As filed with the Securities and Exchange Commission on December 12, 1997
Registration No.___________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
PALOMAR MEDICAL TECHNOLOGIES, INC.
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(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)
45 Hartwell Avenue, Lexington, Massachusetts 02173 (781) 676-7300
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(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.
45 Hartwell Avenue
Lexington, Massachusetts 02173
(781) 676-7300
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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]
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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. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Shares Amount to be Proposed Proposed
to be Registered Registered Maximum Maximum Amount of Registration
Offering Price Aggregate Fee
Per Share Offering Price
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
Common Stock, par value $.01 10,913,109(1) $1.16(2) $12,659,206(2) $3,836(2)
per share.
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(1) Consists of (i) 6,500,000 shares issuable upon conversion of $7,000,000
principal amount of Convertible Debentures with interest at varying
rates of 6%, 7% and 8% due September 30, 2002 (the "Debentures"); (ii)
413,109 shares issued in connection with the Debentures and (iii)
4,000,000 shares held by a third-party lender as security for a
guarantee by the Company, all of which are exercisable at prices and
terms described in the Selling Stockholders and Plan of Distribution
sections of the Prospectus.
(2) Estimated solely for purposes of calculation of the fee. The actual
number of shares of common stock issuable upon conversion of the
Debentures may be more or less than such estimate based on a variety of
factors, including the date of conversion and the price of the common
stock on such date. The fee is estimated pursuant to Rule 457(c) under
the Act on the basis of the average of the high and low sale prices
reported on the Nasdaq SmallCap Market on December 10, 1997.
Pursuant to Rule 416, there are also registered hereby such additional
indeterminate number of shares of such Common Stock as may become issuable as
dividends or to prevent dilution resulting from stock splits, stock dividends or
similar transactions or as the result of floating rate conversion mechanisms as
set forth in the terms of the Debentures 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.
SUBJECT TO COMPLETION DATED December 12, 1997
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PROSPECTUS
PALOMAR MEDICAL TECHNOLOGIES, INC.
10,913,109 shares of Common Stock
consisting of:
6,500,000 shares issuable upon conversion of $7,000,000 principal
amount of Convertible Debentures bearing interest at varying
rates of 6%, 7% and 8% due September 30, 2002;
413,109 shares issued in connection with the Debentures and
4,000,000 shares held by a third-party lender as security for a
guarantee by the Company
This Prospectus relates to 10,913,109 shares of common stock (the
"Shares") of Palomar Medical Technologies, Inc. (the "Company", the "Registrant"
or "Palomar") consisting of 6,500,000 shares issuable upon conversion of
$7,000,000 principal amount of Convertible Debentures bearing interest at
varying rates of 6%, 7% and 8% due September 30, 2002 (the "Debentures"),which
are exercisable as described in the Selling Stockholders and Plan of
Distribution sections of the Prospectus; 413,109 shares issued in connection
with the Debentures and (iii) 4,000,000 shares held by a third-party lender as
security for a guarantee by the Company. 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 11, 1997 was $1.25 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 14.
It is anticipated that usual and customary brokerage fees will be paid
by the Selling Stockholders on the sale of the Shares registered hereby. The
Company will pay the other expenses of this offering. See "Plan of
Distribution". The offer of Shares by the Selling Stockholders as described in
this Prospectus is referred to as the "Offering."
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- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Price to Public Underwriting Discounts and Proceeds to Issuer or
Commissions Other Persons
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Per Unit..................... $1.25(1) 0(2) $1.25(1)(3)
Total........................ 13,641,386(1) 0(2) 13,641,386(1)(3)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
(1) Based on the closing bid price of the Company's common stock as reported
on the Nasdaq SmallCap Market on December 11, 1997.
(2) None, to the Company's knowledge.
(3) Less usual and customary brokerage fees.
The date of this Prospectus is ______________.
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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 Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically, including the Company. The
Commission's Web site address is http://www.sec.gov. This prospectus, which
constitutes part of a 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 for its fiscal year ended
December 31, 1996 as amended by Form 10-KSB/A-1 filed April 16, 1997, Form
10-KSB/A-2 filed April 30, 1997, Form 10-KSB/A-3 filed May 28, 1997 and Form
10-KSB/A-4 filed July 11, 1997; the Company's Quarterly Report on Form 10-Q for
its quarter ending September 30, 1997 filed November 14, 1997; 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, 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 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., 45
Hartwell Avenue, Lexington, Massachusetts 02173; telephone number (781)
402-2411; e-mail address: [email protected].
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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.
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THE COMPANY........................................ The Company currently has three business segments: cosmetic
dermatological laser products, laser services and electronic
products. The Company intends to divest its non-core
electronics subsidiaries. In addition, the Company
anticipates that it will concentrate its efforts in the
cosmetic dermatological laser segment on hair removal. The
Company has recently signed an agreement with Coherent, Inc.
pursuant to which Coherent will distribute the Company's
laser hair removal products and obtain a right of first
refusal to distribute newly developed laser products. In
the laser services segment, which is in the developmental
stage, the Company intends to focus on a few strategic
partnerships, including its partnership with Columbia/HCA.
SECURITIES OFFERED.......................... 10,913,109 shares of Company common stock, par value $.01 per
share. The actual number of shares of common stock issuable
upon conversion of the Debentures is indeterminate, is
subject to adjustment and could be materially less or more
than such estimated number depending on a number of factors
which cannot be predicted by the Company at this time,
including among other factors, the future market price of
the common stock. The actual number of shares offered
hereby, and included in the Registration Statement of which
this prospectus is a part, includes such additional shares
of common stock as may be issued or issuable upon conversion
of the Debentures by reason of the floating rate conversion
price mechanism or other adjustment mechanisms described
therein, or be reason of any stock split, stock dividend or
similar transaction involving the common stock, in order to
prevent dilution, in accordance with Rule 416 under the
Securities Act of 1933.
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, WHICH SPEAK ONLY AS OF THE
DATE HEREOF, IN LIGHT OF THE RISKS AND UNCERTAINTIES TO WHICH THEY ARE SUBJECT.
THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY THE RESULT OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS
OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS. THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS.
SUBSTANTIAL AND CONTINUING LOSSES. The Company incurred a net loss of
$37,863,792 for the year ended December 31, 1996, a net loss of $36,989,569 for
the quarter ended September 30, 1997 and a net loss of $67,167,702 for the nine
months ended September 30, 1997. Losses of this magnitude 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. The Company's accumulated deficit was $64,971,200 at December 31,
1996, and $133,366,880 at September 30, 1997. Each of the Company's
subsidiaries, Dynaco Corp. ("Dynaco"), Star Medical Technologies, Inc. ("Star"),
Tissue Technologies, Inc. ("Tissue"), Spectrum Medical Technologies, Inc.
("Spectrum"), Palomar Medical Products, Inc. ("PMP"), Cosmetic Technologies,
Inc. ("CTI") and Nexar Technologies, Inc. ("Nexar") has had a history of losses.
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 cosmetic laser products and
fund ongoing operations. The Company anticipates that it will require
substantial additional financing during the immediate foreseeable future. The
Company's strategic plan is to liquidate certain assets to fund its core
operations over the next twelve-month period. However, there can be no assurance
that the Company will be able to execute this strategy, due to market and legal
factors outside its control, among other things. 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 strategic partnerships,
additional bank financing, liquidation of assets, and private debt and equity
financing, among other sources. While the Company regularly reviews potential
funding sources, 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. (See December 31, 1996 Form 10-KSB/A-4
"Item 1. Description of Business," Note 1 to Financial Statements, and "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations"; and September 30, 1997 Form 10-Q Part I "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations.")
COHERENT AGREEMENT. The Company has entered into a Sales Agency,
Development and License Agreement (the "Coherent Agreement") with Coherent, Inc.
("Coherent") under which Coherent will act as exclusive distributor for the
Company's laser based hair removal systems in the United States, Far East and
most European countries. As a result, the Company no longer has its own sales
force in these countries. If Coherent proves unable to sell Palomar's hair
removal lasers in the volume anticipated, it could have a material adverse
effect on the Company's business, financial condition and results of operations.
NEXAR. As of November 18, 1997, the Company owns 58% of the voting
capital stock of Nexar. In order to successfully execute its business plan, the
Company is to a certain degree dependent on the success of Nexar and Nexar's
ability to fund its operations and achieve profitability in the near term. The
Company may reduce its ownership of Nexar over time as it continues to focus on
its core cosmetic laser business. (See "Substantial and Continuing Losses;"
"Highly Competitive Industries;" "Government Regulation;" "Uncertainty of Market
Acceptance;" "Technological Obsolescence;" "Lack of Patent Protection;"
"Dependence on Sole Suppliers;" and "Dependence on Substantial Customers.")
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RISKS ASSOCIATED WITH PENDING LITIGATION. The Company and its
subsidiaries are involved in disputes with third parties. Such disputes have
resulted in litigation with such parties and, although the Company is a
plaintiff in several matters, the Company is subject to claims and counterclaims
for damages and has incurred, and likely will continue to incur, legal expenses
in connection with such matters. There can be no assurance that such litigation
will result in favorable outcomes for the Company. The Company is unable to
determine the total expense or possible loss, if any, that may ultimately be
incurred in the resolution of these proceedings. These matters may result in
diversion of management time and effort from the operations of the business.
After consideration of the nature of the claims and the facts relating to these
proceedings, the Company believes that the resolution of these proceedings will
not have a material effect on the Company's business, financial condition and
results of operations; however, the results of these proceedings, including any
potential settlements, are uncertain and there can be no assurance to that
effect. (See September 20, 1997 Form 10-Q, Part II "Item 1. Legal Proceedings.")
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.
FUTURE OPERATING STRATEGY. The Company's future operating strategy and
results are dependent on its ability to successfully divest its non-core
subsidiaries and successfully execute its business plan in the cosmetic laser
products and services businesses. There can be no assurance that the Company
will be able to successfully execute this plan.
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. 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 cosmetic laser 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. (See December
31, 1996 Form 10-KSB/A-4 "Item 1. Description of Business" and Note 1 to
Financial Statements.)
NEW VENTURES. The Company's CTI subsidiary has entered into several
agreements with healthcare providers, including Columbia/HCA, 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," and December 31, 1996 Form 10-KSB/A-4 "Item 1.
Description of Business.")
INVESTMENTS IN UNRELATED BUSINESSES. The Company has investments in
marketable and non-marketable securities and loans to related and unrelated
parties, including approximately $3 million invested in equity securities of
high-tech companies, both public and privately held. The amount that the Company
may ultimately realize from these investments could differ materially from the
value of these investments recorded in the Company's financial statements, and
the ultimate disposition of these investments could result in a loss to the
Company. During the third quarter, the Company established reserves for certain
operating assets and liabilities that resulted in a charge to expense of
approximately $9,426,000. Included in the reserves, the Company recognized a
restructuring charge of $2,700,000 based on the decision to discontinue some
business units and consolidate others. The Company also assessed its non-core
long-term assets and investments and determined that some investments' carrying
value will not be realizable due to the Company's change in strategy. The
Company has fully reserved for all such investments resulting in a charge to to
third quarter operations of approximately $13,548,000. (See September 30, 1997
Form 10-Q Note 2 to Financial Statements and Part I "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations.")
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HIGHLY COMPETITIVE INDUSTRIES. The cosmetic laser industry is highly
competitive and is characterized by the frequent introduction of new products.
The Company competes in the development, manufacturing, marketing and servicing
of laser products with numerous other companies, certain of which have
substantially greater financial, marketing and other resources than the Company.
In addition, the Company's cosmetic laser products face competition from
alternative medical products and procedures, such as 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. (See
"Technological Obsolescence.") 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.")
The Company's Nexar subsidiary competes with IBM, Apple Computer, Compaq
and Dell Computer, among others. Many, if not most, of Nexar'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 Nexar. There can be no
assurance that Nexar's products will compete favorably with the products of its
competitors or that Nexar 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
Nexar's upgradeable personal computers will be extremely narrow and will require
Nexar to manage carefully its cost of goods sold. There can be no assurance that
Nexar 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.
Nexar currently has limited marketing capabilities and expects to place
significant reliance on independent distributors and resellers for the
distribution and marketing of its products. Nexar 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 Nexar's financial condition and
results of operations. In addition, there can be no assurance as to the
viability or financial stability of 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
Nexar'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. (See December 31, 1996 Form 10-KSB/A-4 "Item 1.
Description of Business.")
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 cosmetic laser products or
electronics industry, changes in the Company's operating expenses, personnel
changes and general economic conditions.
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, changes in analysts' earnings
estimates, market conditions in the high technology sector, as well as general
economic conditions 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 Company's common stock.
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GOVERNMENT REGULATION. The Company's laser product business segment is
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. (See December 31, 1996 Form 10-KSB/A-4 "Item 1.
Description of Business - Government Regulation.")
All laser product 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 future
operating results are dependent on its ability to develop, produce and achieve
FDA approval for certain medical products and market new and innovative products
and services. There are numerous risks inherent in this complex process,
including rapid technological change and the requirement that the Company bring
to market in a timely fashion new products and services which meet customers'
changing needs.
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-switched Ruby laser, the TruPulse laser and the EpiLaser
laser system. The Company's StarLite(TM) diode hair-removal laser has not yet
received FDA clearance, and is currently under an Investigative Device
Exemption.
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 laser products on a timely basis, if at all. The
laser products segment of the Company's business is, and will continue to be,
critically dependent upon FDA approval of its current and proposed cosmetic
laser products. Delays or failure to obtain such approval would have a material
adverse effect on the Company.
OTHER GOVERNMENT APPROVALS FOR LASER 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. Additional approvals may be required in other countries.
The Company's TruPulse laser and EpiLaser laser system have received the CE Mark
pursuant to the European Medical Device Directive which allows that laser to be
sold in all countries that recognize the CE Mark, including the countries that
comprise the European Community. 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.
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UNCERTAINTY OF MARKET ACCEPTANCE. The Company is developing new products
intended for use in the cosmetic laser 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.
(See December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of Business.")
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. (See December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of
Business" and Note 6 to Financial Statements.)
TECHNOLOGICAL OBSOLESCENCE. The markets for the Company's products are
characterized by rapid and significant technological change, evolving industry
standards and frequent new product introductions and enhancements. Many of the
Company's products and products under development are technologically
innovative, and require significant planning, design, development and testing at
the technological, product and manufacturing process levels. These activities
require significant capital commitments and investment by the Company. 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. (See December 31, 1996 Form 10-KSB/A-4 "Item 1.
Description of Business.")
NEED FOR CONTINUED PRODUCT DEVELOPMENT. Although the Company received
FDA clearance in March 1997 to commercially market its EpiLaser(TM) laser system
for hair removal, the Company is continuing to study this laser system to
optimize performance and treatment parameters.
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 cosmetic laser device market has been characterized by substantial
litigation regarding patent and other intellectual property rights. One of the
Company's competitors in the cosmetic laser business has filed suit against the
Company alleging patent infringement, among other things. In both the cosmetic
laser 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. (See September 30, 1997 10-Q, Part II "Item
1. Legal Proceedings.")
POSSIBLE PATENT INFRINGEMENTS. In the medical products segment, the
Company is aware of patents relating to laser technologies used in certain
applications. The Company intends to pursue such laser technologies in the
future; hence, if the patents relating to those technologies are valid and
enforceable, they may be infringed by the Company. After consulting with outside
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counsel to the Company, the Company believes that it is not infringing currently
on patents held by others; however, were the issue ever to be litigated, a court
could reach a different conclusion. 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. One of the Company's competitors in the
cosmetic laser business has filed suit against the Company alleging patent
infringement, among other things. 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. (See September 30, 1997
10-Q, Part II "Item 1. Legal Proceedings.")
DEPENDENCE ON PROPRIETARY RIGHTS. The Company relies on trade secrets
and proprietary know-how which it seeks to protect, in part, by confidentiality
agreements with its collaborators, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or be independently developed by competitors.
NEED FOR 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 laser 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, financial condition and results of operations.
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.
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, $.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 July 1996, the Company issued 6,000 shares of
Series F Convertible Preferred Stock at a price of $1,000 per share. In
September 1996, the Company issued 10,000 shares of Series G Convertible
Preferred Stock at a price of $1,000 per share. As of November 30, 1997, 7,316
shares of Series G Preferred Stock were converted into 602,824 shares of common
stock and 956,388 shares of Nexar common stock and $47,731 in cash dividends. In
March 1997, the Company issued 6,000 shares of Series H Convertible Preferred
Stock at a price of $1,000 per share. In May 1997, the Company issued an
additional 10,000 shares of Series H Convertible Preferred Stock at a price of
$1,000 per share. As of November 30, 1997, 7,690 shares of Series H Preferred
Stock were converted into 4,504,008 shares of common stock. 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 (the
"Swiss franc Debentures") and a warrant to purchase 24 shares of the Company's
common stock at $16.50 per share. In February 1997, 300 units were redeemed by
the Company for an aggregate price of $195,044. As of November 13, 1997, acting
under applicable provisions of the indenture, the Company notified the holders
of the Swiss franc Debentures that it is causing the conversion of all of the
Swiss franc Debentures into an aggregate of 914,024 shares of the Company's
common stock. These shares have not been accounted for in shares outstanding as
the Debentures are still outstanding. The Company is involved in litigation
regarding certain provisions of the indenture. (See September 30, 1997 Form
10-Q, Part II "Item 1. Legal Proceedings.") In October 1996, the Company issued
$5,000,000 in 4.5% Convertible Subordinated Promissory Notes. As of November 30,
1997, $4,900,000 principal amount was converted into 1,381,264 shares of common
stock. In December 1996 and January 1997, the Company issued a total of
$6,000,000 in 5% Convertible Debentures. As of November 30, 1997, $3,911,716 was
converted into 1,919,992 shares of common stock. In March 1997, the Company
issued $5,500,000 in 5% Convertible Debentures. As of November 30, 1997,
$3,773,666 was converted into 2,250,266 shares of common stock. In March 1997,
the Company issued $500,000 in 6% Convertible Debentures. In September 1997, the
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Company issued a total of $7,000,000 in 6%, 7% and 8% Convertible Debentures.
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. (See December 31, 1996 Form 10-KSB/A-4
"Item 1. Description of Business," "Item 5. Market for Common Equity and Related
Stockholder Matters," and Notes 4 and 5 to Financial Statements and September
30, 1997 Form 10-Q, Notes 7 and 8 to Financial Statements and Part II, "Item 2.
Changes in Securities.")
ISSUANCE OF RESERVED SHARES; REGISTRATION RIGHTS. As of November 30,
1997, the Company had 43,116,141 shares of common stock outstanding. The Company
has reserved an additional 34,505,015 shares for issuance as follows: (1)
3,709,504 shares for issuance to key employees, officers, directors, consultants
and advisors pursuant to the Company's Stock Option Plans; (2) 212,690 shares
for issuance to employees, officers and directors pursuant to the Company's
401(k) Plan; (3) 984,623 shares for issuance pursuant to the Company's Employee
Stock Purchase Plan; (4) 9,412,940 shares for issuance upon exercise of three-,
four- five- and seven-year Warrants issued to certain lenders, investors,
consultants, directors and officers (a portion of which are subject to certain
antidilutive adjustments); (5) 600,000 shares for issuance upon conversion of
the 6,000 shares of Series F Convertible Preferred Stock; (6) 487,176 shares for
issuance upon conversion of the 2,684 shares of Series G Convertible Preferred
Stock; (7) 7,690,760 shares for issuance upon conversion of the 8,310 shares of
Series H Convertible Preferred Stock (8) 1,275,000 shares for issuance upon
conversion of the Swiss franc Debentures; (9) 65,393 shares for issuance upon
conversion of $100,000 principal amount of a 4.5% Convertible Subordinated
Promissory Note; (10) 1,899,889 shares for issuance upon conversion of
$2,088,284 principal amount of a 5% Convertible Debenture; (11) 1,621,585 shares
for issuance upon conversion of $1,726,334 principal amount of a 5% Convertible
Debenture; (12) 45,455 shares for issuance upon conversion of $500,000 principal
amount of a 6% Convertible Debenture and (13) 6,500,000 shares for issuance upon
conversion of $7,000,000 principal amount of a 6%, 7% and 8% Convertible
Debenture. All of the foregoing reserved shares are, or the Company intends for
them shortly to be, registered with the Commission and therefore freely saleable
on Nasdaq or elsewhere.
PRODUCT LIABILITY EXPOSURE. Cosmetic laser 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. 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 general liability
insurance in the amount of $1,000,000 per occurrence and $2,000,000 in the
aggregate and maintains umbrella coverage in the aggregate amount of
$25,000,000; 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.
DEPENDENCE ON SOLE SUPPLIERS. The Company relies on outside suppliers
for substantially all of its manufacturing supplies, parts and components.
Several component parts of the Company's cosmetic laser 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. (See December 31, 1996 Form 10-KSB/A-4
"Item 1. Description of Business.")
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In July 1997, one of Nexar's two outside turn-key manufacturers notified
Nexar of its inability to timely manufacture on a going forward basis Nexar's
proprietary motherboards. Nexar made arrangements with two new manufacturers to
assume timely production of the motherboards. Nexar does not believe that the
transition to the new manufacturers will have a long-term material adverse
effect on Nexar, but the several weeks it took to resume full production of
these key components had a short-term negative impact on Nexar's results of
operations in the third quarter due to limited delays in the initial shipments
of Nexar's new XPA products, and could similarly impact Nexar's results of
operations in the fourth quarter.
DEPENDENCE ON SUBSTANTIAL CUSTOMERS. In the year ended December 31,
1996, one customer of Nexar, Government Technology Services, Inc. ("GTSI), a
leading supplier of desktop systems to United States government agencies,
accounted for 17.5% of the Company's revenues and 23.2% of the Company's
accounts receivable balance. In the quarter ended September 30, 1997, GTSI
accounted for 3.3% of the Company's revenues and 17.1% of the Company's accounts
receivable balance. The Company expects that GTSI will continue to be an
important customer, and that, while Nexar's revenues from GTSI will increase,
such sales as a percentage of total revenue will decline substantially as Nexar
further expands its distribution network and increases its overall sales. Nexar
has entered into an agreement with GTSI pursuant to which GTSI serves as Nexar's
exclusive federal reseller with respect to Government Services Administration
(GSA) scheduled purchases, provided that GTSI purchases at least $35 million of
Nexar's products in 1997. GTSI is under no obligation, however, to purchase any
products of Nexar. If GTSI makes fewer purchases in 1997 than the Company
anticipates, that would have a material adverse effect on the Company.
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.
HAZARDOUS SUBSTANCE AND ENVIRONMENTAL CONCERNS; LACK OF ENVIRONMENTAL
IMPAIRMENT INSURANCE. The manufacture of substrate interconnect products
involves numerous chemical solvents and other solid, chemical and hazardous
wastes and materials. The Company's Dynaco subsidiary 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. (See December 31, 1996 Form
10-KSB/A-4 "Item 1. Description of Business.")
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 Company's 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
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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. (See December 31, 1996 Form 10-KSB/A-4 "Item 5. Market for Common
Equity and Related Shareholder Matters"; September 30, 1997 Form 10-Q, Notes 7
and 8 to Financial Statements and Part II "Item 1. Legal Proceedings;" "Item 2.
Changes in Securities.")
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 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.")
RISKS ASSOCIATED WITH ACQUISITIONS. Since going public, the Company has
acquired seven companies. Although the Company intends to focus primarily on its
laser based hair removal business going forward, the Company nevertheless
evaluates potential acquisitions of businesses, products and technologies that
would complement or expand its core business. Promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory approvals.
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. In order to finance
acquisitions, it may be necessary for the Company to raise additional funds
through public or private financings. Any equity or debt financing, if available
at all, may be on terms which are not favorable to the Company and, in the case
of equity financing, may result in dilution to the Company's stockholders. (See
December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of Business" and Note 1
to Financial Statements.)
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THE COMPANY
The Company was organized to design, manufacture and market lasers,
delivery systems and related disposable products for use in medical procedures.
The Company currently operates in three business segments: cosmetic laser
products, cosmetic laser services, and electronic products; the Company is in
the process of divesting its non-core electronics subsidiaries. In the cosmetic
laser products segment, the Company is focusing its efforts on the FDA-cleared
EpiLaser hair removal laser and other hair removal lasers are currently under
development. The Company recently entered into an agreement with the world's
largest laser company, Coherent, pursuant to which Coherent will act as
exclusive distributor for the Company's laser hair removal systems in the U.S.,
Far East and most European countries. Under this agreement, Coherent also will
obtain a right of first refusal to distribute the Company's future laser
products, and Coherent and the Company have agreed to cross-license certain hair
removal technology. The Company anticipates that Coherent, with its direct sales
force numbering over 200, will be able to sell the Company's products in greater
volume than the Company could in the past through its independent sales
representatives. However, the Company does not anticipate that its gross margins
will improve until it introduces its new ruby and diode cosmetic lasers
currently under development. The Company is developing ruby and diode cosmetic
lasers for use in clinical trials and is engaged in the research and development
of additional cosmetic laser and surgical products. (See December 31, 1996 Form
10-KSB/A-4 "Item 1. Description of Business--Medical Products and Lasers in
Medicine; Future Products.") 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 cosmetic laser 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.
In late 1996, CTI was formed as a wholly-owned subsidiary of the
Company. CTI is a services company which intends to establish a network of
cosmetic dermatological laser sites with medical services partners in key
geographic locations. Each site will be provided a turnkey package of laser
technology, equipment, training and service, operations personnel, strategic
advertising and marketing programs, patient financial credit programs and
management assistance. In early 1997, CTI entered into an agreement with
Columbia/HCA to establish revenue sharing sites throughout the country in
existing Columbia/HCA facilities. To date, CTI has established fourteen sites.
CTI does not yet derive revenue from its operations.
In February 1997, Palomar Medical Products, Inc. was formed as a
wholly-owned subsidiary with the purpose of consolidating the management and
operations of the medical products companies. Currently included in the medical
products group are the following companies, all of which are also wholly-owned
subsidiaries of the Company: Spectrum, Tissue, Star, and Dermascan, Inc. The
Company plans further consolidation in this business, as well, by focusing
principally on its laser hair removal technology. As part of this consolidation,
the Company has entered into a non-binding letter of intent with the current
management of Tissue to sell to them Tissue.
In September 1995, the Company established Palomar Electronics
Corporation ("PEC"), a wholly-owned subsidiary, as part of its plan to separate
the electronics segment from the cosmetics segment. On April 9, Nexar, a
subsidiary of PEC, completed an initial public offering of its common stock.
Nexar sold 2,500,000 shares of its common stock for its own account at $9.00 per
share and received net proceeds of approximately $20,300,000. (See December 31,
1996 Form 10-KSB/A-4 "Item 1. Description of Business.) In the second quarter of
1997, the Company sold all of the issued and outstanding common stock of its
former subsidiary CD Titles. The Company has signed an agreement with the
current management of Dynaco to sell to them Dynaco and its subsidiaries in a
two phase transaction; the first phase begins with the immediate sale of Comtel
and Dynamem and, in the second phase, Dynaco will be sold by June 30, 1998 at
the latest. The overall sale price for both phases is approximately ten million
dollars in notes, common stock and warrants, payable over time. As part of its
divestiture strategy, the Company will also consider winding down unprofitable
subsidiaries if doing so provides greater economic benefits to the Company than
a sale.
In the past, the Company made early stage investments in core
technologies and in companies that management felt were strategic to the
Company's business or would yield a higher than average financial return to
support the Company's core business. Some of these investments were with
companies that were related to some of the directors and officers of the
Company. In the third quarter of 1997, the Company determined that the carrying
value of some of its non-core long-term assets and investments would not be
realizable due to the change in the Company's strategy. Accordingly, the Company
fully reserved for all such investments, resulting in a charge to third quarter
operations of approximately $13,548,000. (See December 31, 1996 Form 10-KSB/A-4
"Management Discussion and Analysis-- Liquidity and Capital Resources" and "Item
12. Certain Relationships and Related Transactions.")
16
<PAGE>
The Company will continue to develop, acquire or license technologies
that can be integrated into its current and proposed products in the cosmetic
laser business segment. The Company intends to address very large markets
incorporating its core technology with proprietary products and services and
structure its operations to strive to be the low-cost producer and provider of
these products and services. The Company intends to seek agreements or
arrangements with other medical products and high technology companies in order
to acquire technical and financial assistance in the research and development of
such products and in the extensive experimentation and testing required to
obtain regulatory approvals in the United States and elsewhere.
The Company's strategic plan is to liquidate certain assets to fund its core
operations over the next twelve-month period. (See "Risk Factors--Substantial
and Continuing Losses.")
USE OF PROCEEDS
The Company will receive no part of the proceeds from the sale of any of
the Shares by the Selling Stockholders.
17
<PAGE>
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. The
number of shares included in the Registration Statement of which this Prospectus
is a part and available for resale (i) is based, in part, upon an estimate of
the number of shares underlying the Debentures utilizing a hypothetical
conversion price of $1.08, (ii) is subject to adjustment and (iii) could be
materially more or less than such estimated amount depending on factors which
cannot be predicted by the Company at this time, including, among others, the
future market price of the Company's common stock. The use of such hypothetical
prices is not intended, and should in no way be construed, to constitute a
prediction as to the future market price of the Company's common stock. 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) Offering(2) Offering
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JNC Opportunity Fund Ltd. (3) 3,456,555 3,456,555 - -
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11 Bermuda
Southbrook International Investments, Ltd. (4) 2,093,205 1,975,174 - -
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, NY 10111
Diversified Strategies Fund, L.P. (5) 1,481,380 1,481,380 - -
c/o Encore Capital Management L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Coast Business Credit (6) 4,000,000 4,000,000 - -
245 Fischer Avenue
Suite A1
Coasta Mesa, CA 92626
</TABLE>
1. Pursuant to the rules of the Commission, shares of common stock which an
individual or group has a right to acquire within 60 days pursuant to
the exercise of options, warrants or certain other derivitive
instruments (including the Debentures) are deemed to be outstanding for
the purpose of computing the ownership of such individual or group. In
addition, pursuant to the terms of the Debentures as described below,
the conversion rights of the holders are limited to the extent that the
number of shares of common stock thereby issuable, together with the
number of shares of common stock then held by such holder and its
affiliates (not including shares which have not been converted), exceed
4.9% of the then outstanding common stock for the Debentures, as
determined in accordance with Section 13(d) of the Exchange Act.
2. The actual number of shares set forth represent an estimate of the
number of shares of common stock to be offered by the Selling
Stockholders; the actual number of shares of common stock issuable upon
conversion of the Debentures is indeterminate, is subject to adjustment
and could be materially less or more than such estimated number
depending on a number of factors which cannot be predicted by the
Company at this time, including among other factors, the future market
price of the common stock. The actual number of shares of common stock
offered hereby, and included in the Registration Statement of which this
prospectus is a part, includes such additional shares of common stock as
may be issued or issuable upon conversion of the Debentures by reason of
the floating rate conversion price mechanism or other adjustment
mechanisms described therein, or by reason of any stock split, stock
dividend or similar transaction involving the common stock, in order to
prevent dilution, in accordance with Rule 416 under the Securities Act
of 1933.
18
<PAGE>
3. Represents 3,250,000 shares of common stock issuable upon conversion of
$3,500,000 principal amount of the Debentures and 206,555 shares of
common stock issued in connection with the Debentures. The Debentures
may be converted at 100% of the average closing bid price for the ten
(10) days preceding conversion. The Debentures accrue interest at 6% for
the first 179 days, 7% for the following 90 days and 8% thereafter.
4. Represents 1,857,143 shares of common stock issuable upon conversion of
2,000,000 principal amount of the Debentures and 118,031 shares of
common stock issued in connection with the Debentures. The Debentures
may be converted at 100% of the average closing bid price for the ten
(10) days preceding conversion. The Debentures accrue interest at 6% for
the first 179 days, 7% for the following 90 days and 8% thereafter.
5. Represents 1,392,857 shares of common stock issuable upon conversion of
$1,500,000 principal amount of the Debentures and 88,523 shares of
common stock issued in connection with the Debentures. The Debentures
may be converted at 100% of the average closing bid price for the ten
(10) days preceding conversion. The Debentures accrue interest at 6% for
the first 179 days, 7% for the following 90 days and 8% thereafter.
6. Represents 4,000,000 shares of common stock held by Coast Business
Credit as security for a guarantee by the Company.
19
<PAGE>
PLAN OF DISTRIBUTION
The 10,913,109 shares being registered herein for sale by the Selling
Stockholders consist of (i) 6,500,000 shares issuable upon conversion of the
Debentures (ii) 413,109 shares issued in connection with the Debentures and
(iii) 4,000,000 shares held as security by a third-party for a guarantee by the
Company.
The Selling Stockholders and their respective pledgees, donees,
transferees and other successors in interest 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 resale of shares offered hereby. It
is anticipated that usual and customary brokerage fees will be paid by the
Selling Stockholders upon sale of the Shares offered hereby. The Company will
pay the other expenses of this Offering. Such sales may be made on one or more
exchanges or in the over-the-counter market, or otherwise at fixed prices, 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 methods: (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; (d) ordinary brokerage transactions and (e) used to
cover short sales. 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. The Selling Stockholders and 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.
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 reports.
LEGAL OPINIONS
The validity of the shares of common stock offered hereby will be passed
upon for the Company by its General Counsel.
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.
20
<PAGE>
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 Commission filing fee)
below. All such expenses will be paid by the Registrant.
Securities and Exchange Commission Filing Fee $3,836
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 $9,936
===================
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:
21
<PAGE>
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.
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
22
<PAGE>
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.
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
23
<PAGE>
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.
24
<PAGE>
ITEM 16. EXHIBITS
The following exhibits are filed herewith:
Exhibit No. Description
4(b) Form of 6%, 7% and 8% Convertible Debentures Due September 30,
2002.
4(c) Form of Registration Rights Agreement, dated September 30, 1997.
4(d) Form of Securities Purchase Agreement dated September 30, 1997.
5 Opinion of General Counsel of Palomar
23(a) Consent of Arthur Andersen LLP, independent public accountants
23(b) Consent of General Counsel of Palomar (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 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.
25
<PAGE>
(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.
26
<PAGE>
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 Lexington, Commonwealth of Massachusetts, on November
24, 1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Louis P. Valente
-----------------------------------------
Louis P. Valente, Chief Executive Officer
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>
<S> <C> <C>
Signature Title Date
Chief Executive Officer, President and November 24, 1997
-------------------------------------- Director (Principal Executive Officer)
Louis P. Valente
Vice President, Chief Financial Officer, November 24, 1997
-------------------------------------- Treasurer (Principal Financial Accounting
Joseph P. Caruso Officer)
Director November 24, 1997
--------------------------------------
Buster Glosson
Director November 24, 1997
--------------------------------------
Nicholas Economou
Director November 24, 1997
--------------------------------------
A. Neil Pappalardo
Director November 24, 1997
--------------------------------------
James G. Martin
</TABLE>
27
<PAGE>
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 8, 1997
28
<PAGE>
December 12, 1997
Palomar Medical Technologies, Inc.
45 Hartwell Avenue
Lexington, MA 02173
Gentlemen:
I am 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 a total of 10,913,109 shares
(the "Shares") of the Company's common stock, $.01 par value per share, issuable
pursuant to certain debentures and a guarantee, both issued/issuable to certain
entities.
In arriving at the opinion expressed below, I 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 me by the Company.
In addition, I have examined and relied on the originals or copies
certified or otherwise identified to my 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 have made such investigations of law, as I have deemed appropriate
as a basis for the opinion expressed below.
Based upon the foregoing, it is my opinion that the Company has
corporate power adequate for the issuance of the Shares. 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.
I hereby consent to the filing of this opinion as an exhibit to the S-3
Registration Statement.
Sincerely,
/s/ Sarah Burgess Reed
------------------------------
Sarah Burgess Reed
General Counsel
Palomar Medical Technologies, Inc.
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EXECUTION COPY
EXHIBIT A
TO
SECURITIES PURCHASE
AGREEMENT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (AND ANY SECURITIES ISSUED OR
ISSUABLE IN RESPECT HEREOF, BY CONVERSION OR OTHERWISE) HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN
OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR UNLESS THE CORPORATION IS PROVIDED WITH REASONABLE ASSURANCES THAT THE
SECURITIES WERE SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NO.______ $___________
6%, 7% AND 8% CONVERTIBLE DEBENTURE DUE SEPTEMBER 30, 2002
THIS CONVERTIBLE DEBENTURE (this "DEBENTURE") is one of a duly
authorized issue of Debentures of Palomar Medical Technologies, Inc. a
corporation duly organized and existing under the laws of the State of Delaware
and having its principal address at 66 Cherry Hill Drive, Beverly, Massachusetts
01915 (the "CORPORATION"), designated as its 6%, 7% and 8% Convertible
Debentures Due September 30, 2002 in an aggregate principal amount not exceeding
Seven Million U.S. Dollars (U.S. $7,000,000) (the "DEBENTURES").
FOR VALUE RECEIVED, the Corporation promises to pay to
______________________, at the address specified in the Debenture Register (as
hereinafter defined), the holder hereof, or its order (the "HOLDER"), the
principal sum of ______________________ United States Dollars (U.S. $_______),
or such lesser principal sum as is then outstanding hereunder, on September 30,
2002 (the "MATURITY DATE") and to pay interest on the principal sum outstanding
under this Debenture (i) at the rate of 6% per annum during the period beginning
on the Closing Date (as hereinafter defined) and ending on the date which is one
hundred seventy nine (179) days after the Closing Date, (ii) at the rate of 7%
per annum during the period beginning on the date which is one hundred eighty
(180) days after the Closing Date and ending on the date which is two hundred
sixty nine (269) days after the Closing Date and (iii) at the rate of 8% per
annum thereafter. Interest shall be due and payable in arrears on the Maturity
Date or, if earlier, on the Conversion Date (as hereinafter defined) and shall
be calculated based on a 360 day year of twelve equal months. Accrual of
interest shall commence on the date hereof and shall continue daily until
payment in full of the principal sum has been made. The interest so payable will
be paid to the person in whose name this Debenture is registered on the records
of the Corporation regarding registration and transfers of the Debentures (the
"DEBENTURE REGISTER"); provided, however, that the Corporation's obligation to a
transferee of this Debenture arises only if the transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Securities Purchase Agreement, dated as of September 30, 1997, between the
Corporation and the original Holder (as amended from time to time and in effect,
the "SECURITIES PURCHASE AGREEMENT"). The Corporation shall be entitled to
withhold from all payments of interest on this Debenture any amounts required to
be withheld under the applicable provisions of the United States income tax laws
as evidenced by an opinion of counsel of the Corporation to the reasonable
satisfaction of the Holder. The principal of and interest on this Debenture are
payable only in United States Dollars at the address last appearing on the
Debenture Register of the Corporation as designated in writing by the Holder
hereof from time to time. Subject to the conversion hereof, in whole or in part,
on or before the Maturity Date pursuant to Article II hereof, the Corporation
will pay the principal of and all accrued and unpaid interest due upon this
Debenture on the Maturity Date, to the Holder of this Debenture as of the tenth
(10th) day prior to the Maturity Date, and addressed to such Holder at the last
address appearing on the Debenture Register.
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This Debenture is subject to the following additional provisions:
I. CERTAIN DEFINITIONS
For purposes of this Debenture, the following terms shall have the
following meanings:
A. "CLOSING BID PRICE" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding Debentures if Bloomberg Financial Markets is not then
reporting closing bid prices of such security (collectively, "BLOOMBERG"), or if
the foregoing does not apply, the last reported sale price of such security in
the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the bid prices of any market makers chosen by the
Holder for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as reasonably
determined by an investment banking firm selected by the Corporation and
reasonably acceptable to holders of a majority of the then outstanding
Debentures, with the costs of such appraisal to be borne by the Corporation.
B. "CLOSING DATE" means the Closing Date under that certain Securities
Purchase Agreement dated September 30, 1997 by and among the Corporation and the
initial purchasers of the Debentures (the "SECURITIES PURCHASE AGREEMENT").
C. "COMMON STOCK" shall mean the Common Stock, par value $.01 per share,
of the Corporation.
D. "CONVERSION DATE" means, for any Optional Conversion, the date
specified in the notice of optional conversion in the form attached hereto (the
"NOTICE OF OPTIONAL CONVERSION"), so long as the copy of the Notice of Optional
Conversion is faxed (or delivered by other means resulting in notice) to the
Corporation before Midnight, New York City time, on the Conversion Date
indicated in the Notice of Optional Conversion. If the Notice of Optional
Conversion is not so delivered before such time, then the Conversion Date shall
be the date the Holder delivers the Notice of Optional Conversion to the
Corporation. In the case of any Mandatory Conversion, the "Conversion Date"
shall mean the date specified in a written notice (the "NOTICE OF MANDATORY
CONVERSION") delivered by the Corporation to the Holder, so long as the Notice
of Mandatory Conversion is faxed (or delivered by other means resulting in
notice) to the Holder before Midnight, New York City time, not later than the
20th trading day preceding such specified date. If the Notice of Mandatory
Conversion is not so delivered before such time, then the Conversion Date shall
be the 20th trading day following the date the Corporation delivers the Notice
of Mandatory Conversion to the Holder. As used herein, a "TRADING DAY" shall
mean any day on which the Nasdaq Stock Market (or the national securities
exchange or automated quotation system on which the Common Stock is then traded)
is open for business, whether or not shares of Common Stock are traded on such
day.
E. "CONVERSION PRICE" means, as of any date of determination, the
average of the Closing Bid Prices for the Common Stock for ten (10) consecutive
trading days ending on the trading day immediately preceding such date of
determination (subject to equitable adjustments for any stock splits, stock
dividends, reclassifications or similar events during such ten (10) trading day
period), and shall be subject to adjustment as provided herein.
F. "OUTSTANDING AMOUNT " means, as of any date, the principal amount
then outstanding under this Debenture and all accrued but unpaid interest
thereon.
II. CONVERSION
A. Conversion at the Option of the Holder; Conversion at the Option of
the Corporation. Subject to the limitations on conversions contained in
Subparagraphs (i) and (ii) of Paragraph C of this Article II and in subparagraph
(i) of Article V.C, all or any portion of the Outstanding Amount may, at any
time and from time to time from and after the Closing Date, be converted at the
option of the Holder (an "OPTIONAL CONVERSION") into a number of fully paid and
nonassessable shares of Common Stock equal to the Outstanding Amount divided by
the Conversion Price then in effect. Subject to the limitations on conversions
contained in Subparagraph (iii) of Paragraph C of this Article II, beginning on
the date which is one (1) year after the Closing Date, all or any portion of the
Outstanding Amount may be converted at the option of the Corporation (a
"MANDATORY CONVERSION") into a number of fully paid and nonassessable shares of
Common Stock equal to the Outstanding Amount divided by the Conversion Price
then in effect, provided that the Closing Bid Price for the Common Stock on each
of the twenty (20) consecutive trading days immediately preceding the date of
the Notice of Mandatory Conversion is equal to or greater than the Closing Bid
Price for the Common Stock on the Closing Date.
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B. Mechanics of Conversion. In order to convert this Debenture into
shares of Common Stock pursuant to an Optional Conversion, the Holder shall: (x)
deliver (by facsimile or otherwise) a copy of the fully executed Notice of
Optional Conversion to the Corporation and (y) surrender or cause to be
surrendered this Debenture along with a copy of the Notice of Optional
Conversion as soon as practicable thereafter to the Corporation. At the request
of the Holder and upon receipt by the Corporation of a facsimile copy of a
Notice of Optional Conversion from the Holder, the Corporation shall immediately
send, via facsimile, a confirmation to such holder stating that the Notice of
Optional Conversion has been received, the date upon which the Corporation
expects to deliver the Common Stock issuable upon such conversion and the name
and telephone number of a contact person at the Corporation regarding the
conversion. In order to convert this Debenture into shares of Common Stock
pursuant to a Mandatory Conversion, the Corporation shall deliver (by facsimile
or otherwise) a copy of the fully executed Notice of Mandatory Conversion to the
Holder, which notice shall specify the Outstanding Amount to be converted.
Promptly following receipt of a Notice of Mandatory Conversion, the Holder shall
surrender or cause to be surrendered this Debenture as soon as practicable to
the Corporation. The Corporation shall not be obligated to issue shares of
Common Stock issuable upon any Optional Conversion or Mandatory Conversion
unless either this Debenture is delivered to the Corporation as provided above,
or the holder notifies the Corporation that such certificates have been lost,
stolen or destroyed (subject to the requirements of Article IX.A).
(i) Delivery of Common Stock Upon Conversion. The Corporation
shall, within one trading day after the later of (a) the second trading
day following the Conversion Date in the case of DWAC deliveries and the
third trading day following the Conversion Date in all other cases and
(b) the date of surrender of this Debenture (or, in case this Debenture
is lost, stolen or destroyed, the date on which indemnity pursuant to
Article IX.A is provided) (the "DELIVERY PERIOD"), issue and deliver to
or upon the order of the Holder (x) that number of shares of Common
Stock issuable upon conversion of the Outstanding Amount being converted
and (y) a new Debenture representing the Outstanding Amount not being
converted, if any.
(ii) Taxes. The Corporation shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of the
shares of Common Stock upon the conversion of this Debenture.
(iii) No Fractional Shares. If any conversion of this Debenture
would result in the issuance of either a fractional share of Common
Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion of this Debenture shall
be the closest whole number of shares.
(iv) Status as Stockholder. Upon the Conversion Date, the
Outstanding Amount being converted shall be deemed converted into shares
of Common Stock as of the Conversion Date and the Holder's rights as a
holder of the Outstanding Amount being converted shall cease and
terminate, excepting only the right to receive certificates for such
shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Debenture (including its
right to regain its status as a Holder pursuant to Article IV.E).
(v) Conversion Disputes. In the case of any dispute with respect
to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with
subparagraph (i) above. If such dispute involves the calculation of the
Conversion Price, the Corporation shall submit, at its sole cost, the
disputed calculations to its outside accountant via facsimile within two
(2) trading days of receipt of the Notice of Optional Conversion. The
accountant shall audit the calculations and notify the Corporation and
the Holder of the results no later than two (2) trading days from the
date it receives the disputed calculations. The accountant's calculation
shall be deemed conclusive, absent manifest error. The Corporation shall
then issue the appropriate number of shares of Common Stock in
accordance with subparagraph (i) above.
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C. Limitations on Conversions.
(i) In no event shall the Holder be entitled to receive shares
of Common Stock upon an Optional Conversion to the extent that the sum
of (a) the number of shares of Common Stock beneficially owned by the
Holder and its affiliates (exclusive of shares issuable upon conversion
of the unconverted portion of this Debenture or the unexercised or
unconverted portion of any other securities of the Corporation subject
to a limitation on conversion or exercise analogous to the limitations
contained herein) and (b) the number of shares of Common Stock issuable
upon the conversion of this Debenture with respect to which the
determination of this subparagraph is being made, would result in
beneficial ownership by the holder and its affiliates of more than 4.9%
of the outstanding shares of Common Stock. For purposes of this
subparagraph, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended,
and Regulation 13 D-G thereunder, except as otherwise provided in clause
(i) above. The provisions of this subparagraph shall terminate upon
delivery by the Holder of a Mandatory Prepayment Notice. The Corporation
shall be entitled to rely, and shall be fully protected in relying, on
any statement or representation made by the Holder 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.
(ii) During any thirty (30) day period ending prior to the
earlier of (a) that date which is two hundred and nine (209) days after
the Closing Date and (b) that date (if any) that the Corporation
delivers an Optional Prepayment Notice (as defined below) to the Holder
pursuant to clause (b) of subparagraph (i) of Article V.C, the Holder
may not effect an Optional Conversion with respect to more than
thirty-three percent (33%) of the original principal amount of this
Debenture (and the accrued but unpaid interest thereon); provided,
however, if the Holder has already converted sixty-six percent (66%) of
such original principal amount, the Holder may convert the remaining
thirty-four percent (34%) of the original principal amount of this
Debenture (and the accrued but unpaid interest thereon) in the next
succeeding thirty (30) day period or thereafter.
(iii) The Corporation may not effect a Mandatory Conversion
pursuant to this Article II unless, on the date of the Notice of
Mandatory Conversion and on the date of delivery of such Conversion
Shares, (a) a registration statement under the Securities Act of 1933,
as amended, covering the resale of the Common Stock issuable upon
conversion of this Debenture is in effect which names the Holder as a
selling stockholder; (b) the Corporation has reserved the number of
shares of Common Stock required by Article III; (c) the Corporation has
paid in full any liquidated damages hereunder; and (d) the Holder has
not, prior to such date, delivered a Mandatory Prepayment Notice to the
Corporation.
III. RESERVATION OF SHARES OF COMMON STOCK
The Corporation shall at all times have authorized and reserved for the
purpose of issuance a sufficient number of shares of Common Stock to provide for
the full conversion of the outstanding Debentures in accordance with their
terms.
IV. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) the Holder submits
a Notice of Optional Conversion and the Corporation fails for any reason to
deliver, on or prior to the first trading day following the expiration of the
Delivery Period for such conversion, the shares of Common Stock to which the
Holder is entitled upon such conversion in the manner required hereunder and
under the Purchase Agreement, or (y) the Corporation provides notice to any
holder of the Debentures at any time of its intention not to issue shares of
Common Stock upon exercise by any holder of its conversion rights in accordance
with the terms of the Debentures (each of (x) and (y) being a "CONVERSION
DEFAULT"), then the Corporation shall pay to the Holder payments for the first
ten (10) trading days following the expiration of the Delivery Period, in the
case of a Conversion Default described in clause (x), and for the first ten (10)
trading days of any other Conversion Default, an amount equal to $1,000 per day.
In the event any Conversion Default continues beyond such ten (10) trading day
period, the Holder shall be entitled to interest on the Outstanding Amount at a
rate per annum equal to the lower of twenty-four percent (24%) and the highest
rate permitted by applicable law from the expiration of the ten (10) trading day
period described above through and including the Default Cure Date. In addition,
upon the occurrence of any Conversion Default, the Holder may, by written notice
to the Corporation, elect to revoke any Optional Conversion and obtain the
return of the unconverted Debenture. As used herein, the "DEFAULT CURE DATE"
means (i) with respect to a Conversion Default described in clause (x) of its
definition, the date the Corporation effects the conversion of the full
Outstanding Amount requested to be converted and (ii) with respect to a
Conversion Default described in clause (y) of its definition, the date the
Corporation begins to honor conversions of the Debentures in accordance with
their terms.
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The payments to which the Holder shall be entitled pursuant to this
Paragraph A are referred to herein as "CONVERSION DEFAULT PAYMENTS" and shall be
liquidated damages and not penalties. The Holder may elect to receive accrued
Conversion Default Payments in cash or to convert all or any portion of such
accrued Conversion Default Payments, at any time, into Common Stock at the
Conversion Price in effect at the time of such conversion. In the event the
Holder elects to receive any Conversion Default Payments in cash, it shall so
notify the Corporation in writing. Such payment shall be made in accordance with
and be subject to the provisions of Article IX.D. In the event the Holder elects
to convert all or any portion of the Conversion Default Payments, the Holder
shall indicate on a Notice of Optional Conversion such portion of the Conversion
Default Payments which the Holder elects to so convert and such conversion shall
otherwise be effected in accordance with the provisions of Article II.
B. Adjustment to Conversion Price. If the Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) trading
day after the expiration of the Delivery Period with respect to a conversion of
this Debenture for any reason, then the Conversion Price in respect of this
Debenture shall thereafter be the lesser of (i) the Conversion Price on the
Conversion Date specified in the Notice of Optional Conversion which resulted in
the Conversion Default and (ii) the lowest Conversion Price in effect during the
period beginning on, and including, such Conversion Date through and including
the day such shares of Common Stock are delivered to the Holder. If there shall
occur a Conversion Default of the type described in clause (y) of Article IV.A,
then the Conversion Price with respect to any conversion thereafter shall be the
lower of (x) the lowest Conversion Price in effect at any time during the period
beginning on, and following, the date of the occurrence of such Conversion
Default through and including the Default Cure Date and (y) the Conversion Price
on the Conversion Date specified in the Notice of Optional Conversion for this
Debenture. The Conversion Price shall thereafter be subject to further
adjustment for any events described in Article VI.
C. Buy-In Cure. If (i) the Corporation fails for any reason to deliver
during the Delivery Period shares of Common Stock to the Holder upon a
conversion of this Debenture having a Conversion Date on or prior to a date upon
which the Corporation has notified the Holder in writing that the Corporation is
unable to honor conversions and (ii) after the applicable Delivery Period with
respect to such conversion, the Holder purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such holder of the shares of Common Stock which the Holder anticipated receiving
upon such conversion (a "BUY-IN"), the Corporation shall pay the Holder (in
addition to any other remedies available to the Holder) the amount by which (x)
the Holder's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (y) the portion of the
Outstanding Amount resulting in the Buy-In. For example, if the Holder purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of a total Outstanding Amount of
$10,000, the Corporation will be required to pay the Holder $1,000. The Holder
shall provide the Corporation written notification indicating any amounts
payable to the Holder pursuant to this Paragraph C. The Corporation shall make
any payments required pursuant to this Paragraph C in accordance with and
subject to the provisions of Article IX.D.
D. Mandatory Prepayment Right. If the Corporation fails, and such
failure continues uncured for five (5) trading days after the Corporation has
been notified thereof in writing by the Holder, for any reason to issue shares
of Common Stock within ten (10) trading days after the expiration of the
Delivery Period with respect to any conversion of this Debenture, then the
Holder may elect at any time and from time to time prior to the Default Cure
Date for such Conversion Default, by delivery of a Mandatory Prepayment Notice
(as defined in Article V.B) to the Corporation, to demand payment by the
Corporation in cash of all or any portion of the Outstanding Amount. If the
Corporation fails to make such payment within five (5) trading days after its
receipt of a Mandatory Prepayment Notice, then the Holder shall be entitled to
the remedies provided in Article V.B.
E. Retention of Rights as Debenture Holder. If the Holder has not
received certificates for all shares of Common Stock prior to the tenth (10th)
trading day after the expiration of the Delivery Period with respect to a
conversion of this Debenture for any reason, then the Corporation shall, as soon
as practicable, return this Debenture to the Holder and (unless the Holder
otherwise elects to retain its status as a holder of Common Stock) the Holder
shall regain the rights of a holder of this Debenture. In all cases, the Holder
shall retain all of its rights and remedies (including, without limitation, (i)
the right to receive Conversion Default Payments pursuant to Paragraph A above
to the extent required thereby for such Conversion Default and any subsequent
Conversion Default and (ii) the right to have the Conversion Price with respect
to subsequent conversions determined in accordance with Paragraph B above) for
the Corporation's failure to convert this Debenture.
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V. PREPAYMENT DUE TO CERTAIN EVENTS
A. Mandatory Prepayment. In the event (each of the events described in
clauses (i)-(v) below after expiration of the applicable cure period (if any)
being a "MANDATORY PREPAYMENT EVENT"):
(i) the Common Stock (including all of the shares of Common
Stock issuable upon conversion of this Debenture) is suspended from
trading on any of, or is not listed or designated for quotation (and
authorized) for trading on at least one of, the New York Stock Exchange,
the American Stock Exchange, the NASDAQ National Market or the NASDAQ
Small Cap Market ("NASDAQ") for an aggregate of five (5) full trading
days in any nine (9) month period,
(ii) the Registration Statement required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights
Agreement, dated as of September 30, 1997, by and among the Corporation
and the other signatories thereto (the "REGISTRATION RIGHTS AGREEMENT"),
has not been declared effective by the 180th day following the Closing
Date or such Registration Statement, after being declared effective,
cannot be utilized by the Holder for the resale of all of their
Registrable Securities (as defined in the Registration Rights Agreement)
for an aggregate of more than thirty (30) days in any consecutive twelve
month period as a result of (x) the inclusion in the prospectus
contained in such Registration Statement of an untrue statement of
material fact or omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
(y) the issuance of any stop order or other suspension of effectiveness
of such Registration Statement.
(iii) the Corporation fails, and any such failure continues
uncured for five (5) trading days after the Corporation has been
notified thereof in writing by the Holder, to remove any restrictive
legend on any certificate or any shares of Common Stock issued to the
Holder upon conversion of this Debenture as and when required by this
Debenture, the Securities Purchase Agreement or the Registration Rights
Agreement,
(iv) the Corporation provides notice to any holder of the
Debentures, including by way of public announcement, at any time, of its
intention not to issue shares of Common Stock to any holder of said
Debentures upon conversion in accordance with the terms thereof,
(v) the Corporation shall:
(a) sell, convey or dispose of all or substantially all
of its assets;
(b) merge, consolidate or engage in any other business
combination with any other entity (other than a merger,
consolidation or business combination in which the holders of
the Corporation's voting securities immediately preceding such
merger, consolidation or business combination own, on a pro rata
basis, at least 50% of the surviving entity's voting
securities); or
(c) have fifty percent (50%) or more of the voting power
of its capital stock owned beneficially by one person, entity or
"group" (as such term is used under Section 13(d) of the
Securities Exchange Act of 1934, as amended),
(vi) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any bankruptcy law or
any law for the relief of debt shall be instituted by or against the
Company and, if instituted against the Company, shall not be dismissed
within ninety (90) days after such institution, or the Company shall by
any action or answer approve of, consent to, or acquiesce in any such
proceedings or admit to any material allegations of, or default in
answering a petition filed in, any such proceeding,
(vii) the Corporation shall fail to comply in any material
respect with the agreements and covenants contained in the Purchase
Agreement, the Registration Rights Agreement or this Debenture
(including without limitation a failure to comply with its conversion
obligations hereunder), which failure continues uncured for a period of
ten (10) days following delivery of written notice thereof by the Holder
to the Corporation,
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(viii) the Corporation shall fail to pay when due any amount due
hereunder free of any claim of subordination, or
(ix) the Corporation shall be prohibited from complying with its
conversion obligations hereunder by reason of any stockholder approval
requirements of NASDAQ,
then, upon the occurrence of any such Mandatory Prepayment Event, the Holder
shall thereafter have the option, exercisable in whole or in part at any time
and from time to time by delivery of a Mandatory Prepayment Notice (as defined
in Paragraph B below) to the Corporation while such Mandatory Prepayment Event
continues, to require the Corporation to pay in cash any or all of the
Outstanding Amount. For the avoidance of doubt, the occurrence of any event
described in clauses (i), (ii), (iv), (v), (vii) and (ix) above shall
immediately constitute a Mandatory Prepayment Event and there shall be no cure
period.
B. Mandatory Prepayment Defaults. If, within five (5) trading days of
the Corporation's receipt of a notice from the Holder identifying a Mandatory
Prepayment Event that has occurred and requiring the Corporation to pay any or
all of the Outstanding Amount (a "MANDATORY PREPAYMENT NOTICE"), the Corporation
fails to pay to the Holder the Outstanding Amount specified in the Mandatory
Prepayment Notice, the Holder (i) shall be entitled to interest on such
Outstanding Amount at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest rate permitted by applicable law from the date of the
Mandatory Prepayment Notice until the date of payment hereunder, and (ii) shall
have the right, at any time and from time to time, to require the Corporation,
upon written notice, to immediately convert (in accordance with the terms of
Paragraph A of Article II) all or any portion of such Outstanding Amount into
shares of Common Stock at the lowest Conversion Price in effect during the
period beginning on the date of the Mandatory Prepayment Notice and ending on
the Conversion Date with respect to the conversion of such Outstanding Amount.
In the event the Corporation is not able to pay all of the Debentures subject to
Mandatory Prepayment Notices, the Corporation shall pay the Debentures pro rata,
based on the total Outstanding Amount under the Debentures included by each
holder in the Mandatory Prepayment Notice relative to the total Outstanding
Amount under the Debentures in all of the Mandatory Prepayment Notices.
C. Optional Prepayment.
(i) At any time (a) on or before that date which is six (6)
months after the Closing Date or (b) on or after that date which is one
(1) year after the Closing Date, the Corporation shall have the right to
prepay ("OPTIONAL PREPAYMENT") all or any portion of the Outstanding
Amount, provided, however, that any such prepayment shall be subject to
concurrent payment of a premium (the "OPTIONAL PREPAYMENT PREMIUM") and
all other amounts owing hereunder. An Optional Prepayment shall be made
by the Corporation in its sole discretion by delivery of an Optional
Prepayment Notice (as defined below). In the case of an Optional
Prepayment during the period described in clause (a) of this
subparagraph, the Optional Prepayment Premium shall be in an amount
equal to seven and one half percent (7 1/2%) of the principal amount
being prepaid and the Holder's right to effect an Optional Conversion
shall terminate upon receipt of an Optional Prepayment Notice. In the
case of an Optional Prepayment during the period described in clause (b)
of this subparagraph, the Optional Prepayment Premium shall be in an
amount equal to ten percent (10%) of the principal amount being prepaid
and the Holder may convert all or any part of the Outstanding Amount
into Common Stock by delivering a Notice of Optional Conversion to the
Corporation at any time prior to that date which is ten (10) trading
days after receipt of an Optional Prepayment Notice.
(ii) The Corporation shall effect each prepayment under this
Section VIII.B by giving at least twenty (20) trading days' prior
written notice (the "OPTIONAL PREPAYMENT NOTICE") of the date on which
such prepayment is to be made (the "OPTIONAL PREPAYMENT DATE") and the
Outstanding Amount to be prepaid to the Holder at the address and
facsimile number of the Holder appearing in the Debenture Register,
which Optional Prepayment Notice shall be deemed to have been delivered
on the trading day after the Corporation's fax (with a copy sent by
overnight courier) of such notice to the Holder. The Corporation shall
pay the Outstanding Amount specified in the Optional Prepayment Notice,
together with the applicable Optional Prepayment Premium, to the Holder
on the Optional Prepayment Date. The Corporation may not attempt to
deliver an Optional Prepayment Notice if it has previously received a
Mandatory Prepayment Notice.
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(iii) If the Corporation fails to pay, when due and owing, any
portion of the Outstanding Amount or the Optional Prepayment Premium in
accordance with an Optional Prepayment Notice, then the Holder shall
have the right, at any time and from time to time, to require the
Corporation, upon written notice, to immediately convert (in accordance
with the terms of paragraph A of Article II) any or all of the
Outstanding Amount which is the subject of such prepayment into shares
of Common Stock at the lowest Conversion Price in effect during the
period beginning on the date of the Optional Prepayment Notice and
ending on the earlier of the date the Corporation effects such
prepayment in full and the date of the Holder's notice of conversion.
VI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Adjustment Due to Major Announcement. In the event the Corporation
(i) makes a public announcement that it intends to consolidate or merge with any
other entity (other than a merger in which the Corporation is the surviving or
continuing entity and its capital stock is unchanged) or to sell or transfer all
or substantially all of the assets of the Corporation or (ii) any person, group
or entity (including the Corporation) publicly announces a tender offer to
purchase 50% or more of the Corporation's Common Stock (the date of the
announcement referred to in clause (i) or (ii) of this Paragraph A is
hereinafter referred to as the "ANNOUNCEMENT DATE"), then the Conversion Price
shall, effective upon the Announcement Date and continuing through the
Abandonment Date (as defined below), be equal to the lesser of (x) the
Conversion Price which would have been applicable for an Optional Conversion
occurring on the Announcement Date and (y) the Conversion Price which would have
been applicable for an Optional Conversion occurring on the Conversion Date.
From and after the Abandonment Date, the Conversion Price shall be determined as
set forth in Article I.E. "ABANDONMENT DATE" means with respect to any proposed
transaction or tender offer for which a public announcement as contemplated by
this Paragraph A has been made, the date upon which the Corporation (in the case
of clause (i) above) or the person, group or entity (in the case of clause (ii)
above) publicly announces the termination or abandonment of the proposed
transaction or tender offer which caused this Paragraph A to become operative.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time when
this Debenture is outstanding, there shall be (i) any reclassification or change
of the outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property, then the
Holder shall thereafter have the right to receive upon conversion, in lieu of
the shares of Common Stock immediately theretofore issuable (without giving
effect to any limitations upon conversion imposed by Article II.C), such shares
of stock, securities and/or other property as may be issued or payable with
respect to or in exchange for the number of shares of Common Stock immediately
theretofore issuable upon conversion (without giving effect to any limitations
upon conversion imposed by Article II.C) had such merger, consolidation,
exchange of shares, recapitalization, reorganization or other similar event not
taken place, and in any such case, appropriate provisions shall be made with
respect to the rights and interests of the Holder to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares of Common Stock issuable upon
conversion of this Debenture) shall thereafter be applicable, as nearly as may
be practicable in relation to any shares of stock or securities thereafter
deliverable upon the conversion thereof. The Corporation shall not effect any
transaction described in this Paragraph B unless (i) the Holder has received
written notice of such transaction at least ten (10) days prior thereto, but in
any event on or before the record date for the determination of shareholders
entitled to vote with respect thereto, and (ii) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligations of this Paragraph B. The above provisions shall apply regardless of
whether or not there would have been a sufficient number of shares of Common
Stock authorized and available for issuance upon conversion of the Debentures
outstanding as of the date of such transaction, and shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
C. Purchase Rights. If at any time when this Debenture is outstanding,
the Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "PURCHASE Rights") pro rata to the
record holders of any class of Common Stock, then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete conversion of this
Debenture (without giving effect to any limitations upon conversion imposed by
Article II.C) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
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D. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VI, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to the Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of the Holder, furnish to the Holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at
the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of this Debenture.
VII. NOTICE RIGHTS
The Corporation shall provide the Holder, at its request, with copies of
proxy materials and other information sent to shareholders. If the Corporation
takes a record of its shareholders for the purpose of determining shareholders
entitled to (a) receive payment of any dividend or other distribution, any right
to subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or (b) to vote in
connection with any proposed sale, lease or conveyance of all or substantially
all of the assets of the Corporation, or any proposed merger, consolidation,
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to the Holder, on or before the record date specified therein (or
ten (10) days prior to the consummation of the transaction or event, whichever
is earlier, but in no event earlier than public announcement of such proposed
transaction), of the date on which any such record is to be taken for the
purpose of such vote, dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such vote, dividend,
distribution, right or other event to the extent known at such time.
VIII. PROTECTION PROVISIONS
So long as this Debenture is outstanding, the Corporation shall not,
without first obtaining the approval (by vote or written consent) of the holders
of all of the then Outstanding Amount under all Debentures:
(a) adversely alter or change the rights, preferences or privileges
of the Debentures; or
(b) alter or change the rights, preferences or privileges of any
capital stock of the Corporation so as to affect adversely the
Debentures.
IX. MISCELLANEOUS
A. Lost or Stolen Debentures. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of this Debenture and
(ii) (y) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Corporation, or (z) in the case of mutilation, upon
surrender and cancellation of this Debenture, the Corporation shall execute and
deliver a new Debenture of like tenor and date. However, the Corporation shall
not be obligated to reissue this Debenture if the Holder contemporaneously
requests the Corporation to convert this Debenture.
B. [Intentionally omitted.]
C. Statements of Available Shares. So long as this Debenture is
outstanding, the Corporation shall deliver to the Holder a written report
notifying it of any occurrence which prohibits the Corporation from issuing
Common Stock upon any conversion. In addition, the Corporation shall provide,
within ten (10) days after delivery to the Corporation of a written request by
the Holder, any of the following information as of the date of such request: (i)
the total Outstanding Amount under all Debentures, (ii) the total number of
shares of Common Stock issued upon all prior conversions of the Debentures, and
(iii) the total number of shares of Common Stock which are reserved for issuance
upon conversion of the Debentures.
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D. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to the Holder under this Debenture (as a Conversion
Default Payment, upon Mandatory or Optional Prepayment or otherwise), such cash
payment shall be made within five (5) trading days after delivery by the Holder
of a notice specifying that the Holder elects to receive such payment in cash
and the method (E.G., by check, wire transfer) in which such payment should be
made. If such payment is not delivered within such five (5) trading day period,
the Holder shall thereafter be entitled to interest on the unpaid amount at a
per annum rate equal to the lower of twenty-four percent (24%) and the highest
rate permitted by applicable law until such amount is paid in full to the
Holder. This provision shall not operate to add any additional grace or cure
period to any grace or cure period expressly set for in this Debenture.
E. Remedies Cumulative. The remedies provided in this Debenture shall be
cumulative and in addition to all other remedies available under this Debenture,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the Holder's right to pursue
actual damages for any failure by the Corporation to comply with the terms of
this Debenture. The Corporation acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, the Holder shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
F. Obligations Absolute. No provision of this Debenture, other than
conversion as provided herein, shall alter or impair the obligation of the
Corporation, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the manner,
herein prescribed.
G. Waivers of Demand, Etc. The Corporation hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate, prior notice of
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payments of all
sums owing and to be owing hereon, regardless of and without any notice (except
as required by law), diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
H. Savings Clause. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby.
I. Entire Agreement; Amendments. This Debenture and the agreements
referred to in this Debenture constitute the full and entire understanding and
agreement between the Corporation and the Holder with respect to the subject
hereof and, except as specifically set forth herein or therein, neither the
Corporation nor the Holder makes any representation, warranty, covenant or
undertaking with respect to such matters. Any provision of this Debenture may be
waived or amended only by an instrument in writing signed by the Corporation and
by all holders of the then Outstanding Amount under all of the Debentures.
J. Assignment, Etc. The Holder may, subject to compliance with the
Securities Purchase Agreement and the Registration Rights Agreement, without
prior notice, transfer or assign this Debenture or any interest herein (but in
no event in an amount less than $100,000 in Outstanding Amount or, if less than
$100,000, the total Outstanding Amount hereof) and may mortgage, encumber or
transfer any of its rights or interest in and to this Debenture or any part
hereof, and each assignee, transferee and mortgagee (which may include any
affiliate of the Holder) shall have the right to so transfer or assign its
interest. Each such assignee, transferee and mortgagee shall have all of the
rights and obligations of the Holder under this Debenture. The Corporation
agrees that, subject to compliance with the Securities Purchase Agreement and
the Registration Rights Agreement, after receipt by the Corporation of written
notice of assignment from the Holder or from the Holders' assignee, all
principal, interest, and other amounts which are then due and thereafter become
due under this Debenture shall be paid to such assignee at the place of payment
designated in such notice. This Debenture shall be binding upon the Corporation
and its successors and shall inure to the benefit of the Holder and its
successors and assigns. The Corporation may not transfer or assign its
obligation under this Debenture without the consent of the Holder; provided,
however, that a merger, consolidation or similar business combination of the
Corporation or the sale of all or substantially all of the assets of the
Corporation shall not constitute a transfer or assignment.
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<PAGE>
K. No Waiver. No failure on the part of the Holder to exercise, and no
delay in exercising, any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
L. Miscellaneous. Unless otherwise provided herein, any notice or other
communication to a party hereunder shall be deemed to have been duly given if
personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid with a copy in each case sent on the same day to the
party by facsimile, Federal Express or other such expedited means to said party
at its address set forth herein or such other address as either may designate
for itself in such notice to the other and communications shall be deemed to
have been received when delivered personally or, if sent by mail, when actually
received by the party to whom it is addressed. Copies of all notices to the
Corporation shall be sent to Paul S. Weiner, Director of Finance of the
Corporation, and to the attention of the General Counsel of the Corporation.
Whenever the sense of this Debenture requires, words in the singular shall be
deemed to include the plural and words in the plural shall be deemed to include
the singular. Paragraph headings are for convenience only and shall not affect
the meaning of this document.
M. Choice of Law and Venue. This Debenture shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Corporation
irrevocably consents to the jurisdiction of the United States federal courts
located in the County of Kent in the State of Delaware in any suit or proceeding
based on or arising under this Debenture and irrevocably agrees that all claims
in respect of such suit or proceeding may be determined in such courts. The
Corporation irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Corporation further agrees that
service of process upon the Corporation mailed by first class mail shall be
deemed in every respect effective service of process upon the Corporation in any
suit or proceeding arising hereunder. Nothing herein shall affect the Holder's
right to serve process in any other manner permitted by law. The Corporation
agrees that a final non-appealable judgment in any such suit or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
N. Usury Laws. In no event shall any provision of this Debenture be
deemed to permit the Holder to receive any payment, whether of interest or
otherwise, to the extent that such payment would be prohibited under any
applicable usury law or similar law regarding the rates of interest legally
chargeable or collectible hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, this Debenture is executed on behalf of the
Corporation as of the 30th day of September, 1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
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NOTICE OF OPTIONAL CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert $____________ in Outstanding Amount
(the "CONVERSION"), under that certain 6%, 7% and 8% Convertible Debenture Due
September 30, 2002 the ("DEBENTURE") into shares of common stock ("COMMON
STOCK") of Palomar Medical Technologies, Inc. (the "CORPORATION") according to
the conditions of the Debenture, as of the date written below. If securities are
to be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates. No fee will be charged to the holder for any
conversion, except for transfer taxes, if any. The Debenture (or evidence of
loss, theft or destruction thereof) is attached hereto.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Debenture shall be made pursuant to registration of the Common Stock under the
Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from
registration under the Act.
Date of Conversion:_________________________________
Applicable Conversion Price:________________________
Amount of Conversion Default
Payments to be Converted, if any:___________________
Number of Shares of
Common Stock to be Issued:__________________________
By:_________________________________________________
Name:_______________________________________________
Title:______________________________________________
(Must be exactly as appears on the Debenture)
Name:_______________________________________________
Address:____________________________________________
Social Security or
Federal Tax I.D. Number:____________________________
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EXECUTION COPY
EXHIBIT B
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of September
30, 1997 by and among PALOMAR MEDICAL TECHNOLOGIES, INC., a corporation
organized under the laws of the State of Delaware, with headquarters located at
66 Cherry Hill Drive, Beverly, Massachusetts 01915 (the "COMPANY"), and the
undersigned purchasers of Debentures and Common Shares under the Securities
Purchase Agreement (together with affiliates, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even date
herewith by and between the Company and the Initial Investors (the "SECURITIES
PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors (i) 6%,
7% and 8% Convertible Debentures Due September 30, 2002 (the "DEBENTURES") that
are convertible into shares (the "CONVERSION SHARES") of the Company's common
stock, par value $.01 per share (the "COMMON STOCK"), upon the terms and subject
to the limitations and conditions set forth in the Debentures and (ii) shares of
Common Stock (the "COMMON SHARES"); and
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"SECURITIES ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall
have the following meanings:
(i) "INVESTORS" means the Initial Investors and
any transferees or assignees who agree to become bound
by the provisions of this Agreement in accordance with
Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and
"REGISTRATION" refer to a registration effected by
preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and
pursuant to Rule 415 under the Securities Act or any
successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or
ordering of effectiveness of such Registration Statement
by the United States Securities and Exchange Commission
(the "SEC").
(iii) "REGISTRABLE SECURITIES" means the
Conversion Shares (including any Conversion Shares
issuable with respect to Conversion Default Payments
under the Debentures or in redemption of any Debentures)
issued or issuable with respect to the Debentures, the
Common Shares and any shares of capital stock issued or
issuable, from time to time (with any adjustments), on
or in exchange for or otherwise with respect to any of
the foregoing.
(iv) "REGISTRATION STATEMENT" means a
registration statement of the Company under the
Securities Act.
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b. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in
the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare,
and, on or prior to the sixtieth (60th) day after the Closing
Date (the "FILING DATE"), file with the SEC a Registration
Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to
effect a registration of all of the Registrable Securities,
subject to the reasonable consent of the Investors) covering the
resale of a number of Registrable Shares equal to at least
3,500,000 shares plus the amount of Common Shares (provided that
such number may be proportionally reduced if less than
$7,000,000 in principal amount of Debentures are issued under
the Securities Purchase Agreement), which Registration
Statement, to the extent allowable under the Securities Act and
the Rules promulgated thereunder (including Rule 416), shall
state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of the Debentures to prevent
dilution resulting from stock splits, stock dividends or similar
transactions or as a result of fluctuations in the market price
of the Common Stock. The Registrable Securities included on the
Registration Statement shall be allocated to the Investors as
set forth in Section 11(k) hereof. The Registration Statement
(and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to (and
subject to the reasonable approval of) the Initial Investors and
their counsel prior to its filing or other submission.
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves
an underwritten offering, the Investors who hold a majority in
interest of the Registrable Securities subject to such
underwritten offering, with the consent of the Initial
Investors, shall have the right to select a total of one legal
counsel to represent the Investors and an investment banker or
bankers and manager or managers to administer the offering,
which investment banker or bankers or manager or managers shall
be reasonably satisfactory to the Company. In the event the
Company determines such banker or manager to be unsatisfactory,
the Company shall bear the difference, if any, in costs of the
banker or manager ultimately accepted and such rejected
underwriter or manager.
c. Payments by the Company. The Company shall cause the
registration statement to become effective as soon as
practicable after filing, but in no event later than the one
hundred twentieth (120th) day following the Closing Date (the
"REGISTRATION DEADLINE"). If (i) the registration statement(s)
covering the Registrable Securities required to be filed by the
Company pursuant to Section 2(a) hereof is not declared
effective by the SEC on or before the Registration Deadline or
if, after the registration statement has been declared effective
by the SEC, sales of Registrable Securities (including any
Registrable Securities required to be registered pursuant to
Section 3(b) hereof) are not permitted pursuant to the
registration statement (including by reason of a stop order or
the Company's failure to update the registration statement) or
(ii) the Common Stock is not listed or included for quotation on
the NASDAQ SmallCap Market ("NASDAQ"), the NASDAQ National
Market (the "NNM"), the New York Stock Exchange (the "NYSE") or
the American Stock Exchange (the "AMEX") at any time after the
Registration Deadline, then the Company will make payments to
the Investors in such amounts and at such times as shall be
determined pursuant to this Section 2(c) as partial relief for
the damages to the Investors by reason of any such delay in or
reduction of their ability to sell the Registrable Securities
(which remedy shall not be exclusive of any other remedies
available at law or in equity). The Company shall pay to each
Investor an amount equal to the sum of (i) the aggregate
principal amount of the Debentures held by such Investor
(including, without limitation, Debentures that have been
converted into Conversion Shares then held by such Investor)
(the "AGGREGATE PURCHASE PRICE") multiplied by two hundredths
(.02) if the Registration Statement filed pursuant to Section
2(a) is not declared effective on or prior to the Registration
Deadline plus (ii) an amount equal to the Aggregate Purchase
Price multiplied by two hundredths (.02) for each full thirty
(30) day period thereafter that the Registration Statement has
not been declared effective or that sales are not permitted
pursuant to the Registration Statement after it has been
declared effective (including by reason of a stop order or the
Company's failure to update the registration statement) or that
the Common Stock is not listed or included for quotation on
NASDAQ, the NYSE or AMEX (which amount shall not be pro rated
for periods of less than thirty (30) days); PROVIDED, HOWEVER
that there shall be excluded from each such period any delays
which are solely attributable to changes (other than corrections
of Company mistakes with respect to information previously
provided by the Investors) required by the Investors in the
Registration Statement with respect to information relating to
the Investors, including, without limitation, changes to the
plan of distribution and PROVIDED, FURTHER, that the aggregate
amount payable to any Investor under this Section 2(c) shall not
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<PAGE>
exceed ten percent (10%) of such Investor's Aggregate Purchase
Price. (For example, if the Registration Statement is not
effective by the Registration Deadline, the Company would pay
$20,000 for each $1,000,000 of Aggregate Purchase Price and the
Company would pay an additional $20,000 for each $1,000,000 of
Aggregate Purchase Price thereafter for each additional thirty
(30) days the Registration Statement is not effective (up to a
maximum of $100,000 for each $1,000,000 Aggregate Purchase
Price)). Such amounts shall be paid in cash or, at each
Investor's option, may be convertible into Common Stock at the
"CONVERSION PRICE" (as defined in the Debentures). Any shares of
Common Stock issued upon conversion of such amounts shall be
Registrable Securities. If the Investor desires to convert the
amounts due hereunder into Registrable Securities it shall so
notify the Company in writing within two (2) business days of
the date on which such amounts are first payable in cash and
such amounts shall be so convertible (pursuant to the mechanics
set forth under Article II of the Debentures), beginning on the
last day upon which the cash amount would otherwise be due in
accordance with the following sentence. Payments of cash
pursuant hereto shall be made within five (5) days after the end
of each period that gives rise to such obligation.
d. Eligibility for Form S-3. The Company represents and
warrants that it meets the requirements for the use of Form S-3
for registration of the sale by the Initial Investors and any
other Investor of the Registrable Securities and the Company
shall file all reports required to be filed by the Company with
the SEC in a timely manner so as to maintain such eligibility
for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall have the
following obligations:
a. The Company shall prepare promptly and file with the
SEC the Registration Statement required by Section 2(a), and
cause such Registration Statement relating to Registrable
Securities to become effective as soon as practicable after such
filing, but in no event later than the Registration Deadline,
and keep the Registration Statement effective pursuant to Rule
415 at all times until such date as is the earlier of (i) the
date on which all of the Registrable Securities have been sold
and (ii) the date on which all Registrable Securities (in the
reasonable opinion of counsel to the Initial Investors) may be
immediately sold by the Investors to the public without
registration (including, in accordance with Rule 144(k)
promulgated under the Securities Act) (the "Registration
Period"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein and
all documents incorporated by reference therein) shall not
contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein, or necessary to
make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such
additional Registration Statements and such amendments
(including post-effective amendments) and supplements to any
Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to keep the
Registration Statement or Statements effective as to all
Registrable Securities at all times during the Registration
Period, and, during such period, comply with the provisions of
the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the
Registration Statement or Statements until such time as all of
such Registrable Securities have been disposed of in accordance
with the intended methods of disposition by the seller or
sellers thereof as set forth in the Registration Statement. In
the event an Investor notifies the Company that the number of
shares available (including, if permissible, shares available by
reason of Rule 416 under the Securities Act) under a
Registration Statement filed pursuant to this Agreement was, for
any three (3) consecutive trading days (the date the Investor
notifies the Company of such occurrence being the "REGISTRATION
TRIGGER DATE"), insufficient to cover a number of shares equal
to the applicable Registration Percentage (as defined below)
multiplied by all of the Registrable Securities issued or
issuable upon conversion of the Debentures held by such Investor
(without giving effect to any limitations on conversion
contained in Article II.C of the Debentures), the Company shall
amend the Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable),
or both, so as to cover one hundred fifty percent (150%) of the
Registrable Securities issued or issuable to such Investor
(without giving effect to any limitations on conversion
contained in Article II.C of the Debentures), in each case, as
soon as practicable, but in any event within fifteen (15) days
after the Registration Trigger Date (based on the market price
of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall cause such
amendment and/or new Registration Statement to become effective
as soon as practicable following the filing thereof. In the
event the Company fails to obtain the effectiveness of any such
Registration Statement within ninety (90) days after a
Registration Trigger Date, each Investor shall thereafter have
the option, exercisable in whole or in part at any time and from
time to time by delivery of a written notice to the Company (a
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"REGISTRATION TRIGGER PREPAYMENT NOTICE"), to require the
Company to pay a portion of such Investor's Outstanding Amount
(as defined in Article I of the Debentures), such that the total
number of shares of Common Stock issuable to such Investor upon
conversion of its Debentures (without giving effect to any
limitations on conversion contained in Article II.C of the
Debentures) does not exceed the number of shares then registered
under an effective Registration Statement. If the Corporation
fails to pay any portion of such Outstanding Amount within five
(5) business days after its receipt of a Registration Trigger
Prepayment Notice, then such failure shall be deemed a Mandatory
Prepayment Event as defined in the Debentures, and the Investor
shall be entitled to the remedies provided in Article V.B of the
Debentures. As used herein, "REGISTRATION PERCENTAGE" means one
hundred percent (100%) for the period ending on the 150th day
following the Closing Date and means one hundred and thirty-five
percent (135%) thereafter.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration
Statement and its legal counsel (i) promptly after the same is
prepared and publicly distributed, filed with the SEC, or
received by the Company, one copy of the Registration Statement
and any amendment thereto, each preliminary prospectus and
prospectus and each amendment or supplement thereto and, in the
case of the Registration Statement referred to in Section 2(a),
to counsel to the Investors only, each letter written by or on
behalf of the Company to the SEC or the staff of the SEC, and
each item of correspondence from the SEC or the staff of the
SEC, in each case relating to such Registration Statement (other
than the portion, if any, thereof which contains information for
which the Company has sought confidential treatment) and (ii)
such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such
other documents as such Investor may reasonably request in order
to facilitate the disposition of the Registrable Securities
owned by such Investor.
d. The Company shall use reasonable efforts to (i)
register and qualify the Registrable Securities covered by the
Registration Statement under such other securities or "blue sky"
laws of such jurisdictions in the United States as each Investor
who holds Registrable Securities being offered reasonably
requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements
to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration
Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all
times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; PROVIDED,
HOWEVER, that the Company shall not be required in connection
therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (b) subject
itself to general taxation in any such jurisdiction, (c) file a
general consent to service of process in any such jurisdiction,
(d) provide any undertakings that cause the Company undue
expense or burden, or (e) make any change in its charter or
bylaws, which in each case the Board of Directors of the Company
determines to be contrary to the best interests of the Company
and its stockholders.
e. In the event the Investors who hold a majority in
interest of the Registrable Securities being offered in an
offering select underwriters for the offering, the Company shall
enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.
f. As promptly as practicable after becoming aware of
such event, the Company shall notify each Investor of the
happening of any event, of which the Company has knowledge, as a
result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to
be stated therein or necessary to make the statements therein
not misleading, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement to correct
such untrue statement or omission, and deliver such number of
copies of such supplement or amendment to each Investor as such
Investor may reasonably request.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness
of a Registration Statement, and, if such an order is issued, to
obtain the withdrawal of such order at the earliest practicable
moment and to notify each Investor who holds Registrable
Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance of such
order and the resolution thereof.
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h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration
Statement, all amendments and supplements thereto and all
written responses by the Company to the SEC regarding the
Registration Statement which relate to the Investors a
reasonable period of time (and in no event less than three (3)
business days) prior to their filing with the SEC, and not file
any document in a form to which such counsel reasonably objects.
In the event such counsel fails to convey to the Company all of
its comments (or that it has no comments) to such Registration
Statement prior to the scheduled filing date of such
Registration Statement (which date shall comply with the
requirements set forth in this Section 3(h)), the sixty (60) and
the one hundred and twenty (120) day periods referred to in
Section 2(a) and 2(c) shall be extended by such number of
business days after such scheduled filing date that such counsel
so conveys such comments (or that it has no comments).
i. The Company shall make generally available to its
security holders as soon as practical, but not later than ninety
(90) days after the close of the period covered thereby, an
earnings statement (in form complying with the provisions of
Rule 158 under the Securities Act) covering a twelve-month
period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the
Registration Statement.
j. At the request of any Investor, if the Registration
Statement pertains to an underwritten public offering, the
Company shall furnish, on the date of effectiveness of the
Registration Statement (i) an opinion, dated as of such date,
from counsel representing the Company addressed to the Investors
and in form, scope and substance as is customarily given in an
underwritten public offering and (ii) a letter, dated such date,
from the Company's independent certified public accountants in
form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and the
Investors.
k. The Company shall make available for inspection by
(i) any Investor, (ii) any underwriter participating in any
disposition pursuant to the Registration Statement, (iii) one
firm of attorneys and one firm of accountants or other agents
retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the
"INSPECTORS") all pertinent financial and other records, and
pertinent corporate documents and properties of the Company
(collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise
its due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information
which any Inspector may reasonably request for purposes of such
due diligence; PROVIDED, HOWEVER, that each Inspector shall hold
in confidence and shall not make any disclosure (except to an
Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the
disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the
release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been
made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall
not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall
have entered into confidentiality agreements (in form and
substance satisfactory to the Company) with the Company with
respect thereto, substantially as set forth in this Section
3(k). Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records
deemed confidential. Nothing herein shall be deemed to limit the
Investor's ability to sell Registrable Securities in a manner
which is otherwise consistent with applicable laws and
regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the
Company unless (i) disclosure of such information is necessary
to comply with federal or state securities laws, (ii) the
disclosure of such information is necessary to avoid or correct
a misstatement or omission in any Registration Statement, (iii)
the release of such information is ordered pursuant to a
subpoena or other order from a court or governmental body of
competent jurisdiction, (iv) such information has been made
generally available to the public other than by disclosure in
violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure. The
Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through
other means, give prompt notice to such Investor prior to making
such disclosure, and allow the Investor, at its expense, to
undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, such information.
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m. The Company shall use its best efforts to promptly
either (i) cause all the Registrable Securities covered by the
Registration Statement to be listed on the NYSE or the AMEX or
another national securities exchange and on each additional
national securities exchange on which securities of the same
class or series issued by the Company are then listed, if any,
if the listing of such Registrable Securities is then permitted
under the rules of such exchange, or (ii) secure the designation
and quotation, of all the Registrable Securities covered by the
Registration Statement on the NASDAQ Small Cap Market or the NNM
and, without limiting the generality of the foregoing, to
arrange for or maintain at least two market makers to register
with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and
registrar, which may be a single entity, for the Registrable
Securities not later than the effective date of the Registration
Statement.
o. The Company shall cooperate with the Investors who
hold Registrable Securities being offered and the managing
underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be
offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case
may be, as the managing underwriter or underwriters, if any, or
the Investors may reasonably request and registered in such
names as the managing underwriter or underwriters, if any, or
the Investors may request, and, within three (3) business days
after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall
cause legal counsel selected by the Company to deliver, to the
transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such
Registration Statement) an opinion of such counsel in the form
attached hereto as EXHIBIT 1.
p. At the request of any Investor, the Company shall
prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with the
Registration Statement as may be necessary in order to change
the plan of distribution set forth in such Registration
Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
a. It shall be a condition precedent to the obligations
of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of
the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable
Securities and shall execute such documents in connection with
such registration as the Company may reasonably request. At
least ten (10) business days prior to the first anticipated
filing date of the Registration Statement, the Company shall
notify each Investor in writing of the information the Company
reasonably requires from each such Investor and each such
Investor shall provide such information no later than five (5)
business days prior to such anticipated filing date.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as
reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder,
unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
c. Each Investor whose Registrable Securities are
included in a Registration Statement understands that the
Securities Act may require delivery of a prospectus relating
thereto in connection with any sale thereof pursuant to such
Registration Statement and each such Investor shall deliver a
prospectus in connection with any such sale.
d. Each Investor agrees to notify the Company promptly,
but in any event within 72 hours after the date on which all
Registrable Securities, Debentures and Common Shares owned by
such Investor have been sold by such Investor, if such date is
prior to the expiration of the Registration Period, so that the
Company may comply with its obligation to terminate the
Registration Statement in accordance with Item 512 of Regulation
S-K or Regulation S-B, as the case may be.
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e. In the event Investors holding a majority in interest
of the Registrable Securities being offered determine to engage
the services of an underwriter, each Investor agrees to enter
into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including,
without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and
take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable
Securities, unless such Investor has notified the Company in
writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration
Statement.
f. Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind
described in Section 3(f) or 3(g), such Investor will
immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f)
or 3(g) and, if so directed by the Company, such Investor shall
deliver to the Company (at the expense of the Company) or
destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the
prospectus covering such Registrable Securities current at the
time of receipt of such notice.
g. No Investor may participate in any underwritten
offering of Registrable Securities hereunder unless such
Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting
arrangements in usual and customary form entered into by the
Company, (ii) completes and executes all questionnaires, powers
of attorney, indemnities, underwriting agreements and other
documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata
share of all underwriting discounts and commissions and any
expenses in excess of those payable by the Company pursuant to
Section 5 below.
5. EXPENSES OF REGISTRATION. All expenses incurred by the
Company in connection with registrations, filings or qualifications
pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting
fees, the fees and disbursements of counsel for the Company and the fees
and disbursements contemplated by Section 3(j) hereof shall be borne by
the Company. The Investors shall be responsible for any underwriting
discounts and commissions attributable to the Registrable Securities to
be sold by them and the legal fees and disbursements contemplated by
Section 2(b) hereof, except to the extent otherwise set forth in Section
2(b).
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
a. To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Investor who holds
such Registrable Securities, and (ii) the directors, officers,
partners, members, employees, agents and each person who
controls any Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), if any, (each, an
"INDEMNIFIED PERSON"), against any joint or several losses,
claims, damages, liabilities or expenses (collectively, together
with actions, proceedings or inquiries by any regulatory or
self-regulatory organization, whether commenced or threatened,
in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or the omission or
alleged omission to state therein a material fact required to be
stated or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary
prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as
amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or
alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances
under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any other law, including,
without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "VIOLATIONS"). Subject to the
restrictions set forth in Section 6(c) with respect to the
number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person,
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promptly as such expenses are incurred and are due and payable,
for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending
any such Claim. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in
this Section 6(a): (i) shall not apply to a Claim arising out of
or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company
by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto;
(ii) shall not apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent
of the Company, which consent shall not be unreasonably
withheld; and (iii) with respect to any preliminary prospectus,
shall not inure to the benefit of any Indemnified Person if the
untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, if such corrected
prospectus was timely made available by the Company pursuant to
Section 3(c) hereof, and the Indemnified Person was promptly
advised in writing not to use the incorrect prospectus prior to
the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall
remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
b. In connection with any Registration Statement in
which an Investor is participating, each such Investor agrees
severally and not jointly to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in
Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement, its employees,
agents and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors
or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the
Exchange Act (each an "INDEMNIFIED PARTY"), against any Claim to
which any of them may become subject, under the Securities Act,
the Exchange Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with
such Registration Statement; and subject to Section 6(c) such
Investor will reimburse any legal or other expenses (promptly as
such expenses are incurred and are due and payable) reasonably
incurred by them in connection with investigating or defending
any such Claim; PROVIDED, HOWEVER, that the indemnity agreement
contained in this Section 6(b) shall not apply to amounts paid
in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; PROVIDED, FURTHER,
HOWEVER, that the Investor shall be liable under this Agreement
(including this Section 6(b) and Section 7) for only that amount
as does not exceed the net proceeds actually received by such
Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall
remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in
this Section 6(b) with respect to any preliminary prospectus
shall not inure to the benefit of any Indemnified Party if the
untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, and the Indemnified
Party failed to utilize such corrected prospectus.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the
commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim
in respect thereof is to made against any indemnifying party
under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying
party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified
Party, as the case may be; PROVIDED, HOWEVER, that such
indemnifying party shall not be entitled to assume such defense
and an Indemnified Person or Indemnified Party shall have the
right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation
by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual
or potential conflicts of interest between such Indemnified
Person or Indemnified Party and any other party represented by
such counsel in such proceeding or the actual or potential
defendants in, or targets of, any such action include both the
Indemnified Person or the Indemnified Party and the indemnifying
party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available
to such Indemnified Person or Indemnified Party which are
different from or in addition to those available to such
indemnifying party. The indemnifying party shall pay for only
one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall
be selected by Investors holding a majority-in-interest of the
Registrable Securities included in the Registration Statement to
which the Claim relates (with the approval of the Initial
Investors if they holds Registrable Securities included in such
Registration Statement), if the Investors are entitled to
indemnification hereunder, or by the Company, if the Company is
entitled to indemnification hereunder, as applicable. The
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failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action
shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is actually
prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying
party agrees to make the maximum contribution with respect to any
amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; PROVIDED, HOWEVER, that (i) no
contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth
in Section 6, (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation, and (iii)
contribution (together with any indemnification or other obligations
under this Agreement) by any seller of Registrable Securities shall be
limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT. With a view to making
available to the Investors the benefits of Rule 144 promulgated under
the Securities Act or any other similar rule or regulation of the SEC
that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company
agrees to:
a. file with the SEC in a timely manner and make and
keep available all reports and other documents required of the
Company under the Securities Act and the Exchange Act so long as
the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's
obligations under Section 4(c) of the Securities Purchase
Agreement) and the filing and availability of such reports and
other documents is required for the applicable provisions of
Rule 144; and
b. furnish to each Investor so long as such Investor
owns Debentures, Common Shares or Registrable Securities,
promptly upon request, (i) a written statement by the Company
that it has complied with the reporting requirements of Rule
144, the Securities Act and the Exchange Act, (ii) a copy of the
most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit
the Investors to sell such securities pursuant to Rule 144
without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the
Investors hereunder, including the right to have the Company register
Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or
any portion of the Debentures, Common Shares or the Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment,
(ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of
such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the
Securities Act and applicable state securities laws, (iv) at or before
the time the Company receives the written notice contemplated by clause
(ii) of this sentence, the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein, and
(v) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.
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10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this
Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, the Initial
Investors (to the extent the Initial Investors still own Debentures,
Common Shares or Registrable Securities) and Investors who hold a
majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon
each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of
record such Registrable Securities. If the Company receives
conflicting instructions, notices or elections from two or more
persons or entities with respect to the same Registrable
Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered
owner of such Registrable Securities.
b. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or
registered mail (return receipt requested) or delivered
personally or by courier or by confirmed telecopy, and shall be
effective five days after being placed in the mail, if mailed,
or upon receipt or refusal of receipt, if delivered personally
or by courier or confirmed telecopy, in each case addressed to a
party. The addresses for such communications shall be:
If to the Company:
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
Telecopy: (508) 921-5801
Attention: Paul Weiner, Director of Finance
with a copy to each of the Company's General Counsel at the same address
and to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Telecopy: (617) 832-7000
Attention: Dean F. Hanley, Esq.
and if to any Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a waiver
thereof.
d. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The
Company irrevocably consents to the jurisdiction of the United
States federal courts located in the County of Kent in the State
of Delaware in any suit or proceeding based on or arising under
this Agreement and irrevocably agrees that all claims in respect
of such suit or proceeding may be determined in such courts. The
Company irrevocably waives the defense of an inconvenient forum
to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company, mailed
by first class mail shall be deemed in every respect effective
service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the Investors' right to
serve process in any other manner permitted by law. The Company
agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful
manner.
e. This Agreement and the Securities Purchase Agreement
(including all schedules and exhibits thereto) constitute the
entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the
subject matter hereof and thereof.
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<PAGE>
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the
meaning hereof.
h. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all
of which shall constitute one and the same agreement. This
Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the
transactions contemplated hereby.
j. All consents and other determinations to be made by
the Investors or the Initial Investors pursuant to this
Agreement shall be made by the Investors or the Initial
Investors holding a majority of the Registrable Securities
(determined as if all Debentures then outstanding had been
converted into or exercised for Registrable Securities) held by
all Investors or Initial Investors, as the case may be.
k. The initial number of Registrable Securities included
on any Registration Statement and each increase to the number of
Registrable Securities included thereon shall be allocated pro
rata among the Investors based on the number of Registrable
Securities held by each Investor at the time of such
establishment or increase, as the case may be. In the event an
Investor shall sell or otherwise transfer any of such holder's
Registrable Securities, each transferee shall be allocated a pro
rata portion of the number of Registrable Securities included on
a Registration Statement for such transferor. Any shares of
Common Stock included on a Registration Statement and which
remain allocated to any person or entity which does not hold any
Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of shares of Registrable
Securities then held by such Investors.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
Name:
Its:
Initial Investors:
Name:
By:
Name:
Its:
52
<PAGE>
EXHIBIT 1
to
REGISTRATION RIGHTS AGREEMENT
[Date]
VIA FACSIMILE: (718) 331-1852
Herbert Lemmer, Esq.
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 Wall Street
New York, NY 10005
RE: PALOMAR MEDICAL TECHNOLOGIES, INC.
Dear Mr. Lemmer:
We are counsel to PALOMAR MEDICAL TECHNOLOGIES, INC., a corporation organized
under the laws of the State of Delaware (the "COMPANY"), and we understand that
[Name of Investor] (the "HOLDER") has purchased from the Company (i) 6%, 7% and
8% Convertible Debentures Due September 30, 2002 (the "DEBENTURES") that are
convertible into shares of the Company's Common Stock, par value $.01 per share
(the "COMMON STOCK") and (ii) shares of Common Stock (the "COMMON SHARES"). The
Debentures and Common Shares were purchased by the Holder pursuant to a
Securities Purchase Agreement, dated as of September 30, 1997, by and among the
Company and the signatories thereto (the "AGREEMENT"). Pursuant to a
Registration Rights Agreement, dated as of September 30, 1997, by and among the
Company and the signatories thereto (the "REGISTRATION RIGHTS AGREEMENT"), the
Company agreed with the Holder, among other things, to register the Registrable
Securities (as that term is defined in the Registration Rights Agreement) under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), upon the terms
provided in the Registration Rights Agreement. In connection with the Company's
obligations under the Registration Rights Agreement, on ________, 1997, the
Company filed a Registration Statement on Form S-___ (File No. 333-
_____________) (the "REGISTRATION STATEMENT") with the Securities and Exchange
Commission (the "SEC") relating to the Registrable Securities, which names the
Holder as a selling stockholder thereunder.
[Customary introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Registrable Securities
have been registered under the Securities Act.
[Other customary language to be included.]
Very truly yours,
cc: [Name of Investor]
53
<PAGE>
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of September
30, 1997, by and among PALOMAR MEDICAL TECHNOLOGIES, INC., a corporation
organized under the laws of the State of Delaware (the "COMPANY"), with
headquarters located at 66 Cherry Hill Drive, Beverly, Massachusetts 01915 and
each of the purchasers (the "PURCHASERS") set forth on the execution pages
hereof (the "EXECUTION PAGES").
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "SECURITIES
ACT");
B. Each Purchaser desires to purchase, upon the terms and conditions
stated in this Agreement; (i) 6%, 7% and 8% Convertible Debenture Due September
30, 2002 of the Company (each a "DEBENTURE" and, collectively, the "DEBENTURES")
convertible into its common stock, par value $.01 per share, of the Company (the
"COMMON STOCK") and (ii) shares of Common Stock (the "COMMON SHARES"). The form
of the Debenture, including the terms upon which such Debenture are convertible
into shares of Common Stock, is attached hereto as Exhibit A. The shares of
Common Stock issuable upon conversion of the Debenture or otherwise pursuant to
the Debentures are referred to herein as the "CONVERSION SHARES". The
Debentures, the Common Shares and the Conversion Shares are collectively
referred to herein as the "SECURITIES."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws;
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND COMMON SHARES
a. Purchase of Debentures and Common Shares. On the Closing Date
(as defined below), subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue
and sell to each Purchaser and each Purchaser severally agrees to
purchase from the Company, (i) a Debenture in such original principal
amount as is set forth on such Purchaser's signature page hereto and
(ii) a number of Common Shares equal to (A) fifteen percent (15%) of the
original principal amount of the Debenture referred to in clause (i)
divided by (B) the average of the closing bid prices of the Common Stock
on the Nasdaq SmallCap Market for the three (3) trading days commencing
on the first trading day after Closing Date. Each Investor represents
and agrees that neither it nor its affiliates has entered or will enter
into any transactions with respect to any securities of the Company
(other than the transactions contemplated by this Agreement) on the
Closing Date or the three trading days thereafter. The purchase price
(the "PURCHASE PRICE") for such Debenture and Common Shares to be issued
and sold to each Purchaser at such closing shall be as set forth on such
Purchaser's Execution Page hereto.
b. Form of Payment. On the Closing Date, each Purchaser shall
pay the aggregate Purchase Price for the Debentures and Common Shares
being purchased by such Purchaser hereunder by wire transfer to the
Company, in accordance with the Company's written wiring instructions,
against delivery of the duly executed Debenture being purchased by such
Purchaser hereunder and the Company shall deliver such Debenture against
delivery of such aggregate Purchase Price. Within twenty (20) days after
the second trading day following the Closing Date, the Company shall
deliver to each Purchaser a duly executed certificate representing the
Common Shares purchased by such Purchaser.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date
and time of the issuance and sale of the Debentures and Common Shares
pursuant to this Agreement (the "CLOSING DATE") shall be 12:00 noon
eastern time on September 30, 1997, or such other time as may be
mutually agreed upon by the Company and the Purchasers. The closing
shall occur at the offices of Foley, Hoag & Eliot LLP, One Post Office
Square, Boston, MA 02109.
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<PAGE>
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the Company that:
a. Investment Purpose. Purchaser is purchasing the Debentures
and Common Shares for Purchaser's own account for investment only and
not with a present view towards the public sale or distribution thereof,
except pursuant to sales that are exempt from the registration
requirements of the Securities Act and/or sales registered under the
Securities Act. Purchaser understands that Purchaser must bear the
economic risk of this investment indefinitely, unless the Securities are
registered pursuant to the Securities Act and any applicable state
securities or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of registering
any such Securities other than as contemplated by the Registration
Rights Agreement. Notwithstanding anything in this Section 2(a) to the
contrary, by making the representations herein, the Purchaser does not
agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption
under the Securities Act.
b. Accredited Investor Status. Purchaser is an "Accredited
Investor" as defined in Rule 501(a) promulgated under the Securities
Act.
c. Reliance on Exemptions. Purchaser understands that the
Debentures and Common Shares are being offered and sold to Purchaser in
reliance upon specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is
relying upon the truth and accuracy of, and Purchaser's compliance with,
the representations, warranties, agreements, acknowledgments and
understandings of Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of Purchaser to
acquire the Debentures and Common Shares.
d. Information. Purchaser and its counsel or representative, if
any, have been furnished all materials relating to the business,
finances and operations of the Company and materials relating to the
offer and sale of the Debentures and Common Shares which have been
specifically requested by Purchaser or its counsel or representative.
Purchaser and its counsel, if any, have been afforded the opportunity to
ask questions of the Company and have received what Purchaser believes
to be complete and satisfactory answers to any such inquiries. Neither
such inquiries nor any other due diligence investigation conducted by
Purchaser or its counsel or any of its representatives shall modify,
amend or affect Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. Purchaser
understands that Purchaser's investment in the Securities involves a
high degree of risk.
e. Governmental Review. Purchaser understands that no United
States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
f. Transfer or Resale. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not
been and are not being registered under the Securities Act or any state
securities laws, and may not be transferred unless (a) subsequently
registered thereunder, or (b) Purchaser shall have delivered to the
Company an opinion of counsel (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions)
to the effect that the Securities to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration,
including without limitation Rule 144 promulgated under the Securities
Act (or a successor rule) ("RULE 144"), or (c) transferred without
consideration to an affiliate of Purchaser; (ii) any sale of such
Securities made in reliance on Rule 144 may be made only in accordance
with the terms of said Rule and further, if said Rule is not applicable,
any resale of such Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the
rules and regulations of the Securities and Exchange Commission (the
"SEC") thereunder; and (iii) neither the Company nor any other person is
under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than
pursuant to the Registration Rights Agreement).
55
<PAGE>
g. Legends. Purchaser understands that the Debentures and Common
Shares and, until such time as the Conversion Shares have been
registered under the Securities Act as contemplated by the Registration
Rights Agreement or otherwise may be sold by Purchaser pursuant to Rule
144 without any restriction as to the public resale thereof, the
certificates for the Conversion Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates for such Securities):
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be
sold, transferred or assigned in the absence of an effective
registration statement for the securities under said Act, or an
opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, that
registration is not required under said Act or unless the
Company is provided with reasonable assurances that the
securities were sold pursuant to Rule 144 under said Act.
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend upon conversion of the
Debentures to the holder of any Security upon which it is stamped, if
(a) the resale of such Security is registered under the Securities Act,
or (b) such holder provides the Company with an opinion of counsel, in
form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of
such Security may be made without registration under the Securities Act
or (c) such holder provides the Company with reasonable assurances that
such Security has been sold pursuant to Rule 144 or can be sold pursuant
to Rule 144 without any restriction as to the number of Securities
acquired as of a particular date that can then be immediately sold.
Purchaser agrees to sell all Securities, including those represented by
a certificate(s) from which the legend has been removed, pursuant to an
effective registration statement and to deliver a prospectus in
connection with such sale (if and to the extent such delivery is
required) or in compliance with an exemption from the registration
requirements of the Securities Act. In the event the above legend is
removed from any Security and thereafter the effectiveness of a
registration statement covering such Security is suspended or the
Company determines that a supplement or amendment thereto is required by
applicable securities laws, then upon reasonable advance notice to
Purchaser the Company may require that the above legend be placed on any
such Security that cannot then be sold pursuant to an effective
registration statement or Rule 144 without any restriction as to the
number of Securities acquired as of a particular date that can then be
immediately sold, which legend shall be removed when such Security has
been sold pursuant to Rule 144 or may be sold pursuant to an effective
registration statement or Rule 144 without any restriction as to the
number of Securities acquired as of a particular date that can then be
immediately sold.
h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized,
executed and delivered on behalf of Purchaser and are valid and binding
agreements of Purchaser enforceable in accordance with their respective
terms.
i. Location of Purchaser. Each of the Purchasers has advised the
Company in writing with respect to the jurisdictions wherein the
investment decision regarding Purchaser's acquisition of the Debentures
and the Common Shares has been made.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good
standing under the laws of the jurisdiction in which it is incorporated,
and has the requisite corporate power to own its properties and to carry
on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction where the failure so to
qualify would have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT"
means any material adverse effect on the operations, properties,
condition (financial or otherwise) or prospects of the Company and its
subsidiaries, taken as a whole on a consolidated basis or on the ability
of the Company to perform its obligations in connection with the
transactions contemplated hereby on a timely basis. The Company does not
have any significant subsidiaries (as defined in Rule 1-02 of Regulation
S-X under the Securities Act) other than those subsidiaries set forth on
Schedule 3(a).
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<PAGE>
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement
and the Registration Rights Agreement, to issue and sell the Debentures
and Common Shares in accordance with the terms hereof, and to issue the
Conversion Shares upon conversion of the Debentures in accordance with
their terms; (ii) the execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Debentures by the
Company and the consummation by it of the transactions contemplated
hereby and thereby (including without limitation the issuance of the
Debentures and Common Shares and the issuance and reservation for
issuance of the Conversion Shares) have been duly authorized by the
Company's Board of Directors and no further consent or authorization of
the Company, its Board or Directors, or its stockholders is required
(under Rules promulgated by the National Association of Securities
Dealers or otherwise); (iii) this Agreement has been duly executed and
delivered by the Company; and (iv) this Agreement constitutes, and, upon
execution and delivery by the Company of the Registration Rights
Agreement and the Debentures, such agreement and such instrument will
constitute, valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms.
c. Capitalization. The capitalization of the Company as of the
date hereof, including the authorized capital stock, the number of
shares issued and outstanding, the number of shares reserved for
issuance pursuant to the Company's stock option plans, the number of
shares reserved for issuance pursuant to securities (other than the
Debentures) exercisable for, or convertible into or exchangeable for any
shares of Common Stock and the number of shares to be reserved for
issuance upon conversion of the Debentures is set forth on Schedule
3(c). All of such outstanding shares of capital stock have been, or upon
issuance will be, validly issued, fully paid and nonassessable. No
shares of capital stock of the Company (including the Debentures, the
Common Shares and the Conversion Shares) are subject to preemptive
rights or any other similar rights of the stockholders of the Company or
any liens or encumbrances. Except as disclosed in Schedule 3(c) or as
contemplated herein, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares
of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may
become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of the Company's securities under
the Securities Act (except the Registration Rights Agreement). The
Company has made available to each Purchaser true and correct copies of
the Company's Certificate of Incorporation as in effect on the date
hereof ("CERTIFICATE OF INCORPORATION"), the Company's By-laws as in
effect on the date hereof (the "BY-LAWS"), and all other instruments and
agreements governing securities convertible into or exercisable or
exchangeable for Common Stock of the Company. The Company shall provide
each Purchaser with a written update of this representation signed by
the Company's Chief Executive Officer or Chief Financial Officer on
behalf of the Company as of the Closing Date.
d. Issuance of Securities. The Debentures are duly authorized
and, upon issuance in accordance with the terms of this Agreement, will
be validly issued and free from all taxes, liens, claims and
encumbrances and will not be subject to preemptive rights or other
similar rights of stockholders of the Company. The Common Shares are
duly authorized and, upon issuance in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and
free from all taxes, liens, claims and encumbrances and will not be
subject to preemptive rights or other similar rights of stockholders of
the Company. The Conversion Shares are duly authorized and reserved for
issuance, and, upon conversion of the Debentures in accordance with the
terms thereof, will be validly issued, fully paid and non-assessable,
and free from all taxes, liens, claims and encumbrances and will not be
subject to preemptive rights or other similar rights of stockholders of
the Company.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Debentures by the
Company, the performance by the Company of its obligations hereunder and
thereunder, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the
issuance and reservation for issuance, as applicable, of the Debentures
and Common Shares and the Conversion Shares) will not (i) result in a
violation of the Certificate of Incorporation or By-laws or (ii)
conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of
its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of
its subsidiaries is bound or affected (except for such conflicts,
57
<PAGE>
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect). Neither
the Company nor any of its subsidiaries is in violation of its
Certificate of Incorporation or other organizational documents and
neither the Company nor any of its subsidiaries is in default (and no
event has occurred which, with notice or lapse of time or both, would
put the Company or any of its subsidiaries in default) under, nor has
there occurred any event giving others (with notice or lapse of time or
both) any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company or any
of its subsidiaries is a party, except for possible defaults or rights
as would not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect. The businesses of the
Company and its subsidiaries are not being conducted, and shall not be
conducted so long as a Purchaser owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental
entity, except for possible violations the sanctions for which either
singly or in the aggregate would not have or reasonably be expected to
result in a Material Adverse Effect. Except as specifically contemplated
by this Agreement and except for the filing of a Form D with the
Securities and Exchange Commission, the filing of the registration
statement contemplated by the Registration Rights Agreement under the
Securities Act, any filings required by applicable state securities laws
and the filing of an application with NASDAQ (as defined below) to list
or approve for quotation the Conversion Shares and the Common Shares,
the Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self regulatory agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement or the Debentures, in each
case in accordance with the terms hereof or thereof. The Company is not
in violation of the listing requirements of the NASDAQ SmallCap Market
("NASDAQ") and does not reasonably anticipate (nor has it received any
notices to such effect from NASDAQ) that the Common Stock will be
delisted by NASDAQ in the foreseeable future.
f. SEC Documents, Financial Statements. Since December 31, 1993,
the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to
the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") (all of the foregoing, filed prior to the
date hereof and after December 31, 1993, and all exhibits included
therein and financial statements and schedules thereto and documents
(other than exhibits) incorporated by reference therein together with
any registration statements or other documents filed by the Company
pursuant to the Securities Act prior to the date hereof and those
certain news releases attached hereto as Schedule 3(f), being
hereinafter referred to herein as the "SEC DOCUMENTS"). The Company has
made available to each Purchaser true and complete copies of the SEC
Documents, except for such exhibits, schedules and incorporated
documents. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act or the
Securities Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder applicable to the SEC Documents, and none of
the SEC Documents, at the time they were filed with the SEC, contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with U.S.
generally accepted accounting principles, consistently applied, during
the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may include footnotes
or may not be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and
its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has
no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of
the most recent financial statements included in the SEC Documents and
(ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements,
which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
g. Absence of Litigation. Except as disclosed in the SEC
Documents or in Schedule 3(g), there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to
the knowledge of the Company or any of its subsidiaries, threatened
against or affecting the Company, any of its subsidiaries, or any of
their respective directors or officers in their capacities as such,
wherein an unfavorable decision, ruling or finding would or could
reasonably be expected to result in a Material Adverse Effect.
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h. Disclosure. All information relating to or concerning the
Company set forth in this Agreement or provided to the Purchasers
pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material
respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in
light of the circumstances under which they were made, not misleading.
No event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which, under applicable
law, rule or regulation, requires public disclosure or announcement by
the Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company's Exchange Act Reports are
being incorporated into an effective registration statement filed by the
Company under the Securities Act).
i. Current Public Information. The Company is currently eligible
to register the resale of its Common Stock on a registration statement
on Form S-3 under the Securities Act.
j. No General Solicitation. Neither the Company nor any person
acting for the Company has conducted any "GENERAL SOLICITATION," as such
term is defined in Regulation D, with respect to any of the Securities
being offered hereby.
k. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly
or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would require
registration of the Securities being offered hereby under the Securities
Act.
l. No Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees
or similar payments by any Purchaser relating to this Agreement or the
transactions contemplated hereby, except for dealings with Michael
Arnouse whose commissions and fees will be paid for by the Company.
m. Acknowledgment of Dilution. The number of Conversion Shares
issuable upon conversion of the Debentures may increase substantially in
certain circumstances, including the circumstance wherein the trading
price of the Common Stock declines. The Company acknowledges that its
obligation to issue Conversion Shares upon conversion of the Debentures
in accordance with their terms is absolute and unconditional, regardless
of the dilution that such issuance may have on the ownership interests
of other stockholders.
n. Intellectual Property. Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use
all patents, patent applications, trademarks, trademark applications,
trade names, service marks, copyrights, copyright applications,
licenses, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge
(collectively, "INTANGIBLES") necessary for the conduct of its business
as now being conducted and as described in the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1996, as amended.
Neither the Company nor any subsidiary of the Company infringes or is in
conflict with any right of any other person with respect to any
Intangibles which, individually or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would have or could
reasonably be expected to result in a Material Adverse Effect.
o. Foreign Corrupt Practices. Neither the Company, nor any of
its subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any subsidiary has, in the
course of acting for, or on behalf of, the Company, used any corporate
funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official
or employee from corporate funds; violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
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4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely
to satisfy each of the conditions described in Section 6 and 7 of this
Agreement.
b. Blue Sky Laws. The Company shall take such action as the
Company or the Purchasers shall reasonably determine is necessary to
qualify the Securities for sale to the Purchasers pursuant to this
Agreement under applicable securities or "blue sky" laws of the states
of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to the Purchasers.
c. Reporting Status. So long as any Purchaser beneficially owns
any of the Securities, the Company shall timely file all reports
required to be filed with the SEC pursuant to the Exchange Act.
d. Use of Proceeds. The Company shall use the proceeds from the
sale of the Debentures and Common Shares for internal working capital
purposes, mergers and acquisitions, investments and general corporate
purposes.
e. Financial Information. Upon the written request of any
Purchaser holding any Securities, the Company shall send the following
reports to such Purchaser: a copy of its Annual Report on Form 10-KSB,
its Quarterly Reports on Form 10-QSB, any proxy statements, any Current
Reports on Form 8-K and any press releases issued by the Company or any
of its subsidiaries.
f. Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number
of shares of Common Stock to provide for the full conversion of the
outstanding Debentures and issuance of the Conversion Shares in
connection therewith and as otherwise required by the Debentures.
g. Listing. Promptly (and in no event more than ten (10) days)
following the Closing Date, the Company shall secure the listing or
approval for quotation of all of the Common Shares and 3,500,000 shares
of Common Stock issuable upon conversion of the Debentures upon each
national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice
of issuance) and thereafter shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all Common Shares
and all Conversion Shares from time to time issuable upon conversion of
the Debentures. The Company shall also file such additional listing
applications as may be necessary to cover the issuance of all of the
Common Shares and the Conversion Shares as provided in the immediately
preceding sentence. The Company will take all action necessary to
continue the listing and trading of its Common Stock on the NASDAQ, the
NASDAQ National Market ("NNM"), the New York Stock Exchange ("NYSE") or
the American Stock Exchange ("AMEX") and will comply in all respects
with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers
("NASD") and such exchanges, as applicable.
h. Corporate Existence. So long as a Purchaser beneficially owns
any Debentures, the Company shall maintain its corporate existence,
except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving or
successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered
into in connection herewith regardless of whether or not the Company
would have had a sufficient number of shares of Common Stock authorized
and available for issuance in order to effect the conversion of all
Debentures outstanding as of the date of such transaction and (ii) is a
publicly traded corporation whose common stock is listed for trading on
the NASDAQ, NNM, NYSE or AMEX.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares in such amounts as specified from time to time by such Purchaser to the
Company upon conversion of the Debentures. Prior to registration of the
Conversion Shares under the Securities Act or resale of such Securities under
Rule 144, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than such instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(f) hereof in the case of the Conversion
Shares prior to registration of the Conversion Shares under the Securities Act,
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement, the Registration Rights Agreement and
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the Debentures. Nothing in this Section shall affect in any way each Purchaser's
obligations and agreement set forth in Section 2(f) hereof not to resell the
Securities except pursuant to an effective registration statement (and to
deliver a prospectus in connection with such a sale) or in compliance with an
exemption from the registration requirements of applicable securities law. If a
Purchaser provides the Company with an opinion of counsel, which opinion of
counsel shall be in form, substance and scope customary for opinions of counsel
in comparable transactions, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from
registration, the Company shall permit the transfer, and, in the case of the
Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by a Purchaser.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to a Purchaser by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that a Purchaser shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Debentures
and the Common Shares to a Purchaser at the closing is subject to the
satisfaction, at or before the Closing Date, of each of the following conditions
thereto, provided that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion.
(a) The applicable Purchaser shall have executed the Execution
Page to this Agreement and the Registration Rights Agreement, and
delivered the same to the Company.
(b) The applicable Purchaser shall have delivered the Purchase
Price for the Debentures and the Common Shares purchased in accordance
with Section 1(b) above and the aggregate purchase price for the
Debentures and Common Shares purchased by all Purchasers hereunder shall
not be less than $5,000,000.
(c) The representations and warranties of the applicable
Purchaser shall be true and correct as of the date when made and as of
the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and the applicable
Purchaser shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable
Purchaser at or prior to the Closing Date.
(d) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any
of the transactions contemplated by this Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Debentures
and the Common Shares to be purchased by it on the Closing Date is subject to
the satisfaction of each of the following conditions, provided that these
conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in the Purchaser's sole discretion:
(a) The Company shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same
to such Purchaser.
(b) The Company shall have delivered to such Purchaser a duly
executed Debenture in the principal amount being purchased by such
Purchaser in accordance with Section 1(b) above.
(c) The aggregate purchase price for the Debentures and Common
Shares purchased by all Purchasers hereunder shall be $5,000,000.
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(d) The Common Stock shall be authorized for quotation on NASDAQ
and trading in the Common Stock (or NASDAQ generally) shall not have
been suspended by the SEC or NASD.
(e) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing
date. Such Purchaser shall have received a certificate, executed by the
chief executive officer of the Company, dated as of the Closing Date to
the foregoing effect and as to such other matters as may be reasonably
requested by such Purchaser.
(f) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any
of the transactions contemplated by this Agreement.
(g) Such Purchaser shall have received the officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
(h) Such Purchaser shall have received an opinion of the
Company's counsel, dated as of the Closing Date, in form, scope and
substance reasonably satisfactory to the Purchaser and in substantially
the form of Exhibit C attached hereto.
(i) The Company shall have executed, and shall have delivered
evidence reasonably satisfactory to the Purchasers that the Company's
transfer agent has agreed to act in accordance with the irrevocable
instructions in the form attached hereto as Exhibit D; PROVIDED,
HOWEVER, if such evidence is not delivered on or prior to the Closing
Date, the Company shall use its best efforts to deliver such evidence as
soon as practicable thereafter.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in the State of
Delaware. The Company irrevocably consents to the jurisdiction of the
United States federal courts located in the County of Kent in the State
of Delaware in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that all claims in respect of such suit
or proceeding may be determined in such courts. The Company irrevocably
waives the defense of an inconvenient forum to the maintenance of such
suit or proceeding. The Company further agrees that service of process
upon the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any suit or
proceeding arising hereunder. Nothing herein shall affect a Purchaser's
right to serve process in any other manner permitted by law. The Company
agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party.
c. Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation
of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this
Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company
nor the Purchasers make any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement
may be waived other than by an instrument in writing signed by the party
to be charged with enforcement and no provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and
the Purchasers.
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f. Notices. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or registered
mail (return receipt requested) or delivered personally or by courier,
overnight delivery service or by confirmed telecopy, and shall be
effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier,
overnight delivery service or confirmed telecopy, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
Telecopy: (508) 921-5801
Attention: Paul Weiner, Director of Finance
with a copy to each of the Company's General Counsel at the same address
and to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Telecopy: (617) 832-7000
Attention: Dean F. Hanley, Esq.
If to any Purchaser, to such address set forth under such Purchaser's
name on the signature page hereto executed by such Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Purchaser shall assign this
Agreement or any rights or obligations hereunder without the prior
written consent of the other. This provision shall not limit a
Purchaser's right to transfer the Securities pursuant to the terms of
the Debentures, the Registration Rights Agreement and this Agreement or
to assign such Purchaser's rights hereunder to any such transferee, nor
shall this provision limit the right of a Purchaser to transfer or
assign its rights under such agreements and instruments to an affiliate
(provided that each Purchaser makes no more than two (2) such transfers)
or a managed account, provided that the representations and warranties
set forth in Section 2 are true and correct with respect to such
affiliate or managed account.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.
i. Survival. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive the closing hereunder and any conversion of the
Debentures, notwithstanding any due diligence investigation conducted by
or on behalf of any Purchasers. The Company agrees to indemnify and hold
harmless each Purchaser and each of such Purchaser's officers,
directors, employees, partners, agents and affiliates for loss or damage
arising as a result of or related to any breach or alleged breach by the
Company of any of its representations, warranties or covenants set forth
herein, including advancement of expenses as they are incurred.
j. Publicity. The Company and each Purchaser shall have the
right to approve before issuance any press releases, SEC, NASDAQ or NASD
filings, or any other public statements with respect to the transactions
contemplated hereby; PROVIDED, HOWEVER, that the Company shall be
entitled, without the prior approval of the Purchasers, to describe the
transactions contemplated hereby in any Form 10-Q or Form 10-K filed by
it.
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k. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments
and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and
the consummation of the transactions contemplated hereby.
l. Termination. In the event that the closing shall not have
occurred on or before September 30, 1997, unless the parties agree
otherwise, this Agreement shall terminate at the close of business on
such date.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
PURCHASER:
Name: JNC OPPORTUNITY FUND LTD..
OLYMPIA CAPITAL (CAYMAN) LTD.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11, Bermuda
Fax: 441-295-2305
Attn: Philip Pedro
By:
Name:
Title:
AGGREGATE SUBSCRIPTION AMOUNT
Principal Amount of Debenture: _________
Purchase Price: $________
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
Name:
Title:
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
PURCHASER:
Name: DIVERSIFIED STRATEGIES FUND, L.P.
c/o Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Fax: 703-476-7711
By:
Name:
Title:
AGGREGATE SUBSCRIPTION AMOUNT
Principal Amount of Debenture: _________
Purchase Price: $________
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
Name:
Title:
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
PURCHASER:
Name: SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, New York 10111
Fax: 212-332-3256
Attn: Robert L. Miller
By:
Name:
Title:
AGGREGATE SUBSCRIPTION AMOUNT
Principal Amount of Debenture: _________
Purchase Price: $________
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
Name:
Title:
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