<PAGE> 1
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 June 30, 1998.
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 Identification No.)
incorporation or organization)
10 FORGE PARK, FRANKLIN, MASSACHUSETTS 02038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 541-8800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES 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 August 10, 1998
Common Stock, no par value 18,995,665
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PLC SYSTEMS INC.
INDEX
Part I. Financial Information:
Item 1.
<TABLE>
<S> <C>
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 Disclosures About Market Risk........................ 13
Part II. Other Information:
Item 1. Legal Proceedings............................................................... 14
Item 2. Changes in Securities........................................................... 14
Item 3. Not Applicable.................................................................. 14
Item 4. Not Applicable.................................................................. 14
Item 5. Other Information............................................................... 15
Item 6. Exhibits and Reports on Form 8-K................................................ 15
</TABLE>
Item 1. Financial Statements
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PLC SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................. $ 11,609 $ 3,484
Marketable securities ...................................... 986 12,845
Accounts receivable, net ................................... 489 1,337
Inventories ................................................ 3,888 2,512
Prepaid expenses and other current assets .................. 391 502
-------- --------
Total current assets ................................... 17,363 20,680
Equipment, furniture and leasehold improvements, net ........... 5,698 5,636
Other assets ................................................... 646 701
-------- --------
Total assets ............................................ $ 23,707 $ 27,017
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 1,476 $ 917
Accrued clinical costs ..................................... 1,389 1,292
Accrued compensation ....................................... 958 570
Accrued expenses ........................................... 1,246 923
Deferred revenue ........................................... 35 70
5% Convertible Debentures ................................. -- 3,819
Other accrued liabilities .................................. 70 296
-------- --------
Total current liabilities ............................... 5,174 7,887
Long Term Liabilities:
Convertible Debentures .................................... 4,641 --
Capital lease obligations ................................. 86 121
-------- --------
Total Long Term Liabilities ............................ 4,727 121
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, 5,000 shares authorized ......... -- --
Common stock, no par value, 50,000 shares authorized, 18,996
and 18,368 shares issued and outstanding at June 30, 1998
and December 31, 1997, respectively ......................... 75,368 71,115
Accumulated deficit ............................................ (60,871) (51,533)
Foreign currency translation ................................... (691) (573)
-------- --------
13,806 19,009
-------- --------
Total liabilities and stockholders' equity ..................... $ 23,707 $ 27,017
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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PLC SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales ....................... $ 160 $ 2,525 $ 525 $ 3,296
Placement and service fees .......... 520 897 1,100 1,714
-------- -------- -------- --------
Total revenues ..................... 680 3,422 1,625 5,010
Cost of revenues:
Product sales ........................ 364 905 516 1,241
Placement and service fees ........... 667 565 1,203 1,059
-------- -------- -------- --------
Total cost of revenues ............ 1,031 1,470 1,719 2,300
Gross profit (loss) .................... (351) 1,952 (94) 2,710
Operating expenses:
Selling, general and administrative .. 3,944 3,518 6,997 6,335
Research and development ............. 1,274 1,146 2,565 2,217
-------- -------- -------- --------
Total operating expenses ........... 5,218 4,664 9,562 8,552
-------- -------- -------- --------
Loss from operations ................... (5,569) (2,712) (9,656) (5,842)
Other income:
Interest income, net ................. 180 42 330 133
Loss from foreign currency, net ...... (13) (27) (12) (10)
-------- -------- -------- --------
167 15 318 123
-------- -------- -------- --------
Net loss ............................... $ (5,402) $ (2,697) $ (9,338) $ (5,719)
======== ======== ======== ========
Basic and diluted loss per share ....... $ (0.28) $ (0.16) $ (0.49) $ (0.36)
Shares used to compute basic and diluted
loss per share ......................... 18,984 16,632 18,869 16,021
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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PLC SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Operating activities:
Net loss ................................................. $ (9,338) $ (5,719)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization .......................... 1,222 843
Change in assets and liabilities:
Accounts receivable ............................... 950 (1,092)
Inventories ....................................... (1,368) (682)
Prepaid expenses and other assets ................. (128) (41)
Accounts payable .................................. 558 790
Deferred revenue .................................. (35) (99)
Accrued liabilities ............................... 904 60
-------- --------
Net cash used for operating activities ....................... (7,235) (5,940)
Investing activities:
Purchase of marketable securities ....................... (1,986) --
Maturities of marketable securities ..................... 13,845 5,470
Purchase of fixed assets ................................ (1,206) (1,257)
-------- --------
Net cash provided by investing activities .................... 10,653 4,213
Financing activities:
Issuance of Convertible Debentures, net of issuance costs 4,687 --
Net proceeds from sales of common shares ................ 280 609
Principal payments on capital lease obligations ......... (33) (6)
-------- --------
Net cash provided by financing activities .................... 4,934 603
Effect of exchange rate changes on cash and cash equivalents . (227) (235)
-------- --------
Net increase in cash and cash equivalents .................... 8,125 (1,359)
Cash and cash equivalents at beginning of period ............. 3,484 3,039
-------- --------
Cash and cash equivalents at end of period ................... $ 11,609 $ 1,680
======== ========
NON-CASH FINANCING ACTIVITIES:
Conversion of Convertible Debentures and accrued
interest into Common Stock ........................... $ 3,828 --
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
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 six month
periods ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1998. 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, 1997.
2. NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share ("Statement 128") which replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All loss per share amounts for all periods have been
presented, and have been restated, to conform to Statement 128.
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income ("Statement 130"). Statement 130 establishes new rules for
the reporting and display of comprehensive income and its components: however,
the adoption of Statement 130 had no impact on the Company's net loss or
shareholders' equity. Statement 130 requires unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of Statement
130.
Total comprehensive loss for the three and six months ended June 30,
1998 amounted to $5,442,000 and $9,455,000, as compared to $2,714,000 and
$5,883,000 for the three and six months ended June 30, 1997.
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . $1,526 $1,141
Work in process . . . . . . . . . . . . . . . . . 467 10
Finished goods . . . . . . . . . . . . . . . . . . 1,895 1,361
------ ------
$3,888 $2,512
====== ======
</TABLE>
5. ISSUANCE OF CONVERTIBLE DEBENTURES
a. Convertible Debentures due July 17, 2002 and August 14, 2002.
In January and February 1998, the face amount outstanding as of
December 31, 1997 and related accrued interest converted into 576,606 shares of
common stock.
b. Convertible Debentures due April 23, 2003
In April 1998, the Company entered into a $10 million financing
commitment. Under the terms of the financing, the Company received approximately
$5 million in April 1998 ("The First Tranche") from the issuance of non-interest
bearing five-year convertible debentures ("Debentures") to accredited investors.
The Debentures are convertible into Common Stock under a predetermined formula.
The First Tranche of the Debentures is convertible into common shares at the
lesser of (a) $19.53, or (b) commencing July 22, 1998, the average of the five
lowest consecutive closing bid price during a look-back period consisting of
thirty consecutive trading days prior to conversion. The maximum number of
shares of the Company's Common Stock issuable in connection with conversion of
the First Tranche is 816,327. The Company will have the right to force
conversion, in whole or in part, so long as the Company's closing bid prices of
its Common Stock has traded at or above $23.44 for a period of thirty day
consecutive trading days, with thirty days prior notice to the holder for cash
or stock, at the option of the Company.
In connection with The First Tranche, the Company issued 4,864
redeemable warrants to purchase shares of its Common Stock at $19.53 per share.
If the average closing sale price of its Common Stock for any consecutive thirty
trading day period commencing April 23, 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. The
warrants expire on April 23, 2003.
6. LEGAL PROCEEDINGS
In September 1996, CardioGenesis Corporation, ("CardioGenesis") filed a
civil lawsuit in the United States District Court for the Northern District of
California seeking to have the
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PLC SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Company's synchronization patent declared invalid, or, alternatively, asking the
court to determine whether CardioGenesis infringes on this patent. In October
1996, the Company filed an answer and counterclaim alleging that CardioGenesis
infringes on this patent. The counterclaim seeks both injunctive relief and
monetary damages against CardioGenesis. In October 1997, CardioGenesis filed an
amended complaint seeking to have the Company's synchronization patent declared
unenforceable. CardioGenesis is not seeking monetary damages from the Company.
In January 1997, CardioGenesis Corporation filed a challenge to the
Company's European synchronization patent in the European Patent Office and in
March 1997 the Company filed its response. In addition, in April 1997, the
Company filed an infringement lawsuit against CardioGenesis in the Munich
District Court alleging infringement of its synchronization patent. An oral
hearing has been scheduled in the Munich District Court on October 1, 1998.
The Company and certain of its officers have been named as defendants
in 21 purported class action lawsuits filed between August 1997 and November
1997 in the United States District Court for the District of Massachusetts. The
suits allege violations of the federal securities laws. The plaintiffs are
seeking damages in connection with such alleged violations. Nineteen of these
complaints have been consolidated by the court into a single action for pretrial
purposes and the remaining two suits have been consolidated into one suit for
pretrial purposes. These matters are in the earliest stages of litigation and
the Company has filed motions to dismiss all of these claims. There can be no
assurance that the motions to dismiss these claims will be successful; however,
plaintiffs in the latter action have voluntarily agreed to the Company's motion
to dismiss. Management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of these pending
litigation matters. It is possible that the Company's results of operations in a
particular quarter or annual period or its financial position could be
materially affected by an ultimate unfavorable outcome of this pending
litigation. The Company believes that it has valid defenses to these class
action litigation matters and intends to vigorously defend itself in these
matters.
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Item 2.
PLC SYSTEMS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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: non-approval or delayed approval by the U.S. Food and Drug
Administration, business conditions and growth in certain market segments and
general economy, an increase in competition or other competitive developments,
lack of market acceptance of the Company's products and proposed products by
health care professionals and third party payers, lack of reimbursement by third
party payers, development of alternative treatments or procedures for the
treatment of heart disease and other risks and uncertainties indicated from time
to time in the Company's annual report on Form 10-K for fiscal year ended
December 31, 1997 and the Company's other filings with the Securities and
Exchange Commission. The Company undertakes no obligation to revise any
forward-looking statements to reflect events or circumstances that may arise
after the date of this Report.
OVERVIEW
On April 24, 1998, a U.S. Food and Drug Administration ("FDA") Advisory
Panel (the "Panel") unanimously recommended that the Heart Laser System for
transmyocardial revacularization ("TMR") be approved to marketing for patients
who suffer from severe, stable angina and are not amenable to conventional
coronary revascularization techniques (e.g., bypass surgery and angioplasty).
As part of its recommendation, the Panel described certain labeling conditions
and post-market surveillance obligations for FDA's consideration. The Panel's
decision is not binding. The Company awaits the FDA's final action on the
application.
The Company has both a placement strategy and a direct/distributor
sales strategy for Heart Laser System purchases. The placement program enables
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 a procedure fee per use.
Sterile handpieces and other disposables are included in the procedure fee.
Typically, the revenue generated in the initial periods of a placement contract
is expected to be less than in later periods, subsequent to receipt of
anticipated Pre-Market Approval ("PMA") and increases in minimum contractual
billings. Revenues from these contracts are classified as placement fees. The
cost of the Heart Laser System is depreciated over the term of the contract.
The Heart Laser System is also 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 three months ended June 30, 1998 were $680,000,
a decrease of 80% when compared to $3,422,000 for the three months ended June
30, 1997. Product sales for the three months ended June 30, 1998 were $160,000,
a decrease of 94% when compared to $2,525,000 for the three months ended June
30, 1997. In the three months ended June 30, 1998, the Company shipped two Heart
Laser Systems under the placement strategy; in the 1997 period, the Company
shipped eight Heart Laser Systems, of which five were sales and three were
shipped pursuant to new placement contracts.
Total revenues for the six months ended June 30, 1998 were $1,625,000,
a decrease of 68% when compared to $5,010,000 for the six months ended June 31,
1997. Product sales for the six months ended June 30, 1998 were $525,000, a
decrease of 84% when compared to $3,296,000 for the six months ended June 30,
1997. During the first six months of 1998, the Company shipped six lasers under
the placement strategy; in 1997, the Company shipped fourteen Heart Laser
Systems, of which six were sales and eight were shipped pursuant to placement
contracts. Included in the 1998 sale amount is recognition of deferred
1. The Heart Laser is a trademark of PLC Medical Systems, Inc.
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<PAGE> 10
revenue from a 1996 sale accounting for approximately 44% of product sales for
the six months ended June 30, 1998.
Placement and service fees for the three months and six months ended
June 30, 1998 were $520,000 and $1,100,000, decreases of 42% and 36% when
compared with $897,000 and $1,714,000 for the same periods in fiscal 1997.
Although the Company has increased its placement contract base, revenue dollars
have decreased. In the near term, it is expected that placement revenues will
continue to be negatively impacted until FDA approval is granted and Medicare
reimbursement is reinstated by the Health Care Financing Administration
("HCFA"). Until receipt of PMA and reinstatement of reimbursement, of which no
assurance can be given, the Company expects that future billings under placement
contracts may be negatively impacted and the effect on existing placement
contracts cannot be predicted.
In May 1997, HCFA instituted a non-coverage policy for TMR procedures
performed on Medicare patients in the United States. The HCFA announcement,
coupled with the July 28, 1997 FDA Advisory Panel recommendation of
non-approval, caused the Company to examine its requirement of contractual
minimum billings prior to FDA approval and to renegotiate substantially all of
its placement contracts, temporarily replacing contractual minimum billings with
actual usage billings.
On April 24, 1998, an FDA Advisory Panel unanimously recommended that
the Heart Laser System be approved for marketing for patients who suffer severe,
stable angina. The FDA Panel's decision is not binding. In June 1998, the FDA
completed its inspection of the Company's manufacturing facility and had no
observations of deficiencies within the plant. The Company awaits the
FDA's final action on the application. In May 1998, HCFA published proposed
medical reimbursement codes for TMR in the Federal Register although the non-
coverage policy discussed previously is still in place.
Total gross margin (loss) for the three and six month periods ended
June 30, 1998 approximated losses of 52% and 6% of revenues, down from gross
margins of 57% and 54% for the comparable periods in fiscal 1997. This decrease
resulted from two factors. First, the gross margin declined due to unfavorable
manufacturing variances. The Company anticipates that after receipt of PMA, of
which no assurance can be given, production will increase to levels which will
absorb manufacturing overhead and mitigate these variances. Second, most of the
Company's existing placement contracts are in the pre-PMA contractual minimum
billing periods, which typically require lower minimums than will be required
after receipt of PMA, of which no assurance can be given. In addition, the cost
of the laser is depreciated on a straight-line basis over the life of the
placement contract; therefore the overall depreciation on Heart Laser Systems
under existing placement contracts is greater than the corresponding revenue
generated due to the pre-PMA minimum billings. This has resulted in losses in
the 1998 periods as compared to gross profits in the 1997 periods. Until such
time that the Company sees an increase to its minimum billings on existing and
future placement contracts, the gross margin is expected to be negatively
impacted.
Selling, general and administrative expenditures of $3,944,000 and
$6,997,000 for the three and six month periods ending June 30, 1998 increased
12% and 10% when compared to fiscal 1997 expenditures of $3,518,000 and
$6,335,000. The increases in the 1998 periods over the 1997 periods primarily
relate to additional sales and marketing expenses incurred in anticipation of
the receipt of the PMA, of which no assurance can be given, as well as
additional legal costs.
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Research and development expenditures for the three and six months
ended June 30, 1998 were $1,274,000 and $2,565,000, increases of 11% and 16%
when compared to spending of $1,146,000 and $2,217,000 for the comparable
periods in fiscal 1997. This increase in the 1998 periods over the 1997 periods
relates primarily to increased staffing requirements associated with growing
demands for clinical study compilation and data preparation and the development
of new products.
Interest income, net for the three and six months ended June 30, 1998
was $180,000 and $330,000 when compared to $42,000 and $133,000 for the
comparable periods in fiscal 1997. Interest income is net of interest expense.
The Company's average cash balances were higher in the 1998 periods resulting in
greater interest income in the 1998 periods. In 1998, the Company recorded
interest expense on the outstanding debentures. In the comparable period in
1997, there were no outstanding debentures. The Company records transactions in
several foreign currencies, which resulted in currency losses of $13,000 and
$12,000 for the three and six months ended June 30, 1998 as compared to losses
of $27,000 and $10,000 for the three and six months ended June 30, 1997.
The Company incurred net losses of $5,402,000 and $9,338,000 for the
three and six months ended June 30, 1998 when compared to net losses of
$2,697,000 and $5,719,000 for the comparable 1997 periods.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and cash equivalents of
$11,609,000 and marketable securities of $986,000. In April 1998, the Company
obtained a $10 million financing commitment. Under the terms of the financing,
the Company received approximately $4.7 million in net proceeds through the
issuance of convertible debentures due April 23, 2003. See Note 5 in the
accompanying condensed consolidated financial statements.
For the six months ended June 30, 1998, the Company incurred a loss of
$9,338,000 which resulted in the use of $7,235,000 to support operations. Cash
provided by investing activities was $10,653,000 related to the net maturities
of $11,859,000 of marketable securities, offset by an investment of $1,206,000
in fixed assets primarily related to its placement contract activity. Cash
provided by financing activities was $4,934,000 including $4,687,000 in net
proceeds from the issuance of convertible debt and $280,000 from the exercise of
stock options.
In anticipation of a possible FDA approval, the Company had been
increasing its overall operating expenses to be positioned to increase both its
sales activity and production capacity. In order to be adequately positioned to
meet these demands, the Company secured
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<PAGE> 12
a financing commitment up to $10 million from two institutional investors. On
April 23, 1998, the Company received $5 million from the issuance of convertible
debentures due April 23, 2003, with a commitment to receive up to an additional
$5 million at the Company's option. The Company has secured this additional
capital to support a successful market launch of the Heart Laser System to
open-heart centers in the U.S. upon FDA clearance (of which no assurance can be
given). In addition, this new funding will enable the Company to conduct further
research in TMR, such as an ongoing study evaluating TMR as an adjunct to bypass
surgery, as well as to develop new products. Based upon anticipated operating
results and regulatory approval, of which no assurance can be given, the Company
believes that it has sufficient resources to meet its working capital demands
for at least the next twelve months.
The Company and certain of its officers have been named as defendants
in 21 purported class action lawsuits filed between August 1997 and November
1997. See Note 6 in the accompanying condensed consolidated financial statements
for further discussion. The Company has insurance coverage for such legal
action. The deductible under such coverage has been incurred.
The Year 2000 Issue refers to potential problems with computer systems
or any equipment with computer chips or software that uses dates where the date
has been stored as just two digits (e.g., 97 for 1997). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software which
uses only two digits to represent the year may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
similar business activities. The Company is presently evaluating the impact of
the Year 2000 Issue as it affects business operations, interfaces with customers
and vendors, and contingencies related to products that have been sold that may
need to be modified. To date, the Company is unaware of any situations of
noncompliance that would materially adversely effect its operations or financial
condition. There can be no assurance, however, that instances of noncompliance
which could have a material adverse effect on the Company's operations or
financial condition will not be identified, that the systems of other companies
with which the Company transacts business will be corrected on a timely basis;
or that failure by such entities to correct a Year 2000 problem or a correction
which
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<PAGE> 13
is incompatible with the Company's information systems would not have a
material adverse effect on the Company's operations and financial condition.
Unanticipated decreases in operating revenues, increases in expenses,
or a further delay in the anticipated 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 prior to such
time, if ever, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
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PLC SYSTEMS INC.
Part II Other Information
ITEM 1. LEGAL PROCEEDINGS.
See Note 6 to Notes to Consolidated Financial Statements filed with
this Form 10-Q.
ITEM 2. CHANGES IN SECURITIES.
See Note 5 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.
On June 30, 1998, the Company held its Annual General Meeting of Stockholders
to vote on the following proposals:
1. To elect two members of the Board of Directors. Nominees for Director were:
(a) Robert I. Rudko and (b) Edward H. Pendergast ("Proposal No. 1");
2. To consider and vote upon a special resolution approving an amendment to
the Corporation's Memorandum to increase the authorized capital of the
Corporation by the increase of the authorized shares of Common Stock, no
par value per share, from 25,000,000 to 50,000,000 and to create 5,000,000
preferred shares, no par value per share, issuable in series (the "Capital
Amendment Proposal");
3. To consider and vote upon a special resolution approving an amendment to
the Articles to provide authority to the directors of the Corporation to
appoint additional directors of the Corporation between annual general
meetings (the "Articles Amendment Proposal");
4. To consider and vote upon a special resolution approving the transfer of the
Corporation's jurisdiction on incorporation from British Columbia to the
Yukon Territory (the "Continuance Proposal").
5. To appoint Ernst & Young LLP as auditors for Fiscal Year 1999 and to
authorize the Directors to fix the remuneration to be paid to the auditors
("Proposal No. 5").
Of the 18,985,081 shares of the Company's Common Stock of record as of
May 14, 1998 able to be voted at the meeting, a total of approximately
17,058,847 shares were voted, or approximately 89.9% of the Company's issued
and outstanding shares of Common Stock entitled to vote on these matters. Each
of the proposals was adopted, with the vote total as follows:
<TABLE>
<CAPTION>
SHARES SHARES SHARES
PROPOSAL VOTING FOR VOTING AGAINST ABSTAINING
- -------- ---------- -------------- ----------
<S> <C> <C> <C>
NO. 1
(a) Robert I Rudko, Ph.D. 16,772,579 0 286,268
(b) Edward H. Pendergast 16,765,349 0 293,498
NO. 2 3,152,630 894,562 71,631
NO. 3 16,255,808 723,534 79,505
NO. 4 3,606,938 385,093 127,422
NO. 5 16,857,678 125,143 76,026
</TABLE>
ITEM 5. OTHER INFORMATION
In connection with the Company's annual meeting for fiscal 1999, any
shareholder proposal for inclusion in the Proxy Statement must be received on
or before March 31, 1999 to the attention of Jennifer Miller, General Council,
10 Forge Park, Franklin, MA 02038.
-14-
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits
(I) The following exhibits are filed herewith:
Exhibit
No. Title
10a Key Employment Agreement of Robert Svikhart.
27 Financial Data Schedule.
b.) Reports on Form 8-K
None
-15-
<PAGE> 16
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: August 14, 1998 By: /s/ Robert Svikhart
------------------------- -------------------------------
Robert Svikhart
(Chief Financial Officer)
-16-
<PAGE> 1
Exhibit 10A
KEY EMPLOYEE AGREEMENT
To: Mr. Robert Svikhart As of June 17, 1998
252 Weed Street
New Canaan, Connecticut 06840
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 Vice President and Chief Financial
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.
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 President
and 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 President.
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 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:
1
<PAGE> 2
(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, plus 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 this 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 President and Chief
Executive Officer or the Board of Directors of PLC Systems Inc. provided the
same are not illegal, unethical or inconsistent with the position of Vice
President and Chief Financial 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 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 twelve (12) 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 finding that the Company had Cause to
terminate you than you must return all compensation paid 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) 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 President and
Chief Executive Officer, or (f) failure to establish a reasonable incentive
plan.
2
<PAGE> 3
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
President or 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 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.
3
<PAGE> 4
7.1 So long as the Company is not in breach of its obligations
to you hereunder, for a period commencing on the date hereof and ending two
years following the later of (1) termination of your employment with the Company
for whatever reason, and (2) the conclusion of the period, if any, during which
the Company is making payments to you pursuant to Section 2.2 (the "Restricted
Period"), absent the Company's prior written approval, you will not, on behalf
of yourself, or on behalf of any other person, company, corporation, partnership
or other entity of enterprise, directly or indirectly, as an employee,
proprietor, stockholder, partner, consultant, or otherwise, 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, 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, during the
Restricted Period, 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 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.
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.
7.4 During the Restricted Period, you shall not, directly or
indirectly, as employee, agent, consultant, stockholder, director, co-partner or
in any other individual or representative capacity intentionally solicit or
encourage any present or future customer or supplier of the Company to terminate
or otherwise alter, his, her or its relationship with the Company in an adverse
manner.
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
4
<PAGE> 5
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 legal fees and related expenses incurred in
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 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 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 including any prior consulting agreements between you
or Sachem Advisors, LLC and the Company. You specifically acknowledge and agree
that all prior written and oral understanding between the Company and you with
regard to sums payable to you in connection with consulting and similar services
related to possible acquisition activities are hereby null and void. 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.
5
<PAGE> 6
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 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:
-----------------------------
William C. Dow, President and
Chief Executive Officer
Accepted and Agreed:
- -------------------------
Mr. Robert Svikhart
6
<PAGE> 7
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF MR. ROBERT SVIKHART
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 June 30, 2001.
2. Compensation.
(a) Base Salary. Your Base Salary shall be $145,000.00 per
annum through December 31, 1999, payable in accordance with the
Company's payroll policies at the rate of $12,083.33 per month. For
future years, any increases in Base Salary shall be as established by
the President and subject to ratification 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 (prorated)
and future fiscal years based on a target of 30% 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 1998 shall
be prorated based on the actual performance of the Company but in any
case a minimum of $15,000.00.
(c) Stock Option Grant. You shall be entitled, subject to
approval by the Board of Directors, to receive stock option grants, in
the form of the grant letter attached hereto as "Exhibit D", to receive
a combination of incentive and non-qualified stock options to purchase
up to an aggregate of 148,500 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 for participation in any
health, dental and other group insurance plans for executives 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.
A-1
<PAGE> 8
7. Severance Benefits.
(a) Payment of Severance Benefits. 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) 100% of your then current annual Base Salary, plus (ii)
100% of your Incentive Compensation earned for the Company's most
recent fiscal year. This total amount shall be paid to you in twelve
(12) equal monthly installments commencing thirty (30) 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 100% of your
then current annual base salary to 130%.
(b) Benefits as Severance Benefits. 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 twelve (12) months beginning on the last day of your active
service with the Company. All benefits payable to you during the
Severance Period under this Section 7(b) shall terminate following your
commencement of employment for any third party. Severance Benefits will
not mitigate your eligibility for COBRA after the Severance Period.
(c) Payments of Accrued Wages and Benefits. 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) Death During Severance Period. 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 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 and dependents 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) Mitigation. 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) Definition of Change in Control. 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 June 1, 1998,
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
A-2
<PAGE> 9
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 per 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 June
1, 1998, 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 June 1, 1998
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 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) Retention Payment. 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) Amount of Payments. 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 200% of Severance Benefits due and termed as if payable under
Section 7 above, to be paid in accordance with the terms on this
Agreement; and
A-3
<PAGE> 10
(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 Vice
President and Chief Financial 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;
A-4
<PAGE> 11
(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;
(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 President and
Chief Executive Officer 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 Chief Financial Officer and other Company
executives as a group.
(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) 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
A-5
<PAGE> 12
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 in effect just prior to the time the Notice of
Termination is given and 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) 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) 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.
(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
A-6
<PAGE> 13
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) Except as set forth in Sections 7 and 8 of this
Exhibit "A", 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 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
A-7
<PAGE> 14
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).
A-8
<PAGE> 15
EXHIBIT B
OUTSIDE EMPLOYMENT AND DIRECTORSHIPS OF
MR. ROBERT SVIKHART
None.
B-1
<PAGE> 16
EXHIBIT C
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
To: PLC Systems Inc.
10 Forge Park
Franklin, Massachusetts 02038
As of June 17, 1998
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. 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.
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.
C-1
<PAGE> 17
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
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
C-2
<PAGE> 18
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.
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
C-3
<PAGE> 19
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.
ACCEPTED AND AGREED EMPLOYEE
PLC SYSTEMS INC.
- ----------------------------- ---------------------------
William C. Dow, President Robert Svikhart
and Chief Executive Officer
SCHEDULE A
LIST OF PRIOR INVENTIONS
Identifying Number or
Title Date Brief Description
- ----- ---- ---------------------
NONE
C-4
<PAGE> 20
PLC SYSTEMS INC.
10 FORGE PARK
FRANKLIN, MASSACHUSETTS 02038
EXHIBIT D
June 17, 1998
Mr. Robert Svikhart
252 Weed Street
New Canaan, Connecticut 06840
Dear Bob:
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 148,500 shares of the Common Stock, no
par value per share, of the Company at a price of $9.50 per share, for a total
exercise price of $1,410,750.00. 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. To the extent that the number of option shares granted hereunder
exceeds the allowable limit for treatment as incentive stock options, then the
remaining option shares shall be treated as non-qualified options.
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 transferable 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 $9.50
per share, for a total exercise price of $1,410,750.00.
(c) This option is exercisable commencing immediately and at any
time hereafter prior to June 17, 2008, 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.
(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
June 17, 2007.
D-1
<PAGE> 21
(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 June 17,
2007.
(d) The maximum extent to which this option may be exercised
(except as provided in Subsection (g) below) is as follows:
(1) 7,450 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) June 17, 2001.
(2) 15,000 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) June 17, 2001.
(3) 15,000 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) June 17, 2001.
(4) 15,000 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) June 17, 2003.
(5) 15,000 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 $21.50 per
share, or (ii) June 17, 2003.
(6) 30,000 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 $35.00 per
share, or (ii) June 15, 2003.
(7) 30,000 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 $40.00 per
share, or (ii) June 15, 2003.
D-2
<PAGE> 22
(8) 10,525 shares shall vest on June 17, 1998.
(9) 10,525 shares shall vest on January 1, 1999.
(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,
PLC SYSTEMS INC.
By:
---------------------------
William C. Dow, President
and Chief Executive Officer
ACKNOWLEDGMENT AND ACCEPTANCE:
- ------------------------------
Robert Svikhart
D-3
<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 three month period ended
June 30, 1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 11,609,000
<SECURITIES> 986,000
<RECEIVABLES> 729,000
<ALLOWANCES> (240,000)
<INVENTORY> 3,956,000
<CURRENT-ASSETS> 17,431,000
<PP&E> 11,482,000
<DEPRECIATION> (5,784,000)
<TOTAL-ASSETS> 23,775,000
<CURRENT-LIABILITIES> 5,174,000
<BONDS> 4,641,000
0
0
<COMMON> 75,367,000
<OTHER-SE> (61,493,000)
<TOTAL-LIABILITY-AND-EQUITY> 23,775,000
<SALES> 160,000
<TOTAL-REVENUES> 680,000
<CGS> 1,031,000
<TOTAL-COSTS> 5,218,000
<OTHER-EXPENSES> (13,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (180,000)
<INCOME-PRETAX> (5,402,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,402,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,402,000)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
