SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarter ended September 30, 1997.
Commission file number 1-11388
PLC SYSTEMS INC.
(Exact name of registrant as specified in its charter)
BRITISH COLUMBIA, CANADA 04-3153858
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 .
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practical date.
Class Outstanding at November 11, 1997
----- --------------------------------
Common Stock, no par value 18,094,826
PLC SYSTEMS INC.
INDEX
Part I. Financial Information:
Item 1.
Condensed Consolidated Balance Sheets...........................3
Condensed Consolidated Statements of Operations.................4
Condensed Consolidated Statements of Cash Flows.................5
Notes to Condensed Consolidated Financial Statements............6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..........9-13
Item 3. Quantitative and Qualitative Disclosure About Market Risk....13
Part II. Other Information:
Item 1. Legal Proceedings.........................................14
Item 2. Changes in Securities.....................................14
Item 3. Defaults by the Company Upon its 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-
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PLC SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents.......................................... $ 4,151 $3,039
Marketable securities.............................................. 14,817 5,470
Accounts receivable, net........................................... 1,313 2,635
Inventories ....................................................... 3,174 2,345
Prepaid expenses and other current assets.......................... 615 679
--------- ---------
Total current assets........................................... 24,070 14,168
Equipment, furniture and leasehold improvements, net ................. 5,412 4,712
Other assets........................................................... 665 537
--------- ---------
Total assets.................................................... $30,147 $19,417
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $1,081 $ 867
Accrued clinical costs............................................. 1,103 935
Accrued compensation............................................... 623 467
Deferred revenue................................................... 262 339
Other accrued liabilities.......................................... 451 315
---------
Total current liabilities....................................... 3,520 2,923
5% Convertible Debentures.............................................. 3,804 -
Capital lease obligations.............................................. 18 27
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 25,000 shares authorized, 18,060
and 16,419 shares issued and outstanding at June 30, 1997
and December 31, 1996, respectively and 16,513 shares
issued and outstanding at September 30, 1997 and
December 31, 1996, respectively..................................... 69,841 54,030
Accumulated deficit.................................................... (46,410) (37,129)
Foreign currency translation........................................... (626) (434)
-------- ---------
22,805 16,467
------- --------
Total liabilities and stockholders' equity............................. $30,147 $19,417
======= =======
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales........................... $1,110 $1,802 $4,406 $6,768
Placement and service fees.............. 775 691 2,489 1,985
-------- ------- ------- -------
Total revenues .................. 1,885 2,493 6,895 8,753
Cost of revenues:
Product sales ......................... 654 676 1,895 1,936
Placement and service fees............... 565 233 1,624 739
-------- ------- ------- -------
Total cost of revenues................ 1,219 909 3,519 2,675
Gross profit............................... 666 1,584 3,376 6,078
Operating expenses:
Selling, general and administrative ..... 3,076 1,555 9,411 4,597
Research and development................. 1,180 725 3,397 2,043
------- ------- ------- -------
Total operating expenses............... 4,256 2,280 12,808 6,640
------- ------ ------ -------
Loss from operations....................... (3,590) (696) (9,432) (562)
Other income:
Interest income.......................... 172 126 310 427
Interest expense......................... (131) (3) (136) (5)
Gain (loss) from foreign currency, net... (13) 11 (23) (44)
---------- -------- -------- --------
28 134 151 378
--------- ------- -------- -------
Loss before income taxes................... (3,562) (562) (9,281) (184)
Provision for income taxes................. - - - 4
---------- --------- ---------- ---------
Net loss................................... $ (3,562) $ (562) $ (9,281) $ (188)
======== ======= ======== ========
Net loss per share......................... $ (0.21) $ (0.03) $ (0.56) $ (0.01)
Shares used to compute net loss
per share................................ 16,836 16,499 16,673 16,331
</TABLE>
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)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1997 1996
Operating activities:
<S> <C> <C>
Net loss........................................................... $ (9,281) $ (188)
Adjustments to reconcile net loss to net cash provided (used) for operating
activities:
Depreciation and amortization.................................... 1,272 854
Change in assets and liabilities:
Accounts receivable......................................... 1,384 5,886
Inventory ................................................. (803) (1,410)
Prepaid expenses and other assets........................... (71) (777)
Accounts payable............................................. 198 629
Deferred revenue............................................. (107) 100
Accrued liabilities.......................................... 552 (504)
-------- --------
Net cash provided (used) for operating activities...................... (6,856) 4,590
Investing activities:
Purchase of marketable securities................................. (14,817) (18,444)
Maturities of marketable securities............................... 5,470 17,472
Purchase of fixed assets.......................................... (1,917) (2,522)
-------- -------
Net cash used for investing activities................................. (11,264) (3,494)
Financing activities:
Issuance of 5% Convertible Debentures, net of issuance costs...... 18,784 -
Net proceeds from sales of shares................................. 724 2,483
Repayment of stockholder notes.................................... - 110
Principal payments on capital lease obligations................... (8) (7)
--------- ----------
Net cash provided by financing activities.............................. 19,500 2,586
Effect of exchange rate changes on cash and cash equivalents........... (268) (217)
-------- --------
Net increase in cash and cash equivalents.............................. 1,112 3,465
Cash and cash equivalents at beginning of period....................... 3,039 704
------- --------
Cash and cash equivalents at end of period............................. $ 4,151 $ 4,169
======= =======
NON-CASH FINANCING ACTIVITIES:
Conversion of Convertible Debentures and accrued
interest into Common Stock..................................... $15,088 $ -
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-5-
PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
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 and nine month
periods ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1996.
2. NET LOSS PER SHARE
The net loss per share is calculated using the weighted average number
of shares outstanding during the period and does not include share equivalents.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. There is not expected to
be a change to the net loss per share for the three or nine months ended
September 30, 1997 or September 30, 1996 as a result of the new requirements.
3. INVENTORY
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials . . . . . . . . . . $1,731 $1,043
Work in process . . . . . . . . . 503 306
Finished goods . . . . . . . . . . 940 996
------ --------
$3,174 $2,345
====== ======
</TABLE>
-6-
PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. ISSUANCE OF CONVERTIBLE DEBENTURES
In July 1997, the Company entered into a $20 million financing
commitment. Under the terms of the financing, The Company received $10,075,000
in July 1997 and $10,075,000 in August 1997 from the issuance of five-year
convertible debentures to accredited investors through Smith Barney Inc. as
placement agent. The convertible debentures accrue interest at 5% per annum,
payable in cash or common stock at the Company's option, at the time of
conversion. The debentures are convertible into common shares under a
predetermined formula. The first tranche of the debentures are convertible into
common shares at the lesser of (a) $25.98, or (b) the market price of the
Company's Common Stock at the time of conversion, with no more than 1,007,500
shares of Common Stock issuable in full payment of all accrued interest and
principal. In September 1997, the entire first tranche of convertible debentures
of $10,075,000 and related accrued interest converted into 890,394 shares of
common stock. The second tranche of the debentures are convertible into common
shares at the lesser of (a) $14.60, or (b) the market price of the Company's
Common Stock at the time of conversion, with no more than 1,507,500 shares of
Common Stock issuable in full payment of all accrued interest and principal. In
September 1997, $5,825,000 of the second tranche of convertible debentures and
related accrued interest converted into 512,572 shares of common stock. The
remaining debentures are due August 14, 2002.
The Company has further agreed to issue 500,000 additional shares
subsequent to August 14, 1997 under either of the following conditions should
the Company; 1) receive a recommendation of non-approval of its Pre-Market
Application for its Heart Laser System from the Circulatory Systems Advisory
Panel of the U.S. Food and Drug Administration (the "Panel") or 2) not receive a
recommendation of approval from the Panel or FDA approval of its PreMarket
Application for its Heart Laser System by August 14, 1998.
In connection with the issuance of the first tranche of convertible
debentures, the Company has issued 69,875 redeemable warrants to these
accredited investors to purchase shares of its Common Stock at $27.81 per share.
In connection with the issuance of the second tranche of convertible debentures,
the Company has issued 80,125 redeemable warrants to these accredited investors
to purchase shares of its Common Stock at $15.78 per share. If the average
closing sale price of its Common Stock for any consecutive 30 trading day period
commencing January 17, 1999 exceeds the exercise price by more than 50%, the
Company has the right, exercisable at any time upon 30 days notice to the holder
to redeem the warrant at a price of $.10 per warrant share. The warrants issued
in connection with the first tranche expire on July 17, 2002. The warrants
issued in connection with the second tranche expire on August 14, 2002.
As compensation for its services as placement agent, Smith Barney Inc.
received a placement fee equal to 6% of the gross proceeds of all securities
sold. The foregoing transaction was exempt from registration under the
Securities Act of 1933, as amended, by virtue of Rule 506 promulgated under
Regulation D.
The shares underlying these securities were registered under a Form S-3
filed with the Securities and Exchange Commission on August 25, 1997. The
registration statement was declared effective on September 5, 1997.
-7-
PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. LEGAL PROCEEDINGS
Since the Company's filing of its Form 10-Q for the period ended June
30, 1997, there have been an additional ten purported class action lawsuits
filed naming the Company and certain of its officers as defendants. As a result,
a total of 21 purported class action lawsuits have been filed between August
1997 and November 1997 in the United States District Court for the District of
Massachusetts. The suits allege violations of the federal securities laws. The
plaintiffs are seeking damages in connection with such alleged violations.
Although the outcome of these suits is not currently predictable, management
believes that the Company has meritorious defenses, and intends to vigorously
defend the suits. A motion to consolidate these actions is pending before the
court.
-8-
ITEM 2.
- --------------------------------------------------------------------------------
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company has two marketing strategies for selling the Heart
Laser(TM)1 TMR System and its related components and sterile kits: placement
contracts and product sales. The placement contract allows the Company to
receive recurring revenues based on the usage of the Heart Laser System rather
than one-time revenues for the sale of each Heart Laser System. Under the
placement model, an installation fee is paid when the Heart Laser System is
installed and the Company then receives recurring usage revenues. Sterile
handpieces and other disposables are included in the per procedure fee. Revenues
from these contracts are classified as placement fees.
In foreign countries where credit risk is high or where health care is
not reimbursed by the government or insurance, the Heart Laser System is sold as
capital equipment and the related sterile handpieces and other disposables are
sold separately for each procedure. The Company sells Heart Laser Systems
directly and through distributors. These sales are classified as product sales.
RESULTS OF OPERATIONS
Total revenues for the quarter ended September 30, 1997 were
$1,885,000, a decrease of 24% when compared to $2,493,000 for the quarter ended
September 30, 1996. Product sales for the quarter ended September 30, 1997 were
$1,110,000, a decrease of 38% when compared to $1,802,000 for the quarter ended
September 30, 1996. Both total revenues and product sales decreased in the 1997
three month period as the Company recognized revenue on two units in the three
months ended September 30, 1997 compared to three units in the period ended
September 30, 1996.
Total revenues for the nine month period ended September 30, 1997 were
$6,895,000, a decrease of 21% when compared to $8,753,000 for the nine months
ended September 30, 1996. Product sales for the nine month period ended
September 30, 1997 were $4,406,000, a decrease of 35% when compared to
$6,768,000 for the nine months ended September 30, 1996. The major factors in
both of these year to date decreases are the number of TMR Systems sold and the
customer mix. For the nine months ended September 30, 1997, the Company
recognized revenue on eight Heart Laser Systems, of which seven were sold to
distributors as compared to ten Heart Laser Systems for the nine months ended
September 30, 1996, of which seven were sold directly to customers and three
were sold to distributors. Heart Laser Systems sold directly to customers
- ------------------------------------
1. The Heart Laser is a trademark of PLC Medical Systems, Inc.
-9-
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
typically generate higher sales dollars then those sold to distributors.
Placement and service fees for the three and nine months ended
September 30, 1997 were $775,000 and $2,489,000, respectively, an increase of
12% and 25% when compared with $691,000 and $1,985,000 for the same periods in
fiscal 1996. These increases reflect the continued adoption of the placement
contract as the method of sale for the Heart Laser Systems.
Total gross profit for the three and nine month periods ended September
30, 1997 approximated 35% and 49%, respectively, down from 64% and 69% for the
comparable periods in fiscal 1996. This decrease resulted from two factors.
First, the total gross margin declined due to unfavorable capacity and
manufacturing variances. These variances resulted from the high level of
overhead expenses associated with the new facility in September 1996 coupled
with increased staffing. The Company anticipates that after PMA approval, of
which no assurance can be given, production will increase to levels which will
adequately absorb manufacturing overhead and mitigate these variances. Secondly,
as previously discussed, the Company shipped less units under the sales strategy
in 1997 than in 1996 and the mix was primarily to distributors in 1997 as
compared to direct sales in 1996. Heart Laser Systems sold directly to customers
typically carry a higher gross profit then those sold through distributors.
Selling, general and administrative expenditures of $3,076,000 and
$9,411,000 for the three and nine month periods ending September 30, 1997
increased 98% and 105% respectively when compared to fiscal 1996 expenditures of
$1,555,000 and $4,597,000. In anticipation of the U.S. launch of the Heart Laser
System, the Company increased its domestic sales and marketing efforts and its
administrative expenses by approximately $429,000 and $1,502,000, respectively,
for the three and nine months ended September 30, 1997 as compared to the same
periods in 1996. The increase is primarily due to increased staffing, increased
use of outside consultants, and other expenses.
Research and development expenditures for the three and nine months
ended September 30, 1997 was $1,180,000 and $3,397,000, respectively, an
increase of 63% and 66% when compared to spending of $725,000 and $2,043,000 for
the comparable periods in fiscal 1996. This increase is related to increased
staffing requirements associated with growing demands for clinical study
compilation and the development of new products. In addition, the Company
continues to collect and analyze clinical data for its submissions to the FDA.
Interest income for the three and nine months ended September 30, 1997
was $172,000 and $310,000, respectively, when compared to $126,000 and $427,000
for the comparable periods in fiscal 1996. The 1997 amounts include interest
income earned from the convertible debt proceeds received in July and August
1997. Interest expense for the three and nine months ended September 30, 1997
was $131,000 and $136,000, when compared to $3,000 and $5,000 for the
-10-
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
comparable periods in 1996. The 1997 amounts include interest expense related to
the outstanding convertible debentures issued in July and August 1997.
The Company records transactions in several foreign currencies, which
resulted in currency fluctuation losses of $13,000 and $23,000 for the three and
nine months ended September 30, 1997 as compared to income of $11,000 for the
three months ended September 30, 1996 and a loss of $44,000 for the nine months
ended September 30, 1996.
The Company did not record an income tax provision for the three or
nine months ended September 30, 1997 due to its net loss of $3,562,000 and
$9,281,000, respectively. The Company believes it has sufficient net operating
loss carryforwards to offset taxable income, if any, for the year ended December
31, 1997. A provision for income tax was made in 1996 to cover the tax liability
under the alternative minimum tax regulations which cannot be offset by net
operating loss carryforwards.
The Company incurred a net loss of $3,562,000 for the quarter ended
September 30, 1997 when compared to the net loss of $562,000 for the quarter
ended September 30, 1996. For the nine month period ended September 30, 1997,
the Company had a net loss of $9,281,000 as compared with a net loss of $188,000
for the nine month period ended September 30, 1996. As previously discussed in
more detail, the following resulted in a higher loss for both the three and nine
month periods in 1997; lower mix of sales contracts at distributor pricing,
unfavorable capacity and manufacturing variances, and higher overall expenses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had cash and cash equivalents of
$4,151,000 and marketable securities of $14,817,000. In July and August 1997,
the Company received approximately $19,000,000 in net proceeds through the
issuance of convertible debentures due July 2002 and August 2002. In September
1997, $15,900,000 of these debentures were converted into the Company's Common
Stock. See Note 4 in the accompanying financial statements.
For the nine months ended September 30, 1997, the Company incurred a
loss of $9,281,000 which resulted in the use of approximately $6,900,000 to
support operations. Cash used in investing activities was approximately
$11,300,000 primarily related to the purchase of marketable securities of
$14,800,000 as a result of the proceeds received from the issuance of the
convertible debentures discussed previously, and maturities of marketable
securities of $5,500,000. In addition, the Company invested $1,900,000 in fixed
assets, primarily related to its placement contract activity. Cash provided by
financing activities was approximately $19,500,000, primarily related to the net
proceeds of $18,800,000 received through the issuance of convertible debentures.
-11-
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
In February 1997, the Company's PreMarket Approval application ("PMA")
was filed by the FDA. In anticipation of a possible FDA approval, the Company
had been increasing its overall operating expenses and overhead to be positioned
to further increase its production capacities. In order to be adequately
positioned to meet these demands, the Company secured financing in July 1997.
On July 28, 1997, an FDA Advisory Panel reviewed the data collected to
date on the Heart Laser System. The Advisory Panel recommended a non-approval at
that meeting with the requirement of additional data to complete the randomized
study. The Panel did not recommend a new study. The Heart Laser System remains
on the expedited review path and will continue to be used by its clinical
investigators. The Company is completing the analysis of the randomized study
requested by the FDA Advisory Panel and expects to make a submission to the FDA
in November 1997.
As a result of the recent FDA Advisory Panel decision, a revised time
frame for possible FDA approval has not been projected. Given this delay, the
Company will monitor its operating expenses closely and will minimize increases
to expenses and overhead during this period. With the $19,000,000 in net
proceeds received in July and August 1997, the Company believes that it has
sufficient resources to meet its working capital demands for at least the next
twelve months.
Unanticipated decreases in operating revenues, increases in expenses,
or a further delay in the expected FDA approval, may adversely impact the
Company's cash position. The Company may seek additional financing through the
issuance and sale of debt or equity securities, bank financing, joint ventures
or by other means. The availability of such financing and the reasonableness of
any related terms in comparison to market conditions cannot be assured.
The Company believes that operating losses are likely until after such
time as the Company receives its PMA from the FDA for the Heart Laser System.
Although the Heart Laser System has been granted "expedited review" status by
the FDA, the Company cannot project when, if at all, such approval will be
granted or that any approval will include desirable claims. Any failure or delay
in receiving any such approval would have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company must also convince health care professionals, third party payors and
the general public of the medical and economic benefits of the Heart Laser
System. No assurance can be given that the Company will be successful in
marketing the Heart Laser System or that the Company will be able to operate
profitably on a consistent basis.
This report contains forward-looking statements regarding anticipated
increases in revenues, marketing of products and proposed products and other
matters. These statements, in addition to statements made in conjunction with
the words "anticipate," "expect," "intend," "believe," "seek," "estimate" and
similar expressions are forward-looking statements that involve
-12-
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
a number of risks and uncertainties. The following is a list of factors, among
others, that would cause actual results to differ materially from the
forward-looking statements: approval by the U.S. Food and Drug Administration,
business conditions and growth in certain market segments and general economy,
an increase in competition, increased or continued market acceptance of the
Company's products and proposed products, and other risks and uncertainties
indicated from time to time in the Company's filings with the Securities and
Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
-13-
PLC SYSTEMS INC.
Part II Other Information
ITEM 1. LEGAL PROCEEDINGS.
See Note 5 to Notes to Consolidated Financial Statements filed with
this Form 10-Q.
ITEM 2. CHANGES IN SECURITIES.
See Note 4 to Notes to Consolidated Financial Statements filed with
this Form 10-Q.
ITEM 3. DEFAULTS BY THE COMPANY UPON ITS 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
--------
(I) The following exhibits are filed herewith:
Exhibit
No. Title
------- -----
10a Form of Key Employment Agreement of William C. Dow.
10b 1997 Executive Stock Option Plan.
11 Statement re Computation of Per Share
Earnings.
27 Financial Data Schedule.
b.) Reports on Form 8-K
-------------------
None
-14-
PLC SYSTEMS INC.
Part II Other Information
(Continued)
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.
Registrant
Date: November 14, 1997 By: /s/ Patricia L. Murphy
--------------------------- -------------------------
Patricia L. Murphy
(Chief Financial Officer)
-15-
----------
KEY EMPLOYEE AGREEMENT
----------
To: Mr. William C. Dow As of August 15, 1997
8 Brayton Avenue
East Greenwich, Rhode Island 02818
The undersigned, PLC Systems Inc., a British Columbia corporation,
which together with its wholly-owned subsidiaries, as well as its successors and
assigns (hereinafter collectively referred to as the "Company"), hereby agree
with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as President and Chief Executive Officer
of the Company and shall perform the duties customarily associated with such
capacity from time to time and at such place or places as the Company shall
designate are appropriate and necessary in connection with such employment;
provided, however, that you shall not be required to relocate your place of
employment beyond a 20 mile radius from Franklin, Massachusetts without your
prior written consent. You shall also be appointed, nominated, elected and serve
as a member of the Board of Directors of the Company as long as you serve as
President and Chief Executive Officer of the Company.
1.2 You will, to the best of your ability, devote your full
time and best efforts to the performance of your duties hereunder and the
business affairs of the Company. You agree to perform such executive duties as
may be reasonably assigned to you by or on authority of the Company's Board of
Directors from time to time.
1.3 You will duly, punctually and faithfully perform and
observe any and all reasonable rules and regulations which the Company may now
or shall hereafter establish governing the conduct of its business.
1.4 You will report directly to the Company's Board of
Directors.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period
of years set forth on Exhibit "A" annexed hereto commencing with the date
hereof. Thereafter, this Agreement shall be automatically renewed for successive
periods of one year, unless you or the Company
1
shall give the other party not less than three (3) months written notice of
non-renewal. Your employment with the Company may be terminated at any time as
provided in Section 2.2 . If the Company gives you notice of non-renewal, the
Company shall be obligated to pay to you as Severance Benefits an amount set
forth in Section 7 (prior to a "Change of Control" as defined herein) or Section
8 (following a "Change of Control") of Exhibit "A" hereto, as applicable, plus
payment in full of any amounts otherwise due you, less applicable taxes and
other required withholdings and any amounts you may owe to the Company.
2.2 The Company shall have the right, on written notice to
you, to terminate your employment:
(a) immediately at any time for "Cause" (as defined
herein subject to your right of cure and right to dispute as provided
in Section 2.3 herein)stating in such notice the reasons therefor; or
(b) at any time, upon not less than seven (7) days
written notice, without "Cause" provided the Company shall be obligated
to pay to you as Severance Benefits an amount equal to the sums set
forth in Sections 7 or 8 of Exhibit "A" hereto, as applicable.
If the Company shall terminate your employment under this
Section 2, then the Company shall pay to you, in addition to any sums due to you
under Section 2.2(b), any sums then due to you through the effective date of
your termination, less (i) applicable taxes and other required withholdings, and
(ii) any amounts you may owe to the Company, unless there is a written agreement
to the contrary. Payments under Section 2.2 (b) shall not be due or payable if
you are terminated at any time for "Cause" or if you voluntarily resign from
your employment.
2.3 For purposes of Section 2.2 (except as provided in Section
8(c) of Exhibit "A"), the term "Cause" shall mean (a) after 30 days' written
notice, willful and continued failure to substantially perform duties assigned
consistent with this agreement (other than any such failures resulting from
physical or mental illness or death); (b) willful refusal to perform or
discharge the duties or responsibilities assigned by the Board of Directors of
PLC Systems Inc. provided the same are not illegal, unethical or inconsistent
with the position of President and Chief Executive Officer of a corporation and
the failure to agree to correct such refusal and perform such duties or
responsibilities within two weeks (14 calendar days) after written notice of
such failure and subsequent failure to perform; (c) conviction of a felony
involving moral turpitude; (d) willful or prolonged absence from work not
excused by disability; and (e) falseness of any warranty or representation by
you herein or the breach of your obligations under this Agreement or your duties
as an employee of the Company to the material detriment of the Company. During
the pendency of any such dispute following your termination pursuant to
subsection 2.3(a) or (b), the Company will pay you your full compensation plus
any benefits provided in Section 4 of Exhibit "A" in effect just prior to the
effective date of termination and until the dispute is resolved, but in any
event, such payment shall not continue for more than
2
eighteen (18) months and, if a court determines that your employment was
terminated without cause, such payments shall be credited to any severance
payments due you under Exhibit A. However, if such court issues a final and
non-appealable order that the Company had Cause to terminate you then you must
return all compensation and the value of all benefits paid and/or provided to
you after the effective date of termination.
2.4 In the event of the Involuntary Termination of your
employment with the Company at any time, the Company hereby irrevocably agrees
to provide you with Severance Benefits as defined in Section 7 of Exhibit "A"
hereto or payments in the event of a "Change in Control" as defined in Section 8
of Exhibit "A", as applicable. In this regard, the phrase "Involuntary
Termination" shall mean any termination of your employment by the Company other
than for "cause," as defined in Section 2.3, any notice by the Company not to
renew this Agreement pursuant to Section 2.1, or any termination of your
employment by you due to any of the following circumstances: (a) a reduction in
your Base Salary or Company-paid benefits, (b) a reduction in your eligibility
for any Company bonus or other benefit program, (c) a material or substantial
change in your title, position, authority or duties, (d) a change of your
principal place of employment from Franklin, Massachusetts to another location
beyond 20 miles of Franklin, Massachusetts, (e) failure to elect you as a
Director of the Company, (f) the breach of any material provision of this
Agreement by the Company which is not substantially cured within thirty (30)
days following written notice by you to the Chairman of the Board, or (g)
failure to establish a reasonable incentive plan.
3. Compensation. You shall receive the compensation and benefits set
forth on Exhibit A hereto ("Compensation") for all services to be rendered by
you hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary
Information and Inventions Agreement").
4. Other Activities During Employment.
4.1 Except for any outside directorships currently held by you
as listed on Exhibit B hereto, and except with the prior written consent of the
Company's Board of Directors, you will not during the term of this Agreement
undertake or engage in any other employment, occupation, directorship or
business enterprise other than one in which you are an inactive investor, which
consent shall not be unreasonably withheld or delayed .
4.2 You hereby agree that, except as disclosed on Exhibit B
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (a) individually, (b) as an officer, (c) as a director, (d) as an
employee, (e) as a consultant, (f) as an advisor, (g) as an agent (whether a
salesperson or otherwise), (h) as a broker, or (i) as a partner, coventurer,
stockholder or other proprietor owning directly or indirectly more than two
percent (2%) interest in any firm, corporation, partnership, trust, association,
or other organization which is engaged in the development of heart laser systems
or any other line of business engaged in or under
3
demonstrable development by the Company (such firm, corporation, partnership,
trust, association, or other organization being hereinafter referred to as a
"Prohibited Enterprise"). Except as may be shown on Exhibit B hereto, you hereby
represent that you are not engaged in any of the foregoing capacities (a)
through (i) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior or
current employment, consulting agreement or relationship, whether oral or
written. You represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any other person or
entity might be usable in connection with the Company's business, you will not
intentionally disclose to the Company or use on behalf of the Company any
confidential information belonging to any of your former employers; but during
your employment by the Company you will use in the performance of your duties
all information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or otherwise legally in the public domain.
6. Proprietary Information and Inventions. You agree to execute,
deliver and be bound by the provisions of the Proprietary Information and
Inventions Agreement.
7. Post-Employment Activities.
7.1 So long as the Company is not in breach of its obligations
to you hereunder, for a period of two (2) years after the termination or
expiration, for any reason, of your employment with the Company hereunder,
absent the Company's prior written approval, you will not directly or indirectly
engage in activities similar or reasonably related to those in which you shall
have engaged hereunder during the two years immediately preceding termination or
expiration for, nor render services similar or reasonably related to those which
you shall have rendered hereunder during such two years to, any person or entity
whether now existing or hereafter established which directly competes with (or
proposes or plans to directly compete with) the Company ("Direct Competitor") in
any line of business engaged in or under development by the Company. Nor shall
you entice, induce or encourage any of the Company's other employees to leave
the Company's employ or engage in any activity which, were it done by you, would
violate any provision of the Proprietary Information and Inventions Agreement or
this Section 7. As used in this Section 7.1, the term "any line of business
engaged in or under development by the Company" shall be applied as at the date
of termination of your employment, or, if later, as at the date of termination
of any post-employment consultation.
4
7.2 So long as the Company is not in breach of its obligations
to you hereunder, for a period of two (2) years after the termination of your
employment with the Company, the provisions of Section 4.2 shall be applicable
to you and you shall comply therewith. As applied to such two (2) year
post-employment period, the term "any other line of business engaged in or under
development by the Company," as used in Section 4.2, shall be applied as at the
date of termination of your employment with the Company or, if later, as at the
date of termination of any post-employment consultation with the Company.
7.3 No provision of this Agreement shall be construed to
preclude you from performing the same services which the Company hereby retains
you to perform for any person or entity which is not a Direct Competitor of the
Company upon the expiration or termination of your employment so long as you do
not thereby violate any term of the Proprietary Information and Inventions
Agreement.
8. Remedies. Your obligations under the Proprietary Information and
Inventions Agreement and the provisions of Sections 6, 7, 8 and 9 of this
Agreement (as modified by Section 10, if applicable) shall survive the
expiration or termination of your employment (whether through your resignation
or otherwise) with the Company. You acknowledge that a remedy at law for any
breach or threatened breach by you of the provisions of the Proprietary
Information and Inventions Agreement or Section 7 would be inadequate and you
therefore agree that the Company shall be entitled to such injunctive relief in
case of any such breach or threatened breach.
The Company's obligations and those of any successors or assignees of
the Company under this Agreement, including but not limited to the severance
provisions and other compensation and benefits due to you pursuant to Exhibit
"A" hereto, will be a condition of and are to remain those of any successor or
assignee. The Company acknowledges that a remedy at law for any breach or
threatened breach by the Company, its directors or agents of any of the
provisions of Exhibit "A" hereto or of this Agreement generally, or of any
extension of this Agreement, would be inadequate and the Company therefore
agrees that you shall be entitled to injunctive relief in case of any such
breach or threatened breach. In the event of any dispute pursuant to this
Agreement, the prevailing party in any litigation or arbitration shall be
entitled to prompt reimbursement of reasonable legal fees and related expenses
incurred in connection with such dispute.
9. Assignment. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by reorganization, merger or consolidation and any
assignee of all or substantially all of its business and properties, but, except
as to any such successor or assignee of the Company, neither this Agreement nor
any rights or benefits hereunder may be assigned by the Company or by you,
except by operation of law.
10. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or
5
more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it as determined by a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.
11. Notices. Any notice which the Company is required to or may desire
to give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at your address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any notice
under this Section 11 shall be deemed to be the date of delivery thereof.
12. Waivers. If either party should waive any breach of any provision
of this Agreement, such party shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
13. Complete Agreement; Amendments. The foregoing including Exhibits A,
B, C and D hereto, is the entire agreement of the parties with respect to the
subject matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. Any amendment to this Agreement or waiver by the
Company of any right hereunder shall be effective only if evidenced by a written
instrument executed by the parties hereto, upon authorization of the Company's
Board of Directors.
14. Headings. The headings of the Sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning of this Agreement.
15. Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one agreement.
16. Governing Law. This Agreement shall be governed by and construed
under Massachusetts law. The exclusive venue for any dispute hereunder shall be
the Superior Court of the Trial Court of the Commonwealth of Massachusetts in
Norfolk County.
If you are in agreement with the foregoing, please sign your name below
and also at the
6
bottom of the Proprietary Information and Inventions Agreement, whereupon this
Agreement shall become binding in accordance with its terms. Please then return
this Agreement to the Company. (You may retain for your records the accompanying
counterpart of this Agreement enclosed herewith).
Very truly yours,
PLC SYSTEMS INC.
By:_________________________
Dr. Robert I. Rudko, Chairman and
Acting President, duly authorized
Accepted and Agreed:
_________________________
Mr. William C. Dow
7
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF MR. WILLIAM C. DOW
l. Term. The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for a period from the date of this Agreement (the
"Commencement Date") through August 31, 2000.
2. Compensation.
(a) Base Salary. Your Base Salary shall be $300,000.00 per
annum through December 31, 1998, payable in accordance with the
Company's payroll policies at the rate of $25,000.00 per month. For
future years, any increases in Base Salary shall be as established by
the Board of Directors. The Base Salary may not be decreased during
your employment without your approval.
(b) Incentive Plan. The parties agree to establish appropriate
incentive compensation plans for each of Fiscal Years 1998 and future
fiscal years based on a range of incentive pay ranging from 70% to 120%
of 50% of your Base Salary as described in (a) above. Such plan shall
be based on the Company attaining certain minimum laser placements,
revenue and operating results and other strategic goals equal to at
least seventy percent (70%) of your performance plan as approved by the
Board of Directors. The parties agree that the incentive compensation
for fiscal 1997 will be a guaranteed $50,000.00 payable January 2,
1998.
(c) Stock Option Grant. You shall be entitled to receive stock
option grants, in the form of the grant letters attached hereto as
Exhibits "D-1" and "D-2", to receive a combination of incentive and
non-qualified stock options to purchase up to an aggregate of 660,000
shares of the Corporation's Common Stock at an exercise price equal to
the fair market value of the Company's Common Stock on your
Commencement Date (the fair market value being calculated as described
in the Company's Stock Option Plan).
3. Vacation. You shall be entitled to all legal and religious holidays,
and four weeks paid vacation per annum. Up to 50% of any unused
vacation may be accrued or cashed in based on your then current Base
Salary.
4. Insurance and Benefits. You shall be eligible to participate in any
health, dental, disability, accident and disability insurance or other
group benefit plan, as well as any other plan, program or policy of the
Company intended to benefit employees and, in particular, plans
designed to benefit principal Company executives (including but not
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limited to stock incentive plans (other than stock option plans), stock
awards, etc.) which may be established by the Company or which the
Company is required to maintain by law.
5. Benefit Allowance. The Company shall provide you a benefit allowance of
15% of your Base Salary, payable in equal monthly installments.
6. Retirement Plan. You will be eligible to participate in the Company's
401(k) plan. If the Company elects to make contributions to the
Company's 401(k) plan or any Company retirement plans, you will
participate in such contributions in accordance with all laws and
regulations.
7. Severance Benefits.
(a) When provided for in this Agreement, you shall be entitled
to "Severance Benefits". When used in this Agreement, the term
Severance Benefits shall mean a total amount equal to (i) 150% of your
then current annual Base Salary, plus (ii) 150% of your Incentive
Compensation earned for the Company's most recent fiscal year plus
(iii) all other benefits listed in Section 5 of this Exhibit "A". This
total amount shall be paid to you as follows: 33 1/3% of such Severance
Benefits shall be paid to you within fourteen (14) days after your
effective date of termination and the remaining 66 2/3% shall be paid
to you in eighteen (18) equal monthly installments commencing within
forty (40) days after the date of your termination of active employment
with the Company. If the Company shall have failed to establish an
Incentive Compensation plan for you then the amounts due hereunder
shall increase from 150% of your then current annual base salary to
225%.
(b) In addition, the term "Severance Benefits" shall include
the continuation for you and your family, during the Severance Period,
as defined below, of all of the other benefits which are provided or
available to you on the last day of your actual service with the
Company, including your continued accrual and the vesting under the
terms of any pension or 401(k) plan then sponsored by the Company to
the maximum extent permitted by law. For purposes of this Agreement,
the term "Severance Period" means the period of eighteen (18) months
beginning on the last day of your active service with the Company.
(c) The payments referred to above will be in addition to, and
not in substitution for, any accrued and unpaid salary, vacation,
pension, retirement or other benefits, unreimbursed expenses or other
payments to which you may be otherwise entitled.
(d) In the event of your death while you are employed by the
Company, your then current Base Salary shall continue to be paid to
your legal representative for a period
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of 120 days following the date of your death; and for a period of three
(3) years following your death, the Company shall continue to provide
to your spouse the health insurance coverage described above. If you
die during the Severance Period, all cash amounts which would have been
payable to you under this Exhibit "A", unless otherwise provided for
herein, shall be paid immediately in accordance with the terms of this
Agreement to your estate.
(e) You shall not be required to mitigate the amount of any
payment the Company becomes obligated to make to you in connection with
this Agreement, by seeking other employment or otherwise.
8. Change in Control.
(a) For purposes of this Agreement, "Change in Control" means
and shall be deemed to occur if any of the following occurs: (i) the
acquisition, after September 1, 1997, by an individual, entity or group
[within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 as amended (the "Exchange Act")] of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 35% or more of either (A) the outstanding shares of
common stock, no par value pr share, of the Company (the "Common
Stock"), or (B) the combined voting power of the voting securities of
the Company entitled to vote generally in the election of directors
(the "Voting Securities"); or (ii) Individuals who, on September 1,
1997, constituted the Board of Directors of the Company (the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Company; provided, however, that any
individual becoming a director subsequent to September 1, 1997 whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then serving
and comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents; or (iii) Approval by the Board of Directors or the
shareholders of the Company of a (A) tender offer to acquire any of the
Common Stock or voting securities, (B) reorganization, (C) merger or
(D) consolidation, other than a reorganization, merger or consolidation
with respect to which all or substantially all of the individuals and
entities who were the beneficial owners, immediately prior to such
reorganization, merger or consolidation, of the Common Stock and voting
securities beneficially own, directly or indirectly, immediately after
such reorganization, merger or consolidation, more than 80% of the then
outstanding common stock and voting securities (entitled to vote
generally in the election of directors) of the Company resulting from
such reorganization, merger or consolidation in substantially the same
proportions as their respective ownership, immediately prior to such
reorganization, merger or consolidation, of the Common Stock and the
voting securities; or (iv) Approval
A-3
by the Board of Directors or the shareholders of the Company of (A) a
complete or substantial liquidation or dissolution of the Company, or
(B) the sale or other disposition (including by license) of all or
substantially all of the assets of the Company, excluding a
reorganization of the Corporation under the corporate laws of a state
or province other than British Columbia.
(b) In the event of a Change in Control during the term of
this Agreement or any extension hereof and provided you remain employed
by the Company for a period of 12 months thereafter (or if you should
die or become permanently disabled during such 12 month period), you
(or your estate) will receive, at the one-year anniversary of the
Change of Control, a supplemental amount in a lump sum equal to 100% of
your current Base Salary and Incentive Compensation paid during the
preceding fiscal year, and the fair market value of all other benefits
then payable, irrespective of whether you thereafter actually terminate
employment with the Company.
(c) In the event of your actual termination of employment
contemporaneous with or following a Change in Control, except (x)
because of your death, (y) by the Company for Cause or Disability (as
each is hereinafter defined) or (z) by you other than for Good Reason
(as hereinafter defined): (i) you shall be entitled to receive, in lieu
of the sums described in this Section 7, an amount equal to 299% of
Severance Benefits due determined as if payable under Section 7 above,
to be paid in accordance with the terms of this Agreement; and (ii) the
following additional provisions shall apply (which provisions shall
supersede any other provisions of the Agreement, including but not
limited to Section 2 of the Agreement, to the extent such provisions
are inconsistent with the following provisions):
(1) Disability. For purposes of this Section 8(c),
termination by the Company of your employment based on
"Disability" shall mean termination because of your absence
from your duties with the Company on a full time basis for
one hundred eighty (180) consecutive days as a result of your
incapacity due to physical or mental illness, unless within
thirty (30) days after Notice of Termination (as hereinafter
defined) is given to you following such absence, you shall
have returned to the full time performance of your duties.
(2) Cause. For purposes of this Section 8(c),
termination by the Company of your employment for "Cause"
shall mean termination for Cause as defined in Section 2.3 of
this Agreement.
(3) Good Reason. Termination by you of your
employment for "Good Reason" shall mean termination based on:
(A) a determination by you, in your reasonable
judgment, that there has been a material adverse
change in your status or position(s) as President
A-4
and Chief Executive Officer of the Company as in
effect immediately prior to the Change in Control,
including, without limitation, a material adverse
change in your status or position as a result of a
diminution in your duties or responsibilities (other
than, if applicable, any such change directly
attributable to the fact that the Company is no
longer publicly owned) or the assignment to you of
any duties or responsibilities which are inconsistent
with such status or position(s), or any removal of
you from, or any failure to reappoint or reelect you
to, such position(s) (except in connection with the
termination of your employment for Cause or
Disability or as a result of your death or by you
other than for Good Reason);
(B) a reduction by the Company in your Base Salary as
in effect immediately prior to the Change in Control;
(C) the failure by the Company to continue in effect
any benefits as described above or other Plan (as
hereinafter defined) in which you are participating
at the time of the Change in Control of the Company
(or Plans providing you with at least substantially
similar benefits) other than as a result of the
normal expiration of any such Plan in accordance with
its terms as in effect at the time of the Change in
Control, or the taking of any action, or the failure
to act, by the Company which would adversely affect
your continued participation in any of such Plans on
at least as favorable a basis to you as is the case
on the date of the Change in Control or which would
materially reduce your benefits in the future under
any of such Plans or deprive you of any material
benefit enjoyed by you at the time of the Change in
Control;
(D) the failure by the Company to provide and credit
you with the number of paid vacation days to which
you are then entitled in accordance with the
Company's normal vacation policy as in effect
immediately prior to the Change in Control;
(E) the Company's requiring you to be based at any
office that is greater than twenty(20) miles from
where your office is located immediately prior to the
Change in Control except for required travel on the
Company's business to an extent substantially
consistent with the business travel obligations which
you undertook on behalf of the Company prior to the
Change in Control;
(F) the failure by the Company to obtain from any
Successor (as hereinafter defined) the assent to this
Agreement contemplated by Section 8(c)(7) hereof;
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(G) any purported termination by the Company of your
employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of Section
(8)(c)(4) below (and, if applicable, Section 8(c)(2)
above); and for purposes of this Agreement, no such
purported termination shall be effective; or
(H) the failure by the Company to fulfill any
material obligation contained in this Agreement and
such breach continues for a period of thirty (30)
days following written notice to the Chairman of the
Board regarding such breach.
For purposes of this Agreement, "Plan" shall
mean any compensation plan or any employee benefit plan such
as a thrift, pension, profit sharing, medical, disability,
accident, life insurance plan or a relocation plan or policy
or any other plan, program or policy of the Company intended
to benefit employees and, in particular, such Plans designed
to benefit the President and CEO or Company executives
(4) Notice of Termination. Any purported
termination by the Company or by you following a Change in
Control shall be communicated by at least seven days' written
notice to the other party hereto which indicates the specific
termination provision in this Agreement relied upon (the
"Notice of Termination").
(5) Date of Termination. "Date of
Termination" following a Change in Control shall mean (A) if
your employment is to be terminated for Disability, thirty
(30) days after Notice of Termination is given (provided that
you shall not have returned to the performance of your duties
on a full-time basis during such thirty (30) day period), (B)
if your employment is to be terminated by the Company for any
reason other than death or Disability or by you pursuant to
Sections 8(c)(3)(F) or 8(c)(7) hereof or for any other Good
Reason, the date specified in the Notice of Termination, or
(C) if your employment is terminated on account of your
death, the day after your death. In the case of termination
of your employment by the Company for Cause pursuant to
Subsection 8(c)(2) hereof, if you have not previously
expressly agreed in writing to the termination, then within
thirty (30) days after receipt by you of the Notice of
Termination with respect thereto, you may notify the Company
that a dispute exists concerning the Termination, in which
event the Date of Termination shall be the date set either by
mutual written agreement of the parties or by such court
having the matter before it. During the pendency of any such
dispute, the Company will continue to pay you your full
compensation and benefits as provided in Section 4 of this
Exhibit "A" in effect just prior to the time the Notice of
Termination is given and
A-6
until the dispute is resolved. However, if such court issues
a final and non-appealable order finding that the Company had
Cause to terminate you, then you must return all compensation
paid to you after the Date of Termination specified in the
Notice of Termination previously received by you.
(6) Compensation Upon Termination or During
Disability; Other Agreements.
(A) During any period following a Change in Control
of the Company that you fail to perform your duties
as a result of incapacity due to physical or mental
illness, you shall continue to receive your Base
Salary at the rate then in effect and any benefits or
awards under any Plan shall continue to accrue during
such period, to the extent not inconsistent with such
Plans, until and unless your employment is terminated
pursuant to and in accordance with this Section 8(c).
Thereafter, your benefits shall be determined in
accordance with the Plans then in effect.
(B) Subject to Section 8 (c) (5), hereof, if your
employment is terminated for Cause following a Change
in Control of the Company, the Company shall pay to
you your Base Salary through the Date of Termination
at the rate in effect just prior to the time a Notice
of Termination is given plus any benefits or awards
which pursuant to the terms of any Plans have been
earned or become payable, but which have not yet been
paid to you. Thereupon the Company shall have no
further obligations to you under this Agreement.
(7) Successors, Binding Agreement.
(A) The Company will seek, by written request at
least five (5) business days prior to the time a
Person becomes a Successor (as hereinafter defined),
to have such Person, by agreement in form and
substance satisfactory to you, assent to the
fulfillment of the Company's obligations under this
Agreement. Failure of such Person to furnish such
assent by the later of (i) three (3) business days
prior to the time such Person becomes a Successor or
(ii) two (2) business days after such Person receives
a written request to so assent shall constitute Good
Reason for termination by you of your employment if a
Change in Control of the Company occurs or has
occurred. For purposes of this Agreement, "Successor"
shall mean any person that succeeds to, or has the
practical ability to control (either immediately or
with the passage of time), the Company's business
directly, by merger or consolidation, or indirectly,
by purchase of the Company's securities eligible to
vote for the election of directors, or otherwise.
A-7
(B) This Agreement shall inure to the benefit of and
be enforceable by your personal legal
representatives, executors, administrators,
successors, heirs, distributees, devisees and
legatees. If you should die while any amount would
still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or
other designee or, if no such designee exists, to
your estate.
(C) For purposes of this Section 8, the "Company"
shall include any subsidiaries of the Company and any
corporation or other entity which is the surviving or
continuing entity in respect of any merger,
consolidation or form of business combination in
which the Company ceases to exist; provided, however,
for purposes of determining whether a Change in
Control has occurred herein, the term "Company" shall
refer to PLC Systems Inc. or its Successor(s).
(8) Fees and Expenses; Mitigation.
(A) The Company shall reimburse you, on a current
basis, for all reasonable legal fees and related
expenses incurred by you in connection with the
Agreement following a Change in Control of the
Company, including without limitation, (i) all such
fees and expenses, if any, incurred in contesting or
disputing any termination of your employment or
defending yourself in any claim brought by the
Company to the effect that your position was
frivolous or advanced in bad faith, or (ii) your
seeking to obtain or enforce any right or benefit
provided by this Agreement, in each case, regardless
of whether or not your claim is upheld by a court of
competent jurisdiction; provided, however, you shall
be required to repay any such amounts to the Company
to the extent that a court issues a final and
non-appealable order setting forth the determination
that the position taken by you was frivolous or
advanced by you in bad faith.
(B) You shall not be required to mitigate the amount
of any payment the Company becomes obligated to make
to you in connection with this Agreement, by seeking
other employment or otherwise.
(C) All payments to be made to you under this
Agreement will be subject to required withholding of
federal, state and local income and employment taxes.
(D) Notwithstanding any other provision of this
Agreement, in the event that any payment of benefit
received or to be received by you as a
A-8
result of or in connection with a Change in Control,
whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the
Company (all such payment and benefits being
hereinafter called the "Total Payments") would
subject you to the excise tax (the "Excise Tax")
imposed under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), then, to the
extent necessary to eliminate any such imposition of
the Excise Tax (after taking into account any
reduction in the Total Payments in accordance with
the provisions of any other plan, arrangement or
agreement, if any), (a) any non-cash severance
payments otherwise payable to you shall first be
reduced (if necessary, to zero), and (b) any cash
severance payment otherwise payable to you shall next
be reduced. For purposes of the immediately preceding
sentence, (i) no portion of the Total Payments the
receipt or enjoyment of which you shall have
effectively waived in writing shall be taken into
account, (ii) no portion of the Total Payment shall
be taken into account which in the opinion of
nationally-recognized tax counsel or certified public
accountants (in each case as selected by you) does
not constitute a "parachute payment" within the
meaning of Section 280G of the Code, including,
without limitation, by reason of Section 280G(b)(2)
or (b)(4)(A) of the Code, (iii) any payments to you
shall be reduced only to the extent necessary so that
the Total Payments [other than those referred to in
clauses (i) and (ii)] in their entirety constitute
reasonable compensation for services actually
rendered within the meaning of section 280G(4)(B) of
the Code or are otherwise not subject to disallowance
as deductions, in the opinion of the tax counsel or
the accountants referred to in clause (ii); and (iv)
the value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments
shall be determined by such accountants in accordance
with the requirements of Section 280G(d)(3) and (4)
of the Code (and such determination shall be reviewed
by such tax counsel).
[THIS SPACE INTENTIONALLY LEFT BLANK]
A-9
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF
MR. WILLIAM DOW
Director - AmeriClean Systems Inc.
B-1
EXHIBIT C
----------
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
----------
To: PLC Systems Inc.
10 Forge Park
Franklin, Massachusetts 02038
As of September 1, 1997
The undersigned, in consideration of and as a condition of my
employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentiality. I agree to keep confidential, except as the Company
may otherwise consent in writing, and, except for the Company's benefit, not to
disclose or make any use of at any time either during or subsequent to my
employment, any Inventions (as hereinafter defined), trade secrets, confidential
information, knowledge, data or other information of the Company relating to
products, processes, know-how, designs, formulas, test data, customer lists,
business plans, marketing plans and strategies, pricing strategies, or other
subject matter pertaining to any business of the Company or any of its
affiliates, which I may produce, obtain, or otherwise acquire during the course
of my employment, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets, confidential information,
knowledge, data or other information, or any documentation relating thereto, to
be delivered to or used by any third parties without specific direction or
consent of a duly authorized representative of the Company, except as may be
required by law and with the exception of information rightfully within the
public domain.
2. Conflicting Employment; Return of Confidential Material. In
accordance with the provisions of the Key Employment Agreement between myself
and the Company of same date, I agree that during my employment with the Company
I will not engage in any other employment, occupation, consulting or other
activity relating to the business in which the Company is now or may hereafter
become engaged, or which would otherwise conflict with my obligations to the
Company. In the event my employment with the Company terminates for any reason
whatsoever, I agree to promptly surrender and deliver to the Company all
records, materials, equipment, drawings, documents and data of which I may
obtain or produce during the course of my employment, and I will not take with
me any description containing or pertaining to any confidential information,
knowledge or data of the Company which I may produce or obtain during the course
of my employment.
C-1
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the
owner of all Inventions. In order to protect the Company's rights to such
Inventions, by executing this Agreement I hereby irrevocably assign to the
Company all my right, title and interest in and to all Inventions to the
Company.
3.2 For purposes of this Agreement, "Inventions" shall mean
all discoveries, processes, designs, technologies, devices, or improvements in
any of the foregoing or other ideas, whether or not patentable and whether or
not reduced to practice, made or conceived by me (whether solely or jointly with
others) during the period of my employment with the Company which relate in any
manner to the actual or demonstrably anticipated business, work, or research and
development of the Company, or result from or are suggested by any task assigned
to me or any work performed by me for or on behalf of the Company.
3.3 Any discovery, process, design, technology, device, or
improvement in any of the foregoing or other ideas, whether or not patentable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) which I develop entirely on my own time not using any of
the Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such Personal
Invention (a) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (b) does not result,
directly or indirectly, from any work performed by me for the Company.
4. Disclosure of Inventions. I agree that in connection with any
Invention, I will promptly disclose such Invention to my immediate superior at
the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
5. Patents and Copyrights; Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee
(at its expense) during and at any time subsequent to my employment in every
reasonable way to obtain for its own benefit patents and copyrights for
Inventions in any and all countries. Such patents and copyrights shall be and
remain the sole and exclusive property of the Company or its nominee. I agree to
perform such lawful acts as the Company deems to be necessary to allow it to
exercise all right, title and interest in and to such patents and copyrights.
5.2 In connection with this Agreement, I agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all documents, including assignments of title, patent or copyright
applications, assignments of such applications, assignments of patents or
copyrights upon issuance, as the Company may determine necessary or desirable to
protect the Company's or its nominee's interest in Inventions, and/or to use in
C-2
obtaining patents or copyrights in any and all countries and to vest title
thereto in the Company or its nominee to any of the foregoing.
6. Maintenance of Records. I agree to keep and maintain adequate and
current written records of all Inventions made by me (in the form of notes,
sketches, drawings and other records as may be specified by the Company), which
records shall be available to and remain the sole property of the Company at all
times.
7. Prior Inventions. It is understood that all Personal Inventions, if
any, whether patented or unpatented, which I made prior to my employment by the
Company, are excluded from this Agreement. To preclude any possible uncertainty,
I have set forth on Schedule A attached hereto a complete list of all of my
prior Personal Inventions, including numbers of all patents and patent
applications and a brief description of all unpatented Personal Inventions which
are not the property of a previous employer. I represent and covenant that the
list is complete and that, if no items are on the list, I have no such prior
Personal Inventions. I agree to notify the Company in writing before I make any
disclosure or perform any work on behalf of the Company which appears to
threaten or conflict with proprietary rights I claim in any Personal Invention.
In the event of my failure to give such notice, I agree that I will make no
claim against the Company with respect to any such Personal Invention.
8. Other Obligations. I acknowledge that the Company from time to time
may have agreements with other persons or with the U.S. Government or agencies
thereof, which impose obligations or restrictions on the Company regarding
Inventions made during the course of work thereunder or regarding the
confidential nature of such work. I agree to be bound by all such obligations
and restrictions and to take all action necessary to discharge the Company's
obligations.
9. Trade Secrets of Others. I represent that my performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep confidential proprietary information, knowledge or
data acquired by me in confidence or in trust prior to my employment with the
Company, and I will not disclose to the Company, or induce the Company to use,
any confidential or proprietary information or material belonging to any
previous employer or others. I agree not to enter into any agreement either
written or oral in conflict herewith.
10. Modification. I agree that any subsequent change or changes in my
employment duties, salary or compensation or, if applicable, in any Employment
Agreement between the Company and me, shall not affect the validity or scope of
this Agreement.
11. Successors and Assigns. This Agreement shall be binding upon my
heirs, executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
C-3
12. Interpretation. IT IS THE INTENT OF THE PARTIES THAT in case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. MOREOVER, IT IS THE
INTENT OF THE PARTIES THAT in case any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
construed by limiting and reducing it in accordance with a judgment of a court
of competent jurisdiction, so as to be enforceable to the extent compatible with
applicable law.
13. Waivers. If either party should waive any breach of any provision
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. Complete Agreement, Amendments. I acknowledge receipt of this
Agreement, and agree that with respect to the subject matter thereof it is my
entire agreement with the Company, superseding any previous oral or written
communications, representations, understandings, or agreements with the Company
or any officer or representative thereof. Any amendment to this Agreement or
waiver by either party of any right hereunder shall be effective only if
evidenced by a written instrument executed by the parties hereto, and, in the
case of the Company, upon written authorization of the Company's Board of
Directors.
15. Headings and Counterparts; Governing Law. The headings of the
sections hereof are inserted for convenience only and shall not be deemed to
constitute a part hereof nor to affect the meaning thereof. This Agreement may
be signed in two counterparts, each of which shall be deemed an original and
both of which shall together constitute one agreement. This Agreement shall be
governed and construed under Massachusetts law.
17 Employment Status. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company to terminate the employment
of the Employee.
EMPLOYEE
_____________________________
William C. Dow
Accepted and Agreed:
PLC SYSTEMS INC.
By:______________________________________________________
Dr. Robert I. Rudko, Chairman and Acting President
C-4
SCHEDULE A
LIST OF PRIOR INVENTIONS
Identifying Number of
Title Date Brief Description
- ----- ---- -----------------
NONE
C-5
PLC SYSTEMS INC.
10 Forge Park
Franklin, Massachusetts 02038
EXHIBIT D-1
August 15, 1997
Mr. William C. Dow
8 Brayton Avenue
East Greenwich, Rhode Island 02818
Dear Bill:
I am pleased to advise you that PLC SYSTEMS INC. (the "Company"),
pursuant to its 1995 Stock Option Plan (the "1995 Plan"), has awarded you an
incentive stock option to purchase up to 15,534 shares of the Common Stock, no
par value per share, of the Company at a price of $12.875 per share, for a total
exercise price of $200,000.00. The Company is making this offer to "share the
business" with valued employees such as yourself. We hope that by owning a piece
of the Company you will continue your efforts at helping the Company grow and
succeed.
The following terms and conditions are applicable with respect to this
option, and your signature below shall constitute your acknowledgment and
acceptance of same:
(a) This option shall not be transferrable under any circumstances
except by operation of law. During your lifetime, this option
is only exercisable by you, and after your death, is only
exercisable by your estate.
(b) The price at which this option may be exercised shall be
$12.875 per share, for a total exercise price of $200,000.00.
(c) This option is exercisable prior to August 15, 2007 as
follows: 7,767 shares shall vest immediately and 7,767 shares
shall vest on January 1, 1998, subject to the following terms:
(1) In the event of termination of your employment with
the Company (or a parent or subsidiary of the
Company) for any reason other than death or
disability as defined in Internal Revenue Code
Section 22 (e)(3), as amended (the "Code"), all
unexercised options shall terminate ninety (90) days
following the effective date of your termination.
C-6
(2) In the event of termination of your employment as a
result of your death, the outstanding options
exercisable by you at the date of your death may be
exercised by your estate until one (1) year from the
date of your death, but in no event no later than
August 15, 2007.
(3) In the event of termination of your employment as a
result of your disability, as above defined, or in
the event of a disability that lasts for more than
ninety (90) days, all outstanding options exercisable
by you at the date of such termination shall
terminate one (1) year from the date your employment
terminates, but in any event no later than August 15,
2007.
(d) Subject to the foregoing, this option may be exercised in
whole or part from time to time, provided, however, that an
option may not be exercised as to less than 100 shares at any
one time unless it is being exercised in full and the balance
of the shares subject to option is less than 100.
(e) The shares of Common Stock underlying this option and the
exercise price therefore shall be appropriately adjusted from
time to time for stock splits, reverse splits, stock dividends
and reclassifications of shares.
(f) In the event of a sale or acquisition of substantially all of
the stock or assets of the Company, the Company shall give at
least thirty (30) days' notice of such an event to you and you
may exercise up to 100% of this option. If you do not exercise
the option within thirty (30) days of such notice, all
unexercised portions of this option shall terminate and be of
no further force or effect.
Exercising options may not be a prudent business decision for some
employees. Therefore, we urge you to review this opportunity carefully and make
a decision to exercise options only if your personal financial situation makes
this a wise choice.
When you wish to exercise this stock option, please refer to the
provisions of this letter and then correspond in writing with the Secretary of
the Company. Further, please indicate your acknowledgment and acceptance of this
option by signing the enclosed copy of this letter and returning it to the
undersigned.
Very truly yours,
PLC SYSTEMS INC.
By:_____________________________
Dr. Robert I. Rudko, Chairman
and Acting President
C-7
ACKNOWLEDGMENT AND ACCEPTANCE:
_______________________________
William C. Dow
C-8
PLC SYSTEMS INC.
10 Forge Park
Franklin, Massachusetts 02038
EXHIBIT D-2
August 15, 1997
Mr. William C. Dow
8 Brayton Avenue
East Greenwich, Rhode Island 02818
Dear Bill:
I am pleased to advise you that PLC SYSTEMS INC. (the "Company"),
pursuant to its 1997 Executive Stock Option Plan (the "1997 Plan"), has awarded
you a non-qualified stock option to purchase up to 644,466 shares of the Common
Stock, no par value per share, of the Company at a price of $12.875 per share,
for a total exercise price of $8,297,499.75. The Company is making this offer to
"share the business" with valued employees such as yourself. We hope that by
owning a piece of the Company you will continue your efforts at helping the
Company grow and succeed.
The following terms and conditions are applicable with respect to this
option, and your signature below shall constitute your acknowledgment and
acceptance of same:
(a) This option shall not be transferrable under any circumstances
except by operation of law. During your lifetime, this option
is only exercisable by you, and after your death, is only
exercisable by your estate.
(b) The price at which this option may be exercised shall be
$12.875 per share, for a total exercise price of
$18,297,499.75.
(c) This option is exercisable commencing immediately and at any
time hereafter prior to August 15, 2007, subject to the
following terms:
(1) In the event of termination of your employment with
the Company (or a parent or subsidiary of the
Company) for any reason other than death or
disability as defined in Internal Revenue Code
Section 22 (e)(3), as amended (the "Code"), all
unexercised options shall terminate ninety (90) days
following the effective date of your termination and
all unvested options shall terminate immediately.
C-9
(2) All options which have vested at the time you have
ceased employment with the Company due to death or
disability shall be exercisable through August 15,
2007.
(d) The maximum extent to which this option may be exercised
(except as provided in Subsection (g) below) is as follows:
(1) 115,000 shares shall vest upon the earlier of (i)
receipt by the Company of premarket approval for its
Heart Laser from the U.S. Food and Drug
Administration, or (ii) August 15, 2000.
(2) 115,000 shares shall vest upon the earlier of (i) the
release of audited financial statements by the
Company for a completed fiscal year in which the
Company reports positive earnings after taxes
(exclusive of extraordinary items of gain or loss),
or (ii) August 15, 2000.
(3) 115,000 shares shall vest upon the earlier of (i) the
30th consecutive trading day when the Company's
closing price for its Common Stock as reported by the
American Stock Exchange (or, if the Company is not
then trading its Common Stock on the American Stock
Exchange, on the exchange on which the Company's
Common Stock is then listed) exceeds $15.00 per
share, or (ii) August 15, 2000.
(4) 50,000 shares shall vest upon the earlier of (i) the
30th consecutive trading day when the Company's
closing price for its Common Stock as reported by the
American Stock Exchange (or, if the Company is not
then trading its Common Stock on the American Stock
Exchange, on the exchange on which the Company's
Common Stock is then listed) exceeds $18.00 per
share, or (ii) August 15, 2002
(5) 50,000 shares shall vest upon the earlier of (i) the
30th consective trading day when the Company's
closing price for its Common Stock as reported by the
American Stock Exchange (or, if the Company is not
then trading its Common Stock on the American Stock
Exchange, on the exchange on which the Company's
Common Stock is then listed) exceeds $21.50 per
share, or (ii) August 15, 2002
(6) 50,000 shares shall vest upon the earlier of (i) the
30th consective trading day when the Company's
closing price for its Common Stock as reported by the
American Stock Exchange (or, if the Company is not
then trading its Common Stock on the American Stock
Exchange, on the exchange on which the Company's
Common Stock is then listed) exceeds $35.00 per
C-10
share, or (ii) August 15, 2002
(7) 50,000 shares shall vest upon the earlier of (i) the
30th consective trading day when the Company's
closing price for its Common Stock as reported by the
American Stock Exchange (or, if the Company is not
then trading its Common Stock on the American Stock
Exchange, on the exchange on which the Company's
Common Stock is then listed) exceeds $40.00 per
share, or (ii) August 15, 2002
(8) 20,983 shares shall vest immediately.
(9) 20,983 shares shall vest on December 1, 1997.
(10) 28,750 shares shall vest on March 1, 1998.
(11) 28,750 shares shall vest on June 1, 1998.
(e) Subject to the foregoing, this option may be exercised in
whole or part from time to time, provided, however, that an
option may not be exercised as to less than 100 shares at any
one time unless it is being exercised in full and the balance
of the shares subject to option is less than 100.
(f) The shares of Common Stock underlying this option and the
exercise price therefore shall be appropriately adjusted from
time to time for stock splits, reverse splits, stock dividends
and reclassifications of shares.
(g) In the event of a sale or acquisition of substantially all of
the stock or assets of the Company, the Company shall give at
least thirty (30) days' notice of such an event to you and you
may exercise up to 100% of this option, whether previously
vested or unvested. If you do not exercise the option within
thirty (30) days of such notice, all unexercised portions of
this option shall terminate and be of no further force or
effect.
Exercising options may not be a prudent business decision for some
employees. Therefore, we urge you to review this opportunity carefully and make
a decision to exercise options only if your personal financial situation makes
this a wise choice.
When you wish to exercise this stock option, please refer to the
provisions of this letter and then correspond in writing with the Secretary of
the Company. Further, please indicate your acknowledgment and acceptance of this
option by signing the enclosed copy of this letter and returning it to the
undersigned.
Very truly yours,
C-11
PLC SYSTEMS INC.
By:_____________________________
Dr. Robert I. Rudko, Chairman
and Acting President
ACKNOWLEDGMENT AND ACCEPTANCE:
______________________________
William C. Dow
C-12
PLC SYSTEMS INC.
1997 EXECUTIVE STOCK OPTION PLAN
1. PURPOSE. This Non-Qualified Stock Option Plan, to be known as the
1997 Executive Stock Option Plan (hereinafter, this "Plan"), is intended to
promote the interests of PLC Systems Inc. (hereinafter, the "Company") by
providing an inducement to obtain and retain the services of a new Chief
Executive Officer of the Company.
2. AVAILABLE SHARES. The total number of shares of Common Stock, no par
value, of the Company ("Common Stock"), for which options may be granted under
this Plan shall not exceed six hundred fifty thousand (650,000) shares, subject
to adjustment in accordance with Section 10 of this Plan. If any options granted
under this Plan are surrendered before exercise or lapse without exercise, in
whole or in part, the shares reserved therefor shall continue to be available
under this Plan.
3. ADMINISTRATION. This Plan shall be administered by the Board of
Directors of the Company. The Board of Directors shall, subject to the
provisions of this Plan, have the power to construe this Plan, to determine all
questions hereunder, and to adopt and amend such rules and regulations for the
administration of this Plan as it may deem desirable.
4. OPTION PRICE. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day before the option is granted. The option price will be subject
to adjustment in accordance with the provisions of paragraph 9 of this Plan.
Therefore, for purposes of this Plan, the fair market value of a share of Common
Stock on any day shall be the last reported sales price of such share on the
last trading day preceding the date of option grant as reported by the American
Stock Exchange.
5. PERIOD OF OPTION. Options granted hereunder shall expire on a date
which is no later than ten (10) years after the date of grant of the options.
6. VESTING OF SHARES AND NON-TRANSFERABILITY OF OPTIONS.
(a) Vesting. Options granted under this Plan shall not be
exercisable until they become vested.
(b) Legend on Certificates. The certificates representing such
shares shall carry such appropriate legend, and such written instructions shall
be given to the Company's transfer agent, as may be deemed necessary or
advisable by counsel to the Company in order to comply with the requirements of
the Securities Act of 1933 or any state securities laws.
(c) Non-transferability. Any option granted pursuant to this
Plan shall not be assignable or transferable other than by will or the laws of
descent and distribution, and shall be exercisable during the optionee's
lifetime only by him.
7. TERMINATION OF OPTION RIGHTS.
(a) In the event an optionee ceases to be President of the
Company for any reason other than death or permanent disability, any then
unexercised options granted to such optionee shall, to the extent then vested,
terminate and become void thirty (30) days following the effective date the
optionee ceases to be President of the Company.
(b) In the event that an optionee ceases to be President of
the Company by reason of his permanent disability or death, all unexercised
options shall be exercisable by the optionee (or by the optionee's personal
representative, heir or legatee, in the event of death) one year following the
date of the termination of the President's employment due to death or permanent
disability.
8. EXERCISE OF OPTION. Subject to the terms and conditions of this plan
and the option agreements, an option granted hereunder shall, to the extent then
exercisable, be exercisable in whole or in part by giving written notice to the
Company by mail or in person addressed to Treasurer, PLC Systems Inc., at its
principal executive offices, stating the number of shares with respect to which
the option is being exercised, accompanied by payment in full for such shares,
which payment may be in whole or in part in shares of the Common Stock of the
Company already owned by the person or persons exercising the option (subject to
such reasonable restrictions and guidelines as the Board of Directors may adopt
from time to time), valued at fair market value determined in accordance with
the provisions of paragraph 4; provided, however, that there shall be no such
exercise at any one time as to fewer than one hundred (100) shares or all of the
remaining shares them purchasable by the person or persons exercising the
option, if fewer than one hundred (100) shares. The Company or its transfer
agent shall, on behalf of the Company, prepare a certificate or certificates
representing such shares acquired pursuant to exercise of the option, shall
register the optionee as the owner of such shares on the books of the Company
and shall cause the fully executed certificate(s) representing such shares to be
delivered to the optionee as soon as practicable after payment of the option
price in full. The holder of an option shall not have any rights of a
shareholder with respect to the shares covered by the option, except to the
extent that one or more certificates for such shares shall be delivered to him
upon the due exercise of the option.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION AND OTHER MATTERS. Upon
the occurrence of any of the following events, an optionee's rights with respect
to options granted to him hereunder shall be adjusted as hereinafter provided:
(a) Stock Dividends and Stock Splits. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of shares
or is the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) Consolidations or Mergers. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Board of Directors of the Company or the board of directors of any entity
assuming the obligations of the Company hereunder (the "Successor Board") shall,
with respect to outstanding options, take one or more of the following actions:
(i) make appropriate provision for the continuation of such options by
substituting on an equitable basis for the shares then subject to such options
the consideration payable with respect to the outstanding shares of Common Stock
in connection with the Acquisition; (ii) accelerate the date of exercise of such
options or of any installment of any such options; (iii) upon written notice to
the optionee, provide that all options must be exercised, to the extent then
exercisable, within a specified number of days of the date of such notice, at
the end of which period the options shall terminate; or (iv) terminate all
options in exchange for a cash payment equal to the excess of the fair market
value of the shares subject to such options (to the extent then exercisable)
over the exercise price thereof.
(c) Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph (b) above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an option shall be entitled to receive
for the purchase price paid upon such exercise the securities he would have
received if he had exercised his option prior to such recapitalization or
reorganization.
(d) Issuances of Securities. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the company.
(e) Adjustments. Upon the happening of any of the foregoing
events, the class and aggregate number of shares set forth in Section 2 hereof
that are subject to options which previously have been or subsequently may be
granted under this Plan shall also be appropriately adjusted to reflect such
events. The Board of Directors or the Successor Board shall determine the
specific adjustments to be made under this Section 10 and its determination
shall be conclusive.
10. RESTRICTIONS ON ISSUANCES OF SHARES. Notwithstanding the provisions
of Section 9 of this Plan, the Company shall have no obligation to deliver any
certificate of certificates upon exercise of an option until one of the
following conditions shall be satisfied:
(i) The shares with respect to which the option has been
exercised are at the time of the issue of such shares effectively registered
under applicable Federal and state securities laws as now in force or hereafter
amended; or
(ii) Counsel for the Company shall have given an opinion that
such shares are exempt from registration under Federal and state securities laws
as now in force or hereafter
amended; and the Company has complied with all applicable laws and regulations
with respect thereto, including without limitation all regulations required by
any stock exchange upon which the Company's outstanding Common Stock is then
listed.
11. REPRESENTATION OF OPTIONEE. The Company shall require the optionee
to deliver written warranties and representations upon exercise of the option
that are necessary to show compliance with Federal and state securities laws
including to the effect that a purchase of shares under the option is made for
investment and not with a view to their distribution (as that term is used in
the Securities Act of 1933, as amended).
12. OPTION AGREEMENT. Each option granted under the provisions of this
Plan shall be evidenced by an option agreement in such form as may be approved
by the Board of Directors, which agreement shall be duly executed and delivered
on behalf of the Company and by the optionee to whom such option is granted. The
option agreement shall contain such terms, provisions and conditions not
inconsistent with this Plan as may be determined by the Board of Directors.
13. TERMINATION AND AMENDMENT OF PLAN. Options may no longer be granted
under this Plan after August 15, 2007 and this Plan shall terminate when all
options granted or to be granted hereunder are no longer outstanding. The Board
may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable Termination or any modification or amendment of
the Plan shall not, without consent of a participant, affect his rights under an
option previously granted to him.
EXHIBIT 11
PLC SYSTEMS INC.
CALCULATION OF NET LOSS PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 16,836 16,499 16,673 16,331
Common stock equivalents (1) - - - -
----------- ---------- ---------- ----------
Shares used to compute net
loss per share 16,836 16,499 16,673 16,331
Net loss $(3,562) $(562) $(9,281) $ (188)
Net loss per share $(0.21) $(0.03) $(0.56) $(0.01)
</TABLE>
(1) The net loss per share is calculated using the weighted average number of
shares outstanding during the period and does not include common stock
equivalents as their inclusion would be antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of the Company as of and for the nine month period ended
September 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 4,151,000
<SECURITIES> 14,817
<RECEIVABLES> 1,389,000
<ALLOWANCES> (76,000)
<INVENTORY> 3,174,000
<CURRENT-ASSETS> 24,070,000
<PP&E> 8,994
<DEPRECIATION> (3,582)
<TOTAL-ASSETS> 30,147,000
<CURRENT-LIABILITIES> 3,520,000
<BONDS> 3,804,000
0
0
<COMMON> 69,841,000
<OTHER-SE> (47,036,000)
<TOTAL-LIABILITY-AND-EQUITY> 30,147,000
<SALES> 1,110,000
<TOTAL-REVENUES> 1,885,000
<CGS> 1,219,000
<TOTAL-COSTS> 4,256,000
<OTHER-EXPENSES> (13,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (41,000)
<INCOME-PRETAX> (3,562,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,562,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,562,000)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
