As filed with the Securities and Exchange Commission on December 17, 1996
Registration No. 333-18003
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
PALOMAR MEDICAL TECHNOLOGIES, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
04-3128178
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(I.R.S. employer identification number)
66 Cherry Hill Drive, Beverly, Massachusetts 01915 (508) 921-9300
-----------------------------------------------------------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Sarah Burgess Reed
General Counsel
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
(508) 921-9300
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public:
from time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_____________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ______________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
Pursuant to Rule 416, there are also registered hereby such additional
indeterminate number of shares of such Common Stock as may become issuable as
dividend or to prevent dilution resulting from stock splits, stock dividends or
similar transactions as set forth in the terms of the Preferred Stock and the
warrants referred to above.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION DATED DECEMBER 17, 1996
PROSPECTUS
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PALOMAR MEDICAL TECHNOLOGIES, INC.
700,948 shares of Common Stock
consisting of:
571,428 shares underlying Series G Convertible Preferred
Stock; and 129,520 shares underlying stock
purchase warrants
This Prospectus relates to shares of Common Stock, $.01 par value,
("Common Stock" or the "Shares") of Palomar Medical Technologies, Inc. (the
"Company", the "Registrant" or "Palomar") consisting of: (i) 285,714 shares
underlying Series G Convertible Preferred Stock issued to GFL Performance Fund
Limited and 285,714 shares underlying Series G Convertible Preferred Stock
issued to GFL Advantage Fund Limited, and (ii) 64,760 shares underlying a stock
purchase warrant issued with the Series G Covertible Preferred Stock to GFL
Performance Fund Limited and 64,760 shares underlying a stock purchase warrant
issued with the Series G Covertible Preferred Stock to GFL Advantage Fund
Limited, all of which are exercisable as described in the Selling Stockholders
and Plan of Distribution sections of the Prospectus. All shares to be registered
hereby are to be offered by the selling stockholders listed herein (the "Selling
Stockholders") and the Company will receive no proceeds from the sale of such
shares. The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including certain liabilities under the Securities Act of
1933, as amended (the "Securities Act"), or to contribute to payments which such
Selling Stockholders may be required to make in respect thereof. See "Plan of
Distribution".
The Company's Common Stock, par value $.01 per share, is listed on the
National Association of Securities Dealers Automated Quotation System ("Nasdaq")
and traded on the Nasdaq SmallCap Market. The last reported bid price of the
Common Stock on the Nasdaq SmallCap Market on December 13, 1996 was $6.75 per
share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGES 6 THROUGH 16.
It is anticipated that usual and customary brokerage fees will be paid
by the Selling Stockholders on the sale of the Common Stock registered hereby.
The Company will pay the other expenses of this offering. See "Plan of
Distribution". The offer of shares of Common Stock by the Selling Stockholders
as described in this Prospectus is referred to as the "Offering".
The date of this Prospectus is December __, 1996.
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No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in connection with the offer
contained in this Prospectus, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Company
or the Selling Stockholders. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, Room 1024 and at the public
reference facilities maintained by the Commission on the 14th Floor, 75 Park
Place, New York, New York 10007; Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661; and Suite 500 East, Securities and
Exchange Commission Building, 5757 Wilshire Boulevard, Los Angeles, California
90036. Copies can be obtained from the Commission at prescribed rates by writing
to the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
reports, proxy statements and similar information can also be inspected and
copied at the National Association of Securities Dealers, 1735 K Street, N.W.,
Washington, DC 20006-1500. In addition, the Commission maintains a Website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically, including the Company. The
Commissions Website address is http://www.sec.gov. This prospectus, which
constitutes part of Registration Statement filed by the Company with the
Commission under the Securities Act omits certain of the information contained
in the Registration Statement in accordance with the rules and regulations of
the Commission. Reference is hereby made to the Registration Statement and to
the Exhibits relating thereto for further information with respect to the
Company and the Securities offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such documents filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-KSB and Form 10-KSB\A-1 for its
fiscal year ended December 31, 1995, the Company's Quarterly Report on Form
10-QSB and Form 10-QSB\A-1 for its quarter ending March 31, 1996, the Company's
Quarterly Report on Form 10-QSB for its quarter ending June 30, 1996, the
Company's Quarterly Report on Form 10-QSB for its quarter ending September 30,
1996, the Company's Form 8-K filed with the commission on May 16, 1996, as
amended by Form 8-K/A filed June 11, 1996, and the description of the Company's
Common Stock contained in its Registration Statement on Form 8-A filed with the
Commission on June 6, 1992, as amended by Form 8 on December 17, 1992, all of
which have been previously filed with the Commission, are incorporated in this
Prospectus by reference. All documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the termination of the offering made hereby are also incorporated by reference
herein and made a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated by reference herein is modified
or superseded for all purposes to the extent that a statement contained in this
Prospectus or in any other subsequently filed document which is incorporated by
reference modifies or replaces such statement. The Company will
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provide without charge to each person, including any beneficial owner, to whom a
copy of this Prospectus is delivered, upon the written or oral request of such
person, a copy of all documents incorporated herein by reference (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference herein. Requests for such copies should be directed
to: John J. Ingoldsby, Palomar Medical Technologies, Inc., 66 Cherry Hill Drive,
Beverly, Massachusetts 01915; telephone number (508) 921 - 9300.
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
more detailed information appearing elsewhere in this Prospectus or incorporated
herein by reference and the financial statements which are incorporated herein
by reference.
THE COMPANY....................... Palomar Medical Technologies, Inc. (the
"Company") has two business segments:
medical products and electronic products.
The medical products are under various
stages of development and clinical trials.
The Company does derive revenue from the
sale of medical products by its
subsidiaries Spectrum Medical
Technologies, Inc. and Tissue
Technologies, Inc. In addition, the
Company derives revenue from the sale of
electronic products by its subsidiaries
Nexar Technologies, Inc., Dynaco
Corporation and Comtel Electronics, Inc.
The electronic products segment is the
principal source of the Company's
revenues.
RISK FACTORS...................... The Offering involves substantial risk.
See "Risk Factors".
SECURITIES OFFERED................ 700,948 shares of Company Common Stock,
par value $.01 per share.
OFFERING PRICE.................... All or part of the Shares offered hereby
may be sold from time to time in amounts
and on terms to be determined by the
Selling Stockholders at the time of sale.
USE OF PROCEEDS................... The Company will receive no part of the
proceeds from the sale of the shares
registered pursuant to this Registration
Statement.
SELLING STOCKHOLDERS.............. The Shares being offered hereby are being
offered for the account of the Selling
Stockholders specified under the caption
"Selling Stockholders".
NASDAQ TRADING SYMBOL............. PMTI
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RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
SHOULD NOT BE MADE BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. IN CONNECTION WITH THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY IS HEREBY IDENTIFYING
IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED IN FORWARD-LOOKING STATEMENTS OF THE COMPANY
MADE BY OR ON BEHALF OF THE COMPANY. THE COMPANY ADVISES READERS NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS IN LIGHT OF THE RISKS AND
UNCERTAINTIES TO WHICH THEY ARE SUBJECT. THE FOLLOWING FACTORS SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS.
HOLDING COMPANY STRUCTURE. The Company has no significant operations
other than those incidental to its ownership of the capital stock of its
subsidiaries. As a holding company, the Company is dependent on dividends or
other intercompany transfers of funds from its subsidiaries to meet the
Company's debt service and other obligations. Claims of creditors of the
Company's subsidiaries, including trade creditors, will generally have priority
as to the assets of such subsidiaries over the claims of the Company and the
holders of the Company's indebtedness.
LIMITED OPERATING HISTORY; RECENT ACQUISITIONS. Many of the Company's
subsidiaries have limited operating histories and are in the development stage,
and the Company is subject to all of the risks inherent in the establishment of
a new business enterprise. Historically, most of the Company's revenues have
been generated by its flexible circuit board component business; however,
Spectrum Medical Technologies, Inc. ("Spectrum"), acquired by the Company in
April 1995, contributed 18% of the Company's revenues in 1995. The Company
acquired Comtel Electronics, Inc. ("Comtel") in March 1996, and Tissue
Technologies, Inc. ("Tissue") in May 1996. Both Comtel and Tissue have had
limited operating histories. The likelihood of success of the Company must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the establishment of a new
business and development of new technologies in the medical products and
electronic products industries. These include, but are not limited to,
government regulation, competition, the need to expand manufacturing
capabilities and market expertise, and setbacks in production, product
development, market acceptance and sales and marketing. The Company's prospects
could be significantly affected by its ability to subsequently manage and
integrate the operations of several distinct businesses with diverse products,
services and customer bases in order to achieve cost efficiencies. There can be
no assurance that the Company will be able to successfully manage and integrate
the operations of newly acquired businesses into its operations or that the
failure to do so will not increase the costs inherent in the establishment of
new business enterprises.
SUBSTANTIAL AND CONTINUING LOSSES. The Company incurred a net loss of
$12,620,768 for the year ended December 31, 1995 and a net loss of $19,213,214
for the nine month period ended September 30, 1996. These losses are expected to
continue for the near term, and there can be no assurance that the Company will
achieve profitable operations or that profitable operations will be sustained if
achieved. At September 30, 1996, the Company's accumulated deficit was
US$45,903,951. Dynaco Corp. ("Dynaco"), Star Medical Technologies, Inc.
("Star"), CD Titles, Inc. ("CD Titles"), Dynamem, Inc. ("Dynamem"), Comtel and
Tissue each have had a history of losses prior to acquisition by the Company.
There can be no assurance that these companies will achieve profitable
operations or that profitable operations will be sustained if achieved. The
Company anticipates incurring substantial research and development expenses,
which will reduce cash available to fund current operations. The Company must
continue to 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
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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
the next twelve-month period. However, there can be no assurance that this
assumption will prove to be accurate or that events in the future will not
require the Company to obtain additional financing sooner than presently
anticipated. The Company may also determine, depending upon the opportunities
available to it, to seek additional debt or equity financing to fund the costs
of acquisitions or continuing expansion. To the extent that the Company finances
an acquisition with a combination of cash and equity securities, any such
issuance of equity securities could result in dilution to the interests of the
Company's shareholders. Additionally, to the extent that the Company incurs
indebtedness to fund increased levels of accounts receivable or to finance the
acquisition of capital equipment or issues debt securities in connection with
any acquisition, the Company will be subject to risks associated with incurring
substantial additional indebtedness, including the risks that interest rates may
fluctuate and cash flow may be insufficient to pay principal and interest on any
such indebtedness. The Company continues to investigate several financing
alternatives, including additional government research grants, strategic
partnerships, additional bank financing, private, debt and equity financing and
other sources. While the Company regularly reviews potential funding sources in
relation to its 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 will be on terms satisfactory to the Company. Failure
to obtain additional financing could have a material adverse effect on the
Company, including possibly requiring it to significantly curtail its
operations.
RISKS ASSOCIATED WITH ACQUISITIONS. Since going public, the Company has
acquired seven companies. In the normal course of business, the Company
evaluates potential acquisitions of businesses, products and technologies that
would complement or expand the Company's business. Acquisitions may result in
the incurrence of additional debt, the write-off of in-process research and
development or technology acquisition and development costs and the amortization
of expenses related to goodwill and other intangible assets, any of which could
have a material adverse effect on the Company's business, financial condition,
results of operations and cash flow. Acquisitions involve numerous additional
risks, including difficulties in the assimilation of the operations, services,
products and personnel of the acquired company, the diversion of management's
attention from other business concerns, entering markets in which the Company
has little or no direct prior experience and the potential loss of key employees
of the acquired company.
NEW VENTURES. The Company has entered into several agreements with
physician groups to provide cosmetic laser services at laser treatment centers,
and plans to enter into more such agreements in the future. While the Company
believes these new partnerships are strategically important, there are
substantial uncertainties associated with the development of new products,
technologies and services for evolving markets. The success of these ventures
will be determined not only by the Company's efforts, but also by those of its
partners. Initial timetables for the development and introduction of new
technologies, products or services may not be achieved, and price/performance
targets may not prove feasible. External factors, such as the development of
competitive alternatives or government regulation, may cause new markets to
evolve in unanticipated directions. (See "Highly Competitive Industries.")
MANAGEMENT OF GROWTH. In light of management's views of the potential
for future growth, the Company has adopted an aggressive growth plan that
includes substantial investments in its sales, marketing, production and
distribution organizations, the creation of new research and development
programs and increased funding of existing programs, and investments in
corporate infrastructure that will be required to support significant growth.
This plan carries with it a number of risks, including a higher level of
operating expenses, the difficulty of attracting and assimilating a large number
of new employees,
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and the complexities associated with managing a larger and faster growing
organization. Depending on the extent of future growth, the Company may
experience a significant strain on its management, operational, manufacturing
and financial resources. The failure of the Company's management team to
effectively manage growth, should it continue to occur, could have a material
adverse effect on the Company's financial condition and results of operations
HIGHLY COMPETITIVE INDUSTRIES. The medical device and electronics
industries are characterized by intense competition. The medical laser industry
is highly competitive and is characterized by the frequent introduction of new
products. The Company competes in the development, manufacture, marketing and
servicing of laser technology products with numerous other companies, certain of
which have substantially greater financial, marketing and other resources than
the Company. In addition, the Company's medical products face competition from
alternative medical products and procedures, such as dermabrasion, chemical
peels, pharmaceutical treatment, electrolysis, waxing and surgery, among others.
There can be no assurance that the Company will be able to differentiate its
products from the products of its competitors or that the marketplace will
consider the Company's products to be superior to competing products or medical
procedures. There can be no assurance that competitors will not develop products
or that new technologies will not be developed that render the Company's
products obsolete or less competitive. In addition, in entering areas of
business in which it has little or no experience, such as the opening of laser
treatment centers, the Company may not be able to compete successfully with
competitors that are more established in such areas. (See "New Ventures.")
In the electronics industry, the Company competes with Packard-Hughes
Interconnect Co., Parlex Corporation, Teledyne Inc., IBM, Apple Computer, Compaq
and Dell Computer, among others. Many, if not most, of the Company's current and
prospective competitors are substantial in size and have substantial financial,
managerial, technical, manufacturing, marketing and other resources, and may
introduce additional products that compete with those of the Company. There can
be no assurance that the Company's products will compete favorably with the
products of its competitors or that the Company will have the resources
necessary to compete effectively against such companies. As a result of the
intense competition in the personal computer market, the Company expects that
gross margins on sales of its upgradeable personal computers will be extremely
narrow and will require the Company to manage carefully its cost of goods sold.
There can be no assurance that the Company will be able to manage its cost of
goods sold to the degree necessary for sales of upgradeable computer products to
generate significant gross margins. The Company currently has limited marketing
capabilities and expects to place significant reliance on independent
distributors and resellers for the distribution and marketing of its products.
The Company will be dependent upon the efforts of such third parties. The
inability to establish and maintain a network of independent distributors and
resellers, or a reduction in their sales efforts, could have a material adverse
effect on the Company's financial condition and results of operations. In
addition, there can be no assurance as to the viability or financial stability
of the Company's independent distributors and resellers. The computer industry
has been characterized from time to time by financial difficulties of
distributors and resellers; any such problems could lead to reduced sales and
could have a material adverse effect on the Company's financial condition and
results of operations. There can be no assurance that the Company's products
will compete favorably with the products of its competitors or that the Company
will have the resources necessary to compete effectively against such companies.
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FLUCTUATIONS IN QUARTERLY PERFORMANCE. The Company's results of
operations have fluctuated substantially and can be expected to continue to vary
significantly. The Company's quarterly operating results depend on a number of
factors, including the timing of the introduction or acceptance of new products
offered by the Company or its competitors, changes in the mix of products sold
by the Company, changes in regulations affecting the medical products or
electronics industry, changes in the Company's operating expenses, personnel
changes and general economic conditions.
The Company's stock price, like that of other technology companies, is
subject to significant volatility. If revenues or earnings in any quarter fail
to meet the investment community's expectations, there could be an immediate
impact on the price of the Shares. The price of the Shares may also be affected
by broader market trends unrelated to the Company's performance. (See
"Volatility of Share Price.")
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VOLATILITY OF SHARE PRICE. Factors such as announcements of
developments related to the Company's business, announcements by competitors,
quarterly fluctuations in the Company's financial results and other factors have
caused the price of the Company's stock to fluctuate, in some cases
substantially, and could continue to do so in the future. In addition, the stock
market has experienced extreme price and volume fluctuations that have
particularly affected the market price for many technology companies and that
have often been unrelated to the operating performance of these companies. These
broad market fluctuations may adversely affect the market price of the Shares.
The trading prices of many technology companies' stocks are at or near their
historical highs, and reflect price/earnings ratios substantially above
historical norms. There can be no assurance that the trading price of the Shares
will remain at or near its current level.
GOVERNMENT REGULATION. The Company's medical business segment and, to a
lesser degree, its electronics business segment are subject to regulation in the
United States and abroad. Failure to comply with applicable regulatory
requirements can result in fines, denial or suspension of approvals, seizures or
recall of products, operating restrictions and criminal prosecutions, any or all
of which could have a material adverse effect on the Company. Furthermore,
changes in existing regulations or adoption of new regulations could prevent the
Company from obtaining, or could affect the timing of, future regulatory
approvals.
Medical Segment. All medical devices, including those sold by the
Company, are subject to regulation by the FDA under the Medical Device
Amendments of the United States Food, Drug and Cosmetics Act (the "FDA Act").
The Company's business, financial condition and operations are critically
dependent upon timely receipt of FDA regulatory clearance.
FDA Clearance Status for Cosmetic Laser Products. Three of the
Company's lasers have received clearance from the FDA for certain dermatological
applications: the Q-pulse Ruby laser, the Tru-Pulse laser and the Epilaser
system.
The Company is also investigating other applications in dermatology for
its laser systems. It will be required to obtain FDA clearance before
commercially marketing any other application. The Company believes that it will
be able to seek such clearance under the 510(k) application process; however, no
assurance can be given that the FDA will not require the Company to follow the
more extensive and time-consuming Pre-Market Approval ("PMA") process. FDA
review of a 510(k) application currently averages about seven to twelve months
and requires limited clinical data based on "substantial equivalence" to a
product marketed prior to 1976, while a PMA review can last for several years
and require substantially more clinical data.
The FDA also imposes various requirements on manufacturers and sellers
of products under its jurisdiction, such as labeling, good manufacturing
practices, record keeping and reporting requirements. The FDA also may require
post-market testing and surveillance programs to monitor a product's effects.
There can be no assurance that the appropriate clearances from the FDA will be
granted, that the process to obtain such clearances will not be excessively
expensive or lengthy or that the Company will have sufficient funds to pursue
such clearances.
No assurance can be given that FDA approval will be obtained for the
Company's current or proposed medical products on a timely basis, if at all. The
medical products segment of the Company's business, is, and will continue to be,
critically dependent upon FDA approval of its current and proposed medical
products. Delays or failure to obtain such approval would have a material
adverse effect on the Company.
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Other Government Approvals for Medical Products; Good
Manufacturing Practices. In order to be sold outside the United States, the
Company's products are subject to FDA permit requirements that are conditioned
upon clearance by the importing country's appropriate regulatory authorities.
Many countries also require that imported products comply with their own or
international electrical and safety standards. In November 1992, the Company
obtained approval certifying compliance with certain international electrical
and safety regulations applicable to its pulsed dye laser. Additional approvals
may be required in other countries. The Company has yet to apply for
international approval for its diode laser for use in cosmetic surgery and
dermatology.
The Company is subject to the laser radiation safety regulations of the
FDA Act administered by the National Center for Devices and Radiological Health
("CDRH") of the FDA. These regulations require a laser manufacturer to file new
product and annual reports, to maintain quality control, product testing and
sales records, to distribute appropriate operation manuals, to incorporate
certain design and operating features in lasers sold to end-users and to certify
and label each laser sold to end-users as one of four classes of lasers (based
on the level of radiation from the laser). In addition, various warning labels
must be affixed on the product and certain protective devices must be installed
depending upon the class of product. Under the Act, the Company is also required
to register with the FDA as a medical device manufacturer and is subject to
inspection on a routine basis by the FDA for compliance with Good Manufacturing
Practice ("GMP") regulations. The GMP regulations impose certain procedural and
documentation requirements upon the Company relevant to its manufacturing,
testing and quality control activities. The CDRH is empowered to seek fines and
other remedies for violations of these regulatory requirements. The Company
believes that it is currently in compliance with these regulations.
Electronic Segment. A significant percentage of the total sales of the
flexible circuit board component business of the Company, which presently
accounts for a significant amount of the sales of the Company, are the result of
either a subcontract or a direct contract for government programs funded by the
U.S. military. Generally, government contracts and subcontracts are terminable
at the convenience of the government. Cutbacks in military spending for certain
programs or lack of military spending in general could have a material adverse
effect on the Company. There can be no assurance that termination of contracts,
cessation of purchase orders, or a failure to appropriate funds will not occur
in the future. Any termination, cessation, or failure to appropriate funds with
respect to contracts or subcontracts having a significant dollar value would
have a material adverse effect on the Company's business, financial condition
and results of operation. The unpredictable nature of the government procurement
process also may contribute to fluctuations in the Company's quarterly
performance. (See "Fluctuations in Quarterly Performance.")
Flexible circuit board component sales to the U.S. military are subject
to certain military certifications. These certifications are based upon
compliance with specification standards set by the U.S. military. The Company is
subject to periodic audit and review from U.S. government agencies to ensure
compliance under criteria set forth by these agencies. Failure to meet or exceed
criteria set forth could result in a suspension or disqualification of certain
certifications. Such suspension or disqualification could have a material
adverse effect on the Company.
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UNCERTAINTY OF MARKET ACCEPTANCE. The Company continually develops new
products intended for use in the medical products segment and the electronic
products segment. As with any new products, there is substantial risk that the
marketplace may not accept or be receptive to the potential benefits of such
products. Market acceptance of the Company's current and proposed products will
depend, in large part, upon the ability of the Company or any marketing partners
to demonstrate to the marketplace the advantages of the Company's products over
other types of products. There can be no assurance that applications or uses for
the Company's current and proposed products will be accepted by the marketplace
or that any of the Company's current or proposed products will be able to
compete effectively.
UNCERTAINTY OF HEALTHCARE REIMBURSEMENT AND REFORM. The healthcare
industry is subject to changing political, economic and regulatory influences
that may affect the procurement practices and operations of healthcare industry
participants. During the past several years, state and federal government
regulation of reimbursement rates and capital expenditures in the United States
healthcare industry has increased. Lawmakers continue to propose programs to
reform the United States healthcare system, which may contain programs to
increase governmental involvement in healthcare, lower Medicare and Medicaid
reimbursement rates or otherwise change the operating environment for the
Company's customers. Healthcare industry participants may react to these
proposals by curtailing or deferring investments, including investments in the
Company's products.
DEPENDENCE ON THIRD PARTY RESEARCHERS. The Company is substantially
dependent upon third party researchers and others, over which the Company will
not have absolute control, to satisfactorily conduct and complete research on
behalf of the Company and to grant to the Company favorable licensing terms for
products which may be developed. The Company has entered into a number of
research agreements with recognized research hospitals and clinical
laboratories. These research institutions include the Oregon Medical Laser
Center at the Heart Institute of St. Vincent Hospital and Medical Center in
Portland, Oregon, the Wellman Labs at Massachusetts General Hospital and the
Otolaryngology Research Center for Advanced Endoscopic Applications at New
England Medical Center, Boston, Massachusetts. The Company provides research
funding, laser technology and optics know-how in return for licensing agreements
with respect to specific medical applications and patents. Management believes
that this method of conducting research and development provides a higher level
of technical and clinical expertise than it could provide on its own and in a
more cost efficient manner. The Company's success will be highly dependent upon
the results of the research, and there can be no assurance that these research
agreements will provide the Company with marketable products in the future or
that any of the products developed under these agreements will be profitable for
the Company.
TECHNOLOGICAL OBSOLESCENCE. Both the medical products segment and the
electronics segment are characterized by extensive technological developments,
and the rapid pace experienced over the past few decades is expected to
continue. The Company's failure to develop products in a timely manner in
response to changes in the industry, whether for financial, technological or
other reasons, will have a material adverse effect on the Company's business,
financial condition and results of operations.
The medical device and personal computer industries are characterized
by extensive research and development and rapid technological change. The
flexible circuit board component, electronics interconnect and personal computer
industries are characterized by large capital investments in new automated
processes and state-of-the-art fabrication techniques. In order to participate
effectively in those industries, the Company must continue to make large capital
investments in new automated processes and state-of-the-art fabrication
techniques. Development by others of new or improved products, processes or
technologies may make the Company's products or proposed products obsolete or
less competitive. The
12
Company will be required to devote continued efforts and financial resources to
enhancement of its existing products and development of new products. There can
be no assurance that the Company will have the financial resources or the
technological capability necessary to carry out such product enhancement and
development.
LACK OF PATENT PROTECTION. The Company currently holds several patents
and intends to pursue various additional avenues that it deems appropriate to
protect its technology. There can be no assurance, however, that the Company
will file any additional patent applications or that any patent applications
that have been, or may be, filed will result in issued patents, or that any
patent, patent application, know-how, license or cross-license will afford any
protection or benefit to the Company.
The medical device market has been characterized by substantial
litigation regarding patent and other intellectual property rights. In both the
medical products and the electronic products segments, litigation, which could
result in substantial cost to and diversion of effort by the Company, may be
necessary to protect trade secrets or know-how owned by or licensed to the
Company or to determine the enforceability, scope and validity of the
proprietary rights of others. Adverse determination in litigation or
interference proceedings could subject the Company to significant liabilities to
third parties, require the Company to seek licenses from third parties and could
prevent the Company from manufacturing and selling its products, all of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
POSSIBLE PATENT INFRINGEMENTS. In the medical products segment, the
Company is aware of patents relating to laser technologies used in certain
applications that the Company intends to pursue, which, if valid and
enforceable, may be infringed by the Company. The Company has obtained opinions
of counsel that the Company is not infringing currently on patents held by
others; however, such opinions have not been challenged in any court of law. If
the Company's current or proposed products are, in the opinion of patent
counsel, infringing on any of these patents, the Company intends to seek
non-exclusive, royalty-bearing licenses to such patents but there can be no
assurance that any such license would be available on favorable terms, if at
all. In the electronic products segment, the Company has not been notified that
it is currently infringing on any patents nor has it been the subject of any
patent infringement action. No assurance can be given that infringement claims
will not be made or that the Company would prevail in any legal action with
respect thereto. Defense of a claim of infringement would be costly and could
have a material adverse effect on the Company's business, even if the Company
were to prevail.
NEED FOR ADDITIONAL QUALIFIED PERSONNEL/DEPENDENCE ON KEY PERSONNEL.
The Company's ability to develop, manufacture and market all of its products,
and to attain a competitive position within the medical products and electronics
industries, will depend, in large part, on its ability to attract and retain
qualified personnel. Competition for qualified personnel in these industries is
intense and the Company will be required to compete for such personnel with
companies which may have greater financial and other resources; there can be no
assurance that the Company will be successful in attracting, assimilating and
retaining the personnel it requires to grow and operate profitably. The
Company's inability to attract and retain such personnel could have a material
adverse effect upon its business. (See "Management of Growth.")
The Company's future success depends to a significant extent on its
executive officers and certain technical, managerial and marketing personnel.
The loss of the services of any of these individuals or group of individuals
could have a material adverse effect on the Company's business, financial
condition and results of operations.
13
ISSUANCE OF PREFERRED STOCK AND DEBENTURES COULD AFFECT RIGHTS OF
COMMON SHAREHOLDERS. The Company is authorized to issue up to 5 million shares
of Preferred Stock, US$.01 par value. The Preferred Stock may be issued in one
or more series, the terms of which may be determined at the time of issuance by
the Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. In February 1996, the Company issued 6,000 shares
of Series D Convertible Preferred Stock at a price of US$1,000 per share, which
are convertible into Shares at 80% of the daily average closing price of the
Shares on the ten trading days preceding such conversion, but in no event less
than US$4.50 or more than US$6.00. As of December 12, 1996, 3,368 shares of
Series D Convertible Preferred Stock had been converted into 600,116 common
shares. In April 1996, the Company issued 10,000 shares of Series E Preferred
Stock at a price of US$1,000 per share. The Series E Convertible Preferred
Stock, together with any accrued but unpaid dividends, may be converted into
Shares at 85% of the average closing bid price for the three trading days
immediately preceding the conversion date, but in no event at less than US$6.00
or more than US$12.50. As of December 12, 1996, 7,872 shares of Series E
Convertible Preferred Stock had been converted into 1,048,576 of common shares.
In July 1996, the Company issued 6,000 shares of Series F Convertible Preferred
Stock at a price of US$1,000 per share, which are convertible into Shares at 80%
of the daily average closing price of the Shares on the ten trading days
preceding such conversion, but in no event less than US$10.00 or more than
US$16.00. In September 1996, the Company issued 10,000 shares of Series G
Preferred Stock at a price of US$1,000 per share. The Series G Convertible
Preferred Stock, together with any accrued but unpaid dividends, may be
converted into Shares at 85% of the average closing bid price for the three
trading days immediately preceding the conversion date, but in no event at less
than US$6.00 or more than US$11.50. In July 1996, the Company issued 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. In October 1996, the Company
issued $5,000,000 in 4.5% Convertible Subordinated Promissory Notes. The
issuance of any such additional Preferred Stock or Debentures could affect the
rights of the holders of Shares, and could reduce the market price of the
Shares. In particular, specific rights granted to future holders of Preferred
Stock or Debentures could be used to restrict the Company's ability to merge
with or sell its assets to a third party, thereby preserving control of the
Company by the existing control group.
ISSUANCE OF RESERVED SHARES; REGISTRATION RIGHTS. As of December 16,
1996, the Company had 29,474,776 Shares of Common Stock outstanding. The Company
has reserved an additional 17,518,130 Shares for issuance as follows: (1)
3,922,500 Shares for issuance to key employees, officers, directors, consultants
and advisors pursuant to the Company's Stock Option Plans; (2) 254,115 Shares
for issuance to employees, officers and directors pursuant to the Company's
401(k) Plan; (3) 1,000,000 Shares for issuance pursuant to the Company's
Employee Stock Purchase Plan; (4) 7,293,333 Shares for issuance upon exercise of
three-, four- five- and seven-year Warrants issued to certain lenders,
investors, consultants, directors, officers and a principal shareholder (a
portion of which are subject to certain anti dilutive adjustments); (5) 733,217
Shares for issuance upon conversion of the 2,632 shares of Series D Preferred
Stock; (6) 397,165 Shares for issuance upon conversion of the 2,128 shares of
Series E Preferred Stock; (7) 867,800 Shares for issuance upon conversion of the
debentures sold in the Swiss Franc-Denominated Offering; (8) 750,000 Shares for
issuance upon conversion of the debentures sold in the BlueStone Management
Company Offering; (9) 600,000 Shares for issuance upon conversion of the 6,000
shares of Series F Preferred Stock; and (10) 1,700,000 Shares for issuance upon
conversion of the 10,000 shares of Series G Preferred Stock. All of the
foregoing reserved Shares are, or the Company intends for them shortly to be,
registered with the Commission and therefore freely salable on Nasdaq or
elsewhere.
14
PRODUCT LIABILITY EXPOSURE. Medical product companies face an inherent
business risk of financial exposure to product liability claims in the event
that the use of their products results in personal injury. The Company's
products are and will continue to be designed with numerous safety features, but
it is possible that patients could be adversely affected by use of one of the
Company's products or that deaths could occur. Further, in the event that any of
the Company's products prove to be defective, the Company may be required to
recall and redesign such products. Although the Company has not experienced any
material losses due to product liability claims to date, there can be no
assurance that it will not experience such losses in the future. The Company
maintains liability insurance in the amount of US$4,000,000; however, there can
be no assurance that such coverage will continue to be available on terms
acceptable to the Company or that such coverage will be adequate for liabilities
actually incurred. In the event the Company is found liable for damages in
excess of the limits of its insurance coverage, or if any claim or product
recall results in significant adverse publicity against the Company, the
Company's business, financial condition and results of operations could be
materially and adversely affected. In addition, although the Company's products
have been and will continue to be designed to operate in a safe manner, and
although the Company attempts to educate medical personnel with respect to the
proper use of its products, misuse of the Company's products by medical
personnel over whom the Company cannot exert control may result in the filing of
product liability claims or significant adverse publicity against the Company.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. As part of its business
strategy, the Company intends to seek opportunities to expand its product and
service offerings into international markets. In marketing its products and
services internationally, the Company will likely face new competitors. There
can be no assurance that the Company will be successful in marketing or
distributing products and services in these markets or that its international
revenue will be adequate to offset the expense of establishing and maintaining
international operations. The Company's international business may be adversely
affected by changing economic conditions in foreign countries. The majority of
the Company's sales are currently denominated in U.S. dollars, but there can be
no assurance that a significantly higher level of future sales will not be
denominated in foreign currencies. To the extent the Company makes sales
denominated in currencies other than U.S. dollars, gains and losses on the
conversion of those sales to U.S. dollars may contribute to fluctuations in the
Company's business, financial condition and results of operations. In addition,
fluctuations in exchange rates could affect demand for the Company's products
and services. Conducting an international business inherently involves a number
of other difficulties and risks, such as export restrictions, export controls
relating to technology, compliance with existing and changing regulatory
requirements, tariffs and other trade barriers, difficulties in staffing and
managing international operations, longer payment cycles, problems in collecting
accounts receivable, political instability, seasonal reductions in business
activity in Europe and certain other parts of the world during the summer
months, and potentially adverse tax consequences. There can be no assurance that
one or more of these factors will not have a material adverse effect on any
international operations established by the Company and, consequently, on the
Company's business, financial condition and results of operations.
DEPENDENCE ON SOLE SUPPLIERS. The Company relies on outside suppliers
for substantially all of its manufacturing supplies, parts and components.
Pyralux(R), an integral component of most of the Company's flexible circuit
products, is manufactured exclusively by E.I. du Pont de Nemours and Company
("DuPont"). Although the Company has a written agreement with DuPont under which
DuPont will supply the Company with all of its requirements for Pyralux, there
can be no assurance that the Company will be able to obtain a sufficient supply
of Pyralux to fulfill orders for its products in a timely manner, if at all.
In addition, CO2 laser tubes, an integral component of Tissue's
Tru-Pulse Laser system, are manufactured exclusively by Pulse Systems, Inc.
There can be no assurance that the Company will be able to obtain sufficient
supply of CO2 laser tubes to fulfill orders for its products in a timely manner,
if at all.
DEPENDENCE ON SUBSTANTIAL CUSTOMERS. In the nine months ended September
30, 1996, one customer of Nexar, Government Technology Services, Inc.("GTSI"),
accounted for 17% of the Company's revenues. The Company expects that GTSI will
continue to be an important customer, but that sales to GTSI as a percentage of
total revenue will decline substantially as the Company further expands its
distribution network and increases its overall sales. The Company is currently
negotiating an agreement with GTSI, a leading supplier of desktop systems to
United States Government Agencies, which would strengthen an informal agreement
with the Company under which GTSI currently serves as the Company's exclusive
federal reseller with respect to Government Services Administration scheduled
purchases.
In the nine months ended September 30, 1996, one customer of Comtel,
New Media, Inc. ("New Media"), a related party, accounted for 27% of the
Company's revenues. Comtel has entered into a five (5) year agreement with New
Media 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
recievable is subordinated and nonrecourse, bears interest at 9% and is due
April 1999 or earlier under certain conditions. Palomar also recieved a warrant
to purchase 200,000 shares of common stock in New Media at $1.20 per share. The
Company expects that New Media will continue to be an important customer, but
that sales to New Media, Inc. as a percentage of total revenue will decline
substantially as the Company further expands its distribution network and
increases its overall sales.
A loss from either customer could have material, adverse effect on the
Company's business in the short term.
15
Furthermore, several other component parts of the Company's medical device
products and electronic segment products are manufactured exclusively by one
supplier. There can be no assurance that the Company will be able to obtain a
sufficient supply of such components at commercially reasonable prices or at
all. A shortage of necessary parts and components or the inability of the
Company to obtain such parts and components would have a material adverse effect
on the Company's business, financial condition and results of operations.
HAZARDOUS SUBSTANCE AND ENVIRONMENTAL CONCERNS. The manufacture of
substrate interconnect products involves numerous chemical solvents and other
solid, chemical and hazardous wastes and materials. Dynaco is subject to a
variety of environmental laws relating to the generation, storage, handling,
use, emission, discharge and disposal of these substances and potentially
significant risks of statutory and common law liability for environmental damage
and personal injury. The Company, and in certain circumstances, its officers,
directors and employees, may be subject to claims arising from the Company's
manufacturing activities, including the improper release, spillage, misuse or
mishandling of hazardous or non-hazardous substances or material. The Company
may be strictly liable for damages, regardless of whether it exercised due care
and complied with all relevant laws and regulations. The Company does not
currently maintain environmental impairment insurance. There can be no assurance
that the Company will not face claims resulting in substantial liability for
which the Company is uninsured or that hazardous substances are not or will not
be present at the Company's facilities. The Company believes that it operates
its Dynaco facilities in substantial compliance with existing environmental laws
and regulations. In June 1989 and April 1994, Dynaco conducted environmental
studies of its Tempe, Arizona substrate manufacturing facility and did not
discover any contamination requiring remediation.
Failure to comply with proper hazardous substance handling procedures
or violation of environmental laws and regulations would have a material adverse
effect on the Company.
SIGNIFICANT OUTSTANDING INDEBTEDNESS; SUBORDINATION OF DEBENTURES. The
Company has incurred substantial indebtedness in relation to its equity capital
and will be subject to all of the risks associated with substantial leverage,
including the risk that available cash may not be adequate to make required
payments to the holders of the Debentures. The Company's ability to satisfy its
obligations under the Debentures from cash flow will be dependent upon the
Company's future performance and will be subject to financial, business and
other factors affecting the operation of the Company, many of which may be
beyond the Company's control. In the event the Company does not have sufficient
cash resources to satisfy quarterly interest or other repayment obligations to
the holders of the Debentures, the Company will be in default under the
Debentures, which would have a material adverse effect on the Company. To the
extent that the Company is required to use cash resources to satisfy interest
payments to the holders of the Debentures, it will have less resources available
for other purposes. Inability of the Company to repay the Debentures upon
maturity would have a material adverse effect on the Company, which could result
in a reduction of the price of the Company's Shares.
The Debentures will be unsecured and subordinate in right of payment to
all Senior Indebtedness of the Company. The Debentures do not restrict the
Company's ability to incur additional Senior Indebtedness and most other
indebtedness. The terms of Senior Indebtedness now existing or incurred in the
future could affect the Company's ability to make payments of principal and/or
interest to the holders of Debentures.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company is subject to
the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which prohibit the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
business
16
combination is approved in a prescribed manner. The application of Section 203
could have the effect of delaying or preventing a change of control of the
Company. The Company's stock option grants generally provide for an exercise of
some or all of the optioned stock, including non-vested shares, upon a change of
control or similar event. The Board of Directors has authority to issue up to
5,000,000 shares of Preferred Stock and to fix the rights, preference,
privileges and restrictions, including voting rights, of these shares without
any further vote or action by the stockholders. The rights of the holders of the
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company, thereby delaying, deferring or
preventing a change in control of the Company. Furthermore, such Preferred Stock
may have other rights, including economic rights senior to the Common Stock,
and, as a result, the issuance of such Preferred Stock could have a material
adverse effect on the market value of the Common Stock. (See "Issuance of
Preferred Stock and Debentures Could Affect Rights of Common Shareholders.")
17
THE COMPANY
The Company was organized to design, manufacture and market lasers,
delivery systems and related disposable products for use in medical cosmetic
procedures. The Company currently operates in two business segments: medical
products and electronic products. In the medical products segment, the Company
manufactures and markets the Q-pulse Ruby laser, the Tru-Pulse laser and the
EpiLaser system, all of which have been approved by the FDA for certain
dermatological applications. The Company also is developing ruby, pulse dye and
diode medical lasers for use in clinical trials and is engaged in the research
and development of additional medical and surgical products. The Company has
expanded its efforts in the cosmetic laser area through a series of product
development activities, acquisitions and strategic alliances that target patient
self-pay procedures performed in doctors' offices and clinics. The Company has
entered into a number of research agreements with recognized research hospitals
and clinical laboratories. The Company provides research funding, laser
technology and optics know-how in return for licensing agreements to specific
medical applications and patents. Management feels that this method of
conducting research and development provides a higher level of technical and
clinical expertise than it could provide on its own and in a more cost efficient
manner. Some of the Company's medical laser products are undergoing clinical
trials and have not received FDA approval, including approval for certain
dermatological applications
In the electronic products segment, the Company manufactures high
density, flexible electronic circuitry for use in industrial, military and
medical devices and personal computers with a unique circuit board design that
enables end users to upgrade and replace the microprocessor, memory and hard
drive components. Management believes this upgradable personal computer will
decrease the level of technical obsolescence found with most personal computers
in the market. Some of the Company's electronic products are being incorporated
into its laser systems. These new products include a series of proprietary
computer memory modules that double the memory capacity of traditional memory
modules using the same interface.
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.
In September 1995, the Company established Palomar Electronics
Corporation, a wholly-owned subsidiary, as part of its ongoing plan to separate
the electronics and computer segments of the business from the medical laser
segments of the business.
USE OF PROCEEDS
The Company will receive no part of the proceeds from the sale of any
of the Shares by the Selling Stockholders.
18
SELLING STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of shares of Common Stock by the Selling Stockholders as of the date
of this Prospectus and the number of such shares included for sale in this
Prospectus assuming the sale of all Shares being offered by this Prospectus. A
description of the transactions under which the Selling Stockholders received
the Common Stock being registered herein is set forth under the heading "Plan Of
Distribution" which follows this table. To the best of the Company's knowledge,
except as stated in this Prospectus, the Selling Stockholders have not held any
office or maintained any material relationship with the Company or any of its
predecessors or affiliates over the past three years. The Selling Stockholders
reserve the right to reduce the number of shares offered for sale or to
otherwise decline to sell any or all of the Shares registered hereunder.
<TABLE>
<CAPTION>
Shares Shares Shares
owned to be owned
Selling prior to sold in after
Stockholders Offering (1)(2) Offering Offering(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GFL Performance Fund Limited (3) 350,474 350,474 - -
c/o CITCO
Kaya Flamboyan 9
Curaco, Netherlands Antilles
GFL Advantage Fund Limited (4) 1,167,418 350,474 816,944 2.7%
c/o CITCO
Kaya Flamboyan 9
Curaco, Netherlands Antilles
</TABLE>
1. Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the ownership of such individual
or group.
2. The amount and (if one percent or more) the percentage of outstanding
Common Stock.
3. Represents 285,714 shares of Common Stock issued or issuable upon
conversion of 5,000 shares of Series G Convertible Preferred Stock (the
"Preferred Stock") and 64,760 shares of Common Stock issuable pursuant to a
Warrant at $12.00 per share through 9/27/01. The warrant is exercisable on
the date of initial issuance (9/27/96). The Preferred Stock was issued at
$1,000 per share. Under the terms of the Certificate of Designation for the
Preferred Stock, the Preferred Stock, together with any accrued but unpaid
dividends, can be converted into a number of shares of Common Stock equal
to 85% of the average closing bid price of the Common Stock on the three
consecutive trading days immediately preceding the conversion date, but in
no event less than $6.00 or more than $11.50. The Preferred Stock is not
convertible until December 26, 1996. Dividends accrue at the rate of 7% per
annum. The Preferred Stock may only be converted and the Warrant may only
be exercised to the extent that neither GFL Performance Fund Limited nor
any affiliate there of would be deemed to
19
hold more than 4.9% of the Company's outstanding Common Stock as a result
of such conversion or exercise.
4. Represents 285,714 shares of Common Stock issued or issuable upon
conversion of 5,000 shares of Series G Convertible Preferred Stock (the
"Preferred Stock") and 64,760 shares of Common Stock issuable pursuant to a
Warrant at $12.00 per share through 9/27/01. The warrant is exercisable on
the date of initial issuance (9/27/96). The Preferred Stock was issued at
$1,000 per share. Under the terms of the Certificate of Designation for the
Preferred Stock, the Preferred Stock, together with any accrued but unpaid
dividends, can be converted into a number of shares of Common Stock equal
to 85% of the average closing bid price of the Common Stock on the three
consecutive trading days immediately preceding the conversion date, but in
no event less than $6.00 or more than $11.50. The Preferred Stock is not
convertible until December 26, 1996. Dividends accrue at the rate of 7% per
annum. The Preferred Stock may only be converted and the Warrant may only
be exercised to the extent that neither GFL Advantage Fund Limited nor any
affiliate there of would be deemed to hold more than 4.9% of the Company's
outstanding Common Stock as a result of such conversion or exercise. Also
includes 397,165 shares of Common Stock issued or issuable upon conversion
of 2,128 shares of Series E Convertible Preferred Stock owned by GFL
Advantage Fund Limited, and 304,259 shares of Common Stock issuable upon
exercise of a warrant owned by GFL Advantage Fund Limited.
PLAN OF DISTRIBUTION
The 700,948 shares being registered herein for sale by the Selling
Stockholders consist of (i) 571,428 shares of Common Stock issued or issuable
upon conversion of shares of the Preferred Stock, and (ii) 129,520 shares
issuable pursuant to a Warrant exercisable for Common Stock at $12.00 per share
through 9/27/01.
The Selling Stockholders may sell the Common Stock registered in
connection with this Offering on the Nasdaq market system or otherwise. There
will be no charges or commissions paid to the Company by the Selling
Stockholders in connection with the issuance of the Shares. It is anticipated
that usual and customary brokerage fees will be paid by the Selling Stockholders
upon sale of the Common Stock offered hereby. The Company will pay the other
expenses of this Offering. The Shares may be sold from time to time by the
Selling Stockholders, or by pledges, donees, transferees or other successors in
interest. Such sales may be made on one or more exchanges or in the
over-the-counter market, or otherwise at prices and at terms then prevailing or
at prices related to the then current market price, or in negotiated
transactions. The Shares may be sold by one or more of the following: (a) a
block trade in which the broker so engaged will attempt to sell the Shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (c)
an exchange distribution in accordance with the rules of Nasdaq; and (d)
ordinary brokerage transactions. In effecting sales, brokers or dealers engaged
by the Selling Stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
Selling Stockholders in amounts to be negotiated prior to the sale. Such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this Prospectus.
20
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including certain liabilities under the Securities Act, or
to contribute to payments which the Selling Stockholders will be required to
make in respect thereof.
EXPERTS
The audited financial statements incorporated by reference in this
Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein upon the authority of said
Firm as experts in giving said report.
LEGAL OPINIONS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Foley, Hoag & Eliot LLP, One Post Office Square,
Boston, Massachusetts 02109.
21
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
22
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
Common Stock to be registered are estimated (except for the Securities and
Exchange Commission filing fee) below. All such expenses will be paid by the
Registrant.
Securities and Exchange Commission Filing Fee $1,452
Accounting Fees and Expenses 2,500
Legal Fees and Expenses 2,000
Blue Sky Filing Fees and Expenses 500
Printing and Mailing Costs 100
Transfer Agent Fees 500
Miscellaneous 500
-------------------
Total Expenses $7,552
===================
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders to eliminate or limit personal liability of
members of its Board of Directors for violations of a director's fiduciary duty
of care. However, the elimination or limitation shall not apply where there has
been a breach of the duty of loyalty, failure to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which was deemed illegal or obtaining an improper
personal benefit. The Company's Certificate of Incorporation includes the
following language:
"To the maximum extent permitted by Section 102(b)(7) of the General Corporation
Laws 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
director's 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."
Section 145 of the General Corporation Law of the State of Delaware
generally provides that a corporation may indemnify any director, officer,
employee or agent against expenses, judgments, fines and amounts paid in
settlement in connection with any action against him by reason of his being or
having been such a director, officer, employee or agent, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made, however, if he is adjudged liable for negligence or misconduct in the
performance of his duty to the corporation, unless a court determines that he is
nevertheless entitled to indemnification. If he is successful on the merits or
otherwise in defending the action, the corporation must indemnify him against
expenses actually and reasonably incurred by him. Article IX of the Company's
Bylaws provides indemnification as follows:
23
INDEMNIFICATION
SECTION 1. Actions, Etc. Other Than by or in the Right of the Corporation. The
Corporation shall, to the full extent legally permissible, indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including a grand jury proceeding, and all
appeals (but excluding any such action, suit or proceeding by or in the right of
the Corporation), by reason of the fact that such person is or was a director,
executive officer (as hereinafter defined) or advisory council member of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct in question was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that such person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that such person had reasonable cause to believe that the conduct in
question was unlawful. As used in this Article IX, an "executive officer" of the
Corporation is the president, treasurer, a vice president given the title of
executive vice president, or any officer designated as such pursuant to vote of
the Board of Directors.
SECTION 2. Actions. Etc. by or in the Right of the Corporation. The Corporation
shall, to the full extent legally permissible, indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit, including appeals, by or in the right of the
Corporation to procure a judgment in its favor, by reason of the fact that such
person is or was a director or executive officer of the Corporation as defined
in Section 1 of this Article, or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. Determination of Right of Indemnification. Any indemnification of a
director or officer (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that such
indemnification is proper in the circumstances because the director or executive
officer has met the applicable standard of conduct as set forth in Sections 1
and 2 hereof. Such a determination shall be reasonably and promptly made (i) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (ii) (if such a
quorum is not obtainable, or, even if obtainable if a quorum of disinterested
directors so directs) by independent legal counsel in a written opinion, or
(iii) by the stockholders.
24
SECTION 4. Indemnification Against Expenses of Successful Party. Notwithstanding
any other provision of this Article, to the extent that a director or officer of
the Corporation has been successful in whole or in part on the merits or
otherwise, including the dismissal of an action without prejudice, in defense of
any action, suit or proceeding or in defense of any claim, issue or matter
therein, such person shall be indemnified against all expenses incurred in
connection therewith.
SECTION 5. Advances of Expenses. Expenses incurred by a director or officer in
any action, suit or proceeding shall be paid by the Corporation in advance of
the final disposition of thereof, if such person shall undertake to repay such
amount in the event that it is ultimately determined, as provided herein, that
such person is not entitled to indemnification. Notwithstanding the foregoing,
no advance shall be made by the Corporation if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum of
disinterested directors, or (ii) (if such a quorum is not obtainable or, even if
obtainable, if a quorum of disinterested directors so directs) by independent
legal counsel in a written opinion, that, based upon the facts known to the
Board of Directors or such counsel at the time such determination is made, such
person has not met the relevant standards set forth for indemnification in
Section 1 or 2, as the case may be.
SECTION 6. Right to Indemnification Upon Application: Procedure Upon
Application. Any indemnification or advance under Sections 1, 2, 4 or 5 of this
Article shall be made promptly, and in any event within ninety days, upon the
written request of the person seeking to be indemnified, unless a determination
is reasonably and promptly made by the Board of Directors that such person acted
in a manner set forth in such Sections so as to justify the Corporation's not
indemnifying such person or making such an advance. In the event no quorum of
disinterested directors is obtainable, the Board of Directors shall promptly
appoint independent legal counsel to decide whether the person acted in the
manner set forth in such Sections so as to justify the Corporation's not
indemnifying such person or making such an advance. The right to indemnification
or advances as granted by this Article shall be enforceable by such person in
any court of competent jurisdiction, if the Board of Directors or independent
legal counsel denies the claim therefor, in whole or in part, or if no
disposition of such claim is made within ninety days.
SECTION 7. Other Right and Remedies: Continuation of Rights. The indemnification
and advancement of expenses provided by this Article shall not be deemed
exclusive of any other rights to which any person seeking indemnification or
advancement of expenses may be entitled under any Bylaw, agreement, Vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware or otherwise, both as to action in such person's official
capacity and as to action in another capacity while holding such office. All
rights to indemnification or advancement under this Article shall be deemed to
be in the nature of contractual rights bargained for and enforceable by each
director and executive officer as defined in Section 1 of this Article who
serves in such capacity at any time while this Article and other relevant
provisions of the General Corporation Law of the State of Delaware and other
applicable laws, if any, are in effect. All right to indemnification under this
Article or advancement of expenses shall continue as to a person who has ceased
to be a director or executive officer, and shall inure to the benefit of the
heirs, executors and administrators of such a person. No repeal or modification
of this Article shall adversely affect any such rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. The Corporation shall also indemnify any
person for attorneys' fees, costs, and expenses in connection with the
successful enforcement of such person's rights under this Article.
25
SECTION 8. Other Indemnities. The Board of Directors may, by general vote or by
vote pertaining to a specific officer, employee or agent, advisory council
member or class thereof, authorize indemnification of the Corporation's
employees and agents, in addition to those executive officers and to whatever
extent it may determine, which may be in the same manner and to the same extent
provided above.
SECTION 9. Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, advisory council member or agent of the
Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Article.
SECTION 10. Constituent Corporations. For the purposes of this Article,
reference to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors and officers so that any person who is or was a director or officer of
such a constituent corporation or is or was serving at the request of such
constituent corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
SECTION 11. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, executive officer,
advisory council member, and those employees and agents of the Corporation
granted indemnification pursuant to Section 3 hereof as to expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including a grand jury proceeding, and all appeals, and any
action by the Corporation, to the full extent permitted by any applicable
portion of this Article that shall not have been invalidated or by any other
applicable law.
SECTION 12. Other Enterprises. Fines. and Serving at Corporation's Request. For
purposes of this Article, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to any employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of any employee benefit plan
shall be deemed to have acted in a manner not opposed to the best interests of
the Corporation" as referred to in this Article.
26
ITEM 16. EXHIBITS
The following documents have been previously filed as Exhibits
and are incorporated herein by reference except those exhibits indicated with an
asterisk which are filed herewith:
Exhibit No. Description
4(a) Restated Certificate of Incorporation, incorporated
by reference to Exhibit No. 10(rr) of the Company's
Quarterly Report on Form 10-QSB for its quarter
ending June 30, 1996, filed August 14, 1996.
4(b) Bylaws of the Registrant incorporated by reference to
Exhibit No. 3(b) of the Company's Amendment No. 8 to
Registration Statement on Form S-1 [Reg. No.
33-47479] filed December 17, 1992.
4(c) Form of Common Stock Certificate incorporated by
reference to Exhibit No. 4(b) of the Company's
Amendment No. 8 to Registration Statement on Form S-1
[Reg. No. 33-47479] filed December 17, 1992.
4(d) Certificate of Designation of Series G Convertible
Preferred Stock, dated September 26, 1996,
incorporated by reference to Exhibit No. 10(ww) of
the Company's Quarterly Report on Form 10-QSB for its
quarter ending September 30, 1996, filed November
14,1996.
4(e)* Certificate of Amendment to the Company's Restated
Certificate of Incorporation, as filed with the
Delaware Secretary of State on December 16, 1996.
5* Opinion of Foley, Hoag & Eliot LLP regarding legality
of shares registered hereunder
23(a)* Consent of Arthur Andersen LLP, independent public
accountants
23(b)* Consent of Foley, Hoag & Eliot LLP (included in
Exhibit 5)
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high
27
and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price
set forth in the "Calculation of the Registration Fee"
table in the effective registration statement.
(iii)To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs 2(a)(i) and 2(a)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference herein.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain at the
termination of the offering.
(2) The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of any employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of
such securities at that time be deemed to be the initial bona fide offering
thereof.
(3) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provision, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
28
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Beverly, Commonwealth of Massachusetts, on December
13, 1996.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Steven Georgiev
-----------------------------
Steven Georgiev, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Steven Georgiev Chairman of the Board, Chief December 13, 1996
-------------------------------------- Executive Officer and Director
Steven Georgiev (Principal Executive Officer)
/s/ Dr. Michael H. Smotrich President, Chief Operating Officer, December 13, 1996
-------------------------------------- Director
Dr. Michael H. Smotrich
/s/ Joseph P. Caruso Vice President, Chief Financial December 13, 1996
-------------------------------------- Officer, Treasurer (Principal Financial
Joseph P. Caruso and Accounting Officer)
/s/ Joseph E. Levangie Director December 13, 1996
--------------------------------------
Joseph E. Levangie
/s/ Buster C. Glosson Director December 13, 1996
--------------------------------------
Buster Glosson
</TABLE>
29
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PALOMAR MEDICAL TECHNOLOGIES, INC.
Palomar Medical Technologies, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the directors of the Corporation by unanimous written
consent dated December 16, 1996 duly adopted resolutions proposing and declaring
it advisable that the Certificate of Incorporation be amended as follows:
That the Certificate of Incorporation of the Corporation be amended by
deleting old Article Fourth Part C, Series F Convertible Preferred Stock,
Section 9(a) and inserting a new Article Fourth, Part B, Series F Convertible
Preferred Stock, Section 9(a) in its stead, which shall be and read as follows
in its entirety:
"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 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 that
$7.00 (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).
That the Certificate of Incorporation of the Corporation be further
amended by adding Part D, Series G Convertible Preferred Stock, to Article
Fourth, which shall be and read as follows in its entirety:
"D. Series G. Convertible Preferred Stock
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series G Convertible Preferred Stock"
(the "Series G Convertible Preferred Stock"), and the number of
shares constituting such series shall be 10,000 and shall not be
subject to increase. The Series G Convertible Preferred Stock
shall be divided into two tranches, referred to herein as
"Tranche 1 Series G Convertible Preferred Stock" (the "Tranche 1
Series G Convertible Preferred Stock"), which shall consist of
4,000 shares, and "Tranche 2 Series G Convertible Preferred
Stock"
2
(the "Tranche 2 Series G Convertible Preferred Stock"), which
shall consist of 6,000 shares.
SECTION 2. STATED CAPITAL. The amount to be represented in stated
capital at all times for each share of Series G 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 G 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 G 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 E Convertible Preferred Stock of the Corporation, the
Series F Convertible Preferred Stock of the Corporation and 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 G 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 (except as otherwise
specifically provided herein) 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 January 1, 1997
(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 G Convertible
Preferred Stock shall be paid in cash or, subject to the
limitations in Section 4(b) hereof, shares of Common Stock 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 G 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 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 G 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
3
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 G 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 G
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 G 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 G
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 G Convertible Preferred Stock. No full
dividends shall be paid or declared and set apart for payment on
the Series G 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 G Convertible Preferred Stock
and the Parity Dividend Stock, all dividends paid or declared and
set apart for payment upon shares of Series G 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 G 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 G 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 of Common Stock in payment of
dividends on the Series G 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 G 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 G Convertible
Preferred Stock subsequent to the third trading day after a
dividend payment date, the percentage used to calculate
4
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 G 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 G 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
G 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 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
5
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 $.01 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 G 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 G
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 G Convertible Preferred Stock (collectively,
the "Junior Liquidation Stock"); provided, however, that such
rights shall accrue to the holders of Series G 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 G 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 G
Convertible Preferred Stock and any other class or series of the
Corporation's capital stock having parity as to liquidation
rights with the Series G 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 G 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 G
Convertible Preferred Stock shall not be subject to mandatory
redemption by the Corporation.
SECTION 7. NO SINKING FUND. The shares of Series G 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 G Convertible Preferred Stock
(including, without limitation, its obligations under the
Registration Rights Agreement between the Corporation and the
original holders of the Series G Convertible 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 G
Convertible Preferred Stock to be redeemed, at any time which is
(x) 90 days or more after the Tranche 1 Registration Effective
Date (as defined in Section 9(b)) to redeem all of the shares
6
or any part of not less than 600 shares (or such lesser number of
shares of Tranche 1 Series G Convertible Preferred Stock as shall
remain outstanding at the time of exercise of such redemption
right) of Tranche 1 Series G Convertible Preferred Stock or (y)
90 days or more after the Tranche 2 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 Tranche 2 Series G Convertible Preferred Stock as shall remain
outstanding at the time of exercise of such redemption right) of
Tranche 2 Series G Convertible Preferred Stock, in either case 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 G 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 G 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 Tranche 1 Registration
Effective Date or the Tranche 2 Registration Effective Date, as
the case may be, but in any such case may not specify a
Redemption Date (as herein defined) prior to the date which is 90
days after the Tranche 1 Registration Effective Date or the
Tranche 2 Registration Effective Date, as the case may be. 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 G Convertible Preferred Stock
pursuant to this Section 8, (2) the number of shares of Series G
Convertible Preferred Stock held by such holder which are to be
redeemed and the tranche of the shares to be redeemed, (3) the
Redemption Price (as hereinafter defined) per share of Series G
Convertible Preferred Stock to be redeemed, determined in
accordance with this Section, and (4) the date of redemption of
such shares of Series G 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 G
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 G Convertible
Preferred Stock the Corporation shall make payment to the holders
of the shares of Series G Convertible Preferred Stock to be
redeemed in respect of each share of Series G 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 G 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 G Convertible
Preferred Stock which have not been redeemed. Only whole shares
of Series G Convertible Preferred Stock may be redeemed. If the
Corporation exercises its right to redeem less than all
outstanding shares of Series G Convertible Preferred Stock, then
such redemption shall be made, as nearly as practical, pro rata
among the holders of record of the Series G Convertible Preferred
Stock. Notwithstanding any other provision of this Certificate of
Designations, no share of Series G Convertible Preferred Stock as
to which the holder exercises the right of conversion pursuant to
Section 9 hereof may be
7
redeemed by the Corporation on or after the date of exercise of
such conversion right.
SECTION 9. CONVERSION.
(a)Conversion at Option of Holder. (i) The holders of the Series
G Convertible Preferred Stock may, upon surrender of the
certificates therefor, convert any or all of their shares of
Series G 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 the earliest of (i) the Tranche 1
Registration Effective Date, (ii) or the Tranche 2
Registration Effective Date and (iii) the date which is 90
days after the date of initial issuance of shares of Series G
Convertible Preferred Stock (the "Issuance Date") and at any
time thereafter, each share of Series G Convertible Preferred
Stock initially may be converted at the principal executive
offices of the Corporation, the office of any transfer agent
for the Series G 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 G 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 Tranche 1 Conversion Percentage
or the Tranche 2 Conversion Percentage, as the case may be,
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 $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)) (the "Minimum Conversion Price"), in each
case subject to adjustment as hereinafter provided (the
"Conversion Rate"); provided, however, that in no event shall
Genesee Fund Limited ("Genesee") be entitled to convert any
shares of Series G Convertible Preferred Stock in excess of
that number of shares of Series G Convertible Preferred Stock
upon conversion of which the sum of (1) the number of shares
of Common Stock beneficially owned by Genesee and any person
whose beneficial ownership of shares of Common Stock would be
aggregated with Genesee's beneficial ownership of shares of
Common Stock for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and
Regulation 13D-G thereunder (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 G Convertible Preferred Stock
and unexercised Common Stock Purchase Warrants issued to
Genesee in connection with the issuance of the Series G
Convertible Preferred Stock) and (2) the number of shares of
8
Common Stock issuable upon the conversion of the number of
shares of Series G 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 Genesee 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.
(i) Each certificate for shares of Series G Convertible
Preferred Stock initially issued shall bear a legend
identifying it as either "Tranche 1" or "Tranche 2," as
agreed in writing with the Corporation by the initial
holder of shares of Series G Convertible Preferred Stock.
Any new certificate issued upon transfer of any shares of
Series G Convertible Preferred Stock or, in connection
with a conversion of shares of Series G Convertible
Preferred Stock, to evidence the unconverted balance of
shares of Series G Convertible Preferred Stock shall bear
the same legend as the certificate surrendered to the
Corporation in connection therewith, if applicable.
(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 $1,000.00, 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, "SEC" shall mean the United States
Securities and Exchange Commission.
As used herein, "Tranche 1 Computation Date" means (1)
January 1, 1997, unless the Tranche 1 Registration
Statement theretofore has been declared effective by the
SEC, and, (2) if the Tranche 1 Registration Statement has
not theretofore been declared effective by the SEC, each
date which is 30 days after a Tranche 1 Computation Date.
As used herein, "Tranche 2 Computation Date" means (1)
February 1, 1997, unless the Tranche 2 Registration
Statement theretofore has been
9
declared effective by the SEC, and, (2) if the Tranche 2
Registration Statement has not theretofore been declared
effective by the SEC, each date which is 30 days after a
Tranche 2 Computation Date.
As used herein, "Tranche 1 Conversion Percentage" shall
mean, with respect to any conversion of shares of Tranche
1 Series G Convertible Preferred Stock, 85 percent, except
that, if the Tranche 1 Registration Statement is not
ordered effective by the SEC by the Tranche 1 Computation
Date, then the percentage stated above in this paragraph
shall be reduced by two percentage points on each Tranche
1 Computation Date, 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.
As used herein, "Tranche 2 Conversion Percentage" shall
mean, with respect to any conversion of Tranche 2 Series G
Convertible Preferred Stock, 85 percent, except that, if
the Tranche 2 Registration Statement is not ordered
effective by the SEC by the Tranche 2 Computation Date,
then the percentage stated above in this paragraph shall
be reduced by two percentage points on each Tranche 2
Computation Date, 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.
As used herein, "Tranche 1 Registration Effective Date"
shall mean the date on which the Tranche 1 Registration
Statement is first ordered effective by the SEC.
As used herein, "Tranche 2 Registration Effective Date"
shall mean the date on which the Tranche 2 Registration
Statement is first ordered effective by the SEC.
As used herein, "Tranche 1 Registration Statement" shall
mean the Registration Statement required to be filed by
the Corporation with the SEC pursuant to Section 2(a)(i)
of the Registration Rights Agreement.
As used herein, "Tranche 2 Registration Statement" shall
mean the Registration Statement required to be filed by
the Corporation with the SEC pursuant to Section 2(a)(ii)
of the Registration Rights Agreement.
(c)OtherProvisions. 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 G Convertible Preferred
Stock are at the time convertible.
10
The holders of shares of Series G Convertible Preferred Stock
at the close of business on the record date for any dividend
payment to holders of Series G 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 G 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 G 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 G 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 G Convertible Preferred Stock
for conversion. Except as provided above, no adjustment shall
be made in respect of cash dividends on Common Stock or
Series G Convertible Preferred Stock that may be accrued and
unpaid at the date of surrender for conversion.
The right of the holders of Series G 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 G Convertible
Preferred Stock to be converted and, in the case of Genesee,
stating that such conversion will not result in Genesee
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 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 G
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 G 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.
11
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 G 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 G 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 G 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 G
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
G Convertible Preferred Stock then outstanding shall have the
right thereafter to convert such shares of Series G
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 G 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 G
Convertible Preferred Stock the right to elect the
securities, cash, or other assets into which the Series G
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
12
apply to successive consolidations, mergers, sales,
transfers, or share exchanges.
If a holder shall have given a notice of conversion of shares
of Series G Convertible Preferred Stock, upon surrender of
certificates representing shares of Series G 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 G 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 Section
9(c), as follows:
(i) Incase 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
13
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
14
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 G 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 G 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 G Convertible Preferred Stock and the Common Stock, 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 G Convertible
Preferred Stock, which notice shall be made within 15 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 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 G 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.
15
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 G 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 G 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 G 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 G 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 Tranche 1
Registration Statement and the Tranche 2 Registration Statement
shall be effective, the Corporation shall have the right,
exercisable at any time or from time to time on or after the date
which is one year after the later of (x) the Tranche 1
Registration Effective Date and (y) the Tranche 2 Registration
Effective Date, 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 G Convertible Preferred Stock, to
require such holders 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 G 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 G Convertible Preferred Stock which the
Corporation seeks to require to be converted into shares of
Common Stock and the tranche of the shares to be converted 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 Tranche 1 Registration Statement
and the Tranche 2 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 G 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 G 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 G 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 G Convertible Preferred Stock. Upon receipt
by the Corporation of certificates for shares of Series G
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
16
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 G Convertible Preferred Stock converted as shall be
determined in accordance herewith, (2) a new certificate for the
balance of shares of Series G Convertible Preferred Stock, if
any, and (3) payment of the accrued and unpaid dividends on the
shares of Series G 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 or
expressly provided herein, shares of Series G 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 G 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 G 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 G 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 G Convertible Preferred
Stock shall be deemed outstanding except (i) from the date of
surrender of certificates representing shares of Series G
Convertible Preferred Stock for conversion into Common Stock, all
shares of Series G Convertible Preferred Stock converted into
Common Stock; (ii) from the date of registration of transfer, all
shares of Series G 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 G Convertible Preferred Stock which are
redeemed, so long as in each case the Redemption Price of such
shares of Series G Convertible Preferred Stock shall have been
paid by the Corporation as and when required hereby. 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."
SECOND: That the aforesaid amendments were duly adopted in accordance
with applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
17
IN WITNESS WHEREOF, Palomar Medical Technologies, Inc. has caused this
certificate to be signed by its Assistant Secretary this 16th day of December,
1996.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Sarah Burgess Reed
-----------------------------------
Sarah Burgess Reed
Assistant Secretary
18
December 10, 1996
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915
Gentlemen:
We are familiar with the Registration Statement on Form S-3 (the "S-3
Registration Statement") to which this opinion is an exhibit, to be filed by
Palomar Medical Technologies, Inc., a Delaware corporation (the "Company"), with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended. The S-3 Registration Statement relates to the proposed public offering
by a security holder of the Company of a total of 700,948 shares (the "Shares")
of the Company's Common Stock, $.01 par value per share ("Common Stock"),
consisting of (i) 571,428 shares issuable upon conversion of the Company's
Series G Convertible Preferred Stock, $.01 par value per share, and (ii) 129,520
shares issuable upon exercise of a common stock purchase warrant issued by the
Company.
In arriving at the opinion expressed below, we have examined and relied
on the following documents:
(1) the Certificate of Incorporation and By-Laws of the
Company, each as amended as of the date hereof; and
(2) the records of meetings and consents of the Board of
Directors and stockholders of the Company provided to us by the
Company.
In addition, we have examined and relied on the originals or copies
certified or otherwise identified to our satisfaction of all such corporate
records of the Company and such other instruments and other certificates of
public officials, officers and representatives of the Company and such other
persons, and we have made such investigations of law, as we have deemed
appropriate as a basis for the opinion expressed below.
Based upon the foregoing, it is our opinion that the Company has
corporate power adequate for the issuance of the Shares issued and to be issued
in the manner set forth in the S-3 Registration Statement and offered pursuant
to the S-3 Registration Statement. The Company has taken all necessary corporate
action required to authorize the issuance and sale of the Shares, and when
certificates for the Shares have been duly executed and countersigned and
delivered, such shares will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
S-3 Registration Statement.
Sincerely,
FOLEY, HOAG & ELIOT LLP
By: /s/ David A. Broadwin
-------------------------
David A. Broadwin
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made part of the registration
statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 11, 1996
