FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 0-22340
[GRAPHIC OMITTED]
PALOMAR MEDICAL TECHNOLOGIES, INC.
-------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 04-3128178
- -------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
66 Cherry Hill Drive, Beverly, MA 01915
(Address of principal executive offices)
(508) 921-9300
------------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X No
As of August 12, 1996, 28,061,662 shares of Common Stock, $.01 par
value per share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
Page 1 of 20
PALOMAR MEDICAL TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - December 31, 1995 and June 30, 1996 P.3
Consolidated Statements of Operations - For the Three and Six Months Ended
June 30, 1995 and 1996 P.4
Consolidated Statements of Stockholders' Equity - For the Three Months Ended
March 31, 1996 and June 30, 1996 P.5
Consolidated Statements of Cash Flows - For the Six Months Ended
June 30, 1995 and 1996 P.6
Notes to Consolidated Financial Statements P.8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS P.15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS P.19
ITEM 2. CHANGES IN SECURITIES P.19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES P.19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS P.19
ITEM 5. OTHER INFORMATION P.19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K P.19
SIGNATURES P.20
</TABLE>
-2-
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------------- --------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $17,138,178 $8,626,399
Marketable securities 749,410 1,420,063
Accounts receivable, net 4,737,766 10,269,654
Inventories 3,649,884 11,489,533
Current portion of deferred costs 462,787 158,689
Loans to officers 948,198 1,389,553
Loans to related parties 3,161,375 5,887,674
Other current assets 352,130 1,207,190
-------------------- --------------------
Total current assets 31,199,728 40,448,755
-------------------- --------------------
PROPERTY AND EQUIPMENT, AT COST, NET 3,165,015 3,866,545
-------------------- --------------------
OTHER ASSETS:
Cost in excess of net assets acquired, net 3,729,508 5,336,574
Intangible assets, net 1,597,745 1,790,146
Deferred costs, net of current portion 346,333 246,000
Long-term investments 500,000 5,446,479
Loans to related party 700,000 2,606,397
Other assets 631,831 1,691,581
-------------------- --------------------
Total other assets 7,505,417 17,117,177
-------------------- --------------------
$41,870,160 $61,432,477
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit $1,296,462 $1,757,106
Short term notes payable 100,000 --
Current portion of long-term debt 2,474,265 2,430,261
Contingent note payable 500,000 --
Accounts payable 4,246,950 12,036,053
Accrued expenses 4,633,557 6,875,114
-------------------- --------------------
Total current liabilities 13,251,234 23,098,534
-------------------- --------------------
LONG-TERM DEBT, NET OF CURRENT PORTION 3,330,172 1,268,638
-------------------- --------------------
COMMITMENTS (NOTE 13)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-
Authorized - 5,000,000 shares
Issued and outstanding - 13,860 shares
at December 31, 1995
and 16,000 shares at June 30, 1996 139 160
Common stock, $.01 par value-
Authorized - 40,000,000 shares
Issued - 20,135,406 shares at December 31,
1995 and 26,828,740 shares at June 30, 1996 201,353 268,287
Treasury stock (200,000 shares at cost) (1,211,757) (1,211,757)
Additional paid-in capital 54,152,385 80,709,654
Accumulated deficit (25,864,657) (41,636,803)
Subscriptions receivable from related party (1,988,709) (1,064,236)
-------------------- --------------------
Total stockholders' equity 25,288,754 37,065,305
-------------------- --------------------
$41,870,160 $61,432,477
==================== ====================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-3-
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1996 1995 1996
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
REVENUES $6,227,864 $17,538,019 $9,797,483 $24,463,020
COST OF REVENUES 4,491,159 14,821,014 7,331,596 22,104,780
------------------------------- -------------------------------
Gross profit 1,736,705 2,717,005 2,465,887 2,358,240
------------------------------- -------------------------------
OPERATING EXPENSES
Research and development 568,024 2,374,494 1,224,147 4,091,297
Selling, general and administrative 2,362,033 7,159,634 3,446,160 12,383,426
Business development and other financing costs 285,857 1,444,822 695,766 1,942,096
Pooling-of-interest expenses -- 443,780 -- 443,780
------------------------------- -------------------------------
Total operating expenses 3,215,914 11,422,730 5,366,073 18,860,599
------------------------------- -------------------------------
Loss from operations (1,479,209) (8,705,725) (2,900,186) (16,502,359)
INTEREST EXPENSE (255,163) (414,197) (482,505) (738,879)
INTEREST INCOME 13,524 597,253 45,747 1,203,447
NET GAIN (LOSS) ON TRADING SECURITIES (168,547) 613,234 (113,092) 728,318
MINORITY INTEREST IN LOSS OF SUBSIDIARY 29,987 15,096 58,145 45,671
------------------------------- -------------------------------
Net loss $(1,859,408) $(7,894,339) $(3,391,891) $(15,263,802)
=============================== ===============================
NET LOSS PER COMMON SHARE $(0.14) $(0.32) $(0.28) $(0.66)
=============================== ===============================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 13,380,731 25,643,137 12,218,736 23,892,331
=============================== ===============================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-4-
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Treasury Stock
---------------------------------------------------------------------------
Number $0.01 Number $0.01 Number
of Shares Par Value of Shares Par Value of Shares Cost
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 13,860 $ 139 20,135,406 $ 201,353 (200,000) ($ 1,211,757)
Sale of common stock pursuant
to warrants -- -- 1,013,328 10,133 -- --
Sale of common stock pursuant
to Regulation S -- -- 531,343 5,314 -- --
Payments received on subscriptions
receivable -- -- -- -- -- --
Issuance of preferred stock 6,000 60 -- -- -- --
Issuance of common stock pursuant
to stock options -- -- 78,000 780 -- --
Issuance of common stock for 1995
employer 401(k) matching
contribution -- -- 45,885 459 -- --
Conversion of preferred stock (11,360) (114) 2,315,953 23,160 -- --
Redemption of preferred stock (2,500) (25) -- -- -- --
Exercise of underwriter's warrants -- -- 500,000 5,000 -- --
Exercise of stock options in minority
controlled subsidiary -- -- -- -- -- --
Issuance of common stock for investment
banking and merger and
acquisition consulting services -- -- 6,802 68 -- --
Return of escrowed shares -- -- (46,000) (460) -- --
Amortization of deferred financing costs -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 6,000 60 24,580,717 245,807 (200,000) (1,211,757)
Sale of common stock pursuant
to warrants -- -- 585,311 5,853 -- --
Sale of common stock pursuant
to Regulation D -- -- 44,821 448 -- --
Payments received on subscriptions
receivable -- -- -- -- -- --
Issuance of preferred stock, including
common stock issued as a
placement fee, net of issuance costs 10,000 100 115,000 1,150 -- --
Issuance of common stock pursuant to
stock options -- -- 406,902 4,069 -- --
Conversion of convertible debentures -- -- 34,615 346 -- --
Redemption of convertible debentures -- -- -- -- -- --
Interest accrued on subscription receivable -- -- -- -- -- --
Issuance of common stock for Tissue
Technologies, Inc. -- -- 813,431 8,135 -- --
Issuance of common stock for minority
interest in Star Medical subsidiary -- -- 217,943 2,179 -- --
Issuance of common stock for investment banking
and merger and acquisition consulting
services -- -- 30,000 300 -- --
Compensation expense related to warrants
issued to non-employees under
Statement of Financial Accounting
Standards No. 123 -- -- -- -- -- --
Amortization of deferred financing costs -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 16,000 $160 26,828,740 $268,287 (200,000) $ (1,211,757)
============================================================================
Additional Total
Paid-in Accumulated Subscriptions Stockholders'
Capital Deficit Receivable Equity
---------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $ 54,152,385 ($25,864,657) ($ 1,988,709) $ 25,288,754
Sale of common stock pursuant
to warrants 3,501,254 -- -- 3,511,387
Sale of common stock pursuant
to Regulation S 2,854,816 -- -- 2,860,130
Payments received on subscriptions
receivable -- -- 1,988,709 1,988,709
Issuance of preferred stock 5,964,164 -- -- 5,964,224
Issuance of common stock pursuant
to stock options 184,470 -- -- 185,250
Issuance of common stock for 1995
employer 401(k) matching
contribution 160,139 -- -- 160,598
Conversion of preferred stock 210,796 -- -- 233,842
Redemption of preferred stock (3,123,127) -- -- (3,123,152)
Exercise of underwriter's warrants 1,057,500 -- (1,057,500) 5,000
Exercise of stock options in minority
controlled subsidiary 50,000 -- -- 50,000
Issuance of common stock for investment
banking and merger and
acquisition consulting services 36,656 -- -- 36,724
Return of escrowed shares 460 -- -- --
Amortization of deferred financing costs (32,500) -- -- (32,500)
Preferred stock dividends -- (243,122) -- (243,122)
Net loss -- (7,369,463) -- (7,369,463)
---------------------------------------------------------------
BALANCE, MARCH 31, 1996 65,017,013 (33,477,242) (1,057,500) 29,516,381
Sale of common stock pursuant
to warrants 1,923,791 -- -- 1,929,644
Sale of common stock pursuant
to Regulation D 415,802 416,250
Payments received on subscriptions
receivable -- -- 20,882 20,882
Issuance of preferred stock, including
common stock issued as a
placement fee, net of issuance costs 9,469,753 -- -- 9,471,003
Issuance of common stock pursuant to
stock options 207,829 -- -- 211,898
Conversion of convertible debentures 145,260 -- -- 145,606
Redemption of convertible debentures (41,530) -- -- (41,530)
Interest accrued on subscription receivable -- -- (27,618) (27,618)
Issuance of common stock for Tissue
Technologies, Inc. 1,019,022 -- -- 1,027,157
Issuance of common stock for minority
interest in Star Medical subsidiary 1,707,821 -- -- 1,710,000
Issuance of common stock for investment banking
and merger and acquisition consulting
services 267,200 -- -- 267,500
Compensation expense related to warrants
issued to non-employees under
Statement of Financial Accounting
Standards No. 123 599,360 -- -- 599,360
Amortization of deferred financing costs (21,667) -- -- (21,667)
Preferred stock dividends -- (265,222) -- (265,222)
Net loss -- (7,894,339) -- (7,894,339)
---------------------------------------------------------------
BALANCE, JUNE 30, 1996 $ 80,709,654 $(41,636,803) $ (1,064,236) $ 37,065,305
===============================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-5-
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1996
----------------- ------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $(3,391,891) $(15,263,802)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 652,278 1,327,467
Write-off of in-process research and development -- 57,212
Write-off of deferred financing costs associated with
redemption of convertible debentures -- 201,500
Minority interest in loss of subsidiary (58,145) (30,572)
Accrued interest receivable on trading securities
and subscription receivable -- (269,092)
Noncash interest expense related to debt 178,274 117,105
Noncash compensation related to common stock and
warrants -- 903,584
Unrealized loss on trading securities -- 172,880
Changes in assets and liabilities, net of effects
from business combinations;
Purchases of trading securities (137,561) (8,737,890)
Sale of trading securities and
interest received on trading securities -- 7,936,148
Accounts receivable (1,041,637) (5,768,220)
Inventories (568,099) (7,674,475)
Other current assets and loans to officers (564,701) (1,287,632)
Accounts payable 585,790 7,633,792
Accrued expenses 344,868 2,310,158
----------------- ------------------
Net cash used in operating activities (4,000,824) (18,371,837)
----------------- ------------------
Cash Flows from Investing Activities
Cash paid for purchase of Comtel Electronics, Inc.,
net of cash acquired -- (146,586)
Cash acquired from purchase of Spectrum
Medical Technologies, Inc.,
net of cash paid 75,087 --
Cash paid for purchase of Inter-connecting
Products, Inc. (397,199) --
Purchases of property and equipment (411,779) (1,009,162)
Increase in intangible assets -- (325,000)
Increase in other assets (31,813) (1,227,981)
Loans to related parties -- (5,924,314)
Payments received on loans from related parties -- 1,491,301
Investments in non-marketable securities (195,000) (4,946,479)
----------------- ------------------
Net cash used in investing activities (960,704) (12,088,221)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures 1,023,000 --
Proceeds from notes payable 470,000 --
Payments of notes payable and capital lease obligations (1,158,751) (502,367)
Net (payments) proceeds on revolving lines of credit (281,204) 460,644
Payment of contingent note payable -- (500,000)
Proceeds from sale of common stock 2,478,140 3,276,380
Proceeds from the exercise of warrants -- 5,446,031
Issuance of preferred stock -- 15,435,227
Redemption of preferred stock -- (3,194,375)
Redemption of convertible debentures -- (930,000)
Proceeds from exercise of stock options -- 447,148
Payments received on subscription receivable -- 2,009,591
Financing costs related to warrant call (69,317) --
----------------- ------------------
Net cash provided by financing activities 2,461,868 21,948,279
----------------- ------------------
Decrease in cash and cash equivalents (2,499,660) (8,511,779)
Cash and cash equivalents, beginning of period 3,263,203 17,138,178
----------------- ------------------
Cash and cash equivalents, end of period $763,543 $8,626,399
================= ==================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-6-
PALOMAR MEDICAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1996
----------------- ------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $207,946 $383,393
================= ==================
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING
ACTIVITIES Conversion of convertible debt and related
accrued interest, net of financing fees $1,315,000 $1,172,763
================= ==================
Unrealized holding gain on available for sale securities $227,500 $--
================= ==================
Subscriptions received in connection with warrant call $5,683,549 $--
================= ==================
Amortization of deferred financing costs $-- $54,167
================= ==================
Officer loan paid by transferring personal investment
in another company's stock in lieu of cash payment $175,000 $--
================= ==================
Issuance of common stock for 1995 employer 410(k)
matching contribution $-- $160,598
================= ==================
Value ascribed to warrants issued in connection with
license agreement $100,000 $--
================= ==================
Common stock issued in exchange for license rights
and convertible note payable $300,000 $--
================= ==================
Conversion of preferred stock $-- $233,842
================= ==================
Common stock issued for repurchase of minority interest $-- $1,710,000
================= ==================
Dividends payable $-- $508,344
================= ==================
ACQUISITION OF COMTEL ELECTRONICS, INC.
Liabilities assumed $-- $(258,144)
Fair value of assets acquired -- 72,661
Cash paid, net of cash acquired -- (146,586)
-----------------
==================
COST IN EXCESS OF NET ASSETS ACQUIRED $-- $(332,069)
================= ==================
ACQUISITION OF SPECTRUM MEDICAL TECHNOLOGIES, INC.
Liabilities assumed $(1,128,139) $--
Fair value of assets acquired 1,456,920 --
Fair Value of 364,178 shares of common stock issued (1,000,000) --
Promissory note issued (700,000) --
Cash Paid (300,000) --
Acquisition cost incurred (161,138) --
================= ==================
COST IN EXCESS OF NET ASSETS ACQUIRED $(1,832,357) $--
================= ==================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-7-
PALOMAR MEDICAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The results of operations for the interim periods shown in
this report are not necessarily indicative of expected results for any future
interim period or for the entire fiscal year. Palomar Medical Technologies, Inc.
(the "Company" or "Palomar") believes that the quarterly information presented
includes all adjustments (consisting only of normal, recurring adjustments)
necessary for a fair presentation in accordance with generally accepted
accounting principles. The accompanying financial statements and notes should be
read in conjunction with the Company's Form 10-KSB as of and for the year ended
December 31, 1995.
2. ACQUISITION OF COMTEL ELECTRONICS, INC.
On January 1, 1996, Dynaco Acquisition Corporation ("Dynaco") converted
a $100,000 note receivable from Comtel Electronics, Inc. ("Comtel") into 11,100
shares of Comtel stock (par value $.05), giving Dynaco a 10% interest in Comtel.
Effective March 20, 1996, Dynaco purchased an additional 500,000 shares of
Comtel for $27,500, resulting in 80.32% ownership by Dynaco. The remaining
19.68% ownership is held by two principals of Comtel. This acquisition has been
accounted for as a purchase in accordance with Accounting Principles Board (APB)
Opinion No. 16. Accordingly, the Company has allocated the purchase price based
on the fair market value of assets acquired and liabilities assumed. The results
of Comtel have been included with those of the Company since March 20, 1996.
Comtel has entered into a 5 year agreement with New Media, Inc. whereby
New Media subcontracted to Comtel all of its manufacturing and assembly business
over the contract term. Comtel is compensated by New Media to achieve a
guaranteed 15% gross margin to Comtel. Management estimates this contract will
generate $80 million in revenues for Comtel over the life of the agreement. On
April 5, 1996, Palomar invested $2,345,000 in New Media preferred and common
stock and loaned New Media an additional $1,000,000. The note receivable is
subordinated and nonrecourse, bears interest at 9% and is due in April of 1996
or earlier under certain conditions. Palomar also received a warrant to purchase
200,000 shares of common stock in New Media, Inc. at $1.20 per share. Palomar
has accounted for this investment under the cost method.
3. ACQUISITION OF TISSUE TECHNOLOGIES, INC.
On May 3, 1996, the Company acquired 100% of Tissue Technologies, Inc.
outstanding stock in exchange for 3,200,000 shares of Palomar common stock. The
Company is accounting for this acquisition as a pooling-of-interest in
accordance with APB No. 16. The Company has retroactively restated its financial
statements to reflect this acquisition as a pooling-of-interest. The Company
incurred $443,780 of various legal, accounting and consulting services costs
related to the acquisition during the six months ended June 30, 1996. Tissue
Technologies is engaged in the manufacture, marketing and sale of C02 laser
systems used in skin resurfacing.
4. ACQUISITION OF MINORITY INTEREST OF STAR MEDICAL TECHNOLOGIES, INC.
In April 1996, the Company purchased 15% of the outstanding common
stock of Star Medical that Palomar did not already own in exchange for 217,943
shares of Palomar's common stock valued at $7.85 per share. The agreement
restricts the sale of the Company's common stock issued in connection with this
agreement for a period of two years. The purchase price has been recorded as
goodwill and is being amortized over five years.
-8-
5. INVESTMENTS
(a) Marketable
The fair values for the Company's marketable equity securities are
based on quoted market prices. The fair values of nonmarketable equity
securities, which represent equity investments in early stage technology
companies, are based on the financial information provided by these ventures.
The amount that the Company realizes from these investments may differ
significantly from the amounts recorded in the accompanying consolidated
financial statements.
The Company accounts for investments in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No.
115, securities that the Company has the positive intent and ability to hold to
maturity will be reported at amortized cost and are classified as
held-to-maturity. There were no held-to-maturity securities as of December 31,
1995 and June 30, 1996. Securities purchased to be held for indefinite periods
of time and not intended at the time of purchase to be held until maturity are
classified as available-for-sale securities. Securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities. Realized and unrealized gains and losses relating to trading
securities are included currently in the accompanying consolidated statements of
operations.
During the six months ended June 30, 1996, the Company sold a portion
of its Trading Securities in three publicly traded companies realizing a gain of
$899,513, which is reflected in the accompanying consolidated statements of
operations.
<TABLE>
<CAPTION>
As of June 30, 1996
--------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Costs Gain Loss Value
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Trading Securities:
Investments in publicly
traded companies $1,571,604 $-- $(151,541) $1,420,063
============ ============ ============= =============
</TABLE>
(b) Non-Marketable
In addition to non-marketable equity securities held by the Company at
December 31, 1995, the Company has invested $500,000 in Clinic Holdings Inc. (a
Delaware corporation), in exchange for 1,000 shares of common stock (50% of
total issued and outstanding common stock) and has agreed that it may contribute
up to an additional $3,000,000 to Clinic Holdings. Clinic Holdings Inc. has
established a wholly-owned subsidiary, which it is anticipated will own and
operate cosmetic surgery clinics in the United States and Canada. Clinic
Holdings Inc. has agreed to purchase its needs for any laser based products or
devices from the Company to the extent that the products are manufactured or
distributed by the Company. The Company is accounting for its investment in
Clinic Holdings under the equity method of accounting.
6. INVENTORIES
Inventories are stated at lower of cost (first-in, first-out) or
market. Work in process and finished goods inventories consist of material,
labor and manufacturing overhead and consist of the following:
December 31, June 30,
1995 1996
------------- --------------
Raw materials $1,949,288 $6,948,027
Work in process and finished goods 2,008,389 4,643,272
Less -- progress billings 307,793 101,766
------------ -----------
$3,649,884 $11,489,533
============= ==============
-9-
7. PROPERTY AND EQUIPMENT
Property and Equipment consist of the following:
December 31, June 30,
1995 1996
---------------- --------------
Equipment under capital leases $1,214,950 $1,241,289
Machinery and equipment 1,992,157 2,551,540
Furniture and fixtures 806,252 1,237,692
Leasehold improvements 308,158 467,000
---------------- --------------
4,321,517 5,497,521
Less: Accumulated depreciation
and amortization 1,156,502 1,630,976
---------------- --------------
$3,165,015 $3,866,545
================ ==============
8. NET LOSS PER COMMON SHARE
For the three and six months ended June 30, 1995, net loss per common
share has been computed by dividing the net loss by the weighted average number
of shares of common stock outstanding during the period. For the three and six
months ended June 30, 1996, net loss per common share has been computed by
dividing net loss, as adjusted for preferred stock dividends, by the weighted
average number of shares of common stock outstanding during the period. Common
stock equivalents are not considered as outstanding, as the result would be
antidilutive.
9. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
--------------- --------------
<S> <C> <C>
7% Note payable $244,782 $244,782
8% Convertible debentures, $1,000,000 face amount, principal and interest due October 26, 1997.
$775,000 face amount of the debentures were repaid in May 1996. $225,000 face amount of
the debentures were converted into 34,615 shares of common stock 819,359 --
8% Convertible debentures issued by Tissue, converted in May 1996 950,000 --
7.4% to 21% Capital lease obligations, monthly principal and interest payments ranging from
$144 to $51,235, maturities ranging from August 1997 to January 1999 1,393,612 1,291,876
Present value of notes payable, discounted at 8% and due in annual installments of principal and
interest of $100,000, $200,000, $200,000 and $100,000 in fiscal 1995, 1996, 1997 and 1998,
respectively 468,012 326,770
Note payable in connection with the Spectrum acquisition, interest at the prime rate (8.25%
at June 30, 1996) plus 1%, principal of $200,000, $150,000, $200,000 and $150,000
plus interest due in October 1995, April 1996, October 1996 and April 1997, respectively 500,000 353,665
Bridge notes payable, prime (8.25% at June 30, 1996) plus 2% 1,350,000 1,200,000
Other notes payable 78,672 281,806
--------------- --------------
5,804,437 3,698,899
Less -- current maturities 2,474,265 2,430,261
-------------- --------------
$3,330,172 $1,268,638
============== ==============
</TABLE>
-10-
10. STOCKHOLDERS' EQUITY
(a) Options
During the six months ended June 30, 1996, the Company issued options
to purchase 180,000 shares of common stock at prices ranging from $6.75 to
$10.50 per share to several employees. Certain individuals also exercised stock
options to purchase 484,902 shares of common stock at prices ranging from $0.40
to $3.50. The total proceeds received by the Company were $397,148.
(b) Warrants
During the six months ended June 30, 1996, the Company issued warrants
to purchase a total of 4,623,778 shares of the Company's common stock to certain
officers, consultants and preferred stock investors at prices ranging from $4.88
to $15.00 per share. In addition, certain warrantholders exercised warrants to
purchase 1,598,639 shares of common stock at prices ranging from $0.60 to $7.50.
The Company received total proceeds of $5,485,576 and a note receivable for
$1,057,500 related to the exercise of the warrants.
(c Reserved Shares
At June 30, 1996, the Company has reserved shares of its common stock
for the following:
Stock option plans 1,424,400
Warrants 5,978,456
Employee 401(k) plan 254,115
Preferred stock 2,779,074
---------------
Total 10,436,045
===============
(d) Preferred Stock
On February 14, 1996, the Company completed the issuance of 6,000
shares of Series D Convertible Preferred Stock. The Company also issued warrants
to purchase 800,000 shares of Common Stock at prices varying from $7.50 to $8.00
per share expiring in 2001. The conversion price is a rate equal to 80% of the
average closing price of the common stock on ten consecutive preceding trading
days, but in no event less than $4.50 or more than $6.50 per share. The
conversion price is also adjustable for certain dilutive events, as defined. The
Series D Convertible Preferred Stock is entitled to dividends at rates ranging
from 4% to 8%, based on the length of time from the issue date. The Series D
Convertible Preferred stockholders also have preference in liquidation equal to
$1,000 plus accrued but unpaid dividends and accrued but unpaid interest. Under
certain circumstances, the Company has the option to redeem these shares at the
redemption price defined in the agreement. As of June 30, 1996, the preferred
stock was convertible into 1,333,333 shares of common stock.
On April 17, 1996, the Company completed the issuance of 10,000 shares
of Series E Convertible Preferred Stock and received net proceeds of $9,488,200.
The Company also issued the investor warrants to purchase 304,259 shares of
common stock at $15.00 per share. The conversion price of the Series E
Convertible Preferred Stock is a rate equal to 85% of the average closing price
of the common stock on the three consecutive trading days preceding the
conversion date, but in no event less than $7.50 or more than $11.50 per share.
If the average of the closing price on the five consecutive trading days ending
on the 89th day after the issuance date is at least $10.00, then the minimum
conversion price shall be increased to $8.50 per share. The Series E Convertible
Preferred Stock is entitled to a dividend at 7% per annum and has a preference
in liquidation. Under certain conditions the Company has the option to redeem
these shares at a redemption price as defined in the agreement. As of June 30,
1996, the preferred stock was convertible into 1,445,741 shares of common stock.
-11-
(e) Dividends
In certain circumstances the Company is prohibited from paying any
dividends to the holders of common stock until all accrued and unpaid dividends
have been paid or declared.
(f) Adoption of Financial Accounting Standards Board No. 123
Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting
for Stock Based Compensation" applies to all transactions in and reporting
standards for stock based compensation plans as well as transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. As of January 1, 1996, the Company adopted the provisions of SFAS
No. 123 related to warrants issued to non-employees. In connection with the
adoption, for the six months ended June 30, 1996, the Company charged
approximately $600,000 to operations related to these warrants. In accordance
with SFAS No. 123, the Company will continue to account for employee stock
options or similar equity instruments as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees". The Company does not currently
expect to adopt the accounting prescribed by SFAS No. 123; however, the Company
will include the disclosures required by SFAS No. 123 as required in future
consolidated financial statements included in its Form 10-KSB.
11. RELATED PARTY TRANSACTIONS
Included in current assets at December 31, 1995 and June 30, 1996 is
$4,109,573 and $7,277,227, respectively, of notes receivable from and
investments in various officers and related entities. Subsequent to June 30,
1996, the Company received payments totaling approximately $3,317,000 related to
certain of these notes receivables. It is reasonably possible that the Company's
estimate that it will collect these remaining receivables within one year will
change in the near term.
The Board of Directors have established a corporate loan policy under
which loans may be granted to certain officers/stockholders/directors of the
Company for amounts up to an aggregate of $800,000. All of such loans must be
collateralized by certain stockholdings of these individuals, as defined. At
December 31, 1995 and June 30, 1996, $383,198 and $733,890, respectively, with
accrued interest at the rate of 7% per annum, was outstanding to certain
officers/stockholders/directors under the corporate loan policy.
At June 30, 1996, the Company had loans receivable in aggregate of
$655,663, including accrued interest of $46,663, from two officers of Dynaco,
which are evidenced by three promissory notes due on demand or by December 31,
1996, bearing interest at the rates ranging from prime to 8%. These loans
receivable are collateralized with a certain amount of vested stock options in
the Company owned by the officers with a market price in excess of the exercise
price. As defined in the agreement, 100% of the then outstanding principal and
accrued but unpaid interest must never be below the sum of the excess of the
market price over the exercise price of the unexercised vested stock options.
At June 30, 1996, the Company had notes receivable for $3,317,342,
including accrued interest of $167,342 from an affiliated company. The Company's
chairman and CEO personally owns 35% of the affiliated company and together with
certain stockholders, owning an aggregate of 81% of this affiliate, have pledged
their common stock holdings as collateral for these notes receivable. The notes
have automatic conversion rights to preferred stock in the affiliate if the note
is not paid by its due date. The notes receivable bear interest at the rate of
10% per annum. In connection with the loan receivable, the Company received a
warrant from the affiliated company to purchase 250,000 shares of its common
stock at $1.50 per share. During July 1996, the affiliated company completed its
initial public offering and paid the notes due to Palomar in full.
In the second quarter of 1996, the Company loaned $1,700,000 to a
publicly-traded company of which certain directors of the publicly-traded
company are also directors of the Company. These loans bear interest at 10%. The
Company expects these loans to be repaid in full in the next twelve months and
has classified this note as current in the consolidated balance sheet at June
30, 1996.
-12-
The Company has a $500,000 equity investment in a privately held
technology company. A director of the Company's underwriter, H.J. Meyers is also
a director of the investee company. During the six months ended June 30, 1996,
the Company loaned this person $1,057,500, represented by an unsecured note
receivable, in connection with the exercise of stock warrants. This note bears
interest at 7.75% per annum and is due on demand. The Company also loaned this
director an additional $500,000 during the six months ended June 30, 1996, under
the same terms as the notes described above. In June 1996, $100,000 was paid in
principal and interest on the above notes.
During the six months ended June 30, 1996, the Company loaned $900,000
and $250,000, in the form of a note receivable, bearing interest at 10% per
annum, and due April 1996, and $250,000 to a company owned by a director.
During the six months ended June 30, 1996, the Company granted to its
officers and directors warrants to purchase 1,000,000 shares of the Company's
common stock, at prices ranging from $6.75 to $7.69, and expiring five years
from the date of grant.
On February 22, 1996, the Company entered into an agreement with a
former director of Star Medical Technologies, Inc. ("Star"), whereby the Company
issued this director warrants to purchase 50,000 shares of the Company's common
stock at $7.00 per share. The Company also agreed to pay this director $50,000,
and has loaned this director a total of $75,000 under a demand note payable
bearing interest at 7%.
The Company has various consulting agreements with directors and
officers of the Company.
During the six months ended June 30, 1996, Comtel had sales to New
Media of $6,600,000. At June 30, 1996 $3,460,000 of accounts receivable was due
from New Media.
12. PRO FORMA INFORMATION
The results of operations related to Spectrum have been included with
those of the Company since April 5, 1995.
The results of operations related to Inter-Connecting Products, Inc.
("ICP") have been included with those of the Company since June 5, 1995.
The results of operations related to Intelligent Computer Technologies,
Inc. ("ICT") have been included with those of the Company since September 18,
1995.
The results of operations related to Comtel have been included with
those of the Company since March 20, 1996.
Unaudited pro forma operating results for the Company, assuming the
acquisitions of ICT, ICP, Spectrum and Comtel had been made as of January 1,
1995, are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- ------------------------------------
1995 1996 1995 1996
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenue $9,444,092 $17,918,019 $16,758,266 $24,843,020
Net loss $(3,364,073) $(7,924,339) $(6,558,830) $(15,293,802)
Net loss per common share $(0.24) $(0.32) $(0.52) $(0.66)
</TABLE>
13. COMMITMENTS
The Company has issued guarantees to several of its subsidiaries for
payment of trade payables. The total amount guaranteed at June 30, 1996, was
$4,572,280. In addition, the Company has also issued three unlimited guarantees
to three other vendors of Nexar.
-13-
14. SUBSEQUENT EVENTS
Subsequent to June 30, 1996 the Company granted 255,000 options to
purchase the Company's common stock at $8.875 per share. In addition, the
Company issued 1,392,200 warrants to employees, consultants and investors
purchase the Company's common stock at prices ranging from $8.875 and $16.50.
Certain of the warrants issued are subject to vesting terms as described in the
warrant agreements.
On July 3, 1996, the Company raised approximately $7.0 million, net of
offering costs, through the issuance of 9,675 units in a convertible debenture
financing. Each unit consisted of a convertible debenture denominated in 1,000
Swiss Francs and a warrant to purchase 24 shares of the Company's common stock
at $16.50 per share. The warrants may be exercised only if the related
debentures are simultaneously converted, redeemed or purchased. Interest on the
convertible debentures will accrue at a rate of 4.5% per annum and is payable in
Swiss Francs.
On July 12, 1996, the Company completed the issuance of 6,000 shares of
Series F Convertible Preferred Stock and received net proceeds of $6,000,000.
The Company also issued the investor warrants to purchase 500,000 shares of
common stock at $16.00 per share. The Series F Convertible Preferred Stock is
entitled to a dividend at 8% per annum for the first twelve months, 6% per annum
for the second twelve months, 4% per annum thereafter and has a preference in
liquidation. Under certain conditions the Company has the option to redeem these
shares at a redemption price as defined in the agreement.
In July 1996, the Company purchased 80 shares of common stock (80% of
total issued and outstanding capital stock) of Dermascan, Inc. ("Dermascan")
from a Dermascan stockholder in exchange for 35,000 shares of common stock of
Palomar. The Company has agreed to include these shares issued in a future
registration statement filed by the Company for the resale of these shares. In
addition, the Company has agreed to pay the Dermascan stockholder an amount
equal to the difference between $14.00 and the closing bid price if lower, on
the day the registration statement is declared effective by the Securities and
Exchange Commission. The agreement also includes a put right by the remaining
20% stockholder of Dermascan that at any time after three years from the date of
the agreement the Company will be required to purchase the 20% interest for
$130,000 in cash. In connection with the agreement the Company entered into a
five year employment agreement with the selling stockholder which guarantees
annual payments of up to $125,000.
On July 19, 1996, the Company held a Special Meeting of Stockholders.
At the Special Meeting the Stockholders (i) ratified and approved an amendment
to increase the number of authorized shares of the Company from 45,000,000 to
105,000,000 shares, of which 100,000,000 are common stock with a par value of
$.01 per share and 5,000,000 are preferred stock with a par value of $.01 per
share; (ii) ratified and approved the Company's 1996 Stock Option Plan; and
(iii) ratified and approved the Company's 1996 Employee Stock Purchase Plan.
On July 19, 1996, the Company, through a wholly-owned subsidiary signed
a master agreement with EquiMed. This exclusive agreement calls for the
installation of certain of the Company's cosmetic lasers at all of EquiMed's
wholly-owned Ophthalmology and Dermatology centers. Revenues will be shared
between the two companies. The Company will be required to supply these centers
with cosmetic lasers.
Subsequent to June 30, 1996, $1,800,681 (including $64,773 of accrued
dividends) of Series D Convertible Preferred Stock and $5,818,263 (including
$117,016 of accrued dividends) of Series E Convertible Preferred Stock was
converted into 1,001,554 shares of common stock.
[This space intentionally left blank]
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THREE MONTHS ENDED JUNE 30, 1996, COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
For the three months ended June 30, 1996, the Company had revenues of
$17,538,019 as compared to $6,227,864 for the three months ended June 30, 1995.
The 182% increase in revenues from 1995 to 1996 is primarily due to acquisitions
of additional product lines in both business segments. The majority of the
increases are a result of sales of CO2 lasers for skin resurfacing, sales of
personal computes and sales associated with electronic contract manufacturing.
Gross margin for the three months ended June 30, 1996, was $2,717,005
(15% of revenue) $1,736,705 (28% of revenue) for the three months ended June 30,
1995. The increase in total gross profit was a result of an increase in total
revenue. The gross profit margin for the three months ended June 30, 1996,
decreased 13% as compared to the gross profit margin for the three months ended
June 30, 1995. The decrease in gross profit margin is attributed to a decrease
in yields at Dynaco due to new production processes and product and under
utilization of increased production capacity at Spectrum in anticipation of
increased demand in late 1996 and 1997. A portion of the decrease in gross
margin was offset by an increase in gross margins attributed to the acquisition
of Tissue and Comtel. The Company anticipates gross margins to improve as new
production processes are optimized and over capacity is more fully utilized.
Research and development costs increased to $2,374,494 for the three
months ended June 30, 1996, from $568,024 for the three months ended June 30,
1995. This 318% increase in research and development reflects the Company's
continuing commitment to research and development for medical devices and
delivery systems for cosmetic laser applications and other medical applications
using a variety of lasers, while continuing dermatology research utilizing the
Company's ruby and diode lasers. The Company is expending some research and
development funding for new process engineering and materials development in the
electronic business segment and has filed several patents to date as a result of
this funding. Management believes that research and development expenditures
will increase over the next few years as the Company continues clinical trials
of its medical products, develops additional applications for its lasers and
delivery systems and develops commercial applications for unique electronic
interconnect packaging.
Selling, General and Administrative expenses increased to $7,159,633
for the three months ended June 30, 1996, from $2,362,033 for the three months
ended June 30, 1995. This 203% increase is attributable to the acquisition of
Comtel, CD Titles, and Tissue Technologies as well as the formation of Nexar,
Dynamem and Spectrum Financial Services in 1995 and 1996. These subsidiaries are
concentrating on increased sales and marketing of medical and electronic
products. The Company is increasing its sales and marketing capabilities,
particularly at Nexar, in order to support anticipated widespread introduction
of new products in 1996 and 1997. Dynaco, Star, Spectrum, Nexar, CD Titles,
Spectrum Financial Services, Tissue Technologies and their subsidiaries maintain
their own sales forces and general and administrative support staffs.
Business Development and Financing Costs increased to $1,444,823 for
the three months ended June 30, 1996, from $285,857 for the three months ended
June 30, 1995. This 405% increase is attributable to the Company's continuing
acquisitions and financing activities during the quarter ended June 30, 1996.
Pooling-of-Interest expenses totaled $443,780 for the three months
ended June 30, 1996 and are comprised primarily of professional fees associated
with the merger of Tissue and the Company.
Interest expense increased to $414,197 for the three months ended June
30, 1996, from $255,163 for the three months ended June 30, 1995. This 62%
increase is primarily the result of the early redemption in May 1996 of the 8%
convertible debentures.
Interest income increased to $597,253 for the three months ended June
30, 1996, from $13,524 for the three months ended June 30, 1995. This increase
is primarily the result of interest received from subscriptions receivable and
other investments made as a result of the Company's improved cash position.
The Company had net realized and unrealized trading losses of $168,547
for the three months ended June 30, 1995 and net realized and unrealized trading
gains of $613,234 for the three months ended June 30, 1996 . These gains
resulted from the sale of certain marketable securities during the quarter. It
is the Company's intention to continue to invest in trading securities, which
may result in additional trading gains or losses in the future.
-15-
Minority interest in loss of subsidiary decreased to $15,096 for the
three months ended June 30, 1996, from $29,987 for the three months ended June
30, 1995.
The Company has not recorded a deferred tax benefit for net operating
losses as the utilization of such losses is uncertain.
As a result of the foregoing, the net loss for the three months ended
June 30, 1996, was $7,894,339 as compared to a net loss of $1,859,408 for the
three months ended June 30, 1995.
SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
For the six months ended June 30, 1996, the Company had revenues of
$24,463,020 as compared to $9,797,483 for the six months ended June 30, 1995.
The 150% increase in revenues from 1995 to 1996 is primarily due to acquisitions
of additional product lines in both business segments. The majority of the
increases are a result of sales of CO2 lasers for skin resurfacing, sales of
personal computes and sales associated with electronic contract manufacturing.
Gross margin for the six months ended June 30, 1996, was $2,358,240
versus $2,465,887 for the six months ended June 30, 1995. The 4% decrease in
gross margin was a result of the Company incurring significant pre production
costs during the first three months of 1996 in order to prepare for the
introduction of a number of new products in the medical and electronics business
segments. The Company anticipates gross profits to improve with increased
revenue levels and the introduction of additional new products. The Company has
also implemented new manufacturing processes that have led to start up costs and
an initial decrease in output yields.
Research and development costs increased to $4,091,297 for the six
months ended June 30, 1996, from $1,224,147 for the six months ended June 30,
1995. This 234% increase in research and development reflects the Company's
continuing commitment to research and development for medical devices and
delivery systems for cosmetic laser applications and other medical applications
using a variety of lasers, while continuing dermatology research utilizing the
Company's Ruby and diode lasers. The Company is expending some research and
development funding for new process engineering and materials development in the
electronics business segment and has filed several patents to date as a result
of this funding. Management believes that research and development expenditures
will increase over the next few years as the Company continues clinical trials
of its medical products, develops additional applications for its lasers and
delivery systems and develops commercial applications for unique electronic
interconnect packaging.
Selling, General and Administrative expenses increased to $12,383,426
for the six months ended June 30, 1996, from $3,446,160 for the six months ended
June 30, 1995. This 259% increase is attributable to the acquisition of Spectrum
Medical, CD Titles, Tissue Technologies and Comtel as well as the formation of
Nexar, Dynamem and Spectrum Financial Services. These new subsidiaries are
concentrating on increased sales and marketing of medical and electronic
products. The Company is increasing its sales and marketing capabilities,
particularly at Nexar in order to support anticipated widespread introduction of
four major products in 1996. These new products are associated with the medical
products segment and the electronic products segment. Dynaco, Star, Spectrum,
Nexar, CD Titles, Spectrum Financial Services, Tissue and their subsidiaries
maintain their own sales forces and general and administrative support staffs.
Business Development and Financing Costs increased to $1,942,096 for
the six months ended June 30, 1996, from $695,766 for the six months ended June
30, 1995. This 179% increase is attributable to the Company's continuing
acquisitions and financing activities.
Pooling-of-Interest expenses totaled $443,780 for the six months ended
June 30, 1996 and are comprised of professional fees associated with the merger
of Tissue Technologies and the Company.
Interest expense increased to $738,879 for the six months ended June
30, 1996, from $482,505 for the six months ended June 30, 1995. This 53%
increase is primarily the result of the early redemption in May 1996 of the 8%
convertible debentures and an issuance of acquisition debt in April 1995 to
purchase Spectrum.
Interest income increased to $1,203,447 for the six months ended June
30, 1996, from $45,747 for the six months ended June 30, 1995. This increase is
primarily the result of interest received from subscriptions receivable and
other investments made as a result of the Company's improved cash position.
-16-
The Company had net realized and unrealized trading losses of $113,092
for the six months ended June 30, 1995 and net realized and unrealized trading
gains of $728,318 for the six months ended June 30, 1996 . These gains resulted
from the sale of certain marketable securities during the year. It is the
Company's intention to continue to invest in trading securities, which may
result in additional trading gains or losses in the future.
Minority interest in loss of subsidiary decreased to $45,671 for the
six months ended June 30, 1996, from $58,145 for the six months ended June 30,
1995.
The Company has not recorded a deferred tax benefit for net operating
losses as the utilization of such losses is uncertain.
As a result of the foregoing, the net loss for the six months ended
June 30, 1996, was $15,707,582, as compared to a net loss of $3,391,891 for the
six months ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had $10,046,462 in cash, cash
equivalents and trading securities. During the six months ended June 30, 1996,
the Company generated approximately $3,276,400, $15,435,000 and $5,446,000 in
net proceeds from the sale of its common stock, the sale of its preferred stock
and the exercise of stock warrants, respectively.
The Company's net loss for the three months ended June 30, 1996,
included the following noncash items: $1,327,467 of depreciation and
amortization expense; $117,105 of additional interest expense relating to the
amortization of the discounts on the convertible debentures; and $903,584
related to common stock and warrants issued to non-employees and consultants of
which approximately $600,000 results from the issuance of warrants for services
in accordance with SFAS No. 123.
The Company anticipates that capital expenditures for the remaining six
months of 1996 will total approximately $2,000,000. The Company will finance
these expenditures with cash on hand or the Company will seek to raise
additional funds. However, there can be no assurance that the Company will be
able to raise the funds.
Dynaco has a three-year revolving credit and security agreement with a
financial institution. The agreement provides for the revolving sale of
acceptable accounts receivable, as defined in the agreement, with recourse up to
a maximum commitment of $3,000,000. As of June 30, 1996, the amount of accounts
receivable sold that remained uncollected totaled $1,757,106 net of related
reserves and fees, as defined in the agreement. This amount is classified as a
revolving line of credit in the accompanying balance sheet as of June 30, 1996.
The interest rate on such outstanding amounts is the bank's prime rate (8.25% at
June 30, 1996) plus 1.5%, and interest is payable monthly in arrears. The
financing is collateralized by the purchased accounts receivable and
substantially all of Dynaco's assets.
A large part of the Company's medical products businesses are still in
the development stage, with significant research and development costs and
regulatory constraints that currently limit sales of its medical products. These
activities are an important part of the Company's business plan. Due to the
nature of clinical trials and research and development activities, it is not
possible to predict with any certainty the timetable for completion of these
research activities or the total amount of funding required to commercialize
products developed as a result of such research and development. The rate of
research and the number of research projects underway are dependent to some
extent upon external funding. While the Company is regularly reviewing potential
funding sources in relation to these ongoing and proposed research projects,
there can be no assurance that the current levels of funding or additional
funding will be available, or, if available, on terms satisfactory to the
Company.
The Company also makes early stage investments in core technologies and
companies that management feels are strategic to the Company's business or will
yield a higher than average financial return to support the Company's core
business. Some of these investments are with companies that are related to some
of the directors and officers of the Company. See "Related Party Transactions".
At June 30, 1996, the Company had $8,350,235 of such investments.
-17-
The Company has had significant losses to date and expects these losses
to continue for the near future. Therefore, the Company must continue to secure
additional financing to complete its research and development activities,
commercialize its current and proposed medical products segment, expand its
electronic products segment, execute its acquisition business plan and fund
ongoing operations. The Company believes that the cash generated to date from
its financing activities and amounts available under its credit agreement will
be sufficient to satisfy its working capital requirements through at least the
next twelve months. However, there can be no assurance that events in the future
will not require the Company to seek additional financing sooner. The Company
continues to investigate several financing alternatives, strategic partnerships,
additional bank financing, private debt and equity financing and other sources.
The Company believes that it has adequate cash reserves or it will be successful
in obtaining additional financing in order to fund current operations in the
near future.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements
made by its employees may contain "forward-looking" information, as that term is
defined in the Private Securities Litigation Reform Act of 1995 (the "Act").
This report may also contain information that is deemed to be forward looking
information under the Act. The Company cautions investors that there can be no
assurance that actual results or business conditions will not differ materially
from those projected or suggested in such forward-looking statements as a result
of various factors, including but not limited to the following:
The Company's future operating results are dependent on its ability to
develop, produce, achieve Food and Drug Administration approval for
certain medical products and market new and innovative products and
services. There are numerous risks inherent in this complex process,
including rapid technological change and the requirement that the
Company bring to market in a timely fashion new products and services
which meet customers' changing needs.
The Company and certain of its subsidiaries have a history of losses,
and the Company expects its losses to continue. The Company must secure
additional financing to complete its research and development
activities, commercialize its current and proposed medical products,
expand its current non-medical business, execute its acquisition
business plan and fund ongoing operations.
The Company's business segments operate in a highly competitive
environment and in highly competitive industries, which include
significant competitive pricing pressures and intense competition for
skilled employees.
The market price of the Company's securities could be subject to
fluctuations in response to quarter to quarter variations in operating
results, changes in analysts' earnings estimates, market conditions in
the information technology industry, as well as general economic
conditions and other factors external to the Company.
[This space intentionally left blank]
-18-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 14, 1996, the Company was served with a summons and complaint
with respect to Commonwealth Associates v. Palomar Medical Technologies, Inc., a
purported breach of contract action brought in the United States District Court
for the Southern District of New York. The complaint alleges violations of a
letter agreement pursuant to which Commonwealth Associates was to render certain
services to the Company and the Company was to pay certain dollar amounts and
issue a warrant to purchase shares of the Company's Common Stock to Commonwealth
Associates. The Company intends to assert defenses vigorously. The proceeding is
still in its infancy, and the extent of exposure of the Company cannot be
determined at this time.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Title
---------------- -----------------------------------------------------------------
<S> <C> <C>
10(pp) 1996 Stock Option Plan
10(qq) 1996 Employee Stock Purchase Plan
10(rr) Restated Certificate of Incorporation of the Company as filed
on August 14, 1996
</TABLE>
(b) Reports of Form 8-K.
<TABLE>
<CAPTION>
Date
of Report Title
---------------- ----------------------------------------------------------------
<S> <C> <C>
May 16, 1996 Acquisition of Tissue Technologies, Inc.
June 11, 1996 Amendment to Item 7 of Form 8-K of Palomar
Medical Technologies, Inc., as filed on
May 16, 1996
</TABLE>
-19-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant certifies that it has caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Town of Beverly in the
Commonwealth of Massachusetts on August 14, 1996.
MEDICAL TECHNOLOGIES, INC.
(Registrant)
DATE: August 14, 1996 By: /s/ Steven Georgiev
-------------------
Steven Georgiev
Chief Executive Officer
and Chairman of the Board
DATE: August 14, 1996 /s/ Joseph P. Caruso
--------------------
Joseph P. Caruso
Vice President, Chief
Financial Officer
(Principal Financial Officer)
-20-
1996 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
PALOMAR MEDICAL TECHNOLOGIES, INC.
PALOMAR MEDICAL TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
TABLE OF CONTENTS
Page
ARTICLE I. Purpose of the Plan 1
ARTICLE II. Definitions 1
ARTICLE III. Administration of the Plan 2
ARTICLE IV. Eligibility 4
ARTICLE V. Stock Option Awards 4
ARTICLE VI. Exercise of Option 6
ARTICLE VII. Reporting Person Limitations 8
ARTICLE VIII. Terms and Conditions of Options 8
ARTICLE IX. Benefit Plans 9
ARTICLE X. Amendment, Suspension or Termination
of the Plan 9
ARTICLE XI. Changes in Capital Structure 10
ARTICLE XII. Effective Date and Term of the Plan 11
ARTICLE XIII. Conversion of ISOs into Non-Qualified
Options; Termination of ISOs 11
ARTICLE XIV. Application of Funds 12
ARTICLE XV. Governmental Regulation 12
ARTICLE XVI. Withholding of Additional Income Taxes 12
ARTICLE XVII. Notice to Company of Disqualifying
Disposition 12
ARTICLE XVIII. Governing Law; Construction 13
PALOMAR MEDICAL TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of PALOMAR MEDICAL TECHNOLOGIES, INC. and of its
affiliated corporations upon whose judgment, initiative, and efforts the
Corporation depends for the successful conduct of its business, to acquire a
closer identification of their interests with those of the Corporation by
providing them with opportunities to purchase stock in the Corporation pursuant
to options granted hereunder, thereby stimulating their efforts on behalf of the
Corporation and strengthening their desire to remain involved with the
Corporation.
ARTICLE II
Definitions
2.1 "Affiliated Corporation" means any stock corporation of which a majority of
the voting common or capital stock is owned directly or indirectly by the
Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation.
2.4 "Code" means the internal Revenue Code of 1986, as amended from time to
time.
2.5 "Committee" means a committee of not less than two members of the Board
appointed by the Board to administer the Plan, each of whom is a "disinterested
person" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, as amended, or any successor provision. In the event that two
"disinterested persons" are not available to administer the Plan, the Board may
appoint to the Committee two members of the Board, either or both of whom are
not "disinterested persons," in which event this Plan shall not qualify under
Rule 16b-3, but this Plan shall be valid and operative in all other respects.
2.6 "Corporation" means PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware
corporation, or its successor.
1
2.7 "Employee" means any person who is a regular full-time or part-time employee
of the Corporation or an Affiliated Corporation on or after May 17, 1996.
2.8 "Option" means an Incentive Stock Option or Non- Qualified Option granted by
the Committee under Article V of this Plan in the form of a right to purchase
Stock evidenced by an instrument containing such provisions as the Committee may
establish.
2.9 "Participant" means a person selected by the Committee to receive an award
under the Plan.
2.10 "Plan" means this 1995 Stock Option Plan.
2.11 "Incentive Stock Option" ("ISO") means an option which qualifies as an
incentive stock option as defined in Section 422 of the Code, as amended.
2.12 "Non-Qualified Option" means any option not intended to qualify as an
Incentive Stock Option.
2.13 "Stock" means the Common Stock, $.01 par value, of the Corporation or any
successor, including any adjustments in the event of changes in capital
structure of the type described in Article XI.
2.14 "Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934, as amended, or any successor provision.
2.15 "Restricted Period" means the period of time selected by the Committee
during which an Award may be forfeited by the person.
ARTICLE III
Administration of the Plan
3.1 Administration by the Committee. This Plan shall be administered by the
Committee as defined herein. From time to time the Board may increase the size
of the Committee and appoint additional members thereto, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan. No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any options
granted under it.
2
3.2 Powers. The Committee shall have full and final authority to operate,
manage, and administer the Plan on behalf of the Corporation. This authority
includes, but is not limited to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of the instruments evidencing
Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the incentive features
of the Plan, and otherwise to prescribe and rescind regulations for
interpretation, management and administration of the Plan,
(e) The power to delegate responsibility for Plan operation, management and
administration on such terms, consistent with the Plan, as the Committee may
establish,
(f) The power to delegate to other persons the responsibility of performing
ministerial acts in furtherance of the Plan's purpose, and
(g) The power to engage the services of persons, companies, or organizations in
furtherance of the Plan's purpose, including but not limited to, banks,
insurance companies, brokerage firms, and consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of the
Corporation, the Committee shall have full and final authority in its
discretion: (a) to determine the number of shares of Stock subject to each
Option; (b) to determine the time or times at which Options will be granted, (c)
to determine the option price of the shares of Stock subject to each Option,
which price shall be not less than the minimum price specified in Article V of
this Plan; (d) to determine the time or times when each Option shall become
exercisable and the duration of the exercise period (including the acceleration
of any exercise period), which shall not exceed the maximum period specified in
Article V; and (e) to determine whether each Option granted shall be an
Incentive Stock Option or a Non-Qualified Option.
In no event may the Corporation grant an Employee any
Incentive Stock Option that is first exercisable during any one calendar year to
the extent the aggregate fair market value of the Stock (determined at the time
the options are granted) exceeds $100,000 (under all stock options plans of the
Corporation and any Affiliated Corporation); provided, however, that this
paragraph shall have no force and effect if its
3
inclusion in the Plan is not necessary for Incentive Stock Options issued under
the Plan to qualify as such pursuant to Section 422(d)(1) of the Code.
ARTICLE IV
Eligibility
4.1 Eligible Employees. All Employees (including Directors and Officers who are
Employees and who have not irrevocably elected to be ineligible to participate
in the Plan) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this Plan.
4.2 Consultants, Directors and other Non-Employees. Any Consultant, Director
(whether or not an Employee) and any other Non-Employee is eligible to be
granted Non-Qualified Option Awards under the Plan provided the person has not
irrevocably elected to be ineligible to participate in the Plan, and provided
further that upon appointment to the Committee at the first Board of Directors
meeting following the Annual Meeting of the Shareholders, each non-employee
director appointed to the Committee shall be deemed to be ineligible to
participate under the Plan during his or her period of service on the Committee.
4.3 Relevant Factors. In selecting individual Employees, Consultants, Directors,
and other Non-Employees to whom Awards shall be granted, the Committee shall
weigh such factors as are relevant to accomplish the purpose of the Plan as
stated in Article 1. An individual who has been granted an Award may be granted
one or more additional Awards, if the Committee so determines. The granting of
an Award to any individual shall neither entitle that individual to, nor
disqualify him from, participation in any other grant of Awards.
ARTICLE V
Stock Option Awards
5.1 Number of Shares. Subject to the provisions of Article XI of this Plan, the
aggregate number of shares of Stock for which Options may be granted under this
Plan shall not exceed 2,500,000 shares. The shares to be delivered upon exercise
of Options under this Plan shall be made available, at the discretion of the
Committee, either from authorized but unissued shares or from previously issued
and reacquired shares of Stock held by the Corporation as treasury shares,
including shares purchased in the open market.
4
Stock issuable upon exercise of an option granted under the
Plan may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Committee.
5.2 Effect of Expiration, Termination or Surrender. If an Option under this Plan
shall expire or terminate unexercised as to any shares covered thereby, or shall
cease for any reason to be exercisable in whole or in part, or if the Company
shall reacquire any unvested shares issued pursuant to Options under the Plan,
such shares shall thereafter be available for the granting of other Options
under this Plan,
5.3 Term of Options. The full term of each Option granted hereunder shall be for
such period as the Committee shall determine. In the case of incentive Stock
Options granted hereunder, the term shall not exceed ten (10) years from the
date of granting thereof. Each Option shall be subject to earlier termination as
provided in Sections 6.4 and 6.5. Notwithstanding the foregoing, the term of
options intended to qualify as "Incentive Stock Options" shall not exceed five
(5) years from the date of granting thereof if such option is granted to any
employee who at the time such option is granted owns more than ten percent (10%)
of the total combined voting power of all classes of stock of the Corporation.
5.4 Option Price. The option price shall be determined by the Committee at the
time any Option is granted. In the case of Incentive Stock Options, the exercise
price shall not be less than 100% of the fair market value of the shares covered
thereby at the time the Incentive Stock Option is granted (but in no event less
than par value), provided that in the case where an Incentive Stock Option is
granted hereunder to any Employee who at the time of grant owns Stock possessing
more than 10% of the combined voting power of all classes of stock of the
Corporation and its Corporations, the Incentive Stock Option price shall equal
not less than 110% of the fair market value of the shares covered thereby at the
time the Incentive Stock Option is granted. In the case of Non-Qualified Stock
Options, the exercise price shall not be less than par value.
5.5 Fair Market Value. If, at the time an Option is granted under the Plan, the
Corporation's Stock is publicly traded, "fair market shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Stock on the principal
national securities exchange on which the Stock is traded, if the Stock is then
traded on a national securities exchange; or (ii) the last reported sale price
(on that date) of the Stock on the NASDAQ National Market List, if the Stock is
not then traded on a national securities exchange;
5
or (iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market List. However, if the
Stock is not publicly traded at the time in Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Stock as
determined by the Committee under Section 3.3.
5.6 Non-Transferability of Options. Except as provided below, no Option granted
under this Plan shall be transferable by the grantee otherwise than by will or
the laws of descent and distribution, and such Option may be exercised during
the grantee's lifetime only by the grantee. Notwithstanding the above, in the
event the federal securities laws and the relevant tax laws change so as to
permit the transferability of the options provided by this Plan then to such
extent permitted by law, such options may be transferred in accordance with this
Plan.
5.7 Foreign Nationals. Awards may be granted to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the plan as the Committee considers necessary
or advisable to achieve the purpose of the Plan or comply with applicable laws.
ARTICLE VI
Exercise of Option
6.1 Exercise. Each Option granted under the Plan shall be exercisable on such
date or dates and during such period and for such number of shares as shall be
determined pursuant to the provisions of the instrument evidencing such Option.
The Committee shall have the right to accelerate the date of exercise of any
option, provided that the Committee shall not accelerate the exercise date of
any Incentive Stock Option granted if such acceleration would violate the annual
vesting limitation contained in Section 422(d)(1) of the Code.
6.2 Notice of Exercise and Payment. A person electing to exercise an Option
shall give written notice to the Corporation of such election and of the number
of shares he or she has elected to purchase and shall at the time of exercise
tender the full purchase price, in cash, Corporation Stock, owned by him or her
for at least six months, or by such other means as is authorized by the Board of
Directors, for the shares he or she has elected to purchase.
6.3 Delivery of Stock. No shares shall be delivered pursuant to any exercise of
an Option until payment in full of
6
the option price therefor is received by the Corporation. Such payment may be
made in whole of in part in cash or, to the extent permitted by the Committee at
or after the grant of an Option, by delivery of a note or shares of the Stock
owned by the optionee, including Restricted Stock, valued at their fair market
value on the date of delivery, or such other lawful consideration as the
Committee may determine. Until such person has been issued a certificate or
certificates for the shares so purchased, he or she shall possess no rights of a
record holder with respect to any of such shares.
6.4 Option Unaffected by Change In Duties. No Incentive Stock Option, and,
unless otherwise determined by the Committee, no Non-Qualified Option granted to
a person who is, on the date of the grant, an Employee of the Corporation or an
Affiliated Corporation, shall be affected by any change of duties or position of
the optionee (including transfer to or from an Affiliated Corporation), so long
as he or she continues to be an Employee. Employment shall be considered as
continuing and uninterrupted during any bona fide leave of absence (such as
those attributable to illness, military obligations or governmental service)
provided that the period of such leave does not exceed 90 days or, if longer,
any period during which such optionee's right to reemployment is guaranteed by
statute. A bona fide leave of absence with the written approval of the Committee
shall not be considered an interruption of employment under the Plan, provided
that such written approval contractually obligates the Corporation or any
Affiliated Corporation to continue the employment of the optionee after the
approved period of absence.
If the optionee shall cease to be an Employee for any reason
other than death, such Option shall thereafter be exercisable only to the extent
of the purchase rights, if any, which have accrued as of the date of such
cessation; provided that (i) the Committee may in its absolute discretion, upon
any cessation of employment, determine (but be no under no obligation to
determine) that such accrued purchase rights shall be deemed to include
additional shares covered by such Option, and (ii) unless the Committee shall
otherwise provide in the instrument evidencing any Option, upon any such
cessation of employment, such remaining rights to purchase shall in any event
terminate upon the earlier of (A) the expiration of the original term of the
Option; or (B) where such cessation of employment is on account of disability,
the expiration of one year from the date of such cessation of employment and,
otherwise, the expiration of three months from such date. For purposes of the
Plan, the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code.
6.5 Death of Optionee. Should an optionee die while in possession of the legal
right to exercise an Option or Options
7
under this Plan, such persons as shall have acquired, by will or by the laws of
descent and distribution, the right to exercise any Options theretofore granted,
may, unless otherwise provided by the Committee in any instrument evidencing any
Option, exercise such Options at any time prior to one year from the date of
death; provided, that such Option or Options shall expire in all events no later
than the last day of the original term of such Option; provided, further, that
any such exercise shall be limited to the purchase rights that have accrued as
of the date when the optionee ceased to be an Employee, whether by death or
otherwise, unless the Committee provides in the instrument evidencing such
Option that, in the discretion of the Committee, additional shares covered by
such Option may become subject to purchase immediately upon the death of the
optionee.
6.6 Reload Option Grants. The Committee, in its discretion, may also grant stock
options with "reload provisions" that permit the option holder to exercise his
or her stock options and receive new stock option grants for the equivalent
amount of stock underlying the option exercise at the fair market value on the
date of such exercise. The reload options shall have the same expiration date as
the options they replace.
ARTICLE VII
Reporting Person Limitations
Notwithstanding any other provision of the Plan, to the extent
required to qualify for the exemption provided by Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, and any successor provision, (i)
any Stock or other equity security offered under the Plan to a Reporting Person
may not be sold for at least six (6) months after grant of an option acquire
such Stock or other equity security, except in case of death or disability and
(ii) any Option, or other similar right related to an equity security, issued
under the Plan to a Reporting Person shall not be transferable other than by
will or the laws of descent and distribution or in accordance with section 5.6
hereof, shall not be exercisable for at least six (6) months except in the case
of death or disability, provided in the provisions of section 5.6 hereof, shall
be exercisable during the Participant's lifetime only by the Participant or the
Participant's guardian or legal representative.
ARTICLE VIII
Terms and Conditions of Options
Options shall be evidenced by instruments (which need not be
identical) in such forms as the Committee may from time to
8
time approve. Such instruments shall conform to the terms and conditions set
forth in Articles V and VI hereof and may contain such other provisions as the
Committee deems advisable that are not inconsistent with the Plan, including
restrictions applicable to shares of Stock issuable upon exercise of Options. In
granting any Non-Qualified Option, the Committee may specify that such
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to Incentive Stock Options, or to such other termination and
cancellation provisions as the Committee may determine. The Committee may from
time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Corporation to execute and deliver
such instruments. The proper officers of the Corporation are authorized and
directed to take any and all action necessary or advisable from time to time to
carry out the terms of such instruments.
ARTICLE IX
Benefit Plans
Awards under the Plan are discretionary and are not a part of
regular salary. Awards may not be used in determining the amount of compensation
for any purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Committee may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Employee the right to continued employment with the Corporation or an
Affiliated Corporation.
ARTICLE X
Amendment, Suspension or Termination of the Plan
The Board may suspend the Plan or any part thereof at any time
or may terminate the Plan in its entirety. Awards shall not be granted after
Plan termination.
The Board may also amend the Plan from time to time, except
that amendments which affect the following subjects must be approved by
stockholders of the Corporation, unless and to such extent, that applicable
federal or state law or regulation permit amendment thereto:
(a) Except as provided in Article XI relative to capital
changes, and except as permitted by law or regulation where such change is not
deemed material, the number of shares as to which Options may be granted
pursuant to Article V;
(b) The maximum term of Options granted;
9
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for
participation in the Plan.
Awards granted prior to suspension or termination of the Plan
may not be cancelled solely because of such suspension or termination, except
with the consent of the grantee of the Award.
ARTICLE XI
Changes in Capital Structure
The instruments evidencing Options granted hereunder shall be
subject to adjustment in the event of changes in the outstanding Stock of the
Corporation by reason of stock dividends, stock splits, recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of an Award to the
same extent as would affect an actual share of stock issued and outstanding on
the effective date of such change. Such adjustment to outstanding Options shall
be made without change in the total price applicable to the unexercised portion
of such options, and a corresponding adjustment in the applicable option price
per share shall be made. In the event of any such change, the aggregate number
and classes of shares for which Options may thereafter be granted under Section
5.1 of this Plan may be appropriately adjusted as determined by the Committee so
as to reflect such change. Notwithstanding the foregoing, any adjustments made
pursuant to this Article XI with respect to Incentive Stock Options shall be
made only after the Committee, after consulting with counsel for the
Corporation, determines whether such adjustments would constitute a
"modification" of such Incentive Stock Options (as that term is defined in
Section 425 of the Code) or would cause any adverse tax consequences for the
holders of such Incentive Stock Options. If the Committee determines that such
adjustments made with respect to Incentive Stock Options would constitute a
modification of such Incentive Stock Options, it may refrain from making such
adjustments.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
Except as expressly provided herein, no issuance by the
Corporation of shares of stock of any class, or securities
10
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Corporation.
No fractional shares shall be issued under the Plan and the
optionee shall receive from the Corporation cash in lieu of such fractional
shares,
ARTICLE XII
Effective Date and Term of the Plan
The Plan shall become effective upon its adoption the Board,
provided that the stockholders of the Corporation shall have approved this Plan
within twelve months following the adoption of this Plan by the Board. The Plan
shall continue until such time as it may be terminated by action of the Board;
provided, however, that no Options may be granted under this Plan on or after
the tenth anniversary of the effective date hereof.
ARTICLE XIII
Conversion of ISO's into Non-Qualified Options;
Termination of ISO's
The Committee, at the written request of any optionee, may in
its discretion take such actions as may be necessary to convert such optionee's
Incentive Stock Options, that have not been exercised on the date of conversion,
into Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Committee (with the consent of the optionee) may impose such conditions on the
exercise of the resulting Non-Qualified Options as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with the Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's Incentive Stock Options converted
into Non- Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any Incentive Stock Option that has
not been exercised at the time of such termination.
11
ARTICLE XIV
Application of Funds
The proceeds received by the Corporation from the sale of
shares pursuant to Options granted under the Plan shall be used for general
corporate purposes.
ARTICLE XV
Governmental Regulation
The Corporation's obligation to sell and deliver shares of
Stock under this Plan is subject to the approval of any governmental authority
required in connection with the authorization, issuance or sale of such shares.
ARTICLE XVI
Withholding of Additional Income Taxes
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition as defined in Article XVII the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includable in such person's gross income. The Committee in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVII
Notice to Company of Disqualifying Disposition
Each employee who receives an Incentive Stock Option must
agree to notify the Corporation in writing immediately after the employee makes
a Disqualifying Disposition of any Stock acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the employee was granted the Incentive Stock Option or (b) one year after
the date the employee acquired Stock by exercising the Incentive Stock Option.
If the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
12
ARTICLE XVIII
Governing Law; Construction
The validity and construction of the Plan and the instruments
evidencing Options shall be governed by the laws of the State of Delaware. In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
13
PALOMAR MEDICAL TECHNOLOGIES, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose of the Plan
The purpose of the Palomar Medical Technologies, Inc. Employee Stock
Purchase Plan is to encourage ownership of the common stock of Palomar Medical
Technologies, Inc. ("Palomar") by its eligible employees and any and each of its
participating subsidiaries, thereby enhancing such employees' personal interest
in the continued success and progress of Palomar. The plan is intended to
facilitate regular investment in the common stock of Palomar by offering
employees a convenient means to make purchases at a discounted price through
payroll deductions. The Plan is intended to comply with the provisions of
Section 423 of the Internal Revenue Code of 1986, as amended.
2. Definitions
For purposes of the Plan, the following terms shall have the meanings
indicated below:
(a) "Business Day" shall mean a day on which there is trading on the
New York Stock Exchange.
(b) "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
(c) "Committee" shall mean the Compensation Committee of the Board of
Directors of Palomar.
(d) "Common Stock" shall mean Palomar's common stock, par value $.01
per share.
(e) "Company" shall mean Palomar and any of its subsidiaries (within
the meaning of Section 424(f) of the Code) whose Board of Directors has adopted
the Plan, with approval of the Board of Directors of Palomar, and which has not
terminated participation in or withdrawn from the Plan by action of such
subsidiary's Board of Directors or the Board of Directors of Palomar.
(f) "Compensation" shall mean the amount of a Participant's base wages,
overtime, commissions, cash bonuses, premium pay and shift differential, before
giving effect to any compensation reductions made in connection with any plans
described in Section 401(k) or Section 125 of the Code.
(g) "Custodian" shall mean the custodian appointed by the Committee
pursuant to Section 7 hereof to hold the shares of Common Stock purchased under
the Plan and subsequent Dividends reinvested or paid to Participant in cash.
(h) "Dividends" shall mean all cash dividends paid on shares of Common
Stock held in any Employee's Account.
(i) "Account" shall mean a separate account maintained by the Custodian
for each
Participant which reflects, at any time, the number of shares of Common Stock
purchased under the Plan by such Participant as well as reinvested Dividends
held by the Custodian.
(j) "Entry Date" shall mean the first Business Day of each Purchase
Period.
(k) "Eligible Employee" shall mean, with respect to any Purchase
Period, an employee of the Company who is eligible to participate in the Plan in
such Purchase Period under the rules set forth in Sections 5 and 8 hereof.
(l) The "Fair Market Value" of a share of Common Stock on any Business
Day shall be the average of the high and low prices of the Common Stock as
published in the New York Stock Exchange Composite Transactions listing for such
day; provided that in the event that such prices of the Common Stock shall not
be so published, the Fair Market Value of a share of Common Stock shall be
determined by the Committee.
(m) "Participant" shall mean, with respect to any Purchase Period, each
Eligible Employee who has elected to have amounts deducted from his or her
Compensation pursuant to Section 6 hereof for such Purchase Period.
(n) "Plan" shall mean this 1996 Employee Stock Purchase Plan, as the
same may be amended from time to time.
(o) "Purchase Date" shall mean the last Business Day of each Purchase
Period.
(p) "Purchase Period" shall mean each of the three month periods ending
on the last days of March, June, September and December during the period when
the Plan is in effect. The first Purchase Period shall begin on October 1, 1996
and end on December 31, 1996.
3. Common Stock Available Under the Plan
The maximum number of shares of Common Stock which may be purchased
under the Plan shall be 1,000,000 shares, except as such maximum number may be
adjusted as provided in Section 12 hereof. Shares of Common Stock purchased
under the Plan may be authorized and previously unissued shares, treasury shares
(including shares purchased from time to time by Palomar), or any combination
thereof.
4. Administration of Plan
The Plan shall be administered by the Committee. The Committee shall
have the authority, consistent with the Plan, to interpret the Plan, to adopt,
amend and rescind rules and regulations for the administration of the Plan and
to make all determinations in connection therewith which may be necessary or
advisable, and all such actions shall be binding for all purposes under the
Plan. The Plan shall be administered at the expense of the Company.
5. Eligibility
Each employee of the Company shall be eligible to participate in the
Plan during each Purchase Period, provided that he or she is not, as of the
Entry Date for such Purchase Period:
2
(a) an employee who has been employed by the Company for less than six
months; or
(b) an employee who is customarily employed by the Company for fewer
than 20 hours per week, or for five or fewer months in any calendar year; or
(c) an employee who owns (within the meaning of Section 424(d) of the
Code) stock possessing 5% or more of the total combined voting power or value of
all classes of stock of Palomar, treating as owned on Entry Date, for purposes
of this clause, Common Stock which such employee would be entitled to purchase
on Purchase Date for such Purchase Period but for this Section 5(c).
6. Participation
(a) On the Entry date for each Purchase Period, Palomar shall grant to
each Participant in the Plan for such Purchase Period an option to purchase on
the Purchase Date for such Purchase Period, at the applicable price specified in
Section 7 hereof, the number of shares of Common Stock, including any fractional
share, which may be purchased, at such price, with such participant's payroll
deductions received during such Purchase Period, subject to the terms and
conditions of the Plan.
(b) Eligible Employees may elect to participate in the Plan as follows:
(i) Each Eligible Employee may elect to participate in the
Plan, effective on the Entry Date for any Purchase Period, by making an election
to participate at least 15 days prior to such entry Date. Such election shall
authorize the Company to deduct an amount chosen by the employee equal to any
whole percentage between 1 and 15 percent, inclusive from such Employee's
Compensation paid during such Purchase Period.
(ii) After making the election pursuant to Section 6(b)(i)
hereof, a Participant shall automatically continue to participate in the Plan
during subsequent Purchase Periods until the Participant either withdraws from
the Plan or ceases to be an Eligible Employee. The percentage of the
Participant's Compensation deducted in subsequent Purchase Periods shall be the
percentage specified in the election made pursuant to Section 6(b)(i), as it may
be changed from time to time pursuant to Section 6(b)(iii) or 6(b)(iv) hereof.
(iii) Except as provided in Section 6(b)(iv) hereof, after the
last date for making an election described in Section 6(b)(i) hereof for the
Purchase Period, a Participant shall not be permitted to increase or reduce the
percentage of Compensation deducted from his or her Compensation paid during
each purchase period. A Participant may elect to reduce or increase the
percentage of his or her Compensation deducted pursuant to the Plan to any whole
percentage between 1 and 15, inclusive, effective for a subsequent Purchase
Period by filing an election not later than 15 days prior to the Entry Date for
such Purchase Period.
(iv) A Participant may elect at any time to reduce the
percentage of his or her Compensation deducted pursuant to the Plan to zero,
effective commencing with the next payroll period beginning after the making of
such election. All cash amounts already deducted during a Purchase Period prior
to the effectiveness of any such election shall be refunded to the Participant.
(c) No interest will be paid to Participants on any payroll
deductions.
3
(d) A Participant may at any time elect to withdraw from further
participation in the Plan, effective as of the next Business day following such
election. Any Participant whose employment with the Company terminates for any
reason (including without limitation termination by reason of death or
disability) shall be deemed to have made a withdrawal, effective the next
Business Day following such termination of employment. Upon any withdrawal, (i)
no further amounts shall be deducted from such Participant's Compensation
effective for any payroll period beginning after the effective date of
withdrawal, (ii) any outstanding option granted to such Participant under the
Plan shall terminate as of the effective date of the withdrawal, and no further
purchases of Common Stock under the Plan shall be made for such Participant or
after such date, and (iii) as soon as possible the Company will refund all cash
deducted during the Purchase Period. Following any such withdrawal from the
Plan, an employee's eligibility to participate again in the Plan will be subject
to all provisions of Section 5 and 8 hereof.
(e) Notwithstanding any other provision of the Plan, an employee who
has withdrawn from the Plan pursuant to Section 6(d) hereof shall be deemed to
have made an irrevocable election not to participate in the Plan during the two
consecutive Purchase Periods immediately following the one in which such
withdrawal was made.
(f) Any election permitted by this Section 6 (other than an election
deemed made pursuant to Section 6(e)) shall be made in writing on the form
prescribed for such purpose by the Committee from time to time and shall be
delivered to the person or persons designated by the Committee. Any such
election shall be deemed made when such form is completed, signed by the
Participant and received by such designee.
7. Purchases of Common Stock
On the Purchase Date for each Purchase Period, all options granted
under the Plan on the first Business Day of such Purchase Period shall be deemed
to be exercised, and all amounts deducted pursuant to Section 6 hereof from the
Participant's Compensation during such Purchase Period shall be applied on such
date to purchase whole and fractional shares of Common Stock from the Company,
unless such Participant has withdrawn from the Plan during such Purchase Period
effective on or prior to such Purchase Date. With respect to shares of Common
stock purchased, the purchase price per share shall be the lesser of (i)
ninety-five percent (95%) of the Fair Market Value of a share of Common Stock on
the Entry Date of the Purchase Period, or (ii) ninety-five percent (95%) of the
Fair Market Value of a share of Common Stock on the Purchase Date of the
Purchase Period. The Committee shall appoint the Custodian for the Plan and to
hold all whole and fractional shares purchased under the Plan and to maintain a
separate Account for each Participant, in which Common Stock purchased by such
Participant under the Plan shall be held and Dividends received will be
reinvested. Each Participant shall receive a statement as soon as practicable
after the end of each Purchase Period reflecting purchases for his or her
account under the Plan through the end of such Purchase Period.
8. Limitation on Number of Shares purchased
Notwithstanding any other provision of the Plan, the maximum number of
whole and fractional shares of Common Stock which a Participant may purchase in
a Purchase Period under the Plan and under all other "employee stock purchase
plans" (within the meaning of Section 423 of the Code) maintained by Palomar and
its subsidiaries (within the meaning of Section 424(f) of the Code)
4
shall be the number determined by dividing $6,250 by the Fair Market Value of a
share of Common Stock on the Entry Date for such Purchase Period. In the event
that the amount of payroll deductions is greater than $6,250 in any given
Purchase Period, the Company will refund the excess to the Participant as soon
as practicable after such Purchase Date.
9. Rights as a Stockholder
From and after the Purchase Date on which shares of Common Stock are
purchased by the Participant under the Plan, such Participant shall have all of
the rights and privileges of a stockholder of Palomar with respect to such
shares. Prior to the Purchase Date on which shares of Common Stock may be
purchased by a Participant, such Participant shall not have any rights as a
stockholder of Palomar.
10. Notice of Disposition of Stock
Each Participant agrees, by his or her participation in the Plan, to
promptly notify Palomar in writing of any disposition of any Common Stock
purchased under the Plan occurring within 2 years after the Entry Date of the
Purchase Period in which such stock was purchased.
11. Rights Not Transferrable
Rights under the Plan are not transferrable, except that the right to
receive shares pursuant to the Plan may be transferred by will or the laws of
descent and distribution. Options granted to a Participant hereunder may be
exercised only by such Participant.
12. Adjustment for Capital Changes
In the event of any capital change by reason of any stock dividend or
split, recapitalization, merger in which Palomar is the surviving entity,
combination or exchange of shares or similar corporate change, the number and
type of shares or other securities of Palomar which Participants may purchase
under the Plan, and the maximum aggregate number of such shares or securities
which may be purchased under the Plan, shall be appropriately adjusted by the
Board of Directors of Palomar.
13. Amendments
The Board of Directors of Palomar may at any time, or from time to
time, amend the Plan in any respect, except that, without stockholder approval,
no amendment shall be made (a) increasing the number of shares which may be
purchased under the Plan (other than as provided in Section 12 herein), (b)
materially increasing the benefits accruing to Participants or (c) materially
modifying the requirements as to eligibility for participation in the Plan.
14. Laws and Regulations
(a) Notwithstanding any other provision of the Plan, the rights of
Participants to purchase Common Stock hereunder shall be subject to compliance
with all applicable Federal, state and foreign laws, rules and regulations and
the rules of each stock exchange upon which the Common Stock is from time to
time listed.
5
(b) The Plan and the purchase of Common Stock hereunder shall be
subject to additional rules and regulations, not inconsistent with the Plan,
that may be promulgated from time to time by the Committee regarding purchases
and sales of Common Stock.
15. Employment
The Plan shall not confer any right to continued employment upon any
employee of the Company.
16. Effective Date of the Plan; Termination
(a) The Plan shall become effective on October 1, 1996, subject to
approval by the shareholders of Palomar in accordance with applicable law and
the requirements of Section 423 of the Code.
(b) The Plan and all rights hereunder shall terminate on the earliest
to occur of:
(i) the date on which the maximum number of shares of Common
Stock available for purchase under the Plan as specified in Section 3 hereof has
been purchased;
(ii) the termination of the Plan by the Board of Directors of
Palomar; or
(iii) the effective date of any consolidation or merger in
which Palomar is not the surviving entity, any exchange or conversion of
outstanding shares of Palomar for or into securities of another entity or other
consideration, or any complete liquidation of Palomar.
In the event that on any Purchase Date the remaining shares of Common
Stock available for purchase under the Plan are insufficient to fully satisfy
Participants' outstanding options, such remaining available shares shall be
apportioned among and sold to such Participant in proportion to the amounts of
payroll deductions and the excess payroll deduction shall be returned to the
Participant as soon as practicable thereafter.
Upon any termination of the Plan, any shares in the employee's Account
shall be delivered by the Custodian to the employee or his or her legal
representative as soon as practicable following such termination.
6
RESTATED
CERTIFICATE OF INCORPORATION
OF
PALOMAR MEDICAL TECHNOLOGIES, INC.
The following Restated Certificate of Incorporation of Palomar Medical
Technologies, Inc., originally known as Dynamed, Inc. (the "Corporation"), (i)
only restates and integrates and does not further amend the provisions of the
Certificate of Incorporation of the Corporation originally filed with the
Secretary of State of the State of Delaware on August 16, 1991, as heretofore
amended or supplementedand ; (ii) contains no discrepancy with the provisions of
such Certificate of Incorporation, as heretofore amended or supplemented; and
(iii) has been duly adopted by the Board of Directors of the Corporation in
accordance with the provisions of Section 245 of the Delaware General
Corporation Law.
FIRST: The name of the Corporation is Palomar Medical Technologies,
Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, County of New Castle, and
the name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares which the Corporation shall have the
authority to issue is one hundred and five million (105,000,000) shares of which
one hundred million (100,000,000) shares shall be Common Stock with a par value
of one cent ($.01) per share and five million (5,000,000) shares shares shall be
Preferred Stock with a par value of one cent ($.01) per share.
Additional designations and powers, the rights and preferences
and the qualifications, limitations or restrictions with respect to each class
of stock of the corporation shall be as determined by the Board of Directors
from time to time.
A. SERIES D CONVERTIBLE PREFERRED STOCK
------------------------------------
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series D Convertible Preferred Stock" (the "Series D
Convertible Preferred Stock"), and the number of shares constituting the Series
D Convertible Preferred Stock shall be 6,000.
SECTION 2. STATED CAPITAL. The amount to be represented in
stated capital at all times for each share of Series D Convertible Preferred
Stock shall be the sum of (i) $60.00, (ii) to the extent legally available, the
accrued but unpaid dividends on such share of Series D Convertible Preferred
Stock, and (iii) to be determined on at least a quarterly basis, an amount equal
to the accrued and unpaid interest on dividends in arrears through the date of
determination (as provided in Section 4).
SECTION 3. RANK. All Series D Convertible Preferred Stock
shall rank (i) senior to the Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation, now or hereafter issued, as to payment of dividends
and distribution of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and (ii) on a parity with the
Series A Convertible Preferred Stock, $.01 par value per share, the Series B
Convertible Preferred Stock, $.01 par value per share, the Series C Convertible
Preferred Stock, $.01 par value per share, the Series I Class A Preference
Shares, $.01 par value per share, and the Series II Class A Preference Shares,
$.01 par value per share, of the Corporation, both as to payment of dividends
and as to distributions of assets upon liquidation, dissolution, or winding up
of the Corporation, whether voluntary or involuntary.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS. The holders of shares
of Series D Convertible Preferred Stock shall be entitled to receive, when, as,
and if declared by the Board of Directors of the Corporation (the "Board of
Directors" or the "Board") out of funds legally available for such purpose,
dividends at the rate of 8% of the Per Share Price (as defined in Section 5) per
annum per share during the first twelve (12) months after the date of original
issuance, 6% of the Per Share Price per annum during the second twelve months
after the date of original issuance and 4% of the Per Share Price per annum
thereafter, and no more, which shall be fully cumulative, shall accrue without
interest from the date of original issuance and shall be payable in cash
quarterly on March 31, June 30, September 30 and December 31 of each year
commencing March 31, 1996 (except that if any such date is a Saturday, Sunday,
or legal holiday, then such dividend shall be payable on the next succeeding day
that is not a Saturday, Sunday, or legal holiday) to holders of record as they
appear on the stock books of the Corporation on such record dates, not more than
20 nor less than 10 days preceding the payment dates for such dividends, as
shall be fixed by the Board. The amount of the dividends payable per share of
Series D Convertible Preferred Stock for each quarterly dividend period shall be
computed by dividing the annual dividend amount by four. The amount of dividends
payable for the initial dividend period and any period shorter than a full
quarterly dividend period shall be computed on the basis of a 360-day year of
twelve 30-day months. Dividends not paid on a payment date, whether or not such
dividends have been declared, will bear interest at the rate of 10% per annum
until paid. No dividends or other distributions, other than dividends payable
solely in shares of Common Stock or other capital stock of the Corporation
ranking junior as to dividends to the Series D Convertible Preferred Stock
(collectively, the "Junior Dividend Stock"), shall be paid or set apart for
payment on, and, except for the use of Common Stock to pay for the exercise
price of stock options issued pursuant to the stock option plans of the
Corporation and its subsidiaries, no purchase, redemption, or other acquisition
shall be made by the Corporation of, any shares of Junior Dividend Stock unless
and until all accrued and unpaid dividends on the Series D Convertible Preferred
Stock and interest on dividends in arrears at the rate specified herein shall
have been paid or declared and set apart for payment, except for up to 350,000
shares of Common Stock which may be repurchased by the Corporation
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or a subsidiary of the Corporation for purposes of an incentive stock option
plan as authorized by the Board of Directors of the Corporation prior to the
filing of this Certificate.
If at any time any dividend on any capital stock of the
Corporation ranking senior as to dividends to the Series D Convertible Preferred
Stock (the "Senior Dividend Stock") shall be in default, in whole or in part, no
dividend shall be paid or declared and set apart for payment on the Series D
Convertible Preferred Stock unless and until all accrued and unpaid dividends
with respect to the Senior Dividend Stock, including the full dividends for the
then current dividend period, shall have been paid or declared and set apart for
payment, without interest. No dividends shall be paid or declared and set apart
for payment on any class or series or the Corporation's capital stock ranking,
as to dividends, on a parity with the Series D Convertible Preferred Stock (the
"Parity Dividend Stock") for any period unless all accrued but unpaid dividends
(and interest on dividends in arrears at the rate specified herein) have been,
or contemporaneously are, paid or declared and set apart for such payment on the
Series D Convertible Preferred Stock. No dividends shall be paid or declared and
set apart for payment on the Series D Convertible Preferred Stock for any period
unless all accrued but unpaid dividends have been, or contemporaneously are,
paid or declared and set apart for payment on the Parity Dividend Stock for all
dividend periods terminating on or prior to the date of payment of such full
dividends. When dividends are not paid in full upon the Series D Convertible
Preferred Stock and the Parity Dividend Stock, all dividends paid or declared
and set apart for payment upon shares of Series D Convertible Preferred Stock
(and interest on dividends in arrears at the rate specified herein) and the
Parity Dividend Stock shall be paid or declared and set apart for payment pro
rata, so that the amount of dividends paid or declared and set apart for payment
per share on the Series D Convertible Preferred Stock and the Parity Dividend
Stock shall in all cases bear to each other the same ratio that accrued and
unpaid dividends per share on the shares of Series D Convertible Preferred Stock
and the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 4
shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.
SECTION 5. LIQUIDATION PREFERENCE. In the event of a
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series D Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, an amount per share of
Series D Convertible Preferred Stock equal to the sum of (i) all dividends
accrued and unpaid thereon to the date of final distribution to such holders,
(ii) accrued and unpaid interest on dividends in arrears to the date of
distribution, and (iii) $1,000.00 (the "Per Share Price" and collectively with
the amounts described in clauses (i) and (ii) above, the "Liquidation
Preference"), and no more, before any payment shall be made or any assets
distributed to the holders of Common Stock or any other class or series of the
Corporation's capital stock ranking junior as to liquidation rights to the
Series D Convertible Preferred Stock (collectively, the "Junior Liquidation
Stock"); provided, however, that such rights shall accrue to the holders of
Series D Convertible Preferred Stock only in the event that the Corporation's
payments with respect to the liquidation preference of the holders of capital
stock of the Corporation ranking senior as to liquidation rights to the Series D
Convertible Preferred Stock (the "Senior
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Liquidation Stock") are fully met. After the liquidation preferences of the
Senior Liquidation Stock are fully met, the entire assets of the Corporation
available for distribution shall be distributed ratably among the holders of the
Series D Convertible Preferred Stock and any other class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series D Convertible Preferred Stock (the "Parity Liquidation Stock") in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). After payment in full of the
liquidation price of the shares of the Series D Convertible Preferred Stock and
the Parity Liquidation Stock, the holders of such shares shall not be entitled
to any further participation in any distribution of assets by the Corporation.
Neither a consolidation or merger of the Corporation with another corporation
nor a sale or transfer of all or part of the Corporation's assets for cash,
securities, or other property in and of itself will be considered a liquidation,
dissolution, or winding up of the Corporation.
SECTION 6. NO MANDATORY REDEMPTION. The shares of Series D
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation.
SECTION 7. NO SINKING FUND. The shares of Series D Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement,
or sinking fund.
SECTION 8. OPTIONAL REDEMPTION. So long as the Corporation is
in compliance in all material respects with its obligations to the holders of
shares of Series D Convertible Preferred Stock, the Corporation shall have the
right, exercisable on not less than 10 days or more than 30 days written notice
to the holders of record of the shares of Series D Convertible Preferred Stock
to be redeemed, at any time after the sooner to occur of (i) three (3) years
after the date of original issuance or (ii) such time as the closing bid price
of the Common Stock shall exceed $7.80 per share (the "Alternative Minimum
Redemption Price") for 60 or more consecutive trading days (provided that for
purposes of this clause (ii), the closing bid price of the Common Stock shall
exceed $7.80 on the day that the shares of Series D Convertible Preferred Stock
is called for redemption) to redeem all of the shares or any part thereof not
less than 1,000 shares (or such lesser number of shares of Series D Convertible
Preferred Stock as shall remain outstanding at the time of exercise of such
redemption right) of Series D Convertible Preferred Stock in accordance with
this Section 8. The Alternative Minimum Redemption Price shall be subject to
equitable adjustments for stock splits, stock dividends, combinations,
recapitalizations, reclassifications and similar events. Any notice of
redemption (a "Notice of Redemption") under this Section shall be delivered to
the holders of the shares of Series D Convertible Preferred Stock at their
addresses appearing on the records of the Corporation; provided, however, that
any failure or defect in the giving of notice to any such holder shall not
affect the validity of notice to or the redemption of shares of Series D
Convertible Preferred Stock of any other holder. Any Notice of Redemption shall
state (1) that the Corporation is exercising its right to redeem all or a
portion of the outstanding shares of Series D Convertible Preferred Stock
pursuant to this Section 8, (2) the number of shares of Series D Convertible
Preferred Stock held by such holder which are to be redeemed, (3) the Redemption
Price (as hereinafter defined) per share of Series D Convertible Preferred Stock
to be redeemed, determined in accordance with this Section and (4) the date of
redemption of such shares of Series D Convertible Preferred Stock, determined in
accordance with this Section (the "Redemption Date"). On the Redemption Date,
the Corporation shall make payment in immediately available funds of the
applicable Redemption Price (as hereinafter defined) to each
-4-
holder of shares of Series D Convertible Preferred Stock to be redeemed to or
upon the order of such holder as specified by such holder in writing to the
Corporation at least one business day prior to the Redemption Date. If the
Corporation exercises its right to redeem all or a portion of the outstanding
shares of Series D Convertible Preferred Stock, the Corporation shall make
payment to the holders of the shares of Series D Convertible Preferred Stock to
be redeemed in respect of each share of Series D Convertible Preferred Stock to
be redeemed of an amount equal to the amount of the Liquidation Preference
determined as of the applicable Redemption Date (the "Redemption Price"). Upon
redemption of less than all of the shares of Series D Convertible Preferred
Stock evidenced by a particular certificate, promptly, but in no event later
than three business days after surrender of such certificate to the Corporation,
the Corporation shall issue a replacement certificate for the shares of Series D
Convertible Preferred Stock which have not been redeemed. Only whole shares of
Series D Convertible Preferred Stock may be redeemed. If the Corporation
exercises its right to redeem less than all outstanding shares of Series D
Convertible Preferred Stock, then such redemption shall be made, as nearly as
practical, pro rata among the holders of record of the Series D Convertible
Preferred Stock. Notwithstanding any other provision of this Certificate of
Designations, no share of Series D Convertible Preferred Stock as to which the
holder has exercised the right of conversion pursuant to Section 9 hereof may be
redeemed by the Corporation on or after the date of exercise of such conversion
right.
SECTION 9. CONVERSION.
(a) Conversion at Option of Holder. The holders of the Series
D Convertible Preferred Stock may, upon surrender of the certificates therefor,
convert any or all of their shares of Series D Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock and such other securities
and property as hereinafter provided. Commencing on the date which is 20 days
after the Registration Effective Date (as hereinafter defined) and at any time
thereafter, each share of Series D Convertible Preferred Stock initially may be
converted at the office of any transfer agent for the Series D Convertible
Preferred Stock, if any, the office of any transfer agent for the Common Stock
or at such other office or offices, if any, as the Board of Directors may
designate, into whole shares of Common Stock at the rate equal to the number of
fully paid and nonassessable shares of Common Stock (calculated as to each
conversion to the nearest 1/100th of a share) determined by dividing (y) the sum
of (i) the Conversion Amount, (ii) accrued but unpaid dividends to the
Conversion Date, and (iii) accrued but unpaid interest on the dividends in
arrears to the Conversion Date by (z) 80% of the daily mean average of the
Closing Price of the Common Stock on the ten consecutive trading days
immediately preceding the Conversion Date (but in no event shall the amount
determined pursuant to this clause (z) be less than $4.50 (subject to equitable
adjustments for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and similar events) regardless of the actual amount otherwise
determined pursuant to this clause (z)) or more than $6.00 (subject to equitable
adjustments for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and similar events) regardless of the actual amount otherwise
determined pursuant to this clause (z), in each case subject to adjustment as
hereinafter provided (the "Conversion Rate"). The "Conversion Price" shall be
equal to the Conversion Amount divided by the Conversion Rate.
Notwithstanding any other provision of this Section, the Corporation
shall not be required
-5-
to permit a conversion of shares of Series D Convertible Preferred Stock on any
Conversion Date unless the aggregate number of shares of Series D Convertible
Preferred Stock to be converted by all holders on such Conversion Date is 1,000
shares (or such lesser number of shares of Series D Convertible Preferred Stock
as shall remain outstanding at the time of exercise of such conversion right).
(b) Certain Definitions.
As used herein, the "Closing Price" of any security on any
date shall mean the closing bid price of such security on such date on the
principal securities exchange on which such security is traded.
As used herein, the "Conversion Amount" initially shall be
equal to $1,000, subject to adjustment as hereinafter provided.
As used herein, "Conversion Date" shall mean the date on which
the notice of conversion is actually received by the Corporation, in case of a
conversion at the option of the holder pursuant to Section 9(a).
As used herein, "Registration Effective Date" shall mean, with
respect to any share of Series D Convertible Preferred Stock, the date on which
the Registration Statement required to be filed by the Corporation pursuant to
Section 8 of the Securities Purchase Agreement, dated as of February 14, 1996,
by and between the Corporation and The Travelers Insurance Company is first
declared effective by the Securities and Exchange Commission.
(c) Other Provisions. Notwithstanding anything in this Section
9 to the contrary, no change in the Conversion Amount shall actually be made
until the cumulative effect of the adjustments called for by this Section 9
since the date of the last change in the Conversion Amount would change the
Conversion Amount by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Rate shall actually be changed to
reflect all adjustments called for by this Section 9 and not previously made.
Notwithstanding anything in this Section 9, no change in the Conversion Amount
shall be made that would result in a Conversion Price of less than the par value
of the Common Stock into which shares of Series D Convertible Preferred Stock
are at the time convertible.
The holders of shares of Series D Convertible Preferred Stock
at the close of business on the record date for any dividend payment to holders
of Series D Convertible Preferred Stock shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; provided, however, that shares of Series D Convertible Preferred
Stock surrendered for conversion during the period between the close of business
on any record date for a dividend payment and the opening of business on the
corresponding dividend payment date must be accompanied by payment of an amount
equal to the dividend payable on such shares on such dividend payment date. A
holder of shares of Series D Convertible Preferred Stock on a record date for a
dividend payment who (or whose transferee) tenders any of such shares for
conversion into shares of Common Stock on or after such dividend payment date
will receive
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the dividend payable by the Corporation on such shares of Series D Convertible
Preferred Stock on such date, and the converting holder need not include payment
of the amount of such dividend upon surrender of shares of Series D Convertible
Preferred Stock for conversion. Except as provided above, no adjustment shall be
made in respect of cash dividends on Common Stock or Series D Convertible
Preferred Stock that may be accrued and unpaid at the date of surrender for
conversion.
The right of the holders of Series D Convertible Preferred
Stock to convert their shares shall be exercised by delivering to the
Corporation or its agent, as provided above, a written notice, duly signed by or
on behalf of the holder, stating the number of shares of Series D Convertible
Preferred Stock to be converted. Promptly, but in no event later than 10
business days after delivery of a notice of conversion, such holder shall
surrender for such purpose to the Corporation or its agent, as provided above,
certificates representing shares to be converted, duly endorsed in blank or
accompanied by proper instruments of transfer. If such holder shall fail to
deliver certificates representing shares to be converted in such form on or
prior to such tenth business day, such notice of conversion shall not be
effective, unless otherwise agreed by the Corporation, but such failure shall
not affect such holder's right to convert such shares at a date after the date
such notice of conversion was given. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery upon conversion of shares of Common Stock or other
securities or property in a name other than that of the holder of the shares of
the Series D Convertible Preferred Stock being converted, and the Corporation
shall not be required to issue or deliver any such shares or other securities or
property unless and until the person or persons requesting the issuance thereof
shall have paid to the Corporation the amount of any such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid.
The Corporation (and any successor corporation) shall take all
action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series D Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding paragraph.
If the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series D Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series D Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series D Convertible Preferred Stock, the Corporation promptly shall
seek such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly-owned subsidiary of the Corporation)
in which the Corporation is not the surviving corporation, or in case of any
sale or transfer of all or substantially all of
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the assets of the Corporation, or in the case of any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into other
securities or property, the Corporation shall make appropriate provision or
cause appropriate provision to be made so that each holder of shares of Series D
Convertible Preferred Stock then outstanding shall have the right thereafter to
convert such shares of Series D Convertible Preferred Stock into the kind and
amount of shares of stock and other securities and property receivable upon such
consolidation, merger, sale, transfer, or share exchange by a holder of the
number of shares of Common Stock into which such shares of Series D Convertible
Preferred Stock could have been converted immediately prior to the effective
date of such consolidation, merger, sale, transfer, or share exchange. If, in
connection with any such consolidation, merger, sale, transfer, or share
exchange, each holder of shares of Common Stock is entitled to elect to receive
either securities, cash, or other assets upon completion of such transaction,
the Corporation shall provide or cause to be provided to each holder of Series D
Convertible Preferred Stock the right to elect the securities, cash, or other
assets into which the Series D Convertible Preferred Stock held by such holder
shall be convertible after completion of any such transaction on the same terms
and subject to the same conditions applicable to holders of the Common Stock
(including, without limitation, notice of the right to elect, limitations on the
period in which such election shall be made, and the effect of failing to
exercise the election). The Corporation shall not effect any such transaction
unless the provisions of this paragraph have been complied with. The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers, or share exchanges.
Upon surrender of certificates representing shares of Series D
Convertible Preferred Stock for conversion, the Corporation shall issue and
deliver to such person certificates for the Common Stock issuable upon such
conversion within three business days after such surrender and the person
converting shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided.
No fractional shares of Common Stock shall be issued upon
conversion of Series D Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock which would otherwise be issuable in respect of the
aggregate number of such shares surrendered for conversion at one time by the
same holder, the Corporation at its option (a) may pay in cash an amount equal
to the product of (i) the daily mean average of the Closing Price of a share of
Common Stock on the ten consecutive trading days before the Conversion Date and
(ii) such fraction of a share or (b) may issue an additional share of Common
Stock.
The "Closing Price" for each day shall be the closing price
regular way on such day as reported on the New York Stock Exchange Composite
Tape, or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which Common Stock is
listed or admitted to trading, or, if not listed or admitted to trading on any
national securities exchange, the closing bid price as reported on the Nasdaq
Stock Market (or, if not so reported, the closing price), or, if not admitted
for quotation on the Nasdaq Stock Market, the average of the high bid and low
asked prices on such day as recorded by the National Association of Securities
Dealers, Inc. through the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), or if the National Association
-8-
of Securities Dealers, Inc. through NASDAQ shall not have reported any bid and
asked prices for the Common Stock on such day, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation for such purposes, or, if no such
bid and asked prices can be obtained from any such firm, the fair market value
of one share of Common Stock on such day as determined in good faith by the
Board of Directors. Such determination by the Board of Directors shall be
conclusive.
The Conversion Amount shall be adjusted from time to time
under certain circumstances, subject to the provisions of the first three
sentences of the first paragraph of this Section 9(c), as follows:
(i) In case the Corporation shall issue rights or warrants to
all holders of the Common Stock entitling such holders to subscribe for or
purchase Common Stock on the record date referred to below at a price per share
less than the average daily Closing Prices of the Common Stock on the 30
consecutive business days commencing 45 business days before the record date
(the "Current Market Price"), then in each such case the Conversion Amount in
effect on such record date shall be adjusted in accordance with the formula
C1 = C x O + N
-----
O + N x P
-----
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the
record date.
N = the number of additional shares of Common Stock issuable
pursuant to the exercise of such rights or warrants.
P = the offering price per share of the additional shares
(which amount shall include amounts received by the
Corporation in respect of the issuance and the exercise of
such rights or warrants).
M = the Current Market Price per share of Common Stock on
the record date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula
-9-
C1 = C x M
-----
M - F
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Market Price per share of Common Stock on
the record date mentioned below.
F = the aggregate amount of such cash dividend and/or the
fair market value on the record date of the assets or
securities to be distributed divided by the number of
shares of Common Stock outstanding on the record date. The
Board of Directors shall determine such fair market value,
which determination shall be conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series D Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant
to the fifth paragraph of this Section 9(c), the holder of any Series D
Convertible Preferred Stock thereafter surrendered for conversion shall become
entitled to receive securities, cash, or assets other than Common Stock, the
number or amount of such securities or property so receivable upon conversion
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in subparagraphs (i) to (iii) above.
Except as otherwise provided above in this Section 9, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.
Whenever the Conversion Amount is adjusted, (i) the
Corporation shall send to each transfer agent, if any, for the Series D
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series D Convertible Preferred Stock
and the Common Stock is traded, or the Nasdaq Stock Market if the Series D
Convertible Preferred Stock or the Common Stock is admitted for a quotation
thereon, a statement signed by the Chairman of the Board, the President or any
Vice-President of the Corporation and by its Treasurer or its Secretary or
Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 9, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the Corporation and (ii)
the Corporation will give notice by mail to the holders of record of Series D
Convertible Preferred Stock, which notice shall be made within 45 days after the
effective date of such adjustment and shall state the adjustment and the
Conversion Amount. Notwithstanding the foregoing notice provisions, failure by
the Corporation to give such notice or a defect in such notice shall not affect
the
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binding nature of such corporate action of the Corporation.
Whenever the Corporation shall propose to take any of the
actions specified in the fifth paragraph of this Section 9(c) or in
subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) which
would result in any adjustment in the Conversion Amount under this Section 9(c),
the Corporation shall cause a notice to be mailed at least 30 days prior to the
date on which the books of the Corporation will close or on which a record will
be taken for such action, to the holders of record of the outstanding Series D
Convertible Preferred Stock on the date of such notice. Such notice shall
specify the action proposed to be taken by the Corporation and the date as of
which holders of record of the Common Stock shall participate in any such
actions or be entitled to exchange their Common Stock for securities or other
property, as the case may be. Failure by the Corporation to mail the notice or
any defect in such notice shall not affect the validity of the transaction.
Notwithstanding any other provision of this Section 9, no
adjustment in the Conversion Amount need be made (a) for a transaction referred
to in subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) if
holders of Series D Convertible Preferred Stock are to participate in the
transaction or distribution on a basis and with notice that the Board of
Directors determines to be fair to the holders of the Series D Convertible
Preferred Stock and appropriate in light of the basis on which holders of the
Common Stock or, in the case of a transaction referred to in said subparagraph
(ii), holders of Junior Stock participate in the transaction; (b) for sales of
Common Stock pursuant to a plan for reinvestment of dividends and interest,
provided that the purchase price in any such sale is at least equal to the fair
market value of the Common Stock at the time of such purchase, or pursuant to
any plan adopted by the Corporation for the benefit of its employees, directors,
or consultants; or (c) after the Series D Convertible Preferred Stock becomes
convertible into cash (no interest shall accrue on the cash).
SECTION 10. VOTING RIGHTS. Except as otherwise required by
law, shares of Series D Convertible Preferred Stock shall not be entitled to
vote on any matter.
The affirmative vote or consent of the holders of a majority
of the outstanding shares of the Series D Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation if the amendment, alteration, or repeal materially
and adversely affects the powers, preferences, or special rights of the Series D
Convertible Preferred Stock, or (2) the creation and issuance of any Senior
Dividend Stock or Senior Liquidation Stock; provided, however, that any increase
in the authorized preferred stock of the Corporation or the creation and
issuance of any stock which is both Junior Dividend Stock and Junior Liquidation
Stock or any other capital stock of the Corporation ranking on a parity with the
Series D Convertible Preferred Stock shall be deemed not to affect materially
and adversely such powers, preferences, or special rights.
SECTION 11. OUTSTANDING SHARES. For purposes of this
Certificate of Designations, all shares of Series D Convertible Preferred Stock
shall be deemed outstanding except (i) from the date of surrender of
certificates representing shares of Series D Convertible Preferred Stock for
conversion into Common Stock, all shares of Series D Convertible Preferred
-11-
Stock converted into Common Stock; and (ii) from the date of registration of
transfer, all shares of Series D Convertible Preferred Stock held of record by
the Corporation or any subsidiary or Affiliate (as defined herein) of the
Corporation. For the purposes of this Certificate of Designations, "Affiliate"
means any person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Corporation. "Control" is the power
to direct the management and policies of a person, directly or through one or
more intermediaries, whether through the ownership of voting securities, by
contract, or otherwise.
B. SERIES E CONVERTIBLE PREFERRED STOCK
------------------------------------
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series E Convertible Preferred Stock" (the "Series E
Convertible Preferred Stock") , and the number of shares constituting the Series
E Convertible Preferred Stock shall be 10,000, and shall not be subject to
increase.
SECTION 2. STATED CAPITAL. The amount to be represented in
stated capital at all times for each share of Series E -Convertible Preferred
Stock shall be the sum of (i) $1,000, (ii) to the extent legally available, the
accrued but unpaid dividends on such share of Series E Convertible Preferred
Stock, and (iii) to be determined on at least a quarterly basis, an amount equal
to the accrued and unpaid interest on dividends in arrears through the date of
determination (as provided in Section 4).
SECTION 3. RANK. All Series E Convertible Preferred Stock
shall rank (i) senior to the Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation, now or hereafter issued, as to payment of dividends
and distribution of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and (ii) on a parity with any
additional series of preferred stock of any class which the Board of Directors
or the stockholders may from time to time authorize, both as to payment of
dividends and as to distributions of assets upon liquidation, dissolution, or
winding up of the Corporation, whether voluntary or involuntary.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of
shares of Series E Convertible Preferred Stock shall be entitled to receive,
when, as, and if declared by the Board of Directors of the Corporation (the
"Board of Directors" or the "Board") out of funds legally available for such
purpose, dividends at the rate of $70.00 per annum per share, and no more, which
shall be fully cumulative, shall accrue without interest from the date of
original issuance and shall be payable in cash quarterly on January 1, April 1,
July 1, and October 1 of each year commencing July 1, 1996 (except that if any
such date is a Saturday, Sunday, or legal holiday, then such dividend shall be
payable on the next succeeding day that is not a Saturday, Sunday, or legal
holiday) to holders of record as they appear on the stock books of the
Corporation on such record dates, not more than 20 nor less than 10 days
preceding the payment dates for such dividends, as shall be fixed by the Board.
Dividends on the Series E Convertible Preferred Stock shall be paid in cash or,
subject to the limitations in Section 4(b) hereof, shares of Common Stock, $.01
par value (the "Common Stock"), of the Corporation or any combination of cash
and shares of Common Stock, at the option of the Corporation as hereinafter
provided. The amount of the dividends payable per share of Series E Convertible
Preferred Stock for each quarterly dividend period shall be computed by dividing
the annual
-12-
dividend amount by four. The amount of dividends payable for the initial
dividend period and any period shorter than a full quarterly dividend period
shall be computed on the basis of a 360- day year of twelve 30-day months.
Dividends not paid on a payment date, whether or not such dividends have been
declared, will bear interest at the rate of 12% per annum until paid. No
dividends or other distributions, other than dividends payable solely in shares
of Common Stock or other capital stock of the Corporation ranking junior as to
dividends to the Series E Convertible Preferred Stock (collectively, the "Junior
Dividend Stock"), shall be paid or set apart for payment on any shares of Junior
Dividend Stock, and no purchase, redemption, or other acquisition shall be made
by the Corporation of any shares of Junior Dividend Stock (other than purchases,
redemptions or other acquisitions of a number of shares of Common Stock in the
aggregate not in excess of 2 percent of the shares of Common Stock outstanding
on the date this Certificate of Designations is filed with the Secretary of
State of the State of Delaware, at prices not in excess of the fair market value
thereof at the time of purchase, redemption or acquisition) unless and until all
accrued and unpaid dividends on the Series E Convertible Preferred Stock and
interest on dividends in arrears at the rate specified herein shall have been
paid or declared and set apart for payment.
If at any time any dividend on any capital stock of the
Corporation ranking senior as to dividends to the Series E Convertible Preferred
Stock (the "Senior Dividend Stock") shall be in default, in whole or in part, no
dividend shall be paid or declared and set apart for payment on the Series E
Convertible Preferred Stock unless and until all accrued and unpaid dividends
with respect to the Senior Dividend Stock, including the full dividends for the
then current dividend period, shall have been paid or declared and set apart for
payment, without interest. No full dividends shall be paid or declared and set
apart for payment on any class or series or the Corporation's capital stock
ranking, as to dividends, on a parity with the Series E Convertible Preferred
Stock (the "Parity Dividend Stock") for any period unless all accrued but unpaid
dividends (and interest on dividends in arrears at the rate specified herein)
have been, or contemporaneously are, paid or declared and set apart for such
payment on the Series E Convertible Preferred Stock. No full dividends shall be
paid or declared and set apart for payment on the Series E Convertible Preferred
Stock for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series E Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series E
Convertible Preferred Stock (and interest on dividends in arrears at the rate
specified herein) and the Parity Dividend Stock shall be paid or declared and
set apart for payment pro rata, so that the amount of dividends paid or declared
and set apart for payment per share on the Series E Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases bear to each other the same
ratio that accrued and unpaid dividends per share on the shares of Series E
Convertible Preferred Stock and the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 4
shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.
(b) If the Corporation elects in the exercise of its sole
discretion to issue shares
-13-
of Common Stock in payment of dividends on the Series E Convertible Preferred
Stock, the Corporation shall issue and dispatch, or cause to be issued and
dispatched, to each holder of such shares a certificate representing the number
of whole shares of Common Stock arrived at by dividing the per share Computed
Price of such shares of Common Stock into the total amount of cash dividends
such holder would be entitled to receive if the aggregate dividends on the
Series E Convertible Preferred Stock held by such holder which are being paid in
shares of Common Stock were being paid in cash; provided, however, that if
certificates representing shares of Common Stock are issued and dispatched to
holders of Series E Convertible Preferred Stock subsequent to the third trading
day after a dividend payment date, the percentage used to calculate the Computed
Price will be reduced by one for each trading day after the third trading day
following such dividend payment date to the date of dispatch of shares of Common
Stock. No fractional shares of Common Stock shall be issued in payment of
dividends. In lieu thereof, the Corporation may issue a number of shares of
Common Stock to each holder which reflects a rounding to the nearest whole
number of shares of Common Stock or may pay cash. The Corporation shall not
exercise its right to issue shares of Common Stock in payment of dividends on
Series E Convertible Preferred Stock if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes, or held in the
Corporation's treasury, is insufficient to pay the portion of such
dividends to be paid in shares of Common Stock;
(ii) the issuance or delivery of shares of Common Stock as a
dividend payment would require registration with or approval of any
governmental authority under any law or regulation, and such
registration or approval has not been effected or obtained;
(iii) the shares of Common Stock to be issued as a dividend
payment have not been authorized for listing, upon Official notice of
issuance, on any securities exchange or market on which the Common
Stock is then listed; or have not been approved for quotation if the
Common Stock is traded in the over-the-counter market;
(iv) the Computed Price (determined without regard to the
proviso to the definition thereof) is less than the par value of the
shares of Common Stock;
(v) the shares of Common Stock (A) cannot be sold or
transferred without restriction by unaffiliated holders who receive
such shares of Common Stock as a dividend payment or (B) are no longer
listed on a national securities exchange, on the Nasdaq National Market
or the Nasdaq SmallCap Market; or
(vi) the issuance of shares of Common Stock in payment of
dividends on Series E Convertible Preferred Stock held by any GFL
Person (as defined in Section 9(a) hereof) would result in any GFL
Person beneficially owning more than 4.9% of the Common Stock,
determined as provided in the proviso to the second sentence of Section
9(a) hereof.
Shares of Common Stock issued in payment of dividends on
Series E Convertible Preferred Stock pursuant to this Section shall be, and for
all purposes shall be deemed to be, validly issued, fully paid and nonassessable
shares of Common Stock of the Corporation; the
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issuance and delivery thereof is hereby authorized; and the dispatch thereof
will be, and for all purposes shall be deemed to be, payment in full of the
cumulative dividends to which holders are entitled on the applicable dividend
payment date.
"Computed Price" of shares of Common Stock means the price
equal to 85 percent of the arithmetic mean of the per share Closing Price (as
defined in Section 9(b)) of the Common Stock for the three consecutive trading
days ending on the third trading day prior to the applicable dividend payment
date; provided however, that, notwithstanding the foregoing, in no event shall
the Computed Price be less than $.0005 per share.
SECTION 5. LIQUIDATION PREFERENCE. In the event of a
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series E Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, an amount per share of
Series E Convertible Preferred Stock equal to the sum of (i) all dividends
accrued and unpaid thereon to the date of final distribution to such holders,
(ii) accrued and unpaid interest on dividends in arrears to the date of
distribution, and (iii) $1,000.00 (collectively, "the Liquidation Preference"),
and no more, before any payment shall be made or any assets distributed to the
holders of Common Stock or any other class or series of the Corporation's
capital stock ranking junior as to liquidation rights to the Series E
Convertible Preferred Stock (collectively, the "Junior Liquidation Stock");
provided, however, that such rights shall accrue to the holders of Series E
Convertible Preferred Stock only in the event that the Corporation's payments
with respect to the liquidation preference of the holders of capital stock of
the Corporation ranking senior as to liquidation rights to the Series E
Convertible Preferred Stock (the "Senior Liquidation Stock") are fully met.
After the liquidation preferences of the Senior Liquidation Stock are fully met,
the entire assets of the Corporation available for distribution shall be
distributed ratably among the holders of the Series E Convertible Preferred
Stock and any other class or series of the Corporation's capital stock having
parity as to liquidation rights with the Series E Convertible Preferred Stock
(the "Parity Liquidation Stock") in proportion to the respective preferential
amounts to which each is entitled (but only to the extent of such preferential
amounts). After payment in full of the liquidation price of the shares of the
Series E Convertible Preferred Stock and the Parity Liquidation Stock, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation nor a sale or transfer of all or part
of the Corporation's assets for cash, securities, or other property in and of
itself will be considered a liquidation, dissolution, or winding up of the
Corporation.
SECTION 6. NO MANDATORY REDEMPTION. The shares of Series E
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation.
SECTION 7. NO SINKING FUND. The shares of Series E Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement,
or sinking fund.
SECTION 8. OPTIONAL REDEMPTION. So long as the Corporation is
in compliance in all material respects with its obligations to the holders of
shares of Series E Convertible Preferred Stock (including, without limitation,
its obligations under the Registration Rights Agreement between the Corporation
and the original holders of the Series E Convertible
-15-
Preferred Stock (the "Registration Rights Agreement") and the provisions of this
Certificate of Designations), the Corporation shall have the right, exercisable
on not less than 15 days or more than 20 days written notice to the holders of
record of the shares of Series E Convertible Preferred Stock to be redeemed, at
any time which is 90 days or more after the Registration Effective Date (as
defined in Section 9 (b) ) to redeem all of the shares or any part of not less
than 600 shares (or such lesser number of shares of Series E Convertible
Preferred Stock as shall remain outstanding at the time of exercise of such
redemption right) of Series E Convertible Preferred Stock in accordance with
this Section 8. Any notice of redemption (a "Notice of Redemption") under this
Section shall be delivered to the holders of the shares of Series E Convertible
Preferred Stock at their addresses appearing on the records of the Corporation;
provided, however, that any failure or defect in the giving of notice to any
such holder shall not affect the validity of notice to or the redemption of
shares of Series E Convertible Preferred Stock of any other holder. Any Notice
of Redemption may, subject to the 15 and 20 day restrictions stated above, be
given prior to the date which is 90 days after the Registration Effective Date,
but in any such case may not specify a Redemption Date (as herein defined) prior
to the date which is 90 days after the Registration Effective Date. Any Notice
of Redemption shall state (1) that the Corporation is exercising its right to
redeem all or a portion of the outstanding shares of Series E Convertible
Preferred Stock pursuant to this Section 8, (2) the number of shares of Series E
Convertible Preferred Stock held by such holder which are to be redeemed, (3)
the Redemption Price (as hereinafter defined) per share of Series E Convertible
Preferred Stock to be redeemed, determined in accordance with this Section and
(4) the date of redemption of such shares of Series E Convertible Preferred
Stock, determined in accordance with this Section (the "Redemption Date"). On
the Redemption Date, the Corporation shall make payment in immediately available
funds of the applicable Redemption Price (as hereinafter defined) to each holder
of shares of Series E Convertible Preferred Stock to be redeemed to or upon the
order of such holder as specified by such holder in writing to the Corporation
at least one business day prior to the Redemption Date. If the Corporation
exercises its right to redeem all or a portion of the outstanding shares of
Series E Convertible Preferred Stock the Corporation shall make payment to the
holders of the shares of Series E Convertible Preferred Stock to be redeemed in
respect of each share of Series E Convertible Preferred Stock to be redeemed of
an amount equal to the sum of (A) the amount of the Liquidation Preference
determined as of the applicable Redemption Date and (B) $176.50 (such sum being
referred to herein as the "Redemption Price"). Upon redemption of less than all
of the shares of Series E Convertible Preferred Stock evidenced by a particular
certificate, promptly, but in no event later than three business days after
surrender of such certificate to the Corporation, the Corporation shall issue a
replacement certificate for the shares of Series E Convertible Preferred Stock
which have not been redeemed. Only whole shares of Series E Convertible
Preferred Stock may be redeemed. If the Corporation exercises its right to
redeem less than all outstanding shares of Series E Convertible Preferred Stock,
then such redemption shall be made, as nearly as practical, pro rata among the
holders of record of the Series E Convertible Preferred Stock. Notwithstanding
any other provision of this Certificate of Designations, no share of Series E
Convertible Preferred Stock as to which the holder exercises the right of
conversion pursuant to Section 9 hereof may be redeemed by the Corporation on or
after the date of exercise of such conversion right.
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SECTION 9. CONVERSION.
(a) Conversion at Option of Holder. The holders of the Series
E Convertible Preferred Stock may, upon surrender of the certificates therefor,
convert any or all of their shares of Series E Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock and such other securities
and property as hereinafter provided. Commencing on the date which is 90 days
after the date of initial issuance of shares of Series E Convertible Preferred
Stock (the "Issuance Date") and at any time thereafter, each share of Series E
Convertible Preferred Stock initially may be converted at the principal
executive offices of the Corporation, the office of any transfer agent for the
Series E Convertible Preferred Stock, if any, the office of any transfer agent
for the Common Stock or at such other office or offices, if any, as the Board of
Directors may designate, into whole shares of Common Stock at the rate equal to
the number of fully paid and nonassessable shares of Common Stock (calculated as
to each conversion to the nearest 1/100th of a share) determined by dividing (y)
the sum of (i) the Conversion Amount, (ii) accrued but unpaid dividends to the
Conversion Date, and (iii) accrued but unpaid interest on the dividends on the
shares of Series E Convertible Preferred Stock being converted in arrears to the
Conversion Date by (z) the lesser of (I) $11.50 (subject to equitable
adjustments for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and similar events) and (II) the product of (A) the Conversion
Percentage times (B) the arithmetic average of the Closing Price of the Common
Stock on the three consecutive trading days immediately preceding the Conversion
Date (but in no event shall the amount determined pursuant to subclause (II) of
this clause (z) be less than $7.50 (subject to equitable adjustments for stock
splits, stock dividends, combinations, recapitalizations, reclassifications and
similar events, regardless of the actual amount otherwise determined pursuant to
this clause (z)) (the "Minimum Conversion Price"), in each case subject to
adjustment as hereinafter provided (the "Conversion Rate"); provided, however,
that in no event shall GFL Advantage Fund Limited ("Advantage") be entitled to
convert any shares of Series E Convertible Preferred Stock in excess of that
number of shares of Series E Convertible Preferred Stock upon conversion of
which the sum of (1) the number of shares of Common Stock beneficially owned by
Advantage or any person associated or affiliated with, or serving as an adviser
to Advantage (each a "GFL Person" and collectively, the "GFL Persons") (other
than shares of Common Stock deemed beneficially owned through the ownership of
unconverted shares of Series E Convertible Preferred Stock and unexercised
Common Stock Purchase Warrants issued to Advantage in connection with the
issuance of the Series E Convertible Preferred Stock) and (2) the number of
shares of Common Stock issuable upon the conversion of the number of shares of
Series E Convertible Preferred Stock with respect to which the determination in
this proviso is being made, would result in beneficial ownership by any GFL
Person of more than 4.9% of the outstanding shares of Common Stock. For purposes
of the proviso to the immediately preceding sentence, beneficial ownership shall
be determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided
in clause (1) of the proviso to the immediately preceding sentence. For purposes
of the proviso to the second preceding sentence, the Corporation shall be
entitled to rely, and shall be fully protected in relying, on any statement or
representation made by Advantage to the Corporation in connection with a
particular conversion, without any obligation on the part of the Corporation to
make any inquiry or investigation or to examine its records or the records of
any transfer agent for the Common Stock. Notwithstanding any other provision
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hereof, if the arithmetic average of the Closing Price of the Common Stock on
the five consecutive trading days ending on the 89th day (or, if such 89th day
is not a trading day, ending on the trading day next preceding such 89th day)
after the Issuance Date shall be at least $10.00 per share (subject to equitable
adjustments for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and similar events), then the Minimum Conversion Price shall
be increased to $8.50 per share (subject to equitable adjustments for stock
splits, stock dividends, combinations, recapitalizations, reclassifications and
similar events). The "Conversion Price" shall be equal to the Conversion Amount
divided by the Conversion Rate.
(b) Certain Definitions.
As used herein, the "Closing Price" of any security on any
date shall mean the closing bid price of such security on such date on the
principal securities exchange on which such security is traded.
"Computation Date" means (1) the date which is 90 days after
the Closing Date, unless the Registration Statement required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights Agreement
theretofore has been declared effective by the SEC, and, (2) if the Registration
Statement required to be filed by the Corporation pursuant to Section 2(a) of
the Registration Rights Agreement has not theretofore been declared effective by
the SEC, each date which is 30 days after a Computation Date and, (3) if the
Registration Statement required to be filed by the Corporation pursuant to
Section 2(a) of the Registration Rights Agreement is not declared effective by
the SEC within 90 days after the Closing Date, the date on which such
Registration Statement is declared effective.
As used herein, the "Conversion Amount" initially shall be
equal to $1,000.00, subject to adjustment as hereinafter provided.
As used herein, "Conversion Date" shall mean the date on which
the notice of conversion is actually received by the Corporation, in case of a
conversion at the option of the holder pursuant to Section 9(a).
As used herein, "Conversion Percentage" shall mean 85 percent,
except that, if the Registration Statement is not ordered effective by the SEC)
within 90 days after the Issuance Date, then the percentage stated above in this
paragraph shall be reduced by two percentage points on each Computation Date or
by a pro rated portion of such two percentage points in the case of any
Computation Date which is less than 30 days subsequent to a prior Computation
Date (which means that the two percentage point reduction will be pro rated in
the case of a period of less than 30 days between any two Computation Dates) and
except that the percentage stated above in this paragraph, as so adjusted, is
also subject to adjustment as provided in Section 3(f) (iii) of the Registration
Rights Agreement; provided, however, that in no event shall the aggregate
reduction in the Conversion Percentage exceed 15 percentage points, regardless
of the actual amount otherwise determined pursuant hereto.
As used herein, "Registration Effective Date" shall mean, with
respect to any share of Series E Convertible Preferred Stock, the date on which
the Registration Statement required to be filed by the Corporation with the SEC
pursuant to Section 2(a) of the Registration
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Rights Agreement is first ordered effective by the SEC.
As used herein, "Registration Statement" shall mean the
Registration Statement required to be filed by the Corporation with the SEC
pursuant to Section 2(a) of the Registration Rights Agreement.
As used herein, "SEC" shall mean the United States Securities
and Exchange Commission.
(c) Other Provisions. Notwithstanding anything in this Section
9 to the contrary, no change in the Conversion Amount shall actually be made
until the cumulative effect of the adjustments called for by this Section 9
since the date of the last change in the Conversion Amount would change the
Conversion Amount by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Rate shall actually be changed to
reflect all adjustments called for by this Section 9 and not previously made.
Notwithstanding anything in this Section 9, no change in the Conversion Amount
shall be made that would result in a Conversion Price of less than the par value
of the Common Stock into which shares of Series E Convertible Preferred Stock
are at the time convertible.
The holders of shares of Series E Convertible Preferred Stock
at the close of business on the record date for any dividend payment to holders
of Series E Convertible Preferred Stock shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding,the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; provided, however, that shares of Series E Convertible Preferred
Stock surrendered for conversion during the period between the close of business
on any record date for a dividend payment and the opening of business on the
corresponding dividend payment date must be accompanied by payment of an amount
equal to the dividend payable on such shares on such dividend payment date. A
holder of shares of Series E Convertible Preferred Stock on a record date for a
dividend payment who (or whose transferee) tenders any of such shares for
conversion into shares of Common Stock on or after such dividend payment date
will receive the dividend payable by the Corporation on such shares of Series E
Convertible Preferred Stock on such date, and the converting holder need not
include payment of the amount of such dividend upon surrender of shares of
Series E Convertible Preferred Stock for conversion. Except as provided above,
no adjustment shall be made in respect of cash dividends on Common Stock or
Series E Convertible Preferred Stock that may be accrued and unpaid at the date
of surrender for conversion.
The right of the holders of Series E Convertible Preferred
Stock to convert their shares shall be exercised by delivering to the
Corporation or its agent, as provided above, a written notice, duly signed by or
on behalf of the holder, stating the number of shares of Series E Convertible
Preferred Stock to be converted and, in the case of Advantage, stating that such
conversion will not result in Advantage beneficially owning a number of shares
of Common Stock in excess of that number permitted by Section 9(a). Promptly,
but in no event later than 10 business days after delivery of a notice of
conversion, such holder shall surrender for such purpose to the Corporation or
its agent, as provided above, certificates representing shares to be converted,
duly endorsed in blank or accompanied by proper instruments of transfer. If such
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holder shall fail to deliver certificates representing shares to be converted in
such form on or prior to such tenth business day, such notice of conversion
shall not be effective, unless otherwise agreed by the Corporation, but such
failure shall not affect such holder's right to convert such shares at a date
after the date such notice of conversion was given. The Corporation shall pay
any tax arising under United States federal, state or local law in connection
with any conversion of shares of Series E Convertible Preferred Stock except
that the Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery upon
conversion of shares of Common Stock or other securities or property in a name
other than that of the holder of the shares of the Series E Convertible
Preferred Stock being converted, and the Corporation shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
The Corporation (and any successor corporation) shall take all
action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series E Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding paragraph.
If the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series E Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series E Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series E Convertible Preferred Stock, the Corporation promptly shall
seek such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly-owned subsidiary of the Corporation)
in which the Corporation is not the surviving corporation, or in case of any
sale or transfer of all or substantially all of the assets of the Corporation,
or in the case of any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, the
Corporation shall make appropriate provision or cause appropriate provision to
be made so that each holder of shares of Series E Convertible Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series E Convertible Preferred Stock into the kind and amount of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale, transfer, or share exchange by a holder of the number of shares of Common
Stock into which such shares of Series E Convertible Preferred Stock could have
been converted immediately prior to the effective date of such consolidation,
merger, sale, transfer, or share exchange. If, in connection with any such
consolidation, merger, sale, transfer, or share exchange, each holder of shares
of Common Stock is entitled to elect to receive either securities,
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cash, or other assets upon completion of such transaction, the Corporation shall
provide or cause to be provided to each holder of Series E Convertible Preferred
Stock the right to elect the securities, cash, or other assets into which the
Series E Convertible Preferred Stock held by such holder shall be convertible
after completion of any such transaction on the same terms and subject to the
same conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). The Corporation shall not effect any such transaction unless the
provisions of this paragraph have been complied with. The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers, or
share exchanges.
If a holder shall have given a notice of conversion of shares
of Series E Convertible Preferred Stock, upon surrender of certificates
representing shares of Series E Convertible Preferred Stock for conversion, the
Corporation shall issue and deliver to such person certificates for the Common
Stock issuable upon such conversion within three business days after such
surrender of certificates and the person converting shall be deemed to be the
holder of record of the Common Stock issuable upon such conversion, and all
rights with respect to the shares surrendered shall forthwith terminate except
the right to receive the Common Stock or other securities, cash, or other assets
as herein provided.
No fractional shares of Common Stock shall be issued upon
conversion of Series E Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock which would otherwise be issuable in respect of the
aggregate number of such shares surrendered for conversion at one time by the
same holder, the Corporation at its option (a) may pay in cash an amount equal
to the product of (i) the arithmetic average of the Closing Price of a share of
Common Stock on the three consecutive trading days before the Conversion Date
and (ii) such fraction of a share or (b) may issue an additional share of Common
Stock.
The "Closing Price" for each day shall be the closing price
regular way on such day as reported on the New York Stock Exchange Composite
Tape, or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which Common Stock is
listed or admitted to trading, or, if not listed or admitted to trading on any
national securities exchange, the closing bid price as reported on the Nasdaq
National Market (or, if not so reported, the closing price), or, if not admitted
for quotation on the Nasdaq National Market, the average of the high bid and low
asked prices on such day as recorded by the National Association of Securities
Dealers, Inc. through the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), or if the National Association of Securities
Dealers, Inc. through NASDAQ shall not have reported any bid and asked prices
for the Common Stock on such day, the average of the bid and asked prices for
such day as furnished by any New York Stock Exchange member firm selected from
time to time by the Corporation for such purposes, or, if no such bid and asked
prices can be obtained from any such firm, the fair market value of one share of
Common Stock on such day as determined in good faith by the Board of Directors.
Such determination by the Board of Directors shall be conclusive.
The Conversion Amount shall be adjusted from time to time
under certain circumstances, subject to the provisions of the first three
sentences of the first paragraph of this
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Section 9(c), as follows:
(i) In case the Corporation shall issue rights or warrants on
a pro rata basis to all holders of the Common Stock entitling such holders to
subscribe for or purchase Common Stock on the record date referred to below at a
price per share less than the average daily Closing Prices of the Common Stock
on the 30 consecutive business days commencing 45 business days before the
record date (the "Current Market Price"), then in each such case the Conversion
Amount in effect on such record date shall be adjusted in accordance with the
formula
C1 = C x O + N
-----
O + N x P
-----
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the
record date.
N = the number of additional shares of Common Stock issuable
pursuant to the exercise of such rights or warrants.
P = the offering price per share of the additional shares
(which amount shall include amounts received by the
Corporation in respect of the issuance and the exercise of
such rights or warrants).
M = the Current Market Price per share of Common Stock on
the record date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula
C1 = C x M
-----
M - F
where
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C1 = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Market Price per share of Common Stock on
the record date mentioned below.
F = the aggregate amount of such cash dividend and/or the
fair market value on the record date of the assets or
securities to be distributed divided by the number of
shares of Common Stock outstanding on the record date. The
Board of Directors shall determine such fair market value,
which determination shall be conclusive.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii) , "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series E Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant
to the fifth paragraph of this Section 9(c), the holder of any Series E
Convertible Preferred Stock thereafter surrendered for conversion shall become
entitled to receive securities, cash, or assets other than Common Stock, the
number or amount of such securities or property so receivable upon conversion
shall be subject to adjustment from time to time in a manner and on terms nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in subparagraphs (i) to (iii) above.
Except as otherwise provided above in this Section 9, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.
Whenever the Conversion Amount is adjusted as herein provided,
the Corporation shall send to each transfer agent, if any, for the Series E
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series E Convertible Preferred Stock
and the Common Stock is traded, or the Nasdaq National Market if the Series E
Convertible Preferred Stock or Common Stock is admitted for a quotation thereon,
a statement signed by the Chairman of the Board, the President, or any Vice
President of the Corporation and by its Treasurer or its Secretary or Assistant
Secretary stating the adjusted Conversion Amount determined as provided in this
Section 9, and any adjustment so evidenced, given in good faith, shall be
binding upon all stockholders and upon the Corporation. Whenever the Conversion
Amount is adjusted, the Corporation will give notice by mail to the holders of
record of Series E Convertible Preferred Stock, which notice shall be made
within 45 days after the effective date of such adjustment and shall state the
adjustment and the Conversion Amount. Notwithstanding the foregoing notice
provisions, failure by the Corporation to give such notice or a defect in such
notice shall not affect the binding nature of
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such corporate action of the Corporation.
Whenever the Corporation shall propose to take any of the
actions specified in the fifth paragraph of this Section 9(c) or in
subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) which
would result in any adjustment in the Conversion Amount under this Section 9(c),
the Corporation shall cause a notice to be mailed at least 20 days prior to the
date on which the books of the Corporation will close or on which a record will
be taken for such action, to the holders of record of the outstanding Series E
Convertible Preferred Stock on the date of such notice. Such notice shall
specify the action proposed to be taken by the Corporation and the date as of
which holders of record of the Common Stock shall participate in any such
actions or be entitled to exchange their Common Stock for securities or other
property, as the case may be. Failure by the Corporation to mail the notice or
any defect in such notice shall not affect the validity of the transaction.
Notwithstanding any other provision of this Section 9, no
adjustment in the Conversion Amount need be made (a) for a transaction referred
to in subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) if
holders of Series E Convertible Preferred Stock are to participate in the
transaction or distribution on a basis and with notice that the Board of
Directors determines such transaction to be fair to the holders of the Series E
Convertible Preferred Stock and appropriate in light of the basis on which
holders of the Common Stock or, in the case of a transaction referred to in said
subparagraph (ii), holders of Junior Stock participate in the transaction; (b)
for sales of Common Stock pursuant to a plan for reinvestment of dividends and
interest, provided that the purchase price in any such sale is at least equal to
the fair market value of the Common Stock at the time of such purchase, or
pursuant to any plan adopted by the Corporation for the benefit of its
employees, directors, or consultants; or (c) after such time as a holder of
shares of Series E Convertible Preferred Stock becomes entitled to receive only
cash upon conversion of such shares (in which case no interest shall accrue on
the amount of such cash for any period prior to the date which is three business
days after surrender of the certificates for such shares for conversion).
(d) Conversion at Option of Corporation. So long as the
Corporation shall be in compliance in all material respects with its obligations
to the holders of the Series E Convertible Preferred Stock (including, without
limitation, its obligations under the Registration Rights Agreement and the
provisions of this Certificate of Designations) and so long as the Registration
Statement shall be effective, the Corporation shall have the right, exercisable
at any time or from time to time on or after April 1, 1998 by at least 15
business days but not more than 20 business days prior notice (a "Corporation
Conversion Notice") to the holders of the Series E Convertible Preferred Stock
to require the holders of the Series E Convertible Preferred Stock to convert,
in accordance with the provisions, and subject to the limitations, of this
Section 9, all or any part of the outstanding shares of Series E Convertible
Preferred Stock into shares of Common Stock to the extent the same are at such
time convertible into shares of Common Stock. The Corporation Conversion Notice
shall state (1) the number of shares of Series E Convertible Preferred Stock
which the Corporation seeks to require to be converted into shares of Common
Stock and (2) the conversion date (which shall not be less than 15 business days
or more than 20 business days after the date the Corporation Conversion Notice
is given). If the Corporation shall give a Corporation Conversion Notice, then,
unless theretofore converted by the holder or redeemed by the Corporation in
accordance herewith, and, so long as the
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Registration Statement shall remain effective on such conversion date and the
Corporation shall be in compliance in all material respects with its obligations
under the Registration Rights Agreement on such conversion date, on the
conversion date properly set forth therein, the lesser of (A) the number of
shares of Series E Convertible Preferred Stock which the Corporation seeks to
require to be converted, as set forth in such Corporation Conversion Notice or
(B) the maximum number of shares of Series E Convertible Preferred Stock which
on such conversion date is convertible in accordance with Sections 9(a) hereof,
shall be converted into such number of shares of Common Stock as shall be
determined pursuant to this Section 9 (but without regard to the Minimum
Conversion Price) as if the conversion of such number of shares of Series E
Convertible Preferred Stock were made by the holders thereof in accordance
herewith without any further action on the part of the holders of such shares of
Series E Convertible Preferred Stock. Upon receipt by the Corporation of
certificates for shares of Series E Convertible Preferred Stock converted into
shares of Common Stock in accordance with this Section 9(d) after a Corporation
Conversion Notice is given, the Corporation shall issue and, within three
trading days after such surrender, deliver to or upon the order of such holder
(1) that number of shares of Common Stock for the number of shares of Series E
Convertible Preferred Stock converted as shall be determined in accordance
herewith, (2) a new certificate for the balance of shares of Series E
Convertible Preferred Stock, if any, and (3) payment of the accrued and unpaid
dividends on the shares of Series E Convertible Preferred Stock so converted
(which payment of dividends may be made in accordance with Section 4 if the
Corporation satisfies the requirements thereof).
SECTION 10. VOTING RIGHTS. Except as otherwise required by
law, shares of Series E Convertible Preferred Stock shall not be entitled to
vote on any matter.
The affirmative vote or consent of the holders of a majority
of the outstanding shares of the Series E Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation if the amendment, alteration, or repeal materially
and adversely affects the powers, preferences, or special rights of the Series E
Convertible Preferred Stock, or (2) the creation and issuance of any Senior
Dividend Stock or Senior Liquidation Stock; provided, however, that any increase
in the authorized preferred stock of the Corporation or the creation and
issuance of any stock which is both Junior Dividend Stock and Junior Liquidation
Stock or any other capital stock of the Corporation ranking on a parity with the
Series E Convertible Preferred Stock shall not be deemed to affect materially
and adversely such powers, preferences, or special rights.
SECTION 11. OUTSTANDING SHARES. For purposes of this
Certificate of Designations, all shares of Series E Convertible Preferred Stock
shall be deemed outstanding except (i) from the date of surrender of
certificates representing shares of Series E Convertible Preferred Stock for
conversion into Common Stock, all shares of Series E Convertible Preferred Stock
converted into Common Stock; (ii) from the date of registration of transfer, all
shares of Series E Convertible Preferred Stock held of record by the Corporation
or any subsidiary or Affiliate (as defined herein) of the Corporation and (iii)
from the Redemption Date, all shares of Series E Convertible Preferred Stock
which are redeemed, so long as in each case the Redemption Price of such shares
of Series E Convertible Preferred Stock shall have been paid by the Corporation
as and when required hereby. For the purposes of this Certificate of
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Designations, "Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Corporation.
"Control" is the power to direct the management and policies of a person,
directly or through one or more intermediaries, whether through the ownership of
voting securities, by contract, or otherwise.
C. SERIES F CONVERTIBLE PREFERRED STOCK
------------------------------------
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series F Convertible Preferred Stock" (the "Series F
Convertible Preferred Stock"), and the number of shares constituting the Series
F Convertible Preferred Stock shall be 6,000.
SECTION 2. STATED CAPITAL. The amount to be represented in
stated capital at all times for each share of Series F Convertible Preferred
Stock shall be the sum of (i) $60.00, (ii) to the extent legally available, the
accrued but unpaid dividends on such share of Series F Convertible Preferred
Stock, and (iii) to be determined on at least a quarterly basis, an amount equal
to the accrued and unpaid interest on dividends in arrears through the date of
determination (as provided in Section 4).
SECTION 3. RANK. All Series F Convertible Preferred Stock
shall rank (i) senior to the Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation, now or hereafter issued, as to payment of dividends
and distribution of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and (ii) on a parity with the
Series A Convertible Preferred Stock, $.01 par value per share, the Series B
Convertible Preferred Stock, $.01 par value per share, the Series C Convertible
Preferred Stock, $.01 par value per share, the Series D Convertible Preferred
Stock, $.01 par value per share, the Series E Convertible Preferred Stock, $.01
par value per share, the Series I Class A Preference Shares, $.01 par value per
share, and the Series II Class A Preference Shares, $.01 par value per share, of
the Corporation, both as to payment of dividends and as to distributions of
assets upon liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.
SECTION 4. DIVIDENDS AND DISTRIBUTIONS. The holders of shares
of Series F Convertible Preferred Stock shall be entitled to receive, when, as,
and if declared by the Board of Directors of the Corporation (the "Board of
Directors" or the "Board") out of funds legally available for such purpose,
dividends at the rate of 8% of the Per Share Price (as defined in Section 5) per
annum per share during the first twelve (12) months after the date of original
issuance, 6% of the Per Share Price per annum during the second twelve months
after the date of original issuance and 4% of the Per Share Price per annum
thereafter, and no more, which shall be fully cumulative, shall accrue without
interest from the date of original issuance and shall be payable in cash
quarterly on March 31, June 30, September 30 and December 31 of each year
commencing September 30, 1996 (except that if any such date is a Saturday,
Sunday, or legal holiday, then such dividend shall be payable on the next
succeeding day that is not a Saturday, Sunday, or legal holiday) to holders of
record as they appear on the stock books of the Corporation on such record
dates, not more than 20 nor less than 10 days preceding the payment dates for
such dividends, as shall be fixed by the Board. The amount of the dividends
-26-
payable per share of Series F Convertible Preferred Stock for each quarterly
dividend period shall be computed by dividing the annual dividend amount by
four. The amount of dividends payable for the initial dividend period and any
period shorter than a full quarterly dividend period shall be computed on the
basis of a 360-day year of twelve 30-day months. Dividends not paid on a payment
date, whether or not such dividends have been declared, will bear interest at
the rate of 10% per annum until paid. No dividends or other distributions, other
than dividends payable solely in shares of Common Stock or other capital stock
of the Corporation ranking junior as to dividends to the Series F Convertible
Preferred Stock (collectively, the "Junior Dividend Stock"), shall be paid or
set apart for payment on, and, except for the use of Common Stock to pay for the
exercise price of stock options issued pursuant to the stock option plans of the
Corporation and its subsidiaries, no purchase, redemption, or other acquisition
shall be made by the Corporation of, any shares of Junior Dividend Stock unless
and until all accrued and unpaid dividends on the Series F Convertible Preferred
Stock and interest on dividends in arrears at the rate specified herein shall
have been paid or declared and set apart for payment.
If at any time any dividend on any capital stock of the
Corporation ranking senior as to dividends to the Series F Convertible Preferred
Stock (the "Senior Dividend Stock") shall be in default, in whole or in part, no
dividend shall be paid or declared and set apart for payment on the Series F
Convertible Preferred Stock unless and until all accrued and unpaid dividends
with respect to the Senior Dividend Stock, including the full dividends for the
then current dividend period, shall have been paid or declared and set apart for
payment, without interest. No dividends shall be paid or declared and set apart
for payment on any class or series or the Corporation's capital stock ranking,
as to dividends, on a parity with the Series F Convertible Preferred Stock (the
"Parity Dividend Stock") for any period unless all accrued but unpaid dividends
(and interest on dividends in arrears at the rate specified herein) have been,
or contemporaneously are, paid or declared and set apart for such payment on the
Series F Convertible Preferred Stock. No dividends shall be paid or declared and
set apart for payment on the Series F Convertible Preferred Stock for any period
unless all accrued but unpaid dividends have been, or contemporaneously are,
paid or declared and set apart for payment on the Parity Dividend Stock for all
dividend periods terminating on or prior to the date of payment of such full
dividends. When dividends are not paid in full upon the Series F Convertible
Preferred Stock and the Parity Dividend Stock, all dividends paid or declared
and set apart for payment upon shares of Series F Convertible Preferred Stock
(and interest on dividends in arrears at the rate specified herein) and the
Parity Dividend Stock shall be paid or declared and set apart for payment pro
rata, so that the amount of dividends paid or declared and set apart for payment
per share on the Series F Convertible Preferred Stock and the Parity Dividend
Stock shall in all cases bear to each other the same ratio that accrued and
unpaid dividends per share on the shares of Series F Convertible Preferred Stock
and the Parity Dividend Stock bear to each other.
Any references to "distribution" contained in this Section 4
shall not be deemed to include any stock dividend or distributions made in
connection with any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary.
SECTION 5. LIQUIDATION PREFERENCE. In the event of a
liquidation, dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series F Convertible Preferred Stock shall be
entitled to receive out of the assets of the Corporation,
-27-
whether such assets constitute stated capital or surplus of any nature, an
amount per share of Series F Convertible Preferred Stock equal to the sum of (i)
all dividends accrued and unpaid thereon to the date of final distribution to
such holders, (ii) accrued and unpaid interest on dividends in arrears to the
date of distribution, and (iii) $1,000.00 (the "Per Share Price" and
collectively with the amounts described in clauses (i) and (ii) above, the
"Liquidation Preference"), and no more, before any payment shall be made or any
assets distributed to the holders of Common Stock or any other class or series
of the Corporation's capital stock ranking junior as to liquidation rights to
the Series F Convertible Preferred Stock (collectively, the "Junior Liquidation
Stock"); provided, however, that such rights shall accrue to the holders of
Series F Convertible Preferred Stock only in the event that the Corporation's
payments with respect to the liquidation preference of the holders of capital
stock of the Corporation ranking senior as to liquidation rights to the Series F
Convertible Preferred Stock (the "Senior Liquidation Stock") are fully met.
After the liquidation preferences of the Senior Liquidation Stock are fully met,
the entire assets of the Corporation available for distribution shall be
distributed ratably among the holders of the Series F Convertible Preferred
Stock and any other class or series of the Corporation's capital stock having
parity as to liquidation rights with the Series F Convertible Preferred Stock
(the "Parity Liquidation Stock") in proportion to the respective preferential
amounts to which each is entitled (but only to the extent of such preferential
amounts). After payment in full of the liquidation price of the shares of the
Series F Convertible Preferred Stock and the Parity Liquidation Stock, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation nor a sale or transfer of all or part
of the Corporation's assets for cash, securities, or other property in and of
itself will be considered a liquidation, dissolution, or winding up of the
Corporation.
SECTION 6. NO MANDATORY REDEMPTION. The shares of Series F
Convertible Preferred Stock shall not be subject to mandatory redemption by the
Corporation.
SECTION 7. NO SINKING FUND. The shares of Series F Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement,
or sinking fund.
SECTION 8. OPTIONAL REDEMPTION. So long as the Corporation is
in compliance in all material respects with its obligations to the holders of
shares of Series F Convertible Preferred Stock, the Corporation shall have the
right, exercisable on not less than 10 days or more than 30 days written notice
to the holders of record of the shares of Series F Convertible Preferred Stock
to be redeemed, at any time after the sooner to occur of (i) three (3) years
after the date of original issuance or (ii) such time as the closing bid price
of the Common Stock shall exceed $16.80 per share (the "Alternative Minimum
Redemption Price") for 60 or more consecutive trading days (provided that for
purposes of this clause (ii), the closing bid price of the Common Stock shall
exceed 16.80 on the day that the shares of Series F Convertible Preferred Stock
are called for redemption) to redeem all of the shares or any part thereof not
less than 1,000 shares (or such lesser number of shares of Series F Convertible
Preferred Stock as shall remain outstanding at the time of exercise of such
redemption right) of Series F Convertible Preferred Stock in accordance with
this Section 8; provided that (i) the Corporation shall not exercise its right
to redeem shares of Series F Convertible Preferred Stock prior to the
Registration Effective Date (as hereinafter defined) and (ii) if within five (5)
days of receipt of a Notice of Redemption (as hereinafter defined) Travelers (as
hereinafter defined)
-28-
shall notify the Corporation in writing that Travelers cannot exercise its right
of conversion by reason of the operation of the proviso to the first sentence of
Section 9(a) the Notice of Redemption shall not be effective as to any shares of
Series F Preferred Stock owned by Travelers and the such shares shall no longer
be entitled to the accrual and cumulation of dividends under Section 4. The
Alternative Minimum Redemption Price shall be subject to equitable adjustments
for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and similar events. Any notice of redemption (a "Notice of
Redemption") under this Section shall be delivered to the holders of the shares
of Series F Convertible Preferred Stock at their addresses appearing on the
records of the Corporation; provided, however, that any failure or defect in the
giving of notice to any such holder shall not affect the validity of notice to
or the redemption of shares of Series F Convertible Preferred Stock of any other
holder. Any Notice of Redemption shall state (1) that the Corporation is
exercising its right to redeem all or a portion of the outstanding shares of
Series F Convertible Preferred Stock pursuant to this Section 8, (2) the number
of shares of Series F Convertible Preferred Stock held by such holder which are
to be redeemed, (3) the Redemption Price (as hereinafter defined) per share of
Series F Convertible Preferred Stock to be redeemed, determined in accordance
with this Section and (4) the date of redemption of such shares of Series F
Convertible Preferred Stock, determined in accordance with this Section (the
"Redemption Date"). On the Redemption Date, the Corporation shall make payment
in immediately available funds of the applicable Redemption Price (as
hereinafter defined) to each holder of shares of Series F Convertible Preferred
Stock to be redeemed to or upon the order of such holder as specified by such
holder in writing to the Corporation at least one business day prior to the
Redemption Date. If the Corporation exercises its right to redeem all or a
portion of the outstanding shares of Series F Convertible Preferred Stock, the
Corporation shall make payment to the holders of the shares of Series F
Convertible Preferred Stock to be redeemed in respect of each share of Series F
Convertible Preferred Stock to be redeemed of an amount equal to the amount of
the Liquidation Preference determined as of the applicable Redemption Date (the
"Redemption Price"). Upon redemption of less than all of the shares of Series F
Convertible Preferred Stock evidenced by a particular certificate, promptly, but
in no event later than three business days after surrender of such certificate
to the Corporation, the Corporation shall issue a replacement certificate for
the shares of Series F Convertible Preferred Stock which have not been redeemed.
Only whole shares of Series F Convertible Preferred Stock may be redeemed. If
the Corporation exercises its right to redeem less than all outstanding shares
of Series F Convertible Preferred Stock, then such redemption shall be made, as
nearly as practical, pro rata among the holders of record of the Series F
Convertible Preferred Stock. Notwithstanding any other provision of this
Certificate of Designations, no share of Series F Convertible Preferred Stock as
to which the holder has exercised the right of conversion pursuant to Section 9
hereof may be redeemed by the Corporation on or after the date of exercise of
such conversion right.
SECTION 9. CONVERSION.
(a) Conversion at Option of Holder. The holders of the Series
F Convertible Preferred Stock may, upon surrender of the certificates therefor,
convert any or all of their shares of Series F Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock and such other securities
and property as hereinafter provided. Commencing on the date which is 20 days
after the Registration Effective Date (as hereinafter defined) and at any time
thereafter, each share of Series F Convertible Preferred Stock initially may be
-29-
converted at the office of any transfer agent for the Series F Convertible
Preferred Stock, if any, the office of any transfer agent for the Common Stock
or at such other office or offices, if any, as the Board of Directors may
designate, into whole shares of Common Stock at the rate equal to the number of
fully paid and nonassessable shares of Common Stock (calculated as to each
conversion to the nearest 1/100th of a share) determined by dividing (y) the sum
of (i) the Conversion Amount, (ii) accrued but unpaid dividends to the
Conversion Date, and (iii) accrued but unpaid interest on the dividends in
arrears to the Conversion Date by (z) 80% of the daily mean average of the
Closing Price of the Common Stock on the ten consecutive trading days
immediately preceding the Conversion Date (but in no event shall the amount
determined pursuant to this clause (z) be less than $10.00 (subject to equitable
adjustments for stock splits, stock dividends, combinations, recapitalizations,
reclassifications and similar events) regardless of the actual amount otherwise
determined pursuant to this clause (z)) or more than $16.00 (subject to
equitable adjustments for stock splits, stock dividends, combinations,
recapitalizations, reclassifications and similar events) regardless of the
actual amount otherwise determined pursuant to this clause (z), in each case
subject to adjustment as hereinafter provided (the "Conversion Rate"); provided,
however, that The Travelers Life Insurance Company ("Travelers") and any
Travelers Person (as defined herein) shall only be entitled to convert any
shares of Series F Convertible Preferred Stock from time to time to the extent
that Travelers or such Travelers Person will, through such conversion, obtain
that number of shares of Common Stock (the "Conversion Shares") that, together
with shares of Common Stock directly or indirectly beneficially owned by
Travelers, its subsidiaries and affiliated persons including persons serving as
exclusive full time advisors of Travelers (each a "Travelers Person" and,
collectively, "Travelers Persons"), would not result in direct and indirect
beneficial ownership by all Travelers Persons that would exceed 10% of the
outstanding shares of Common Stock, as calculated in accordance with Rule
16a-1(a)(1). For purposes of calculating the number of Conversion Shares,
Travelers shall be entitled to use the outstanding number contained in the
Company's most recent Quarterly Report on Form 10-QSB or Annual Report on Form
10-KSB in accordance with Rule 13D-1(e). For purposes of determining the number
of Conversion Shares, the Company shall be entitled to rely, and shall be fully
protected in relying, on any statement or representation made by Travelers to
the Company without any obligation on the part of the Company to make any
inquiry or investigation or to examine its records or the records of any
transfer agent for the Common Stock to confirm such calculation. The "Conversion
Price" shall be equal to the Conversion Amount divided by the Conversion Rate.
Notwithstanding any other provision of this Section, the Corporation
shall not be required to permit a conversion of shares of Series F Convertible
Preferred Stock on any Conversion Date unless the aggregate number of shares of
Series F Convertible Preferred Stock to be converted by all holders on such
Conversion Date is 1,000 shares (or such lesser number of shares of Series F
Convertible Preferred Stock as shall remain outstanding at the time of exercise
of such conversion right).
(b) Certain Definitions.
As used herein, the "Closing Price" of any security on any
date shall mean the closing bid price of such security on such date on the
principal securities exchange on which such security is traded.
-30-
As used herein, the "Conversion Amount" initially shall be
equal to $1,000, subject to adjustment as hereinafter provided.
As used herein, "Conversion Date" shall mean the date on which
the notice of conversion is actually received by the Corporation, in case of a
conversion at the option of the holder pursuant to Section 9(a).
As used herein, "Registration Effective Date" shall mean, with
respect to any share of Series F Convertible Preferred Stock, the date on which
the Registration Statement required to be filed by the Corporation pursuant to
Section 8 of the Securities Purchase Agreement, dated as of July 12, 1996, by
and between the Corporation and The Travelers Insurance Company is first
declared effective by the Securities and Exchange Commission.
(c) Other Provisions. Notwithstanding anything in this Section
9 to the contrary, no change in the Conversion Amount shall actually be made
until the cumulative effect of the adjustments called for by this Section 9
since the date of the last change in the Conversion Amount would change the
Conversion Amount by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Rate shall actually be changed to
reflect all adjustments called for by this Section 9 and not previously made.
Notwithstanding anything in this Section 9, no change in the Conversion Amount
shall be made that would result in a Conversion Price of less than the par value
of the Common Stock into which shares of Series F Convertible Preferred Stock
are at the time convertible.
The holders of shares of Series F Convertible Preferred Stock
at the close of business on the record date for any dividend payment to holders
of Series F Convertible Preferred Stock shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; provided, however, that shares of Series F Convertible Preferred
Stock surrendered for conversion during the period between the close of business
on any record date for a dividend payment and the opening of business on the
corresponding dividend payment date must be accompanied by payment of an amount
equal to the dividend payable on such shares on such dividend payment date. A
holder of shares of Series F Convertible Preferred Stock on a record date for a
dividend payment who (or whose transferee) tenders any of such shares for
conversion into shares of Common Stock on or after such dividend payment date
will receive the dividend payable by the Corporation on such shares of Series F
Convertible Preferred Stock on such date, and the converting holder need not
include payment of the amount of such dividend upon surrender of shares of
Series F Convertible Preferred Stock for conversion. Except as provided above,
no adjustment shall be made in respect of cash dividends on Common Stock or
Series F Convertible Preferred Stock that may be accrued and unpaid at the date
of surrender for conversion.
The right of the holders of Series F Convertible Preferred
Stock to convert their shares shall be exercised by delivering to the
Corporation or its agent, as provided above, a written notice, duly signed by or
on behalf of the holder, stating the number of shares of Series F Convertible
Preferred Stock to be converted. Promptly, but in no event later than 10
business days after delivery of a notice of conversion, such holder shall
surrender for such purpose to the
-31-
Corporation or its agent, as provided above, certificates representing shares to
be converted, duly endorsed in blank or accompanied by proper instruments of
transfer. If such holder shall fail to deliver certificates representing shares
to be converted in such form on or prior to such tenth business day, such notice
of conversion shall not be effective, unless otherwise agreed by the
Corporation, but such failure shall not affect such holder's right to convert
such shares at a date after the date such notice of conversion was given. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery upon conversion of
shares of Common Stock or other securities or property in a name other than that
of the holder of the shares of the Series F Convertible Preferred Stock being
converted, and the Corporation shall not be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
The Corporation (and any successor corporation) shall take all
action necessary so that a number of shares of the authorized but unissued
Common Stock (or common stock in the case of any successor corporation)
sufficient to provide for the conversion of the Series F Convertible Preferred
Stock outstanding upon the basis hereinbefore provided are at all times reserved
by the Corporation (or any successor corporation), free from preemptive rights,
for such conversion, subject to the provisions of the next succeeding paragraph.
If the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series F Convertible Preferred Stock shall be convertible as
herein provided, the Corporation shall at the same time also make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series F Convertible Preferred Stock on the new
basis. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all of the outstanding
shares of Series F Convertible Preferred Stock, the Corporation promptly shall
seek such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly-owned subsidiary of the Corporation)
in which the Corporation is not the surviving corporation, or in case of any
sale or transfer of all or substantially all of the assets of the Corporation,
or in the case of any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, the
Corporation shall make appropriate provision or cause appropriate provision to
be made so that each holder of shares of Series F Convertible Preferred Stock
then outstanding shall have the right thereafter to convert such shares of
Series F Convertible Preferred Stock into the kind and amount of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale, transfer, or share exchange by a holder of the number of shares of Common
Stock into which such shares of Series F Convertible Preferred Stock could have
been converted immediately prior to the effective date of such consolidation,
merger, sale, transfer, or share exchange. If, in connection with any such
consolidation, merger, sale, transfer, or share exchange, each holder of shares
of Common Stock is entitled to elect to receive either securities, cash, or
other assets upon completion of such transaction, the Corporation shall provide
or cause
-32-
to be provided to each holder of Series F Convertible Preferred Stock the right
to elect the securities, cash, or other assets into which the Series F
Convertible Preferred Stock held by such holder shall be convertible after
completion of any such transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). The Corporation shall not effect any such transaction unless the
provisions of this paragraph have been complied with. The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers, or
share exchanges.
Upon surrender of certificates representing shares of Series F
Convertible Preferred Stock for conversion, the Corporation shall issue and
deliver to such person certificates for the Common Stock issuable upon such
conversion within three business days after such surrender and the person
converting shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided.
No fractional shares of Common Stock shall be issued upon
conversion of Series F Convertible Preferred Stock but, in lieu of any fraction
of a share of Common Stock which would otherwise be issuable in respect of the
aggregate number of such shares surrendered for conversion at one time by the
same holder, the Corporation at its option (a) may pay in cash an amount equal
to the product of (i) the daily mean average of the Closing Price of a share of
Common Stock on the ten consecutive trading days before the Conversion Date and
(ii) such fraction of a share or (b) may issue an additional share of Common
Stock.
The "Closing Price" for each day shall be the closing price
regular way on such day as reported on the New York Stock Exchange Composite
Tape, or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which Common Stock is
listed or admitted to trading, or, if not listed or admitted to trading on any
national securities exchange, the closing bid price as reported on the Nasdaq
Stock Market (or, if not so reported, the closing price), or, if not admitted
for quotation on the Nasdaq Stock Market, the average of the high bid and low
asked prices on such day as recorded by the National Association of Securities
Dealers, Inc. through the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), or if the National Association of Securities
Dealers, Inc. through NASDAQ shall not have reported any bid and asked prices
for the Common Stock on such day, the average of the bid and asked prices for
such day as furnished by any New York Stock Exchange member firm selected from
time to time by the Corporation for such purposes, or, if no such bid and asked
prices can be obtained from any such firm, the fair market value of one share of
Common Stock on such day as determined in good faith by the Board of Directors.
Such determination by the Board of Directors shall be conclusive. The Conversion
Amount shall be adjusted from time to time under certain circumstances, subject
to the provisions of the first three sentences of the first paragraph of this
Section 9(c), as follows:
(i) In case the Corporation shall issue rights or warrants to
all holders of the
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Common Stock entitling such holders to subscribe for or purchase Common Stock on
the record date referred to below at a price per share less than the average
daily Closing Prices of the Common Stock on the 30 consecutive business days
commencing 45 business days before the record date (the "Current Market Price"),
then in each such case the Conversion Amount in effect on such record date shall
be adjusted in accordance with the formula
C1 = C x O + N
-----
O + N x P
-----
M
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
O = the number of shares of Common Stock outstanding on the
record date.
N = the number of additional shares of Common Stock issuable
pursuant to the exercise of such rights or warrants.
P = the offering price per share of the additional shares
(which amount shall include amounts received by the
Corporation in respect of the issuance and the exercise of
such rights or warrants).
M = the Current Market Price per share of Common Stock on
the record date.
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.
(ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula
C1 = C x M
-----
M - F
where
C1 = the adjusted Conversion Amount
C = the current Conversion Amount
M = the Current Market Price per share of Common Stock on
the record date mentioned below.
F = the aggregate amount of such cash dividend and/or the
fair market value on the record date of the assets or
securities to be distributed divided by the number of
shares of Common Stock outstanding on the record date. The
Board of Directors shall determine such fair market value,
which determination shall be conclusive.
-34-
Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series F Convertible Preferred Stock.
(iii) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made pursuant
to the fifth paragraph of this Section 9(c), the holder of any Series F
Convertible Preferred Stock thereafter surrendered for conversion shall become
entitled to receive securities, cash, or assets other than Common Stock, the
number or amount of such securities or property so receivable upon conversion
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in subparagraphs (i) to (iii) above.
Except as otherwise provided above in this Section 9, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.
Whenever the Conversion Amount is adjusted, (i) the
Corporation shall send to each transfer agent, if any, for the Series F
Convertible Preferred Stock and the Common Stock, and to the principal
securities exchange, if any, on which the Series F Convertible Preferred Stock
and the Common Stock is traded, or the Nasdaq Stock Market if the Series F
Convertible Preferred Stock or the Common Stock is admitted for a quotation
thereon, a statement signed by the Chairman of the Board, the President or any
Vice-President of the Corporation and by its Treasurer or its Secretary or
Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 9, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the Corporation and (ii)
the Corporation will give notice by mail to the holders of record of Series F
Convertible Preferred Stock, which notice shall be made within 45 days after the
effective date of such adjustment and shall state the adjustment and the
Conversion Amount. Notwithstanding the foregoing notice provisions, failure by
the Corporation to give such notice or a defect in such notice shall not affect
the binding nature of such corporate action of the Corporation.
Whenever the Corporation shall propose to take any of the
actions specified in the fifth paragraph of this Section 9(c) or in
subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) which
would result in any adjustment in the Conversion Amount under this Section 9(c),
the Corporation shall cause a notice to be mailed at least 30 days prior to the
date on which the books of the Corporation will close or on which a record will
be taken for such action, to the holders of record of the outstanding Series F
Convertible Preferred Stock on the date of such notice. Such notice shall
specify the action proposed to be taken by the Corporation and the date as of
which holders of record of the Common Stock shall participate in any such
actions or be entitled to exchange their Common Stock for securities or other
property, as the case may be. Failure by the Corporation to mail the notice or
any defect in such notice shall not affect the validity of the transaction.
-35-
Notwithstanding any other provision of this Section 9, no
adjustment in the Conversion Amount need be made (a) for a transaction referred
to in subparagraphs (i) or (ii) of the ninth paragraph of this Section 9(c) if
holders of Series F Convertible Preferred Stock are to participate in the
transaction or distribution on a basis and with notice that the Board of
Directors determines to be fair to the holders of the Series F Convertible
Preferred Stock and appropriate in light of the basis on which holders of the
Common Stock or, in the case of a transaction referred to in said subparagraph
(ii), holders of Junior Stock participate in the transaction; (b) for sales of
Common Stock pursuant to a plan for reinvestment of dividends and interest,
provided that the purchase price in any such sale is at least equal to the fair
market value of the Common Stock at the time of such purchase, or pursuant to
any plan adopted by the Corporation for the benefit of its employees, directors,
or consultants; or (c) after the Series F Convertible Preferred Stock becomes
convertible into cash (no interest shall accrue on the cash).
SECTION 10. VOTING RIGHTS. Except as otherwise required by
law, shares of Series F Convertible Preferred Stock shall not be entitled to
vote on any matter.
The affirmative vote or consent of the holders of a majority
of the outstanding shares of the Series F Convertible Preferred Stock, voting
separately as a class, will be required for (1) any amendment, alteration, or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation if the amendment, alteration, or repeal materially
and adversely affects the powers, preferences, or special rights of the Series F
Convertible Preferred Stock, or (2) the creation and issuance of any Senior
Dividend Stock or Senior Liquidation Stock; provided, however, that any increase
in the authorized preferred stock of the Corporation or the creation and
issuance of any stock which is both Junior Dividend Stock and Junior Liquidation
Stock or any other capital stock of the Corporation ranking on a parity with the
Series F Convertible Preferred Stock shall be deemed not to affect materially
and adversely such powers, preferences, or special rights.
SECTION 11. OUTSTANDING SHARES. For purposes of this
Certificate of Designations, all shares of Series F Convertible Preferred Stock
shall be deemed outstanding except (i) from the date of surrender of
certificates representing shares of Series F Convertible Preferred Stock for
conversion into Common Stock, all shares of Series F Convertible Preferred Stock
converted into Common Stock; and (ii) from the date of registration of transfer,
all shares of Series F Convertible Preferred Stock held of record by the
Corporation or any subsidiary or Affiliate (as defined herein) of the
Corporation. For the purposes of this Certificate of Designations, "Affiliate"
means any person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Corporation. "Control" is the power
to direct the management and policies of a person, directly or through one or
more intermediaries, whether through the ownership of voting securities, by
contract, or otherwise.
FIFTH: [Intentionally omitted]
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is
expressly authorized:
-36-
To make, alter or repeal the bylaws of the Corporation. To
authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation.
To authorize and cause to be executed mortgages and liens upon
the real and personal property of the Corporation.
To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve in the manner in which it was created.
By a majority of the whole Board, to designate one or more
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. The bylaws may provide that in the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such agent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors, or in the bylaws of the Corporation, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease, or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the bylaws of the Corporation; and, unless the resolution or bylaws
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with
statute, to sell, lease or exchange all or substantially all of the property and
assets of the corporation, including its goodwill and its corporate franchises,
upon such terms and conditions and for such consideration, which may consist in
whole or in part of money or property, including shares of stock in, and/or
other securities of, any other Corporation or Corporations, as its Board of
Directors shall deem expedient and for the best interests of the Corporation.
EIGHTH: To the maximum extent permitted by Section 102(b)(7) of the
General Corporation Law of the State of Delaware, a Director of this Corporation
shall not be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a Director, except for
liability (i) for any breach of the Directors' duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the Director derived an improper personal benefit.
NINTH: Whenever a compromise or arrangement is proposed between this
-37-
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.
TENTH: Meetings of the stockholders may be held within or without the
State of Delaware, as the bylaws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the bylaws of the corporation. Elections of
directors need not be written ballot unless the bylaws of the corporation shall
so provide.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Amended and Restated Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned, being the duly elected Assistant
Secretary of Palomar Medical Technologies, Inc., does hereby declare that this
Amended and Restated Certificate of Incorporation has been duly adopted by the
Board of Directors of this Corporation in accordance with the provisions of
Section 245 of the General Corporation Law of the State of Delaware. The
undersigned does hereby affirm, under the penalties of perjury, that this
instrument is the act and deed of the Corporation and the facts herein set forth
are true and correct. I have accordingly hereunto set my hand this day of
August, 1996.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
--------------------------------
Joseph P. Caruso
Chief Financial Officer
-38-
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