| EDWARDS LIFESCIENCES CORP Item 1A Risk Factors 10 Item 1A Risk Factors An investor should carefully consider the risks described below, as well as other information contained in Edwards Lifesciences &apos filings with the Securities and Exchange Commission |
| If any of the events described below occurs, Edwards Lifesciences &apos business, financial condition or results of operations could be materially harmed |
| In that case, the value of Edwards Lifesciences &apos securities could decline and an investor may lose part or all of his or her investment |
| If Edwards Lifesciences does not introduce new products in a timely manner, its products may become obsolete and its operating results may suffer |
| The cardiovascular products industry is characterized by rapid technological changes, frequent new product introductions and evolving industry standards |
| Without the timely introduction of new products and enhancements, Edwards Lifesciences &apos products will likely become technologically obsolete over time, in which case its revenue and operating results would suffer |
| Even if Edwards Lifesciences is able to develop new technologies, these technologies may not be accepted quickly because of industry specific factors, such as the need for regulatory clearance, unanticipated restrictions imposed on approved indications, entrenched patterns of clinical practice and uncertainty over third party reimbursement |
| Moreover, significant technical innovations generally will require a substantial investment before Edwards Lifesciences can determine the commercial viability of these innovations |
| Edwards Lifesciences may not have the financial resources necessary to fund these technical innovations |
| In addition, even if Edwards Lifesciences is able to successfully develop enhancements or new generations of its products, these enhancements or new generations of products may not produce revenue in excess of the costs of development, and they may be quickly rendered obsolete by changing customer preferences or the introduction by Edwards Lifesciences &apos competitors of products embodying new technologies or features |
| Edwards Lifesciences may incur product liability losses that could adversely affect its operating results |
| Edwards Lifesciences &apos business exposes it to potential product liability risks that are inherent in the design, manufacture and marketing of medical devices |
| Edwards Lifesciences &apos products are often used in surgical and intensive care settings with seriously ill patients |
| In addition, some of the medical devices manufactured and sold by Edwards Lifesciences are designed to be implanted in the human body for long periods of time |
| Edwards Lifesciences could be the subject of product liability suits alleging that component failures, manufacturing flaws, design defects or inadequate disclosure of product related risks or product related information could result in an unsafe condition or injury to patients |
| Product liability lawsuits and claims, safety alerts or product recalls in the future, regardless of their ultimate outcome, could have a material adverse effect on Edwards Lifesciences &apos business and reputation and on its ability to attract and retain customers |
| 10 _________________________________________________________________ Edwards Lifesciences may experience supply interruptions that could harm its ability to manufacture products |
| Edwards Lifesciences uses a diverse and broad range of raw and organic materials and other items in the design and manufacture of its products |
| Edwards Lifesciences &apos heart valve therapy products are manufactured from treated natural animal tissue and man-made materials |
| Edwards Lifesciences &apos non-implantable products are manufactured from man-made raw materials including resins, chemicals, electronics and metals |
| Edwards Lifesciences purchases certain of the materials and components used in the manufacture of its products from external suppliers |
| In addition, Edwards Lifesciences purchases certain supplies from single sources for reasons of quality assurance, cost-effectiveness or constraints resulting from regulatory requirements |
| Edwards Lifesciences works closely with its suppliers to assure continuity of supply while maintaining high quality and reliability |
| Alternative supplier options are generally considered and identified, although Edwards Lifesciences does not typically pursue regulatory qualification of alternative sources due to the strength of its existing supplier relationships and the time and expense associated with this regulatory process |
| Although a change in suppliers could require significant effort or investment by Edwards Lifesciences in circumstances where the items supplied are integral to the performance of its products or incorporate unique technology, management does not believe that the loss of any existing supply contract would have a material adverse effect on the Company |
| In an effort to reduce potential product liability exposure, in the past certain suppliers have announced that they might limit or terminate sales of certain materials and parts to companies that manufacture implantable medical devices |
| If Edwards Lifesciences is unable to obtain these raw materials or there is a significant increase in the price of materials or components, its business could be harmed |
| Edwards Lifesciences may be required to recognize additional charges in connection with the write-down of some of its investments, the disposition of some of its businesses, the termination of its interest rate swap agreements or for other reasons |
| Edwards Lifesciences has made investments in the equity instruments of other companies, and may make further such investments in the future |
| To the extent that the value of any such investment declines, Edwards Lifesciences may be required to recognize charges to write down the value of that investment |
| See "e Asset Impairments "e under "e Managementapstas Discussion and Analysis of Financial Condition and Results of Operations "e included herein |
| In the case of some of the companies in which Edwards Lifesciences has invested, the value of its equity securities has declined since the time of its original investment |
| As a result, Edwards Lifesciences may be required to recognize additional charges, which could be substantial, to write down its investments |
| At December 31, 2005, Edwards Lifesciences had dlra10dtta7 million of investments in equity instruments of other companies and had recorded unrealized losses of dlra0dtta6 million on these investments on its balance sheet in "e Accumulated Other Comprehensive Income (Loss), "e net of tax |
| As part of the ongoing evaluation of its various businesses and products, Edwards Lifesciences from time to time identifies businesses or products that are not performing at a level commensurate with the rest of its business |
| Edwards Lifesciences may from time to time seek to dispose of these under-performing businesses or product lines, and may also seek to dispose of businesses or product lines from time to time for strategic or other business reasons |
| If Edwards Lifesciences is unable to dispose of a business or product line on terms it considers acceptable, Edwards Lifesciences may voluntarily terminate that business or cease providing that product |
| Any of these events may result in charges, which could be substantial and which could adversely affect its results of operations |
| Historically, Edwards Lifesciences has entered into interest rate swap agreements in connection with some of its indebtedness, and expects that it will continue to do so from time to time in the 11 _________________________________________________________________ future |
| In the event that Edwards Lifesciences elects to terminate a swap agreement prior to its maturity, it may be required to make cash payments to the counterparty and to recognize a charge in connection with that termination, which could adversely affect its results of operations |
| Edwards Lifesciences may not successfully identify and complete acquisitions or strategic alliances on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances, and such acquisitions could result in unforeseen operating difficulties and expenditures, require significant management resources and require significant charges or write-downs |
| As part of Edwards Lifesciences &apos growth strategy, Edwards Lifesciences regularly reviews potential acquisitions of complementary businesses, technologies, services or products, as well as potential strategic alliances |
| Edwards Lifesciences may be unable to find suitable acquisition candidates or appropriate partners with which to form partnerships or strategic alliances |
| Even if Edwards Lifesciences identifies appropriate acquisition or alliance candidates, it may be unable to complete such acquisitions or alliances on favorable terms, if at all |
| In addition, the process of integrating an acquired business, technology, service or product into Edwards Lifesciences &apos existing business and operations may result in unforeseen operating difficulties and expenditures |
| Integration of an acquired company also may require significant management resources that otherwise would be available for ongoing development of Edwards Lifesciences &apos business |
| Moreover, Edwards Lifesciences may not realize the anticipated benefits of any acquisition or strategic alliance, and such transactions may not generate anticipated financial results |
| In addition, Edwards Lifesciences may be required to take charges or write downs in connection with acquisitions it has made or may make in the future |
| In particular, acquisitions of businesses engaged in the development of new products may give rise to in-process research and development charges, which could be significant |
| Edwards Lifesciences has taken in-process research and development charges in connection with past acquisitions and may take similar charges in connection with acquisitions the Company makes in the future, which charges could adversely affect its results of operations |
| Future acquisitions could also require issuances of equity securities, the incurrence of debt, contingent liabilities or amortization expenses related to other intangible assets, any of which could harm Edwards Lifesciences &apos business |
| Edwards Lifesciences &apos business is subject to economic, political and other risks associated with international sales and operations |
| Because Edwards Lifesciences sells its products in a number of foreign countries, its business is subject to risks associated with doing business internationally |
| Edwards Lifesciences &apos net sales originating outside of the United States, as a percentage of total net sales, were 54dtta3prca in 2005 |
| Edwards Lifesciences anticipates that sales from international operations will continue to represent a substantial portion of its total sales |
| In addition, many of Edwards Lifesciences &apos manufacturing facilities and suppliers are located outside of the United States |
| Management expects to increase Edwards Lifesciences &apos international sales, which could expose it to greater risks associated with international sales and operations |
| Accordingly, Edwards Lifesciences future results could be harmed by a variety of factors, including: • changes in foreign medical reimbursement policies and programs; • unexpected changes in foreign regulatory requirements; • changes in foreign currency exchange rates; • changes in a specific countryapstas or regionapstas political or economic conditions, particularly in emerging regions; • trade protection measures and import or export licensing requirements; • potentially negative consequences from changes in tax laws; 12 _________________________________________________________________ • difficulty in staffing and managing foreign operations; • an outbreak of any life threatening communicable disease; • changes in the international political situation; • differing labor regulations; and • differing protection of intellectual property |
| Edwards Lifesciences is subject to risks arising from currency exchange rate fluctuations |
| Edwards Lifesciences generated 54dtta3prca of net sales in 2005 outside of the United States |
| Substantially all of Edwards Lifesciences &apos sales outside of the United States are denominated in local currencies |
| Measured in local currency, a substantial portion of Edwards Lifesciences &apos foreign generated sales was generated in Europe (and primarily denominated in the Euro) and in Japan |
| The United States dollar value of Edwards Lifesciences &apos foreign generated sales varies with currency exchange rate fluctuations |
| Significant decreases in the value of the United States dollar to the Euro or the Japanese yen have had the effect of increasing Edwards Lifesciences &apos earnings even when the volume of foreign sales has remained constant |
| Significant increases in the value of the United States dollar relative to the Euro or the Japanese yen, as well as other currencies, could have a material adverse effect on Edwards Lifesciences &apos results of operations |
| Edwards Lifesciences has a hedging program that attempts to manage currency exchange rate risks to an acceptable level based on managementapstas judgment of the appropriate trade-off between risk, opportunity and cost; however, this hedging program does not completely eliminate the effects of currency exchange rate fluctuations |
| Increased interest rates could increase Edwards Lifesciences &apos borrowing costs and make it more difficult to access the capital markets |
| From time to time Edwards Lifesciences may issue securities to finance acquisitions, capital expenditures, working capital and other general corporate purposes |
| An increase in interest rates in the general economy could result in an increase in Edwards Lifesciences &apos borrowing costs for these financings, as well as under any existing debt that bears interest at a floating rate and for which interest rate swaps are not in place, and could otherwise restrict the ability of Edwards Lifesciences to access the capital markets |
| Fluctuations in Edwards Lifesciences &apos quarterly operating results may cause its stock price to decline |
| Edwards Lifesciences &apos sales and operating results may vary significantly from quarter to quarter |
| A high proportion of Edwards Lifesciences &apos costs are fixed, due in part to significant sales, research and development and manufacturing costs |
| Thus, small declines in revenue could disproportionately affect operating results in a quarter, and the price of Edwards Lifesciences &apos common stock may fall |
| Other factors that could affect quarterly operating results include: • demand for and clinical acceptance of products; • the timing and execution of customer contracts, particularly large contracts that would materially affect Edwards Lifesciences &apos operating results in a given quarter; • the timing of sales of products and of the introduction of new products; • changes in foreign currency exchange rates; 13 _________________________________________________________________ • unanticipated delays or problems in introducing new products; • competitors &apos announcements of new products, services or technological innovations; • changes in Edwards Lifesciences &apos pricing policies or the pricing policies of its competitors; • increased expenses, whether related to sales and marketing, raw materials or supplies, product development or administration; • adverse changes in the level of economic activity in the United States and other major regions in which Edwards Lifesciences does business; • costs related to possible acquisitions of technologies or businesses; • Edwards Lifesciences &apos ability to expand its operations; and • the amount and timing of expenditures related to expansion of Edwards Lifesciences &apos operations |
| Edwards Lifesciences &apos inability to protect its intellectual property could have a material adverse effect on its business |
| Edwards Lifesciences &apos success and competitive position are dependent, in part, upon its proprietary intellectual property |
| Edwards Lifesciences relies on a combination of patents, trade secrets and nondisclosure agreements to protect its proprietary intellectual property, and will continue to do so |
| Although Edwards Lifesciences seeks to protect its proprietary rights through a variety of means, Edwards Lifesciences cannot guarantee that the protective steps it has taken are adequate to protect these rights |
| Patents issued to or licensed by Edwards Lifesciences in the past or in the future may be challenged and held invalid |
| In addition, certain of Edwards Lifesciences &apos patents are due to expire within the next five years and the Company may be unsuccessful in its efforts to extend its protection through improvement patents, modifications or line extensions |
| The failure to maintain Edwards Lifesciences &apos patents could have a material adverse effect on the Company |
| Edwards Lifesciences also relies on confidentiality agreements with certain employees, consultants and other parties to protect, in part, trade secrets and other proprietary information |
| These agreements could be breached and Edwards Lifesciences may not have adequate remedies for any breach |
| In addition, others may independently develop substantially equivalent proprietary information or gain access to Edwards Lifesciences &apos trade secrets or proprietary information |
| Edwards Lifesciences spends significant resources to monitor and enforce its intellectual property rights |
| Edwards Lifesciences may not be able to detect infringement and may lose its competitive position in the industry |
| In addition, competitors may design around Edwards Lifesciences &apos technology or develop competing technologies |
| Patent litigation could result in substantial cost and diversion of effort |
| Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture increased market position |
| Third parties may claim Edwards Lifesciences is infringing their intellectual property, and Edwards Lifesciences could suffer significant litigation or licensing expenses or be prevented from selling products |
| During recent years, Edwards Lifesciences &apos competitors have been involved in substantial litigation regarding patent and other intellectual property rights in the medical device industry generally |
| From time to time, Edwards Lifesciences may be forced to defend itself against other claims and legal actions alleging infringement of the intellectual property rights of others |
| Because intellectual property litigation can be costly and time consuming, Edwards Lifesciences &apos intellectual property litigation expenses could be significant |
| Adverse determinations in any such litigation could subject Edwards Lifesciences to significant liabilities to third parties, or could require Edwards Lifesciences to seek licenses from third parties and could, if such licenses are not available, prevent the Company from 14 _________________________________________________________________ manufacturing, selling or using certain of its products, any one of which could have a material adverse effect on the Company |
| Third parties could also obtain patents that may require Edwards Lifesciences to either redesign its products or, if possible, negotiate licenses to conduct its business |
| If Edwards Lifesciences is unable to redesign its products or obtain a license, Edwards Lifesciences may have to exit a particular product offering |
| Edwards Lifesciences faces intense competition and consolidation within its industry, and if Edwards Lifesciences does not compete effectively, its business will be harmed |
| The cardiovascular medical device industry is highly competitive |
| Edwards Lifesciences competes with many companies, some of which have longer operating histories, better brand or name recognition and greater access to financial and other resources than Edwards Lifesciences |
| Furthermore, the industry is characterized by intensive development efforts and rapidly advancing technology |
| Edwards Lifesciences &apos present and future products could be rendered obsolete or uneconomical by technological advances made by one or more of its current or future competitors or by alternative therapies, including drug therapies |
| See "e Business—Competition "e included herein |
| Edwards Lifesciences &apos future success will depend, in large part, on its ability to develop and acquire new products and technologies, anticipate technology advances and keep pace with other developers of cardiovascular therapies and technologies |
| The medical device industry has been consolidating and, as a result, transactions with customers are larger, more complex and tend to involve more long-term contracts |
| The enhanced purchasing power of these larger customers may also increase downward pressure on product pricing |
| In addition, many existing and potential domestic customers for Edwards Lifesciences &apos products have combined to form group purchasing organizations, or "e GPOs "e |
| GPOs negotiate pricing arrangements with medical supply manufacturers and distributors and these negotiated prices are made available to members of GPOs |
| If Edwards Lifesciences is not one of the providers selected by a GPO, it may be precluded from making sales to members of a GPO Even if Edwards Lifesciences is one of the selected providers, it may be at a disadvantage relative to other selected providers that are able to offer volume discounts based on purchases of a broader range of medical equipment and supplies |
| Further, Edwards Lifesciences may be required to commit to pricing that has a material adverse effect on its sales and profit margins, business, financial condition and results of operations |
| Edwards Lifesciences and its customers are subject to various governmental regulations and Edwards Lifesciences may incur significant expenses to comply with these regulations and develop its products to be compatible with these regulations |
| The medical devices manufactured and marketed by Edwards Lifesciences are subject to rigorous regulation by the United States Food and Drug Administration ( "e FDA "e ) and numerous other federal, state and foreign governmental authorities |
| The process of obtaining regulatory approvals to market a medical device, particularly from the FDA and certain foreign governmental authorities, can be costly and time consuming, and approvals might not be granted for future products on a timely basis, if at all |
| Delays in receipt of, or failure to obtain, approvals for future products could result in delayed realization of product revenues or in substantial additional costs, which could have material adverse effects on Edwards Lifesciences &apos business or results of operations |
| In addition, there can be no assurance that Edwards Lifesciences will be or will continue to be in compliance with applicable FDA and other material regulatory requirements |
| If the FDA or some other foreign governmental authority were to conclude that Edwards Lifesciences was not in compliance with applicable laws or regulations, the FDA or such other foreign governmental authority, as applicable, could institute proceedings to detain or seize Edwards Lifesciences &apos products, issue a recall, impose operating restrictions, enjoin future violations and assess civil penalties against Edwards Lifesciences, its officers or its employees 15 _________________________________________________________________ and could recommend criminal prosecution to the Department of Justice |
| Moreover, the FDA or some other foreign governmental authority could proceed to ban, or request recall, repair, replacement or refund of the cost of, any device or product manufactured or distributed by Edwards Lifesciences |
| Furthermore, both the FDA and foreign government regulators have become increasingly stringent, and Edwards Lifesciences may be subject to more rigorous regulation by governmental authorities in the future |
| Failure of any of Edwards Lifesciences &apos products to meet applicable quality standards could result in recalls or other serious consequences |
| Edwards Lifesciences products must conform with exacting quality standards, many of which are imposed by regulations of the FDA and other applicable regulatory agencies |
| Failure to manufacture products to the required quality standards could result in voluntary or mandatory recalls of the products, field corrective actions or other remedial action, as well as fines and penalties or the ban of the affected product |
| These actions could result in significant monetary expenditures by Edwards Lifesciences as well as the commitment of substantial amounts of management time and could have a material adverse impact on the financial condition and results of operations of Edwards Lifesciences |
| Unsuccessful clinical trials or developmental procedures relating to products and development could have a material adverse effect on Edwards Lifesciences &apos prospects |
| The development of new products by Edwards Lifesciences requires extensive clinical trials and procedures |
| There can be no assurance that these trials or procedures will be successful or completed in a timely or cost effective manner |
| Failure to successfully complete these trials or procedures in a timely and cost effective manner could have a material adverse effect on the Companyapstas prospects |
| In addition, current results from the Companyapstas clinical trials or procedures may not be supported by actual long-term studies or clinical experience |
| If current results for a Company product cannot be supported by actual long-term studies or clinical experience, the Companyapstas business could be adversely affected |
| Edwards Lifesciences is subject to risks arising from concerns and/or regulatory actions relating to "e mad cow disease "e |
| Certain of Edwards Lifesciences &apos products, including pericardial tissue valves, are manufactured using bovine tissue |
| Concerns relating to the potential transmission of bovine spongiform encephalopathy, or "e BSE, "e commonly known as "e mad cow disease, "e from cows to humans may result in reduced acceptance of bovine products |
| Edwards Lifesciences obtains its bovine tissue only from closely controlled sources within the United States and Australia |
| To date, there have been few reported cases in the United States |
| The bovine tissue used in Edwards Lifesciences &apos pericardial tissue valves is from tissue types considered by global health and regulatory organizations to have shown no risk of infectibility for the suspected BSE infectious agent |
| Edwards Lifesciences has not experienced any significant adverse impact on its sales as a result of concerns regarding BSE, but no assurance can be given that such an impact may not occur in the future |
| If third party payors decline to reimburse Edwards Lifesciences &apos customers for its products or reduce reimbursement levels, Edwards Lifesciences &apos ability to profitably sell its products will be harmed |
| Edwards Lifesciences sells its products and technologies to hospitals, doctors and other health care providers, all of which receive reimbursement for the health care services provided to its patients from third party payors, such as government programs (both domestic and international), private insurance plans and managed care programs |
| These third party payors may deny reimbursement if they determine that a device used in a procedure was not used in accordance with cost-effective treatment methods as determined by such third party payors, or was used for an unapproved indication |
| Third party payors 16 _________________________________________________________________ may also decline to reimburse for experimental procedures and devices |
| Edwards Lifesciences believes that many of its existing and future products are cost-effective because they are intended to reduce overall health care costs over a long period of time |
| Edwards Lifesciences cannot be certain whether these third party payors will recognize these cost savings or will merely focus on the lower initial costs associated with competing therapies |
| If Edwards Lifesciences &apos products are not considered cost-effective by third party payors, Edwards Lifesciences &apos customers may not be reimbursed for the Companyapstas products |
| In addition, third party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for medical products and services |
| There can be no assurance that levels of reimbursement, if any, will not be decreased in the future, or that future legislation, regulation or reimbursement policies of third party payors will not otherwise adversely affect the demand for and price levels of Edwards Lifesciences &apos products |
| In Japan, customers are reimbursed for Edwards Lifesciences &apos products under a government-operated insurance system |
| Under this system, the Japanese government annually reviews the reimbursement levels for products |
| The Japanese government is also considering other reimbursement regulation |
| If the Japanese government decides to reduce reimbursement levels for Edwards Lifesciences products, its product pricing may be adversely affected |
| Edwards Lifesciences is, or may be, subject to lawsuits related to products or services manufactured or performed by the Company |
| Edwards Lifesciences is, or may be, a party to, or may be otherwise responsible for, pending or threatened lawsuits or other claims related to products and services currently or formerly manufactured or performed, as applicable, by the Company |
| Such cases and claims may raise difficult and complex factual and legal issues and may be subject to many uncertainties and complexities, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law |
| Upon resolution of any such legal matters or other claims, Edwards Lifesciences may incur charges in excess of established reserves |
| While any such charge could have a material adverse impact on Edwards Lifesciences &apos net income or net cash flows in the period in which it is recorded or paid, management believes that no such charge relating to any currently pending lawsuit would have a material adverse effect on Edwards Lifesciences &apos financial position, results of operations or liquidity |
| Edwards Lifesciences may incur increased costs as a result of recent changes in laws and regulations affecting public companies |
| Compliance with changes in laws and regulations affecting public companies such as the Sarbanes-Oxley Act of 2002 requiring an evaluation of the effectiveness of internal controls over financial reporting may result in increased accounting, legal and administrative costs |
| The cost of complying with these requirements is substantial and could increase in the future |
| The market price for Edwards Lifesciences &apos common stock may be volatile |
| The market price of Edwards Lifesciences &apos common stock could fluctuate substantially in the future in response to any of the other risk factors set out above and below as well as a number of other factors, including the following: • quarterly variations in operating results, as discussed above under "e —Fluctuations in Edwards Lifesciences &apos quarterly operating results may cause its stock price to decline; "e • announcements of innovations, new products, strategic developments or business combinations by Edwards Lifesciences or its competitors; 17 _________________________________________________________________ • changes in Edwards Lifesciences expected operating expense levels or income and losses; • changes in financial estimates and recommendations of securities analysts; • the operating and securities price performance of other companies that investors may deem comparable to Edwards Lifesciences; and • changes in general conditions in the economy, the financial markets, the domestic or international political situation or the medical device industry |
| In addition, in recent years the stock market has experienced extreme price and volume fluctuations |
| This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance |
| These broad market fluctuations may materially adversely affect Edwards Lifesciences &apos stock price, regardless of its operating results |
| Edwards Lifesciences &apos stockholder rights plan, charter and bylaws, as well as provisions of Delaware law, the change in control provisions of the 3dtta875prca convertible senior debentures issued by Edwards Lifesciences and the change in control provisions of other agreements to which Edwards Lifesciences is a party, could make it difficult for a third party to acquire the Company |
| Edwards Lifesciences has a stockholder rights plan that may have the effect of discouraging unsolicited takeover proposals |
| The rights issued under the stockholder rights plan would cause substantial dilution to a person or group that attempts to acquire Edwards Lifesciences on terms not approved in advance by its board of directors |
| In addition, Delaware corporate law and Edwards Lifesciences &apos charter and bylaws contain provisions that could delay, deter or prevent a change in control of the Company or its management |
| These provisions could also discourage proxy contests and make it more difficult for Edwards Lifesciences &apos stockholders to elect directors and take other corporate actions without the concurrence of its management or board of directors |
| These provisions: • authorize Edwards Lifesciences &apos board of directors to issue "e blank check "e preferred stock, which is preferred stock that can be created and issued by its board of directors, without stockholder approval, with rights senior to those of common stock; • provide for a staggered board of directors and three-year terms for directors, so that no more than a minority of Edwards Lifesciences &apos directors could be replaced at any annual meeting; • provide that directors may be removed only for cause; • provide that stockholder action may be taken only at a special or regular meeting and not by written consent; • provide for super majority voting requirements for some provisions of Edwards Lifesciences &apos charter; and • establish advance notice requirements for submitting nominations for election to the board of directors and for proposing matters to be acted upon by stockholders at a meeting |
| Edwards Lifesciences is also subject to anti-takeover provisions under Delaware law, which could also delay or prevent a change of control |
| Together, these provisions of Edwards Lifesciences &apos charter and bylaws, Delaware law and its stockholder rights plan may discourage transactions that otherwise could provide for the payment of a premium over prevailing market prices of Edwards Lifesciences &apos common stock, and also could limit the price that investors are willing to pay in the future for shares of its common stock |
| In addition, if Edwards Lifesciences undergoes a change in control (as defined in the indenture relating to Edwards Lifesciences &apos 3dtta875prca convertible senior debentures) prior to May 15, 2008, the holders of the 3dtta875prca convertible senior debentures have the right, at their option, to require Edwards 18 _________________________________________________________________ Lifesciences to purchase all or a portion of the debentures they hold |
| In addition, certain change in control events relating to the Company may constitute or otherwise result in events of default under the Companyapstas other debt instruments or its receivables facilities, which could result in borrowings outstanding and other amounts due under those debt instruments and receivables facilities becoming immediately due and payable |
| These features of Edwards Lifesciences &apos 3dtta875prca convertible senior debentures and other debt instruments and receivables facilities, and features of Edwards Lifesciences &apos employee equity programs and change in control severance agreements with the Companyapstas executive officers which have the effect of accelerating vesting of equity awards or causing severance payments to become due and payable, may also discourage a person or a group from attempting to acquire Edwards Lifesciences |
| Edwards Lifesciences &apos issuance of preferred stock could adversely affect holders of its common stock and discourage a takeover |
| Edwards Lifesciences &apos board of directors is authorized to issue up to 50cmam000cmam000 shares of preferred stock without any action on the part of its stockholders |
| Edwards Lifesciences &apos board of directors also has the power, without stockholder approval, to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, preferences over its common stock with respect to dividends or in the event of a dissolution, liquidation or winding up and other terms |
| In the event that Edwards Lifesciences issues preferred stock in the future that has preference over its common stock with respect to payment of dividends or upon its liquidation, dissolution or winding up, or if Edwards Lifesciences issues preferred stock with voting rights that dilute the voting power of its common stock, the rights of the holders of its common stock or the market price of its common stock could be adversely affected |
| In addition, the ability of Edwards Lifesciences &apos board of directors to issue shares of preferred stock without any action on the part of its stockholders may impede a takeover of Edwards Lifesciences and prevent a transaction favorable to the holders of its common stock |
| Recent changes related to equity compensation could adversely affect Edwards Lifesciences &apos ability to attract and retain key personnel |
| Since inception, Edwards Lifesciences has used stock options and other long-term equity based incentives as a fundamental component of its employee compensation packages |
| Management believes that stock options and other long-term equity based incentives directly motivate employees to maximize long-term stockholder value and, through the use of vesting, encourage employees to remain with the Company |
| The Financial Accounting Standards Board issued changes to the United States generally accepted accounting principles that require Edwards Lifesciences to record a charge to earnings for new and unvested stock options beginning January 1, 2006 |
| In addition, increased investor interest in equity-based compensation and New York Stock Exchange rules prohibiting NYSE member organizations from voting on equity-based compensation plans unless the beneficial owner of the shares has given express voting instructions could make it more difficult for the Company to obtain approval of future stock option grants to employees |
| To the extent that these changes make it more difficult or expensive to grant stock options to employees, Edwards Lifesciences may incur increased compensation costs, change its equity compensation strategy or find it difficult to attract, retain and motivate employees, each of which could materially adversely affect the Company |
| Future sales of common stock in the public market could adversely affect the trading price of Edwards Lifesciences &apos common stock and its ability to raise funds in new securities offerings |
| Future sales of substantial amounts of the common stock of Edwards Lifesciences in the public market, or the perception that such sales could occur, could adversely affect prevailing trading prices of the common stock of Edwards Lifesciences that it may issue and could impair its ability to raise capital 19 _________________________________________________________________ through future offerings of equity or equity-related securities |
| As of December 31, 2005, Edwards Lifesciences had: • 59cmam524cmam866 shares of common stock outstanding; • 10cmam253cmam574 shares of common stock reserved for issuance upon exercise of options outstanding under Edwards Lifesciences &apos stock option plans with a weighted average exercise price of dlra27dtta62 per share; • 2cmam088cmam850 shares of common stock reserved for future issuance under incentive compensation programs and employee stock purchase plans; and • 2cmam744cmam238 shares of common stock reserved for issuance upon conversion of Edwards Lifesciences &apos outstanding 3dtta875prca convertible senior debentures |
| No prediction can be made as to the effect, if any, that future issuances of shares of common stock or the availability of shares of common stock for future sale, will have on the trading price of our common stock |
| Issuances of substantial amounts of common stock, or the perception that such issuances could occur, may adversely affect prevailing market prices for our common stock |