Edwards agrees to promptly submit purchase orders to PLC after its receipt of orders from its customers, but, in any event, shall submit purchase orders to PLC within ten business days of its receipt of a customer order. Quarterly purchase orders submitted to PLC by Edwards will indicate the quantity of Products to be delivered for each month of the quarter, provided, however, the quantity for any individual month shall in no case be less than [**]% of the total to be delivered for the entire quarter. The quantity for the quarter shall not exceed [**]% of the most recent forecasted quantity for the quarter. PLC shall use commercially reasonable efforts to deliver the Products on the agreed upon delivery dates set forth in accepted purchase orders, but, in any event, shall make all deliveries within [**] days of the agreed upon delivery dates set forth in accepted purchase orders. ARTICLE VII PRICING, PAYMENT, SHIPPING SECTION 7.1. TMR DISPOSABLE KITS. (a) Edwards shall purchase the TMR Disposable Kits from PLC at [**]% of the Average End User Price. If Edwards exercises the Sales and Marketing Option, thereafter Edwards shall purchase the TMR Disposable Kits from PLC at [**]% of the Average End User Price. The "Average End User Price" shall mean the average of the actual sales price for each TMR Disposable Kit sold during a calendar quarter. Edwards shall calculate the Average End User Price and deliver such calculation to PLC within [**] days after the end of each quarter. (b) PLC shall bill TMR Disposable Kits to Edwards on a preliminary basis at [**]% of the Estimated End User Price before Edwards exercises the Sales and Marketing Option and [**]% of the Estimated End User Price after Edwards exercises such option. Through June 30, 2001, the "Estimated End User Price" shall be $[**]. During subsequent quarters of the Agreement, the "Estimated End User Price" shall be equal to the Average End User Price for the most recent quarter that such data is available and calculable. -10- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. (c) The difference between the preliminary amount billed during a quarter using the Estimated End User Price and the actual amount owed using the Average End User Price shall be credited to Edwards by PLC or paid by Edwards to PLC, as the case may be, within [**] days of the date such Average End User Price is determined. With respect to TMR Disposable Kits that PLC has sold prior to the date of this Agreement to PLC customers using the HL-1 Laser System, but as to which delivery has not yet been requested by the applicable customer, upon such request for delivery PLC shall provide the requested TMR Disposable Kits to Edwards [**], and Edwards shall provide such TMR Disposable Kits to the applicable customer [**]. (d) Within [**] days of the end of each calendar month, Edwards shall provide to PLC a written report showing, for the month immediately preceding the report, Edwards' sales of the Products, including the name of the customer, the date of the shipment, the price of the Product and the allocation of the price between Edwards and PLC. Edwards shall maintain for at least two years its records, contracts and accounts relating to sales of the Products, and shall permit examination thereof by authorized representatives of PLC at all reasonable times. SECTION 7.2. HL-1 LASER SYSTEMS. Edwards shall deliver to PLC [**]% of all Usage Premiums received in connection with the sale of TMR Disposable Kits for use with, and service revenue related to, HL-1 Laser Systems. Edwards shall deliver any and all monies received in connection with the purchase of an HL-1 Laser System to PLC. SECTION 7.3. HL-2 LASER SYSTEMS. Subject to any adjustment provided herein, Edwards shall purchase the HL-2 Laser Systems from PLC for $[**] per unit, which amount includes warehousing fees at PLC's facility (the "HL-2 Purchase Price"). In addition, Edwards shall pay PLC [**]% of the amount the HL-2 Laser System end user price exceeds the HL-2 Purchase Price for each such HL-2 Laser System sold. Edwards shall retain the Usage Premiums it receives from each HL-2 Laser System that is placed until the aggregate Usage Premiums received with respect to such HL-2 Laser System equals the[**]. Thereafter, Edwards shall pay PLC [**]% of such Usage Premiums. PLC and Edwards agree to periodically review in good faith the HL-2 Laser Purchase Price and to make adjustments, subject to their mutual agreement, to the HL-2 Purchase Price due to inflation, change in product cost and/or other market or competitive conditions. Edwards shall pay PLC within [**]days of the sale the amount set forth in the column titled "Protection" specified in Schedule 7.3 for each such HL-2 Laser System that is sold to a customer listed on Schedule 7.3 within three months of Effective Date of this Agreement. -11- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. SECTION 7.4. PRODUCT ACCESSORIES. Edwards shall purchase from PLC F.O.B PLC's manufacturing facility any Product accessory set forth on Schedule 7.4 for the transfer price listed for such accessory on Schedule 7.4. SECTION 7.5. SHIPPING. At Edwards' request, PLC shall warehouse all HL-2 Laser Systems purchased by Edwards at Edwards' segregated warehouse within PLC's facility ("Edwards Facility"). Until the date [**] days after the date of the termination of the transition services provided in Section 4.1, PLC shall deliver TMR Disposable Kits directly to the end user. Thereafter, PLC shall deliver TMR Disposable Kits directly to Edwards. All prices for the Products shall be F.O.B. PLC's manufacturing facility. The prices will not include any federal, state or local sales, use, excise or value added tax that may be applicable. If PLC has the legal obligation to collect such taxes, the appropriate amount shall be added to Edwards' invoice and paid by Edwards unless Edwards provides PLC with a valid tax exemption certificate authorized by the appropriate taxing authority. PLC shall ship the Products using the method of transportation specified by Edwards in the purchase order. In all cases, title, risk of loss and all responsibility for transportation, insurance and storage shall pass from PLC to Edwards upon transfer of finished HL-2 Laser Systems from PLC to the Edwards Facility and after such transfer PLC shall promptly issue an invoice related thereto to Edwards. SECTION 7.6. PAYMENT. Full payment shall be made by Edwards to PLC within [**] days from the invoice date which shall be shipping date for the Products to Edwards. ARTICLE VIII TERM AND TERMINATION; ANNUAL MEETING SECTION 8.1. TERM AND RENEWAL. This Agreement shall commence on the date hereof (the "Effective Date") and be valid for an initial term of five (5) years ("Initial Term"). Edwards shall have the option to extend the Agreement on the same terms and conditions for an additional term of five (5) years, PROVIDED that the TMR Disposable Kits sold by Edwards, measured for the twelve-month period ending six months prior to the expiration of the Initial Term, are used in at least [**]% of all intraoperative laser-based transmyocardial revascularization procedures in the Territory for such period as measured by a third-party study reasonably acceptable to PLC and Edwards (the "Automatic Renewal Threshold"). If the parties cannot agree on any such study, then they shall jointly commission a study by McKinsey & Company and will be bound by such study. PLC and Edwards shall split the cost of the McKinsey & Company study equally. If the -12- sale of Products by Edwards does not meet the Automatic Renewal Threshold, the parties may agree to extend the Agreement on mutually acceptable terms and conditions. SECTION 8.2. IMMEDIATE TERMINATION. This Agreement may be terminated by either Edwards or PLC immediately in the event that (a) any breach by PLC of Section 4.8; (b) any material breach by the other party remains uncured 60 days after written notice containing details of the breach has been delivered to the other party; or (c) the other party shall file for protection from its creditors under any applicable bankruptcy or insolvency laws, shall make an assignment for the benefit of creditors, or shall have a receiver appointed for its property. This Agreement may be terminated by Edwards upon one-year notice, in the event Edwards decides in its sole reasonable discretion that unfavorable market conditions exist for the Products in the Territory. SECTION 8.3. ANNUAL MEETING. The chief executive officer of PLC and the executive in charge of the DBMR business for Edwards shall agree to meet annually in order to discuss sales opportunities, current market trends and to keep each other informed of pertinent events and competing products having an impact upon the Products' marketability, including, but not limited to, forecasts as to future demand. ARTICLE IX WARRANTIES AND INDEMNIFICATION SECTION 9.1. WARRANTIES. PLC warrants that (a) it possesses good and marketable title to all Products sold to Edwards under this Agreement; (b) each Product conforms to its specifications and is fit for the purposes and indications described in its labeling; (c) when available for sale in the Territory the Products are or will be manufactured in conformity with all FDA and ETL rules and regulations and applicable laws of the Territory; (d) the Products have or will have obtained FDA approval to market and sell the Products when the Products are available for sale in the Territory; (e) it is the owner or licensor of the entire right, title and interest in the intellectual property relating to the Products and, to the knowledge of PLC and PLC Parent, the use by Edwards of any such intellectual property will not violate any right of any third party; and (f) it complies and will continue to comply with all applicable laws and regulations of the Territory with respect to the Products. SECTION 9.2. INDEMNIFICATION BY PLC. PLC and PLC Parent shall indemnify and hold harmless Edwards, its officers, directors, shareholders, employees, parents, successors, affiliates, assigns, customers and users of Products, in each case, from and against any and all costs or expenses (including, without limitation, reasonable attorneys' fees, and the reasonable out-of-pocket expenses of testifying and preparing for testimony and responding to document and other information requests, whether or not a party to such -13- litigation), judgments, fines, losses, claims (whether or not meritorious) and damages (collectively, "Damages"), as incurred, to the extent they relate to, arise out of or are the result of (i) the manufacture by PLC or use of any Products; (ii) the design of any Products or component of the Products not developed exclusively by Edwards; (iii) the failure of the Products to satisfy any warranty made by PLC; (iv) by reason of the sale or use of the Products any claim of infringement of patents, trademarks, trade names, or copyrights, any claim of misappropriation or misuse of trade secrets or information or any similar claim; (v) any claims with respect to any Scheduled Employee arising from actions taken by PLC prior to the date hereof, and (vi) any claims with respect to any Scheduled Employee arising from actions taken by PLC, unrelated to this Agreement, prior to the exercise of the Sales and Marketing Option, provided, however, that such indemnification shall in no event exceed $500,000. SECTION 9.3. INDEMNIFICATION BY EDWARDS. Edwards shall indemnify and hold harmless PLC, its successors, affiliates and assigns, in each case, from and against any and all Damages, as incurred, to the extent they relate to, arise out of or are the result of Edwards' gross negligence or willful misconduct in the promotion and sale of the Products by Edwards. SECTION 9.4. INDEMNIFICATION PROCEDURES. The party seeking indemnification (the "Indemnified Party") pursuant to this Article IX shall promptly notify the indemnifying party (the "Indemnifying Party"), in writing, of such claim describing such claim in reasonable detail, PROVIDED that the failure to provide such notice shall not affect the obligations of the Indemnifying Party unless and only to the extent it is actually prejudiced thereby. In the event that such claim involves a claim by a third party against an Indemnified Party, the Indemnifying Party shall have 30 days after receipt of such notice to decide whether it will undertake, conduct and control, through counsel of its own choosing (but reasonably acceptable to the Indemnified Party) and at its own expense, the settlement or defense thereof unless (i) the Indemnifying Party is also a party to the proceeding and the Indemnified Party determines in good faith that joint representation would be inappropriate or (ii) the Indemnifying Party fails to provide reasonable assurance to the Indemnified Party of its financial capacity to defend such proceeding, and provide indemnification with respect thereto, and if it so decides, the Indemnified Party shall cooperate with it in connection therewith, PROVIDED that the Indemnified Party may participate in such settlement or defense through counsel chosen by it, and PROVIDED FURTHER that the fees and expenses of such counsel shall be borne by the Indemnified Party. The Indemnifying Party shall not, without the written consent of the Indemnified Party (which consent shall not be unreasonably withheld, conditioned or delayed), settle or compromise any action, unless such settlement or compromise includes an unconditional release of the Indemnified Party. If the Indemnifying Party does not notify the Indemnified Party within 30 days after the receipt of notice of a claim -14- of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to contest, settle or compromise the claim but shall not pay or settle any such claim without the consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed). The Indemnifying Party and the Indemnified Party shall cooperate fully in all aspects of any investigation, defense, pre-trial activities, trial, compromise, settlement or discharge of any claim in respect of which indemnity is sought pursuant to Article IX, including, but not limited to, providing the other party with reasonable access to employees and officers (including as witnesses) and other information. The remedies provided in this Article IX will not be exclusive of or limit any other remedies that may be available to the Indemnified Parties. ARTICLE X INTELLECTUAL PROPERTY RIGHTS AND CONFIDENTIALITY SECTION 10.1. TRADEMARKS. Edwards shall have the right to indicate to the public that it is an authorized distributor of the Products and to market and sell the Products under the trademarks, service marks and trade names that PLC may adopt from time to time. Edwards shall not alter, obscure or remove any trademarks, service marks or trade names of PLC which are contained on or in or affixed to the Products at the time of shipment. Edwards shall not use any trademarks, service marks or trade names of PLC in connection with any business conducted by Edwards other than dealing with the Products in accordance with the terms of this Agreement. Edwards agrees that its use of the trademarks, service marks and trade names of PLC shall not create in its favor any right, title or interest therein and acknowledges PLC's exclusive right, title and interest thereto. Edwards agrees that it will not use, without PLC's prior written consent, any mark which is similar to or is likely to be confused with any trademarks, service marks or trade names of PLC. Edwards' rights to use the trademarks, service marks and trade names of PLC as set forth in this Section 10.1 shall terminate upon termination or expiration of this Agreement. SECTION 10.2. CONFIDENTIAL INFORMATION. In order to avoid disclosure of confidential and proprietary information to any other person, firm or corporation, the parties agree that during the term of this Agreement and for a period of three years from the termination of this Agreement each will treat any such information which is received from one another in writing and clearly marked as "Confidential" or if disclosed orally, which is confirmed in writing as "Confidential" within thirty (30) days of initial disclosure, with the same degree of care that each employs with respect to its own information which it does not desire to have published or disseminated. It is understood that each party shall be liable for any unauthorized disclosure should it fail to safeguard the disclosed information with -15- such care. This obligation shall survive the termination or expiration of this Agreement. The parties shall not have any obligation with respect to such information which is: (a) independently developed by the receiving party without the benefit of the disclosure or is already known to the receiving party at the time of the disclosure, as evidenced by written documentation; (b) publicly known or becomes publicly known without the wrongful act or breach of this Agreement by the receiving party; or (c) rightfully received by the receiving party from a third-party who is not under any obligation of confidentiality or trade secret obligation to the originating party. ARTICLE XI MISCELLANEOUS SECTION 11.1. RELATIONSHIP. The relationship of Edwards and PLC established by this Agreement is of independent contractors and not agents (except as set forth in Section 2.1), and nothing in this Agreement shall be construed: (a) To give either party the power to direct or control the daily activities of the other party beyond the obligations imposed on Edwards and PLC, respectively, by this Agreement; (b) To constitute the parties as partners, joint ventures, co-owners or otherwise as participants in joint undertaking; or (c) To allow either party to create or assume any obligation on behalf of the other party for any purpose whatsoever. The purchase, promotion, and resale of, or any other legal transactions concerning the Products hereunder shall be carried out in the name of and for the account of Edwards as principal, and Edwards shall not enter into any agreement with third persons binding in any way on PLC. SECTION 11.2. NO CONFLICT. Each party represents and warrants to the other parties that it is not subject to any contractual obligation or restraint which will materially interfere with its right and ability to perform pursuant to the terms of this Agreement. SECTION 11.3. GOVERNING LAW. This Agreement shall be governed by, interpreted under, and construed in accordance with the internal laws of the State of New York, including, -16- without limitation, Sections 5-1401, 5-1402 of the New York General Obligations Law and New York Civil Practice Laws and Rules 327(b). SECTION 11.4. ESCALATION. Edwards and PLC (and/or PLC Parent) will attempt in good faith to resolve expeditiously any dispute, claim or controversy arising out of or relating to this Agreement (the "Dispute") promptly by negotiations between executives who have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility for the administration of this Agreement. Either party may give the other party written notice (the "Escalation Notice") of any Dispute not resolved in the normal course of business. Within 15 days after delivery of the Escalation Notice, the receiving party shall submit to the other a written response. The Escalation Notice and the response thereto shall include (a) a statement of each party's position and a summary of arguments supporting that position, and (b) the name and title of the executive who will represent that party and of any other person who will accompany the executive. Within 30 days after delivery of the Escalation Notice, the executives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the Dispute. All reasonable requests for information made by one party to the other will be honored. All negotiations pursuant to this clause are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence. The parties shall attempt to resolve any Dispute pursuant to the procedure set forth in this Section 11.4 for a period up to 60 days from the date of delivery of the Escalation Notice before resorting to other available remedies; PROVIDED, HOWEVER, nothing contained in this Section 11.4 shall prevent any party from resorting to judicial process if injunctive or other equitable relief from a court is necessary to prevent serious and irreparable injury to it or to others. The use of the procedure set forth in this Section 11.4 will not be construed under the doctrine of laches, waiver or estoppel to affect adversely any party's right to assert any claim or defense. SECTION 11.5. JURISDICTION AND CONSENT TO SERVICE. In accordance with the laws of the State of New York, and without limiting the jurisdiction or venue of any other court, the parties (a) agree that any suit, action or proceeding arising out of or relating to this Agreement shall be brought solely in the state or federal courts of New York; (b) consent to the exclusive jurisdiction of each such court in any suit, action or proceeding relating to or arising out of this Agreement; (c) waive any objection which any of them may have to the laying of venue in any such suit, action or proceeding in any such court; and (d) agree that service of any court paper in any such suit, action or proceeding may be made in any manner as may be provided under the applicable laws or court rules governing service of process in such court. -17- SECTION 11.6. NOTICES. All notices, demands, requests, consents, approvals or other communications required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be delivered (charges prepaid, receipt confirmed or return receipt requested (if available)) by hand, by nationally recognized air courier service, by certified mail or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Notice shall be deemed given and effective (i) if delivered by hand or by nationally recognized courier service, when delivered at the address specified in this Section 11.6 (or in accordance with the latest unrevoked written direction from such party), (ii) if by certified mail, upon mailing or (iii) if given by facsimile when such facsimile is transmitted to the fax number specified in this Section 11.6 (or in accordance with the latest unrevoked written direction from such party), provided the appropriate confirmation is received. To PLC: PLC Systems Inc. 10 Forge Park Franklin, MA 02038 Attention: Chief Executive Officer Fax: (508) 541-7990 with a copy (which shall not constitute notice) to: Hale and Dorr LLP 60 State Street Boston, MA 02109 Attention: Steven D. Singer, Esq. Fax: (617) 526-5000 To Edwards: Edwards Lifesciences LLC One Edwards Way Irvine, California 92614 Attention: Associate General Counsel Fax: (949) 250-6850 -18- with a copy (which shall not constitute notice) to: Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071-3144 Attention: Joseph J. Giunta, Esq. Fax: (213) 687-5600 SECTION 11.7. INTERPRETATION. When a reference is made in this Agreement to a Section, Schedule or Exhibit, such reference shall be to a Section, Schedule or Exhibit of this Agreement unless otherwise indicated. When a reference is made in this Agreement to a specific Schedule, such reference shall be deemed to include, to the extent applicable, all the other Schedules. The table of contents, table of definitions, titles and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. When the words "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." All accounting terms not defined in this Agreement shall have the meanings determined by generally accepted accounting principles as of the date hereof. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. SECTION 11.8. SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the parties shall negotiate in good faith with a view to the substitution therefore of a suitable and equitable solution in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid provision; PROVIDED, HOWEVER, that the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. SECTION 11.9. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which shall, taken together, be considered one and the same agreement, it being understood that the parties need not sign the same counterpart. SECTION 11.10. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement and the other Transaction Agreements (as such term is defined in the Securities Purchase Agreement, dated as of January 7, 2001, by and among Edwards Lifesciences Corporation, PLC and PLC Parent), including all exhibits hereto and thereto, by and among the parties hereto, -19- constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior and contemporaneous agreements, representations, understandings, negotiations and discussions between the parties, whether oral or written, with respect to the subject matter hereof; and shall be binding upon and shall inure to the benefit of each of the parties hereto and thereto and their respective successors and permitted assigns and is not intended to confer any rights, remedies or benefits on any Persons other than as expressly set forth in this Section 11.10. SECTION 11.11. AMENDMENTS AND MODIFICATIONS; WAIVERS AND EXTENSIONS. No amendment, modification or termination of this Agreement shall be binding upon any other party unless executed in writing by the parties hereto intending to be bound thereby. Any party to this Agreement may waive any right, breach or default which such party has the right to waive; provided that such waiver will not be effective against the waiving party unless it is in writing, is signed by such party, and specifically refers to this Agreement. Waivers may be made in advance or after the right waived has arisen or the breach or default waived has occurred. Any waiver may be conditional. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision herein contained. No failure or delay in exercising any right, power or privilege hereunder shall be deemed a waiver or extension of the time for performance of any other obligations or acts nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. SECTION 11.12. ASSIGNMENT. Neither this Agreement nor any of the rights, duties or obligations hereunder may be assigned or delegated by any of the parties hereto without the prior written consent of PLC or Edwards, as the case may be, which may be withheld in its sole discretion except that Edwards may assign all its rights and obligations to any subsidiary of Edwards Lifesciences Corporation. Any attempted assignment or delegation of rights, duties or obligations hereunder in contravention hereof shall be void and of no effect. SECTION 11.13. EXHIBITS. Each of the exhibits referred to herein and attached hereto is an integral part of this Agreement and is incorporated herein by reference. SECTION 11.14. EXPENSES. Except as otherwise provided in this Agreement, each party to this Agreement shall bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the transactions -20- contemplated hereby, including all fees and expenses of agents, representations, counsel and accountants. SECTION 11.15. NO CONSEQUENTIAL OR PUNITIVE DAMAGES. If any party claims any breach of this Agreement by the other party or otherwise becomes dissatisfied with any matter relating hereto or arising herefrom, it shall have no right to seek consequential or punitive damages and each party hereby waives any right it may have to seek such punitive or consequential damages. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. PLC SYSTEMS INC. By: /s/ JAMES G. THOMASCH -------------------------------------------------------- Name: James G. Thomasch Title: Senior Vice President and Chief Financial Officer PLC MEDICAL SYSTEMS, INC. By: /s/ JAMES G. THOMASCH -------------------------------------------------------- Name: James G. Thomasch Title: Senior Vice President and Chief Financial Officer EDWARDS LIFESCIENCES LLC By: /s/ JOHN H. KEHL, JR. -------------------------------------------------------- Name: John H. Kehl, Jr. Title: Corporate Vice President -21- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. EXHIBIT A DESCRIPTION OF PRODUCTS 1. HL-2 LASER SYSTEM INCLUDING: [**] 2. TMR DISPOSABLE KIT INCLUDING: [**] Products shall also include [**] and or [**] the products, [**] and [**] products [**] in the field [**]. Products do not include the HL-1 Laser System. -22- SCHEDULE 2.1 DISTRIBUTORS 1. Criticor (West Coast) 2. Central Medical (Wisconsin, Minnesota) -23- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. SCHEDULE 3.3 SALES PERSONNEL CAPITAL SALES REPRESENTATIVES - ----------------------------- [**] MANAGER OF CLINICAL TRAINING - ---------------------------- [**]CLINICAL SPECIALISTS -------------------- [**] (i) $[**] (ii) A ranking of no less than "satisfactory" (or PLC's equivalent) on the most recent performance review immediately prior to Edwards' exercise of the Sales and Marketing Option. -24- SCHEDULE 4.1 TRANSITION SERVICES 1. Customer service: Provide seamless support to customers during transition to include order placement, returns, problem resolution, questions, etc. In addition, provide support and data to Edwards Customer Service relative to customers, products and the sales force. 2. Invoicing: Provide accounts receivable support to customers during transition to include invoicing, collections, problem resolution, questions, etc. In addition, provide support and data to Edwards Accounts Receivable relative to customers, aging and other information. -25- SCHEDULE 4.5 INSTALLATION SERVICES AND SERVICES RELATING TO EXTENDED SERVICE AGREEMENTS Installation Support Service includes: (i) installation of HL-2 Laser System at hospital (ii) laser operator in-service training at hospital Extended Service Agreements can include: all or part of the services defined in Schedule 4.6. The exact services are detailed in extended service contract agreements with the customer and are tailored to the customer requirements. PLC is not responsible for the re-installation or transportation of the Product among multiple facilities. -26- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. SCHEDULE 4.6 WARRANTY AND PREVENTIVE MAINTENANCE SERVICES Preventive Maintenance are planned services which include: (i) Cleaning of optics (ii) In-service for any new operating room personnel (iii) Calibration of energy readings (iv) Safety checks (v) Replacement of air purge filter (vi) any adjustments to make the product meet performance specifications Warranty Service is unplanned services which include: (i) any necessary travel, labor and material expense to repair or replace a defective product or product component that is not meeting published PLC performance specifications. "costs" shall include all material costs at PLC's fully absorbed standard manufacturing cost and labor and travel-related costs for PLC personnel calculated at the rate of $[**] per day, billed in whole day increments. -27- SCHEDULE 4.8 PRODUCT LIABILITY INSURANCE To be provided. -28- SCHEDULE 5.1 MARKETING PLAN To be provided. -29- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. SCHEDULE 5.2 SALES PLAN PLC and Edwards have developed a joint sales strategy to drive utilization during the [**] agreement. Edwards and PLC anticipate [**] based on the [**]. Specific objectives, actions and activities to accomplish the goals are highlighted below and the details are supported by the jointly developed master Sales Plan. Objective: [**]. Expectation: Edwards sales organization will develop skill sets that allow them to successfully manage the process of increasing kit sales by gaining necessary knowledge & devoting time needed to drive procedural increases in assigned territory. Action: [**] will be established for the [**] in [**]. Activities: The following activities have been scheduled [**];
ACTIVITY LOCATION DATE ATTENDEES -------- -------- ---- --------- A. Implementation/Launch Chicago [**] PLC/EW B. Training-Patient Selection STS [**] EW/PLC C. Edwards National Meeting Irvine, CA [**] EW/PLC mgmt D. Combine Training Event not determined [**] EW/PLC E. Combine Training Event not determined [**] EW/PLC F. PLC representatives [**] assist in the attainment of sales objectives.
*Measurements will be established to monitor progress in key areas. -30- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. SCHEDULE 7.3 HL-2 LASER SYSTEM CUSTOMERS
EST. COMMISSION ACCOUNT CITY REP DEAL CLOSE PROTECTION [**] [**] [**] [**] [**] $[**] [**] [**] [**] [**] [**] $[**] [**] [**] [**] [**] [**] $[**] [**] [**] [**] [**] [**] $[**] [**] [**] [**] [**] [**] $[**] [**] [**] [**] [**] [**] $[**]
-31- Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. SCHEDULE 7.4 PRODUCT ACCESSORIES
PLC EDWARDS SHIPPING SHIPPING PART MODEL SHELF SALE TRANSFER WEIGHT DIMENSIONS NUMBER DESCRIPTION USED ON QTY UNIT LIFE PRICE PRICE (LBS) (INCHES) NOTES: - ------- ----------------- --------- ---- ---- ----- ----- --------- -------- ---------- -------- EP00100 Footswitch both 1ea n/a $[**] $[**] 8 12x6.5x5.5 FL00002 Safety Goggles both 1ea n/a $[**] $[**] 1 7.5x6.5x5.5 Fedex Remote Enable small SB00056 Cable both 1ea n/a $[**] $[**] 1 11x13x1.5box Fedex small SB00076 Lens Cell both 1ea n/a $[**] $[**] 1 11x13x1.5box Fedex small CA00097 ECG Trunk Cable HL-2 1ea n/a $[**] $[**] 1 11x13x1.5box Fedex small CA00098 ECG 5 Lead Set HL-2 1ea n/a $[**] $[**] 1 11x13x1.5box Fedex Filter, Hepa, 0.3 small FL00004 micron HL-2 1ea n/a $[**] $[**] 1 11x13x1.5box Fedex HL-2 Operators medium LA00181 Manual HL-2 1ea n/a $[**] $[**]7 3 13.5x11.5x2.5box Fedex small LA00202 Warning Sign HL-2 HL-2 1ea n/a $[**] $[**] 1 11x13x1.5box
EX-10.2 3 a2047827zex-10_2.txt EXHIBIT 10.2 Exhibit 10.2 =============================================================================== SHAREHOLDERS AGREEMENT BY AND BETWEEN EDWARDS LIFESCIENCES CORPORATION AND PLC SYSTEMS INC. DATED AS OF JANUARY 9, 2001 =============================================================================== TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS...............................................................................1 SECTION 1.1 DEFINITIONS....................................................................1 ARTICLE II CORPORATE GOVERNANCE.....................................................................6 SECTION 2.1 THE PLC BOARD OF DIRECTORS....................................................6 SECTION 2.2 GENERAL COVENANT TO VOTE.......................................................8 ARTICLE III PREEMPTIVE RIGHTS AND ADDITIONAL STOCK SALES............................................8 SECTION 3.1 PREEMPTIVE RIGHTS..............................................................8 ARTICLE IV REGISTRATION RIGHTS......................................................................9 SECTION 4.1 REGISTRATION ON REQUEST........................................................9 SECTION 4.2 INCIDENTAL REGISTRATION.......................................................11 SECTION 4.3 REGISTRATION PROCEDURES.......................................................12 SECTION 4.4 INDEMNIFICATION...............................................................14 ARTICLE V VOTING...................................................................................16 SECTION 5.1 VOTING OF SHARES BY EDWARDS...................................................16 ARTICLE VI CERTAIN TAX MATTERS.....................................................................17 SECTION 6.1 REPRESENTATIONS AND WARRANTIES................................................17 SECTION 6.2 COVENANTS.....................................................................17 SECTION 6.3 INDEMNIFICATION; SURVIVAL.....................................................18 ARTICLE VII IMPUTED INCOME INDEMNIFICATION.........................................................19 SECTION 7.1 INDEMNIFICATION...............................................................19 SECTION 7.2 NOTICE AND PAYMENT............................................................19 SECTION 7.3 SURVIVAL......................................................................19 ARTICLE VIII TERMINATION...........................................................................19 SECTION 8.1 TERMINATION...................................................................19 ARTICLE IX MISCELLANEOUS...........................................................................20 SECTION 9.1 GOVERNING LAW.................................................................20 SECTION 9.2 JURISDICTION AND CONSENT TO SERVICE...........................................20 SECTION 9.3 NOTICES.......................................................................20 SECTION 9.4 INTERPRETATION................................................................21 SECTION 9.5 SEVERABILITY..................................................................21 SECTION 9.6 COUNTERPARTS..................................................................22 SECTION 9.7 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES................................22 SECTION 9.8 FURTHER ASSURANCES............................................................22 SECTION 9.9 AMENDMENTS AND MODIFICATIONS; WAIVERS AND EXTENSIONS..........................22 SECTION 9.10 ASSIGNMENT...................................................................23 SECTION 9.11 REMEDIES CUMULATIVE..........................................................23
-i- SHAREHOLDERS AGREEMENT SHAREHOLDERS AGREEMENT (the "Agreement"), dated as of January 9, 2001, by and between Edwards Lifesciences Corporation, a Delaware corporation ("Edwards"), and PLC Systems Inc., a Yukon Territory corporation ("PLC"). WHEREAS, Edwards and PLC are parties to a Securities Purchase Agreement, dated as of January 7, 2001 (the "Purchase Agreement"), and upon consummation of the transactions contemplated therein, Edwards will hold 5,333,333 shares (the "Shares") of common shares without par value of PLC (the "PLC Common Shares") and Warrants (as defined herein) exercisable for a total of 3,000,000 PLC Common Shares (as adjusted from time to time pursuant to the provisions of the Warrants, the "Warrant Shares") on the terms and conditions set forth therein; and WHEREAS, the parties hereto wish to set forth their agreement concerning certain governance matters of PLC following consummation of the Transactions (as defined herein) as well as certain matters relating to Edwards' ownership and disposition of the Shares, Warrant Shares and any other shares of PLC securities acquired by Edwards after the date of this Agreement (collectively, the "Registrable Shares"); NOW, THEREFORE, in consideration of the mutual agreements and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: "ADDITIONAL CUMULATIVE CREDITABLE TAX AMOUNT" means the aggregate of Cumulative Creditable Tax Amounts not taken into account under the CPA Imputed Income Amount. An "AFFILIATE" of any Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person. For purposes of the definition of affiliate, "control" has the meaning specified in Rule 12b-2 under the Exchange Act as in effect on the date of this Agreement. "AGREEMENT" has the meaning set forth in the Recitals. "ANNUAL INFORMATION STATEMENT" means an information statement prepared by the Tax Amounts CPA on an annual basis setting forth the deemed 1 United States federal income inclusions in respect of the earnings of each of PLC and the PLC Subsidiaries for the immediately preceding taxable year of PLC related to (i) the controlled foreign corporation provisions set forth under section 951 ET SEQ. of the Code, (ii) the foreign personal holding company provisions set forth under section 551 ET SEQ. of the Code, and (iii) the "qualified electing fund" provisions set forth under section 1295 of the Code. Without limiting the foregoing, the Annual Information Statement shall, consistent with the requirements set forth in Internal Revenue Notice 88-125 and any successor provision, also set forth (A) the first and last days of the taxable year of PLC to which the information statement applies, (B) sufficient information to enable Edwards and any of its direct or indirect beneficial owners of Equity Securities to calculate their respective pro rata share of the ordinary earnings and net capital gain of PLC, determined in accordance with United States federal income tax principles, for the immediately preceding taxable year of PLC, and (C) the amount of cash and the fair market value of other property distributed or deemed distributed on a per share basis during the immediately preceding taxable year of the PLC and shall include a statement that PLC will permit any direct or indirect United States holder of Equity Securities to inspect and copy PLC's permanent books of account, records, and such other documents as may be maintained by PLC to the extent necessary to establish that the ordinary earnings and net capital gain referred to in (B) above are computed in accordance with United States federal income tax principles. "APPLICABLE LAW" shall mean, with respect to any Person, any statute, law, regulation, ordinance, rule, judgment, rule of common law, order, decree, award, Governmental Approval, concession, grant, franchise, license, agreement, directive, guideline, policy, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority, whether in effect as of the date hereof or thereafter and in each case as amended, applicable to such Person or its subsidiaries or their respective assets. A Person shall be deemed to "BENEFICIALLY OWN," to have "BENEFICIAL OWNERSHIP" of, or to be "BENEFICIALLY OWNING" any securities (which securities shall also be deemed "BENEFICIALLY OWNED" by such Person) that such Person is deemed to "beneficially own" within the meaning of Rule 13d-3 under the Exchange Act as in effect on the date of this Agreement and, for certainty, Edwards shall be deemed to Beneficially Own the Shares and the Warrant Shares. "CLOSING" has the meaning set forth in the Purchase Agreement. "CODE" means the Internal Revenue Code of 1986, as amended. "CPA IMPUTED INCOME AMOUNT" means the Imputed Income Amount, as determined by the Tax Amounts CPA and on the basis of assuming that 100% of the shares of PLC are owned by one "United States shareholder" (as defined in section 951 of the Code). 2 "CREDITABLE TAX" means a foreign tax that may be claimed as a foreign tax credit under section 901 ET SEQ. of the Code in respect of dividends (or imputed dividends) received from PLC. "CUMULATIVE CPA IMPUTED INCOME AMOUNT" means, the aggregate amount of the CPA Imputed Income Amounts in respect of the taxable year ending on December 31, 2001, and each subsequent taxable year ending prior to the date in respect of which such Cumulative CPA Imputed Income Amount is being calculated. "CUMULATIVE CREDITABLE TAX AMOUNT" means the aggregate amount of Realized Benefit in respect of a Creditable Tax. Edwards will be considered to have achieved a "REALIZED BENEFIT" in respect of a Creditable Tax with respect to a particular taxable year only to the extent that Edwards is able to actually utilize a credit for a Creditable Tax to reduce its federal income tax liability for any taxable year. "CUMULATIVE DIVIDEND AMOUNT" means, the aggregate amount of dividends paid in cash by PLC on a pro-rata, as converted basis, with respect to all classes of shares of PLC for the period commencing with the Date of the Closing and ending on and including the day prior to date of payment of any dividend for which the Cumulative Dividend Amount is being calculated. "DISTRIBUTION AGREEMENT" means the Distribution Agreement, dated as of January 9, 2001, by and between Edwards Lifesciences LLC and PLC. "EDWARDS" has the meaning set forth in the Recitals. "EDWARDS DESIGNEE" means the individual designated by Edwards who is employed by Edwards with a title of director or above. "EQUITY SECURITIES" means the Shares and any rights, warrants, options or other instruments, including the Warrants, entitling the holder thereof, whether or not on a contingency, to acquire from PLC, shares in the capital of PLC and any instrument, directly or indirectly, convertible into or exercisable or exchangeable for, whether or not on a contingency, shares in the capital of PLC. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "FINAL DETERMINATION" means a "final determination" as defined under section 1313 of the Code or a similar determination under applicable state or local laws. "FINAL DETERMINATION IMPUTED INCOME AMOUNT" means, in the case of any particular Relevant Taxable Period for any particular Imputed Income Indemnitee, the Imputed Income Amount as determined pursuant to a Final Determination. 3 "FINAL DETERMINATION SHORTFALL" means, in the case of any particular Relevant Taxable Period for any particular Imputed Income Indemnitee, an amount equal to the aggregate of (i) 50% of the excess of (A) the Final Determination Imputed Income Amount in respect of such Relevant Taxable Period over (B) the CPA Imputed Income Amount attributable to such Imputed Income Indemnitee for such Relevant Taxable Period, reduced by the Additional Cumulative Creditable Tax Amount, and (ii) interest and penalties attributable thereto. "GOVERNMENTAL APPROVAL" means any action, order, authorization, consent, approval, license, lease, ruling, permit, tariff, rate, certification, exemption, filing or registration by or with any Governmental Authority. "GOVERNMENTAL AUTHORITY" means any government or political subdivision thereof, governmental department, commission, board, bureau, agency, regulatory authority, instrumentality, judicial or administrative body having jurisdiction over the matter or matters in question. "IMPUTED INCOME AMOUNT" means, in the case of any particular Relevant Taxable Period, for any particular Imputed Income Indemnitee, the aggregate amount of income that would be includible, for United States federal income tax purposes, in the gross income of such Imputed Income Indemnitee, pursuant to, and without double counting, (i) the controlled foreign corporation provisions set forth under section 951 et seq. of the Code, (ii) the foreign personal holding company provisions set forth under section 551 et seq. of the Code, and (iii) the "qualified electing fund" provisions set forth under section 1291 ET SEQ. of the Code on the basis of assuming that 100% of the shares of PLC are owned by one "United States shareholder" (as defined in section 951 of the Code). "INDEMNIFIED PERSON" has the meaning set forth in Section 4.4(a). "IMPUTED INCOME INDEMNITEE" has the meaning set forth in Section 7.1. "IMPUTED INCOME LOSSES" has the meaning set forth in Section 7.1. "LICENSE AGREEMENT" means the Manufacturing License Agreement, dated as of January 9, 2001, by and among Edwards Lifesciences LLC, PLC and PLC Medical Systems, Inc. "LOSSES" has the meaning set forth in Section 4.4. "PERSON" means any individual, group, corporation, firm, partnership, limited liability company, joint venture, trust, business association, organization, governmental entity or other entity. "PLC" has the meaning set forth in the Recitals. 4 "PLC BOARD" means the board of directors of PLC. "PLC COMMON SHARES" has the meaning set forth in the Recitals. "PLC SUBSIDIARIES" has the meaning set forth in the Purchase Agreement. "PROPOSED ISSUANCE" has the meaning set forth in Section 3.1. "PUBLIC OFFERING" means any offering of PLC Common Shares registered under the Securities Act. "PURCHASE AGREEMENT" has the meaning set forth in the Recitals. "REGISTRABLE SHARES" has the meaning set forth in the Recitals. "REGISTRATION EXPENSES" has the meaning set forth in Section 4.2(d). "RELEVANT TAXABLE PERIOD" means any calendar year period for which a particular CPA Imputed Income Amount, Final Determination Imputed Income Amount, or Imputed Income Amount is calculated. "SEC" means the Securities and Exchange Commission or any successor governmental entity. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "SHARES" has the meaning set forth in the Recitals. "TAX AMOUNTS CPA" means Ernst & Young LLP or a similar accounting firm of international reputation with comparable United States federal income tax expertise. "TAX AMOUNT SHORTFALL" means, in the case of a particular Imputed Income Indemnitee, an amount equal to the excess of (i) 50% of the Cumulative CPA Imputed Income Amount attributable to such Imputed Income Indemnitee over the aggregate of (ii) the Cumulative Dividend Amount previously distributed to such Imputed Income Indemnitee and (iii) the Cumulative Creditable Tax Amount. "TAX MATTERS INDEMNITEE" has the meaning set forth in Section 6.3(a). "TRANSACTION AGREEMENTS" means this Agreement, the Purchase Agreement, the Distribution Agreement, the License Agreement, and the Warrants. 5 "TRANSACTIONS" means the transactions contemplated by the Transaction Agreements. "UNITED STATES PERSON" means a United States person for United States federal income tax purposes. "U.S. SHAREHOLDER-APPOINTED DIRECTOR" means a director (i) designated by Edwards or (ii) any other Person designated by a shareholder who is a United States Person. "U.S. TAX ADVISOR" means any of (i) United States tax counsel to the Corporation; (ii) Ernst & Young LLP; or (iii) an accounting firm of international reputation similar to (ii) above with comparable United States federal income tax expertise. "WARRANT SHARES" has the meaning set forth in the Recitals. "WARRANTS" has the meaning set forth in the Purchase Agreement. ARTICLE II CORPORATE GOVERNANCE Section 2.1 THE PLC BOARD OF DIRECTORS. (a) PLC hereby agrees to take, at any time and from time to time, all action necessary and within its power such that the PLC Board shall consist of not more than ten directors. So long as Edwards and its Affiliates Beneficially Own at least 5% of the PLC Common Shares outstanding on a fully diluted basis, Edwards shall be entitled to nominate the Edwards Designee for election as a director to the PLC Board. (b) Upon a written notice from Edwards to PLC naming an Edwards Designee, PLC shall use its best efforts to cause such Edwards Designee to become a director of PLC. (c) From the date of the election of an Edwards Designee until receipt of written notice by PLC from Edwards that it no longer wishes to have an Edwards Designee on the PLC Board, PLC shall use its best efforts to ensure that each slate of persons nominated by the PLC Board for election as directors of PLC includes the Edwards Designee. 6 (d) If at any time an Edwards Designee ceases to be a member of the PLC Board and Edwards continues to be entitled to an Edwards Designee pursuant to Section 2.1(a), PLC shall use its best efforts to cause the resulting vacancy on the PLC Board to be filled by a replacement Edwards Designee at the next meeting of the PLC Board. (e) So long as Edwards is entitled but declines to designate an Edwards Designee or so long as Edwards and it Affiliates Beneficially Own at least 2% but less than 5% of the PLC Common Shares outstanding on a fully diluted basis and the Distribution Agreement has not been terminated, Edwards shall be entitled to have an observer attend meetings of the PLC Board and to receive materials distributed to members of the PLC Board, subject to fiduciary and confidentiality limitations set by the PLC Board at its reasonable good faith discretion. (f) Only Edwards shall be entitled to request the removal of the Edwards Designee. If Edwards requests that the Edwards Designee be removed (with or without cause), PLC agrees to take or cause to be taken all appropriate action within its power to effect the removal of such designee from the PLC Board. (g) At Edwards' election, unless prohibited by applicable stock exchange rules or Applicable Law, any board of directors of any subsidiary of PLC and any committee of the board of directors of PLC and such subsidiary shall include the Edwards Designee, PROVIDED, HOWEVER, that the Edwards Designee shall act only in an EX OFFICIO, i.e., non-voting, capacity on such committee of the PLC Board or on such subsidiary board of directors or committee thereof. 7 Section 2.2 GENERAL COVENANT TO VOTE. PLC agrees to take all actions necessary at any time or from time to time to call, or to cause its subsidiaries or the appropriate officers or directors of its subsidiaries to call, one or more annual meetings of shareholders of its subsidiaries and to vote all securities Beneficially Owned or over which control or direction is exercised by PLC at any such annual meeting in favor of, or to consent by written consent in lieu of any such meeting to, the election of a board of directors consistent with, and the taking of any other action required by or to effect the intent of, this Agreement. ARTICLE III PREEMPTIVE RIGHTS AND ADDITIONAL STOCK SALES Section 3.1 PREEMPTIVE RIGHTS. Edwards shall be entitled to participate in all future issuances by PLC of PLC Common Shares (or rights to acquire PLC Common Shares or securities convertible into, or exchangeable for, or carrying the right to purchase PLC Common Shares) to the extent necessary for Edwards to maintain its proportionate fully diluted equity interest in PLC as that interest exists at the time of such issuance. PLC will provide Edwards with at least 20 days advance written notice of any such proposed issuance (a "Proposed Issuance"), which notice shall contain all relevant information pertaining thereto (including, without limitation, if then known, the identity of the proposed beneficial and record owners of the PLC Common Shares to be issued and sold by PLC and the issue price per security, or proposed range of issue prices per security) and an offer to Edwards to participate in the Proposed Issuance (at a price per security and upon terms and conditions no less favorable than those provided to other offerees or purchasers of PLC Common Shares in the Proposed Issuance) to the extent necessary for Edwards to maintain its proportionate fully diluted equity interest in PLC. At Edwards' sole option, it may participate in the Proposed Issuance by purchasing the full number of PLC Common Shares necessary to maintain its proportionate equity interest or any lesser number thereof. In the event the terms of the Proposed Issuance change, PLC will provide Edwards with a new 20-day advance notice period prior to consummating the transaction contemplated by the Proposed Issuance. These preemptive rights shall not apply to the following sales or issuances: (a) pursuant to the exercise, conversion or exchange of securities, exercisable, convertible or exchangeable into PLC Common Shares that are outstanding as of the date hereof; (b) the issuance of PLC Common Shares as a stock dividend to holders of PLC Common Shares or upon any subdivision or combination of PLC Common Shares; (c) the issuance of PLC Common Shares in a Public Offering; (d) pursuant to an employee stock option plan, stock purchase plan or similar benefit program, or sales or issuances to directors, employees or consultants which sales or issuances do not exceed, in any five-year period, 20%, 8 on a fully diluted basis, of the outstanding equity shares of PLC as of the date hereof, provided that in the event any employee is terminated and such employee's options are terminated, the reissuance of such options shall not be counted in the 20% threshold; or (e) as consideration for the acquisition by PLC or any of its affiliates of all or a part of another business or the merger of any business entity with or into PLC or any of its affiliates. ARTICLE IV REGISTRATION RIGHTS Section 4.1 REGISTRATION ON REQUEST. (a) Upon the written request of Edwards requesting that PLC effect the registration under the Securities Act of all or part of its Registrable Shares and specifying the intended method of disposition thereof, PLC will, subject to the terms of this Agreement, use its reasonable best efforts to effect the registration under the Securities Act of the Registrable Shares which PLC has been so requested to register by Edwards for disposition in accordance with the intended method of disposition stated in such request. (b) Registrations under the Securities Act under this Section 4.1 shall be on such appropriate registration form of the SEC as shall be selected by Edwards and PLC. If, in connection with any registration under the Securities Act under Section 4.1(a), which is proposed by PLC to be on Form S-3 or any similar short form registration statement which is a successor to Form S-3, the managing underwriters, if any, shall advise PLC in writing that in their opinion the use of another permitted form is of material importance to the success of the offering, then such registration shall be on such other permitted form. (c) PLC will pay all expenses associated with any registration requested pursuant to this Section 4.1 by Edwards including, without limitation, legal, accounting, registration, printing and distribution fees and expenses, except that Edwards shall pay for commissions and underwriting discounts payable with respect to the Registrable Securities ("Registration Expenses"). (d) A registration or qualification requested pursuant to this Section 4.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, PROVIDED that a registration which does not become effective after PLC has filed a registration statement with respect thereto solely by reason of the refusal to proceed of Edwards (other than a 9 refusal to proceed based upon the advice of counsel relating to information concerning the business or financial condition of PLC which is made known to Edwards after the date on which such registration was requested) shall be deemed to have been effected by PLC at the request of Edwards unless Edwards shall have elected to pay all Registration Expenses in connection with such registration, (ii) if, after it has become effective, such registration statement or distribution of Registrable Shares becomes subject to any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason other than by reason of some act or omission by, or circumstance relating to, Edwards, or (iii) the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied, other than by reason of some act or omission by, or circumstances relating to, Edwards. (e) If a requested registration pursuant to this Section 4.1 involves an underwritten offering, the managing underwriter or underwriters thereof shall be selected by Edwards and shall be reasonably acceptable to PLC. (f) PLC shall not be required to effect more than three registrations pursuant to this Section 4.1. In addition, notwithstanding any other language herein, PLC shall not be required to effect any registration (other than on Form S-3 or any successor form relating to secondary offerings) within six months after the effective date of the registration statement relating to a Public Offering. If at the time of any request to register Registrable Shares pursuant to this Section 4.1, PLC is engaged or has plans to engage in a Public Offering or is engaged in any other activity which, in the good faith determination of the PLC Board, would be adversely affected by the requested registration, then PLC may at its option direct that such request be delayed for a period not in excess of 90 days from the date of such request, such right to delay a request to be exercised by PLC not more than once in any 12-month period. 10 Section 4.2 INCIDENTAL REGISTRATION. If PLC proposes at any time to register PLC Common Shares under the Securities Act (other than pursuant to a registration statement on Form S-8 or Form S-4 (or a similar successor form)) with respect to an offering of PLC Common Shares for its own account or for the account of any of its security holders, it will promptly (but in no event less than 30 days before the anticipated filing date) give written notice thereof to Edwards and offer Edwards the opportunity to register or distribute such number of Registrable Shares as Edwards may request. Upon the written request of Edwards made within 30 days after the receipt of any such notice (which request shall specify the Registrable Shares intended to be disposed of by Edwards), PLC will, subject to the terms of this Agreement, use its best efforts to include the Registrable Shares which Edwards has been requested to register in such registration. (a) If the proposed registration by PLC is an underwritten Public Offering of PLC Common Shares, PLC shall so advise Edwards as a part of the written notice given pursuant to Section 4.2. In such event, the right of Edwards to include its Registrable Shares in such registration pursuant to Section 4.2 shall be conditioned upon Edwards' participation in such underwriting on the terms and conditions agreed to by PLC and the managing underwriter or underwriters. PLC will use its reasonable best efforts to cause the managing underwriter or underwriters to include such Registrable Shares among those securities to be distributed by or through such underwriters. Notwithstanding the foregoing, if in the reasonable judgment of the managing underwriter or underwriters, the success of the Public Offering would be adversely affected by inclusion of the Registrable Shares requested to be included, PLC shall include in such registration the number (if any) of Registrable Shares so requested to be included which, in the opinion of such underwriters, can be sold. (b) If, at any time after giving written notice of its intention to register a Public Offering and prior to the effective date of the registration statement, PLC shall determine for any reason either not to register, or to delay registration of, such securities, PLC may, at its election, give written notice of such determination to Edwards and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Shares in connection with such registration or (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Shares, for the same period as the delay in registering such other PLC Common Shares. (c) The selection of the underwriters for any such offering shall be at the sole discretion of PLC. 11 (d) PLC will pay all Registration Expenses associated with the registration and sale of Registrable Shares pursuant to this Section 4.2. Section 4.3 REGISTRATION PROCEDURES. (a) If and whenever PLC is required by the provisions of Section 4.1 or 4.2 hereof to effect the registration of Registrable Shares, PLC will as promptly as practicable: (i) furnish to Edwards such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in any such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents, as Edwards may reasonably request to facilitate the disposition of Registrable Shares; (ii) use its best efforts to register or qualify the securities covered by such registration statement under such state securities or blue sky laws of such jurisdictions, if applicable, as shall be reasonably appropriate for distribution of the Registrable Shares; provided, however, that PLC shall not be required, solely in order to accomplish the foregoing, to qualify to do business as a foreign corporation in any jurisdiction where it would not otherwise be required to qualify, subject itself to taxation in any such jurisdiction or consent to general service of process in any such jurisdiction; (iii) advise Edwards, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC or any state securities commission or agency suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose and use its reasonable best efforts to prevent the issuance of any stop order and to obtain its withdrawal if such stop order should be issued; (iv) notify Edwards upon PLC's discovery that, or upon the happening of any event as a result of which, any 12 prospectus included in any registration statement which includes Registrable Shares, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and at the request of Edwards prepare and furnish to Edwards a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and (v) use its reasonable best efforts to cause all such Registrable Shares to continue to be listed on each securities exchange or inter-dealer quotation system on which the PLC Common Shares are now listed. (b) Edwards agrees that, upon receipt of any notice from PLC of the occurrence of any event of the kind described in Section 4.3(a)(iv), it will forthwith discontinue the disposition of Registrable Shares pursuant to the registration statement relating to such Registrable Shares until its receipt of a supplemented or amended prospectus from PLC; PROVIDED that if the registration statement is for an underwritten Public Offering, Edwards will use its reasonable best efforts to cause the underwriters of such Public Offering to discontinue the disposition of Registrable Shares. (c) In the event that, in the judgment of PLC, it is advisable to suspend use of a prospectus included in a registration statement which includes Registrable Shares due to pending material developments or other events that have not yet been publicly disclosed and as to which PLC believes public disclosure would be detrimental to PLC, PLC shall notify Edwards to such effect, and, upon receipt of such notice, Edwards shall immediately discontinue any sales of Registrable Shares pursuant to such registration statement until Edwards has received copies of a supplemented or amended prospectus or until Edwards is advised in writing by PLC that the then current prospectus may be used and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such prospectus. Notwithstanding anything to the contrary herein, PLC shall not exercise its rights under this Section 4.3(c) to suspend sales of Registrable Shares for a period or periods in excess of, in the aggregate, 90 days in any 12-month period. 13 (d) If any Registrable Shares are included in any registration pursuant to this Article IV, Edwards shall take such actions and furnish PLC with such information regarding itself and relating to the distribution of the Registrable Shares as PLC may from time to time reasonably request and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement, including, without limitation, the following: (i) enter into an appropriate underwriting agreement containing terms and provisions then customary in agreements of that nature and cause each underwriter of the Registrable Shares to be sold to agree in writing with PLC to provisions with respect to indemnification that are substantially the same as set forth in Section 4.4 hereof; (ii) enter into such custody agreements, powers of attorney and related documents at such time and on such terms and conditions as may then be customarily required in connection with such offering; and (iii) distribute the Registrable Shares in accordance with and in the manner of the distribution contemplated by the applicable registration statement and prospectus. Section 4.4 INDEMNIFICATION. (a) INDEMNIFICATION BY PLC. In the event of any registration of Registrable Shares pursuant to Section 4.1 or 4.2, PLC agrees to indemnify and hold harmless Edwards and its directors and officers and each other person, if any, who controls Edwards within the meaning of the Securities Act (each, an "Indemnified Person") from and against any and all losses, claims, damages, liabilities and expenses (including reasonable attorneys' fees and costs of investigation) to which such Indemnified Person becomes subject under the Securities Act or otherwise (the "Losses"), insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon (i) any untrue statement or alleged untrue statement of material fact contained in any registration statement under which such securities were registered or qualified under the Securities Act or otherwise, any preliminary prospectus, final prospectus or summary prospectus included therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that PLC shall not be liable to such Indemnified Person in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with information furnished in writing by Edwards to PLC expressly for use therein. (b) INDEMNIFICATION BY EDWARDS. In the event of any registration of Registrable Shares pursuant to Section 4.1 or 4.2, Edwards agrees 14 to indemnify and hold harmless PLC and its directors and officers and each other person, if any, who controls PLC within the meaning of the Securities Act from and against any and all Losses, insofar as such Losses arise out of or based upon (i) any untrue statement or alleged untrue statement of material fact contained in any registration statement under which such securities were registered or qualified under the Securities Act or otherwise, any preliminary prospectus, final prospectus or summary prospectus included therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made solely in reliance upon and in conformity with information furnished in writing to PLC by Edwards expressly for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. (c) DEFENSE OF CLAIM. If any action or proceeding (including any governmental investigation) shall be brought or directed against any party hereto (or its officers, directors or agents), the party against whom indemnification is sought shall be permitted to assume the defense of such claim, including the employment of counsel and the payment of all expenses, unless a conflict of interest may exist with respect to such claim or differing or additional defenses may be available to the other party. If defense of a claim is assumed by an indemnifying party, the indemnified party shall not be liable for any settlement of such action or proceedings effected without its prior written consent, which shall not be unreasonably withheld, conditioned or delayed. Any such indemnifying party shall not, without the prior written consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the indemnified party an unconditional release from all liability in respect to such claim or litigation. If defense of a claim is not assumed by an indemnifying party, the indemnifying party shall not be liable for any settlement effected without its prior written consent, which shall not be unreasonably withheld, conditioned or delayed. Any party entitled to indemnification hereunder agrees to give prompt written notice to the other party of any written notice of the commencement of any action, suit, proceedings or investigation or threat thereof for which such party may claim indemnification or contribution pursuant to this Agreement; PROVIDED, HOWEVER, that failure to give such notice shall not limit any party's right to indemnification or contribution hereunder. Notwithstanding the foregoing, an indemnified party hereunder shall always have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party. (d) SURVIVAL. The indemnification provided for under this Agreement will (i) remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or 15 controlling Person of such indemnified party, (ii) survive the transfer of any Registrable Securities and (iii) survive the termination of this Agreement. (e) RIGHT OF CONTRIBUTION. If the indemnification provided for in this Section 4.4 is unavailable to, or insufficient to hold harmless, an indemnified party under Section 4.4(a) or Section 4.4(b) above in respect of any Losses referred to in such Sections, then each applicable indemnifying party shall have an obligation to contribute to the amount paid or payable by such indemnified party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of PLC, on the one hand, and of Edwards, on the other, in connection with the misstatement or omission which resulted in such Losses, taking into account any other relevant equitable considerations. The amount paid or payable by a party as a result of the Losses referred to above shall be deemed to include, subject to the limitations set forth in Section 4.4(c) above, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation, lawsuit or legal or administrative action or proceeding. ARTICLE V VOTING Section 5.1 VOTING OF SHARES BY EDWARDS. Until the third anniversary of the date hereof, in any matter submitted to holders of PLC Common Shares, Edwards shall be present for purposes of establishing a quorum and shall vote all the PLC Common Shares that it Beneficially Owns in proportion to the votes cast by all other holders of PLC Common Shares; PROVIDED, HOWEVER, that Edwards shall be free to vote all of its PLC Common Shares in its sole discretion on the following matters submitted to holders of PLC Common Shares: (a) any merger, consolidation, acquisition or other business combination involving PLC in which PLC is not the surviving corporation or as a result of which a majority of the outstanding common equity of PLC is owned by another entity; (b) any sale, lease, transfer or other disposition of the business operations or all or substantially all assets of PLC (on a consolidated basis); and (c) any dissolution or complete liquidation or similar arrangement of PLC. 16 ARTICLE VI CERTAIN TAX MATTERS Section 6.1 REPRESENTATIONS AND WARRANTIES. Based on the advice of PLC's U.S. Tax Advisor, PLC is not, and immediately following the sale of the Shares to Edwards under the Purchase Agreement will not be, classified as (i) a "controlled foreign corporation" or (ii) a "foreign personal holding company" for United States federal income tax purposes. Section 6.2 COVENANTS. (a) So long as Edwards holds any Equity Securities, none of PLC or any PLC Subsidiary shall, directly or indirectly, issue, sell (whether involuntarily, by judicial sale, or otherwise), transfer, grant a security interest in, pledge, hypothecate, assign, give, or otherwise (voluntarily or by operation of law) dispose of (any such act is hereinafter referred to as a "Transfer") any Equity Security to any person or enter into any arrangement to shift voting power away from United States holders of Equity Securities (any such arrangement hereinafter referred to as an "Arrangement") in respect of any Equity Security if such Transfer or Arrangement would, for purposes of section 951 ET SEQ. and 551 ET SEQ. of the Code, result in more than 50% of the voting power or the value of the outstanding stock of the PLC being owned, directly or indirectly (taking into account the applicable constructive ownership rules under the Code), by (i) five (5) or fewer "United States shareholders" as defined in section 951 of the Code, or (ii) five (5) or fewer individuals who are citizens or residents of the United States as described in section 552 of the Code, without the prior written consent of Edwards, so long as it holds Equity Securities. (b) PLC shall, at its own expense, furnish to Edwards by February 28 of each year, commencing February 28, 2002, an Annual Information Statement for the immediately preceding taxable year of PLC. PLC shall also provide such other information as may be required by the United States Internal Revenue Service to enable Edwards and any of its direct or indirect beneficial owners, as the case may be, to make a "qualified electing fund" election under section 1295 of the Code. (c) None of PLC or any PLC Subsidiary shall enter into any agreement, or make any amendment to any existing agreement, that would restrict or prohibit any payment made pursuant to and in accordance with the terms of this Article VI or Article VII of this Agreement, without the prior written consent of Edwards, so long as it holds Equity Securities. 17 (d) Based on the advice of the PLC's U.S. Tax Advisor, PLC shall use its best efforts to (i) avoid being classified as a "passive foreign investment company" or a "foreign personal holding company" for United States federal income tax purposes in any taxable year ending after the Closing, and (ii) cause each PLC Subsidiary to avoid being classified as a "passive foreign investment company" or a "foreign personal holding company" for United States federal income tax purposes for any taxable year ending after the Closing. (e) PLC shall not (and shall cause the PLC Subsidiaries not to) undertake any action which could result in a material risk of PLC (or any of the PLC Subsidiaries) being classified as a "controlled foreign corporation," "passive foreign investment company" or "foreign personal holding company" for United States federal income tax purposes in any taxable year ending after the Closing. (f) So long as Edwards and its Affiliates Beneficially Own at least 5% of the PLC Common Shares outstanding on a fully diluted basis as described in Section 2.1(a), PLC shall use its best efforts to ensure that a majority of the Board of Directors is comprised of directors other than U.S. Shareholder-Appointed Directors, unless previously approved in writing by Edwards so long as it holds Equity Securities. Section 6.3 INDEMNIFICATION; SURVIVAL. (a) PLC shall defend, indemnify, and hold harmless Edwards and its officers, directors, partners, members, direct and indirect beneficial owners, employees, representatives, successors and assigns (each, a "Tax Matters Indemnitee") from and against any and all losses, damages, taxes, additions to tax, interest, penalties, and expenses (including, without limitation, reasonable attorneys' fees, costs, and expenses incurred in investigating and defending against the assertion of such liabilities) that may be sustained, suffered, or incurred by any such Indemnitee arising from, or in connection with or relating to any breach by PLC of its representations, warranties, covenants, or agreements set forth in this Article VI after the Closing. (b) In respect of any matter for which a claim can be made under Section 6.3(a) or Section 7.1, any amount due and payable under Section 7.1 shall reduce the amount due and payable under Section 6.3(a). (c) The obligations of PLC under this Section 6.3 shall survive the termination of this Agreement and shall continue in full force and effect. 18 ARTICLE VII IMPUTED INCOME INDEMNIFICATION Section 7.1 INDEMNIFICATION. PLC shall defend, indemnify, and hold harmless Edwards and its respective officers, directors, partners, members, direct and indirect beneficial owners, employees, representatives, successors, and assigns (each, an "Imputed Income Indemnitee") from and against any and all losses, damages, taxes, additions to tax, interest, penalties, and expenses (including, without limitation, reasonable attorneys' fees, costs, and expenses incurred in investigating and defending against the assertion of such liabilities) (collectively, "Imputed Income Losses") that may be sustained, suffered, or incurred by reason of (i) any Imputed Income Amount attributable to such Imputed Income Indemnitee (provided, however, that the indemnification provided for in this clause (i) shall not exceed, for any Relevant Taxable Period, the Tax Amount Shortfall), and (ii) Final Determination Imputed Income Amount attributable to such Imputed Income Indemnitee (provided, however, that the indemnification provided for in this clause (ii) shall not exceed, for any Relevant Taxable Period, the Final Determination Shortfall). Section 7.2 NOTICE AND PAYMENT. In the event that an Imputed Income Indemnitee suffers an Imputed Income Loss such Imputed Income Indemnitee shall provide written notice thereof to PLC including a statement as to the nature and amount of such Imputed Income Loss and, not later than 10 Business Days following receipt of such written notice, PLC shall pay to such Imputed Income Indemnitee any and all amounts owed to it pursuant to Section 7.1. Section 7.3 SURVIVAL. The obligations of PLC under this Article VII shall survive the termination of this Agreement and shall continue to remain in full force and effect. ARTICLE VIII TERMINATION Section 8.1 TERMINATION. Article II of this Agreement shall automatically terminate on the date Edwards and its Affiliates no longer Beneficially Own, in the aggregate, at least 2% of the PLC Common Shares outstanding on a fully diluted basis. Articles III and IV of this Agreement shall automatically terminate on the date Edwards and its Affiliates no longer Beneficially Own, in the aggregate, at least 5% of the PLC Common Shares outstanding on a fully diluted basis. 19 ARTICLE IX MISCELLANEOUS Section 9.1 GOVERNING LAW. This Agreement shall be governed by, interpreted under, and construed in accordance with the internal laws of the State of New York, including, without limitation, Sections 5-1401, 5-1402 of the New York General Obligations Law and New York Civil Practice Laws and Rules 327(b). Section 9.2 JURISDICTION AND CONSENT TO SERVICE. In accordance with the laws of the State of New York, and without limiting the jurisdiction or venue of any other court, the parties (a) agree that any suit, action or proceeding arising out of or relating to this Agreement shall be brought solely in the state or federal courts of New York; (b) consent to the exclusive jurisdiction of each such court in any suit, action or proceeding relating to or arising out of this Agreement; (c) waive any objection which any of them may have to the laying of venue in any such suit, action or proceeding in any such court; and (d) agree that service of any court paper in any such suit, action or proceeding may be made in any manner as may be provided under the applicable laws or court rules governing service of process in such court. Section 9.3 NOTICES. All notices, demands, requests, consents, approvals or other communications required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be delivered (charges prepaid, receipt confirmed or return receipt requested (if available)) by hand, by nationally recognized air courier service, by certified mail or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Notice shall be deemed given and effective (i) if delivered by hand or by nationally recognized courier service, when delivered at the address specified in this Section 9.3 (or in accordance with the latest unrevoked written direction from such party), (ii) if by certified mail, upon mailing or (iii) if given by facsimile when such facsimile is transmitted to the fax number specified in this Section 9.3 (or in accordance with the latest unrevoked written direction from such party), provided the appropriate confirmation is received. To PLC: PLC Systems Inc. 10 Forge Park Franklin, MA 02038 Attention: Chief Executive Officer Fax: (508) 541-7990 20 with a copy (which shall not constitute notice) to: Hale and Dorr LLP 60 State Street Boston, MA 02109 Attention: Steven D. Singer, Esq. Fax: (617) 526-5000 To Edwards: Edwards Lifesciences LLC One Edwards Way Irvine, California 92614 Attention: Associate General Counsel Fax: (949) 250-6850 with a copy (which shall not constitute notice) to: Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071-3144 Attention: Joseph J. Giunta, Esq. Fax: (213) 687-5600 Section 9.4 INTERPRETATION. When a reference is made in this Agreement to a Section, Schedule or Exhibit, such reference shall be to a Section, Schedule or Exhibit of this Agreement unless otherwise indicated. When a reference is made in this Agreement to a specific Schedule, such reference shall be deemed to include, to the extent applicable, all the other Schedules. The table of contents, table of definitions, titles and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. When the words "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." All accounting terms not defined in this Agreement shall have the meanings determined by generally accepted accounting principles as of the date hereof. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. Section 9.5 SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the parties shall negotiate in good faith with a view to the substitution therefore of a suitable and equitable solution in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid provision; PROVIDED, HOWEVER, that the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way 21 impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. Section 9.6 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which shall, taken together, be considered one and the same agreement, it being understood that both parties need not sign the same counterpart. Section 9.7 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement and the other Transaction Agreements, including all exhibits hereto and thereto, by and between Edwards and PLC, (a) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior and contemporaneous agreements, representations, understandings, negotiations and discussions between the parties, whether oral or written, with respect to the subject matter hereof; and (b) shall be binding upon and shall inure to the benefit of each of the parties hereto and thereto and their respective successors and permitted assigns and is not intended to confer any rights, remedies or benefits on any Persons other than as expressly set forth in this Section 9.7. Section 9.8 FURTHER ASSURANCES. Each party hereto shall do all such further acts and execute, acknowledge, deliver and file all such further instruments and documents as may be necessary or desirable to give effect to and carry out the transactions contemplated herein. Section 9.9 AMENDMENTS AND MODIFICATIONS; WAIVERS AND EXTENSIONS. (a) No amendment, modification or termination of this Agreement shall be binding upon any other party unless executed in writing by the parties hereto intending to be bound thereby. (b) Any party to this Agreement may waive any right, breach or default which such party has the right to waive; provided that such waiver will not be effective against the waiving party unless it is in writing, is signed by such party, and specifically refers to this Agreement. Waivers may be made in advance or after the right waived has arisen or the breach or default waived has occurred. Any waiver may be conditional. No waiver of any breach 22 of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision herein contained. No failure or delay in exercising any right, power or privilege hereunder shall be deemed a waiver or extension of the time for performance of any other obligations or acts nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Section 9.10 ASSIGNMENT. Neither this Agreement nor any of the rights, duties or obligations hereunder may be assigned or delegated by any of the parties hereto without the prior written consent of PLC or Edwards, as the case may be, which may be withheld in its sole discretion except that (1) Edwards may assign all or any portion of its rights and obligations to (a) the acquirer of all or substantially all of the assets of Edwards including an acquisition through merger; (b) any subsidiary or affiliate of Edwards and (c) the transferee of any of the Shares or Warrant Shares who, after giving effect to the transfer Beneficially Owns at least 5% of the PLC Common Shares then outstanding on a fully-diluted basis and (2) PLC may assign its rights and obligations to any acquirer of all or substantially all of the assets or business of PLC, whether by merger, sale of assets or otherwise. Any attempted assignment or delegation of rights, duties or obligations hereunder in contravention hereof shall be void and of no effect. Section 9.11 REMEDIES CUMULATIVE. The remedies provided herein shall be cumulative and shall not preclude the assertion by any party hereto of any other rights or the seeking of any other remedies against the other party hereto. 23 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered, all as of the date first set forth above. EDWARD LIFESCIENCES CORPORATION By: /s/ John H. Kehl, Jr. ------------------------------------- Name: John H. Kehl, Jr. Title: Corporate Vice President Business Development and Strategy PLC SYSTEMS INC. By: /s/ James G. Thomasch ------------------------------------- Name: James G. Thomasch Title: Senior Vice President and Chief Financial Officer EX-99.1 4 a2047827zex-99_1.txt EXHIBIT 99.1 Exhibit 99.1 RISK FACTORS OUR COMPANY HAS A HISTORY OF OPERATING LOSSES PLC Systems Inc. was founded in 1987. We have incurred operating losses in every year of our existence except 1995. We have incurred net losses of $7,410,000 for the year ended December 31, 2000, $6,555,000 for the year ended December 31, 1999 and $16,603,000 for the year ended December 31, 1998. As of December 31, 2000, we had an accumulated deficit of $82,101,000. We have not achieved profitability and expect to continue to incur net losses for at least the foreseeable future. Moreover, although our business is not seasonal in nature, our revenues tend to vary significantly from fiscal quarter to fiscal quarter. OUR COMPANY IS DEPENDENT ON ONE PRINCIPAL PRODUCT We develop and market one principal product line, which consists of two patented high-powered carbon dioxide laser systems known as the Heart Laser Systems and related disposables. Approximately 90% of our revenues in the fiscal year ended December 31, 2000 and 89% in the fiscal year ended December 31, 1999 was derived from the sales and service of our first generation laser and related disposables. OUR COMPANY MAY BE UNABLE TO RAISE NEEDED FUNDS As of December 31, 2000, we had cash, cash equivalents and marketable securities totaling $6,014,000. Based on our current operating plan, we anticipate that our existing capital resources, including cash raised in our January 2001 sale of common stock to Edwards, should be sufficient to meet our working capital requirements through December 31, 2001. If our business does not progress in accordance with our current business plan, we may need to raise additional funds. We may not be able to raise additional capital upon satisfactory terms or at all, and our business, financial condition and results of operations could be materially and adversely affected. To the extent that we raise additional capital by issuing equity or convertible securities, ownership dilution to our stockholders will result. IN ORDER TO COMPETE EFFECTIVELY, OUR HEART LASER SYSTEMS NEED TO GAIN COMMERCIAL ACCEPTANCE The Heart Laser Systems are designed for use in the treatment of coronary artery disease in a surgical laser procedure we pioneered known as transmyocardial revascularization. Transmyocardial revascularization is commonly referred to in our industry as "TMR." TMR is a new technology that is only recently becoming known. Our products may never achieve widespread commercial acceptance. To be successful, we need to: - demonstrate to the medical community in general, and to heart surgeons and cardiologists in particular, that TMR procedures and the Heart Laser Systems are effective, relatively safe and cost effective; - support third party efforts to document the medical processes by which TMR procedures relieve angina, if any; - train heart surgeons to perform TMR procedures using the Heart Laser Systems; and - obtain widespread third party reimbursement for the TMR procedure. To date, we have trained only a limited number of heart surgeons and will need to expand our marketing and training capabilities. Although the Heart Laser Systems have received FDA approval and the CE Mark, they have not yet received widespread commercial acceptance. If we are unable to maintain regulatory approvals or to achieve widespread commercial acceptance of the Heart Laser Systems, our business, financial condition and results of operations will be materially and adversely affected. RESULTS OF LONG-TERM CLINICAL STUDIES MAY ADVERSELY AFFECT OUR BUSINESS Patients have only been treated with the HL1 since January 1990, and, as a result, there have been few long-term follow-up studies. If patients suffer harmful, long-term consequences from the Heart Laser Systems, our business, financial condition and results of operations will be materially and adversely affected. Our business may be adversely affected by a recent six-month clinical study ("DIRECT"), the results of which were released on October 20, 2000 at the Transcatheter Therapeutics Conference. The DIRECT study, which used a Johnson & Johnson holmium PMR laser, demonstrated no significant differences in the clinical outcomes measured between patients receiving PMR therapy and patients in the control group. The principal investigator of the DIRECT study concluded that the similar outcomes in patients in the treatment group and patients in the control group suggests a strong placebo effect, as opposed to any real therapeutic benefit from the PMR laser revascularization procedure. Although we believe that there are distinct clinical differences and therapeutic outcomes between a surgical laser TMR procedure and an interventional laser PMR procedure, the negative publicity resulting from the DIRECT study with respect to all laser revascularization procedures, including our CO2 laser TMR approach, makes it more challenging for us to distinguish our surgical TMR from PMR, and our CO2 laser from holmium lasers. If we are unable to distinguish these procedures and therapies, the Heart Laser Systems may never gain broad commercial acceptance and, therefore, our business will be materially and adversely affected. RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY COULD MAKE THE HEART LASER SYSTEMS OBSOLETE Our industry is characterized by rapid technological change and intense competition. New technologies and products and new industry standards will develop at a rapid pace. They could make the Heart Laser Systems obsolete. The advent of new devices and procedures and advances in new drugs and genetic engineering are especially threatening. Our future success will depend upon our ability to develop and introduce product enhancements to address the needs of our customers. Material delays in introducing product enhancements may cause customers to forego purchases of our product and purchase those of our competitors. Many of our competitors have substantially greater financial resources and are in a better financial position to exploit marketing and research and development opportunities. Our competitors' products use different types of lasers than we use in the Heart Laser Systems, including holmium and excimer lasers that may gain more widespread market acceptance than the Heart Laser Systems. In addition, we believe that several companies are attempting to develop less invasive methods of performing TMR procedures. These new methods may eliminate the need to make an incision in the patient's chest, reducing costs and speeding recovery. These new technologies and methods may erode the potential TMR market, which could have a material adverse effect on our business, financial condition and results of operations. WE MUST RECEIVE AND MAINTAIN GOVERNMENT APPROVAL IN ORDER TO MARKET OUR PRODUCT GENERAL The Heart Laser Systems and our manufacturing activities are subject to extensive, rigorous and changing federal and state regulation in the United States and to similar regulatory requirements in other major markets, including the European Union and Japan. To date, we have received regulatory approval in the United States and have the ability to market the Heart Laser Systems in the European Union (excluding France). We have not received regulatory approval in Japan. Without regulatory approval, we cannot market the Heart Laser Systems in Japan. Even if granted, regulations may significantly restrict the use of the Heart Laser Systems. The process of obtaining and maintaining required regulatory approval is lengthy, expensive and uncertain. UNITED STATES--ALTHOUGH WE HAVE RECEIVED FDA APPROVAL, THE FDA HAS RESTRICTED THE USE OF THE HEART LASER SYSTEMS AND COULD REVERSE ITS APPROVAL AT ANY TIME We received FDA approval to market the HL1 and HL2 for TMR procedures in August 1998 and January 2001, respectively. However, the FDA: - has not allowed us to market the Heart Laser Systems to treat patients whose condition is amenable to conventional treatments, such as heart bypass surgery and angioplasty; and - could reverse its ruling and prohibit use of the Heart Laser Systems at any time. EUROPE--ALTHOUGH WE HAVE THE ABILITY TO MARKET OUR PRODUCT IN THE EUROPEAN UNION, INDIVIDUAL MEMBERS OF THE EUROPEAN UNION COULD, AND FRANCE HAS, PROHIBITED COMMERCIAL USE OF THE HEART LASER SYSTEMS We received the CE Mark from the European Union for the HL1 and HL2 in March 1995 and March 2001, respectively. However: - the European Union could reverse its ruling and prohibit use of the Heart Laser Systems at any time; - we cannot market the Heart Laser Systems in France; and - other European Union countries could prohibit or restrict use of the Heart Laser Systems. The French Ministry of Health instituted a commercial moratorium on TMR procedures in October 1997. In its opinion, the procedure is considered to be experimental and should only be performed within the context of a clinical study. An evaluation of the safety of the HL1 has been currently under review by a panel of French experts. There can be no assurance that this moratorium will be lifted on a timely basis or at all. ASIA--WE CANNOT MARKET OUR PRODUCT IN MAJOR ASIAN MARKETS UNTIL WE RECEIVE GOVERNMENT APPROVAL We believe that Japan represents the largest potential market for the Heart Laser Systems in Asia. Prior to marketing the Heart Laser Systems in Japan, we must receive approval from the Japanese government. This approval requires a clinical study in Japan with at least 60 patients. A study was completed in 1998 with the HL1. Although the results of this study have been submitted to the Japanese government, we do not know whether the clinical study will be sufficient or when, if ever, we will receive approval to sell the HL1 in Japan. WE COULD INCUR SUBSTANTIAL COSTS DEFENDING AGAINST POSSIBLE LEGAL CLAIMS IN THE FUTURE We have been sued for alleged securities law violations in the past, and may be subject to similar claims or other claims in the future. Between August 1997 and November 1997, we were named as defendant in 21 class action lawsuits alleging violations of federal securities laws because we failed to obtain a favorable FDA panel recommendation to market the HL1. Nineteen of the claims were consolidated into a single action and some of the claims were dismissed in 1999. All remaining claims were settled in February 2001. The settlement of these claims did not have a material impact on our financial statements. However, any future litigation or claims, whether or not valid, could result in substantial costs and diversion of resources with no assurance of success. ASSERTING AND DEFENDING INTELLECTUAL PROPERTY RIGHTS MAY IMPACT OUR RESULTS OF OPERATIONS In our industry, competitors often assert intellectual property infringement claims against one another. The success of our business depends on our ability to successfully defend our intellectual property. Future litigation may have a material impact on our financial condition even if we are successful in marketing the Heart Laser Systems. We may not be successful in defending or asserting our intellectual property rights. An adverse outcome in any litigation or interference proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. In addition, a finding that any of our intellectual property is invalid could allow our competitors to more easily and cost-effectively compete with us. Thus, an unfavorable outcome in any patent litigation or interference proceeding could have a material adverse effect on our business, financial condition or results of operations. The cost to us of any patent litigation or interference proceeding could be substantial. Uncertainties resulting from the initiation and continuation of patent litigation or interference proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and interference proceedings may also absorb significant management time. WE MAY BE SUBJECT TO PRODUCT LIABILITY LAWSUITS; OUR INSURANCE MAY NOT BE SUFFICIENT TO COVER DAMAGES We may be subject to product liability claims. The United States Supreme Court has stated that compliance with FDA regulations will not shield a company from common-law negligent design claims or manufacturing and labeling claims based on state rules. Such claims may absorb significant management time and could degrade the reputation of PLC and the marketability of the Heart Laser Systems. If product liability claims are made with respect to our products, we may need to recall the implicated product which could have a material adverse effect on our business, financial condition and results of operations. In addition, although we maintain product liability insurance with a per claim and yearly aggregate maximum of $10 million, subject to a $50,000 per occurrence and $250,000 aggregate self-insured deductible, we cannot be sure that our insurance will be adequate to cover potential product liability lawsuits. Our insurance is expensive and in the future may not be available on acceptable terms, if at all. If a successful product liability claim or series of claims exceeded our insurance coverage, it could have a material adverse effect on our business, financial condition and results of operations. WE ARE DEPENDENT ON CERTAIN SUPPLIERS Some of the components for our laser systems, most notably the power supply, ECG card and certain optics and fabricated parts, are only available from one supplier. We have no assurance that we will ever be able to source some or all of our sole sourced components from more than one supplier. Any interruption in supply from these suppliers could prevent us from meeting commercial demands for the Heart Laser Systems, which could have a material adverse effect on our business, financial condition and results of operations. WE HAVE LIMITED MANUFACTURING EXPERIENCE BUILDING THE HL2 We have only recently begun to manufacture the HL2. The HL2 is based on a different design than the HL1. In order to achieve certain manufacturing cost savings, we have taken a more vertically integrated approach to the manufacture of the HL2 than we did with the HL1. As a result, we may experience manufacturing difficulties, including but not limited to: - shortages in component parts due to supplier manufacturing or procurement delays; - lack of experienced technical personnel; - production yields; and - changing processes and controls over the manufacturing procedures employed. WE ARE SUBJECT TO RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS A portion of our product sales are generated from operations outside of the United States. Establishing and expanding international sales can be expensive. Managing and overseeing foreign operations may be difficult and products may not receive market acceptance. Risks of doing business outside the U.S. include the following: agreements may be difficult to enforce and receivables difficult to collect through a foreign country's legal system; foreign customers may have longer payment cycles; foreign countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs or adopt other restrictions on foreign trade; U.S. export licenses may be difficult to obtain; and the protection of intellectual property in foreign countries may be more difficult to enforce. There can be no assurance that our international business will grow or that any of the foregoing risks will not result in a material adverse effect on our business or results of operations. BECAUSE WE ARE INCORPORATED IN CANADA, YOU MAY NOT BE ABLE TO ENFORCE JUDGMENTS AGAINST US AND OUR CANADIAN DIRECTORS Under Canadian law, you may not be able to enforce a judgment issued by courts in the United States against us or our Canadian directors. The status of the law in Canada is unclear as to whether a U.S. citizen can enforce a judgment from a U.S. court in Canada for violations of U.S. securities laws. A separate suit may need to be brought directly in Canada. ANTITAKEOVER PROVISIONS MAY PREVENT YOU FROM REALIZING A PREMIUM RETURN Provisions of Canadian law could make it more difficult for a third party to acquire us, even if the acquisition would be beneficial to you. Specifically, Canadian law requires any person who makes a tender offer that would increase the person's stock ownership to more than 20% of our outstanding common stock to make a tender offer for all of our common stock. These provisions could prevent you from realizing the premium return that stockholders may realize in conjunction with corporate takeovers. In addition, we have three classes of directors, with approximately one-third elected each year for a three-year term. These provisions may have the effect of delaying or preventing a corporate takeover or a change in our management. This could adversely affect the market price of our common stock. THE MARKET PRICE OF OUR STOCK MAY FALL IF OTHER SHAREHOLDERS SELL THEIR STOCK Certain current shareholders hold large amounts of our restricted stock, which they will be able to sell in the public market in the near future. Sales of a substantial number of shares of our common stock within a short period of time could cause our stock price to fall. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional stock. THE VALUE OF YOUR COMMON STOCK MAY DECREASE IF OTHER SECURITY HOLDERS EXERCISE THEIR OPTIONS AND WARRANTS As shown in the table below, as of December 31, 2000 we have reserved an additional 4,728,742 shares of common stock for future issuance upon exercise of outstanding options and redeemable warrants.
WEIGHTED AVERAGE RANGE OF EXERCISE/ EXERCISE/ SHARES RESERVED FOR CONVERSION PRICES CONVERSION PRICE FUTURE ISSUANCE ------------------- ------------------ -------------------- Options $.53 - $8.88 $ 3.00 4,071,501 Redeemable Warrants $1.00 - $27.81 $11.37 316,190 Employee Stock Purchase Plan $.43 $ .43 341,051 --------- Total 4,728,742 =========
We may issue additional options and warrants in the future. If any of these securities are exercised, you may experience significant dilution in the market value of your common stock. In January 2001, we issued additional warrants and adjusted the purchase price for certain outstanding warrants. WE HAVE NO INTENTION TO PAY DIVIDENDS We have never paid any cash dividends on our common stock. We currently intend to retain all future earnings, if any, for use in our business and do not expect to pay any dividends in the foreseeable future. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN FORWARD-LOOKING STATEMENTS This annual report and information incorporated by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements deal with our current plans and expectations and involve known and unknown risks and uncertainties. Statements containing terms such as: - believes, - does not believe, - plans, - expects, - intends, - estimates, - anticipates, and other phrases of similar meaning are considered to contain uncertainty and are forward-looking statements. No forward-looking statement is a guarantee of future performance. Our actual results could differ materially from those anticipated in these forward-looking statements. We make cautionary statements in certain sections of this annual report on Form 10-K, including in the risk factors identified above, and in materials incorporated herein by reference. You should read these cautionary statements as being applicable to all related forward-looking statements, wherever they appear in this annual report, in the materials referred to in this annual report, in the materials incorporated by reference into this annual report or in our press releases. You should not place undue reliance on any forward-looking statement. -----END PRIVACY-ENHANCED MESSAGE-----