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FORM 10-KSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-22340
PALOMAR MEDICAL TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
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<C> <C>
Delaware 04-3128178
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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66 Cherry Hill Drive, Beverly, MA 01915
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(Address of principal executive offices)
(508) 921-9300
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(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
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Name of each exchange on
Title of each class which registered
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Not Applicable Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
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Common Stock , $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its fiscal year ended December 31, 1996 were
$70,098,443.
As of March 20, 1997, 30,945,824 shares of Common Stock, $.01 par value per
share, and 16,000 shares of Preferred Stock $.01 par value per share were
outstanding. The aggregate market value, held by non-affiliates, of shares of
the Common Stock, based upon the average of the bid and ask prices for such
stock on that date was approximately $195,345,514.
Transitional Small Business Disclosure Format: Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-KSB Reference
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Proxy Statement for the Annual Meeting of Shareholders Part III
to be held June 18, 1997
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Palomar Medical Technologies, Inc., a Delaware corporation, (the "Company"
or "Palomar") was organized in 1987 to design, manufacture and market lasers,
delivery systems and related disposable products for use in cosmetic and medical
procedures. The Company currently operates in two business segments: medical
products and services and electronic products. In the medical products segment,
the Company manufactures and markets U.S. Food and Drug Administration ("FDA")
approved ruby and CO2 lasers for hair removal, skin resurfacing and wrinkle
treatment, among other things. The Company has and continues to develop ruby,
pulse dye and diode medical lasers for use in clinical trials and is engaged in
the research and development of additional laser products. The Company has
expanded its efforts in the cosmetic laser area through a series of product
development activities, acquisitions and strategic alliances that target patient
self-pay procedures performed in doctors' offices and clinics. Principal among
these are the development of the EpiLaserTM, a ruby laser system for removing
unwanted hair. The laser hair removal, skin resurfacing and wrinkle treatment
products are significant to the Company's strategic plan and are discussed in
further detail below. 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 expertise in
return for licensing agreements to specific medical applications and patents as
more fully described below. See "Patents and Licenses." 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.
In February 1997, Palomar Medical Products, Inc. ("Palomar Medical
Products") was formed with the purpose of consolidating the management and
operations of the medical products companies. In January 1997, the Company named
an outside party as the President and CEO of Palomar Medical Products to oversee
and manage the operations. Included in the Medical Products Group are the
following companies; Spectrum Medical Technologies, Inc., Tissue Technologies,
Inc., Star Medical Technologies, Inc., Dermascan, Inc. and Palomar Technologies,
Ltd. (see "Formation of Palomar Technologies, Ltd."). Included as part of the
medical business segment but excluded from the Medical Products Group is a newly
formed, wholly owned subsidiary of the Company, Cosmetic Technology
International, Inc., which intends to establish a worldwide network of cosmetic
and dermatological laser sites with medical service partners (see "Formation of
Cosmetic Technology International, Inc.").
In September 1995, the Company established Palomar Electronics Corporation
as a wholly-owned subsidiary of Palomar Medical Technologies, Inc. as part of a
plan to separate the electronics and computer segments of the business from the
medical laser segments of the business.
In the electronic products segment, the Company's Nexar Technologies, Inc.
subsidiary manufactures, markets and sells personal computers with a unique
circuit board design that enables end users to easily upgrade and replace the
microprocessor, memory and hard drive components, which management believes will
decrease the level of technical obsolescence associated with most desktop
personal computers in the market. Dynaco Corp. manufactures high density,
flexible electronic circuitry for use in industrial, military and medical
devices and is also introducing a number of proprietary products targeted to
service the personal computer industry, including high density memory modules.
These new proprietary computer memory modules double the memory capacity of
traditional memory modules using the same interface. Comtel Electronics is a
contract manufacturer which provides turnkey manufacturing and test services of
electronic assemblies.
THE COMPANY'S STRATEGIC PLAN
The Company's near-term strategy is to increase its focus on the medical
segment portion of the business. The company believes that it can spin out
companies in the non-core electronics segment in the form of publicly traded
companies. The Company believes that with the attainment of FDA clearance for
marketing and sales of its lasers for the treatment of hair removal, skin
resurfacing, and wrinkle treatment, the medical segment of its business is
positioned for success. The Company will continue to develop, acquire or license
technologies that can be integrated into its current and proposed products in
the medical business segment. Through its Cosmetic Technology International Inc.
subsidiary, the Company will also focus on the services segment of the business.
The Company intends to address very large
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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 will
continue to seek marketing and distribution agreements with established
companies to enable it to market some of its products quickly and more
efficiently and will also utilize and enhance a direct sales force.
The Company has already begun to spin out Companies in its electronics
segment. Management is currently evaluating various alternatives and methods for
Dynaco Corp. and its subsidiaries, as well as CD Titles, Inc. Although the
Company cannot guarantee successful completion of these publicly traded
spinouts, the intention is to complete these transactions during 1997. In
addition, the Company's subsidiary Nexar Technologies, Inc. (See "Formation of
Nexar Technologies, Inc.") is in the process of completing its proposed initial
public offering. Management anticipates that this initial public offering will
be completed by mid-April 1997. However, the Company can in no way guarantee nor
ensure successful completion of the initial public offering.
The Company believes that the expansion and success of its business is
significantly influenced by key employees at its operating subsidiaries. The
Company has and intends to continue to create incentive programs that allow
management as well as key members of senior management of the Company at these
operating subsidiaries to participate in the success of these operating
subsidiaries by participating in the equity of each subsidiary or profit sharing
plans.
The Company also makes early stage investments in core technologies and
companies that management feels are strategic to the Company's business or will
yield a higher than average financial return to support the Company's core
business. Some of these investments are with companies that are related to some
of the directors and officers of the Company. See "Related Party Investments and
Transactions."
RECENT FINANCING OF OPERATIONS AND INVESTMENTS
The Company has financed current operations and expansion of its core
business with short-term financial borrowings and investments through the
private sale of debt and equity securities of the Company. The Company raised a
total of $56,112,391 and $31,083,892 in such financings during the years ended
December 31, 1996, and December 31, 1995, respectively. The Company anticipates
that it will require substantial additional financing during the next
twelve-month period. The Company may from time to time be required to raise
additional funds through additional private sales of the Company's debt or
equity securities. Sales of securities to private investors are sold at a
discount to the current or future public market for similar securities. It has
been the Company's experience that private investors require that the Company
make its best effort to register their securities for resale to the public at
some future time. The Company increased its authorized shares on July 19, 1996
from 40,000,000 shares of common stock to 100,000,000 shares of common stock.
There can be no assurance that the Company will be successful in raising
additional capital on favorable terms. See Notes 5 and 15 in the "Notes to
Consolidated Financial Statements."
INCREASE IN OUTSTANDING SHARES
As a result of financing activities, business developments, mergers and
acquisitions, issuance of incentive stock options and warrants to purchase
common stock to attract and retain key employees, the Company's issued and
outstanding shares of common stock have increased to 30,596,812 at December 31,
1996. The Company also had additional reserved but unissued shares of common
stock of 20,467,819 shares at December 31, 1996. The Company's issued and
outstanding shares of common stock increased subsequent to December 31, 1996 to
30,996,283 shares with additional reserved but unissued shares of common stock
of 20,061,274 shares as of February 21, 1997. A substantial number of the
Company's reserved shares are registered and could be resold into the public
market.
RELATED PARTY INVESTMENTS AND TRANSACTIONS
The Company has entered into a number of transactions with related parties.
To date, the Company has an aggregate of $5,076,751 of notes receivable and
investments with related parties. Included in the aggregate amount are loans to
certain officers, directors and key employees of $995,331; notes receivable to
related parties of $464,153; a loan of
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$1,100,000 to a public company of which a former director is the director and
chief financial officer; an unsecured note of $604,653 to the Company's
underwriter; and trading securities of $1,912,614 in a publicly traded company
in which the chief executive officer is an approximately 13% owner. See Note 11
in the "Notes to Consolidated Financial Statements."
MEDICAL PRODUCTS SEGMENT
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BUSINESS DEVELOPMENTS
ACQUISITION OF STAR MEDICAL TECHNOLOGIES, INC.
On July 1, 1993, the Company acquired 80% of the common stock of Star
Medical Technologies, Inc. ("Star"), a development stage company formed on April
1, 1993. Star develops medical and commercial products using high power laser
diodes. To date, Star has developed a number of medical diode laser prototypes
under clinical investigation. The acquisition price was $600,000 in cash and
five-year nonqualified stock options granted to certain officers of Star to
purchase up to an aggregate of 100,000 shares of the Company's common stock at
an exercise price of $1.78 (50% of the fair market value of the Company's common
stock on July 1, 1993). In addition, during 1994, the Company acquired an
additional 5% of the common stock of Star for cash payments of $970,000.
In April 1996, the Company purchased the remaining 15% of the outstanding
common stock of Star from its founders, bringing its ownership to 100%, in
exchange for 217,943 shares of Palomar's common stock valued at $7.85 per share.
This agreement restricts for a period of two years the sale of the Company's
common stock issued in connection with this agreement. The purchase price has
been recorded as additional goodwill and is being amortized over a period of
five years. In connection with this agreement the original founders of Star have
agreed to rescind all royalties due to them under a Rights Agreement dated July
1, 1993. To date, revenue from the Star subsidiary has not been significant.
ACQUISITION OF SPECTRUM MEDICAL TECHNOLOGIES, INC.
On April 5, 1995, the Company acquired all of the outstanding common stock
of Spectrum Medical Technologies, Inc. ("Spectrum"). The purchase price
consisted of $300,000 in cash, a $700,000 two-year promissory note, 364,178
shares of the Company's common stock with an aggregate fair market value of
$1,000,000, acquisition costs of $161,138 and assumed liabilities totaling
$1,128,139. In addition, the purchase price consists of a 20% contingency
payment, payable in the Company's common stock, based upon the future earnings
performance of Spectrum over a three to five-year period. Spectrum develops,
manufactures, sells and services ruby lasers throughout the world for
dermatological applications.
FORMATION OF SPECTRUM FINANCIAL SERVICES LLC
On June 30, 1995, Spectrum Financial Services LLC ("SFS"), a financial
services leasing company and a minority- owned subsidiary of the Company, was
formed. As of December 31, 1996 and 1995, the Company had funded the minority
subsidiary with cash in the amount of $1,680,919 and $856,300 respectively. SFS
arranges for financing of medical products sold by the Company. In addition,
during 1996 as part of its business strategy, the Company aligned itself with
Copelco Capital, one of the world's largest and most established leasing
companies, to become the exclusive label leasing company for the Company's
complete line of cosmetic lasers.
LICENSE AND RESEARCH AGREEMENT WITH MASSACHUSETTS GENERAL HOSPITAL FOR LASER
HAIR REMOVAL
In August 1995, the Company entered into an exclusive, worldwide, perpetual
license for certain technology that applies to a patented method of delivering
laser energy to treat unwanted hair. The Company also entered into a four-year
agreement with the Massachusetts General Hospital ("MGH"), whereby MGH agreed to
conduct clinical trials on a laser treatment for hair removal/reduction invented
by Dr. R. Rox Anderson, Wellman Laboratories of Photomedicine, MGH. As part of
the agreement, MGH provided the Company with prior data already generated by Dr.
Anderson with respect to the ruby laser device at MGH. This information was the
basis for an application filed on December 8, 1995 with the FDA for approval of
the Company's EpiLaser(TM) for treating unwanted hair. The Company is obligated
to fund the clinical research in the aggregate amount of approximately $917,000
over the term of the contract. On August 18, 1995, the Company also entered into
a worldwide exclusive license agreement with MGH. Upon completion of a valid
product or service, or new uses (not related solely to hair removal) based on
the findings of the clinical studies, the Company shall be given the first
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right of refusal to negotiate an exclusive or non-exclusive license agreement.
As consideration for this license, the Company is obligated to pay MGH royalties
of 5% of net revenue from product/services covered by valid patents licensed to
the Company exclusively; 2.5% of net revenues of products/services covered by
valid patents licensed to the Company non-exclusively; 1.25% of net revenues of
products developed and exploited, not covered above and no less than 2.5% on the
sale of any other laser using other technology as defined for the use of hair
removal.
ACQUISITION OF TISSUE TECHNOLOGIES, INC.
On May 3, 1996 the Company acquired 100% of Tissue Technologies, Inc.
("Tissue Technologies"), an Albuquerque, New Mexico based manufacturer of
dermatology laser products, in exchange for 3,200,000 shares of the Company's
common stock. The Company has accounted for this acquisition as a
pooling-of-interest in accordance with Accounting Principles Board Opinion
No.16. Tissue Technologies is engaged in the manufacture, marketing and sales of
C02 laser systems used in skin resurfacing and treatment of wrinkles.
ACQUISITION OF DERMASCAN, INC.
On July 18, 1996 the Company purchased 80 shares of common stock (80% of
total issued and outstanding capital stock) of Dermascan, Inc. ("Dermascan")
from a Dermascan stockholder in exchange for 35,000 shares of common stock of
the Company. The Company included these 35,000 shares in a registration
statement that became effective February 28, 1997. In addition, the Company has
agreed to pay the Dermascan stockholder an amount equal to the difference
between $14.00 and $7.8125, the closing bid price on February 28, 1997. The
agreement also includes a put right by the remaining 20% stockholder of
Dermascan, which provides that, at any time after three years from the date of
the agreement, the Company will be required to purchase the stockholders' 20%
interest for $130,000 in cash. In connection with the agreement, the Company
entered into a five year employment agreement with the President of Dermascan
which guarantees annual payments of up to $125,000. Dermascan's operations prior
to acquisition were not material. The Company has recorded the acquisition at
the guaranteed stock price of $490,000 in total. Dermascan markets and sells
electrology equipment and supplies to the electrology market. To date, the
operations of Dermascan have not been significant.
FORMATION OF PALOMAR TECHNOLOGIES, LTD.
On November 13, 1996, the Company formed Palomar Technologies, Ltd. located
in Hull, England. This company was formed to establish a European resource to
manufacture, sell and service laser products throughout Europe and provide a
low-cost sourcing alternative for specialty components. Operations have not yet
begun and will not begin until mid-1997. Through February 28, 1997, the Company
has funded this subsidiary with $1,592,180 for the purchase and lease of its
manufacturing facilities and the hiring of certain key employees.
FORMATION OF PALOMAR MEDICAL PRODUCTS, INC.
On February 18, 1997, the Company formed Palomar Medical Products, Inc. for
the purpose of consolidating the management and operations of the medical
products companies. Included in the Medical Products Group are the following
companies: Spectrum, Tissue, Star Medical, Dermascan and Palomar Technologies,
Ltd.
MEDICAL SERVICES SEGMENT
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FORMATION OF COSMETIC TECHNOLOGY INTERNATIONAL, INC.
On December 20, 1996, Cosmetic Technology International, Inc. ("CTI") was
formed as a 100%-owned subsidiary of the Company. As of December 31, 1996 the
Company had funded CTI with cash of approximately $650,000. CTI is a services
company which intends to establish a worldwide network of cosmetic
dermatological laser and medical device sites with medical services partners
(both fixed and mobile) in key geographic locations. Each site will be provided
a turnkey package of laser and medical device technology, equipment, training
and service, operations personnel, strategic advertising and marketing programs,
patient financial credit programs and management assistance. In early 1997, a
binding letter of intent was completed with Columbia/HCA, a $20 billion company
and one of the world's largest owners and operators of medical facilities, to
establish revenue sharing sites throughout the country in existing Columbia/HCA
facilities. During 1996 the operations of CTI were not significant.
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MEDICAL PRODUCTS AND LASERS IN MEDICINE
EPILASER PRODUCT FOR LASER HAIR REMOVAL
In recent years, scientists and clinicians have developed a concept called
TISSUE OPTICS to describe how the unique properties of the laser can be used to
treat human tissue selectively and more precisely. By careful selection of laser
parameters, such as wavelength (color), energy and pulse width (exposure time),
and with a detailed understanding of the physical and optical properties of the
target tissue, the clinician can selectively treat the target tissue while
minimizing or eliminating damage to surrounding tissue. The concept of color
selectivity has been useful in developing a number of successful dermatologic
applications. With the appropriate selection of energy and pulse width to allow
for the preferential absorption by the melanin present in the target area or by
the hemoglobin in blood there is negligible absorption by the surrounding
tissue. This concept of tissue optics applies to all of the medical laser
products under development by the Company.
Spectrum has developed a long pulse ruby laser, using its core ruby laser
technology developed for tattoo removal and pigmented lesions, that is
specifically configured to allow the appropriate wavelength, energy level and
pulse duration to effectively be absorbed by the hair follicle without being
absorbed by the surrounding tissue. In March 1997 Spectrum received FDA
clearance to sell and market the EpiLaser in the U.S. for hair removal. In July
1996 the Company received clearance from the FDA to sell and market the EpiLaser
for a wide range of dermatological applications, not including hair removal.
During April of 1996, clearance was given to market the laser-based hair removal
system in Canada. This method of hair removal allows for selective destruction
of the target follicle without harming the surrounding skin. The laser operates
in the 20-25 J energy range, delivering fluences in the range of 10-50J/cm2 in a
3-ms pulse. The beam delivering system produces a round beam with a nearly
flat-top energy distribution, thereby avoiding local hot spots. The hair-removal
technology utilized by Palomar targets the pigment in a hair follicle and was
developed by Dr. Rox Anderson at MGH. The laser incorporates a proprietary
handpiece delivery system that enables the laser light to penetrate to the
correct depth while at the same time limiting the amount of discomfort
associated with the procedure. The laser light is pulsed at a rapid rate
covering approximately one half square inch at each pulse. This treatment method
allows for a large area of treatment over a short period of time.
In an effort to find a way to allow the laser light to pass through top
skin layers and be deeply absorbed in the hair follicle below, a contact
handpiece applicator was developed by MGH and licensed to Spectrum on an
exclusive world-wide perpetual basis. This unique delivery device is the key to
the success and selectivity of the ruby based laser hair removal system. The
Company believes this unique delivery system enables the user to address a
potentially larger market than electrolysis currently does by offering to treat
large areas of the body such as back, chest, abdomen, legs, arms and other
areas. See "License and Research Agreement with Massachusetts General Hospital
for Laser Hair Removal".
THE HAIR-REMOVAL MARKET
The market for laser-based hair removal is in its early stages and, as
such, market segment information is only now being formulated. However,
management believes that the current electrolysis market is a good model. Last
year, more than one million women in the United States underwent treatment using
electrolysis, spending on average more than $1,000 each, representing a market
of approximately $1 billion annually. In addition, surveys indicate as many as
15% of men would also like to remove unwanted hair especially from back and
chest areas. Electrolysis is the only proven commercially available method for
the long-term removal of body hair. Other methods of hair removal include
waxing, depilators, tweezing, depilatory creams and shaving, all resulting in
only short-term hair removal.
Electrolysis is a process in which an electrologist inserts a needle
directly into a hair follicle and activates an electric current in the needle,
which disables the hair follicle. The tiny blood vessels in each hair follicle
are heated and coagulated, presumably cutting off the blood supply to the hair
matrix or are destroyed by chemical action depending upon modality used. The
success rate for electrolysis is variable depending upon the skill of the
electrologist and always requires a series of treatments. Electrolysis is
time-consuming, expensive and sometimes painful. There is also some risk of skin
blemishes and a rising concern relating to needle infection. Since electrolysis
only treats one hair follicle at a time and can only treat visible hair
follicles, the treatment of an area as small as an upper lip may require
numerous visits at an aggregate cost of up to $1,000. Although 70% of all
electrolysis treatments are for facial hair, the neck, breasts and bikini line
are also treated.
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Because hair follicles are disabled one at a time, electrolysis is rarely used
to remove hair from large areas such as the back, chest, abdomen and legs.
Market surveys report that more than 70% of women in the United States
employ one or more techniques for temporary hair removal from various parts of
the body. Pulling hair from the follicle produces the longest term temporary
results, but is painful and may cause skin irritation. A number of techniques
are used to pull hair from the follicle including waxing, depilators and
tweezing. In the waxing process, a lotion, generally beeswax-based, is spread on
the area to be treated and allowed to harden, thereby trapping the hairs. The
hardened film is then rapidly peeled off, pulling out the entrapped hairs.
Depilators employ rotating spring coils or slotted rubber rolls to trap and pull
out the hairs. Tweezing involves removing individual hairs with a pair of
tweezers. Depilatory creams, which contain chemicals to separate hair from the
follicle, frequently leave a temporary, unpleasant odor and may also cause skin
irritation. Shaving is the most widely used method of hair removal, especially
for legs and underarms, but produces the shortest term results. Hair bleaches do
not remove hair, but instead lighten the color of hair so that it is less
visible. A principle drawback of all of these methods is that they require
frequent treatment.
Preliminary studies using Spectrum's laser hair removal process
demonstrated significant prolonged hair growth delay ranging from six to nine
months to in excess of two years in some cases. In some cases, the hair is
permanently removed following treatment with the EpiLaser. Potential benefits of
laser hair removal include: treatment of larger areas in each treatment session,
relatively painless procedure, reduced risk of scarring, non-invasive procedure,
carries no risk of cross-contamination, and higher success rates than with
previous methods.
COMPETITION
Currently, there are three other companies (ThermoLase (Division of Thermo
Electron Corp.), Laser Industries, Ltd. and MEHL/Biophile International) that
have FDA clearance for a laser-based hair removal system in the United States.
ThermoLase, a publicly traded company, received clearance from the FDA in April
1995 to commercially market services using its laser-based hair removal system.
The ThermoLase system uses a low-energy, dermatology laser in combination with a
carbon based lotion that absorbs the laser's energy to disable hair follicles.
ThermoLase opened up spas in California, Texas, Florida and Colorado. ThermoLase
is also opening or plans to open additional spas, including in suburban Detroit,
Michigan; Greenwich, Connecticut; Manhasset, New York; Minneapolis, Minnesota;
and Palm Beach, Florida. As part of its commercialization strategy, ThermoLase
plans to establish a network of ThermoLase-owned centers in major metropolitan
areas in the U.S., third-party licensees in selected smaller U.S. markets and
joint ventures in foreign markets. Laser Industries, Ltd., received FDA
clearance in March 1997 to market its EpiTouchTM ruby laser for hair removal.
The EpiTouchTM will be sold in the U.S. through Sharplan 2000, Inc., a joint
venture of Laser Industries, Ltd. and MEHL/Biophile International Corp.
MEHL/Biophile's wholly owned subsidiary, Selvec Acquisitions Corp., received FDA
clearance in March 1997 to market its SLS CHROMOS 694 (R) long pulse ruby laser
hair removal system.
Several other companies have also indicated interest in developing and/or
introducing hair removal devices in 1997, making laser hair removal the most
competitive application within the cosmetic laser marketplace.
As more companies complete development of cosmetic/medical laser products
and/or receive FDA clearance it is expected that there will be a consolidation
of companies within the industry via acquisitions, partnering arrangements or
joint ventures. In February 1997, ESC Medical Systems announced a definitive
stock swap agreement under which it would acquire Luxar Corporation, a privately
held manufacturer of surgical lasers.
MARKETING, DISTRIBUTION AND SERVICE FOR THE EPILASER
Spectrum sells and markets the EpiLaser through an established network of
distributors in the U.S. and worldwide and will also enhance and develop a
direct sales force during 1997. Management feels that this combination allows
for a level of coverage that is more than adequate to service all its major
market segments. As part of Spectrum's marketing efforts, the sales force
provides the doctors a level of local market support including in-office
marketing brochures, advertising copy and clinical data in a marketing kit that
the doctor uses to educate the doctors' patient base. Using this marketing
approach, Spectrum is able to establish long term relationships with its
customers providing Spectrum with an installed base of customers. This base of
customers is an important factor in introducing new products to the market.
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Spectrum provides for service in the U.S. through its own service organization
with regional representation. Spectrum's international sales are serviced by its
distributor network. All service technicians are trained by Spectrum. Spectrum's
recommended preventive maintenance schedule provided by these trained technical
representatives provides for a high level of product reliability.
MANUFACTURING AND SUPPLIERS FOR THE EPILASER
Spectrum's manufacturing operations consist of the assembly and testing of
components purchased from outside suppliers and contract manufacturers. Spectrum
maintains control and manufactures key components in-house. The entire fully
assembled system is subjected to a rigorous set of tests prior to shipment to
the customer or distributors.
Spectrum depends and will depend upon a number of outside suppliers for
components used in its manufacturing process. Most of Spectrum's components and
raw materials are available from a number of qualified suppliers. One critical
component that is available through only one supplier is ruby rods. To date, the
Company has not experienced, nor does it expect to experience, any significant
delays in obtaining component parts or raw materials. Spectrum has expanded its
manufacturing capabilities in the United States to satisfy projected demand and
allow for manufacturing capacity for additional products. Spectrum is pursuing
both CE mark and ISO 9001 Registrations to meet international standards needed
to pursue European markets.
TRU-PULSE(R) C02 LASER FOR SKIN RESURFACING AND TREATMENT OF WRINKLES
Tissue Technologies manufactures and sells the Tru-Pulse Laser. In late
1995, Tissue Technologies received FDA clearance to sell and market its
Tru-Pulse laser in the U.S. for skin resurfacing. To date, Tissue Technologies
has shipped approximately 250 laser systems to dermatologists and other medical
specialists worldwide. In October of 1996 Tissue Technologies received both CE
Mark and ISO 9001 registrations, meeting the international standards that allow
products to be sold and shipped primarily to European countries. On February 18,
1997, Tissue Technologies received additional clearance from the FDA to sell and
market its Tru-Pulse Laser for the treatment of wrinkles, scar revision and burn
debridement.
The Tru-Pulse laser offers skin ablation as a means of reducing wrinkles.
The laser uses certain patented C02 technology designed especially for skin
ablation. The Tru-Pulse operates at 10,000 watts of peak power delivering 500
millijoules per pulse in a 65 microsecond pulse. The Tru-Pulse has the ability
to deliver the required amount of energy in a relatively short pulse as compared
to competitors' systems. The Tru-Pulse also has a unique beam profile. Most C02
lasers have a gaussion beam with a central hot spot. In contrast, the Tru-Pulse
has a non-gaussion beam with power evenly distributed throughout its cross
section. Clinical data suggests that the combination of these unique C02 laser
properties may account for the shorter healing time and reduced erythema
reported by doctors who use the Tru-Pulse.
The Tru-Pulse is currently being sold through distributors in the United
States as well as internationally. Tissue Technologies utilizes the same
distributors as Spectrum Medical and is in the process of enhancing/utilizing a
joint direct sales force within the Palomar Medical Products Group. The system
is also sold to dermatologists, plastic surgeons and other medical specialists
directly.
MANUFACTURING AND SUPPLIERS FOR TRU-PULSE LASER
Tissue Technologies' manufacturing operations consist of the assembly and
testing of components purchased from outside suppliers and contract
manufacturers. Tissue Technologies depends upon a number of outside suppliers
for components used in its assembly process. To date Tissue Technologies has not
experienced any significant delays or other difficulties in obtaining parts or
components. The Tissue Technology CO2 technology is based on recent technology
advances and as such is yet to be optimized. Currently, the most critical
component is manufactured by one supplier that has experienced problems in tube
reliability. The Company is currently seeking other alternative tube suppliers
as well as considering manufacturing and producing the CO2 tubes themselves, and
believes that this reliability issue will be rectified during 1997.
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COMPETITION FOR TISSUE'S TRU-PULSE LASER
Currently, there are three main competitors to the Tru-Pulse Laser: Laser
Industries (Sharplan), Coherent, Inc. and Luxar (recently acquired by ESC
Medical Systems.) Laser Industries and Coherent, combined, account for
approximately 50% of the world market. The estimated U.S. patient services
market for skin resurfacing and treatment of wrinkles is $500-plus million. The
annual worlwide cosmetic skin resurfacing product laser market is estimated to
be approximately $115 million. These numbers are expected to increase as "baby
boomers" age into their 50's. Coherent had been pricing its UltraPulse System at
the high end of the market with a high power laser that lists for $120,000, but
recently introduced new models which are priced from $75,000 to $90,000. Tissue
Technologies, Sharplan and Luxar average list price is $40,000 - $70,000.
RUBY LASER FOR TATTOO REMOVAL
In April 1995, the Company acquired all of the outstanding common stock of
Spectrum. This acquisition provided the Company with an operating subsidiary
concentrating on sales and marketing to the cosmetic laser market including
dermatologists and plastic surgeons. The majority of Spectrum's sales in the
past have been Q-Switched Ruby Lasers for tattoo removal and treating pigmented
lesions, but in 1996 more than half of Spectrum's sales were from the newly
developed EpiLaser. The EpiLaser will clearly be the focus in 1997, but the
RD-1200 ruby laser for tattoo removal will continue to be marketed and sold as
it is already approved for sale in the U.S., Japan and in certain other parts of
the world. The basic ruby laser technology includes core laser technology that
the Company believes is applicable to other lasers for additional applications.
Spectrum sells and markets the RD-1200 through an established network of
distributors and direct sales force in the U.S. and through distributors
worldwide. Spectrum provides for service in the U.S. through its own service
organization with regional representation. Spectrum's international sales are
serviced by its distributor network.
COMPETITION FOR SPECTRUM'S RUBY LASER FOR TATTOO REMOVAL
Competition in the medical device industry is intense and technology
developments are expected to continue at the rapid pace experienced over the
past few decades. Spectrum relies on proprietary technology, performance,
product features, price, reputation in the marketplace and its installed base as
leverage to keep its competitive edge in the marketplace. Spectrum competes with
other manufacturers, some with similar technology and others with competing
technology. Some of these competitive companies have greater financial,
marketing and technical resources than that of Spectrum. The Company anticipates
competition for its tattoo removal laser will continue.
FUTURE PRODUCTS
RELATIONSHIP WITH WELLMAN LABORATORIES
Wellman Laboratories ("Wellman Labs"), the world's largest biomedical laser
research facility and part of the MGH Laser Center located in Boston,
Massachusetts, was created to oversee and speed the flow of biomedical laser
research from the laboratory to patient care. Funded in part by a grant from the
Department of Energy, the Laser Center brings together two strengths of MGH: its
clinical departments and Wellman Labs. The MGH Laser Center works together with
industry, academia, and the Department of Energy Laboratories to access
information and technology across a broad spectrum of laser and medical
capabilities.
The principals at Wellman Labs study the fundamental photophysical and
photochemical properties and processes of biomolecules excited by ultraviolet,
visible, and near infrared radiation. The labs are staffed by engineers, laser
physicists and physicians familiar with all aspects of biomolecules, cells, and
tissue IN VITRO. The scientists work side by side with the clinicians to
understand the basic principles involved in the complex interactions of light
and tissue.
In 1994, the Company began a number of studies for the treatment of certain
dermatologic conditions using its diode laser at Wellman Labs. In 1995, these
studies were expanded to include the Company's ruby lasers for cosmetic
procedures. The data associated with these treatments is currently being
evaluated by Wellman Labs and the Company. The Company works closely with Dr. R.
Rox Anderson, a recognized expert in laser tissue interaction and the inventor
of a number of laser procedures in use today. The Company feels that these types
of relationships are critical in developing effective products for widespread
use in the market on a timely basis.
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DIODE LASER PRODUCT DEVELOPMENT
BURN DIAGNOSIS SYSTEM - U.S. AIR FORCE CONTRACT
In March 1994, the Company's Star subsidiary was notified that their
proposal entitled "High Energy Diode Laser for Burn Diagnosis," submitted to the
Phillips Laboratory Kirkland Air Force Base, New Mexico under DOD Solicitation
94.1 Topic AF94-110, had been selected for funding. The initial contract, a
phase I Small Business Innovation Research Grant ("SBIR") for approximately
$60,000, was completed.
On June 21, 1994, Star was granted an exclusive worldwide license for the
measurement of the Burn Depth in Skin from the Office of Technology Affairs at
MGH.
In March 1995, Star was granted a follow-on phase II SBIR contract with the
U.S. Air Force, Phillips Laboratory, for the research and development of the
burn diagnosis system. The aggregate contract value is approximately $743,000
over a two-year performance period. During the fiscal years ended December 31,
1996 and 1995, the Company recognized $281,991 and $307,000 of government
contract revenue, respectively.
In January 1996, Star began initial clinical testing of the burn diagnosis
system at the Shriner Burn Center in Boston, Massachusetts and at the Augusta
Medical Center in Augusta, Georgia in November 1996. The system is designed to
illuminate the burn site with near infrared light from a diode laser and to
image the blood flow using fluorescence from an FDA cleared dye as an aid to the
doctor in determining the burn depth. The treatment of the burn differs greatly
depending on the degree of burn. This technique has been licensed by MGH
exclusively to Star. To date the system has been tested on five burn victims and
has demonstrated the ability to detect the absence or presence of blood flow
deep in the dermis. The Company expects that it may take several years before a
commercial product for the measurement of burn depth is available.
LASER TONSILLECTOMY RESEARCH AGREEMENT WITH THE NEW ENGLAND MEDICAL CENTER
("NEMC")
In June 1994, the Company signed an agreement (the "NEMC Agreement") with
the Otolaryngology Research Center for Advanced Endoscopic Applications at New
England Medical Center, Boston, Massachusetts, to provide a research grant and
to sponsor investigations and development of laser applications, advanced
delivery systems and disposable products in the area of dye and diode laser
applications in otolaryngology and related specialties. As defined under the
NEMC Agreement, the Company will provide a total of $150,000 over a one-year
period, of which $50,000 has been paid in the form of laser hardware and an
additional $100,000 has been incurred through December 31, 1995. The parties
have reached an understanding that the Company will obtain ownership rights or
the right of first refusal to exclusive worldwide licenses to sell and market
any inventions developed with the grant funding. In August 1994, the NEMC
Agreement was amended to support animal testing with one of the Company's diode
lasers in connection with performing tonsillectomies. The Company has provided
funding of $54,813 and $36,534 for the years ended December 31, 1995 and 1996
respectively. The Company intends to fund human clinical studies in this area
over the next twelve-month period. The Company expects that it may take several
years before a commercial product for tonsillectomy is available.
DYE LASER PRODUCT DEVELOPMENT
SOLID-STATE DYE LASER SYSTEM DEVELOPMENT
In response to an increasing demand within the medical community for
reliability, compactness and lower cost, the Company has completed preliminary
work on the development of a solid-state laser that the Company believes will be
substantially smaller in size, less expensive and easier to maintain than the
current medical pulsed dye lasers. By using a solid-state lasing medium in place
of fluid, the need for pumps, plumbing, valves, filters and fluid reservoirs
found in a liquid dye laser can be eliminated. In addition, since solid-state
lasers do not require regular dye and filter changes and have fewer moving
parts, they may prove to be more reliable. Research has indicated the
feasibility of a solid-state laser device and the Company has developed a
working prototype. The development of the Company's solid-state laser is in the
very preliminary stages, however, and the Company does not anticipate the
inclusion of this technology into its products within the next few years.
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U.S. ARMY CONTRACT
During 1995, the Company entered into a two-year cost plus fixed fee
contract with the U.S. Army. The contract provides for the Company to
investigate Compact, Wavelength Diverse, High Efficiency Solid-State Dye Lasers
and is valued at $3,555,223. Revenue on the contract is recognized as costs are
incurred. During the fiscal years ended December 31, 1995, and December 31, 1996
the Company recognized $1,305,542 and $190,694, respectively, of government
contract revenue. The Company does not anticipate this research will result in a
commercial product within the next few years. The Company has submitted to the
U.S. Army a draft Novation Agreement in which it seeks to have this contract
novated to Physical Sciences, Inc. ("PSI"). If the contract is novated to PSI,
upon completion of the contract, PSI has agreed to offer the Company a right of
first refusal for a commercial license to sell, manufacture or otherwise dispose
of solid-state dye laser technology as developed by PSI under the contract for
use in medical products.
THROMBOLYSIS AGREEMENT
On September 10, 1993, the Company entered into the Baxter Agreement with
the Edwards LIS Division of Baxter. Under the Baxter Agreement, the two
companies intend to develop, market, and sell an integrated system utilizing
lasers and catheters for the removal of blood clots. Baxter is responsible for
sales and marketing of the product after FDA clearance and the Company is
responsible for the development and manufacture of the product. Following FDA
clearance the Company will receive 80% of the net sales for laser equipment and
50% of the net sales for catheter and disposable components. Prior to FDA
clearance, the Company will receive 100% of the revenue received from the laser
and the catheter. Under the Baxter Agreement, Baxter licensed its proprietary
technology to the Company, and the Company cross-licensed its technology to
Baxter. The Company also granted to Baxter a license to sell and market products
incorporating such technology. Baxter agreed to transfer its interest in the
agreement to ACS, a division of Eli Lilly, as part of a purchase by Eli Lilly of
the Baxter LIS division. Eli Lilly subsequently sold ACS to Guidant Corp. In
January 1997, Palomar became an equity partner in the formation of a new
company, LaTIS, Inc., created to use Palomar's Laser Thrombolysis technology to
develop a pulsed-dye laser system for treating stroke. With the formation of
this new venture, Laser Thrombolysis is no longer part of Palomar's strategic
agenda, although the Company can still derive the benefits from its research by
potentially being the laser supplier for this large market.
PATENTS AND LICENSES
On February 24, 1993, the principals of the Company's Star subsidiary
applied for a patent. This application was subsequently transferred to Star in
connection with the technology underlying the use of a high powered diode laser
for the treatment of psoriasis and other derma vascular malformation. The patent
was issued on June 18, 1996. On June 22, 1995, the NEMC filed a patent for
Coagulation Laser Tonsillectomy. The patent was issued on May 28, 1996. Star has
applied for additional patents regarding the design and use of high powered
diode lasers. The Company has exclusive rights to the NEMC patent. MGH has filed
a number of patents surrounding technology involving laser hair removal. The
first patent was issued on January 21, 1997. The Company has licensed this laser
hair removal technology from MGH in accordance with a certain license and
research agreement as previously discussed.
The Company intends to pursue certain applications of laser technologies,
and is aware of patents relating to laser technologies used in those
applications. If those patents are valid and enforceable, they may be infringed
by the Company. 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.
The Company has obtained opinions of counsel that the Company is not
infringing on patents held by others; however, these opinions have not been
challenged in court.
In March 1997, Selvac Acquisitions Corp. ("Selvac") filed a complaint
in the United States District Court for the District of New Jersey alleging,
among other things, that the EpiLaser infringes a patent held by Selvac. The
Company filed an action against Selvac's parent MEHL/Biophile in the United
States District Court for the District of Massachusetts in October 1996 seeking,
among other things, a declaration that the Company does not infringe Selvac's
patent and that Selvac's patent is invalid, void and unenforceable. See "Item 3.
Legal Proceedings." Other than the Selvac action, the Company has not been
notified that it is currently infringing on any patents nor has it been the
subject of any patent
<PAGE>
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infringement action. Defense of a claim of infringement is costly and could have
a material adverse effect on the Company's business, even if the Company were to
prevail.
The United States Patent and Trademark Office has granted certain patents
covering basic laser technology to Dr. Gordon Gould, an individual not
affiliated with the Company. In October 1988, Dymed, the Company's predecessor,
entered into a License Agreement with Patlex Corporation ("Patlex") whereby
Dymed was granted a worldwide non-exclusive license to several laser related
patents developed by Dr. Gould and assigned to Patlex ("Dymed Agreement"). In
exchange for payment of royalties, Patlex granted to Dymed the right to
manufacture lasers using its patented technologies until the expiration of its
patents and agreed not to sue the Company or any of its customers for
infringement of the licensed patents. In January 1992, the Company entered into
a new Patent License Agreement with Patlex (the "Patlex Agreement") that
superseded the Dymed Agreement. Under the terms of the Patlex Agreement, the
Company is required to pay, during the term of the applicable licenses (which
are for the life of the patents covered), royalties of 5% of the "net selling
price" (as defined therein) of lasers which are manufactured, used or sold by
the Company, and incorporate Patlex's patent rights. These patents expire on
various dates through May 4, 2005. During the years ended December 31, 1996 and
1995, the Company recorded $167,000 and $620,000, respectively, of royalty
expense relating to this agreement.
GOVERNMENT REGULATION
All medical devices are subject to FDA regulation under the Medical Device
Amendments of the United States Food, Drug and Cosmetics Act (the "FDA Act").
The Company's business, financial condition and operations are critically
dependent upon timely receipt of FDA regulatory clearances.
FDA CLEARANCE STATUS FOR COSMETIC LASER PRODUCTS
The FDA clearance process in dermatology may be accomplished through a
pre-market approval ("PMA") or under Section 510(k) of the FDA Act. Based upon
discussions with several experts familiar with the FDA clearance process,
management believes that the appropriate FDA clearance process for most
dermatology laser systems is via the 510(k) process which historically has
required less clearance time than the PMA clearance process. The Company is
subject to FDA regulation governing the use and marketing of medical devices.
In December 1995, the Company filed an application for clearance with the
FDA to commercially market the EpiLaser system pursuant to the FDA's 510(k)
process. The data submitted in the filing was based on clinical information
obtained at Wellman Laboratories under the direction of Dr. R. Rox Anderson. The
purpose of the data was to illustrate the safety and effectiveness of using a
ruby laser for removing unwanted hair. In March 1997 the Company received FDA
clearance to sell and market the EpiLaser in the U.S. for hair removal. In July
1996 the Company received clearance from the FDA to sell and market the EpiLaser
for a wide range of dermatological applications, not including hair removal. The
Company's other FDA cleared lasers include the Tru-Pulse for skin resurfacing
and treatment of wrinkles and the RD-1200(TM) Q-switched ruby laser for
treatment of age spots and tattoos. In the event the Company changes laser
specifications of its lasers, it may be required to obtain FDA clearance
pursuant to a new 510(k) application.
OTHER GOVERNMENT APPROVALS FOR MEDICAL PRODUCTS
In order to be sold outside the United States, the Company's products are
subject to FDA permit requirements that are conditioned upon clearance by the
importing country's appropriate regulatory authorities. Many countries also
require that imported products comply with their own or international electrical
and safety standards. In November 1992, the Company obtained approval certifying
compliance with certain international electrical and safety regulations
applicable to its pulsed dye laser. Additional approvals may be required in
other countries. The Company has yet to apply for international approval for its
diode laser for use in cosmetics and dermatology. In October 1996, Tissue
Technologies received both CE Mark and ISO 9001 registrations, meeting
international standards that allow the Tru-Pulse laser to be sold and marketed
in certain European countries. Another significant certification the Company
will pursue will be Shonin, which allows sales and marketing of the Company's
lasers in Japan.
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
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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 to the product and certain protective
devices must be installed, depending upon the class of product. Under the FDA
Act, the Company is also required to register with the FDA as a medical device
manufacturer and is subject to inspection on a routine basis by the FDA for
compliance with Good Manufacturing Practice ("GMP") regulations. The GMP
regulations impose certain procedural and documentation requirements upon the
Company relevant to its manufacturing, testing and quality control activities.
The CDRH is empowered to seek fines and other remedies for violations of these
regulatory requirements. The Company believes that it is currently in compliance
with these regulations.
ELECTRONIC PRODUCTS SEGMENT
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BUSINESS DEVELOPMENTS
ACQUISITION OF DYNACO CORPORATION
On February 9, 1994, the Company acquired substantially all of the assets
and business of Dynaco Corp. ("Dynaco"), Tempe, AZ, for $1,300,000 in cash and
the assumption of approximately $6 million in liabilities. At the time of the
acquisition, Dynaco had been operating under Chapter 11 of the U.S. Bankruptcy
Code. Dynaco now operates as a wholly-owned subsidiary of the Company and is a
manufacturer of high density flexible electronic circuitry with commercial and
government applications. The flexible circuit technology utilized by Dynaco
offers advantages over traditional circuit board technology in applications
where space constraints and performance specifications demand compact packaging
and a high level of reliability. Dynaco has developed a number of unique
products using the flexcircuit core technology that it plans to market over the
next twelve months.
FORMATION OF NEXAR TECHNOLOGIES, INC.
On March 7, 1995, the Company formed Nexar Technologies, Inc. ("Nexar), a
wholly-owned subsidiary. Nexar is an early stage company which manufactures,
markets, and sells personal computers with a unique circuit board design that
enables end users to upgrade and replace the microprocessor, memory and hard
drive components. Nexar markets its products using various proprietary brand
names through multiple channels of distribution, including the wholesale, retail
and direct response channels. Revenue recognized during 1996 was $18,695,364.
On December 20, 1996, Nexar filed a registration statement with the SEC
relating to an initial public offering of 2,500,000 shares of its common stock
for its own account, as well as shares held by Nexar shareholders. The estimated
price per share of the proposed offering is $9.00 to $11.00. Following the
offering, Palomar will beneficially own approximately 67% of Nexar's common
stock subject to a contingent repurchase right of the Company at a nominal price
per share in the event that Nexar does not achieve certain performance
milestones set forth in an agreement between Nexar and Palomar, and shares of
Nexar common stock which Palomar may acquire upon conversion of shares of Nexar
Convertible Preferred Stock. The Company anticipates that the offering will be
completed by mid-April 1997. However, the Company can in no way guarantee nor
ensure successful completion of the initial public offering.
FORMATION OF DYNAMEM, INC.
On September 29, 1995, Dynaco formed a new company called Dynamem, Inc.
("Dynamem") with an outside party who is a joint owner of the patent underlying
certain FRAMM technology (a technology utilized to package two rigid-flex
printed circuit boards in the same slot arrangement that customarily houses a
single board). The joint owner became an employee of the new subsidiary,
Dynamem. Dynamem issued 80% of its authorized and outstanding capital stock to
Dynaco and the remaining 20% to the joint owner. The joint owner granted Dynamem
a non-exclusive license to manufacture, use, sell and sublicense the patented
FRAMM technology in exchange for certain royalty payments. The royalties are
guaranteed by Dynaco. Dynaco and the joint owner also entered into a
stockholders' agreement which grants the joint owner the right, upon the earlier
of December 29, 2000 or the termination of his employment with Dynamem, to
require Dynaco to purchase a total of 75% of the securities owned by the joint
owner in Dynamem. In addition, if the Company purchases the joint owner's
shares, the joint owner may elect to receive between 35% and 100% of the
purchase price in the form of common stock of the Company.
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LICENSE AGREEMENT WITH TECHNOVATION COMPUTER LAB, INC.
Nexar's current PCs are shipped with motherboards based on technology
licensed from Technovation Computer Lab, Inc. ("Technovation"), a Nevada
corporation which, to the best of the Company's knowledge, is owned by Babar I.
Hamirani, a former executive officer of Nexar whose employment was terminated on
November 29, 1996. The Company has agreed to acquire all such technology and a
patent application related thereto, and settle all claims between Mr. Hamirani
and Nexar, no later than the closing of Nexar's initial public offering pursuant
to the Asset Purchase and Settlement Agreement by and among Mr. Hamirani,
Technovation, Nexar and the Company dated as of February 28, 1997 (the "Asset
Purchase and Settlement Agreement"). Pursuant to the Asset Purchase and
Settlement Agreement and a separate asset purchase agreement between the Company
and Nexar, the Company will first acquire the subject technology and then convey
such technology to Nexar.
FORMATION OF PALOMAR ELECTRONICS CORPORATION
On September 15, 1995, the Company formed Palomar Electronics Corporation
("PEC"), a wholly-owned subsidiary, as part of a reorganization to separate the
electronics and computer operations of the Company's business from the laser
segments of its business. On September 29, 1995, as part of this reorganization,
the Company contributed all of its outstanding capital stock of Dynaco and Nexar
to PEC in exchange for all of the outstanding common stock of PEC.
ACQUISITION OF CD TITLES, INC.
On July 13, 1995, CD Titles, Inc. ("CD Titles") was incorporated with the
Company owning substantially all of CD Titles' common stock. Certain minority
stockholders of CD Titles loaned CD Titles a total of $600,000. On July 31,
1995, CD Titles purchased certain assets and assumed certain liabilities of
CDRP, Inc. The purchase price consisted of $625,000 in cash and a $600,000 note
due September 30, 1995, which was guaranteed by the Company. The notes to
minority stockholders and CDRP, Inc. were repaid in December 1995 with 386,144
shares of the Company's common stock. CD Titles is a CD ROM publishing company
which distributes various materials on CD ROM through personal computer
wholesale channels in the United States.
ACQUISITION OF COMTEL ELECTRONICS, INC.
During 1996, Dynaco acquired 80.32% of Comtel Electronics, Inc. ("Comtel")
by converting a $100,000 note receivable into equity of Comtel and paying
$27,500 in cash. Effective December 31, 1996, as part of a recapitalization of
Comtel, Dynaco exchanged $2,200,000 in intercompany receivables from Comtel
issued by Comtel to fund its operations for an additional 16.98% ownership in
Comtel, resulting in Dynaco owning 97.3% of Comtel. The remaining 2.7% ownership
is held by two individuals. This acquisition has been accounted for as a
purchase in accordance with Accounting Principles Board (APB) Opinion No. 16.
Accordingly, the Company has allocated the purchase price based on the fair
market value of assets acquired and liabilities assumed. The results of Comtel
have been included with those of the Company since March 20, 1996.
Comtel has entered into a five-year agreement with New Media, Inc. ("New
Media") whereby New Media subcontracted to Comtel all of its manufacturing and
assembly business over the contract term. On April 5, 1996, Palomar invested
$2,690,000 in New Media Series E Preferred Stock and common stock and loaned New
Media an additional $1,000,000. Palomar also received a warrant to purchase
200,000 shares of common stock in New Media at $1.20 per share. Palomar has
accounted for this investment under the cost method.
On February 14, 1997 Palomar invested an additional $1,200,000 and
converted its $1,000,000 note plus accrued interest totaling $76,931 into New
Media Series F Preferred Stock. In addition, Palomar also entered into a
settlement agreement together with Lucent Technologies and New Media whereby
Palomar agreed to purchase 33,000 LapTalk(TM) speaker/microphone products from
Lucent Technologies and New Media for $1,200,000, which was paid March 1997.
During the twelve months ended December 31, 1996 Comtel had sales to New
Media of $15,664,967. At December 31, 1996, $4,896,632 of accounts receivable
was due from New Media, of which $2,475,929 was collected through March 20,
1997.
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GENERAL
Through its wholly-owned subsidiary Nexar, PEC is marketing and
manufacturing a new family of personal computers that incorporates user-oriented
printed circuit boards and computer chassis designs that allow an end-user to
conveniently alter or upgrade the computer's processor, memory and hard drive
capacity, thereby reducing the rate of obsolescence in the rapidly changing and
technology-driven arena of personal computers. Nexar offers PCs to its resellers
without the CPU, RAM, cache and hard drive pre-installed, allowing them to
configure the PC with their customers' choice of components. Unlike other
upgradeable or modular computers, Nexar PCs are not based on a proprietary
architecture. Industry standard components can be used. The customer, not the
manufacturer's technicians, is in control of enhancements to the system. The
removable hard drive is a feature that is particularly desirable where security
is an issue or when a user wants portable data to go. It also makes possible the
use of multiple operating systems on a single PC. See "Formation of Nexar
Corporation".
PEC, through its wholly-owned subsidiary Dynaco, designs, develops and
manufactures interconnect products, principally flexible circuits, for
electronic systems. Dynaco currently designs flexible interconnect solutions for
complex military and commercial applications where high reliability, precision
tolerances and multilayer packaging are important. Dynaco's traditional
customers serve diverse markets, including the defense, aerospace, electronics
and telecommunications industries. Dynaco has recently developed two new,
lower-cost flexible circuit products which it believes will enable it to develop
more cost-effective interconnect solutions for commercial applications. Comtel,
which is a majority owned subsidiary of Dynaco, is a contract manufacturer that
specializes in thin core and high density surface mount assemblies for the
computer and telecommunication industries. Dynaco, through its majority-owned
subsidiary Dynamem, has developed, and plans to manufacture and market to the
personal computer industry, foldable rigid assembly memory modules which it
believes will have between 50% and 100% more memory capacity than currently
available memory modules.
PERSONAL COMPUTER INDUSTRY BACKGROUND
In 1991, there were over 100 vendors competing in the personal computer
marketplace with intense competition in both price and product specification.
Nexar believes that, over the past five years, the personal computer industry
has become oversaturated with manufacturers of varying degrees of financial
stability and marketing expertise. Since 1995, many personal computer
manufacturers have exited the industry for a variety of reasons, and many more
have reported significant losses.
Nexar believes that aggressive channel expansion played an important role
in the demise of many second and third tier personal computer manufacturers.
Since 1995, many first tier manufacturers have expanded their channels of
distribution to include national distributors, mass merchants, computer
superstores, office superstores, end-user direct sellers and wholesale buying
clubs. Prior to 1992, these channels were almost exclusively the domain of the
second and third tier manufacturers. The channel expansion of the top tier
manufacturers reduced the available retail shelf space for second and third tier
manufactures through these once alternative channels. Consequently, second and
third tier suppliers, which compete primarily on the basis of price and
availability, are facing ever-increasing competition.
NEXAR STRATEGY
The Nexar strategy is to provide products that benefit wholesalers and
resellers by reducing their commitment to inventory with specific unit
configuration and permitting them to satisfy customers with systems easily
configured to their needs, and that benefit end-users by permitting them to
upgrade components from time to time without incurring the expense of a new
system.
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LEVERAGE NEXAR'S XPA(TM) (CROSS-PROCESSOR ARCHITECTURE) TECHNOLOGY.
Nexar develops, manufactures and markets high-performance,
competitively-priced desktop personal computers (PCs) based on patent-pending
technologies. Unlike conventional PCs, Nexar systems permit an end user to
easily upgrade or switch important components of the PC to accommodate emerging
and future technologies resulting in a significant extension of the computer's
useful life. Nexar sells a high-performance system which is typically shipped to
resellers without the key system defining components (microprocessor, memory and
hard drive), but which is otherwise fully configured. This approach:
Enables the end-user, whether corporate or individual, to buy a system
configured exactly to that customer's technical and budgetary
requirements and, later, to easily upgrade the PC's key components
with industry-standard products;
Enables Nexar's channel resellers to reduce their exposure to
inventory depreciation caused by rapid advances in technology and
frequent price reductions of the key system components, which
typically account for more than 50% of the cost of a PC;
Enables Nexar's resellers to compete with direct marketers, such as
Dell Computer and Gateway 2000, because a Nexar PC provides resellers
with the ability to promptly deliver a custom-configured, high
performance PC at a competitive price;
Enables Nexar to maintain profit margins unaffected by the forecasting
risks borne by conventional PC manufacturers who operate within a
several-month-long cycle from component procurement to assembly to
date-of-sale, all conducted in an environment of rapid technological
advances and frequent price reductions.
Nexar's current PCs are based on an industry standard, open architecture
design, co-engineered by HCL Hewlett Packard LTD., which allows the central
processing unit (CPU), random access memory (RAM), and cashe memory to be
replaced by end-users without technical assistance and without opening the
entire chassis. Nexar's current model accepts Intel Corporation's Pentium and
compatible CPUs, including the recently released Pentium processor with MMX
multimedia extension technology. Nexar PCs also include, as a standard feature,
a removable hard drive, permitting its replacement and the further advantages of
increased data portability and security, and the use of multiple operating
systems in a single PC. The Nexar PC is configured with the following
components: system chassis with removable side panels, custom designed
motherboard, power supply, video controller, input/output controller, floppy
disk drive, caddy for removable hard disk, keyboard, mouse, and hardware
manuals. Nexar occasionally includes additional components, including the key
system defining components (CPU, memory and hard drive) and peripherals such as
monitors and modems at the customer's request. Nexar PCs sold by resellers fully
configured have list prices generally ranging from $1,200 to $2,500, depending
upon the components included.
Nexar's objective is to become the industry leader in designing and
marketing PCs with technology that enables resellers and end-users, in an easy
and cost-effective manner, to upgrade and transition the CPU and the other key
system defining components in accordance with the known and anticipated roadmaps
of various makers of fundamental and leading-edge PC technology. Accordingly,
Nexar has developed and will soon market a new generation of PCs featuring the
Company's patent-pending Cross-Processor ArchitectureTM (Nexar XPATM ) in which
any one of the several state-of-the-art CPUs can be initially included or later
installed, including Intel's Pentium or Pentium Pro and Compatible CPU's. The
Nexar XPATM technology will also accommodate microprocessors based on other
technologies, such as the Alpha CPU made by Digital Equipment Corporation or the
PowerPC processor offered jointly by IBM, Motorola, and Apple Computer.
ENGAGE IN PRIVATE LABELING.
Nexar believes that as personal computer users become increasingly computer
literate, they will tend to shift away from branded products and towards private
label products. Nexar anticipates that contemporary technology and design,
upgradability, value, reliability and system flexibility will continue to be
essential requirements, but the method of presentation and product distribution
will adapt to satisfy the requirements of resellers and users alike. A primary
component of Nexar's overall channel strategy is to bypass the OEM and provide
custom, private label systems directly to major channel resellers. Nexar
believes that there will be a proliferation of private label personal computers
by channel resellers, and that
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private label branding will become an increasingly standard practice in various
reseller channels. Nexar intends to be one of the first manufacturers to
capitalize upon this opportunity.
EXPLOIT SPECIALIZED GOVERNMENT MARKETS.
Nexar believes that, in addition to the other advantages of Nexar PCs and
the increased security and other benefits of the removable hard disk drive
described herein, the Nexar PC is particularly appealing to many government
buyers because the time required for ordering entirely new systems is often
prohibitive under government regulations, while component parts can be more
timely requisitioned, thereby allowing a government office to more easily remain
technologically current. In 1996, Nexar recognized approximately 66% of its
total year revenue from Government Technology Services, Inc. (GTSI), a leading
supplier of desktop systems to the U.S. government.
COMPETITION
The desktop PC industry is intensely competitive and may become more so as
the result of, among other things, the introduction of new competitors
(including large multi-national, diversified companies) and possibly weakening
demand. Nexar currently competes in the desktop PC market principally with Acer,
Apple Computer, Compaq Computer, Dell Computer, Gateway 2000, Hewlet-Packard,
IBM and Packard Bell NEC. In addition, Nexar plans to compete in the network
server market by late 1997 with established companies such as ALR, Compaq, Dell,
Hewlett-Packard and IBM. All of these companies have stronger brand recognition,
significantly greater financial, marketing, manufacturing, technological and
distribution resources, broader product lines and larger installed customer
bases than Nexar. Principal competitive factors include product features,
product performance, quality and reliability, the ability to deliver product to
customers in a timely fashion, customer service and support, marketing and
distribution capabilities and price. The ability of Nexar to compete
successfully will depend on factors within and outside its control, including
the acceptance of its Nexar XPA(TM) system and general market and economic
conditions.
MANUFACTURING AND SUPPLIERS
Nexar's manufacturing process requires a high volume of quality components
that are procured from third party suppliers. Most of these components are
generally available from multiple sources; however, Nexar relies on two outside
contractors to manufacture motherboards used in PCs and plans to rely on a sole
outside contractor to manufacture the motherboards to be used in its planned
server product. In addition, Nexar relies on a single supplier to produce its
customized chassis and has several other single supplier relationships for less
critical components. In some cases, alternative sources of supply are not
readily available for some of Nexar's single sourced components. Nexar
occasionally experiences delays in receiving certain components, which can and
has caused delays in shipment of products.
ENVIRONMENTAL CONTROLS AND GOVERNMENT CERTIFICATIONS
Although Nexar conducts certain manufacturing operations, those operations
consist primarily of product assembly and do not involve the use of material
quantities of hazardous or other regulated substances. Nexar believes that it
has substantially complied with existing environmental laws and regulations, but
has not conducted any environmental studies of its operations to determine
whether contamination has occurred at its facilities. Nexar's computer products
are subject to certain FCC guidelines. Nexar believes they are in compliance
with these FCC guidelines.
INTELLECTUAL PROPERTY
Nexar has rights to two pending patent applications covering the essential
technology which enables the easy installation, removal and replacement of key
components in the Nexar PC. Nexar filed a patent application in late 1996
covering its proprietary Nexar XPATM technology, which is expected to be used in
Nexar's PCs by mid-1997. Also Nexar has agreed to acquire, no later than the
closing of its initial public offering, a patent application originally filed in
March 1995 together with the related technology which is currently included in
Nexar's PCs under an exclusive license agreement.
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DYNACO CORP. BUSINESS INTRODUCTION
DYNACO CORP. ("DYNACO")
Dynaco is a leading U.S. supplier of high-density, multilayer, flexible
printed circuit products for original equipment manufacturers ("OEMs"),
value-added resellers and contract manufacturers of sophisticated electronics
equipment. Specifically, Dynaco designs, develops and manufactures products that
provide electrical connections between components in electronic systems.
Dynaco's interconnect solutions use 3-dimensional packaging techniques to
enhance space utilization and increase signal speed via thin, multilayer
substrates. Dynaco's principal products are flexible circuits and rigid-flex
circuits. Dynaco's flexible circuits are flexible, multilayer printed circuit
boards that can be bent or folded to fit into spaces too small or too oddly
shaped for traditional rigid printed circuit boards. Dynaco's rigid-flex
circuits consist of one or more rigid, multilayer printed circuit boards
combined with flexible circuitry. The multiple layers of circuitry in Dynaco's
products increase reliability and reduce the overall size of its interconnect
systems by reducing the number of circuit boards, connectors and wires. Dynaco
also manufactures specialty interconnect cable harnesses that are sold with
Dynaco's traditional flexible circuit products and that are sold independently.
Dynaco currently designs flexible interconnect solutions for complex
military and commercial applications where high reliability, precision
tolerances and multilayer packaging are important. Dynaco's traditional
customers serve diverse markets, including defense, aerospace, electronics,
telecommunications, global positioning systems navigation, medical electronics,
interactive displays and semiconductor wafer fabrication equipment. For example,
Dynaco's products have been used in guidance systems for the Tomahawk and AMRAAM
missiles, and Dynaco has developed applications for lasers, night vision
systems, digital imaging and engine monitoring controls.
FLEXIBLE INTERCONNECT SUBSTRATE INDUSTRY BACKGROUND
Generally, interconnect substrates are printed circuits, consisting of
copper traces (circuitry) and an insulating (dielectric) base, that provide
electrical connections between electronic components such as microprocessors,
resistor networks and capacitors. Interconnect substrates include rigid printed
circuit boards, ceramic hybrid circuits and flexible circuits. Each type of
substrate has specific performance and price ratios which affect usage and
demand in the marketplace.
Dynaco believes that its multilayer flexible circuits offer the following
advantages over rigid printed circuit boards and ceramic substrates for
sophisticated, compact electronic equipment:
Flexible circuits are thinner and better able to conform to smaller
volumes and unusual container shapes;
Flexible circuits allow 3-dimensional interconnect packaging
techniques;
Flexible circuits are lighter and more space-efficient because they
eliminate the need for connectors and wires;
Film-based flexible substrates cost significantly less per
input/output connection than ceramic-based interconnect systems; and
The use of multiple layers can provide significant performance
enhancements over single-sided and double-sided interconnect packages.
The 3-dimensional packaging and flexure characteristics of multilayer
flexible circuits and multilayer rigid-flex circuits have made them the fastest
growing segment of the U.S. printed circuit market. According to a May 1996
report by TechSearch International, Inc., a technology licensing and consulting
firm, the world market for flexible printed circuits in 1995 was approximately
$1.8 billion to $2.0 billion, of which the U.S. market was approximately $550
million, an increase of nearly 18% from $470 million in 1994. Japanese
manufacturers and their affiliated offshore operations had approximately 60%
share of the world market. According to Flexible Circuits Engineering, an
industry publication, sales of flexible circuits in North America have grown
from $300 million in 1985 to an estimated $650 million in 1995. The publication
points out that the market has grown erratically, growing principally in the
periods from 1985 through 1987 and from 1993 through the present. According to
Flexible Circuits Engineering, the first growth phase reflected a short-lived
increase in the use of flexible circuits in missiles, "black boxes" and other
defense-related products shortly before the end of
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the Cold War, and the current growth phase reflects the increased use of
flexible circuits in commercial markets, including the personal computer,
automotive, consumer and instrument markets. As a result of these market trends,
Dynaco believes there is a significant market opportunity for manufacturers that
can timely deliver complex multilayer flexible and rigid-flex circuits to
leading suppliers of electronic equipment.
DYNACO STRATEGY
Dynaco's objective is to be the preferred supplier of multilayer flexible
circuits and rigid-flex circuits in the electronics industry and to expand its
business to include high density memory modules. Dynaco's strategy is to
capitalize on its significant investment in flexible circuit technology, modern
facilities and multilayer packaging expertise in order to participate in the
growth of the worldwide electronics market. In order to achieve its objective
and benefit from the trends in the industry, Dynaco's strategy includes the
following:
MAINTAIN AND IMPROVE THE COMPANY'S MARKET POSITION IN THE DEFENSE/AEROSPACE
MARKETS
Dynaco seeks to capitalize on a growing trend among electronics
manufacturers in the defense and aerospace markets to reduce the number of
suppliers with which they do business and to increase their out-sourcing of
higher level assemblies. Dynaco is currently a preferred supplier with leading
prime contractors such as Hughes Aircraft Company, Lockheed Martin Corporation,
Loral Corporation, McDonnell Douglas Corporation and Raytheon Company. A
preferred supplier is one of a select number of suppliers whose products and
facilities have been determined by the customer to meet certain performance and
quality specifications. Because customers frequently contact only preferred
suppliers for particular products, Dynaco intends to obtain and maintain the
status of preferred supplier with its current and prospective customers.
In January 1997, Raytheon announced a tentative agreement to purchased the
defense operations of Texas Instruments, Inc. and GM Hughes Electronics Corp.
for $2.95 billion and $9.5 billion respectively. These three companies combined
accounted for approximately one third of Dynaco's 1996 revenue. It is too early
to determine how this proposed consolidation will affect Dynaco.
Another market trend is the growth occurring in defense electronics due to
electronic upgrades, re-packaging for lower cost, and the commercialization of
defense hardware. Dynaco is currently developing new flat-panel displays,
night-vision systems, digital electronic upgrades, global positioning system
navigation products and enhanced communication systems that use flexible
circuits as the principal electronic interconnect. Dynaco also plans to utilize
its packaging expertise to convert wire bundles and cable harnesses into
flexible circuits to reduce weight, space and cost. Dynaco has designed and
currently expects to convert at least five wire and cable electronic
interconnect systems.
COMMERCIALIZE THE DYNAFLEX PRODUCTS
Dynaco believes that the demand for smaller electronic products will
increasingly cause commercial designers to consider high-density multilayer
flexible packaging. Historically, Dynaco's flexible circuit products have been
too costly to make most commercial applications feasible. Dynaco has recently
developed, and in June, 1995, submitted patent applications for, Dynaflex-D
(Dynamic) and Dynaflex-S (Static), two new flexible circuit products that
utilize less expensive, commercial-grade substrates. Dynaco believes that these
proposed products will permit it to expand into commercial markets. Dynaco
believes that its proposed Dynaflex-D and Dynaflex-S products will ultimately be
used in commercial applications such as automotive engine monitoring controls,
disk drives, personal computers, workstations, and cellular communication
systems.
EXPLOIT MANUFACTURING AND MARKETING CAPABILITIES
Dynaco believes there are few domestic or foreign high-volume
multilayer flexible and rigid-flex circuit manufacturers with comparable
expertise and know-how. As the manufacture of multilayer flexible circuits for
commercial applications proliferates, Dynaco intends to license its
manufacturing and marketing expertise to high volume, highly capitalized printed
circuit board manufacturers throughout the world. Dynaco recently signed a
license agreement with Wong Circuits International, a Hong Kong corporation, to
manufacture certain flexible circuit products in Hong Kong and China. In
addition, the Company is currently conducting negotiations with other
manufacturers in the United States and
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Europe. By working with these manufacturers, Dynaco hopes to expand the customer
base for its flexible circuits technology.
ACQUIRE, DEVELOP AND MARKET FLEXIBLE CIRCUIT PRODUCTS
Dynaco through its Dynamem subsidiary and internal research and
development, intends to produce and market additional flexible circuit products.
Dynaco has recently obtained certain rights to the patented FRAMM technology.
See "Acquisition of Dynamem."
COMTEL ELECTRONICS, INC. BUSINESS INTRODUCTION
COMTEL ELECTRONICS, INC. ("COMTEL")
Comtel, which was acquired in 1996, is an electronic and
electro-mechanical, contract manufacturer. Comtel's business is to provide a
lower cost alternative (outsourcing) to OEM in-house, or captive manufacturing.
Comtel's primary product is turnkey, build-to-print (versus its own design)
circuit card assemblies. These circuit card assemblies range in complexity from
very high volume, relatively simple (few components) assemblies in support of
the consumer electronics industry, to very complex, full "black and white box"
builds for high technology industry.
CONTRACT MANUFACTURING INDUSTRY BACKGROUND
Contract electronics manufacturers (CEMs) are playing an even more
important role in the electronics market. The world market for contract
manufacturing services exceeded $30 billion in 1996, and industry analysts
recently estimated the U.S. contract manufacturing market will grow from $11
billion in 1994 to over $36 billion by the year 2001, a compound average annual
growth rate of 20%. Based on industry data, the Company believes that OEMs are
increasingly relying upon independent manufacturers of complex, electronic
interconnect products, such as Comtel, rather than on internal captive
production. Factors which Comtel believes will lead OEMs to utilize contract
manufacturers include:
LIMITED RESOURCES USED ON CORE COMPETENCIES: In recent years the
electronics industry has experienced greater levels of competition and
technical changes forcing OEMs to focus their resources on critical product
activities. By offering comprehensive turnkey manufacturing services, CEMs
afford OEMs the resources to focus on core activities such as product
development, marketing and product distribution.
IMPROVED PURCHASING POWER AND MATERIAL MANAGEMENT: OEMs are faced with
increasing difficulties planning, procuring and managing their inventories
efficiently due to frequent design changes, short product life-cycles,
component price fluctuations, and the need to achieve economies of scale in
material procurement. By using the CEMs' combined purchasing power and
required expertise in inventory management, OEMs can reduce capital
required for production and inventory.
REDUCED CAPITAL INVESTMENT: As electronic products become more
technologically advanced, including the transition from through-hole to
surface mount assembly, the manufacturing operation has become more
sophisticated and automated, requiring a greater level of capital
investment in equipment. By outsourcing, OEMs can reduce their overall
capital equipment investment, maintain access to the latest advanced
manufacturing technology, and enjoy the lower costs associated with higher
capacity utilization experienced by CEMs.
DESIGN/PACKAGING EXPERTISE: The customer benefits from the ever
accumulating design and packaging capabilities of CEMs. For example, Comtel
works on hundreds of different designs each year and certain packaging
solutions can be applied to a multitude of new applications. OEMs are
motivated to work with a CEM in order to gain access to this process
expertise and manufacturing know-how.
Comtel Electronics believes they can exploit this market with the latest
manufacturing capabilities in surface mount assembly and thin core PC card
assembly.
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COMTEL STRATEGY
Comtel is a CEM who provides turnkey manufacturing and test services of
electronic assemblies. Comtel specializes in thin core and high density surface
mount assemblies. Comtel's services consist of design, procurement,
manufacturing and test.
DESIGN: Working closely with customers and the substrate manufacturer,
Comtel designs a specific packaging configuration to satisfy the customer's
requirements for reliability and lowest cost of ownership. In selection of
substrate materials, Comtel advises its customers with respect to issues
such as size, power consumption and package configuration.
PROCUREMENT: Early involvement in the design process allows Comtel to
assist in the selection of suppliers and components to enhance time to
market, manufacturability and logistical support of volume ramp-ups. As
part of the procurement process, Comtel offers its customers material
planning and procurement, inventory management, and material handling
services. From time to time, material suppliers must allocate components
among their customers in response to supply shortages. By assuming
responsibility for procurement, Comtel and the Company may be required to
bear the risks of price fluctuations and availability. However, in certain
cases, Comtel can pool its purchasing power and leverage its position as a
manufacturing partner to receive more favorable pricing and volume
allocations.
ASSEMBLY: Substrate assembly involves the exact placement and
soldering of a wide size range of electronic components. Comtel's current
assembly techniques range from manual assembly of through-hole connectors
to highly automated screen printing and placement of miniaturized SMT
components. SMT is a method of affixing electronic components, including
integrated circuits, onto the surface of a substrate. Components mounted in
SMT assemblies can be of relatively small size due to the use of fine
lead-to-lead spacing (called "pitch") which currently can be as small as 12
Mils. Comtel's SMT assembly process has become increasingly complex because
of these smaller dimensions and tight tolerances, and accordingly requires
the use of expensive automated assembly and test equipment.
TEST: Using sophisticated in-circuit and functional test systems,
Comtel tests complex assemblies in order to determine whether the
electronic assembly is performing to customer satisfactions. Comtel's
current and planned investment in manufacturing defect analyzer testers
enables customers to specify a wide range of test options.
DYNAMEM, INC. BUSINESS INTRODUCTION
DYNAMEM, INC. ("DYNAMEM")
Dynamem spent most of 1996 developing the 64MB, 128MB, and 256MB FRAMM high
density memory modules. These memory modules are currently being technically
evaluated by a number of potential OEM users. A memory module usually consists
of various configurations of memory chips or other memory devices mounted on a
printed circuit board inserted into a slot on a computer's motherboard. Memory
modules currently in use include single in-line memory modules ("SIMMs") and
double in-line memory modules ("DIMMs"), both of which utilize rigid printed
circuit boards. Industry standards limit the number of memory chips that can be
mounted on a rigid printed circuit board within a given length and height.
Consequently, a traditional memory module that has reached the maximum length
and height has also reached maximum memory capacity. Dynamem believes its
proposed memory modules will overcome this limitation of memory capacity by
utilizing the FRAMM technology to fit two rigid printed circuit boards in the
same slot arrangement that customarily houses SIMMs and DIMMs. Dynaco's proposed
memory modules will mount thin, small outline package memory chips onto two
rigid printed circuit boards, connected by flexible circuits, that are folded
for insertion into the motherboard.
HIGH-DENSITY MEMORY MODULES
A memory module usually consists of various configurations of memory
devices or chips mounted on a printed circuit board inserted into a slot on a
computer's motherboard. Dynamem's memory modules consists of two rigid printed
circuit boards connected by flexible circuits that are folded for insertion. In
recent years, the overall size of computers, especially that of portable
computers, has shrunk while the newest program applications, such as Windows 95,
continue to use increasing amount of random-access memory ("RAM"). Meanwhile,
computer manufacturers are shipping an increasing number of systems with limited
RAM in order to maintain price competitiveness. As a result, end-users who
desire to run
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the latest applications must add memory modules or buy new systems with greater
memory capacity. Dynaco believes that these trends will favor manufacturers of
high density memory modules as requirements for RAM increase from 16MB to 32MB,
64MB, 128MB and beyond.
DYNAMEM STRATEGY
Dynaco has introduced high density memory modules based on the patented
FRAMM technology. These memory modules overcome the current limitation on memory
capacity by utilizing the FRAMM technology to fit two rigid printed circuit
boards in the same slot arrangement that customarily houses SIMMs and DIMMs.
Dynaco's memory modules will mount thin, small outline package memory chips onto
two rigid printed circuit boards, connected by flexible circuits, that are
folded for insertion into the motherboard. This combination produces a module
that is no wider or taller than conventional rigid boards but that offers four
substrate surface areas, twice the area offered by rigid boards. Dynaco believes
that FRAMM represents a novel and innovative packaging approach which will have
between 50% and 100% more memory capacity than currently available memory
modules.
This is in comparison to a traditional memory module that consists of
various configurations of memory chips or other memory devices mounted on a
printed circuit board inserted into a slot on a computer's motherboard. Industry
standards limit the number of memory chips that can be mounted on a rigid
printed circuit board within a given length and height. Consequently, a
traditional memory module that has reached the maximum length and height has
also reached maximum memory capacity. Dynaco is designing a full memory product
line around the FRAMM technology. Initial products are planned for
IBM-compatible personal, portable, laptop and notebook computers, Apple
Computer's Macintosh computers and Sun Microsystems' workstations. Dynaco also
plans to design custom modules for certain special needs and is investigating
other applications.
SALES AND DISTRIBUTION
Dynaco markets its products through a direct sales force and through a
network of four independent sales representatives and distributors specializing
in electronics equipment. Dynaco principally targets large OEM corporations and
government prime contractors. These and other customers often employ competitive
bidding techniques with respect to large, multi-year contracts, for which Dynaco
competes with other qualified suppliers of flexible circuits.
Comtel presently utilizes a combination of direct factory and independent
manufacturers representatives sales personnel and is moving towards complete
direct selling. Comtel relocated its manufacturing facility in November 1996 to
a much larger (65,000 square feet) facility to increase its capacity to fulfill
the expected increase in demand.
Dynaco's Dynamem subsidiary markets its FRAMM products through both a
separate sales organization and through Nexar. Dynaco believes that this
approach will enable the Dynamem sales force to develop specific industry
contacts and a focused knowledge base of the high-density memory market.
Dynaco has generally utilized selected sources to obtain volume discounts.
CUSTOMERS
DYNACO
Dynaco's traditional customers include OEMs, prime contractors and contract
manufacturers of defense and aerospace electronics, telecommunications
equipment, navigational systems and medical products. Dynaco's new Dynaflex
products have attracted prototype orders from customers in the automotive,
computer and data storage markets.
For the year ended December 31, 1996, sales to Hughes, Raytheon, and
Lockheed Martin accounted for approximately 20%, 10% and 5%, respectively, of
Dynaco's net sales. For the year ended December 31, 1995, sales to Raytheon ,
Hughes Electronics and Loral accounted for 15%, 9% and 6%, respectively, of
Dynaco's net sales. Sales to Dynaco's top 10 customers accounted for
approximately 55% of Dynaco's net sales for the year ended December 31, 1996.
Approximately 100 other customers accounted for the remainder of Dynaco's net
sales for the year ended December 31, 1996.
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COMTEL
Comtel entered into a five year agreement New Media, whereby New Media
subcontracted to Comtel all of its manufacturing and assembly business over the
contract term. Comtel recognized approximately $17.1 million of total revenue of
which 91% was from New Media. Comtel's intention in 1997 is to increase and
diversify its overall revenue base and reduce the percentage of New Media
concentration. The Company has received orders in 1997 from customers such as
MCI, MGE UPS Systems and others, thereby reducing the New Media customer
concentration. However, the Company cannot ensure that the New Media
concentration will significantly decrease in 1997.
COMPETITION
The flexible circuit industry is characterized by intense competition.
Dynaco and its competitors have developed various technologies to serve niche
packaging requirements. Dynaco has focused its development efforts on more
complex multilayer circuit technology rather than single sided or double sided
circuit technology. Among others, Dynaco's competitors include Packard-Hughes
Interconnect Co., Parlex Corporation and Teledyne, Inc. Dynaco believes it
competes principally on the basis of design, quality, price and customer
service. Some of Dynaco's competitors include larger companies that have
substantially greater managerial, financial, technical and marketing resources
than Dynaco.
Other flexible circuit companies such as Adflex Solutions, Inc., Sheldahl,
Inc., MFlex and Smartflex primarily market single sided and double sided circuit
technology. Although Dynaco does not currently compete with such companies with
respect to those products, Dynaco believes that the customers of these companies
have begun to demand multilayer flexible circuits and that such companies will
become competitors in the near future.
The contract manufacturing market is estimated to be $30 billion plus
worldwide made up of many competitors. Comtel primarily competes with smaller
sized regional competitors. The same is true for Dynamem which competes in a $20
plus billion computer memory market.
ENVIRONMENTAL CONTROLS AND GOVERNMENT CERTIFICATIONS
The manufacture of substrate interconnect products involves numerous
chemical solvents and other solid, chemical and hazardous wastes and materials.
Dynaco incurs approximately $200,000 per year in waste treatment costs. Dynaco
is subject to a variety of environmental laws relating to the generation,
storage, handling, use, emission, discharge and disposal of these substances.
Dynaco believes that it operates its 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.
Certain sales of flexcircuits are subject to certain military and
government certifications. Dynaco maintains military certifications for
Mil-P-50884, Mil-P-55110, Mil-I-45208 and Mil-Std. 2000, and various subsets of
such certifications. In January 1996, Dynaco obtained ISO 9001 certification.
Dynaco is further subject to various federal, state and local regulations
regarding environmental protection and hazardous substance controls. Management
believes that its Dynaco operations are in compliance with governmental
environmental regulations.
MANUFACTURING AND SUPPLIERS
Dynaco relies upon a number of outside suppliers for all of its
manufacturing supplies, parts and components and, to date, has not experienced
any significant delays in obtaining parts and components. Although most of the
supplies, parts and components are available from multiple sources, Dynaco has
generally utilized selected sources to obtain volume discounts. Pyralux(R), a
substrate material used in substantially all of the products sold by Dynaco in
1994, is available only from DuPont. In addition, certain customers issue, from
time to time, narrow product specifications that can be fulfilled only by a
single component available from a single source. Because such specifications
vary from product to product, Dynaco is unable to anticipate its future needs
for such components and therefore cannot make advance arrangements for the
supply of such components. Dynaco believes that it will continue to be able to
obtain most of the required components and parts from a number of different
suppliers. Dynaco may subcontract production of certain subsystems, such as heat
exchangers, power
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supplies and electronic control modules, in order to minimize production
overhead and to avoid rapid fluctuations in capacity utilization as the demand
for Dynaco's product changes.
PATENTS IN THE ELECTRONIC BUSINESS SEGMENT
The Company's Nexar subsidiary has filed a patent for the construction
method facilitating replacement of CPU memory and other modules in a personal
computer. This technology allows the end user a simple, quick and easy platform
for upgrading the most volatile components in a personal computer.
The Company, through its Dynaco subsidiary has filed a patent for flexible
circuit boards and method for their manufacture. This technology covers a unique
method of manufacturing, using proprietary materials that enable the
manufacturer to be cost competitive with rigid board manufacturers. Dynaco is
awaiting first office action from the U.S. Patent Office. As part of the
formation of Dynamem discussed previously, Dynamem became joint owner of an
issued patent surrounding technology that uses two rigid printed circuit boards
attached by flex circuitry that can be folded with low profile memory chips
attached to be inserted into the motherboard of a computer. This design, while
no larger than conventional rigid board designs, doubles the capacity of
conventional memory modules.
RESEARCH AND DEVELOPMENT
For the fiscal year ended December 31, 1996, and December 31, 1995, the
Company incurred $7,977,085 and $4,419,487, respectively, in product research
and development costs. Due to the intense competition and rapid technological
changes in the medical device and electronic industry, the Company believes that
it must continue to improve and refine its existing products and services, and
develop new applications for its technology. The Company also intends to obtain
additional technology and expand its product line through strategic
partnerships, joint ventures, licensing and acquisitions.
EMPLOYEES
As of December 31, 1996 the Company and its subsidiaries had 522 full-time
employees and 64 temporary employees. When necessary, the Company also relies on
consultants with particular expertise for specific research and consulting
assignments. The Company's ability to develop, manufacture, and market its
products and to establish and maintain a competitive position in the industry
will depend, in large part, upon its ability to attract and retain qualified
technical, marketing and managerial personnel. The Company believes that its
relations with its employees are good. None of the Company's employees are
represented by a union.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases approximately 11,500 square feet of research
and development and office space in Beverly, Massachusetts under a seven year
lease, expiring in June 2000, for laser research and as corporate headquarters.
The Company's Dynaco subsidiary leases approximately 55,000 square feet in
Tempe, Arizona under a lease from a partnership consisting of Dynaco's Chief
Executive Officer and Chief Operating Officer which expires in July 1997. The
Company's Comtel subsidiary leases 65,000 square feet in Tustin, California,
which is used as a manufacturing facility under a lease that expires in August
2002. The Company's Star subsidiary leases an office and research facility of
approximately 6,200 square feet in Pleasanton, California for diode laser
research and manufacturing under a lease expiring in April 1999. The Company's
Spectrum subsidiary leases an office, manufacturing and research facility of
approximately 25,000 square feet in Lexington, Massachusetts under a lease
expiring in June 2000. The Company's Tissue Technologies subsidiary leases an
office and manufacturing facility of 17,000 square feet in Albuquerque, New
Mexico under a lease expiring in October 1999. The Company's Nexar subsidiary
leases an office and telemarketing facility of approximately 7,000 square feet
in Westboro, Massachusetts under a lease expiring in August 1998, and a
manufacturing facility of approximately 100,000 square feet in Haywood,
California under a lease expiring in August 2001. The Company's Palomar
Technologies, Ltd. subsidiary owns an office and leases a manufacturing facility
in Hull, England. In the opinion of management, the properties leased by the
Company and its subsidiaries are currently suitable and adequate for their
intended purposes.
<PAGE>
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ITEM 3. LEGAL PROCEEDINGS
On October 7, 1996 the Company filed a declaratory judgment action against
MEHL/Biophile ("MEHL") seeking (i) a declaration that MEHL is without right or
authority to threaten or maintain suit against the Company or its customers for
alleged infringement of the patent held by MEHL's subsidiary Selvac Acquisitions
Corp. ("Selvac" and the "Selvac Patent"), that the Selvac Patent is invalid,
void and unenforceable, and that the Company does not infringe the Selvac
patent; (ii) a preliminary and permanent injunction enjoining MEHL from
threatening the Company or its customers with infringement litigation or
infringement; and (iii) an award to the Company of damages suffered in
connection with MEHL's conduct. On March 7, 1997, Selvac filed a complaint for
injunctive relief and damages for patent infringement and for unfair competition
against the Company, its Spectrum Medical Technologies and Spectrum Financial
Services subsidiaries, and a New Jersey dermatologist, in the United States
District Court for the District of New Jersey. Selvac's complaint alleges that
the Company's EpiLaser infringes the Selvac Patent and that the Company unfairly
competed by promoting the EpiLaser or hair removal before it had received FDA
approval for that specific application. The Company intends to assert defenses
vigorously which it believes to be meritorious. Both suits are in their infancy,
and, as of March 17, 1997, discovery has not yet commenced in either action. The
extent of exposure of the Company cannot be determined at this time.
The Company is a defendant in a lawsuit filed by Commonwealth Associates
("Commonwealth") on March 14, 1996. In its suit, Commonwealth alleges that the
Company breached a contract with Commonwealth in which Commonwealth was to
provide certain investment banking services in return for certain compensation.
In January 1997, Commonwealth's motion for summary judgment on its breach of
contract claim was granted. A trial on Commonwealth's damages is scheduled for
April 14, 1997. Commonwealth has alleged that it suffered up to $3,381,250 in
damages on its breach of contract claim, exclusive of interest. The Company
intends to appeal the matter after damages have been determined, and believes
its grounds for appeal are meritorious.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company's Annual Meeting of Stockholders was held on November 14, 1996.
Holders of record of the Company's common stock at the close of business on
October 7, 1996 were entitled to vote at the meeting. On that date, the Company
had 28,409,007 shares of its common stock outstanding. Each stockholder was
entitled to one vote per share on all matters voted on at the meeting. A
majority of the outstanding shares constituted a quorum at the meeting.
Abstentions and broker non-votes were counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions
were counted in tabulations of the votes cast on proposals presented to
stockholders, whereas broker non-votes were not counted for purposes of
determining whether a proposal had been approved. At the Annual Meeting, the
stockholders elected four (4) Directors.
The tabulation of votes with respect to the election of such Directors is as
follows:
Total Votes Total Votes
For Withheld
Steven Georgiev 25,014,274 348,728
Michael H. Smotrich 25,014,274 348,728
Joseph E. Levangie 25,014,274 348,728
Buster Glossen 25,014,274 348,728
The stockholders also ratified and approved the selection of Arthur
Andersen, LLP as the Company's independent auditor for the 1996 fiscal year by a
vote of 25,106,794 shares in favor, 155,717 shares against and 100,491 shares
abstaining.
<PAGE>
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The company's Common Stock is currently traded on the National Association
of Securities Dealers Automated Quotation System (NASDAQ) under the symbol PMTI.
The following table sets forth the high and low bid prices quoted on NASDAQ for
the Common Stock for the periods indicated. Such quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and do not necessarily
represent actual transactions.
Fiscal Year Ended
December 31, 1995
-------------------
High Low
-------------------
Quarter Ended March 31, 1995 3 5/8 2 1/2
Quarter Ended June 30, 1995 2 5/8 1 15/16
Quarter Ended Sept. 30, 1995 6 11/16 1 7/8
Quarter Ended Dec. 31, 1995 7 1/8 4 7/16
Fiscal Year Ended
December 31, 1996
-------------------
High Low
-------------------
Quarter Ended March 31, 1996 13 1/8 5
Quarter Ended June 30, 1996 16 3/8 9 1/8
Quarter Ended Sept. 30, 1996 14 5/8 7 7/8
Quarter Ended Dec. 31, 1996 9 1/8 6
As of March 24, 1997, the Company had 600 holders of record of common
stock. This does not include holdings in street or nominee names.
The Company has not paid dividends to its common stockholders since its
inception and does not plan to pay dividends to its common stockholders in the
foreseeable future. The Company intends to retain any earnings to finance the
growth of the Company.
PRIVATE PLACEMENT OF COMMON STOCK
Pursuant to Regulation S under the Act, the Company sold 1,176,205 shares
of common stock and 182,765 warrants to purchase common stock to a total of 22
overseas individuals and corporations on February 1, 1996 for an aggregate
purchase price of $1,683,800. The warrants were issued at a price of $5.00 per
share, are immediately exercisable and expire on February 1, 1999.
Pursuant to Regulation D and Section 4(2) of the Act, the Company sold a
total of 1,176,205 shares of common stock on March 29, 1996 for an aggregate
purchase price of $1,364,842. 1,176,205 shares of common stock were sold to
Arista High-Tech Growth Fund, Ltd. for an aggregate purchase price of $936,442;
45,000 shares of common stock were sold to Histon Financial Services, Inc. for
an aggregate purchase price of $378,000 and 6,000 shares of common stock were
sold to Berkshire International Finance, Inc. Pension Plan for an aggregate
purchase price of $50,400.
Pursuant to Regulation D and Section 4(2) of the Act, the Company sold a
total of 1,176,205 shares of common stock on April 15, 1996 to Egger & Co. for
an aggregate purchase price of $416,250.
Pursuant to Section 4(2) of the Act, the Company sold 1,176,205 shares
of common stock on December 27, 1996 to Finmanagment, Inc. for an aggregate
purchase price of $3,150,000. In addition to the common stock, Finmanagment
received 420,000 net warrants to purchase common stock at $7.50 per share,
300,000 net warrants to purchase common stock at $9.50 per share and 180,000 net
warrants to purchase common stock at $11.50 per share. The net warrants are
subject to a cashless exercise for common stock in which the number of shares of
common stock issuable upon such cashless exercise
<PAGE>
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shall be determined by multiplying (1) the difference between (a) the closing
bid price of the common stock on the day prior to the date exercised, as
reported by NASDAQ, and (b) the exercise price, by (2) the number of net warrant
shares; divided by the closing bid price of the common stock on the day prior to
the date exercised. The net warrants are exercisable immediately and expire on
February 28, 1997.
CONVERTIBLE DEBENTURES
Pursuant to Regulation S under the Act, the Company sold 9,675 units of
convertible debentures to a total of 11 overseas individuals on July 3, 1996 for
an aggregate purchase price of $7,669,441. Each unit consists of a convertible
debenture due July 3, 2003 denominated in 1,000 Swiss Francs and a warrant to
purchase 24 shares of the Company's common stock at $16.50 per share. The
warrants are immediately exercisable and expire on June 27, 2003.
Pursuant to Section 4(2) of the Act, the Company sold a total of $5,000,000
4.5% Convertible Debentures on October 17, 1996 to Cameron Capital Ltd. and Wood
Gundy London Limited. The debentures, due October 17, 2001, may be converted at
any time after 75 days from issuance at the option of the holder into shares of
the Company's common stock at a price equal to 85% of the average trailing five
day bid price from the date of conversion.
Pursuant to Section 4(2) of the Act, the Company sold a total of $6,000,000
5% Convertible Debentures as follows: $3,000,000 to High Risk Opportunities Hub
Fund Ltd. on December 31, 1996; $2,000,000 to Berckeley Investment Group, Ltd.
on January 13, 1997; and $1,000,000 to High Risk Opportunities Hub Fund Ltd. on
January 13, 1997. The debentures, due December 31, 2001, January 13, 2002 and
January 13, 2002, respectively, are convertible into shares of common stock at a
conversion price equal to 85% of the average trailing 10 day bid price from the
date of conversion, provided that in any 30 day period the holder of these
debentures may convert no more than 33% (or 34% in the last 30 day period
available for conversion) of the debentures.
PREFERRED STOCK
Pursuant to Section 4(2) of the Act, the Company sold 6,000 shares of
Series D Convertible Preferred Stock on February 14, 1996 to the Travelers
Insurance Company for an aggregate purchase price of $6,000,000. All of the
Series D Convertible Preferred Stock was converted into 1,116,918 shares of
common stock (including accrued dividends of $342,092 and accrued interest of
$9,183) as of December 31, 1996. In connection with the issuance of Series D
Convertible Preferred Stock the Company issued 600,000 warrants to purchase
common stock at a price of $7.50 per share, and 200,000 warrants to purchase
common stock at a price of $8.00 per share, both of which expire on February 14,
2001 and are immediately exercisable.
Pursuant to Section 4(2) of the Act, the Company sold 10,000 shares of
Series E Convertible Preferred Stock on April 17, 1996 to GFL Advantage Fund
Limited for an aggregate purchase price of $10,000,000. All of the Series E
Preferred Stock was converted into 1,381,435 shares of common stock (including
accrued dividends of $326,174 and accrued interest of $7,536) as of January 28,
1997. In connection with the issuance of Series E Convertible Preferred Stock,
the Company issued 304,259 warrants to purchase common stock at a price of $15
per share, which expire on April 17, 2001 and are immediately exercisable.
Pursuant to Section 4(2) of the Act, the Company sold 6,000 shares of
Series F Convertible Preferred Stock on July 12, 1996 to the Travelers Insurance
Company for an aggregate purchase price of $10,000,000. The Series F Convertible
<PAGE>
-27-
Preferred Stock, together with any accrued but unpaid dividends, may be
converted into common stock at 80% of the daily average closing price of the
common stock on the ten trading days preceding such conversion, but in no event
less than $7.00 or more than $16.00. Series F Preferred stock may be redeemed at
any time, with no less than 10 days and no more than 30 days notice or when the
stock price exceeds $16.50 per share, at an amount equal to the amount of
liquidation preference determined as of the applicable redemption date. In
connection with the issuance of Series F Convertible Preferred Stock, the
Company issued 500,000 warrants to purchase common stock at a price of $11 per
share, which expire on July 12, 2001 and are immediately exercisable.
Pursuant to Section 4(2) of the Act, the Company sold 10,000 shares of
Series G Convertible Preferred Stock to Genesee Fund Limited on September 26,
1996 for an aggregate purchase price of $10,000,000. Genesee Fund Limited
subsequently transferred 5,000 of its shares of Series G Convertible Preferred
Stock to GFL Advantage Fund and the remaining 5,000 shares to GFL Performance
Fund. The Series G Convertible Preferred Stock, together with any accrued but
unpaid dividends, may be converted into common stock at 85% of the average
closing bid price for the three trading days immediately preceding the
conversion date, but in no event at less than $6.00 or more than $11.50 for the
5,000 shares of Series G Convertible Preferred Stock held by GFL Advantage Fund
and no less than $6.00 or more than $8.00 for the 5,000 shares of Series G
Convertible Preferred Stock held by GFL Performance Fund. The warrants are
immediately exercisable and expire on December 31, 2001. Series G Convertible
Preferred Stock may be redeemed at any time, with no less than 10 days and no
more than 20 days notice, at an amount equal to the sum of (a) the amount of
liquidation preference determined as of the applicable redemption date plus (b)
$176.50. In connection with the issuance of Series G Convertible Preferred
Stock, the Company issued 323,799 warrants to purchase common stock at a price
of $12 per share, which expire on September 27, 2001, and 50,000 warrants to
purchase common stock at a price of $6.5625 per share, which expire on December
31, 2001 and are immediately exercisable.
STOCKHOLDER SERVICES
Stockholders of the Company who desire information about the Company are
invited to contact John Ingoldsby, Director of Investor Relations, Palomar
Medical Technologies, Inc., 66 Cherry Hill Drive, Beverly, Massachusetts 01915,
508-921-9300, e-mail at [email protected]. A mailing list is maintained to
enable stockholders whose stock is held in street name, and other interested
individuals, to receive quarterly reports, annual reports and press releases as
quickly as possible. (Quarterly reports and press releases are also available
through the Internet at the Company's home page on the World Wide Web
(http://www.palmed.com)).
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
For the year ended December 31, 1996, the Company had revenues of
$70,098,443 as compared to $21,906,504 for the year ended December 31, 1995. The
220% increase in revenues from 1995 to 1996 is primarily the result of
acquisitions, additional product lines and the transition of certain
subsidiaries from the development stage to commercialization in both the medical
and electronic business segments. Net revenues by the Company's business
segments are as follows:
Year ended
December 31,
------------------------------------
1995 1996
------------- ------------
Medical $ 5,610,280 $ 17,824,158
Electronic 16,296,224 52,274,285
------------- ------------
Total $ 21,906,504 $ 70,098,443
============ ============
The increase in revenues for the Company's medical segment was principally
attributable to $10.1 million of revenues generated from the Company's Tissue
Technologies subsidiary during the year ended December 31, 1996 as compared to
only $114,000 for the year ended December 31, 1995. Tissue Technologies began
commercial shipment of its product in the fourth quarter of 1995. Approximately
$6.1 million of medical revenues were generated by the Company's Spectrum
subsidiary during the year ended December 31, 1996, as compared to approximately
$3.8 million of revenues for the year ended December 31, 1995. This increase in
revenues at Spectrum was due to the introduction and initial shipments
<PAGE>
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of its EpiLaser during the third and fourth quarters of 1996. The Company
expects its revenue from the medical segment to continue to increase as the
Company further penetrates the domestic and international medical markets with
its Tru-Pulse CO2 laser for treatment of wrinkles and skin resurfacing and
begins marketing and shipping its EpiLaser for hair removal which was approved
by the FDA in March of 1997.
The increase in revenues for the Company's electronics segment was
attributable to approximately $18.6 million of revenues generated from the
Company's Nexar subsidiary which introduced its proprietary upgradeable PC in
April of 1996, as compared to only approximately $620,000 of revenues generated
from the sale of non-proprietary PCs during the year ended December 31, 1995.
The remaining increase in 1996 in the electronics segment was principally due to
$17.1 million of sales by Dynaco's Comtel subsidiary acquired in the first
quarter of 1996. The Company believes that the revenue in the electronic segment
will continue to increase as Nexar further expands its production capabilities,
marketing and distribution efforts and as Comtel expands its contract
manufacturing operations. However, the Company intends to divest a portion of
its interest in companies in the electronics segment, and such increase in
revenue may not be reflected in the consolidated results of the Company to the
extent it is successful in its divesture.
Gross margin for the year ended December 31, 1996 was $6,920,888 (9.9% of
revenues) versus $4,714,034 (21.5% of revenues) for the year ended December 31,
1995. Gross margin by the Company's business segments are as follows:
Year ended
December 31,
-----------------------------------
1995 1996
-----------------------------------
Medical $ 2,145,808 $ 3,437,399
Electronic 2,568,226 3,483,489
----------- -----------
Total $ 4,714,034 $ 6,920,888
=========== ===========
The increase in gross profit dollars was a result of the additional
revenues generated from new products introduced during the year ended December
31,1996 as discussed above. In the medical segment the principal reason for the
decrease in the gross profit percent was the phase-out of the Company's research
and development contract with the U.S. Army in anticipation of the
commercialization of its medical products. The gross profit percent also
decreased due to underutilization of increased production capacity at Spectrum
in preparation for the anticipated increase in demand of its EpiLaser in fiscal
1997. A portion of this decrease in gross margins was offset by an increase in
gross margins attributed to the acquisition of Tissue Technologies, which
introduced its Tru-Pulse CO2 laser to the commercial marketplace in the first
quarter of 1996.
In the electronic segment, the principal reason for the decrease in the
gross profit percent was a decrease in yields at Dynaco due to an increase in
production costs attributable to a change in Dynaco's product mix and an
inventory valuation write-off of $643,000 at Dynaco's Comtel subsidiary offset
by an increase in the gross margin as a result of Nexar's introduction and
initial volume shipments of its proprietary upgradeable PC in 1996.
Research and development costs increased to $7,977,085 (11% of revenues)
for the year ended December 31, 1996, from $4,419,487 (20% of revenues) for the
year ended December 31, 1995. This 80.5% increase in research and development
reflects the Company's continuing commitment to research and development for
both its medical and electronic business segments. In the Company's medical
segment the Company focused its efforts during 1996 to obtain FDA clearance for
hair removal using the EpiLaser. The Company received FDA clearance for hair
removal in March of 1997. The Company also continued to concentrate on the
development of additional products for medical laser applications. In the
electronics segment, the Company's Nexar subsidiary continues to enhance and
further develop its current proprietary upgradeable PC product in order to stay
competitive in a rapidly changing high technology industry. In addition, Dynaco
began funding a new process engineering and materials development program, and
has filed several patents. Management believes that research and development
expenditures will increase over the next few years as the Company continues
clinical trials of its medical products and develops additional applications for
its lasers and delivery systems. However, management anticipates that research
and development expenditures as a percentage of revenue will decrease as its
revenues increase with commercialization of its products.
General and Administrative expenses increased to $21,569,054 (31% of
revenues) for the year ended December 31, 1996, from $7,879,694 (36% of
revenues) for the year ended December 31, 1995. This 173.7% increase is
primarily due to
<PAGE>
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acquisitions and the transition of certain subsidiaries from the development
stage to commercialization combined with the increased administrative resources
required at the Company's corporate offices to oversee the growth of the
Company's medical and electronic business segments. In the medical segment, the
Company acquired Tissue Technologies and expanded its general and administrative
support staff at Spectrum to accommodate the forecasted growth in the fourth
quarter of 1996 and in 1997. In the electronics segment, the Company's Dynaco
subsidiary acquired Comtel and formed Dynamem. Additionally, the Company's Nexar
subsidiary has expanded its executive, administrative and finance staffs to
support Nexar's growing operations. The Company has continued to increase its
support staffs in anticipation of several new product introductions in 1996. All
the Company's subsidiaries maintain their own general and administrative support
staffs. The increase in general and administrative expenses is also due to
write-downs and valuation allowances totaling approximately $3,100,000 related
to accounts receivable, intangibles and the accrual of severance costs.
Selling and Marketing expenses increased to $11,420,943 (16% of revenues)
for the year ended December 31, 1996, from $2,768,541 (13% of revenues) for the
year ended December 31, 1995. This 312.5% increase reflects the Company's effort
to increase its marketing and distribution as a result of its new product lines
developed internally within the medical segment. This increase is attributable
to the Company's Spectrum subsidiary and the acquisition of Tissue Technologies,
both increasing its sales and marketing expenditures to coincide with the
addition of two new product lines. In the electronics segment, this increase
reflects the change in focus of the Company's Nexar subsidiary from product
development to selling and marketing its proprietary upgradeable PC. During 1996
Nexar began its efforts to increase its selling, marketing and distribution
which resulted in additional costs of $4.8 million in 1996 as compared to $0.6
million in 1995.
Business Development and Financing Costs increased to $2,879,603 (4% of
revenues) for the year ended December 31, 1996, from $1,409,303 (6% of revenues)
for the year ended December 31, 1995. This 104.3% increase is attributable to
the Company's continuing acquisitions and financing activities. The Company
anticipates that it will continue to expend funds to raise additional sources of
financing and to focus its efforts to acquire other technologies to broaden its
scope of product applications and services in both the medical and electronic
business segments.
Settlement and litigation costs increased to $2,255,000 for the year ended
December 31, 1996 from $700,000 for the year ended December 31, 1995. This
increase is a result of a settlement of potential claims with a former executive
of Nexar for approximately $1,400,000 and under which Nexar is purchasing
previously-licensed core technology and eliminated future royalty payments on
the use of Nexar's core technology, a settlement of approximately $525,000 in
connection with a suit brought against the Company and the chief executive
officer of Nexar upon Nexar's organization, and other claims against the
Company, combined with the associated legal costs.
Merger expenses totaled $443,780 for the year ended December 31, 1996 and
are comprised of professional fees associated with the merger of Tissue
Technologies and the Company.
Interest expense increased to $1,443,564 for the year ended December 31,
1996, from $1,374,199 for the year ended December 31, 1995. This 5% increase is
primarily the result of the issuance of acquisition debt in April 1995 to
purchase Spectrum, and the issuance of the 4.5% Swiss Franc convertible
debentures in July 1996.
Interest income increased to $1,586,620 for the year ended December 31,
1996, from $913,050 for the year ended December 31, 1995. This increase is
primarily the result of interest received from subscriptions receivable and
other loans and investments made as a result of the Company's improved cash
position.
Net gain on trading securities represents realized and unrealized trading
gains and losses of $2,033,371 for the year ended December 31, 1996. Included in
this amount is an unrealized gain totaling approximately $1,547,000 related to
the Company's investment in a publicly traded company in which the Company's
chief executive officer owns approximately 13% and a realized gain totaling
approximately $827,000 related to the Company's investment in another publicly
traded company offset by various unrealized losses aggregating approximately
$340,000. The Company had a net realized trading gain of $201,067 for the year
ended December 31, 1995. It is the Company's intention to continue to invest in
trading securities, which may result in additional realized and unrealized
trading gains or losses in the future
Gain on the sale of stock of a subsidiary stock represents a gain of
$3,830,000 related to the private placement sale by the Company of 400,000 Nexar
common shares. See Note 10 of the Notes to the Consolidated Financial
Statements.
<PAGE>
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Other income and expense totaled $4,245,642 of expense for the year ended
December 31, 1996 as compared to $102,305 income for the year ended December 31,
1995. Significant amounts included in this amount for 1996 is a charge to
operations of $3,690,000 related to the Company's New Media investment and
additional reserves totaling $1,306,038 required for other loans to joint
ventures. Offsetting these losses is a foreign currency exchange gain of
$446,596. See Note 9 of the Notes to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had $19,066,523 in cash, cash
equivalents and trading securities. During the year ended December 31, 1996, the
Company generated the following net cash proceeds from its financing and
investing activities to fund operations, acquisitions and the development of its
products:
YEAR ENDED
DECEMBER 31, 1996
-----------------
Sale of common stock $ 6,061,380
Sale of preferred stock 30,823,147
Issuance of convertible debentures 14,169,441
Sale of Stock of a subsidiary 2,000,000
Exercise of stock options and warrants 7,653,907
---------------
Total $60,707,875
---------------
The Company's net loss for the year ended December 31, 1996, included the
following noncash items: $3,916,221 of depreciation and amortization expense;
$70,130 of interest expense relating to the amortization of the discounts on the
convertible debentures; and $741,982 related to common stock and warrants issued
to non-employees and consultants of which approximately $532,758 results from
the issuance of warrants for services in accordance with SFAS No. 123.
The Company anticipates that capital expenditures for 1997 will total
approximately $16 million, with nearly 60% of this amount funding lasers needed
for CTI laser centers. The Company intends to finance the majority of the CTI
expenditures under equipment leasing arrangements with various financing
institutions. However, there can be no assurance that the Company will be able
to obtain the necessary financing.
Dynaco has a three-year revolving credit and security agreement with a
financial institution. The agreement provides for the revolving sale of
acceptable accounts receivable, as defined in the agreement, with recourse at
85% of face value, up to a maximum commitment of $3,000,000. As of December 31,
1996, the amount of accounts receivable sold that remained uncollected totaled
$1,787,057 net of related reserves and fees, as defined in the agreement. This
amount is classified as a revolving line of credit in the accompanying
consolidated balance sheet as of December 31, 1996. The interest rate on such
outstanding amounts is the bank's prime rate (8.25% at December 31, 1996) plus
1.5%, and interest is payable monthly in arrears. The financing is
collateralized by the purchased accounts receivable and substantially all of
Dynaco's assets. Borrowings under this line are guaranteed by the Company.
On December 5, 1996, Comtel entered into a loan agreement with a loan
association which provided for borrowings up to $4,500,000 in the form of
revolving receivable and inventory loans. Borrowings under the loan agreement
are limited by a borrowing base calculation on eligible accounts receivable and
inventory, and are collateralized by accounts receivable, inventory and certain
other assets. Borrowings bear interest at the lender's prime rate plus 2.25% and
amounted to $2,770,375 as of December 31, 1996. The loan agreement terminates on
November 30, 1998. Borrowings under this loan agreement are guaranteed by the
Company.
Some of the Company's medical products businesses are still in the
development stage, with significant research and development costs and
regulatory constraints that currently limit sales of its medical products. These
activities are an important part of the Company's business plan. Due to the
nature of clinical trials and research and development activities, it is not
possible to predict with any certainty the timetable for completion of these
research activities or the total amount of funding required to commercialize
products developed as a result of such research and development. The rate of
research and the number of research projects underway are dependent to some
extent upon external funding. While the Company is regularly reviewing potential
funding sources in relation to these ongoing and proposed research projects,
there can be no
<PAGE>
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assurance that the current levels of funding or additional funding will be
available, or, if available, on terms satisfactory to the Company.
The Company also makes early stage investments in core technologies and
companies that management feels are strategic to the Company's business or will
yield a higher than average financial return to support the Company's core
business. Some of these investments are with companies that are related to some
of the directors and officers of the Company. In addition, the Company has made
loans to various affiliated parties. See "Related Party Transactions". At
December 31, 1996, the Company had $1,564,153 of such related party investments
and loans.
The Company has had significant losses to date and expects these losses to
continue for the near future. Therefore, the Company must continue to secure
additional financing to complete its research and development activities,
commercialize its current and proposed medical products segment, spin-off its
electronic products segment, execute its acquisition business plan and fund
ongoing operations. The Company believes that the cash generated to date from
its financing activities and amounts available under its credit agreement will
be sufficient to satisfy its working capital requirements through at least the
next twelve months. However, there can be no assurance that events in the future
will not require the Company to seek additional financing sooner. The Company
continues to investigate several financing alternatives, strategic partnerships,
additional bank financing, private debt and equity financing and other sources.
The Company believes that it has adequate cash reserves or will be successful in
obtaining additional financing in order to fund current operations in the near
future.
FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the other information in this Annual Report on Form 10-KSB
the following cautionary statements should be considered carefully in evaluating
the Company and its business. Statements contained in this Form 10-KSB that are
not historical facts (including, without limitation, statements concerning
anticipated operational and capital expense levels and such expense levels
relative to the Company's total revenues) and other information provided by the
Company and its employees from time to time may contain certain
"forward-looking" information, as that term is defined by (i) the Private
Securities Litigation Reform Act of 1995 (the "Reform Act") and (ii) in releases
by the SEC. The factors identified in the cautionary statements below, among
other factors, could cause actual results to differ materially from those
suggested in such forward-looking statements. The cautionary statements below
are being made pursuant to the provisions of the Reform Act and with the
intention of obtaining the benefits of "safe harbor" provisions of the Reform
Act.
SUBSTANTIAL AND CONTINUING LOSSES. The Company and certain of its
subsidiaries have a history of losses, and the Company expects its losses to
continue. The Company must secure additional financing to complete its research
and development activities, commercialize its current and proposed medical
products, spin-off its non-medical business, execute its acquisition business
plan and fund ongoing operations. To the extent that the Company is not able to
successfully execute its plan to spin-off its non-medical business, the Company
may be required either to fund or to shut down those operations, potentially
incurring substantial losses.
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. There can be
no assurance that the Company will be able to successfully manage and integrate
the operations of newly acquired businesses into its operations or that the
failure to do so will not increase the costs inherent in the establishment of
new business enterprises.
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
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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.
RISKS ASSOCIATED WITH ACQUISITIONS. In the normal course of business, the
Company evaluates potential acquisitions of businesses, products and
technologies that would complement or expand the Company's business. 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.
NEW VENTURES. The Company's CTI subsidiary has entered into agreements with
medical service partners to provide cosmetic dermatological 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.")
INVESTMENTS IN UNRELATED BUSINESSES. The Company has investments in
marketable and non-marketable securities and loans to related and unrelated
parties. 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.
MANAGEMENT OF GROWTH. In light of management's views of the potential for
future growth, the Company has adopted an aggressive growth plan that includes
substantial investments in its sales, marketing, production and distribution
organizations, the creation of new research and development programs and
increased funding of existing programs, and investments in corporate
infrastructure that will be required to support significant growth. This plan
carries with it a number of risks, including a higher level of operating
expenses, the difficulty of attracting and assimilating a large number of new
employees, and the complexities associated with managing a larger and faster
growing organization. Depending on the extent of future growth, the Company may
experience a significant strain on its management, operational, manufacturing
and financial resources. The failure of the Company's management team to
effectively manage growth, should it continue to occur, could have a material
adverse effect on the Company's financial condition and results of operations
HIGHLY COMPETITIVE INDUSTRIES. The cosmetic laser and electronics
industries are characterized by intense competition. The cosmetic laser industry
is highly competitive and is characterized by the frequent introduction of new
products. The Company competes in the development, manufacture, marketing and
servicing of laser technology products with numerous other companies, certain of
which have substantially greater financial, marketing and other resources than
the Company. In addition, the Company's cosmetic laser products face competition
from alternative medical products and procedures, such as dermabrasion, chemical
peels, pharmaceutical treatment, electrolysis, waxing and surgery, among others.
There can be no assurance that the Company will be able to differentiate its
products from the products of its competitors or that the marketplace will
consider the Company's products to be superior to competing products or medical
procedures. There can be no assurance that competitors will not develop products
or that new technologies will not be developed that render the Company's
products obsolete or less competitive. 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."
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
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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.
The Company's stock price, like that of other technology companies, is
subject to significant volatility. If revenues or earnings in any quarter fail
to meet the investment community's expectations, there could be an immediate
impact on the price of the Shares. The price of the Shares may also be affected
by broader market trends unrelated to the Company's performance. (See
"Volatility of Share Price.")
VOLATILITY OF SHARE PRICE. Factors such as announcements of developments
related to the Company's business, announcements by competitors, quarterly
fluctuations in the Company's financial results and other factors have caused
the price of the Company's stock to fluctuate, in some cases substantially, and
could continue to do so in the future. In addition, the stock market has
experienced extreme price and volume fluctuations that have particularly
affected the market price for many technology companies and that have often been
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Shares. The trading
prices of many technology companies' stocks are at or near their historical
highs, and reflect price/earnings ratios substantially above historical norms.
There can be no assurance that the trading price of the Shares will remain at or
near its current level.
GOVERNMENT REGULATION. The Company's laser product business segment and, to
a lesser degree, its electronics business segment are subject to regulation in
the United States and abroad. Failure to comply with applicable regulatory
requirements can result in fines, denial or suspension of approvals, seizures or
recall of products, operating restrictions and criminal prosecutions, any or all
of which could have a material adverse effect on the Company. Furthermore,
changes in existing regulations or adoption of new regulations could prevent the
Company from obtaining, or could affect the timing of, future regulatory
approvals.
LASER PRODUCT SEGMENT. 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 business, financial condition and operations are critically
dependent upon timely receipt of FDA regulatory clearance.
FDA CLEARANCE STATUS FOR COSMETIC LASER PRODUCTS. Three of the
Company's lasers have received clearance from the FDA for certain
dermatological applications: the Q-pulse ruby laser, the Tru-Pulse laser
and the EpiLaser system.
The Company is also investigating other applications in dermatology for its
laser systems. It will be required to obtain FDA clearance before commercially
marketing any other application. The Company believes that it will be able to
seek such clearance under the 510(k) application process; however, no assurance
can be given that the FDA will not require the Company to follow the more
extensive and time-consuming Pre-Market Approval ("PMA") process. FDA review of
a 510(k) application currently averages about seven to twelve months and
requires limited clinical data based on "substantial equivalence" to a product
marketed prior to 1976, while a PMA review can last for several years and
require substantially more clinical data.
The FDA also imposes various requirements on manufacturers and sellers of
products under its jurisdiction, such as labeling, good manufacturing practices,
record keeping and reporting requirements. The FDA also may require post-market
testing and surveillance programs to monitor a product's effects. There can be
no assurance that the appropriate clearances from the FDA will be granted, that
the process to obtain such clearances will not be excessively expensive or
lengthy or that the Company will have sufficient funds to pursue such
clearances.
No assurance can be given that FDA clearance 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 clearance of its current and proposed cosmetic
laser products. Delays or failure to obtain such clearance would have a material
adverse effect on the Company.
OTHER GOVERNMENT CLEARANCES 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. In November 1992, the Company obtained approval certifying
compliance with certain international electrical and safety regulations
applicable to its pulsed dye laser. Additional approvals may be
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required in other countries. The Company has yet to apply for international
approval for its diode laser for use in cosmetic surgery and dermatology.
The Company is subject to the laser radiation safety regulations of the FDA
Act administered by the National Center for Devices and Radiological Health
("CDRH") of the FDA. These regulations require a laser manufacturer to file new
product and annual reports, to maintain quality control, product testing and
sales records, to distribute appropriate operation manuals, to incorporate
certain design and operating features in lasers sold to end-users and to certify
and label each laser sold to end-users as one of four classes of lasers (based
on the level of radiation from the laser). In addition, various warning labels
must be affixed on the product and certain protective devices must be installed
depending upon the class of product. Under the FDA Act, the Company is also
required to register with the FDA as a medical device manufacturer and is
subject to inspection on a routine basis by the FDA for compliance with Good
Manufacturing Practice ("GMP") regulations. The GMP regulations impose certain
procedural and documentation requirements upon the Company relevant to its
manufacturing, testing and quality control activities. The CDRH is empowered to
seek fines and other remedies for violations of these regulatory requirements.
The Company believes that it is currently in compliance with these regulations.
ELECTRONIC SEGMENT. A significant percentage of the total sales of the
flexible circuit board component business of the Company, which presently
accounts for a significant amount of the sales of the Company, are the result of
either a subcontract or a direct contract for government programs funded by the
U.S. military. Generally, government contracts and subcontracts are terminable
at the convenience of the government. Cutbacks in military spending for certain
programs or lack of military spending in general could have a material adverse
effect on the Company. There can be no assurance that termination of contracts,
cessation of purchase orders, or a failure to appropriate funds will not occur
in the future. Any termination, cessation, or failure to appropriate funds with
respect to contracts or subcontracts having a significant dollar value would
have a material adverse effect on the Company's business, financial condition
and results of operation. The unpredictable nature of the government procurement
process also may contribute to fluctuations in the Company's quarterly
performance. (See "Fluctuations in Quarterly Performance.")
UNCERTAINTY OF MARKET ACCEPTANCE. The Company continually develops new
products intended for use in the cosmetic laser products segment and the
electronic products segment. As with any new products, there is substantial risk
that the marketplace may not accept or be receptive to the potential benefits of
such products. Market acceptance of the Company's current and proposed products
will depend, in large part, upon the ability of the Company or any marketing
partners to demonstrate to the marketplace the advantages of the Company's
products over other types of products. There can be no assurance that
applications or uses for the Company's current and proposed products will be
accepted by the marketplace or that any of the Company's current or proposed
products will be able to compete effectively.
UNCERTAINTY OF HEALTHCARE REIMBURSEMENT AND REFORM. The healthcare industry
is subject to changing political, economic and regulatory influences that may
affect the procurement practices and operations of healthcare industry
participants. During the past several years, state and federal government
regulation of reimbursement rates and capital expenditures in the United States
healthcare industry has increased. Lawmakers continue to propose programs to
reform the United States healthcare system, which may contain programs to
increase governmental involvement in healthcare, lower Medicare and Medicaid
reimbursement rates or otherwise change the operating environment for the
Company's customers. Healthcare industry participants may react to these
proposals by curtailing or deferring investments, including investments in the
Company's products.
DEPENDENCE ON THIRD PARTY RESEARCHERS. The Company is substantially
dependent upon third party researchers and others, over which the Company will
not have absolute control, to satisfactorily conduct and complete research on
behalf of the Company and to grant to the Company favorable licensing terms for
products which may be developed. The Company has entered into a number of
research agreements with recognized research hospitals and clinical
laboratories. These research institutions include the Oregon Medical Laser
Center at the Heart Institute of St. Vincent Hospital and Medical Center in
Portland, Oregon, the Wellman Labs at MGH and the Otolaryngology Research Center
for Advanced Endoscopic Applications at NEMC, 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.
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.
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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.
Development by others of new or improved products, processes or
technologies may make the Company's products or proposed products obsolete or
less competitive. The Company will be required to devote continued efforts and
financial resources to enhancement of its existing products and development of
new products. There can be no assurance that the Company will have the financial
resources or the technological capability necessary to carry out such product
enhancement and development. Nor can there be any assurance that any of the
products currently being developed by the Company, or those to be developed in
the future, will be technologically feasible or accepted by the marketplace,
that any such development will be completed in any particular time frame, or
that the Company's products or proprietary technologies will not become
uncompetitive or obsolete.
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 has filed suit against the Company alleging patent
infringement, among other things. See "Item 3. Legal Proceedings." 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.
POSSIBLE PATENT INFRINGEMENTS. In the medical products segment, the Company
is aware of patents relating to laser technologies used in certain applications
that the Company intends to pursue, which, if valid and enforceable, may be
infringed by the Company. The Company has obtained opinions of counsel that the
Company is not infringing currently on patents held by others; however, the
validity of such opinions have not yet been judicially determined. If the
Company's current or proposed products are, in the opinion of patent counsel,
infringing on any of these patents, the Company intends to seek non-exclusive,
royalty-bearing licenses to such patents but there can be no assurance that any
such license would be available on favorable terms, if at all. In the electronic
products segment, the Company has not been notified that it is currently
infringing on any patents nor has it been the subject of any patent infringement
action. No assurance can be given that infringement claims will not be made or
that the Company would prevail in any legal action with respect thereto. Defense
of a claim of infringement is costly and could have a material adverse effect on
the Company's business, even if the Company were to prevail.
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 ADDITIONAL QUALIFIED PERSONNEL/DEPENDENCE ON KEY PERSONNEL. The
Company's ability to develop, manufacture and market all of its products, and to
attain a competitive position within the 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. (See "Management of Growth.")
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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.
The Company is dependent on various sales representatives and distributors
to market and sell its medical products. The Company is in the process of
expanding its direct sales force to ensure that it satisfactorily monitors and
controls the expected growth of its medical product sales.
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. 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 "Item 5. Market for
Common Equity and Related Stockholder Matters."
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 or that deaths could occur. Further, in the event that any of
the Company's products prove to be defective, the Company may be required to
recall and redesign such products. Although the Company has not experienced any
material losses due to product liability claims to date, there can be no
assurance that it will not experience such losses in the future. The Company
maintains 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.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. As part of its business
strategy, the Company intends to seek opportunities to expand its product and
service offerings into international markets. In marketing its products and
services internationally, the Company will likely face new competitors. There
can be no assurance that the Company will be successful in marketing or
distributing products and services in these markets or that its international
revenue will be adequate to offset the expense of establishing and maintaining
international operations. The Company's international business may be adversely
affected by changing economic conditions in foreign countries. The majority of
the Company's sales are currently denominated in U.S. dollars, but there can be
no assurance that a significantly higher level of future sales will not be
denominated in foreign currencies. To the extent the Company makes sales
denominated in currencies other than U.S. dollars, gains and losses on the
conversion of those sales to U.S. dollars may contribute to fluctuations in the
Company's business, financial condition and results of operations. In addition,
fluctuations in exchange rates could affect demand for the Company's products
and services. Conducting an international business inherently involves a number
of other difficulties and risks, such as export restrictions, export controls
relating to technology, compliance with existing and changing regulatory
requirements, tariffs and other trade barriers, difficulties in staffing and
managing international operations, longer payment cycles, problems in collecting
accounts receivable, political instability, seasonal reductions in business
activity in Europe and certain other parts of the world during the summer
months, and potentially adverse tax consequences. There can be no assurance that
one or more of these factors will not have a material adverse effect on any
international operations established by the Company and, consequently, on the
Company's business, financial condition and results of operations.
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The Company plans to expand its business into international markets and has
set up a manufacturing and distribution center in Hull, England. To date, the
Company has minimal experience in marketing and distributing its products
internationally and plans to establish alliances with sales representative
organizations and resellers with particular experience in international markets.
Accordingly, the Company's success in international markets will be
substantially dependent upon the skill and expertise of such international
participants in marketing the Company's products. There can be no assurance that
the Company will be able to successfully market, sell and deliver its products
in these markets. In addition, there are certain risks inherent in doing
business in international markets, such as unexpected changes in regulatory
requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, management's lack of
international expertise, political instability and fluctuations in currency
exchange rates and potentially adverse tax consequences, which could adversely
impact the success of the Company's international operations. There can be no
assurance that one or more of such factors will not have a material adverse
effect on the Company's future international operations and, consequently, on
the Company's business, financial condition or operating results.
HAZARDOUS SUBSTANCE AND ENVIRONMENTAL CONCERNS. The manufacture of
substrate interconnect products involves numerous chemical solvents and other
solid, chemical and hazardous wastes and materials. Dynaco is subject to a
variety of environmental laws relating to the generation, storage, handling,
use, emission, discharge and disposal of these substances and potentially
significant risks of statutory and common law liability for environmental damage
and personal injury. The Company, and in certain circumstances, its officers,
directors and employees, may be subject to claims arising from the Company's
manufacturing activities, including the improper release, spillage, misuse or
mishandling of hazardous or non-hazardous substances or material. The Company
may be strictly liable for damages, regardless of whether it exercised due care
and complied with all relevant laws and regulations. The Company does not
currently maintain environmental impairment insurance. There can be no assurance
that the Company will not face claims resulting in substantial liability for
which the Company is uninsured or that hazardous substances are not or will not
be present at the Company's facilities. Failure to comply with proper hazardous
substance handling procedures or violation of environmental laws and regulations
would have a material adverse effect on the Company.
SIGNIFICANT OUTSTANDING INDEBTEDNESS; SUBORDINATION OF DEBENTURES. The
Company has incurred substantial indebtedness in relation to its equity capital
and will be subject to all of the risks associated with substantial leverage,
including the risk that available cash may not be adequate to make required
payments to the holders of the Debentures. The Company's ability to satisfy its
obligations under the Debentures from cash flow will be dependent upon the
Company's future performance and will be subject to financial, business and
other factors affecting the operation of the Company, many of which may be
beyond the Company's control. In the event the Company does not have sufficient
cash resources to satisfy quarterly interest or other repayment obligations to
the holders of the Debentures, the Company will be in default under the
Debentures, which would have a material adverse effect on the Company. To the
extent that the Company is required to use cash resources to satisfy interest
payments to the holders of the Debentures, it will have less resources available
for other purposes. Inability of the Company to repay the Debentures upon
maturity would have a material adverse effect on the Company, which could result
in a reduction of the price of the Company's Shares.
The Debentures will be unsecured and subordinate in right of payment to all
Senior Indebtedness of the Company. The Debentures do not restrict the Company's
ability to incur additional Senior Indebtedness and most other indebtedness. The
terms of Senior Indebtedness now existing or incurred in the future could affect
the Company's ability to make payments of principal and/or interest to the
holders of Debentures. See "Item 5. Market for Common Equity and Related
Stockholder Matters."
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,
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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.")
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ITEM 7. FINANCIAL STATEMENTS
PALOMAR MEDICAL TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 F-3
Consolidated Statements of Operations for the years ended
December 31, 1995 and 1996 F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1996 F-7
Notes to Consolidated Financial Statements F-10
<PAGE>
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Palomar Medical Technologies, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Palomar
Medical Technologies, Inc. (a Delaware corporation) and subsidiaries, as of
December 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Palomar Medical
Technologies, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts,
March 7, 1997 (Except with respect
to the matter discussed
in Note 15(a) as to which
the date is March 31, 1997)
<PAGE>
F-3
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<C> <C> <C>
December 31, December 31,
1995 1996
ASSETS
Current Assets:
Cash and cash equivalents $17,138,178 $16,172,731
Marketable securities 749,410 2,893,792
Accounts receivable, net of allowance for doubtful accounts of 4,737,766 18,308,077
approximately $445,000 and $3,113,000, respectively
Inventories 3,649,884 18,790,484
Loans to officers 948,198 995,331
Notes receivable related parties 3,161,375 464,153
Other notes receivable --- 899,937
Other current assets 352,130 7,623,161
----------- ----------
Total current assets 30,736,941 66,147,666
----------- ----------
Property and Equipment, at Cost, Net 3,165,015 8,404,605
Other Assets:
Cost in excess of net assets acquired, net of accumulated 3,729,508 5,024,299
amortization of approximately $673,000 and $1,480,000,
respectively
Intangible assets, net of accumulated amortization of approximately 1,597,745 2,286,058
and $1,025,000, respectively
Deferred costs 809,120 2,895,803
Long-term investments 500,000 3,179,554
Loan to related party 700,000 1,100,000
Other assets 631,831 1,719,211
----------- -----------
Total other assets 7,968,204 16,204,925
----------- -----------
$41,870,160 $90,757,196
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving lines of credit $1,296,462 $4,558,052
Current portion of long-term debt 2,574,265 2,783,683
Contingent note payable 500,000 ---
Accounts payable 4,246,950 14,304,285
Accrued expenses 4,633,557 14,669,893
------------ ----------
Total current liabilities 13,251,234 36,315,913
------------ ----------
Long-Term Debt, Net of Current Portion 3,330,172 16,204,692
------------ ----------
Minority Interest in Subsidiary --- 160,000
------------ ----------
Commitments and Contingencies (Note 13)
Stockholders' Equity:
Preferred stock, $.01 par value- 139 182
Authorized - 5,000,000 shares
Issued and outstanding -
13,860 shares and 18,151 shares
at December 31, 1995 and 1996
(Liquidation preference of $18,645,956 as of December 31,
1996)
Common stock, $.01 par value- 201,353 305,968
Authorized - 100,000,000 shares
Issued and outstanding - 20,135,406 shares
and 30,596,812 shares at December 31, 1995 and 1996
Additional paid-in capital 54,152,385 104,900,551
Accumulated deficit (25,864,657) (64,971,200)
Unrealized loss on marketable securities --- (342,500)
Subscriptions receivable from related party (1,988,709) (604,653)
Less: Treasury Stock (200,000 shares at cost) (1,211,757) (1,211,757)
------------ ------------
Total stockholders' equity 25,288,754 38,076,591
------------ ------------
$41,870,160 $90,757,196
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
F-4
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1995 1996
----------- ------------
Revenues $21,906,504 $70,098,443
Cost of revenues 17,192,470 63,177,555
----------- ------------
Gross profit 4,714,034 6,920,888
----------- ------------
Operating Expenses
Research and development 4,419,487 7,977,085
Sales and marketing 2,768,541 11,420,943
General and administrative 7,879,694 21,569,054
Business development
and other financing costs 1,409,303 2,879,603
Settlement and Litigation Costs 700,000 2,255,000
Merger expenses -- 443,780
----------- ------------
Total operating expenses 17,177,025 46,545,465
----------- ------------
Loss from operations (12,462,991) (39,624,577)
Interest Expense (1,374,199) (1,443,564)
Interest Income 913,050 1,586,620
Net Gain on Trading Securities 201,067 2,033,371
Gain On Sale of Stock of a Subsidiary -- 3,830,000
Other Income (Expense) 102,305 (4,245,642)
----------- ------------
Net loss $(12,620,768) $(37,863,792)
============ =============
Net Loss Per Common Share $(0.89) $(1.49)
============ =============
Weighted Average Number of
Common Shares Outstanding 14,164,901 26,166,538
============ =============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
F-5
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Treasury Stock
--------------------------------------------------------------
Number $0.01 Number $0.01 Number
of Shares Par Value of Shares Par Value of Shares Cost
-------------------- ------------------- ---------------------
Balance, December 31, 1994 -- $-- 9,464,963 $94,649 -- $--
Sale of common stock pursuant to warrants and options -- -- 2,925,093 29,251 -- --
Sale of common stock -- -- 1,622,245 16,223 -- --
Payments received on subscriptions receivable -- -- -- -- -- --
Issuance of preferred stock, including common stock issued as
as a placement fee, net of issuance costs 21,295 213 300,000 3,000 -- --
Purchase of treasury stock -- -- -- -- (200,000) (1,211,757)
Issuance of common stock in lieu of payment of notes payab -- -- 632,144 6,321 -- --
Repayment of convertible debentures -- -- -- -- -- --
Conversion of convertible debentures -- -- 1,943,870 19,438 -- --
Value ascribed to convertible debentures -- -- -- -- -- --
Value ascribed to warrant in exchange for license technolo -- -- -- -- -- --
Issuance of common stock for technology -- -- 739,546 7,395 -- --
Conversion of preferred stock (7,435) (74) 1,775,691 17,757 -- --
Exercise of underwriter's warrants -- -- 200,000 2,000 -- --
Issuance of common stock for Spectrum Medical Tech., Inc. -- -- 364,178 3,642 -- --
Issuance of common stock for investment banking and merger
and acquisition consulting services -- -- 167,676 1,677 -- --
Amortization of deferred financing costs -- -- -- -- -- --
Compensation expense related to warrants issued to
consultants and investment bankers -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------------------------------------------------------------
Balance, December 31, 1995 13,860 $139 20,135,406 $201,353 (200,000) $(1,211,757)
===============================================================
</TABLE>
<TABLE>
<C> <C> <C> <C> <C> <C>
Additional Unrealized Total
Paid-in Accumulated Loss On Subscription Stockholders
Capital Deficit Marketable Receivable Equity
Securities
Balance, December 31, 1994 $15,773,109 $(13,119,279) $-- $-- $2,748,479
Sale of common stock pursuant to
warrants and options 7,588,888 -- -- (4,633,975) 2,984,164
Sale of common stock 2,935,921 -- -- -- 2,952,144
Payments received on subscriptions receivable -- -- -- 3,694,840 3,694,840
Issuance of preferred stock,
including common stock issued as
as a placement fee, net of issuance costs 19,382,750 -- -- -- 19,385,963
Purchase of treasury stock -- -- -- -- (1,211,757)
Issuance of common stock in lieu of
payment of notes payable 1,873,611 -- -- -- 1,879,932
Repayment of convertible debentures (321,533) -- -- -- (321,533)
Conversion of convertible debentures 3,071,302 -- -- -- 3,090,740
Value ascribed to convertible debentures 899,813 -- -- -- 899,813
Value ascribed to warrant in exchange
for license technology 100,000 -- -- -- 100,000
Issuance of common stock for technology 292,605 -- -- -- 300,000
Conversion of preferred stock 68,377 -- -- -- 86,060
Exercise of underwriter's warrants 1,049,574 -- -- (1,049,574) 2,000
Issuance of common stock for
Spectrum Medical Tech., Inc. 996,358 -- -- -- 1,000,000
Issuance of common stock for
investment banking and merger
and acquisition consulting services 416,823 -- -- -- 418,500
Amortization of deferred financing costs (70,583) -- -- -- (70,583)
Compensation expense related to
warrants issued to
consultants and investment bankers 95,370 -- -- -- 95,370
Preferred stock dividends -- (124,610) -- -- (124,610)
Net loss -- (12,620,768) -- -- (12,620,768)
------------------------------------------------------------------------
Balance, December 31, 1995 $54,152,385 $(25,864,657) $-- $(1,988,709) $25,288,754
========================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
F-6
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(continued)
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Treasury Stock
Number $0.01 Number $0.01 Number
of Shares Par Value of Shares Par Value of Shares Cost
Balance, December 31, 1995 13,860 $139 20,135,406 $201,353 (200,000) $(1,211,757)
Sale of common stock pursuant to warrants and options -- -- 2,967,996 29,681 -- --
Sale of common stock -- -- 1,176,205 11,762 -- --
Payments received on subscriptions receivable -- -- -- -- -- --
Issuance of preferred stock, including common stock
issued as a placement fee, net of issuance costs 32,000 320 115,000 1,150 -- --
Issuance of common stock for 1995 employer 401(k)
matching contribution -- -- 45,885 459 -- --
Conversion of preferred stock, including accrued
dividends and interest of $782,602 (25,209) (252) 4,481,518 44,815 -- --
Conversion of convertible debentures -- -- 34,615 346 -- --
Redemption of convertible debentures -- -- -- -- -- --
Value ascribed to convertible debentures -- -- -- -- -- --
Redemption of preferred stock (2,500) (25) -- -- -- --
Exercise of underwriter's warrants -- -- 500,000 5,000 -- --
Exercise of stock options in majority controlled
subsidiary -- -- -- -- -- --
Issuance of common stock for conversion of
debentures at Tissue Technologies, Inc. -- -- 813,431 8,134 -- --
Issuance of common stock for minority interest
in Star Medical subsidiary -- -- 224,054 2,241 -- --
Issuance of common stock in exchange for license
rights -- -- 56,900 569 -- --
Issuance of common stock for acquisition of
Dermascan, Inc. -- -- 35,000 350 -- --
Issuance of common stock for investment banking
and merger and acquisition consulting services -- -- 56,802 568 -- --
Compensation expense related to warrants issued to
non-employees under SFAS No. 123 -- -- -- -- -- --
Return of escrowed shares -- -- (46,000) (460) -- --
Amortization of deferred financing costs -- -- -- -- -- --
Unrealized loss on marketable securities -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------------------------------------------------------------------
Balance, December 31, 1996 18,151 $182 30,596,812 $305,968 (200,000) $(1,211,757)
======================================================================
</TABLE>
<TABLE>
<C> <C> <C> <C> <C> <C>
Additional Unrealize Total
Paid-in Accumulated Loss on Subscriptions Stockholders'
Capital Deficit Marketable Receivable Equity
Securities
----------------------------------------------------------------------
Balance, December 31, 1995 $54,152,385 $(25,864,657) $-- $(1,988,709) $25,288,754
Sale of common stock pursuant to warrants
and options 7,569,226 -- -- -- 7,598,907
Sale of common stock 6,049,618 -- -- -- 6,061,380
Payments received on subscriptions receivable -- -- -- 2,441,556 2,441,556
Issuance of preferred stock, including common
stock issued as a placement fee, net
of issuance costs 30,821,677 -- -- -- 30,823,147
Issuance of common stock for 1995 employer 401(k)
matching contribution 160,139 -- -- -- 160,598
Conversion of preferred stock, including accrued
dividends and interest of $782,602 744,124 -- -- -- 788,687
Conversion of convertible debentures 145,260 -- -- -- 145,606
Redemption of convertible debentures (41,530) -- -- -- (41,530)
Value ascribed to convertible debentures 2,757,860 -- -- -- 2,757,860
Redemption of preferred stock (3,123,127) -- -- -- (3,123,152)
Exercise of underwriter's warrants 1,057,500 -- -- (1,057,500) 5,000
Exercise of stock options in majority
controlled subsidiary 50,000 -- -- -- 50,000
Issuance of common stock for conversion
of debentures at Tissue Technologies, Inc. 1,019,022 -- -- -- 1,027,156
Issuance of common stock for minority interest
in Star Medical subsidiary 1,747,482 -- -- -- 1,749,723
Issuance of common stock in exchange for
license rights 369,574 -- -- -- 370,143
Issuance of common stock for acquisition
of Dermascan, Inc. 489,650 -- -- -- 490,000
Issuance of common stock for investment
banking and merger and acquisition
consulting services 476,156 -- -- -- 476,724
Compensation expense related to warrants
issued to non-employees under SFAS No. 123 532,758 -- -- -- 532,758
Return of escrowed shares 460 -- -- -- --
Amortization of deferred financing costs (77,683) -- -- -- (77,683)
Unrealized loss on marketable securities -- -- (342,500) -- (342,500)
Preferred stock dividends -- (1,242,751) -- -- (1,242,751)
Net loss -- (37,863,792) -- -- (37,863,792)
-------------------------------------------------------------------------
Balance, December 31, 1996 $104,900,551 $(64,971,200) $(342,500) $(604,653) $38,076,591
=========================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
F-7
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<C> <C> <C>
Year ended December 31,
1995 1996
------------- -------------
Cash Flows from Operating Activities
Net loss $(12,620,768) $(37,863,792)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 1,825,673 3,916,221
Settlement and litigation costs 700,000 2,255,000
Gain on sale of stock of a subsidiary -- (3,830,000)
Write-off of in-process research and development -- 57,212
Write-off of intangible assets -- 631,702
Write-off of deferred financing costs associated with
redemption of convertible debentures -- 201,500
Valuation allowances for notes and investments -- 4,996,038
Minority interest in loss of subsidiary (102,305) --
Accrued interest receivable on note
and subscription receivable -- (568,917)
Foreign currency exchange gain -- (446,596)
Noncash interest expense related to debt 220,280 163,680
Noncash compensation related to common stock and warrant 95,370 836,982
Realized gain on marketable securities -- (835,197)
Unrealized gain on marketable securities (133,568) (1,198,174)
Changes in assets and liabilities, net of effects
from business combinations;
Purchases of marketable securities (615,842) (10,355,055)
Sale of marketable securities and
interest received on marketable securities 50,000 10,244,044
Accounts receivable, net (1,479,532) (13,806,643)
Inventories (1,419,030) (14,975,426)
Other current assets and loans to officers (658,012) (1,809,381)
Accounts payable 1,770,100 9,902,024
Accrued expenses 2,159,702 6,251,560
------------ -------------
Net cash used in operating activities (10,207,932) (46,233,218)
------------ -------------
Cash Flows from Investing Activities
Cash paid for purchase of Comtel Electronics, Inc., net of -- (146,586)
Cash acquired from purchase of Spectrum Medical
Technologies, Inc., and CD Titles, Inc. 101,207 --
Cash paid for purchase of Inter-connecting Products, Inc. (397,199) --
Proceeds from sale of subsidiary stock -- 2,000,000
Purchases of property and equipment (1,147,945) (5,142,128)
Increase in intangible assets -- (410,647)
Increase in other assets (695,673) (1,125,333)
Loans to related parties (3,861,375) (7,338,625)
Loans to non-related parties -- (2,236,531)
Payments received on loans to related parties -- 9,322,284
Investment in nonmarketable securities (500,000) (5,767,054)
Increase in organizational costs (500,000) --
------------ -------------
Net cash used in investing activities (7,000,985) (10,844,620)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
F-8
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<C> <C> <C>
Year ended December 31,
1995 1996
--------- ----------
Cash Flows from Financing Activities
Proceeds from issuance of convertible debentures 4,150,000 14,169,441
Proceeds from notes payable 2,630,000 --
Deferred financing costs incurred related to
convertible debemtures (182,000) (1,365,217)
Redemption of convertible debentures (1,048,967) (930,000)
Payments of notes payable and capital lease obligations (1,653,957) (944,413)
Net (payments) proceeds from revolving lines of credit (616,538) 3,261,590
Proceeds from sale of common stock 2,952,144 6,061,380
Exercise of warrants 6,194,955 7,111,684
Issuance of preferred stock 19,385,963 30,823,147
Purchase of treasury stock (1,211,757) --
Payment of contingent note payable -- (500,000)
Redemption of preferred stock, including accrued dividends -- (3,194,375)
Payments received on subscriptions receivable -- 2,009,592
Deferred costs -- (932,661)
Proceeds from exercise of stock options 484,049 542,223
----------- ----------
Net cash provided by financing activities 31,083,892 56,112,391
----------- ----------
Net increase (decrease) in cash and cash equivalents 13,874,975 (965,447)
Cash and cash equivalents, beginning of year 3,263,203 17,138,178
----------- ----------
Cash and cash equivalents, end of year $17,138,178 $16,172,731
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $542,294 $599,011
=========== ===========
Supplemental Disclosure of Noncash Financing and Investing Activities:
Conversion of convertible debentures and related accrued
interest, net of financing fees $3,190,740 $1,172,762
=========== ===========
Subscriptions received in connection with warrant
exercises $1,988,709 $1,057,500
=========== ===========
Issuance of common stock in lieu of payment of
notes payable $1,879,932 $--
=========== ===========
Conversion of preferred stock $86,060 $788,687
=========== ===========
Property acquired under capital leases $196,321 $1,135,189
=========== ===========
Issuance of common stock in exchange for license rights $300,000 $370,143
=========== ===========
Purchase of technology $--- $1,375,000
=========== ===========
Investment banking and consulting fees for services
related to the issuance of common stock and
convertible debentures $120,000 $709,224
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
F-9
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<C> <C> <C>
Year ended December 31,
1995 1996
--------- -----------
Supplemental Disclosure of Noncash Financing and Investing Activities
Value ascribed to warrants in exchange for
license technology $100,000 $--
========= ===========
Issuance of common stock for 1995 employer 401(k)
matching contribution $-- $160,598
========= ===========
Issuance of common stock for minority interest
in Star Medical subsidiary $-- $1,749,723
========= ===========
Acquisition of Comtel Electronics, Inc.
Liabilities assumed $-- $(258,144)
Fair value of assets acquired -- 72,661
Cash paid, net of cash acquired -- (146,586)
--------- -----------
Cost In Excess of Net Assets Acquired $-- $(332,069)
========= ===========
Acquisition of Dermascan, Inc.
Liabilities assumed $-- $(39,980)
Fair value of assets acquired -- 28,126
Fair value of common stock issued -- (490,000)
--------- -----------
Cost In Excess of Net Assets Acquired $-- $(501,854)
========= ===========
Acquisition of Spectrum Medical Technologies, Inc.
Liabilities assumed $(1,128,139) $--
Fair value of assets acquired 1,456,920 --
Fair value of 364,178 shares of common stock issued (1,000,000) --
Promissory note issued (700,000) --
Cash paid (300,000) --
Acquisition costs incurred (161,138)
------------ -----------
Cost in Excess of Net Assets Acquired $(1,832,357) $--
============ ===========
Acquisition of CD Titles, Inc.
Liabilities assumed $(1,271,345) $--
Fair value of assets acquired 1,271,345 --
------------ -----------
Cost In Excess of Net Assets Acquired $-- $--
============ ===========
Acquisition of Inter-connecting Products, Inc.
Liabilities assumed $(201,761) $--
Fair value of assets acquired 598,960 --
Cash Paid (397,199) --
------------ -----------
Cost In Excess of Net Assets Acquired $-- $--
============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
F-10
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND OPERATIONS
Palomar Medical Technologies, Inc. and subsidiaries ("Palomar" or the
"Company") is engaged in two business segments: medical device products and
services and electronic products and services. The medical device products
segment consists of the commercial sales and development of cosmetic and medical
laser systems and services. The electronics products segment consists of the
manufacture and sale of personal computers, high density flexible electronics
circuitry and memory modules.
The Company also makes early stage investments in core technologies and
companies that management feels are strategic to the Company's business or will
yield a higher than average financial return to support the Company's core
business. Some of these investments are with companies associated with some of
the directors and officers of the Company (See Note 11).
Some of the Company's medical laser and electronic products are in various
stages of development, and, as such, success of future operations is subject to
a number of risks similar to those of other companies in similar stages of
development. Principal among these risks are the successful development and
marketing of its products, proper regulatory approval, the need to achieve
profitable operations, competition from substitute products and larger
companies, the need to obtain adequate financing to fund future operations and
dependence on key individuals.
The Company has incurred significant losses since inception. The Company
continues to seek additional financing from issuances of common stock and/or
other prospective sources in order to fund future operations. The Company has
financed current operations, expansion of its core business and outside
short-term financial investments primarily through the private sale of debt and
equity securities of the Company. The Company raised a total of $56,112,391 and
$31,083,892 in such financings during the years ended December 31, 1996 and
1995, respectively. The Company anticipates that it will require additional
financing during the next twelve-month period to continue to fund operations and
growth. The Company may from time to time be required to raise additional funds
through additional private sales of the Company's debt or equity securities.
Sales of securities to private investors are sold at a discount to the public
market for similar securities. It has been the Company's experience that private
investors require that the Company make its best effort to register these
securities for resale to the public at some future time.
MEDICAL SEGMENT BUSINESS DEVELOPMENTS
STAR MEDICAL TECHNOLOGIES, INC.
On April 22, 1996, the Company purchased the remaining 14.5% of the
outstanding common stock of Star Medical Technologies, Inc. ("Star") which it
did not already own in exchange for 224,054 shares of Palomar's common stock
valued between $6 and $8 per share. This agreement restricts, for a period of
two years, the sale of the Company's common stock issued in connection with this
agreement. The purchase price has been recorded as additional goodwill and is
being amortized over a period of five years. In connection with this agreement
the original founders of Star have agreed to rescind all royalties due to them
under a Rights Agreement dated July 1, 1993. To date, revenues from Star have
not been significant.
SPECTRUM MEDICAL TECHNOLOGIES, INC.
On April 5, 1995, the Company acquired all of the outstanding common
stock of Spectrum Medical Technologies, Inc. ("Spectrum"). The purchase price
consisted of $300,000 in cash, a $700,000 two-year promissory note, 364,178
shares of the Company's common stock with an aggregate fair market value of
$1,000,000, acquisition costs of $161,138 and assumed liabilities totaling
$1,128,139. In addition, the purchase price includes a 20% contingency payment,
payable in the Company's common stock, based upon the future earnings
performance of Spectrum over a three to five-year period, which will be recorded
as additional goodwill if earned. Spectrum develops, manufactures, sells and
services ruby lasers
<PAGE>
F-11
throughout the world for dermatological applications including the recently
(March 1997) FDA approved EpiLaser. The acquisition has been accounted for as a
purchase in accordance with Accounting Principles Board ("APB") Opinion No. 16.
SPECTRUM FINANCIAL SERVICES LLC
On June 30, 1995, the Company formed Spectrum Financial Services LLC
("SFS"), a Limited Liability Company. SFS provides financial leasing services
for medical and electronic manufacturers both related and unrelated to the
Company. The Company has majority control over the operating activities of this
entity. Accordingly, the Company has consolidated the results of operations and
financial position of SFS since the date of formation. To date, the operations
of SFS have not been a significant.
TISSUE TECHNOLOGIES, INC.
On May 3, 1996, the Company acquired 100% of Tissue Technologies, Inc.
("Tissue Technologies"), a manufacturer of a dermatology laser product for the
treatment of wrinkles, in exchange for 3,200,000 shares of the Company's common
stock. The Company has accounted for this acquisition as a pooling-of-interest
in accordance with APB No. 16. Tissue Technologies is engaged in the
manufacturing, marketing and sales of the Tru-Pulse C02 laser system used in
skin resurfacing and treatment of wrinkles.
DERMASCAN, INC.
On July 18, 1996 the Company purchased 80 shares of common stock (80% of
total issued and outstanding capital stock) of Dermascan, Inc. ("Dermascan")
from a Dermascan stockholder in exchange for 35,000 shares of the Company's
common stock. The Company included these 35,000 shares in a registration
statement that became effective February 28, 1997. In addition, the Company
agreed to pay the Dermascan stockholder an amount equal to the difference
between $14.00 and the $7.8125, the closing bid price on February 28, 1997. The
Company has recorded the acquisition at a price of $490,000 in total. Dermascan
markets and sells electrology equipment and supplies to the electrology market.
To date, the operations of Dermascan have not been significant.
PALOMAR TECHNOLOGIES, LTD.
On November 13, 1996, the Company formed Palomar Technologies, Ltd. located
in Hull, England. The purpose of the formation of this company was to establish
a European entity to manufacture, sell and service laser products throughout
Europe and provide a low-cost sourcing alternative for specialty components.
Operations are expected to begin in mid-1997. Through March 7, 1997, the Company
has funded this subsidiary with approximately $1,600,000 for the purchase of
office building and lease of its manufacturing facilities and the hiring of
certain key employees, and is committed to fund this subsidiary an additional $1
million. Subsequent to year end, Palomar Technologies Ltd. entered into
employment agreements with several individuals and issued stock options to
purchase up to 49% of the outstanding common shares of Palomar Technologies Ltd.
Under the terms of the employment agreements, the optionholders have the right
to require the Company to purchase all or a portion of these common shares
exercised pursuant to such stock option at a purchase price based on an earnings
formula as defined.
COSMETIC TECHNOLOGY INTERNATIONAL, INC.
On December 20, 1996, the Company formed Cosmetic Technology International,
Inc. ("CTI"). CTI is a service company which intends to establish a worldwide
network of cosmetic, dermatological laser and medical device sites with medical
service partners (both fixed and mobile) in key geographic locations. Each site
will be provided a turnkey package of laser and medical device technology,
equipment and services. To date, the operations of CTI have not been
significant.
<PAGE>
F-12
ELECTRONICS SEGMENT BUSINESS DEVELOPMENTS
NEXAR TECHNOLOGIES, INC.
On March 7, 1995, the Company formed Nexar Technologies, Inc. ("Nexar").
Nexar is an early-stage company that manufactures, markets and sells personal
computers with a unique circuit board design that will enable end users to
upgrade and replace the microprocessor, memory and hard drive components. Nexar
markets its products using various proprietary brand names through multiple
channels of distribution, including the wholesale, retail and direct response
channels.
On December 20, 1996, Nexar filed a registration statement on Form S-1 with
the SEC in connection with an initial public offering of 2,500,000 shares of its
common stock for its own account, as well as shares held by Nexar shareholders.
The estimated price per share range of the proposed offering is $11.00 to
$13.00. Following the offering, Palomar will beneficially own approximately 67%
of the common stock subject to a contingent repurchase right of Nexar at a
nominal price per share in the event that Nexar achieves certain performance
milestones set forth in an agreement between Nexar and Palomar, and shares of
Nexar common stock which Palomar may acquire upon conversion of shares of Nexar
convertible preferred stock. The Company anticipates that the offering will
close in early April 1997. Upon completion of the offering, Nexar will repay the
Company approximately $8,200,000 from the net proceeds received from this
offering. However, the Company can in no way guarantee, nor ensure, successful
completion of the initial public offering.
In December 1996 the Company sold 400,000 shares of Nexar common stock for
$4,000,000, of which $2,000,000 was collected prior to year end and $2,000,000
is in other current assets in the consolidated balance sheet. One of the
purchasers of 200,000 shares is a shareholder of the Company. The Company
recognized a gain on this sale of $3,830,000 in the consolidated statement of
operations. Subsequent to year end, the Company sold an additional 200,000
shares of Nexar common stock for $2,000,000 to another Company shareholder. The
subsequent to year end sale of Nexar common stock includes an option
arrangement, whereby the purchaser has the option to exchange the shares of
Nexar common stock, as defined, for $2,000,000 of the Company's common stock
based on a discounted value as defined, if an option exercise event occurs,
based on the value of the Company's stock on the exchange date. The option
exercise terminates upon the completion of Nexar's initial public offering.
CD TITLES, INC.
On July 13, 1995, CD Titles, Inc. ("CD Titles") was incorporated. The
Company owns substantially all of CD Titles' outstanding common stock. During
July 1995, certain minority stockholders of CD Titles loaned CD Titles a total
of $600,000. On July 31, 1995, CD Titles purchased certain assets and assumed
certain liabilities of CD Titles totaling $1,271,345. The purchase price
consisted of $625,000 in cash and a $600,000 note payable due September 30,
1995, which was guaranteed by the Company. CD Titles is a CD ROM publishing
company that distributes various materials on CD ROM through personal computer
wholesale channels in the United States. The acquisition has been accounted for
as a purchase in accordance with the APB No. 16.
CD Titles defaulted on its loans to the minority stockholders, and on
October 30, 1995 the Company negotiated a settlement with the minority
stockholders by agreeing to issue 257,144 shares of the Company's common stock
in lieu of the then outstanding principal and accrued interest (approximately
$794,000 at October 30, 1995). The common stock was issued at a 35% discount of
the closing bid price of the stock on October 30, 1995. The discount represented
the Company's cost of acquiring capital and was consistent with discounts
offered in similar financings during 1995.
In addition to the settlement of the minority stockholders' notes, the
Company entered into a settlement agreement with the former stockholders.
Pursuant to the settlement agreement, the Company registered 175,000 shares of
its authorized, but unissued common stock (the "pledged shares") which were then
issued to the former shareholders of CD Titles for resale. As part of the
agreement, the former shareholders of CD Titles would sell only the amount of
pledged shares to receive proceeds equal to the outstanding principal and
accrued interest on the note payable, which totaled $628,531, due on September
30, 1995, as part of the acquisition of CD Titles. In 1996, the former
shareholders of CD Titles returned 46,000 of the pledged shares, which
represents the unused portion. The Company has retired the returned shares.
<PAGE>
F-13
DYNAMEM, INC.
On September 28, 1995, Dynaco Corp. ("Dynaco") formed Dynamem Corporation
("Dynamem") (a Delaware Corporation) and contributed $8,000 for a majority (80%)
ownership in this subsidiary. The remaining 20% ownership is owned by the
president of Dynamem (the "Joint Owner"). Dynamem was formed to manufacture and
distribute a patented, high-density memory packaging technology. The Joint Owner
granted Dynamem a non-exclusive license to manufacture, use, sell and sublicense
certain patented FRAMM technology in exchange for certain royalty payments. The
royalities are guaranteed by Dynaco. Dynaco and the Joint Owner also entered
into a stockholders' agreement which grants the Joint Owner the right, upon the
earlier of December 29, 2000, or the termination of his employment with Dynamem,
to require Dynaco to purchase a total of 75% of the securities owned by the
Joint Owner in Dynamem. In addition, if the Company purchases the Joint Owner's
shares, the Joint Owner may elect to receive between 35% and 100% of the
purchase price in the form of common stock of the Company.
PALOMAR ELECTRONICS CORPORATION
On September 15, 1995, the Company formed Palomar Electronics Corporation
("PEC"), as part of a reorganization to separate the electronics and computer
operations of the Company's business from the medical laser segments of its
business. On September 29, 1995, as part of this reorganization, the Company
contributed all of its outstanding capital stock of Dynaco and Nexar, together
with certain intercompany indebtedness, to PEC in exchange for 4,500,000 shares
of common stock of PEC. On December 21, 1995, PEC issued 10% bridge notes
payable to certain investors for an aggregate consideration of $1,350,000 (see
Note 4). In connection with these notes, PEC issued to the noteholders warrants
to purchase up to 240,000 shares of its common stock. During the year ended
December 31, 1995, the Company started, but did not complete, an initial public
offering of PEC and incurred costs of approximately $438,000. This amount is
included in business development and other financing costs in the accompanying
consolidated statement of operations for the year ended December 31, 1995.
COMTEL ELECTRONICS, INC.
During 1996, Dynaco acquired 80.23% ownership Comtel Electronics, Inc.
("Comtel") by converting a $100,000 note receivable into equity of Comtel and
paying $27,500 in cash. Effective December 31, 1996, as part of a
recapitalization of Comtel, Dynaco exchanged $2,200,000 in intercompany
receivables due from Comtel and used by Comtel to fund its operations for an
additional 11.98% ownership in Comtel. This transaction resulted in Dynaco
owning 97.3% of Comtel. The remaining 2.7% ownership is held by two individuals.
The acquisition has been accounted for as a purchase in accordance with APB No.
16. Accordingly, the Company has allocated the purchase price based on the fair
market value of assets acquired and liabilities assumed. The results of Comtel
have been included with those of the Company since March 20, 1996.
PRO FORMA INFORMATION
The results of operations related to Spectrum have been included with those
of the Company since April 5, 1995.
The results of operations related to CD Titles, Inc./CDRP have been
included with those of the Company since July 31, 1995.
The results of operations related to Comtel have been included with those
of the Company since March 20, 1996.
The results of operations related to Dermascan have been included with
those of the Company since July 18, 1996
<PAGE>
F-14
Unaudited pro forma operating results for the Company, assuming the
acquisitions of Spectrum and Comtel had been made as of January 1, 1995, are as
follows (operations of CD Titles and Dermascan prior to acquisition were
insignificant):
Year Ended
1995 1996
----------- -----------
Revenue $31,051,600 $70,483,048
Net loss (16,827,709) (37,901,990)
Net loss per common share $(1.20) $(1.49)
Separate and combined results of the Company and Tissue Technologies
preceding the merger were as follows:
Tissue Palomar Combined
------------ ----------- -------------
Four Months Ended
May 3, 1996
(unaudited)
Net Revenues $3,093,804 $10,255,380 $13,349,184
Net Loss $(1,731,775) $(8,259,386) $ (9,991,161)
Year Ended
December 31, 1995
Net Revenues $114,425 $21,792,079 $21,906,504
Net Loss $(1,969,793) $(10,650,975) $(12,620,768)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain accounting policies described below and elsewhere in the Notes to
Consolidated Financial Statements.
(a) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements reflect the consolidated
financial position, results of operations and cash flows of the Company and all
wholly-owned and majority-owned subsidiaries. All other investments are
accounted for using the cost method as the Company owns less than 20% of the
common stock outstanding for these investments. All intercompany transactions
have been eliminated in consolidation.
(b) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. As of
December 31, 1996, the Company also has investments in marketable and
nonmarketable securities and loans to related parties totaling $8,632,830. The
amount that the Company may ultimately realize from these investments could
differ materially from the value of these investments recorded in the
accompanying consolidated financial statements as of December 31, 1996.
(c) INVESTMENTS
The fair values for the Company's marketable securities are based on
quoted market prices. The fair values of nonmarketable equity securities which
totaled $2,400,000 at December 31, 1996 represent equity investments in early
stage technology companies, and are based on the financial information provided
by these ventures. The Company periodically performs a financial analysis to
evaluate whether a permanent impairment has occurred. The amount that the
Company
<PAGE>
F-15
realizes from these investments may differ significantly from the amounts
recorded in the accompanying consolidated financial statements.
The Company accounts for marketable securities in accordance with SFAS No.
115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Under
SFAS No. 115, securities that the Company has the positive intent and ability to
hold to maturity are reported at amortized cost are classified as
held-to-maturity. There were no held-to-maturity securities as of December 31,
1995 and 1996. Securities purchased to be held for indefinite periods of time
and not intended at the time of purchase to be held until maturity are
classified as available-for-sale securities. Unrealized gains and losses
relating to available-for-sale securities are included as a separate component
of stockholders' equity. Securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities.
Realized and unrealized gains and losses relating to trading securities are
included in the accompanying consolidated statements of operations. The Company
has deemed its portfolios at December 31, 1995 and 1996 to consist of
available-for-sale and trading securities summarized as follows:
December 31, 1995
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Costs Gain Loss Value
----------- ------------ ------------- -------------
Trading Securities:
Investments in publicly
traded companies $615,842 $137,170 $3,602 $749,410
============ ============ ============= =============
December 31, 1996
------------------------------------------------------
Trading Securities:
Investments in publicly
traded companies $1,695,618 $1,537,614 $339,440 $2,893,792
Available-for-Sale (long-term):
Investments in publicly
traded companies 1,000,000 --- 342,500 657,500
------------ ------------ ------------- -------------
$2,695,618 $1,537,614 $681,940 $3,551,292
============ ============ ============= =============
(d) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Work-in-process and finished goods inventories consist of material,
labor and manufacturing overhead. At December 31, 1995 and 1996, inventories
consist of the following:
December 31,
1995 1996
---------------- ----------------
Raw materials $1,949,288 $13,266,204
Work-in-process and finished goods 1,700,596 5,524,280
---------------- ----------------
$3,649,884 $18,790,484
================ ================
<PAGE>
F-16
(e) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization on property and
equipment using the straight-line method, by charging to operations amounts that
allocate the cost of assets over their estimated useful lives as follows:
Estimated
Asset Classification Useful Life
------------------------------------ ----------------------
Equipment under capital leases Term of Lease
Machinery and Equipment 5-8 Years
Furniture and Fixtures 5 Years
Leasehold improvements Term of Lease
Property and Equipment consist of the following:
December 31,
1995 1996
---------------- -----------------
Equipment under capital leases $1,214,950 $2,261,339
Machinery and equipment 1,992,157 5,429,764
Furniture and fixtures 806,252 1,926,948
Leasehold improvements 308,158 1,160,814
---------------- -----------------
4,321,517 10,778,865
Less: Accumulated depreciation
and amortization 1,156,502 2,374,260
---------------- -----------------
$3,165,015 $8,404,605
================ =================
(f) COST IN EXCESS OF NET ASSETS ACQUIRED AND INTANGIBLE ASSETS
The costs in excess of net assets acquired for Dynaco, Spectrum, Star and
Comtel are being amortized on a straight-line basis over periods ranging from 5
to 10 years, and are as follows:
December 31,
1995 1996
---------------- ----------------
Dynaco $2,570,318 $2,570,318
Spectrum 1,832,357 1,832,357
Star --- 1,749,722
Comtel --- 352,220
---------------- ----------------
4,402,675 6,504,617
Less: accumulated amortization 673,167 1,480,318
================ ================
$3,729,508 $5,024,299
================ ================
Amortization expense for the years ended December 31, 1995, and 1996,
amounted to approximately $445,000 and $807,000, respectively, and is included
in general and administrative expenses in the accompanying consolidated
statements of operations.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, in March 1995.
Under SFAS No. 121, the Company is required to assess the valuation of its
long-lived assets, including cost in excess of net assets acquired, based on the
estimated future cash flows to be generated by such assets. The Company had
write-offs totaling
<PAGE>
F-17
approximately $1,032,000 associated with the realizability of certain licenses
and goodwill. This amount is included in general and administrative expenses in
the accompanying consolidated statement of operations for the year ended
December 31, 1996.
Other intangibles include the cost of licenses and technologies acquired
through the purchase of product rights and licenses during 1995 and 1996. These
intangibles are being amortized over a period of five years. Amortization
expense for the years ended December 31, 1995 and 1996 were approximately
$149,000 and $876,000 respectively, and is recorded in general and
administrative expenses in the accompanying consolidated statements of
operations.
On February 28, 1995, Tissue Technologies entered into a license agreement
to license a patent on a low pressure discharge apparatus (a key instrument in
Tissue Technologies' product) with a corporation. As consideration for entering
into the agreement, the corporation received $50,000 in cash and a warrant to
purchase 160,000 shares of common stock at a price of $.01 per share. Tissue
Technologies ascribed a value to the warrant of $100,000. The former majority
stockholder and officer of Tissue Technologies also assigned his right to
license the technology to Tissue Technologies, on an exclusive basis, and
exchanged his note payable of $100,000 for 600,000 shares of Tissue
Technologies' common stock, which was subsequently exchanged in the merger
discussed in Note 1. Tissue Technologies has capitalized $450,000 which
represents the cash paid plus the value ascribed to the equity consideration
given in exchange for the license.
As part of the formation and organization of PEC and Nexar, the Company
agreed to settle a complaint brought against the Company and the chief executive
officer of Nexar. As part of the settlement, the Company was required to pay
$525,000 and agreed to issue warrants to purchase 108,000 shares of the
Company's common stock at $5.00 per share. The Company has fully expensed this
amount in 1996 which is included in settlement and litigation costs in the
accompanying consolidated statement of operations.
(g) DEFERRED COSTS
Deferred costs consisted of the following at December 31, 1995 and 1996:
December 31,
1995 1996
--------------- --------------
Prepaid Investment banking fees $290,816 $ ---
Deferred initial public offering costs --- 952,383
Deferred financing costs, net 518,304 1,943,420
=============== ==============
$809,120 $2,895,803
=============== ==============
On August 19, 1994, the Company entered into an investment services
agreement whereby an investment banker would provide merger and acquisition
consulting services over a two-year period ending August 1996. The Company
expensed approximately $436,000 and $291,000 of these prepaid fees during the
years ended December 31, 1995 and 1996, respectively.
As of December 31, 1996, the Company has incurred costs of approximately
$952,383 in connection with the proposed initial public offering of Nexar's
common stock. These costs have been deferred as of December 31, 1996 and upon
the consummation of the proposed initial public offering the deferred offering
costs will be charged to stockholder's equity as reduction of the gross
proceeds.
During the years ended December 31, 1995 and 1996, the Company incurred
financing costs related to several issuances of convertible debentures (see Note
4). Deferred financing costs related to convertible debentures totalled $238,333
and $1,943,420 at December 31, 1995 and 1996, respectively.
<PAGE>
F-18
(h) REVENUE RECOGNITION
The Company recognizes product revenue upon shipment. Design and tooling
revenue is recognized upon customer acceptance. Occasionally, revenue is
recognized by the Company's Dynaco subsidiary upon completion of a phase of the
order when contractually accepted by the customer. Provisions are made at the
time of revenue recognition for any applicable warranty costs expected to be
incurred.
Nexar recognizes product revenue upon shipment. Nexar has established
programs which, under specified conditions, provide price protection and or
enable customers to return products. The effects of these programs are estimated
and current period revenue and cost of revenue are reduced accordingly. This is
standard industry practice, and no other contingencies exist relating to these
programs. Provisions are made at the time of sale for any applicable warranty
costs expected to be incurred.
During the year ended December 31, 1996, Nexar recognized revenue totaling
approximately $2,500,000 for products whose title passed to a significant
customer (see Note 2(i)) and such customer instructed the Company to hold the
product at its manufacturing facility on the customer's behalf. Subsequent to
December 31, 1996, all of this product had been shipped to this customer.
Included in accounts receivable at December 31, 1996 is approximately $160,000
due from this customer related to this transaction. The Company has recognized
this revenue in accordance with the SEC Accounting and Auditing Enforcement
Release No. 108.
(i) SIGNIFICANT CUSTOMERS
For the year ended December 31, 1995 one customer accounted for 10.3% of
revenues and 11.2% of accounts receivable. For the year ended December 31, 1996
one customer accounted for 22.3% of revenues and 26.7% of accounts receivable.
The two largest customers in 1996 accounted for 39.9% of revenue and represented
49.9% of the December 31, 1996 accounts receivable balance of which
approximately $5,056,000 was collected subsequent to year end. Accounts
receivable included $4,896,632 from a customer of Comtel's in which the Company
has approximately 14% equity ownership as of December 31, 1996. (See Note 11.)
(j) RESEARCH AND DEVELOPMENT EXPENSES
The Company charges research and development expenses to operations as
incurred.
(k) NET LOSS PER COMMON SHARE
For the years ended December 31, 1995 and 1996 the net loss per common
share has been computed by dividing net loss, as adjusted for preferred stock
dividends, by the weighted average number of shares of common stock outstanding
during the period. Common stock equivalents are not considered as outstanding,
as the result would be antidilutive.
The net loss was adjusted by the aggregate amount of dividends totaling
$124,610 and $1,242,751 on the Company's preferred stock during the years ended
December 31, 1995 and 1996, respectively. In March of 1997, SFAS No.128 EARNINGS
PER SHARE was issued which established new standards for calculating and
presenting earnings per share. The Company will be required to adopt this new
standard in the 1997 consolidated financial statements. In accordance with this
new standard, basic and diluted loss per share for 1995 and 1996 would be
$(0.89) and $(1.49).
(l) CONCENTRATION OF CREDIT RISK
SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT
RISK, requires disclosures of any significant off-balance-sheet and credit risk
concentrations. Financial instruments that subject the company to credit risk
consist primarily of cash and trade accounts receivable. The Company places its
cash in highly rated financial institutions. The Company also has convertible
debentures denominated in Swiss francs of $7,222,846 at December 31, 1996 (see
Note 4(c)). The Company currently does not have a
<PAGE>
F-19
foreign currency hedging arrangement and plans to hedge this amount in 1997. The
Company has no other significant off-balance-sheet concentration of credit risk
such as foreign exchange contracts, options contracts or other foreign hedging
arrangements. To reduce its accounts receivable risk, the Company routinely
assesses the financial strength of its customers and, as a consequence, believes
that its accounts receivable credit risk exposure is limited. The Company
maintains an allowance for potential credit losses. The Company's accounts
receivable credit risk is not within any geographic area. The Company has issued
notes and made investments to various related parties totaling $5,076,751as of
December 31, 1996 (see Note 11). Included in this amount are unsecured loans of
$604,653 to and for the benefit of a director of the Company's underwriter. As
of December 31, 1996, the Company also made strategic equity investments
totaling $2,587,500 in four technology companies. Subsequent to year-end, the
Company loaned money to, prepaid fees for, purchased inventory on behalf of and
made investments in certain related entities totaling $3,060,000.
(m) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS requires
disclosure of an estimate of the fair value of certain financial instruments.
The fair value of financial instruments pursuant to SFAS No. 107 approximated
their carrying values at December 31, 1995 and 1996. Fair values have been
determined through information obtained from market sources and management
estimates.
(n) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 consolidated financial
statements to conform with the current year's presentation.
(3) INCOME TAXES
The Company provides for income taxes under the liability method in
accordance with the provisions of SFAS No. 109, ACCOUNTING FOR INCOME TAXES. At
December 31, 1996, the Company had available, subject to review and possible
adjustment by the Internal Revenue Service, a federal net operating loss
carryforward of approximately $45,917,000 to be used to offset future taxable
income, if any. This net operating loss carryforward will begin to expire in
2002. The Internal Revenue Code contains provisions that limit the net operating
loss carryforwards due to changes in ownership, as defined by the Internal
Revenue Code. The Company believes that its net operating loss carryforwards
will be limited due to its reorganization in 1991 and subsequent stock
offerings. The Company has not recorded a deferred tax asset for the net
operating losses, due to uncertainty relating to the Company's ability to
utilize such carryovers. In connection with Nexar's proposed initial public
offering it is contemplated that the Company's ownership of Nexar will fall
below 80%. Accordingly, $6,375,000 of net operating losses generated by Nexar as
of December 31, 1996 will not be available for to Company to utilize in future
periods.
<PAGE>
F-20
(4) LONG-TERM DEBT
(a) NOTES PAYABLE
<TABLE>
<C> <C> <C> <C>
December 31,
1995 1996
-------------- ---------------
Dollar denominated convertible debentures $ 819,359 $7,288,063
Swiss franc denominated convertible debentures -- 7,222,846
7% Note payable 244,782 244,782
7.4% to 21% Capital lease obligations, maturities ranging from August 1997 to
May 2001 1,393,612 2,290,847
Present value of notes payable, discounted at 8%, maturities ranging from
February 1996 to February 1998 468,012 337,606
Note payable in connection with the Spectrum acquisition, interest at the prime
rate (8.25% at Dec. 31, 1996) plus 1%, due April 1997 500,000 150,000
Bridge notes payable, interest at 10% until March 1996, then prime (8.25% at
December 31, 1996) plus 2% 1,350,000 1,200,000
8% Convertible debentures 950,000 --
Other notes payable 178,672 254,231
-------------- ---------------
5,904,437 18,988,375
Less - current maturities 2,574,265 2,783,683
-------------- ---------------
$3,330,172 $16,204,692
============== ===============
</TABLE>
On December 21, 1995, PEC issued $1,350,000 face value bridge notes
payable. The notes will be due 18 months after their inception or 10 days
following the closing of a public offering of PEC. Payment of principal and
accrued interest is guaranteed by the Company. In connection with the bridge
financing, PEC issued to the noteholders at nominal value warrants to purchase
up to 240,000 shares of PEC's common stock at $1.20 per share. In 1996 the
Company paid back one bridge noteholder a principal amount of $120,000 plus
accrued interest. As of December 31, 1995, the Company had $950,000 of
convertible debentures that were issued by the Company's subsidiary Tissue
Technologies. These notes were converted into 813,431 shares of the Company's
common stock on May 3, 1996 in connection with the merger of Tissue Technologies
with Palomar.
(b) DOLLAR DENOMINATED CONVERTIBLE DEBENTURES
During the years ended December 31, 1995 and 1996, the Company issued
several series of convertible debentures. The interest on certain of these
convertible debentures is forgiven if the debentures are converted before
specified dates; otherwise, interest is payable on their respective due dates.
During 1995 and 1996, approximately $152,000 and $10,500, respectively, of
accrued interest was forgiven and is included in additional paid-in capital. The
convertible debentures outstanding on December 31, 1996 have a conversion price
which represents a discount of 15% of the Company's common stock at the time of
conversion. It has been the Company's policy to discount those convertible
debentures using an assumed implicit rate ranging from 12% to 15% as a result of
the discount conversion feature of the convertible debentures. The Company
believes that the intent of the debentureholders is to convert the debentures
into common stock at their discounted conversion price. Accordingly, the Company
has credited this ascribed value to additional paid-in-capital, and this amount
is being amortized to interest expense over the terms of the convertible
debentures. During the years ended December 31, 1995 and 1996, the Company
recorded $168,393 and $76,721, respectively, of additional interest expense
relating to the amortization of the discounts relating to the convertible
debentures.
In addition, the Company has incurred financing costs of $380,000 and
$1,055,400 during the years ended December 31, 1995 and 1996, respectively,
relating to these debentures. Given the debentureholders' intent to convert,
these costs have been reflected in deferred costs in the accompanying
consolidated balance sheet as of December 31, 1995 and
<PAGE>
F-21
1996, and are amortized to additional paid-in capital over the term of the
related convertible debentures. Any remaining unamortized deferred financing
costs are also recorded to additional paid-in-capital upon conversion of the
debentures. During the years ended December 31, 1995 and 1996, the Company
amortized deferred financing costs of $70,583 and $77,683 to additional paid-in
capital, respectively. Also, as a result of the conversions of certain
convertible debentures during 1995 and 1996, the Company amortized another
$253,158 and $40,658, respectively, to additional paid-in capital.
The following table summarizes the issuance and conversion of the
convertible debentures for the years ended December 31, 1995 and 1996.
<TABLE>
<C> <C> <C> <C> <C> <C>
Value Common
Ascribed to Shares
Additional Outstanding at Issued
Face Paid-In December 31, Upon
---------------------------
Series Value Capital 1995 1996 Conversion
----------------------------------------------- ------------- ------------- ------------- ------------ -------------
3% Series due September 30, 1996 $ 750,000 $ 150,000 $ -- $ -- 370,189
6% Series due November 21, 1997 2,000,000 400,000 -- -- 1,172,132
7% Series due March 31, 2000 1,100,000 350,000 -- -- --
7% Series due July 1, 2000 1,200,000 350,000 -- -- 401,549
8% Series due October 26, 1997 1,000,000 199,813 819,359 -- 34,615
4.5% Series due October 21, 1999, 2000, 2001 5,000,000 1,284,705 -- 3,761,038 --
5% Series due December 31, 2001 5,000,000 1,472,975 -- 3,527,025 --
------------- ------------- ------------- ------------ -------------
$16,050,000 $4,207,493 $819,359 $7,288,063 1,978,485
============= ============= ============= ============ =============
</TABLE>
During the years ended December 31, 1995 and 1996, all of the 7%
convertible debentures due on March 31, 2000 and $775,000 face value of the 8%
convertible debentures, respectively, were redeemed by the Company together with
accrued interest. Accordingly, $321,533 and $41,530 for the years ended December
31 1995 and 1996, respectively, representing the unamortized amount previously
credited to additional paid-in capital for the ascribed value of the discount,
was reversed.
During 1995, the debentureholders converted the 3%, 6% and 7% series
convertible debenture due September 30, 1996, November 21, 1997, and July 1,
2000, respectively. During 1996, the debentureholders converted $225,000 in face
value of the 8% convertible debentures. Upon their conversion, in 1995 and 1996
these convertible debentures totaled $2,964,209 and $191,139 with related
accrued interest of $126,531 and $10,500, respectively, on the dates of
conversion.
In connection with the 6% convertible debentures, each holder is entitled
to receive one warrant to purchase common stock of the Company (expiring no
later than three years from the date of conversion) for every five shares of
common stock of the Company issued, at 150% of the market price, as defined, at
the time of conversion. As a result, the Company issued 242,655 warrants to
purchase common shares of the Company during 1995 at stock prices ranging from
$3.09 to $3.75. These warrants expire through July 28, 1998.
(c) SWISS FRANC DENOMINATED CONVERTIBLE DEBENTURES
On July 3, 1996, the Company raised $7,669,442 through the issuance of
9,675 units in convertible debenture financing. These units are traded on the
Luxembourg Stock Exchange. Each unit consists of a convertible debenture
denominated in 1,000 Swiss Francs and a warrant to purchase 24 shares of the
Company's common stock at $16.50 per share and is due July 3, 2003. The warrants
are non-detachable and may be exercised only if the related debentures are
simultaneously converted, redeemed or purchased. Interest on the convertible
debentures accrues at a rate of 4.5% per annum and is payable quarterly in Swiss
Francs. The convertible debentures may be converted by the holder or the Company
commencing October 1, 1996 at a conversion price equal to 100% to 77.5% of the
price per share of the Company's common stock, calculated as defined. This
conversion price decreases from the third anniversary to the seventh
<PAGE>
F-22
anniversary of the convertible debentures but in no event is less than $12.00
per share. Because of this decreasing conversion feature and the non-detachable
nature of the debentures, the Company believes that the intent of the
debentureholder is to hold the debenture through the life of the debt and no
discount has been ascribed to this debt. In addition, the Company has the option
to redeem these debentures after the third anniversary of the issuance. The
Company is required to set up a mandatory sinking fund beginning on July 3, 2000
through July 3, 2003, for 25% of the aggregate principal amount of the
convertible debentures. The debenture is payable in Swiss Francs and the Company
adjusts the debt based on fluctuations in the exchange rate. The translated
value of these convertible debentures as of December 31, 1996 was $7,222,846 and
the difference of $446,596 was recognized as a foreign exchange gain and
included in other income (see Note 9) in the consolidated statement of
operations for the year ended December 31, 1996. The Company incurred financing
costs of $982,365 relating to these debentures and is amortizing this asset over
the life of the debentures.
(d) FUTURE MATURITIES OF LONG-TERM DEBT OBLIGATIONS
Future maturities of notes payable, capital lease obligations and
convertible debentures reflected at face value as of December 31, 1996 are as
follows:
1997 $ 2,783,683
1998 1,359,208
1999 1,881,242
2000 1,732,169
2001 6,721,163
Thereafter 7,222,846
=============
$21,700,311
=============
(5) STOCKHOLDERS' EQUITY
(a) COMMON STOCK OUTSTANDING
During 1995, the Company pledged 2,860,000 shares of its common stock as
collateral for an anticipated $5,000,000 debt financing with Whetstone Ventures
Corporation, Inc. ("Whetstone"). The Company received only $400,000 from
Whetstone, and the debt financing was canceled before being consummated. On
March 13, 1996, the Company filed a complaint against the third party to whom
Whetstone had pledged the shares, demanding return of the shares and obtained a
restraining order prohibiting transfer of the shares. On March 22, 1996, the
third party agreed to return the shares in exchange for the $400,000 previously
received by the Company and an additional $700,000. The Company charged the
additional $700,000 to settlement and litigation cost during the year ended
December 31, 1995. Accordingly, the Company did not consider these shares as
outstanding in the accompanying consolidated financial statements as of December
31, 1995.
On February 1, 1996, the Company issued 365,533 shares of common stock and
warrants to purchase 182,765 shares of common stock at $5.00 per share in a
private placement for net proceeds of $1,530,776. Under the terms of the private
placement agreement, the Company can only use the proceeds to finance the
development and premarketing activities of certain products.
<PAGE>
F-23
(b) PREFERRED STOCK
The Company is authorized to issue up to 5 million shares of preferred
stock, $.01 par value.
As of December 31, 1995 and 1996, preferred stock authorized, issued and
outstanding consists of the following:
<TABLE>
<C> <C> <C> <C>
Par Value
December 31,
----------------------
1995 1996
---- ----
Redeemable convertible preferred stock, Series I Class A, $.01 par value
Authorized - 7,000 shares
Issued and outstanding - 1,960 shares in 1995, liquidation preference of $1,989,500 $ 20 --
Redeemable convertible preferred stock, Series II Class A, $.01 par value
Authorized - 9,000 shares
Issued and outstanding - 4,400 shares in 1995, liquidation preference of $4,456,415 44 --
Redeemable convertible preferred stock, Series A, $.01 par value
Authorized - 2,500 shares
Issued and outstanding - 2,500 shares in 1995, liquidation preference of $2,512,329 25 --
Redeemable convertible preferred stock, Series B, $.01 par value
Authorized - 2,500 shares
Issued and outstanding - 2,500 shares in 1995, liquidation preference of $2,512,329 25 --
Redeemable convertible preferred stock, Series C, $.01 par value
Authorized - 2,500 shares
Issued and outstanding - 2,500 shares in 1995, liquidation preference of $2,512,329 25 --
Redeemable convertible preferred stock, Series E, $.01 par value
Authorized - 10,000 shares
Issued and outstanding - 2,151 shares in 1996, liquidation preference of $2,235,615 -- 22
Redeemable convertible preferred stock, Series F, $.01 par value
Authorized - 6,000 shares
Issued and outstanding - 6,000 shares in 1996, liquidation preference of $6,229,333 -- 60
Redeemable convertible preferred stock, Series G, $.01 par value
Authorized - 10,000 shares
Issued and outstanding - 10,000 shares in 1996, liquidation preference of $10,181,008 -- 100
Total preferred stock $139 $182
==== ====
</TABLE>
During 1996, all of the outstanding Series I and II preferred shares
(including accrued dividends of $110,689) were converted into 1,527,242 shares
of the Company's common stock. In addition, all of the 5,000 shares of Series A
and B redeemable convertible preferred stock (including dividends of $125,625)
were converted into 788,711 shares of the Company's common stock. The Company
also redeemed all the 2,500 shares of Series C convertible redeemable preferred
stock (including accrued dividends of $71,223) on March 20, 1996 for $3,194,375.
In February 1996, the Company issued 6,000 shares of Series D redeemable
convertible preferred stock, all of which were converted into 1,116,918 shares
of common stock (including accrued dividends of $342,092) as of December 31,
1996. In April 1996, the Company issued 10,000 shares of Series E redeemable
preferred stock, 7,849 shares of which were converted into 1,048,647 shares of
common stock (including accrued dividends of $204,196) as of December 31, 1996,
and the remaining were converted after year end as discussed in Note 15.
In July 1996, the Company issued 6,000 shares of Series F redeemable
convertible preferred stock at a price of $1,000 per share. The Series F
redeemable convertible preferred stock, together with any accrued but unpaid
dividends, may be converted into shares at 80% of the daily average closing
price of the shares on the ten trading days preceding such conversion,
<PAGE>
F-24
but in no event less than $7.00 or more than $16.00. The Series F redeemable
convertible preferred stock may be redeemed as defined, with no less than 10
days and no more than 30 days notice or when the stock price exceeds $16.80 per
share for sixty consecutive trading days, at an amount equal to the amount of
liquidation preference determined as of the applicable redemption date.
Dividends are payable quarterly at 8% per annum in arrears on March 31, June 30,
September 30 and December 31. Dividends not paid on the payment date, whether or
not such dividends have been declared, will bear interest at the rate of 10% per
annum until paid.
On September 26, 1996, the Company issued 10,000 shares of Series G
redeemable convertible preferred stock at a price of $1,000 per share to two
investors. The Series G redeemable convertible preferred stock, together with
any accrued but unpaid dividends, may be converted into common stock at 85% of
the average closing bid price for the three trading days immediately preceding
the conversion date, but in no event at less than $6.00 or more than $11.50 for
5,000 shares of Series G redeemable convertible preferred stock or $8.00 for the
other 5,000 shares of Series G redeemable convertible preferred stock. The
Series G redeemable convertible preferred stock may be redeemed at any time,
with no less than 15 days and no more than 20 days notice, at an amount equal to
the sum of (a) the amount of liquidation preference determined as of the
applicable redemption date plus (b) $176.50. Dividends are payable quarterly at
7% per annum in arrears on January 1, April 1, July 1 and October 1. Dividends
not paid on the payment date, whether or not such dividends have been declared,
will bear interest at the rate of 12% per annum until paid.
The conversion price for Series F and G redeemable convertible preferred
stock is adjustable for certain dilutive events, as defined. The Series F and G
redeemable convertible preferred stock have a liquidation preference equal to
$1,000 per share of redeemable convertible preferred stock, plus accrued but
unpaid dividends, and accrued but unpaid interest. The Series F and G redeemable
convertible preferred stockholders do not have any voting rights except on
matters effecting the Series F and G redeemable convertible preferred stock. The
Company has registered 2,100,000 shares of common stock underlying the
conversion of the Series F and G redeemable convertible preferred stock into
common shares.
(c) STOCK OPTION PLANS AND WARRANTS
(i) STOCK OPTIONS
The Company has 1991, 1993, 1995 and 1996 Stock Option Plans (the "Plans")
that provide for the issuance of a maximum of 350,000, 500,000, 1,000,000 and
2,500,000 shares of common stock, respectively, which may be issued as incentive
stock options (ISOs) or nonqualified options. Under the terms of the Plans, ISOs
may not be granted at less than the fair market value on the date of grant (and
in no event less than par value), provided that ISO grants to holders of 10% of
the combined voting power of all classes of Company stock must be granted at an
exercise price of not less than 110% of the fair market value at the date of
grant. Pursuant to the plans, options are exercisable at varying dates, as
determined by the Board of Directors, and have terms not to exceed 10 years
(five years for 10% or greater stockholders). The Board of Directors, at the
request of the optionee, may, in its discretion, convert the optionee's ISOs
into nonqualified options at any time prior to the expiration of such ISOs.
During 1995, Tissue Technologies granted options to purchase 224,235 shares
of the Company's common stock at prices ranging from $0.40 to $0.81 per share.
These options were not granted pursuant to the above mentioned plans. These
options were exercised on May 3, 1996 in connection with the Company's merger
with Tissue Technologies as discussed in Note 1.
<PAGE>
F-25
The following table summarizes all stock option activity for the Company:
<TABLE>
<C> <C> <C> <C>
Number of Exercise Weighted Average
Shares Price Exercise Price
------------- ---------------- ----------------------
Outstanding, December 31, 1994 1,047,500 $1.00-3.50 $2.25
Granted 820,235 0.40-3.00 1.75
Exercised (285,000) 1.00-3.50 1.76
Canceled (75,000) 2.375 2.375
------------- ---------------- ----------------------
Outstanding, December 31, 1995 1,507,735 $0.40-$3.50 $2.06
Granted 1,520,000 6.00-10.50 7.08
Exercised (366,735) 0.40-3.50 1.28
Canceled (5,000) 3.00 3.00
------------- ---------------- ----------------------
Outstanding, December 31, 1996 2,656,000 $2.00-$10.50 $5.03
============= ================ ======================
Exercisable as of December 31, 1996 1,600,998 $2.00-$10.50 $3.79
============= ================ ======================
Available for future issuances under the plans
as of December 31, 1996 1,266,500
=============
</TABLE>
The range of exercise prices for options outstanding and options
exercisable at December 31, 1996 are as follows:
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------ --------------------------------------
Weighted Average
Range of Options Remaining Weighted Average Options Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -------------------- ---------------- ---------------------- ----------------------- -------------- -----------------------
$2.00-$3.50 1,136,000 3.04 $2.29 1,136,000 $2.29
6.00-10.50 1,520,000 4.75 7.08 464,998 7.46
================ ---------------------- ----------------------- ============== =======================
2,656,000 4.01 $5.03 1,600,998 $3.79
================ ====================== ======================= ============== =======================
</TABLE>
In August 1995, Nexar established its 1995 Stock Option Plan (the "Nexar
Plan"), which provides for the issuance of a maximum of 4,800,000 shares of
common stock, which may be issued as incentive stock options (ISOs) or
nonqualified stock options. Subsequent to December 31, 1996, the Nexar Board of
Directors increased the number of shares issuable under the Nexar Plan to
5,300,000.
On January 30, 1996 and July 19, 1996 Nexar granted options to purchase
3,234,480 and 83,000 respective shares of Nexar's common stock at an exercise
price of $0.0025 and $4.25 per share. The price per share was based on the fair
market value of Nexar's Common Stock as determined by the Board of Directors of
Nexar on the date of grant.
Nexar has also agreed to issue, upon consummation of Nexar's initial public
offering, options to purchase 50,000 and 50,000 shares of Nexar's common stock
at 85% and 50% of the initial public offering price, respectively. Upon the
granting of these options, the Company will record deferred compensation expense
for the difference between the exercise price and the price of the initial
public offering, if any. In addition, the Board of Directors of Nexar approved
the issuance of stock options to purchase 1,050,000 shares of Nexar's common
stock at the initial public offering price upon the effectiveness of Nexar's
proposed initial public offering price to certain employees, directors and
officers of the Company and Nexar. These stock options will vest over periods
ranging from four to five years, except for stock options to purchase 800,000
shares of Nexar's common stock, which may vest earlier, upon the achievement of
certain revenue, net income and stock price milestones, as defined, through
December 31, 2000.
<PAGE>
F-26
In December 1996, the Director Plan was adopted by the Board of Directors
of Nexar. The Director Plan will become effective upon the closing of the
proposed initial public offering. Under the terms of the Director Plan, initial
options (the "Initial Options") to purchase 15,000 shares of common stock will
be granted to each person who becomes a non-employee director of Nexar after the
closing date of the proposed initial public offering and who is not otherwise
affiliated with Nexar, effective as of the date of election to the Board of
Directors. The Initial Options will vest in equal annual installments over three
years after the date of grant. In addition, each non-employee director will
receive annually options to purchase 10,000 shares (the "Annual Options") on the
date of each annual meeting of Nexar's stockholders held after the closing of
Nexar's initial public offering. The Annual Options will vest one year from the
date of grant. A total of 100,000 shares of common stock may be issued upon the
exercise of stock options granted under the Director Plan. Unless sooner
terminated pursuant to its terms, the Director Plan will terminate in December
2006.
Subsequent to December 31, 1996, the Board of Directors of Nexar authorized
amendments to employment agreements accelerating the vesting of certain options
to purchase 451,950 shares of Nexar's common stock upon the closing of Nexar's
initial public offering contemplated herein. In addition, the Board of Directors
of Nexar approved amendments to employment agreements accelerating the vesting
of options to purchase 903,900 shares of Nexar's common stock to vest one year
from the closing of Nexar's initial public offering contemplated.
The following table summarizes stock option activity for Nexar:
<TABLE>
<C> <C> <C>
Number of Exercise
Shares Price
------------------------ -----------------
Inception, March 7, 1995 - $
-
Granted 20,640 .001
------------------------ -----------------
Outstanding, December 31, 1995 20,640 .001
Granted 3,396,840 .0025-10.00
Canceled (361,560) .0025
------------------------ -----------------
Outstanding, December 31, 1996 3,055,920 $.001-$10.00
======================== =================
Exercisable as of December 31, 1996 1,063,973 $.001-$.0025
======================== =================
</TABLE>
Star also has established a stock option plan which provides for the
issuance of both nonqualified and ISOs. As of December 31, 1994, Star granted a
total of 97,000 options to purchase Star's common stock to officers and
employees ranging from $2.50 to $6.00 per share. In the fiscal year ending
December 31, 1996, Star granted a total of 140,000 options to purchase Star's
common stock to officers and employees ranging from $2.50 to $9.50 per share. In
the fiscal year ending December 31, 1996, 20,000 shares at $2.50 per share were
exercised by an individual; in addition, 12,000 shares at $6.00 per share were
canceled. As of December 31, 1996, 205,000 ranging from $2.50 to $9.50 per share
are outstanding, of these, 105,000 are exercisable.
PEC has also established a stock option plan, which provides for the
issuance of both nonqualified and incentive stock options. On December 1, 1995,
PEC granted stock options to purchase 1,590,000 shares of PEC common stock for
$.30 per share, the fair value of PEC's common stock, as determined by PEC's
Board of Directors. Of the total stock options granted, 1,230,000 vested
immediately, and the balance vest over a four-year period. In 1996, options to
purchase 870,000 shares of PEC common stock were canceled. No additional stock
options were granted by PEC during 1996.
Comtel has established a stock option plan which provides for the issuance
of both nonqualified and incentive stock options. During 1996, Comtel issued
423,675 options to purchase Comtel common stock for $.55 per share, the fair
market value as determined by Comtel's Board of Directors.
CTI has established a stock option plan which provides for the issuance of
both nonqualified and inventive stock options. During 1996, CTI issued 1,750
options to purchase CTI common stock for $.01 per share, the fair market value
at the date of grant as determined by CTI's Board of Directors.
<PAGE>
F-27
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. In October 1995, the
Financial Accounting Standards Board issued SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, which is effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 established a fair-value-based method of
accounting for stock-based compensation plans. The Company has adopted the
disclosure-only alternative under SFAS No. 123 which requires disclosure of the
pro forma effects on earnings per share as if SFAS No. 123 had been adopted, as
well as certain other information.
The Company has computed the pro forma disclosures required under SFAS No.
123 for all stock options and warrants granted to employees of the Company and
its Nexar subsidiary in fiscal years ending December 31, 1995 and 1996 using the
Black Scholes option pricing model prescribed by SFAS No. 123. The pro forma
disclosure for the Company's results of operations related to stock option plans
at its Dynaco, Star, PEC, Comtel and CTI subsidiaries were immaterial for the
years ended December 31, 1995 and 1996.
The assumptions used to calculate the SFAS 123 pro forma disclosure and the
weighted average information for the fiscal years ending December 31, 1995 and
1996 for Palomar are as follows:
<TABLE>
<C> <C> <C>
1995 1996
------------------------ -----------------------
Risk-free interest rate 6.08% 6.37%
Expected dividend yield - -
Expected lives 3.2 years 4.4 years
Expected volatility 55% 79%
Weighted-average grant date fair value of
options granted during the period $3.92 $4.57
</TABLE>
The weighted fair-value and weighted exercise price of options granted for
the Company in fiscal years ending December 31, 1995 and 1996 are as follows:
<TABLE>
<C> <C> <C>
1995 1996
-------------------- -------------------
Weighted Average Exercise Price for options:
whose exercise price exceeded fair market value at the $3.00 $10.00
date of grant
whose exercise price was equal to fair market value at $1.614 $6.875
the date of grant
Weighted Average Fair Market Value for options:
whose exercise price exceeded fair market value at the $2.125 $8.875
date of grant
whose exercise price was equal to fair market value at $5.265 $6.875
the date of grant
</TABLE>
<PAGE>
F-28
The assumptions used to calculate the SFAS No. 123 pro forma disclosure and
the weighted average information for the fiscal years ending December 31, 1995
and 1996 for Nexar are as follows:
<TABLE>
<C> <C> <C>
1995 1996
------------------------ -----------------------
Risk-free interest rate 6.11% 5.87%
Expected dividend yield - -
Expected lives 4.5 years 4.5 years
Expected volatility 51% 51%
Weighted-average grant date fair value of
options granted during the period $0.001 $0.28
Weighted-average exercise price of options granted
during the period $0.001 $0.45
Weighted-average remaining contractual life of
options outstanding 4.58 years 4.13 years
Weighted-average exercise price of 5,733 and
1,063,973 options exercisable at December
31, 1995 and 1996, respectively. $0.001 $0.0025
</TABLE>
(ii) WARRANTS
In connection with the Company's initial public offering, the Company
issued 2,442,621 warrants to purchase one share of common stock per warrant as
adjusted in certain antidilution provisions in the warrant agreement. In January
1995, the Company announced its intention to redeem the warrants. Through
February 10, 1995, the date the warrant call ended, certain warrantholders
exercised such warrants to purchase a total of 1,852,012 shares of common stock.
The remaining unexercised warrants to purchase 590,609 shares were redeemed by
the Company for $29,530. As a result of these warrant exercises, the Company
received cash proceeds totaling $1,286,931 and received demand promissory notes
in the total principal amount of $4,633,975 with interest at 7.75% per annum. In
September 1995, $3,694,840 of the notes were repaid.
The remaining balance of $939,135 from the demand promissory note discussed
above relates to warrants exercised by a director of the Company's underwriter.
In addition, on May 12, 1995, this director exercised warrants to purchase a
total of 200,000 shares of the Company's common stock. The Company received
another demand promissory note in the principal amount of $1,049,574 with
interest at 7.75% per annum. These promissory notes are unsecured and there are
no restrictions on transfer or sale of the shares of common stock received in
connection with the exercise of these warrants. In 1996, the Company loaned this
underwriter $1,057,500 in connection with the exercise of warrants for a total
of 500,000 shares of the Company's common stock. In 1996, the underwriter paid
off loans totaling $2,509,591 in connection with the exercise of stock warrants.
Of this amount $2,009,591 was paid in cash and $500,000 was paid through
investment banking services in connection with the 5% convertible debentures
issued on December 31, 1996.
In the years ending December 31, 1995 and 1996, the Company issued to
certain investment bankers, consultants (including related parties to the
Company - see Note 11), directors, noteholders and officers, warrants to
purchase common stock. In 1995, the Company issued warrants totaling 82,500 at
an exercise price of $1.25 to certain investment bankers. The warrants to
purchase 82,500 shares were issued below the fair market value of the Company's
common stock at the date of grant. Accordingly, the Company charged $95,370 to
business development and other financing costs in the accompanying consolidated
statement of operations for the year ended December 31, 1995.
The Company issued 182,765 warrants during 1996 in connection with the
private placement of common stock for a total Black Scholes value of $599,465;
these amounts are exclusive of 900,000 shares of net warrants issued in
connection with the sale of 600,000 shares of common stock to Finmanagement on
December 27, 1996. The Company issued 232,200 warrants during 1996 in connection
with convertible debentures for a total Black Scholes value of $2,468,286. The
Company issued 1,978,058 warrants during 1996 in connection with preferred stock
for a total Black Scholes value of
<PAGE>
F-29
$13,325,477. The Company issued 36,553 warrants during 1996 in investment
banking fees in connection with financings for a total Black Scholes value of
$119,894. The Company has not reflected the value attributable to these warrants
in the consolidated statement of stockholders' equity due to the fact that the
issuance of these warrants were directly associated with the issuance of
convertible debentures, common and preferred stock and the Company believes it
is the intent of the debenture holders to convert their debentures into common
stock on a short-term basis. Accordingly, the value of those warrants would both
increase and decrease additional paid-in capital.
In January 1995, the Company issued a warrant to purchase 160,000 shares of
the Company's common stock at $0.01 per share in connection with a license
agreement. See Note 2(f). This warrant was exercised on May 3, 1996 in
connection with the Company's merger with Tissue Technologies, as discussed in
Note 1.
From January 1, 1997 through March 7, 1997, certain warrantholders
exercised warrants to purchase 155,532 shares of common stock at a price of
$2.25 per share. The total proceeds received by the Company were $349,947.
The following table summarizes all warrant activity for the Company:
<TABLE>
<C> <C> <C> <C>
Average
Number of Exercise Weighted
Shares Price Exercise Price
---------------- ---------------- ------------------
Outstanding, December 31, 1994 4,554,862 $0.60 - $15.00 $5.39
Granted 4,835,155 0.01 - 7.50 2.36
Exercised (2,840,093) 0.60 - 5.00 3.86
---------------- ---------------- ------------------
Outstanding, December 31, 1995 6,549,924 0.01 - 15.00 3.82
================ ================ ==================
Exercisable as of December 31, 1995 6,549,924 0.60 - 15.00 3.82
================ ================ ==================
Granted 6,527,576 4.88 - 16.50 8.16
Exercised (3,101,261) 0.01 - 7.69 2.66
---------------- ---------------- ------------------
Outstanding, December 31, 1996 9,976,239 $0.60 - $16.50 $7.02
================ ================ ==================
Exercisable, December 31, 1996 8,161,237 $0.60 - $16.50 $5.80
================ ================ ==================
</TABLE>
The range of exercise prices for warrants outstanding and exercisable at
December 31, 1996 are as follows:
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
Warrants Outstanding Warrants Exercisable
- ------------------------------------------------------------------------------------ --------------------------------------
Weighted Average
Range of Warrants Remaining Weighted Average Warrants Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -------------------- ---------------- ---------------------- ----------------------- -------------- ----------------------
$0.60-$1.00 98,660 .39 $ .67 98,660 $ .67
2.00-4.88 2,343,579 2.43 2.30 2,343,579 2.30
5.00-7.69 4,773,742 4.58 6.57 3,375,407 4.80
8.00-16.50 2,760,258 4.45 12.03 2,343,591 10.68
================ ====================== ======================= ============== ======================
9,976,239 4.00 $ 7.02 8,161,237 $ 5.80
================ ====================== ======================= ============== ======================
</TABLE>
The Company has computed the pro forma disclosures required under SFAS No.
123 for all warrants granted in fiscal years ending December 31, 1995 and 1996
using the Black Scholes option pricing model prescribed by SFAS No. 123.
<PAGE>
F-30
The assumptions used to calculate the SFAS No. 123 pro forma disclosure and
the weighted average information for the fiscal years ending December 31, 1995
and 1996 for the Company are as follows:
<TABLE>
<C> <C> <C>
1995 1996
------------------------ -----------------------
Risk-free interest rate 6.01% 5.93%
Expected dividend yield - -
Expected lives 4.8 years 5.9 years
Expected volatility 56% 80%
Weighted-average grant date fair value of
warrants granted during the period $1.81 $5.39
Weighted-average exercise price of warrants
granted during the period $2.36 $8.16
</TABLE>
The weighted fair-value and weighted exercise price of warrants granted for
the Company in fiscal years ending December 31, 1995 and 1996 are as follows:
<TABLE>
<C> <C> <C>
1995 1996
-------------------- -------------------
Weighted Average Exercise Price for warrants:
whose exercise price exceeded fair market value at $2.72 $11.76
date of grant
whose exercise price was less than fair market value 3.17 7.07
at date of grant
whose exercise price was equal to fair market value at 1.98 6.67
date of grant
Weighted Average Fair Market Value for warrants:
whose exercise price exceeded fair market value at 2.18 9.34
date of grant
whose exercise price was less than fair market value 4.96 8.82
at date of grant
whose exercise price was equal to fair market value at $2.86 $6.67
date of grant
</TABLE>
During 1996, the Company issued 300,000 warrants to purchase common stock
at $7.69 per share to three non-employees who provided consulting services.
These warrants vest over a period of two to three years. The Company valued
these warrants in accordance with SFAS No. 123 at $1,598,298 to be amortized
over the vesting period. The Company recorded $266,375 of this amount as
business development and other financing costs in the accompanying consolidated
statement of operations and $266,383 as capitalized deferred Nexar initial
public offering costs in 1996 in the accompanying consolidated balance sheet.
(iii) PRO FORMA DISCLOSURE
The pro forma effect of applying SFAS No. 123 for all options and warrants
to purchase common stock for the Company and its Nexar subsidiary would be as
follows:
Year Ended December 31,
1995 1996
------------------------- -----------------------
Pro forma net loss $(22,730,970) $(65,358,314)
Pro forma net loss per share $(1.60) $(2.50)
<PAGE>
F-31
(d) RESERVED SHARES
At December 31, 1996, the Company has reserved shares of its common stock
for the following:
Warrants 9,976,239
Stock option plans 3,922,500
Convertible debentures 2,617,800
Preferred stock 2,697,165
Employee Stock Purchase Plan 1,000,000
Employee 401(k) Plan 254,115
---------------
Total 20,467,819
===============
From January 1, 1997 through March 7, 1997 740,826 shares of common stock
were issued in connection with certain of the items above.
(e) COMMON STOCK ISSUED IN LIEU OF PAYMENT
In August 1995, the Company issued to an officer of Dynaco a total of
200,000 shares of common stock in lieu of two demand promissory notes totaling
$355,000 (see Note 11).
In connection with the organization and purchase of CD Titles and CDRP,
Inc. (see Note 1), certain related parties of the officers of the Company and
Dynaco loaned CD Titles $300,000. On October 27, 1995, the Company agreed to
issue common stock at a 35% discount to these individual noteholders, (as well
as the remaining noteholders in CD Titles), in lieu of payment on the related
promissory notes. The related parties received 128,572 shares of the Company's
common stock in satisfaction of the notes payable and accrued interest totaling
approximately $397,000. In 1996 the Company issued 56,900 shares of common stock
to purchase the license rights to product line on behalf of CD Titles.
During the year ended December 31, 1995, the Company issued 167,676 shares
of its common stock for investment banking, merger and acquisition services,
with a fair market value of $421,500. The Company included $398,250 of this
amount in deferred costs, as the shares were issued in connection with the
convertible debenture financings and other prepaid investment banking services
(See Note 2(g)). The remaining amount was expensed to and included in business
development and other financing costs in the accompanying consolidated statement
of operations. In 1996, the Company issued 36,802 shares of common stock for
investment banking services in connection with the sale of common stock and the
issuance of convertible debentures for a value of $209,224. The Company issued
20,000 shares of common stock for acquisition services of $267,500 relating to
the Tissue Technologies acquisition and recognized this expense in the
accompanying consolidated statement of operations.
(f) EMPLOYEE STOCK PURCHASE PLAN
In June 1996, the Board of Directors established the Palomar Medical
Technologies, Inc. 1996 Employee Stock Purchase Plan (the "Purchase Plan").
Under the Purchase Plan, all employees, as defined, are eligible to purchase the
Company's common stock at an exercise price equal to 95% of the fair market
value of the common stock. The Purchase Plan provides for up to 1,000,000 shares
for issuance under the Purchase Plan. As of December 31, 1996, rights to
purchase 580 shares were outstanding.
(6) RESEARCH & PRODUCT DEVELOPMENT AGREEMENTS
The Company has an agreement with the New England Medical Center ("NEMC")
and Dr. Stanley M. Shapshay to provide a research grant and to sponsor
investigations and development of laser applications, advanced delivery systems
and
<PAGE>
F-32
disposable products in the agreed-upon medical applications. The Company also
agreed to provide a total of $150,000 over a one-year period, of which $50,000
was paid in the form of laser hardware. The parties have reached an
understanding that the Company will obtain ownership rights or the right of
first refusal to exclusive worldwide licenses to sell and market any products
developed with the grant funding. In August 1994, this agreement was amended to
support animal testing with one of the Company's diode lasers in connection with
performing tonsillectomies. The Company recorded approximately $95,000 and
$37,000 of research and development expenses for the years ended December 31,
1995 and 1996 related to this agreement.
The Company entered into a multiyear agreement with Massachusetts General
Hospital ("MGH") effective August 18, 1995, whereby MGH agreed to conduct
clinical trials on a laser treatment for hair removal/reduction invented by Dr.
R. Rox Anderson, Wellman Laboratories of Photomedicine, MGH. MGH will provide
the Company with data previously generated by Dr. Anderson, further clinical
research on the ruby laser device at MGH and other sites, and remit ownership of
all case report forms and data resulting from the study. The Company is
obligated to fund the clinical research obligation of $917,000 and pay a license
fee of $250,000 over the term of the contract, until completion of the studies
which is anticipated to be two years from the effective date unless amended or
terminated. During 1995, the Company expensed approximately $177,000
representing the cost of research and development and capitalized approximately
$50,000 as a license fee, which is being amortized over five years. In 1996, the
Company paid the remaining $200,000 for the license fee and in early 1997 made
payments of $54,417 per the terms of the agreement. The Company has agreed to
enter into a worldwide exclusive license agreement with MGH upon completion of a
valid product or service, or new uses (not related solely to hair removal) based
on the findings of the clinical studies.
Effective February 14,1997, the Company amended the August 18, 1995
agreement with MGH. The Company agrees to provide MGH with a grant of $203,757
to perform research and evaluation in the field of hair removal. The Company
immediately paid $50,090 upon execution of this agreement, and the Company shall
pay a license fee of $10,000 within thirty days of this amendment. As
consideration for this amended license, the Company is obligated to pay to MGH
royalties of 5.5% of net revenues of products/services covered by valid patent
licensed to the Company exclusively; 2.5% of net revenues of products/services
covered by valid patent licensed to the Company nonexclusively; 1.5% of net
revenues of products developed and exploited, not covered above and no less than
3% on the sale of any other laser using other technology as defined for the use
of hair removal. In March of 1997 the U.S. Patent Office issued a patent
protecting the laser-based hair removal technology developed by Dr. Rox Anderson
at MGH, for which Palomar is the exclusive worldwide licensee. The Company
incurred $175,000 of royalties under this license in 1996.
On March 11, 1996 the Company entered in an agreement with Dr. R.G.
Geronemus, M.D., P.C ("Geronemus") a New York State professional corporation, to
conduct clinical studies using the ruby laser for hair removal with longer pulse
duration than in previous studies. The studies will be performed on
approximately 70 patients. The total contract is for $178,750, of which $44,688
was recorded as research expense for the year ended December 31, 1996.
<PAGE>
F-33
(7) SEGMENT INFORMATION
The Company has two operating business groups, medical products and
electronics products. All of the operations of Dynaco, Nexar, CD Titles, PEC and
their subsidiaries are reported below as the Electronics Products Group. All
other operations are focused in the areas of cosmetology and dermatology, which
are included in the Medical Products Group. Information with respect to industry
segments is set forth as follows:
<TABLE>
<C> <C> <C> <C> <C>
As of and for the year ended December 31, 1995
Electronic Medical
Products Products Total
----------------------------------------------------------
Revenues $16,296,224 $5,610,280 $21,906,504
Loss from Operations (3,668,083) (8,794,908) (12,462,991)
Identifiable Assets 17,048,106 24,822,054 41,870,160
Depreciation and Amortization 881,530 944,143 1,825,673
Capital Expenditures $540,725 $908,062 $1,448,787
As of and for the year ended December 31, 1996
Electronic Medical
Products Products Total
----------------------------------------------------------
Revenues $52,274,285 $17,824,158 $70,098,443
Loss from Operations (17,189,563) (22,435,014) (39,624,577)
Identifiable Assets 43,501,440 47,255,756 90,757,196
Depreciation and Amortization 1,243,666 2,672,555 3,916,221
Capital Expenditures $3,066,056 $3,257,632 $6,323,688
</TABLE>
(8) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<C> <C> <C>
December 31, December 31,
1995 1996
---------------- ---------------
Payroll and consulting costs $852,793 $3,456,311
Professional fees 914,935 961,815
Settlement costs 700,000 1,755,000
Warranty 295,962 2,854,401
Other 1,869,867 5,642,365
---------------- ---------------
Total $4,633,557 $14,669,892
================ ===============
</TABLE>
(9) OTHER INCOME (EXPENSE)
Other Income (Expense) consist of the following:
<TABLE>
<C> <C> <C>
December 31, December 31,
1995 1996
---------------- ----------------
Foreign Currency Gain $ -- $ 446,596
Write-down of notes and
investments -- (4,996,038)
Other 102,305 303,800
================ ================
Total $102,305 $(4,245,642)
================ ================
</TABLE>
<PAGE>
F-34
(10) REVOLVING LINES OF CREDIT
On May 31, 1995, Dynaco entered into a three year revolving credit and
security agreement with a financial institution, which provides for the
revolving sale of acceptable trade accounts receivable with recourse at 85% of
face value, up to a maximum commitment of $3 million. The outstanding balance
under the line bears interest at the lender's prime rate (8.25% as of December
31, 1996) plus 1.5%, payable monthly, and amounted to $1,296,462 and $1,787,057
as of December 31, 1995 and 1996, respectively. Borrowings under this line are
collateralized by the purchased receivables and substantially all of Dynaco's
assets and are guaranteed by the Company.
On December 5, 1996, Comtel entered into a loan agreement with a loan
association which provided for borrowings up to $4,500,000 in the form of
revolving receivable and inventory loans. Borrowings under the loan agreement
are limited by a borrowing base calculation on eligible accounts receivable and
inventory, and are collateralized by accounts receivable, inventory, and certain
other assets. Borrowings bear interest at the lender's prime rate plus 2.25% and
amounted to $2,770,375 as of December 31, 1996. The loan agreement terminates on
November 30, 1998.
(11) RELATED PARTY TRANSACTIONS
Included in current assets at December 31, 1995 and 1996 are $4,109,573 and
$1,459,484 of notes receivable from various officers and related entities and
investments in related entities. Also included in trading securities at December
31, 1996 is a $1,912,614 investment in a related entity. It is reasonably
possible that the Company's estimate that it will collect these receivables or
realize its investment within one year will change in the near term.
Dynaco leases its Tempe, Arizona, facility from a partnership consisting of
the Chief Executive Officer and Chief Operating Officer of Dynaco. The Company
also has certain capital leases which are personally guaranteed by an officer.
The Board of Directors have established a corporate loan policy under which
loans may be granted to certain officers/stockholders/directors of the Company
for amounts up to an aggregate of $800,000. All of such loans must be
collateralized by certain stockholdings of these individuals, as defined. At
December 31, 1995 and 1996, $383,198 and $578,680, respectively, with interest
at the rate of 7% per annum, was outstanding to certain
officers/stockholders/directors under the corporate loan policy.
At December 31, 1996, the Company had loans receivable of $134,000 and
$151,363 from two officers of Dynaco, which are evidenced by promissory notes
due upon demand, respectively, with interest at the rate of 8% and the prime
rate per annum, respectively. The $151,363 loan receivable is collateralized
with a certain amount of vested stock options in the Company owned by the
officer with a market price in excess of the exercise price. At December 31,
1996, the Company had an additional loan receivable for $75,000 from an officer
of Dynaco, which is evidenced by a demand promissory note and bears interest at
7%. The total accrued interest relating to all of the Company loans to officers
of the Company and Dynaco was $56,288 as of December 31, 1996.
At December 31, 1995, the Company had notes receivable for $3,150,000 from
an affiliated company. The Company's chairman and CEO personally owns
approximately 13% of the affiliated company as of December 31, 1996. The notes
receivable were repaid during 1996, upon the affiliated company's successful
completion of an initial public offering. In connection with the notes the
Company received 173,874 shares of common stock and two warrants to purchase
289,790 shares of common stock at $1.29 from the affiliated company. The Company
fully exercised these warrants and at December 31, 1996 still owned 463,664
shares. The shares are registered and the Company plans to sell these shares in
1997. The Company recognized an unrealized gain of $1,537,614 in the
accompanying consolidated statement of operations in connection with these
shares. The Company also has a demand note of $500,000 from a manufacturer that
is collateralized by a portion of the Chairman's common stock in this affiliated
company.
A former director of Palomar is also a director of a publicly traded
company. The Company loaned $1,700,000 during 1996 to this publicly traded
company, of which $500,000 was paid back as of December 31, 1996. The remaining
<PAGE>
F-35
balance outstanding of $1,200,000 is a note receivable which is collateralized
by a security agreement for manufacturing equipment owned by the publicly traded
company. The note is also convertible to common stock at the discretion of the
Company at a conversion price of $1.00 per share, subject to adjustment as
defined. The Company also has three warrants to purchase a total of 300,000
shares of common stock at a price of $1.13.
On September 30, 1996 the Company purchased two limited liability
partnership units for $500,000 in a full service investment banking and
securities brokerage firm. A director of the partnership is a former director of
the Company and a current director of Nexar.
The Company has a $500,000 equity investment in a privately held technology
company. A director of the Company's underwriter, H.J. Meyers, is also a
director of the investee company. In addition, at December 31, 1996, the Company
had unsecured notes receivable from this director totaling $1,059,548, of which
$604,653 was in connection with the exercise of stock warrants (see Note 5). In
1996 the Company loaned $500,000 to an affiliate of the underwriter. This amount
was paid back in full as of year end. Subsequent to year end, the Company made a
deposit of $450,000 towards the purchase of a publicly traded affiliate of the
underwriter and prepaid the underwriter $200,000 relating to future investment
banking services. Both the deposit and the prepayment are refundable upon
demand. Also subsequent to year end, the Company loaned $500,000 to the
underwriter which has been paid back in full.
During the year ended December 31, 1996 the Company made a $1,000,000
equity investment in a publicly traded technology company. In connection with
this investment, a director of Palomar joined the Board of Directors of this
publicly traded company. In 1996, the Company loaned $5,800,000and paid
$109,000in consulting fees to a company owned by this director. This loan has
been paid back as of December 31, 1996.
During the year ended December 31, 1996 the Company purchased 2,325,581
shares of Series E preferred stock and 1,000,000 shares of common stock for
$2,690,000 in the privately held former parent of Comtel. The Company also
loaned the privately held company $1,000,000 in the form of a subordinated note
and sold 500,000 shares of the privately held company's common stock to
employees of the company for non-recourse promissory notes totaling $345,000.
Both the notes and the investments were written off by the Company at year end,
as the Company believes there has been an impairment in the net realizable value
of this investment. The privately held company was a significant customer as
disclosed in Note 2(i). Subsequent to year end, the Company invested an
additional $1,200,000 and converted the $1,000,000 subordinated note into
764,665 shares of Series F preferred stock. The Company also purchased $960,000
of inventory and is committed to purchase an additional $240,000 of inventory
from a major supplier on behalf of the privately held company. The Company has
entered into an agreement to resell this inventory back to this privately held
company in 1997 at an estimated loss of $210,000.
On October 11, 1996 the Company paid $500,000 to a privately held medical
and cosmetic services company. An officer of CTI is a director of the privately
held company. In return the Company received 500,000 shares of common stock and
a promissory note for $499,500 due on October 11, 1997 accruing interest at 8%
per annum. Subsequent to year end, the Company paid $250,000 for 100,000 shares
of common stock and a promissory note of $249,900 accruing interest at 12% per
annum and was due February 28, 1997. For every thirty day period this note goes
unpaid, the Company will receive 50,000 shares of the privately held company's
common stock, to a maximum of 250,000 shares. The privately held company intends
to file an initial public offering in 1997 and will register the Company's
shares subsequent to the filing.
During the year ended December 31, 1996, the Company granted to its
officers and directors warrants to purchase 1,700,000 shares of the Company's
common stock, at prices ranging from $6.00 - $8.00, and expiring five years from
the date of grant. These warrants were issued at the fair market value on the
date of grant. In addition, the Company issued to these individuals options to
purchase 500,000 shares of the Company's common stock, at a price of $8.00 and
expiring five years from the date of grant.
<PAGE>
F-36
(12) 401(K) PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan (the "Plan") which covers
substantially all employees who have satisfied a six-month service requirement,
have attained the age of 18 and are employed at year-end. Employees may
contribute up to 15% of their salary, as defined, subject to restrictions
defined by the Internal Revenue Service. The Company is obligated to make a
matching contribution, in the form of the Company's common stock, of 50% of all
employee contributions effective January 1, 1995. The Company contributions vest
over a three-year period.
On March 25, 1996, the Company issued 45,885 shares of its common stock to
the Plan in satisfaction of its $160,595 employer match of the 1995 employee
contributions. For the year ended December 31, 1996 the Company has accrued
$225,000 for the 1996 match which will be made in common stock in April 1997.
(13) COMMITMENTS AND CONTINGENCIES
(a) OPERATING LEASES
The Company has entered into various operating leases for its corporate
office, research facilities and manufacturing operations. These leases have
monthly rents ranging from approximately $2,000 to $49,000, adjusted annually
for certain other costs such as inflation, taxes and utilities and expire
through August 2002. The Company also leases certain automobiles under operating
leases expiring through January 2000. The Company guarantees certain
subsidiaries' operating leases.
Future minimum payments under all leases at December 31, 1996 are approximately
as follows:
December 31,
1997 $2,151,000
1998 1,983,000
1999 1,692,000
2000 1,350,000
2001 940,000
Thereafter 1,002,000
-------------
$9,118,000
=============
Rental expense related to all operating leases was approximately $695,000
and $1,383,000 for years ended December 31, 1995 and 1996, respectively.
(b) ROYALTIES
The Company is required to pay a royalty of up to 5% of "net laser sales",
as defined, under a royalty agreement with MGH (see Note 6). For the years ended
December 31, 1995 and 1996, approximately $167,000 and $620,000 was incurred
under this agreement.
As discussed in Note 2(f), Tissue Technologies has a license agreement to
license a patent on a low pressure discharge apparatus. Under the terms of this
license, Tissue Technologies is required to pay a 3% royalty on net sales of
product as defined. During 1996, the Company incurred approximately $301,000
under this license agreement.
In connection with the formation of Dynamem, the Company entered into a
license agreement with the 20% minority shareholder of Dynamem to license a
patent on a foldable electronic assembly module on an exclusive basis. The
license agreement gives Dynamem the right to manufacture, sell and use the
foldable electronic assembly module for a royalty, payable to the minority
shareholder of Dynamem, equal to 2% of net sales proceeds, as defined in the
license
<PAGE>
F-37
agreement. The license agreement expires upon expiration of the patent, and
royalties are guaranteed by Dynaco. For the years ended December 31, 1995 and
1996, amounts incurred under this agreement were immaterial.
On August 1, 1995, Nexar entered into a license agreement with Technovation
Computer Lab Inc. (the "licensor"). The licensor is controlled by one current
and one former officer of Nexar. The license agreement gives Nexar the right to
manufacture, sell and use a system designed by the licensor which allows
external replacement of certain component parts. In exchange for these rights,
Nexar will pay a royalty on each unit sold, as defined. The term of the
agreement is for five years (three years on an exclusive basis), renewable for
an additional five-year period at the option of Nexar. For the period from
inception of Nexar (March 7, 1995) to December 31, 1995 and for the year ended
December 31, 1996, royalties charged to operations were immaterial. Subsequent
to December 31, 1996, the Company and the Licensor entered into an Asset
Purchase and Settlement Agreement, see Note 15(b).
(c) CONSULTING AGREEMENTS
The Company has entered into various consulting agreements with a former
treasurer and director of the Company. During the years ended December 31, 1995
and 1996, the Company incurred an aggregate of $124,300 and $258,891,
respectively, in consulting expenses relating to these agreements. On January 1,
1997, a new three year consulting agreement was executed which replaced the
existing two year agreement. From January 1, 1997 to December 31, 1997 the
Company shall pay the consultant at a rate of $15,000 per month for performance
of services, which rate shall be increased by 10% per annum therafter for the
term of the agreement. This agreement can be terminated by the Company upon
twelve months written notice to the former director and upon other circumstances
as defined.
On August 1, 1995, the Company entered into a consulting agreement with an
individual pursuant to which the individual provides certain business
development and consulting services for a monthly fee of $10,000 which expired
on July 31, 1996. During the year ended December 31, 1995, the Company incurred
an aggregate of $50,000 in consulting expenses relating to this agreement, of
which $10,000 remained unpaid at December 31, 1995. In addition, the Company
issued warrants to purchase 1,500,000 common shares of the Company's common
stock at $2.25, the fair market value on the date of issuance. These warrants
were fully vested on July 31, 1996. On August 1, 1996, the consulting agreement
was renewed for a period of one year for a monthly fee of $10,000. During 1996,
$120,000 of consulting finances were incurred relating to this agreement.
On January 1, 1996, the Company entered into a consulting agreement with a
strategic investment banking and financial services company. Under the terms of
this agreement, the Company is required to pay $5,000 monthly. In addition, on
February 7, 1996, the Company granted two individuals, who are employees of this
investment banking and financial services company, 150,000 warrants to purchase
shares of common stock at $7.69, the fair market value on the date of issuance.
These stock options vest based on milestones defined in the agreement. The
company incurred expenses of $143,830 for consulting services received during
the year ended December 31, 1996.
On February 7, 1996, the Company entered into a consulting agreement
whereby the consultant would provide investment banking services for one year to
the Company in exchange for a warrant to purchase 150,000 shares of the
Company's common stock at $7.69.
(d) GOVERNMENT CONTRACTS
The Company, like other companies doing business with the U.S. government,
is subject to routine audit and, in certain circumstances, inquiry, review or
investigation by U.S. government agencies for its compliance with government
procurement policies and practices. Based on government procurement regulations,
under certain circumstances, a contractor violating or not complying with
procurement regulations can be subject to legal or administrative proceedings,
including fines and penalties, as well as be suspensed or debarred from
contracting with the government. The Company's policy has been, and continues to
be, to conduct its activities in compliance with all applicable rules and
regulations.
<PAGE>
F-38
(e) CONTINGENCIES
On December 19, 1996 the Company signed a price quotation with a vascular
laser manufacturer for the purchase of up to 120 vascular lasers. The price
quotation requires the Company to place a deposit of $1,200,000 for the purchase
of 120 vascular lasers. After a minimum of 40 units are purchased at a per unit
average price of $147,250, the remaining down-payment will be refunded if no
additional purchases are made. The Company also paid $400,000 for tooling and
other costs to ensure the vascular laser is manufactured with the Palomar name.
The Company plans to use this vascular laser in the CTI sites in order to
provide a full suite of lasers.
On October 17, 1996 the Company entered into an option purchase agreement
with Enviro-Invest Oy ("Enviro"), a privately held Finnish company with
technology related to the detection of nuclear and chemical compounds. Under the
option purchase agreement the Company has the right to acquire all of the issued
and outstanding shares of Enviro at any time through October 1, 1997. The
purchase price is $400,000 in cash, a range of $3,750,000 to $5,250,000 in the
Company's common stock based on certain milestones, and other contingent cash
payments not to exceed $325,000. The purchase agreement also calls for the
Company to fund Enviro with a $400,000 loan. As of December 31, 1996 the Company
has paid $300,000 and has recognized a liability for the remaining $100,000,
payable on March 31, 1997. The Company intends to exercise the purchase option
in 1997 and has accounted for the $400,000 loan as a long term investment.
Enviro has a distribution agreement with Sensor Applications Inc.
("Sensor"), a Delaware corporation. On November 14, 1996 the Company entered
into a option purchase agreement with Sensor. The purchase agreement calls for
the Company to pay $150,000 in cash and issue 150,000 shares of Palomar stock
for all the issued and outstanding shares of Sensor and extends to November 1,
1997. The purchase agreement calls for the Company to make payments of $200,000,
payable in four installments for consulting services. During the year ended
December 31, 1996, the Company incurred $50,000 related to these consulting
services. The Company is also committed to make payments to Sensor of $15,000 a
month to cover 50% of monthly operating expenses which the Company has expenses
as incurred. The Company intends to exercise this purchase agreement in
conjunction with the option for Enviro.
(f) LETTERS OF CREDIT
Dynaco has a three irrevocable letters of credit outstanding totaling
$295,000 with a bank to secure payment to a vendor.
(g) CORPORATE GUARANTEES
The Company has issued guarantees for payment of various vendor liabilities
for several subsidiaries. Outstanding guarantees totaled approximately $975,000
as of December 31, 1996.
(h) LITIGATION
The Company is a defendant in a lawsuit filed by a former consultant to the
Company on March 14, 1996. In the suit, the former consultant alleges that the
Company breached a contract with the consultant in which the consultant was to
provide certain investment banking services in return for certain compensation.
In January 1997, this consultant's motion for summary judgment on a breach of
contract claim was granted. The consultant has alleged that he suffered up to
$3,381,250 in damages on a breach of contract claim, exclusive of interest. The
Company has not accrued for the full cost of the alleged damages and intends to
vigorously defend this action and appeal this matter after damages have been
determined. The Company believes its grounds for appeal are meritorious.
The Company is also involved in legal and administrative proceedings and
claims of various types, including a patent infringement and unfair competition
claim by a competitor of the Company. While any litigation contains an element
of uncertainty, management, based upon the opinion of the Company's general
counsel, presently believes that the outcome of each such proceeding or claim
which is pending or known to be threatened (including the actions described
above), or all of them combined, will not have a material adverse effect on the
Company.
<PAGE>
F-39
(14) EMPLOYMENT AGREEMENTS
The Company and its subsidiaries have employment agreements with certain
executive officers that provide for annual bonuses to the officers and expire on
various dates through 2001. Each of these agreements provide for 12 months
severance upon termination of employment. One of the officers at the Company's
Spectrum subsidiary receives a bonus equal to .75% of Spectrum's net sales, as
defined.
Dynamem entered into an employment agreement on September 29, 1995, with
its minority shareholder to serve as President and director of Dynamem for a
period of five years. At the end of five years from the date of employment, the
minority shareholder will have the option to sell 75% of his outstanding shares
of Dynamem to PEC at a price equal to 10 times the average net income of Dynamem
for the preceding 48-month period. A portion (35%) of the payment will be made
in the Company's common stock, with the balance to be paid in cash. The minority
shareholder also has the option to increase the percentage of the payment to be
paid in common shares of the Company. Dynaco has also guaranteed the
compensation due its President under this agreement. The Company is accounting
for the option related to the restricted stock in the subsidiary in accordance
with Financial Accounting Standard Board Interpretation No. 28, ACCOUNTING FOR
STOCK APPRECIATION RIGHTS AND OTHER VARIABLE STOCK OPTION OR AWARD PLANS.
Accordingly, compensation is measured annually based on the increase in value of
the subsidiary. Total compensation has been insignificant to date. In the event
of a public offering of Dynamem, the minority shareholder/officer has certain
registration rights as defined in the employment agreement.
Nexar has an employment agreement with its Chief Executive Officer (CEO)
expiring in March 2002, unless extended. The agreement provides for annual
salary and bonus for the CEO and a commission of $2.00 per computer sold by
Nexar. Upon termination of employment with Nexar, the CEO will be entitled to
amounts ranging from $1,000,000 to $3,000,000 in cash, three to five years
salary, bonus and participation in Nexar's benefit plans, immediate vesting of
unvested stock options and an income tax "gross up" for all the above items in
the event of a change of control. This termination payment is guaranteed by the
Company for as long as the Company owns greater than 50% of Nexar.
Nexar also has an employment agreement with another executive officer
expiring in March 2002, unless extended. The agreement provides for annual
salary and bonus for the officer and a commission of $2.00 per unit sold by
Nexar. Upon termination of employment with Nexar, the officer will be entitled
to up to $750,000 in cash, one year of salary, bonus and participation in
Nexar's benefit plans, immediate vesting of unvested stock options and an income
tax "gross up" for all the above items in the event of a change of control. This
termination payment is guaranteed by the Company for as long as the Company owns
greater than 50% of Nexar.
(15) SUBSEQUENT EVENTS
(a) EQUITY AND FINANCING TRANSACTIONS
On January 13, 1997 the Company raised $1,000,000 through the issuance of
5% series convertible debentures due January 13, 2002. The Company incurred
financing costs of $100,000 relating to investment banking services. The
financing costs were offset against a note receivable from a director of the
investment bank. This debenture has been accounted for similar to the other
dollar denominated convertible debentures as discussed in Note 4(b).
Subsequent to year-end, all of the outstanding shares of Series E preferred
stock (including accrued dividends of $121,978) were converted into 332,859
shares of the Company's common stock. In addition, as of February 28, 1997, 680
shares of Series G convertible preferred stock (including accrued dividends of
$19,833) were converted into 102,508 shares of the Company's common stock.
On February 28, 1997, the Company redeemed 300 units of the outstanding
Swiss franc denominated convertible debentures for $196,000.
<PAGE>
F-40
Subsequent to year end, the Company raised an additional $12,000,000 to
help sustain 1997 operations. The Company raised $6,000,000 through the
issuance of Series H redeemable convertible preferred stock. The Company raised
$5,500,000 through the issuance of 5% convertible debentures and $500,000
through the issuance of 6% convertible debentures. The Company will account for
these financings similar to the 1996 preferred stock and convertible debenture
issuances as discussed in Notes 5 and 4, respectively.
(b) LEGAL SETTLEMENTS
In 1996, a former executive officer of Nexar threatened to file a lawsuit
or seek arbitration proceedings against Nexar regarding Nexar's termination of
his employment and Nexar's license agreement with the Licensor.
On February 28, 1997, Nexar entered into an Asset Purchase and Settlement
Agreement with this former executive and the Licensor. Under the terms of this
agreement, the Company has agreed to pay this former executive and certain of
his affiliates $1,250,000 in cash and deliver $1,500,000 worth of the Company's
common stock in exchange for all right, title and interest in and to all the
technology licensed under Nexar's license agreement with the Licensor and a
patent application thereto and a complete release and settlement of all claims
between this former executive and Nexar. The Company will first acquire the
subject technology and then convey such technology to Nexar. Accordingly, the
Company paid $75,000 upon execution of this agreement. The Company will issue
its common shares and remit $475,000 to this former executive on the earlier of
April 30, 1997 or the closing of the initial public offering of Nexar. The
$700,000 balance of the cash consideration will be held in escrow, subject to
release to the former executive and/or Licensor in the absence of a breach of a
representation, warranty or covenant within one year after closing.
The Company has agreed to assign to Nexar all of its rights and title in
the technology to be received under the Asset Purchase and Settlement Agreement
immediately upon the receipt thereof, and has charged to Nexar the cost
associated with this claim and the purchase of the technology. Nexar has
allocated $1,375,000 of the consideration to settle this claim and the Company
has reflected this amount in settlement and litigation costs in its accompanying
statement of operations for the year ended December 31, 1996. The remaining
consideration totaling $1,375,000 has been allocated to the purchase of the
technology as of December 31, 1996 and will be amortized over the technology's
estimated useful life. The allocation of the purchased technology was based on
the value of anticipated royalty payments to the Licensor over the three years
ended December 31, 1999.
On March 14, 1997, CTI entered into an agreement with a medical service
company in settlement of CTI's claims of breach of the contract. The settlement
calls for the medical service company to reimburse CTI for all expenses
incurred, not to exceed $900,000, and an additional lump sum payment of
$400,000. In addition, the medical service company is required to purchase
lasers from CTI under certain circumstances. The medical service company also is
not to compete with CTI, as defined, for a period of six months.
(c) COMMITMENTS AND CONTINGENCIES
Subsequent to year end, the Company entered into an exclusive relationship
with a private label leasing company. CTI then entered into a master lease
agreement with this private label leasing company. This master lease agreement
is guaranteed by the Company.
<PAGE>
-40-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change in the Company's accountants during the Company's
two most recent fiscal years, nor were there any disagreements on any matter of
accounting principle or practice of financial statement disclosure which would
be required to be reported on a Form 8-K.
<PAGE>
-41-
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
See the sections entitled "Election of Directors" and "Executive Officers"
appearing in the Company's Proxy Statement in connection with its Annual Meeting
of Shareholders to be held on June 18, 1997, which section is incorporated
herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
See the section entitled "Executive Compensation and Other Information
Concerning Officers and Directors" appearing in the Company's Proxy Statement in
connection with its Annual Meeting of Shareholders to be held on June 18, 1997,
which section is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the section entitled "Security Ownership of Certain Beneficial Owners
and Management" appearing in the Company's Proxy Statement in connection with
its Annual Meeting of Shareholders to be held on June 18, 1997, which section is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the section entitled "Certain Transactions" appearing in the Company's
Proxy Statement in connection with its Annual Meeting of Shareholders to be held
on June 18, 1997, which section is incorporated herein by reference.
<PAGE>
-42-
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits required to be filed herewith are incorporated by
reference to the filings previously made by the Company where so indicated
below.
<TABLE>
<C> <C>
Exhibit
No. Title
*****2.1 Stock Purchase Agreement, dated July 1, 1993, by and between the Company and Star Medical Technologies,
Inc.
+++2.2 Agreement, dated December 30, 1993, by and between the Company, Dynaco Corporation and Dynaco West
Corporation.
+++2.3 First Amendment to Purchase and Sale Agreement, by and between the Company, Dynaco Corporation and
Dynaco West Corporation, dated January 24, 1994.
- -2.4 Purchase and Sale Agreement dated March 14, 1995, by and
between the Company and SPMT Acquisition Corp., Spectrum
Medical Technologies, Inc., Sanford R. Lane and CSF
Investments Ltd.
- --2.5 Purchase and Sale Agreement dated June 5, 1995, by and between Dynaco Acquisition Corporation and
Inter-Connecting Products, Inc.
&&&&2.6 Agreement and Plan of Reorganization dated March 9, 1996 by and among the Company, TTI Acquisition
Corp., Tissue Technologies, Inc. and Mario Barton
&&&&2.7 Amendment to the Merger Agreement dated April 29, 1996 by and among the Company, TTI Acquisition Corp.,
Tissue Technologies, Inc. and Mario Barton.
&&&&2.8 Letter from the Company to Tissue Technologies, Inc. waiving the Company's right to receive
indemnification under Section 6 of the Merger Agreement in certain circumstances.
&&&&2.9 Plan of Merger dated May 3, 1996 by and between the Company, TTI Acquisition Corp. and Tissue
Technologies, Inc.
&&&&2.10 List of exhibits and schedules omitted from the Tissue Technologies, Inc. Merger Agreement.
(The Company hereby undertakes and agrees to furnish copies of the exhibits and schedules set forth in
exhibit 2f above to the Commission upon its request.)
2.11 Stock Purchase Agreement dated March 19, 1996, by and between Dynaco Acquisition Corp., Comtel
Electronics, Inc., Mikel C. Green, Peter Rogal and Palomar Electronics Corp.
2.12 Agreement for Purchase of Stock dated July 12, 1996, by and between the Company, Eleanor Roberts Weisman
and Wallace Roberts.
- ----3.1 Restated Certificate of Incorporation, as amended.
&&3.2 Certificate of Amendment to Certificate of Incorporation, as filed with the Delaware Secretary of State
on December 16, 1996.
<PAGE>
-43-
&3.3 Certificate of Designation of Series G Convertible Preferred
Stock as filed with the Delaware Secretary of State on
September 26, 1996.
*3.4 Bylaws, as amended.
***4.1 Form of Common Stock Certificate.
*10.1 Patent License Agreement by and between the Company and Patlex Corporation, effective as of January 1,
1992.
**10.2 1991 Stock Option Plan, as amended.
#10.3 1993 Stock Option Plan.
####10.4 1995 Stock Option Plan.
- ----10.5 1996 Stock Option Plan
- ----10.6 1996 Employee Stock Purchase Plan
**10.7 Form of Stock Option Grant under the 1991, 1993 and 1995 Stock Option Plans.
10.8 Form of Stock Option Agreement under the 1996 Stock Option Plan.
##10.9 Form of Company Warrant to Purchase Common Stock.
****10.10 Lease for premises at 66 Cherry Hill Drive, Beverly, Massachusetts,
dated May 25, 1993.
- ---10.11 The Company's 401(k) Plan.
&10.12 Securities Purchase Agreement between the Company and The Travelers Insurance Company dated July 12,
1996.
&10.13 Warrant to purchase Common Stock of the Company, dated July 12, 1996.
&10.14 Subscription Agreement between the Company and Genesee Fund Limited, dated September 26, 1996.
&10.15 Registration Rights Agreement between the Company and Genesee Fund Limited, dated September 26, 1996.
&10.16 Warrant to purchase Common Stock of the Company, dated September 27, 1996.
&10.17 Warrant Agreement between the Company and American Stock Transfer & Trust Co. as warrant agent, dated
June 24, 1996.
&10.18 Palomar Medical Technologies, Inc. and American Stock Transfer & Trust Company as trustee, Indenture
dated as of June 24, 1996, SF 25,000,000, 4.5% Convertible Subordinated Debentures due 2003.
&&&10.19 Form of Offshore Securities Subscription Agreement, dated July 3, 1996.
&&&10.20 Palomar Medical Technologies, Inc. and American Stock Transfer & Trust Company as trustee, Indenture
dated as of June 24, 1996, SF 25,000,000 4.5% Convertible Subordinated Debentures due 2003.
&&&10.21 Warrant Agreement between the Company and American Stock Transfer & Trust Company as warrant agent,
dated June 24, 1996.
<PAGE>
-44-
&&&10.22 Form of Registration Rights Agreement, dated July 3, 1996.
&&&10.23 Form of Debenture, dated July 3 1996.
&&&10.24 Form of Warrant, dated July 3, 1996.
&&&10.25 Berckeley Subscription Agreement, dated December 31, 1996 and Amendment thereto dated January 10, 1997.
&&&10.26 Berckeley Debenture, dated December 31, 1996.
&&&10.27 High Risk Opportunities Hub Fund, Ltd. Subscription Agreement, dated January 14, 1997.
&&&10.28 High Risk Opportunities Hub Fund, Ltd. Debenture, dated January 13, 1997.
10.29 Securities Purchase Agreement between Palomar Electronics Corporation and Clearwater Fund IV, LLC, dated
December 31, 1996.
10.30 Securities Purchase Agreement between Palomar Electronics Corporation, the Company and The Travelers
Insurance Company, dated as of December 18, 1996.
10.31 Securities Purchase Agreement between Palomar Electronics Corporation and GFL Advantage Fund Limited
dated December 31, 1996.
10.32 Option Agreement between the Company and GFL Advantage Fund Limited dated December 31, 1996.
10.33 Common Stock Purchase Warrant dated December 31, 1996.
10.34 Form of Net Warrant to Purchase Common Stock.
10.35 Subscription Agreement between the Company and Finmanagement, Inc. dated December 27, 1996.
10.36 Subscription Agreement dated as of April 12, 1996, between the Company and GFL Advantage Fund Limited.
10.37 Registration Rights Agreement dated as of April 17, 1996 by and between the Company and GFL Advantage
Fund Limited.
10.38 Warrant dated as of April 16, 1996.
10.39 Form of Warrant to Purchase Common Stock dated February 1, 1996.
10.40 Form of Offshore Stock Subscription Agreement dated February 1, 1996.
10.41 Form of Subscription Agreement dated as of March 10, 1997.
10.42 Form Registration Rights Agreement dated as of March 10, 1997.
10.43 Form of 5% Convertible Debenture due March 10, 2002.
10.44 Subscription Agreement between the Company and Soginvest Bank dated as of March 13, 1997.
10.45 6% Convertible Debenture due March 13, 2002.
<PAGE>
-45-
10.46 Asset Purchase and Settlement Agreement by and among the Company, Nexar Technologies, Inc., Technovation
Computer Labs, Inc. and Babar I. Hamirani, dated February 28, 1997.
10.47 List of exhibits omitted from the Asset Purchase and Settlement Agreement.
(The Company hereby undertakes and agrees to furnish copies of
the exhibits and schedules set forth in exhibit 10(dddd) above
to the Commission upon its request.)
10.48 Employment Agreement dated as of January 1, 1997, between the Company and Steven Georgiev.
10.49 Employment Agreement dated as of January 1, 1997, between the Company and Michael H. Smotrich.
10.50 Employment Agreement dated as of January 1, 1997, between the Company and Joseph P. Caruso.
10.51 Employment Agreement dated as of January 1, 1997, between the Company and Anthony Fiorillo.
10.52 Securities and Purchase Agreement between the Company and RGC International Investors, LDC,
dated March 27, 1997
10.53 Registration Rights Agreement between the Company and RGC International Investors, LDC,
dated March 27, 1997
23 Consent of Arthur Andersen LLP.
* Previously filed as an exhibit to Registration Statement No. 33-47479 filed on April 27, 1992, and
incorporated herein by reference.
** Previously filed as and exhibit to Amendment No. 4 to Form S-1 Registration Statement No. 33-47479 filed
on October 5, 1992.
*** Previously filed as an exhibit to Amendment No. 8 Registration Statement on Form S-1, No. 33-37379,
filed on December 17, 1992.
**** Previously filed as an exhibit to the Company's Annual Report on Form 10-KSB date March 31, 1993, and
incorporated herein by reference.
***** Previously filed as an exhibit to the Current Report on Form 8-K date July 1, 1993, and incorporated
herein by reference.
# Previously filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the year ended March 31, 1994, and
incorporated herein by reference.
## Previously filed as an exhibit to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995, and
incorporated herein by reference.
- - Previously filed as an exhibit to the Current Report on Form 8-k dated April 20, 1995, and incorporated
herein by reference.
- -- Previously filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1995, and incorporated herein by reference.
- --- Previously filed as an exhibit to Form S-8 Registration Statement No. 33-97710 filed on October 4, 1995,
and incorporated herein by reference.
- ---- Previously filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1996, and incorporated herein by reference.
& Previously filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1996, and incorporated herein by reference.
&& Previously filed as an exhibit to Form S-3 Registration Statement No. 333-18003 filed on December 16,
1996, and incorporated herein by reference.
<PAGE>
-46
&&& Previously filed as an exhibit to Form S-3 Registration Statement No. 333-22725 filed on March 4, 1997,
and incorporated herein by reference
&&&& Previously filed as an exhibit to the Current Report on Form 8-K dated May 16, 1996, and incorporated
herein by reference
+ Previously filed as an exhibit to the Current Report on Form 8-K dated September 10, 1993, and
incorporated herein by reference.
++ Previously filed as an exhibit to the Current Report on Form 8-K dated February 7, 1994, and
incorporated herein by reference.
+++ Previously filed as an exhibit to the Current Report on Form 8-K dated February 9, 1994, and
incorporated herein by reference.
++++ Previously filed as an exhibit to the Current Report on Form 8-K dated February 14, 1994, and
incorporated herein by reference.
</TABLE>
(b) REPORTS ON FORM 8-K
None
<PAGE>
-47-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
certifies that it has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Beverly in the
Commonwealth of Massachusetts on March 30, 1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Stevem Georgiev
------------------------------
Steven Georgiev
Chairman of the Board of Directors
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
<TABLE>
<C> <C> <C>
Name Capacity Date
/s/ Steven Georgiev President, Chief Executive April __, 1997
---------------------------------
Steven Georgiev Officer and Chairman of the Board
/s/ Dr. Michael H. Smotrich President, Chief Operating Officer, April __, 1997
---------------------------------
Dr. Michael H. Smotrich Secretary and Director
/s/ Joseph P. Caruso Chief Financial Officer and Treasurer April __, 1997
---------------------------------
Joseph P. Caruso ( Principal Financial Officer and
Principal Accounting Officer)
/s/ Buster C. Glosson Director April __, 1997
---------------------------------
Buster C. Glosson
/s/ Louis P. Valente Director April __, 1997
---------------------------------
Louis P. Valente
/s/ John M. Deutch Director April __, 1997
---------------------------------
John M. Deutch
</TABLE>
-48-
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of March 19, 1996 (the
"Effective Date") by and between DYNACO ACQUISITION CORP., a Delaware
corporation (the "Purchaser"), and COMTEL ELECTRONICS, INC., a California
corporation (the "Company"), and MIKEL C. GREEN and PETER ROGAL (herein
collectively referred to as the "Shareholders"), and PALOMAR ELECTRONICS, INC.,
a Delaware corporation ("Palomar Electronics") (hereinafter collectively
referred to as the "Parties").
RECITALS
WHEREAS, Palomar Electronics is a wholly owned subsidiary of Palomar
Medical, Inc., a Delaware corporation, and Dynaco is a wholly owned subsidiary
of Palomar Electronics;
WHEREAS, the Company is engaged in the assembly of circuit boards and
electronic components;
WHEREAS, the Purchaser currently owns 10% of the issued and outstanding
common stock of the Company and the Shareholders, collectively, own the
remaining 90% of the Company;
WHEREAS, the Purchaser wishes to acquire additional shares of the common
stock of the Company, which together with Purchaser's present share ownership,
will constitute an ownership of 80.32% of the issued and outstanding stock of
the Company;
WHEREAS, the Parties contemplate that such acquisition will be effected by
means of the purchase of 1,325 shares by Mikel C. Green ("Green"),the purchase
of 23,675 shares by Peter Rogal ("Rogal") and the simultaneous purchase by
Purchaser from the Company, pursuant to this Agreement, of 500,000 shares of the
currently authorized and unissued common stock of the Company no par value
(collectively, the "Shares"), at a price of $0.055 per share, which the Parties
agree is fair market value; and
WHEREAS, the Parties hereto desire to enter into this Agreement for the
purpose of setting forth certain, representations, warranties, and covenants
made by each to the other as an inducement to the execution and delivery of the
Agreement and as conditions precedent to the consummation of the Agreement;
NOW, THEREFORE, in consideration of the mutual promises and mutual
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
<PAGE>
-49-
ARTICLE 1
TERMS OF SALE
1.1 Agreement to Sell and Purchase. Subject to the terms and conditions of
this Agreement, the Company agrees to issue and sell to the Purchaser, and the
Purchaser agrees to purchase from the Company, 500,000 shares of the currently
authorized and unissued no par value common stock of the Company, for the
purchase price of $0.055 per share (or an aggregate purchase price of
$27,500.00), payable in cash or cashiered funds at the Closing Date, as defined
in Section 1.2 herein.
1.2. Closing Date. The sale and purchase provided for herein shall be
consummated and closed at the offices of McKenna & Cuneo, L.L.P., 444 South
Flower Street, Los Angeles, California 90071 at 11:59 P.M. (local time) on March
19, 1996 (the "Closing Date"), or at such other place as the parties mutually
agree.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
As an inducement for the Purchaser to enter into and perform this
Agreement, the Company and its Shareholders represent and warrant to Purchaser,
as of the Effective Date and as of the Closing Date, as if made on the Closing
Date, as follows:
2.1 The Company has provided to the Purchaser true, correct and complete
copies of the Company's financial statements, federal and state tax returns,
filings, creditor lists, accounts payable, books and records, material
contracts, and all other material information.
2.2 The Company is a duly organized and validly existing corporation in
good standing under the laws of the State of California and in each other
jurisdiction in which it transacts business, and each officer executing the
Agreement on behalf of the Company has all power and authority to enter into and
execute and deliver such Agreement.
2.3 All actions required by the Company or the Shareholders necessary to
authorize and approve the Agreement and the issuance of the Shares have been
taken and are in full force and effect and have not been rescinded, modified or
revoked.
2.4 The Shares, when issued to the Purchaser pursuant to this Agreement,
are free and clear of all liens, pledges, security interests, encumbrances or
adverse claims, other than rights created under that certain Restricted Share
Agreement dated even date herewith, and the Company has all right, power and
authority to issue such Shares, and the Shares, when issued, will be validly
<PAGE>
-50-
issued and outstanding and non-assessable. The 10,000 Shares currently owned by
Purchaser are duly and validly issued and outstanding Shares.
2.5 The assets of the Company, both real and personal, mixed, tangible and
intangible, necessary or useful for the operation of the Company's business (the
"Assets") are in good condition and repair, ordinary wear and tear excepted and
suitable for the uses intended. The Assets materially comply with and are
operated in conformity with all applicable laws, ordinances, regulations,
orders, permits and other requirements.
2.6 All consents and approvals required to be obtained by the Company from
its shareholders or any other person in order to consummate the transactions
contemplated herein have been obtained and are in full force and effect,
including without limitation all leases of real, personal, or mixed property.
2.7 The Company has all requisite franchises, permits, licenses,
authorizations, variances, and approvals of governmental or administrative
authorities necessary to conduct its business as presently conducted, and all
such approvals and permits are in full force and effect, and no condition exists
that, with the giving of notice or passage of time, or both, would result in
either a violation or revocation of any approval or permit necessary for the
Company to conducts its business.
2.8 The Company and the Shareholders have made available for inspection
and/or caused to be delivered to the Purchaser all information and documents
material to its decision to purchase the Shares, including without limitation
all financial statements and state and federal tax returns concerning the
Company for the periods January 1, 1995 through February 29, 1996 (the
"Financial Statements"), all books and records of the Company, all financial
data of the Company since its inception, and physical inspection of the offices
and facilities; provided, however, that Purchaser acknowledges that although the
Financial Statements list MIDOCS as an asset of the Company, it has not
considered such asset in its due diligence review of the Company and that such
asset shall be transferred after the Closing Date to Comtel Security Systems,
Inc. The Company and the Shareholders, after due investigation, represent and
warrant that: (i) the Financial Statements are true and correct in all material
respects and fairly present the financial position and results of operation of
the Company as of the Closing Date; and (ii) the Company's books and records are
true and correct in all material respects and fairly and accurately reflect the
income, expenses, Assets and liabilities of the Company, including the nature
thereof and the transactions giving rise thereto, and provide a fair and
accurate basis for the preparation of Financial Statements.
2.9 The Company does not have any liabilities or obligations, either
absolute, accrued, contingent or otherwise, which individually or in the
aggregate are material to the financial condition of the Company for the
operation of its business that have not been reflected in the Financial
Statements provided to the Purchaser.
<PAGE>
-51-
2.10 Except as disclosed on Schedule 2.10, there has been no (i) material
changes in the financial condition, Assets or liabilities, management, results
of operations or prospects of the Company or its business, other than changes in
the ordinary course, which either individually or in the aggregate, have been
and are materially adverse; (ii) damage, destruction or loss to the Company's
Assets which was not fully insured; (iii) except as disclosed in Schedules to
this Agreement, sale, transfer, assignment, lease, pledge or mortgage of any
Assets having a value in excess of $2,000, individually, or $5,000, in the
aggregate; (iv) material contract or right (including any letter of intent or
similar rights, whether or not binding as a contract) modified, amended,
canceled, revoked, rescinded or waived; and (v) obligation or liability
undertaken or incurred (whether absolute, accrued, contingent or otherwise, and
whether or not due) which has not been disclosed to the Purchaser in writing
prior to the Closing Date.
2.11 Except as set forth in Schedule 2.11, the Company has no obligation
for borrowed money and has not guaranteed or entered into any agreement to
guaranty borrowed money or any other indebtedness. The Company's liabilities and
accounts payable as of December 31, 1995, and February 29, 1996, are set forth
in Schedule 2.11. Except as set forth in Schedule 2.11, the Company has no other
accounts payable or liabilities and no accounts payable that are past due as of
the Closing Date.
2.12 The Company's accounts receivable, except as set forth in Schedule
2.12, are accurate and collectible and, except for any reserve for bad debts or
unrecoverable losses that is disclosed in the Financial Statements, have a value
equal to the face amount of such accounts receivable.
2.13 None of the Company's accounts receivable, except as shown on Schedule
2.13, are owing from a debtor, that, to the knowledge of the Company or either
of the Shareholders, has become bankrupt or is insolvent or have been pledged to
any third party.
2.14 All returns, reports, and other forms related to income and any other
taxes (including, without limitation, sales, use and excise taxes) required to
be filed or paid by the Company have been timely filed and paid in accordance
with applicable law (after taking into account any extensions properly
obtained), and no penalties, interest or other charges are due or will become
due with respect to such returns. The Company has paid all taxes due any
governmental authority and no audit is pending with respect to any tax return,
report, form or other amount due.
2.15 The books and records and other financial information concerning the
Company are true, complete and accurate in all material respects and maintained
in accordance with sound business practices. The minute books and other records
of the Company reflect accurately the record of all meetings and other actions
taken by the Company and its Shareholders.
2.16 Except for those benefit plans listed on Schedule 2.16, the Company
has no employee or other benefit plans, including, without limitation, medical
plans, retirement plans,
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disability plans, and deferred compensation agreements, and the Company is not
in default under any such plan and is in full compliance with applicable law
(regulatory or otherwise) with respect to such plans.
2.17 Except as disclosed in Schedule 2.17, there is no action, suit, or
proceeding (legal, equitable or administrative) pending or, to the Shareholders'
knowledge, threatened against either the Company or either or both of the
Shareholders which, if adversely determined, could materially affect either the
Company, its Assets, business or prospects or the Assets, business or prospects
of the Shareholders.
2.18 The Company has provided to the Purchaser a true and complete list of
all patents, applications for patents, trademarks, trade names, service marks,
copyrights and other applications owned by the Company or material to the
conduct of its business ("Intellectual Property"). The Company represents and
warrants, and, to the best knowledge of the Shareholders, the Shareholders,
individually, represent and warrant, that all such Intellectual Property is
owned by the Company or the Company has the right, pursuant to written license
or other valid or enforceable agreements, to use such Intellectual Property in
the conduct of its business, free and clear of all liens, charges, security
interests, adverse claims, pledges, encumbrances, and demands of any nature or
kind whatsoever, of all right, title and interest in and to the Intellectual
Property. The Company is not in default under any contracts or agreements
relating to the Intellectual Property, and no event has occurred that, with the
passage of time or the giving of notice, or both, would constitute a default
under any contract or agreement relating to the Intellectual Property.
2.19 There is no person who has challenged or might have a valid basis for
a challenge against the use by the Company of the Intellectual Property, and
there is no person who, as of the Effective Date, has any right or title to,
interest in, or claim, lien, charge, or encumbrance against the Intellectual
Property (whether by virtue of contract, decree, operation of law, or
otherwise), and there are no applications for or registrations of any patent,
trade-mark, trade name, industrial design, copyright or other similar
industrial, intellectual or proprietary protection in respect of the
Intellectual Property;
2.20 The operations of the Company do not conflict with or infringe upon,
and no one has asserted that the Company's operations conflict or infringe upon,
any proprietary rights, trademarks, trade names, service marks or patents held
by any other person, and there are no claims, disputes, actions, proceedings,
suits, appeals or other matters pending or threatened against the Company with
respect to any such other marks.
2.21 The Company is not in violation of any local, state or federal law or
regulation and has received no notice of any alleged violation of any such law
or regulation.
2.22 The Company has disclosed to the Purchaser all material contracts,
obligations, commitments, agreements, contracts, and leases, whether written or
oral, to which the
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Company is a party or to which its properties and Assets are subject or by which
it is bound (collectively, the "Commitments"), and the Company is not in default
under any of the Commitments and no event has occurred that, with the passage of
time or the giving of notice, or both, would constitute a default under any
Commitment, except as disclosed in Schedule 2.22.
2.23 Neither the Company nor the Shareholders have knowledge of any
existing facts or conditions which have not been disclosed in writing to the
Purchaser, which are material or which may give rise to any charge, lien,
litigation, proceeding or investigation by any third party against the Company
or which, if adversely determined to the Company, would materially and adversely
affect the business, prospects or financial condition of the Company.
2.24 Neither this Agreement nor any Schedule hereto, nor any other
agreement, schedule or information furnished the Purchaser (or their attorneys
or agents) contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statement contained therein not misleading.
2.25 To the knowledge of the Shareholders and the Company, the Company is,
and at all times has been, in full compliance with, and has not been and is not
presently in violation of or liable under, any federal, state, county or local
statues, laws, regulations, rules, ordinances, codes, licenses and permits
relating in any way to the protection of the environment, including, without
limitation, the Clean Air Act, the Clean Water Act, the Federal Water Pollution
Control Act of 1972, the Resource Conservation and Recovery Act of 1976
("RCRA"), the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), and the Toxic Substances Control Act, and any amendments
or extensions of the foregoing and the regulations promulgated thereunder
(collectively, the "Environmental Laws"). To the knowledge of the Shareholders
and the Company, the Company has not received any notice of any actual or
potential violation of or failure to comply with any Environmental Law or of any
actual or threatened obligation to undertake or bear the cost of any expense,
liability, or other liability arising from or under any Environmental Law with
respect to any of the properties or Assets or with respect to any property or
facility at or to which any "hazardous materials" were generated, manufactured,
refined, transferred, imported, used or processed by the Company or from which
hazardous materials have been transported, treated, stored, handled,
transferred, disposed, recycled or received.
2.25.1 The Company and the Shareholders have no knowledge that any of its
owned or leased properties is contaminated by or contains any toxic substance,
as defined in RCRA. No claim, action, suit or proceeding is pending or, to the
Company's or the Shareholders' knowledge, threatened against the Company, before
any court or other governmental authority or arbitration tribunal, relating to
hazardous substances, pollution or the environment, and there is no outstanding
judgement, order, writ, injunction, decree, or award against or affecting the
Company or its Assets or properties with respect to the same. To the knowledge,
information and belief of the Company and the Shareholders, there has never
been, and there is not presently occurring, any release, a threatened release or
clean up of chemicals produced by, or resulting from, any business,
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commercial or industrial activities, operations, or processes, including without
limitation hazardous substances, as defined under CERCLA, and has not received
any information requests under CERCLA from any government agency. Neither the
Company nor any of the Shareholders have any knowledge of a violation of the
Environmental Laws in connection with the ownership, use, maintenance, or
operation of any of the Company's leased or owned properties by the owner
thereof or any other person. The Company and the Shareholders have no knowledge
of any facts or circumstances which the Company reasonably expects could form
the basis for the assertion of any "claim" against the Company relating to
environmental matters including, without limitation, any claim arising from past
or present environmental practices asserted under the Environmental Laws, which
the Company or the Shareholders believe might have a material adverse effect on
the business, results of operations, financial condition or prospects of the
Company taken as a whole.
2.25.2 To the knowledge of the Shareholders and the Company, there are no
hazardous materials present on any of the Company's leased properties, including
hazardous materials contained in barrels, above or underground storage tanks,
landfills, land deposits, dumps, equipment (whether moveable or fixed) or other
containers, either temporary or permanent, and deposited or located in land,
water, sumps, or any other part of such properties, or incorporated into any
structure therein or thereon. To the knowledge of the Shareholders and the
Company, none of the Shareholders, the Company nor any other person for whose
conduct they are or may be held responsible has permitted or conducted or is
aware of, any "hazardous activity" conducted with respect to any properties or
assets (whether real, person or mixed) in which the Company has or had an
interest except in full compliance with all applicable Environmental Laws.
2.25.3 The Company has delivered to the Purchaser true and complete copies
and results of any reports, studies, analyses, tests or monitoring, to the
extent such items exist and are in the possession of Company or of which Company
has knowledge, by the Company pertaining to hazardous materials or hazardous
activities in, on, or under the Company's properties or concerning compliance by
the Company or any other person for whose conduct they are or may be held
responsible with all Environmental Laws.
2.25.4 As used herein, the terms "hazardous substance(s)" or "hazardous
material(s)" shall include any pollutants, dangerous substances, toxic
substances, hazardous wastes, hazardous materials, or hazardous substances as
defined in or pursuant to RCRA and CERCLA, or any other federal, state, or local
environmental law, ordinance, rule or regulation, except that, for purposes of
this Agreement, "petroleum" (including crude oil or any faction thereof) shall
be deemed a "hazardous substance". "Release" shall have the same meaning as
defined in CERCLA. "Claim" shall mean any and all claims, demands, causes of
actions, suits, proceedings, administrative proceedings, losses, judgements,
attorney' fees, and any other expenses incurred, assessed or sustained by or
against the Company or the Shareholders. "Hazardous activity" shall mean the
distribution, generation, handling, importing, management, manufacturing,
processing, production, refinement, release, storage, transfer, treatment or use
of hazardous materials in, on, under, about or from any properties or assets in
which the Company has or had an interest. As used in this Section 2.25,
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the term "knowledge" shall refer to the actual knowledge of the Company and/or
the Shareholders.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As an inducement to the Company to enter into and perform this Agreement,
the Purchaser represents and warrants to the Company as follows:
3.1 Organization of the Purchaser. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with adequate corporate power and authority to own its property and
conduct its business and to enter into and perform this Agreement.
3.2 Corporate Authorization. The execution, delivery and performance of
this Agreement by the Purchaser have been duly and validly authorized by the
Purchaser's Board of Directors. Such execution, delivery and performance, and
the acquisition of Shares contemplated hereby, do not and will not violate or
conflict with or result in any default or loss of a material benefit under the
Purchaser's Certificate of Incorporation or By-laws or any mortgage, indenture,
lease, agreement or other instrument or any court or governmental agency order,
judgment or decree to which the Purchaser is a party or subject or by which the
Purchaser is bound.
3.3 No Broker's or Finder's Fee. No agent, broker, financial adviser or
other firm or person is or will be entitled to any broker's or finder's fee or
similar payment by the Purchaser in connection with this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR
As an inducement to the Company to enter into and perform this Agreement,
Dynaco and Palomar Electronics (collectively, the "Guarantor") represents and
warrants to the Company as follows:
4.1 Organization of the Guarantor. The Guarantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with adequate corporate power and authority to own its property and
conduct its business and to enter into and perform this Agreement.
4.2 Corporate Authorization. The execution, delivery and performance of
this Agreement by the Guarantor have been duly and validly authorized by the
Guarantor's Boards of
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Directors. Such execution, delivery and performance as provided under the
Guaranty contemplated hereby, do not and will not violate or conflict with or
result in any default or loss of a material benefit under the Guarantor's
Certificates of Incorporation or By-laws or any mortgage, indenture, lease,
agreement or other instrument or any court or governmental agency order,
judgment or decree to which the Guarantor is a party or subject or by which the
Guarantor is bound.
4.3 No Broker's or Finder's Fee. No agent, broker, financial adviser or
other firm or person is or will be entitled to any broker's or finder's fee or
similar payment by the Guarantor in connection with this Agreement.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Investigation. The Company shall:
5.1.1 Afford to the Purchaser, and its accountants, counsel and other
representatives, full access, at any time or times during the period prior
to the Closing Date, to all of the properties, books, contracts, leases,
tax returns and other records of the Company; and
5.1.2 At any time or times during such period, furnish promptly to the
Purchaser all information concerning the business, Assets, properties,
personnel and any other information or documentation with respect to the
Company as the Purchaser may request.
5.2 Confidentiality. The Purchaser shall use its best efforts to maintain
as confidential any information obtained pursuant to negotiations with the
Company, except that this restriction shall not apply to any such information
which is or comes into the public domain is required to be disclosed, or at any
time comes into its possession from third parties who have the right to disclose
such information otherwise than in connection with this Agreement.
5.3 Certain Consents. In the event of a request by the Company for written
consent from the Purchaser for purposes of Article 2 hereof, the Purchaser shall
use reasonable efforts to respond to such request promptly; the Company shall be
entitled to rely, for purposes of any of such clauses, on a written consent
signed on behalf of the Purchaser by its President, or by any other authorized
officer of the Purchaser.
5.4 Name; Location. The Company and the Shareholders, individually and
collectively, hereby agree to use best efforts to take all actions, or shall
cause such actions to be taken, including without limitation execution of all
appropriate documentation, necessary to relocate the Company's main office to
Irvine, California as soon as reasonably possible, unless the Parties agree in
writing otherwise. The Company and the Shareholders further hereby covenant
that, after consummation of the transaction as contemplated herein, the Company
shall retain the name
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"Comtel Electronics, Inc.", unless such name shall be changed as provided under
the amended Bylaws of the Company dated even date herewith.
5.5 Operating Capital. Upon the Closing Date (subject to the satisfaction
of all conditions set forth herein), Palomar Electronics shall provide to
Company standby letters of credit to secure payments to vendors by Company in
the total amount of One Million and No/100 Dollars ($1,000,000.00), from which
Company may draw funds as needed solely to pay the bona fide claims of third
party vendors of Company; provided that such funds shall not be drawn to pay
vendors that are controlled or affiliated in any way with Company or the
Shareholders. Upon the Closing Date (subject to the satisfaction of all
conditions set forth herein), Palomar Electronics shall further provide to
Company cash in the total amount of Five Hundred Fifty Thousand and No/100
Dollars ($550,000) as follows: (i) $150,000.00 to be used to purchase equipment
from New Media, Inc.; and (ii) $400,000.00 to be used as working capital solely
to finance operations of Company; provided that such funds shall be drawn by
Company, as needed, during the first 45 days after the Closing Date, upon
presentation to Palomar Electronics' Board of Directors of a reasonable basis
for the request for such funds, the uses to which requested funds are to be put,
and approval of Palomar's Board of Directors.
5.6 Release of Green Guaranty. At the Closing Date, Purchaser hereby agrees
to release Green from his personal guaranty of the loan dated January 29, 1996
between Purchaser, as lender, and Company, as borrower.
5.7 Purchaser's Agreement to Finance Capital Equipment of Company.
Purchaser hereby agrees to use reasonable efforts to obtain financing for
purchases of capital equipment by Company, upon presentation to Purchaser's
Board of Directors of a reasonable basis for the request for such funds, the use
of such funds, and the approval of the Board of Directors, with such approval to
be based on determination of a reasonable return of investment on said capital
expenditure of Company; provided, however, that such obligation shall be
suspended at any time as Palomar Electronics shall be unable to fund such
purchases due to its insolvency, bankruptcy, appointment of a receiver, or
inability to pay its obligations as they become due.
5.8 Preemptive Rights. Each of the Shareholders waives any preemptive
rights he may have in connection with the issuance of the Shares to Purchaser
pursuant to this Agreement. Green and Rogal hereby agree to cause a written
waiver of preemptive rights to be executed and delivered to Purchaser on the
Closing Date. Any Shares issued by the Company after the Closing Date shall be
subject to preemptive rights for each of the shareholders, unless a Registration
Statement has been filed within the Securities and Exchange Commission, in which
event no shareholder shall be entitled to preemptive rights.
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ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATION OF THE PURCHASER
The obligation of the Purchaser to consummate the sale and purchase
provided for herein is subject to the satisfaction on the Closing Date of the
following conditions precedent, unless (except in the case of the conditions set
forth in Section 6.3 hereof) waived in writing by the Purchaser:
6.1 Representations and Warranties. The representations and warranties of
the Company and the Shareholders contained in Article 2 of this Agreement shall
be true in all material respects as of the Effective Date and as of the Closing
Date as though made on and as of the Closing Date, and the Company shall have
duly performed and complied with, in all material respects, all agreements,
covenants and conditions required under this Agreement.
6.2 Adverse Changes. There shall have been no changes after February 29,
1996, in the results of operations, condition (financial or otherwise),
properties, Assets, business or prospects of the Company, which are materially
adverse.
6.3 Regulatory Approvals. All approvals and consents required by law to be
received in connection with the acquisition of Shares contemplated by this
Agreement or in connection with any of the matters or transactions contemplated
hereby, shall have been received, shall be satisfactory in all respects to the
Purchaser and shall be in effect. All conditions or requirements prescribed by
any such approval or consent (or by law in connection therewith) shall have been
satisfied.
6.4 Litigation. No litigation, proceeding or investigation shall be pending
or threatened, and no order, notice or regulation of any court or governmental
agency shall be in effect, which restrains or prohibits or which seeks to
restrain or prohibit or obtain damages or other relief in connection with the
acquisition of Shares contemplated by this Agreement, or which (in the opinion
of the Purchaser) makes consummation of such acquisition inadvisable.
6.5 New Company Directors and Officer. Concurrently with the consummation
of the sale and purchase provided for herein, the Shareholders shall validly and
lawfully elect an additional director of the Company to be designated by the
Purchaser, and the Board of Directors of the Company shall amend and execute the
Company's Bylaws to provide for five directors of the Company, and the
Shareholders shall have entered into a Shareholders Agreement providing for
three positions on the Board of Directors of the Company to be held by
representatives designated by the Purchaser. The Company further shall amend any
By-laws of the Company which, in the Purchaser's opinion, may be necessary or
appropriate to implement the terms and conditions of this Agreement.
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6.6 Legal Matters. All legal matters in connection with this Agreement and
the transactions contemplated hereby shall have been approved by counsel for the
Purchaser, and there shall have been furnished to such counsel by the Company
certified copies of such corporate records of the Company and copies of such
other documents as such counsel may reasonably have requested for such purpose.
6.7 No Other Conditions. The Purchaser specifically acknowledges that there
are no other conditions precedent to consummation of the sale of the Shares to
the Purchaser, as contemplated in this Agreement.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY
The obligation of the Company to consummate the sale and purchase provided
for herein is subject to the satisfaction on the Closing Date of the following
conditions precedent, unless waived in writing by the Company:
7.1 Representations and Warranties. The representations and warranties of
the Purchaser contained in Article 3 of this Agreement shall be true in all
material respects as of the Effective Date and as of the Closing Date, as though
made on and as of the Closing Date, and the Purchaser shall have duly performed
and complied with, in all material respects, all agreements, covenants and
conditions required by this Agreement to be performed or complied with by it.
7.3 Legal Matters. All legal matters in connection with this Agreement and
the transactions contemplated hereby shall have been approved by counsel for the
Company, and there shall have been furnished to such counsel by the Purchaser
certified copies of such corporate records of the Purchaser and copies of such
other documents as Company's counsel may reasonably have requested for such
purpose.
7.4 Representations and Warranties. The representations and warranties of
the Guarantor contained in Articles 4 and 5 of this Agreement shall be true in
all material respects as of the Effective Date and as of the Closing Date, as
though made on and as of the Closing Date.
7.5 No Other Conditions. The Company and its Shareholders specifically
acknowledge that there are no other conditions precedent to consummation of the
sale of the Shares to the Purchaser, as contemplated in this Agreement.
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ARTICLE 8
CLOSING
8.1 Items to be Delivered to the Purchaser. Subject to the terms and
conditions of this Agreement, at the closing of the sale and purchase provided
for herein on the Closing Date, the Company shall deliver the following
documents to the Purchaser:
8.1.1 A duly issued stock certificate of the Company registered in the
name of the Purchaser, in proper form, and evidencing all of the Shares to
be issued and sold by the Company to the Purchaser as provided hereunder;
8.1.2 Such other documents and showings as shall be reasonably
requested by the Purchaser;
8.1.3 The fully executed Shareholders Agreement dated even date
herewith;
8.1.4 An executed Employment Agreement of even date herewith between
the Company and Green and an executed Independent Contractor Agreement of
even date herewith between the Company and DSI, Inc., an Arizona
corporation;
8.1.5 Certified resolutions by the Board of Directors and shareholders
of the Company authorizing all actions taken or authorized to be taken
hereunder; and
8.1.6 A waiver of preemptive rights, executed by all Shareholders with
respect to the Shares issued pursuant to this Agreement.
8.2 Items to be Delivered to the Company. Subject to the terms and
conditions of this Agreement, at the closing of the sale and purchase provided
for herein on the Closing Date, the Purchaser shall deliver the following
payment and documents to the Company:
8.2.1 Payment, in cash or other immediately available funds, in the
amount of the aggregate purchase price (referred to in Section 1.1 hereof)
payable to the Company for the Shares;
8.2.2 Executed Stock Grants between the Company and Green and the
Company and Rogal, dated even date herewith; and
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8.2.3 Such other documents and showings as shall be reasonably
requested by the Company.
ARTICLE 9
AMENDMENT AND TERMINATION
9.1 Amendment. This Agreement may not be amended, except by an instrument
in writing signed on behalf of each of the parties hereto.
9.2 Termination.
9.2.1 This Agreement may be terminated at any time prior to the
consummation of the sale and purchase provided for herein by mutual consent
in writing of the Purchaser and the Company.
9.2.2 If this Agreement is terminated for any reason, neither party to
this Agreement shall have any liability hereunder of any nature whatsoever
to the other; provided, however, that (a) this paragraph 9.2.2 shall not
preclude liability from attaching to a party who has caused the termination
hereof by a willful act or a willful failure to act in violation of the
terms and provisions hereof, except that termination of this Agreement by
the Purchaser shall in no event result in any liability whatsoever on the
part of the Purchaser, and (ii) termination of this Agreement shall not
terminate or affect the agreements of the parties contained in this
paragraph 9.2.2 or in Section 5.2 hereof (with respect to confidentiality)
or Section 10.5 hereof (with respect to the payment of expenses).
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 Survival of Representations and Warranties. The respective
representations, warranties and agreements of the parties hereto contained
herein and contained in any certificate or other document delivered pursuant to
this Agreement shall be deemed to be made at the Effective Date and at the
Closing Date, if any, and shall survive the Closing Date.
10.2 Indemnification.
10.2.1 The Company agrees to indemnify and hold the Purchaser harmless
from, for and against any claim, loss, damage, cost, or expense, including
without limitation attorneys' and accountants' fees and any and all costs
and expenses of litigation, which the Purchaser may incur or suffer by
reason of the inaccuracy of any representation or warranty of the Company
or the Shareholders, whether individually or collectively, set forth in
Article 2 or 5 herein or in any
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certificate or other document delivered by the Company or by the
Shareholders in accordance with the provisions hereof or the breach of any
of the agreements or covenants of the Company or the Shareholders contained
herein or in any certificate or other document delivered by the Company or
the Shareholders in accordance with the provisions hereof. The Purchaser
may contest any claim or liability which, if established, would be subject
to indemnification hereunder and, in such event, all legal fees,
disbursements and other costs and expenses of such contest shall also be an
item of indemnification hereunder.
10.2.2 The Guarantor further agrees to indemnify and hold Green
harmless from, for and against any claim, loss, damage, cost or expense,
including without limitation attorneys' and accountants' fees and any and
all costs and expenses of litigation, which Green may incur or suffer by
reason of: (i) default by Company on the Small Business Administration Loan
("SBA") dated November 1995 between Company and The Bank of Los Angeles
(the "SBA Loan"), including without limitation those incurred due to the
SBA exercising its rights against Green as personal guarantor of such SBA
loan; and (ii) default by Company on that certain lease dated December 7,
1995 between Stanley Novak, as lessor, and Green, in his individual
capacity, as lessee. Purchaser shall use its best efforts to cause Peter
Rogal to be released from any personal guaranty of the SBA Loan and, if
such release cannot be obtained, Purchaser and Guarantor shall indemnify
Rogal against any and all claims, suits or liabilities, including attorneys
fees and costs, that may be asserted against Rogal by reason of his
guaranty of the SBA Loan.
10.2.3 The Purchaser agrees to indemnify and hold the Company harmless
from, for and against any claim, loss, damage, cost or expense, including
without limitation attorneys' and accountants' fees and any and all costs
and expenses of litigation, which the Company may incur or suffer by reason
of the inaccuracy of any representation or warranty of the Purchaser set
forth in Article 3 hereof or in any certificate or other document delivered
by the Purchaser in accordance with the provisions hereof or the breach of
any of the agreements or covenants of the Purchaser contained herein or in
any certificate or other document delivered by the Purchaser in accordance
with the provisions hereof, excluding breach of any agreement as provided
in Sections 5.6, 5.7 and 5.8 herein.
10.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed at the time delivered personally or, if mailed three
(3) days after placing in the U.S. Mails, by registered or certified mail
(return receipt requested), postage prepaid, to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
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(a) if to the Purchaser, at:
Dynaco Acquisition Corp
1000 S. Priest Drive
Tempe, Arizona 85281
Attn.: Lyle Jensen
with a copy to:
Palomar Electronics
66 Cherry Hill Drive
Beverly, Massachusetts 01915
with a copy to:
James E. Brophy III
Ryley, Carlock & Applewhite
101 North First Avenue, Ste. 2700
Phoenix, Arizona 85003-1973
(b) if to the Company, at:
Comtel Electronics, Inc.
One Technology, Bldg. A
Irvine, California 92718
Attn: Mr. Mikel C. Green
with a copy to:
DSI, Inc.
Attn: Mr. Peter Rogal
8776 East Shea Blvd., E-B-3A, Suite 571
Scottsdale, AZ 85260
and to:
Mr. Mikel Green
c/o Comtel Electronics
One Technology, Bldg. A
Irvine, CA 92718
and to:
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Susan B. Myers, Esq.
McKenna & Cuneo
444 South Flower Street
Los Angeles, California 90071
Written notice given by any other method shall be deemed effective
only when actually received by the party to whom given.
10.5 Knowledge. The term "knowledge" as used in this Agreement shall mean
all matters that are known or, in the exercise of reasonable diligence and after
due inquiry, should be known to the Company , the Shareholders, or as the case
may be, the Purchaser, including without limitation, due and proper inquiry of
the senior employees, agents, counsel and advisors of the Company and, as the
case may be, the Purchaser.
10.6 Expenses. Whether or not the sale and purchase provided for herein is
consummated, the Purchaser and the Company and the Shareholders shall each bear
their own legal, accounting and other expenses incurred in connection with this
Agreement and such sale and purchase.
10.8 Entire Agreement. This Agreement supersedes and abrogates all prior
understandings, communications and agreements (whether written or oral) between
the Company. the Shareholders and the Purchaser with respect to the subject
matter hereof, and this Agreement constitutes the entire agreement between the
Company, the Shareholders and the Purchaser with respect to such subject matter.
10.9 Execution and Counterparts. This Agreement may be executed in any
number of counterparts, each and all of which shall be deemed for all purposes
to be one agreement.
10.10 Publicity. The Purchaser, the Company and the Shareholders shall not
issue or cause the publication of any press release or other announcement with
respect to this Agreement or the acquisition of Shares contemplated hereby or
otherwise make any disclosures relating thereto to the press or any third party
without the prior written consent of all other parties; provided, however, that
such consent shall not be required where such release, announcement or
disclosure is required by applicable law or the rules or regulations of a
securities exchange, other regulatory authority or governmental agency.
10.11 Assignment; Benefit of the Agreement. No rights under this Agreement
may be assigned by either party hereto, without the prior written consent of the
other parties hereto. This Agreement shall be binding upon and inure to the
benefit of the Purchaser, the Company and the Shareholders and their respective
successors and permitted assigns and is not intended to confer upon any other
person any rights or remedies hereunder.
<PAGE>
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10.12 Further Assurances. After the Closing Date, the Company, at its own
expense, shall do, execute, acknowledge, and deliver all further acts, deeds,
conveyances, transfers, documents and assurances necessary or proper to vest in
the Purchaser good title to all Shares to be issued and sold by the Company
hereunder, free and clear of any liens, claims, charges, or encumbrances
whatsoever, and otherwise to effect the acquisition of the Shares contemplated
by this Agreement.
10.13 Governing Law. The parties hereby agree that this Agreement shall be
governed by, and construed in accordance with, the substantive laws of the State
of Arizona, without respect to conflict of laws principles, including all
matters of construction or interpretation of this Agreement.
10.14 Headings. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
IN WITNESS WHEREOF, the Purchaser, the Company and Palomar Electronics (for
purposes of Article IV, Section 5.5 and Section 10.2.2 only) and the
Shareholders (for purposes of Section 2 only) have caused this Agreement to be
executed by their respective officers thereunto duly authorized and the
Shareholders shall have caused the Agreement to be executed all as of the
Effective Date.
"PURCHASER" "COMPANY"
DYNACO ACQUISITION CORP., COMTEL ELECTRONICS, INC.
a Delaware corporation a California corporation
By: /s/ By: /s/
------------------------------ ---------------------------
Lyle E. Jensen, its President Mikel C. Green, Its President
<PAGE>
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<TABLE>
<C> <C>
For the sole purpose of Section 2 herein: For the sole purpose of Article IV, Section 5.5
and Section 10.2.2 herein
</TABLE>
"SHAREHOLDERS" "PALOMAR ELECTRONICS"
- --------------------------------- PALOMAR ELECTRONICS , INC.,
Peter Rogal a Delaware corporation
- --------------------------------- ----------------------------------
Mikel C. Green Lyle E. Jensen, Its Vice President
-67-
AGREEMENT FOR PURCHASE OF STOCK
THIS AGREEMENT FOR PURCHASE OF STOCK ("Agreement"), dated as of July 12,
1996, by and among Palomar Medical Technologies, Inc., a Delaware corporation
("Palomar"), and Eleanor Roberts Weissman, an individual ("Weissman"), and
Wallace Roberts, an individual ("Roberts");
W I T N E S S E T H T H A T:
WHEREAS, Weissman desires to sell, and Palomar desires to purchase, all of
the 80 shares of the common stock, $__ par value per share ("Common Stock"), of
Dermascan, Inc., a Florida corporation ("Dermascan"), owned by Weissman
("Dermascan Stock"); and
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and on the terms and subject to the conditions herein set forth, Weissman and
Palomar agree as follows:
I.
Agreement of Purchase and Sale
Subject to the other terms and conditions hereof, on the Closing Date (as
hereinafter defined), Weissman agrees to sell, assign, transfer and deliver to
Palomar, and Palomar agrees to purchase and accept the Dermascan Stock.
II.
Closing Transactions
The consummation of the transaction contemplated hereby ("Closing") shall
occur in the offices of Foley, Hoag & Eliot LLP, One Post Office Square, Boston,
Massachusetts 02109, on July __, 1996, or such other time and place as the
parties hereto shall mutually
<PAGE>
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agree ("Closing Date").
At the Closing, Weissman shall deliver to Palomar (i) all certificates
representing the Dermascan Stock duly endorsed for transfer or accompanied by
duly executed stock powers.
At the Closing, Palomar shall deliver to Weissman (i) a stock certificate
representing 35,000 shares (the "Shares") of the common stock, $.01 par value
per share ("Common Stock"), of Palomar. In addition, Palomar agrees that is will
include the Shares in the next registration statement on Form S-3 (the
"Registration Statement") filed by Palomar providing for the resale of shares by
stockholders of Palomar. In the event that the per share price of the common
stock of Palomar shall be less than $14.00 on the day on which the Registration
Statement shall be declared effective by the SEC, Palomar shall pay to Weissman
and amount equal to the difference between $14.00 and the closing bid price on
the date the Registration Statement is declared effective.
III.
Representations
Weissman represents that (1) she owns the Dermascan Stock free and clear of
all liens, encumbrances, preemptive rights or any other restrictions of any
kind, (2) the Dermascan Stock constitutes 80% of the issued and outstanding
capital stock of Dermascan, and (3) Dermascan has no liabilities in excess of
$100,000.
IV.
Put Right
At any time after three (3) years after the date hereof Roberts shall have
the right to
<PAGE>
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require Palomar to purchase all, but not part, of the shares of
Dermascan, Inc. common stock owed by him for a cash purchase price of $130,000;
provided that he shall represent that he owns all such shares free and clear of
all liens, encumbrances, preemptive rights or any other restriction of any kind.
V.
Right of First Refusal
In the event that Palomar shall determine to dispose of the assets or stock
of Dermascan in a sale of assets, merger, consolidation, or sale of shares or
shall determine to otherwise sell or dispose of the business of Dermascan in an
arms length transaction with a bona fide third party, then Palomar shall offer
to sell the business of Dermascan to Roberts and shall negotiate with Roberts
for that purpose for a period of thirty days. If at the end of such period,
Palomar and Roberts shall not have reached agreement concerning the sale of the
business of Dermascan to Roberts, Palomar shall be free to dispose of the
business to a third party; provided that once Palomar obtains a bona fide offer
for the sale of such business, Palomar shall offer to sell the business to
Roberts on the same terms and conditions and for the same consideration as set
forth in the bona fide offer. Roberts shall then have a period of ten days to
accept or reject such offer. If Roberts accepts the offer, then Palomar and
Roberts shall cooperate to close the sale promptly upon the terms and conditions
set forth in the offer. If Roberts rejects the offer, then Palomar shall be free
to sell to the party originally make the offer.
<PAGE>
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VI.
Miscellaneous
1. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
2. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts.
3. Entirety. This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all other prior or
contemporaneous agreements or understandings, written or oral.
IN WITNESS WHEREOF, the undersigned parties hereto have duly executed this
Agreement on the date first written above.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
------------------------------
Steve Georgiev, Chairman
/s/
------------------------------
Eleanor Roberts Weissman
/s/
------------------------------
Wallace Roberts
-71-
PALOMAR MEDICAL TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of by and between PALOMAR MEDICAL TECHNOLOGIES,
INC., a Delaware corporation (the "Company"), and Name ("Employee").
WHEREAS, Employee is a valuable and trusted employee of the Company, and
the Company considers it desirable and in its best interests that Employee be
given an inducement to acquire a proprietary interest in the Company, and an
added incentive to advance the interests of the Company by possessing an option
to purchase shares of the $.01 par value Common Stock ("Stock") of the Company,
in accordance with the Palomar Medical Technologies, Inc. 1996 Stock Option Plan
(the "Plan"); and
WHEREAS, Employee is desirous of obtaining the option to purchase an equity
interest in the Company upon the terms herein contained; and
WHEREAS, if there is a number of shares listed under Column 2 in Paragraph
2 below, the number of shares listed are intended to qualify for favorable
federal income tax treatment as Incentive Stock Options issued in accordance
with a plan which meets the criteria set forth in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of these premises, it is agreed by and
between the parties as follows:
1. Grant of Option. The Company hereby grants to Employee the right,
privilege, and option to purchase shares of the Stock at the aggregate purchase
price of Dollars ($___________ per share), in the manner and subject to the
conditions hereinafter provided.
2. Time of Exercise of Option. The aforesaid option may be exercised with
respect to those shares for which an option has been granted pursuant to
Paragraph 1 hereof, on the dates set forth, respectively, in Column 1, Column 2,
Column 3 and Column 4 below, until the termination thereof as provided in
Paragraph 4 hereof:
<TABLE>
<C> <C> <C> <C>
Column 2 Column 3 Column 4
Exercisable Exercisable Total
Incentive Non-qualified Exercisable
Column 1 Stock Stock Stock
Period Options Options Options
AUGUST 27, 1996 - AUGUST 26, 1997 12,500 37,500 50,000
AUGUST 27, 1997 - AUGUST 26, 1998 25,000 50,000 75,000
AUGUST 27, 1998 - AUGUST 26, 1999 37,500 75,000 112,500
AUGUST 27, 1999 - AUGUST 26, 2001 50,000 75,000 125,000
</TABLE>
<PAGE>
-72-
3. Method of Exercise. An option may be exercised by (1) giving written
notice to the Company (a) stating that the optionee wishes to exercise such
option, and (b) specifying a date not less than ten (10) nor more than fifteen
(15) days after the date of such notice for the issuance of the shares of Stock,
(2) delivering the full purchase price for the shares of Stock, and (3)
delivering all other documents required hereunder, under the Plan and under
applicable laws and regulations with regard to the purchase of shares of Stock.
The Employee shall deliver the purchase price in cash or by check or such form
of payment as has been previously approved by the Company's Board of Directors
or, as the case may be, the committee designated by the Board of Directors to
administer the Plan.
The shares of Stock issued upon exercise of an option may not be
transferred except in accordance with all applicable federal and state
securities laws, rules and regulations and the certificates evidencing the
shares of Stock issued may bear a legend to such effect. The Company may require
investment or residency representations from an optionee or impose other
restrictions prior to transfer. Shares of Stock shall not be issued upon
exercise of options until the Company shall have obtained any required approval
of any governmental authority or of any stock exchange on which any stock of the
Company may be listed and the Company and its counsel are satisfied that the
proposed transfer complies with all applicable federal and state securities
laws. No optionee shall have any rights of a shareholder of the Company with
respect to any shares of Stock subject to an option until such shares shall have
been paid for and issued upon exercise of the option.
An option may be exercised in whole or in part from time to time provided,
however, that an option may not be exercised as to less than one thousand
(1,000) shares at any time, unless it is being exercised in full and the balance
of shares subject to option is less than one thousand (1,000).
4. Termination of Option. Except as herein otherwise provided, the option
to the extent not theretofore exercised shall terminate upon one of the
following dates, as applicable:
(a) The date on which Employee's employment by the Company is
terminated (except if such termination be by reason of the death or
disability of Employee or as otherwise provided in paragraph 4(d) hereof),
without regard to unused vacation or other leave days or any vacation,
severance or other payments on termination;
(b) With regard to any option which the Employee was entitled to
exercise on the date on which Employee's employment by the Company is
terminated, the expiration of twelve (12) months after such date of
termination, if such termination be by reason of Employee's permanent total
disability; or
(c) With regard to any option which the Employee was entitled to
exercise on the date on which Employee's employment by the Company is
terminated, the expiration of three (3) months after such date of
termination if such termination be by reason of Employee's retirement or
Employee's dismissal by the Company for reasons other than cause; or
(d) With regard to any option which the Employee was entitled to
exercise on the date of Employee's death, the expiration of twelve (12)
months following such date of death if
<PAGE>
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such death occurs while the Employee is in the employ of the Company or
during the twelve (12) or three (3) month periods set forth in (b) and (c),
above; or
(e) The expiration of the exercise period of the option as stated in
item number 2 above, but in no event more than 10 years from the date of
issue or 20 years from the effective date of the Plan.
5. Reclassification, Consolidation, Acquisition, or Merger. If and to the
extent that the number of issued shares of the Stock of the Company shall be
increased or reduced by change in par value, merger, exchange of shares, split
up, reclassification, distribution of a dividend payable in stock, or the like,
the number of shares subject to this option and the option price per share shall
be proportionately adjusted such that each outstanding option shall thereafter
be exercisable for such securities, cash and/or other property as would have
been received in respect of the shares of Stock subject to such option had such
option been exercised in full immediately prior to such change, and such an
adjustment shall be made successively each time any such change shall occur.
6. Transferability Prior to Exercise of Option. This option is
non-transferable by Employee, except in the event of death as provided in
paragraph 4(d) above, and during Employee's lifetime is exercisable only by
Employee, or in the event of employee's incompetence, by the employee's legal
guardian or other legal representative. Employee shall have no rights as a
stockholder with respect to the option shares until payment of the option price
and delivery to Employee of such shares as herein provided.
7. Restrictions on Transfer. All shares acquired by Employee pursuant to
the Plan and this Incentive Stock Option Agreement shall be subject to
restrictions on sale, encumbrance and other disposition under the Federal
Securities Act of 1933 (the "Act") and applicable state securities laws. Such
restrictions shall continue in effect until (i) the Company causes said shares
to be registered under the Act and any applicable state securities laws, or (ii)
the shares may be transferred pursuant to the availability of a valid exemption
from registration under the Act and any applicable state securities laws. In the
event shares of Stock shall be issued which are not so registered, the Employee
agrees that he will receive such shares for investment and not with a view to
the resale or distribution thereof, and further agrees that the stock
certificate or certificates evidencing such shares may bear a legend setting
forth such restrictions and their transferability.
8. No Employment Obligation. The granting of an option as provided herein
shall not give rise to any obligation on the part of the Company to continue the
employment of the optionee or evidence any intention or understanding of the
Company with respect to any of the terms or conditions of such employment.
9. In the event of a sale or acquisition of substantially all of the stock
or assets of the Company, the Company shall give thirty (30) days notice of such
an event to you and you may exercise up to 100% of this option before the event
takes place. The terms of this provision shall not be void if the inclusion of
this provision in the option agreement causes this option not to qualify as an
Incentive Stock Option under Section 422 of the code.
<PAGE>
-74-
10. Notice to the Company of Disqualifying Disposition. If there is a
number of shares listed under Column 2 in Paragraph 2 above, the Employee hereby
agrees to promptly give notice to the Company in the event that Employee sells,
transfers, exchanges or otherwise disposes of any stock obtained pursuant to
this option before the later of (a) the second anniversary of the date of grant
set forth at the conclusion of this Agreement and (b) the first anniversary of
the date on which the Stock was transferred to Employee pursuant to the exercise
of this option.
11. Subject to Plan. This Agreement is subject to and controlled by the
terms and conditions of the Palomar Medical Technologies, Inc. 1996 Stock Option
Plan, which Plan is incorporated herein by reference. To the extent that there
is any inconsistency between the terms of this Agreement and any provision of
the Plan, the Plan shall control.
12. Miscellaneous. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns, and shall be interpreted under and
controlled by the laws of The Commonwealth of Massachusetts. All notices
required hereunder shall be in writing and shall be deemed delivered when
received if notice is given by personal delivery, or three (3) days after
mailing if notice is given by mailing, by or registered mail, postage prepaid,
return receipt requested, or one (1) after being delivered to Federal Express or
other comparable overnight courier, delivery charges prepaid, addressed, in the
case of the Company, to its principal offices, and, in the case of Employee, to
the address on file with the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
------------------------------
Officer Name:
Officer Title:
[Corporate Seal]
ACKNOWLEDGMENT AND ACCEPTANCE:
- ------------------------------
-75-
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is by and between
Palomar Electronics Corporation (the "Company"), a Delaware corporation, Palomar
Medical Technologies, Inc., a Delaware corporation ("Palomar"), each with an
office at 66 Cherry Hill Drive, Beverly, Massachusetts 01915 U.S.A., and
Clearwater Fund IV, LLC (the "Purchaser").
IN CONSIDERATION of the mutual covenants contained in this Agreement and
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties agree as
follows:
SECTION 1. Authorization of Shares. The Company has authorized the sale of
200,000 shares (the "Shares") of common stock, par value $.01 per share (the
"Common Stock"), of Nexar Technologies, Inc., a Delaware corporation ("Nexar"),
owned by the Company.
SECTION 2. Agreement to Sell and Purchase the Shares. At the Closing (as
defined below), the Company will sell to the Purchaser, and the Purchaser will
buy from the Company, upon the terms and conditions hereinafter set forth, the
Shares for an aggregate purchase price to be calculated at $10 per share
totalling $2,000,000 (the "Purchase Price").
SECTION 3. Payment of Purchase Price. On or prior to the Closing Date, as
defined below, the Purchaser will deliver to the Company the full amount of the
Purchase Price by check or wire transfer to the account set forth below.
Citibank
399 Park Avenue
New York, NY 10048
ABA 021000089
Account Number: 40611172
Account Name: Dean Witter Reynolds, Inc.
For Further Credit to:
Account Number 593109782
Account Name: Palomar Medical Technologies, Inc.
SECTION 4. The Closing. The consummation of the transactions contemplated
by this Agreement (the "Closing") shall occur on December 31, 1996 (the "Closing
Date") at the offices of the Company or at such other time and place as shall be
agreed by the Company and the Purchaser. At the Closing, the Company shall
deliver to the Purchaser one or more certificates for the Shares registered in
the name of the Purchaser or its nominee.
SECTION 5. Representations, Warranties and Covenants of the Company. The
Company and Palomar hereby jointly and severally represent and warrant to, and
covenant with, the Purchaser as follows:
<PAGE>
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SECTION 5.1. Organization. Nexar is duly organized, validly existing
and in good standing under the laws of the State of Delaware. Nexar has full
power and authority to own and operate its properties and to conduct its
business as currently conducted and is registered or qualified to do business
and is in good standing in each jurisdiction in which it owns or leases property
or transacts business and where the failure to be so qualified would have a
material adverse effect upon the business, financial condition, properties or
operations of Nexar.
SECTION 5.2. Due Authorization. The Company has all requisite power
and authority to execute, deliver and perform its obligations under this
Agreement, and this Agreement has been duly authorized and validly executed and
delivered by the Company and constitutes the valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, usury, fraudulent conveyance or similar laws
affecting creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 5.3. Ownership of the Shares. The Company is the record and
beneficial owner of the Shares free and clear of any adverse claim of any
person. At the Closing, Purchaser will acquire good and valid title to the
Shares free and clear of any adverse claim of any person.
SECTION 5.4. Non-Contravention. The execution and delivery of this
Agreement, the sale of the Shares to be sold by the Company hereunder, and the
consummation of the transactions contemplated hereby will not conflict with or
constitute a violation of, or default (with the passage of time or otherwise)
under, any material agreement or instrument to which the Company or Nexar is a
party or by which either is bound or the Certificate of Incorporation (the
"Charter") or the By-Laws of the Company or Nexar nor result in the creation or
imposition of any lien, encumbrance, claim, security interest or restriction
whatsoever upon any of the material properties or assets of the Company or Nexar
or an acceleration of indebtedness pursuant to any obligation, agreement or
condition contained in any material bond, debenture, note or any other evidence
of indebtedness or any material indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company or Nexar is a party or by which the
Company or Nexar is bound or to which any of the property or assets of the
Company or Nexar is subject, nor conflict with, or result in a violation of, any
law, administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company or Nexar. No
consent, approval, authorization or other order of, or registration,
qualification or filing with, any regulatory body, administrative agency, or
other governmental body in the United States, other than with respect to "blue
sky" laws, is required for the valid issuance and sale of the Shares to be sold
pursuant to this Agreement (other than such as have been made or obtained).
SECTION 5.5. Capitalization. The authorized and outstanding capital
stock of Nexar and rights to acquire capital stock of Nexar are as set forth on
Schedule 5.5 hereto. Except as
<PAGE>
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set forth in Schedule 5.5, there are no outstanding shares of, or rights to
acquire shares of, capital stock of Nexar. The Shares have been duly authorized,
validly issued and are fully paid and nonassessable.
SECTION 5.6. Legal Proceedings. There is no material legal or
governmental proceeding pending or, to the knowledge of the Company, threatened
or contemplated to which Nexar is or may be a party or of which the business or
property of Nexar is or may be subject.
SECTION 5.7. No Violations. Nexar is not in violation of its Charter
or By-Laws, in violation of any law, administrative regulation, ordinance or
order of any court or governmental agency, arbitration panel or authority
applicable to Nexar, which violation, individually or in the aggregate, would
have a material adverse effect on the business or financial condition of Nexar,
or in default in any material respect in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness in any indenture, mortgage, deed of trust or any other
agreement or instrument to which Nexar is a party or by which Nexar is bound or
by which the properties of Nexar are bound or affected, and there exists no
condition which, with the passage of time or the giving of notice or both, would
constitute a material default under any such document or instrument or result in
the imposition of any material penalty or the acceleration of any indebtedness.
SECTION 5.8. Governmental Permits, Etc. Nexar has all necessary
franchises, licenses, certificates and other authorizations from any foreign,
federal, state or local government or governmental agency, department, or body
that are currently necessary for the operation of the business of Nexar as
currently conducted, the absence of which would have a material adverse effect
on the business or operations of Nexar.
SECTION 5.9. Financial Statements. The Company has made available to
Purchaser certain internally generated financial statements of Nexar (the
"Financial Statements"). The Financial Statements and the related notes present
fairly the financial position of Nexar as of the dates indicated therein and its
results of operations and cash flows for the periods therein specified. Such
Financial Statements (including the related notes) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods therein specified.
SECTION 5.10. No Material Adverse Change. Since the date of the most
recent balance sheet included in the Financial Statements, Nexar has not
incurred any material liabilities or obligations, direct or contingent, other
than in the ordinary course of business, and there has not been any material
adverse change in its business, financial condition or results of operations.
SECTION 5.11. Intellectual Property. Nexar has the right to use all
intellectual property (the "Intellectual Property") now used by it in its
business. Nexar owns all right, title and interest in and to, all of the
intellectual property it owns, free and clear of any liens or encumbrances. In
any case in which Nexar does not own the Intellectual Property, it has good and
valid licenses for the same which are in full force and effect. No claims have
been asserted
<PAGE>
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with respect to the use of any such Intellectual Property or
challenging or questioning the validity or effectiveness of any such license or
agreement.
SECTION 5.12. Title to Properties and Assets. Nexar has good and
marketable title to its properties and assets, and has good title to its
leasehold interests, in each case, free and clear of any liens, except (i) the
lien of current taxes not yet due and payable and (ii) minor liens arising in
the ordinary course of business which do not in any case materially detract from
the value of the property subject thereto or impair Nexar's operations.
SECTION 6. Representations, Warranties and Covenants of the Purchaser.
(a) The Purchaser represents and warrants to, and covenants with, the
Company, as of the date hereof and as of the Closing Date, that: (i) the
Purchaser is an "accredited investor" as defined in Rule 501 of Regulation D
promulgated under the Securities Act; (ii) the Purchaser is acquiring the Shares
for its own account for investment and with no present intention of distributing
any of such Shares other than to any affiliate of the Purchaser; (iii) the
Purchaser will not, directly or indirectly, voluntarily offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) any of the Shares, except in compliance
with the Securities Act and the rules and regulations promulgated thereunder;
(iv) the Purchaser is an "institutional buyer" within the meaning of Section
36b-21(b)(8) of the Connecticut Uniform Securities Act, (v) the Purchaser has
had an opportunity to ask questions and receive answers from the management of
the Company and Nexar regarding Nexar, its business and the offering of the
Shares; and (vi) the Purchaser has, in connection with its decision to purchase
Shares, relied solely upon the representations and warranties of the Company
contained herein.
(b) The Purchaser agrees not to make any sale of the Shares except
pursuant to an effective registration statement under the Securities Act or an
exemption from the registration requirements thereof.
(c) The Purchaser further represents and warrants to, and covenants
with, the Company that (i) the Purchaser has full right, power, authority and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, and (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, usury, fraudulent conveyance or similar
laws affecting creditors' and contracting parties' rights generally and except
as enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(d) The Purchaser represents that it understands and agrees that,
until registered under the Securities Act or transferred pursuant to the
provisions of Rule 144
<PAGE>
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promulgated thereunder, all certificates evidencing the Shares shall bear a
legend, prominently stamped or printed therein, reading substantially as
follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state. These securities have been acquired for
investment and not with a view toward distribution or resale. Such
securities may not be offered for sale, sold, delivered after sale,
transferred, pledged or hypothecated in the absence of an effective
registration statement covering such securities under the Act and any
applicable state securities laws, unless the holder shall have
obtained an opinion of counsel satisfactory to the corporation that
such registration is not required."
SECTION 7. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Purchaser herein shall survive the Closing.
SECTION 8. Lock-up Agreements with Underwriters; Registration. In the event
of an initial underwritten public offering of Nexar's equity securities, the
Purchaser agrees to enter into an agreement with the Underwriter or
Underwriters' Representative for such offering restricting the sale, transfer or
other disposition of the Shares for a period not to exceed 180 days to the
extent that such agreement is required to be executed by members of senior
management of Nexar.
SECTION 9. Legal Fees. The Company agrees to pay the reasonable fees and
expenses of the Purchaser's counsel in connection with the purchase and sale of
the Shares up to a maximum of $5,000.
SECTION 10. Conditions to Closing.
(a) The obligations of the Purchaser to consummate the transactions
contemplated hereby shall be subject to the satisfaction by the Company of each
of the following conditions on or before the Closing Date, any one or more of
which may be waived by the Purchaser:
(i) The representations and warranties of the Company set
forth in this Agreement delivered to the Purchaser by or on behalf of
the Company shall be true and correct as if made on the Closing Date.
(ii) Each of the covenants, agreements and conditions to be
performed and satisfied by the Company pursuant to this Agreement at
or prior to Closing shall have been duly performed and satisfied.
<PAGE>
-80-
(b) The obligations of the Company to consummate the transactions
contemplated hereby shall be subject to the satisfaction by the Purchaser of
each of the following conditions on or before the Closing Date, any one or more
of which may be waived by the Company:
(i) The representations and warranties of the Purchaser set
forth in this Agreement shall be true and correct as if made on the
Closing Date.
(ii) Each of the covenants, agreements and conditions to be
performed and satisfied by the Purchaser pursuant to this Agreement at
or prior to Closing shall have been duly performed and satisfied.
(iii) The Purchaser shall have paid the Purchase Price in
accordance with Section 3.
SECTION 11. No Brokers. The parties hereto hereby represent that there are
no brokers or finders entitled to compensation in connection with the
transactions contemplated hereby.
SECTION 12. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified mail, postage prepaid, and shall be deemed given when so
mailed:
(a) if to the Company to:
General Counsel
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attn: David Broadwin
(b) if to the Purchaser, at its address as set forth at the end of
this Agreement, or at such other address or addresses as may have been furnished
to the Company in writing.
SECTION 13. Termination. Either party to this Agreement may terminate this
Agreement upon written notice to the other at any time prior to the Closing.
<PAGE>
-81-
SECTION 14. Changes. Any term of the Agreements may be amended or
compliance therewith waived with the written consent of the Company and the
holders of a majority of the Shares purchased pursuant to the Agreement.
SECTION 15. Tag Along Rights. In the event the Company should decide to
sell from time to time any shares of Common Stock or other common stock
equivalent to any third party, Purchaser shall have the right to sell its pro
rata portion of the Shares to such third party on the same terms and conditions.
The Company shall give prompt written notice to Purchaser of the terms of any
such offer. Notwithstanding the foregoing, if Purchaser should own less than
2.5% of the outstanding Common Stock, it shall be entitled to sell the greater
of (x) the remaining Shares or (y) its pro rata portion.
SECTION 16. Confidentiality. No press release or public announcement may be
made naming Purchaser or its affiliates without the prior consent of Purchaser;
provided that Nexar may disclose Purchaser's stockholdings in the prospectus for
Nexar's initial public offering or as may be required by law.
SECTION 17. No Impairment. Each of Palomar, the Company and Nexar agree
that until such time as the Shares have been registered pursuant to the terms of
the Registration Rights Agreement and sold by Purchaser, they will not take any
action, directly or indirectly, that could reasonably be expected to adversely
affect or otherwise impair (i) the value of the Shares or (ii) the rights of
Purchaser under this Agreement, the Registration Rights Agreement or otherwise
under law.
SECTION 18. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 19. Severability. If any provision contained in this Agreement
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
SECTION 20. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of The Commonwealth of
Massachusetts and United States federal law.
SECTION 21. Counterparts. This Agreement may be executed in two
counterparts, each of which shall constitute an original, but both of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.
<PAGE>
-82-
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be executed by their duly authorized representatives as of the
following date.
Dated: December 31, 1996 PALOMAR ELECTRONICS CORPORATION
By: /s/
------------------------------------------------
Name: Joseph P. Caruso
Title: Treasurer
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
------------------------------------------------
Name: Joseph P. Caruso
Title: Chief Financial Officer
[Purchaser Signature Page Continues on the Following Page]
<PAGE>
-83-
PURCHASER SIGNATURE PAGE AND QUESTIONNAIRE
The undersigned Purchaser hereby executes the Securities Purchase
Agreement with Palomar Electronics Corporation and Palomar Medical Technologies,
Inc. (the "Company") and hereby authorizes this signature page to be attached to
a counterpart of such document executed by a duly authorized officer of the
Company.
CLEARWATER FUND IV LLC
By: /s/
--------------------------------
Name: Hans. F. Heye
Title: President/Managing Member
Name in which Shares are to be registered: Clearwater Fund IV LLC
Address of registered holder: 611 Druid Road East
Suite 200
Clearwater, FL 34616
Social Security or Tax ID Number: 59 3349309
Contact name and telephone number
regarding settlement and Name registration: Hans F. Heye
Telephone Number: 813-442-0825
-84-
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is by and between
Palomar Electronics Corporation (the "Company"), a Delaware corporation, Palomar
Medical Technologies, Inc., a Delaware corporation ("Palomar"), each with an
office at 66 Cherry Hill Drive, Beverly, Massachusetts 01915 U.S.A., and The
Travelers Insurance company, a Connecticut corporation (the "Purchaser").
IN CONSIDERATION of the mutual covenants contained in this Agreement and
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties agree as
follows:
SECTION 1. Authorization of Shares. The Company has authorized the sale
of 200,000 shares (the "Shares") of common stock, par value $.01 per share (the
"Common Stock"), of Nexar Technologies, Inc., a Delaware corporation ("Nexar"),
owned by the Company.
SECTION 2. Agreement to Sell and Purchase the Shares. At the Closing (as
defined below), the Company will sell to the Purchaser, and the Purchaser will
buy from the Company, upon the terms and conditions hereinafter set forth, the
Shares for an aggregate purchase price of $2,000,000 (the "Purchase Price").
SECTION 3. Payment of Purchase Price. On or prior to the Closing Date,
as defined below, the Purchaser will deliver to the Company the full amount of
the Purchase Price by check or wire transfer to the account set forth below.
Citibank
399 Park Avenue
New York, NY 10048
ABA 021000089
Account Number: 40611172
Account Name: Dean Witter Reynolds, Inc.
For Further Credit to:
Account Number 593109782
Account Name: Palomar Medical Technologies, Inc.
SECTION 4. The Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall occur on December 18, 1996
(the Closing Date") at the offices of the company or at such other time and
place as shall be agreed by the Company and the Purchaser. At the Closing, the
Company shall deliver to the Purchaser one or more certificates for the Shares
registered in the name of the Purchaser or its nominee.
<PAGE>
-85-
SECTION 5. Representations, Warranties an Covenants of the Company. The
Company and Palomar hereby jointly and severally represent and warrant to, and
covenant with, the Purchaser as follows:
SECTION 5.1. Organization. Nexar is duly organized, validly existing and
in good standing under the laws of the State of Delaware. Nexar has full power
and authority to own and operate its properties and to conduct its business as
currently conducted and is registered or qualified to do business and is in good
standing in each jurisdiction in which it owns or leases property or transacts
business and where the failure to be so qualified would have a material adverse
effect upon the business, financial condition, properties or operations of
Nexar.
SECTION 5.2. Due Authorization. The Company has all requisite power and
authority to execute, deliver and perform its obligations under this Agreement,
and this Agreement has been duly authorized and validly executed and delivered
by the Company and constitutes the valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, usury, fraudulent conveyance or similar laws
affecting creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 5.3. Ownership of the Shares. The company is the record and
beneficial owner of the shares free and clear of any adverse claim of any
person. At the Closing, Purchaser will acquire good and valid title to the
Shares free and clear of any adverse claim of any person.
SECTION 5.4. Non-Contravention. The execution and delivery of this
Agreement, the sale of the Shares to be sold by the Company hereunder, and the
consummation of the transactions contemplated hereby will not conflict with or
constitute a violation of, or default (with the passage of time or otherwise)
under, any material agreement or instrument to which the Company or Nexar is a
party or by which either is bound or the Certificate of Incorporation (the
"Charter") or the By-Laws of the Company or Nexar nor result in the creation or
imposition of any lien, encumbrance, claim, security interest or restriction
whatsoever upon any of the material properties or assets of the Company or Nexar
or an acceleration of indebtedness pursuant to any obligation, agreement or
condition contained in any material bond, debenture, note or any other evidence
of indebtedness or any material indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company or Nexar is a party or by which the
Company or Nexar is bound or to which any of the property or assets of the
Company or Nexar is subject, nor conflict with, or result in a violation of, any
law, administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company or Nexar. No
consent, approval, authorization or other order of, or registration,
qualification or filing with, any regulatory body, administrative agency, or
other governmental body in the United States, other than with respect to "blue
sky" laws, is required
<PAGE>
-86-
for the valid issuance and sale of the Shares to be sold pursuant to this
Agreement (other than such as have been made or obtained).
SECTION 5.5. Capitalization. The authorized and outstanding capital
stock of Nexar and rights to acquire capital stock of Nexar are as set forth on
Schedule 5.5. hereto. Except as set forth in Schedule 5.5, there are no
outstanding shares of, or rights to acquire shares of, capital stock of Nexar.
The Shares have been duly authorized, validly issued and are fully paid and
nonassessable.
SECTION 5.6. Legal Proceedings. There is no material legal or
governmental proceeding pending or, to the knowledge o the Company, threatened
or contemplated to which Nexar is or may be a party or of which the business or
property of Nexar is or may be subject.
SECTION 5.7. No Violations. Nexar is not in violation o its Charter or
By-Laws, in violation of any law, administrative regulation, ordinance or order
of any court or governmental agency, arbitration panel or authority applicable
to Nexar, which violation, individually or in the aggregate, would have a
material adverse effect on the business or financial condition of Nexar, or in
default in any material respect in the performance of any obligation, agreement
or condition contained in any bond, debenture, note or any other evidence of
indebtedness in any indenture, mortgage, deed of trust or any other agreement or
instrument to which Nexar is a party or by which Nexar is bound or by which the
properties of Nexar are bound or affected, and there exists no condition which,
with the passage f time or the giving of notice or both, would constitute a
material default under any such document or instrument or result in the
imposition of any material penalty or the acceleration of any indebtedness.
SECTION 5.8. Governmental Permits, Etc. Nexar has all necessary
franchises, licenses, certificate and other authorizations from any foreign,
federal, state or local government or governmental agency, department, or body
that are currently necessary for the operation of the business of Nexar as
currently conducted, the absence of which would have a material adverse effect
on the business or operations of Nexar.
SECTION 5.9. Financial Statements. The Company has made available to
Purchaser certain internally generated financial statements of Nexar (the
"Financial Statements"). The Financial Statements and the related notes present
fairly the financial position of Nexar as of the dates indicated therein and its
results of operations and cash flows for the periods therein specified. Such
Financial Statements (including the related notes) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods therein specified.
SECTION 5.10. No Material Adverse Change. Since the date of the most
recent balance sheet included in the Financial Statements, Nexar has not
incurred any material liabilities or obligations, direct or contingent, other
than in the ordinary course of business, and there has not been any material
adverse change in its business, financial condition or results of operations.
<PAGE>
-87-
SECTION 5.11. Intellectual Property. Nexar has the right to use all
intellectual property (the "Intellectual Property") now used by it in its
business. Nexar owns all right, title and interest in and to, all of the
intellectual property it owns, free and clear of any liens or encumbrances. In
any case in which Nexar does not own the Intellectual Property, it has good and
valid licenses for the same which are in full force and effect. No claims have
been asserted with respect tot he use of any such Intellectual Property or
challenging or questioning the validity or effectiveness of any such license or
agreement.
SECTION 5.12. Title to Properties and Assets. Nexar has good and
marketable title to its properties and assets, and has good title to its
leasehold interests, in each case, free and clear of any liens, except (i) the
lien of current taxes not yet due and payable and (ii) minor liens arising in
the ordinary course of business which do not in any case materially detract from
the value of the property subject thereto or impair Nexar's operations.
SECTION 6. Representations, Warranties an covenants of the Purchaser.
(a) The Purchaser represents and warrants to, and covenants
with, the Company, as of the date hereof and as of the Closing Date, that: (i)
the Purchaser is an "accredited investor" as defined in Rule 501 of Regulation D
promulgated under the Securities Act; (ii) the Purchaser is acquiring the Shares
for its own account for investment and with no present intention of distributing
any of such Shares other than to any affiliate of the Purchaser; (iii) the
Purchaser will not, directly or indirectly, voluntarily offer, sell, pledge,
transfer or otherwise dispose of (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of) any of the Shares, except in compliance
with the Securities Act and the rules and regulations promulgated thereunder;
(iv) the Purchase is an "institutional buyer" within the meaning of Section
36b-21(b)(8) of the Connecticut Uniform Securities Act, (v) the Purchase has had
an opportunity to ask questions and receive answers from the management of the
Company and Nexar regarding Nexar, its business and the offering of the Shares;
and (vi) the Purchaser has, in connection with its decision to purchase Shares,
relied solely upon the representations and warranties of the Company contained
herein.
(b) The Purchaser agrees not to make any sale of the Share
except pursuant to an effective registration statement under the Securities Act
or an exemption from the registration requirements thereof.
(c) The Purchaser further represents and warrants to, and
covenants with, the Company that (i) the Purchaser has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement, and (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, usury, fraudulent conveyance or similar
laws affecting creditors' and contracting parties' rights
<PAGE>
-88-
generally and except as enforceability may be subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
(d) The Purchaser represents that it understands and agrees
that, until registered under the Securities Act or transferred pursuant to the
provisions of Rule 144 promulgated thereunder, all certificates evidence the
Shares shall bear a legend, prominently stamped or printed therein, reading
substantially as follows:
"The Securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state. These securities have been
acquired for investment and not with a view toward distribution
or resale. Such securities may not be offered for sale, sold,
delivered after sale, transferred, pledged or hypothecated in
the absence of an effective registration statement, covering
such securities under the Act and any applicable state
securities laws, unless the holder shall have obtained an
opinion of counsel satisfactory to the corporation that such
registration is not required.
SECTION 7. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Purchaser herein shall survive the Closing.
SECTION 8. Lock-up Agreements with Underwriters; Registration. In the
event of an initial underwritten public offering of Nexar's equity securities,
the Purchaser agrees to enter into an agreement with the Underwriter or
Underwriters' Representative for such offering restricting the sale, transfer or
other disposition of the Shares for a period not to exceed 180 days to the
extent that such agreement is required to be executed by members of senior
management of Nexar.
SECTION 9. Legal Fees. The Company agrees to pay the reasonable fees and
expenses of the Purchaser's counsel in connection with the purchase and sale of
the Shares up to a maximum of $5,000.
SECTION 10. Conditions to Closing.
(a) The obligations of the Purchaser to consummate the
transactions contemplated hereby shall be subject to the satisfaction by the
Company of each of the following conditions on or before the Closing Date, any
one or more of which may be waived by the Purchaser:
(i) The representations and warranties of the Company set
forth in this Agreement delivered to the Purchaser by or on behalf of the
Company shall e true and correct as if made on the Closing Date.
<PAGE>
-89-
(ii) Each of the covenants, agreements and conditions to be
performed and satisfied by the Company pursuant to this Agreement at or prior to
Closing shall have been duly performed and satisfied.
(b) The obligations of the Company to consummate the
transactions contemplated hereby shall e subject tot he satisfaction by the
Purchaser of each of the following conditions on or before the Closing Date, any
one or more of which may be waived by the Company:
(i) The representations and warranties of the Purchaser set
forth in this Agreement shall be true and correct as if made on the Closing
Date.
(ii) Each of the covenants, agreements and conditions to be
performed and satisfied by the Purchaser pursuant to this Agreement at or prior
to Closing shall have been duly performed and satisfied.
(iii) The Purchase shall have paid the Purchase Price in
accordance with Section 3.
SECTION 11. No Brokers. The parties hereto hereby represent that there
are no brokers or finders entitled to compensation in connection with the
transactions contemplated hereby.
SECTION 12. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified mail, postage prepaid, and shall be deemed given when so
mailed:
(a) if to the Company to:
General Counsel
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attn: David Broadwin
(b) if to the Purchaser, at its address as set forth at the end
of this Agreement, or at such other address or addresses as may have been
furnished to the Company in writing.
<PAGE>
-90-
SECTION 13. Termination. Either party to this Agreement may terminate
this Agreement upon written notice to the other at any time prior to the
Closing.
SECTION 14. Changes. Any term of the Agreements may be amended or
compliance therewith waived with the written consent of the Company and the
holders of a majority of the Shares purchased pursuant tot he Agreement.
SECTION 15. Tag Along Rights. In the event the Company should decide to
sell from time to time any shares of Common Stock or other common stock
equivalent to any third party, Purchaser shall have the right to sell its pro
rata portion of the Shares to such third party on the same terms and conditions.
The Company shall give prompt written notice to Purchaser of the terms of any
such offer. Notwithstanding the foregoing, if Purchaser should own less than
2.5% of the outstanding Common Stock, it shall be entitled to sell the greater
of (x) the remaining Shares or (y) its pro rata portion.
SECTION 16. Confidentiality. No press release or public announcement may
be made naming Purchaser or its affiliates without the prior consent of
Purchaser; provided that Nexar may disclose Purchaser's stockholdings in the
prospectus for Nexar's initial public offering or as may be required by law.
SECTION 17. No Impairment. Each of Palomar, the Company and Nexar agree
that until such time as the Shares have been registered pursuant to the terms of
the Registration Rights Agreement and sold by Purchaser, they will not take any
action, directly or indirectly, that could reasonably be expected to adversely
affect or otherwise impair (i) the value of the Shares or (ii) the rights of
Purchaser under this Agreement, the Registration Rights Agreement or otherwise
under law.
SECTION 18. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 19. Severability. If any provision contained in this Agreement
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
SECTION 20. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of The Commonwealth of
Massachusetts and United States federal law.
SECTION 21. Counterparts. This Agreement may be executed in two
counterparts, each of which shall constitute an original, but both of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.
<PAGE>
- -91-
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be executed by their duly authorized representatives as of
the following date.
Dated: December 18, 1996 PALOMAR ELECTRONICS CORPORATION
By: /s/
-----------------------------------
Name: Joseph P. Caruso
Title: Chief Financial Officer
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
-----------------------------------
Name: Steven Georgiev
Title: CEO/Chairman
[Purchaser Signature Page Continues on the Following Page]
<PAGE>
-92-
PURCHASER SIGNATURE PAGE AND QUESTIONNAIRE
The undersigned Purchaser hereby executes the Securities Purchase
Agreement with Palomar Electronics Corporation and Palomar Medical Technologies,
Inc. (the "Company") and hereby authorizes this signature page to be attached to
a counterpart of such document executed by a duly authorized officer of the
Company.
THE TRAVELERS INSURANCE COMPANY
By: /s/
------------------------------
Name: Jordan M. Stitzer
Title: Vice President
Name in which Shares are to be
Registered: TRAL & Co.
Address of registered holder: One Tower Square
Hartford, Connecticut 06183
Social Security or Tax ID Number: 06-0546090
Contact name and telephone number Edward F. Hinchliffe, III
regarding settlement and Name
registration: (203)277-6113
Telephone Number
-93-
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is by and between
Palomar Electronics Corporation (the "Company"), A Delaware corporation, Palomar
Medical Technologies, Inc., a Delaware corporation ("Palomar"), each with an
office at 66 Cherry Hill Drive, Beverly, Massachusetts 01915 U.S.A., and GFL
Advantage Fund Limited (the "Purchaser").
IN CONSIDERATION of the mutual covenants contained in this Agreement and
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties agree as
follows:
SECTION 1. Authorization of Shares. The Company has authorized the sale
of 200,000 shares (the "Shares") of common stock, par value $.01 per shares (the
"Common Stock"), of Nexar Technologies, Inc., a Delaware corporation ("Nexar"),
owned by the Company.
SECTION 2. Agreement to Sell and Purchase the Shares. At the Closing (as
defined below), the Company will sell to the Purchaser, and the Purchaser will
buy from the Company, upon the terms and conditions hereinafter set forth, the
Shares for an aggregate purchase price to be calculated at $10 per shares
totaling $2,000,000 (the "Purchase Price").
SECTION 3. Payment of Purchase Price. On or prior to the Closing Date,
as defined below, the Purchaser will deliver to the Company the full amount of
the Purchase Price by check or wire transfer to the account set forth below.
Citibank
399 Park Avenue
New York, NY 10048
ABA 021000089
Account Number: 40611172
Account Name: Dean Witter Reynolds, Inc.
For Further Credit to:
Account Number 593109782
Account Name: Palomar Medical Technologies, Inc.
SECTION 4. The Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall occur on December 31, 1996
(the "Closing Date") at the offices of the Company or at such other time and
place as shall be agreed by the Company and the Purchaser. At the Closing, the
Company shall deliver to the Purchaser one or more certificates for the Shares
registered in the name of the Purchaser or its nominee.
SECTION 5. Representations, Warranties and Covenants of the Company. The
Company and Palomar hereby jointly and severally represent and warrant to, and
covenant with, the Purchaser as follows:
<PAGE>
-94-
SECTION 5.1. Organization. Nexar is duly organized, validly existing and
in good standing under the laws of the State of Delaware. Nexar has full power
and authority to own and operate its properties and to conduct its business as
currently conducted and is registered or qualified to do business and is in good
standing in each jurisdiction in which it owns or leases property or transacts
business and where the failure to be so qualified would have a material adverse
effect upon the business, financial condition, properties or operations of
Nexar.
SECTION 5.2. Due Authorization. The Company has all requisite power and
authority to execute, deliver and perform its obligations under this Agreement,
and this Agreement has been duly authorized and validly executed and delivered
by the Company and constitutes the valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, usury, fraudulent conveyance or similar laws
affecting creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 5.3. Ownership of the Shares. The Company is the record and
beneficial owner of the Shares free and clear of any adverse claim of any
person. At the Closing, Purchaser will acquire good and valid title to the
Shares free and clear of any adverse claim of any person.
SECTION 5.4. Non-Contravention. The execution and delivery of this
Agreement, the sale of the Shares to be sold by the Company hereunder, and the
consummation of the transactions contemplated hereby will not conflict with or
constitute a violation of, or default (with the passage of time or otherwise)
under, any material agreement or instrument to which the Company or Nexar is a
party or by which either is bound or the Certificate of Incorporation (the
"Charter") or the By-Laws of the Company or Nexar nor result in the creation of
imposition of any lien, encumbrance, claim, security interest or restriction
whatsoever upon any of the material properties or assets of the Company or Nexar
or an acceleration of indebtedness pursuant to any obligation, agreement or
condition contained in any material bond, debenture, note or any other evidence
of indebtedness or any material indenture, mortgage, deed of trust or any other
agreement or instrument to which the Company or Nexar is a party or by which the
Company or Nexar is bound or to which any o the property or assets of the
Company or Nexar is subject, nor conflict with, or result in a violation of, any
law, administrative regulation, ordinance or order of any court or governmental
agency, arbitration panel or authority applicable to the Company or Nexar. No
consent, approval, authorization or other order of, or registration,
qualification or filing with, any regulatory body, administrative agency, or
other governmental body in the United States, other than with respect to "blue
sky" laws, is required for the valid transfer and sale of the Shares to be sold
pursuant to this Agreement (other than such as have been made or obtained).
SECTION 5.5. Capitalization. The authorized and outstanding capital
stock of Nexar and rights to acquire capital stock of Nexar are as set forth on
Schedule 5.5 hereto. Except as
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set forth in Schedule 5.5, there are no
outstanding shares of, or rights to acquire shares of, capital stock of Nexar.
The Shares have been duly authorized, validly issued and are fully paid and
nonassessable.
SECTION 5.6. Legal Proceedings. There is no material legal or
governmental proceeding pending or, to the knowledge of the Company, threatened
or contemplated to which Nexar is or may be a party or of which the business or
property of Nexar is or may be subject.
SECTION 5.7. No Violations. Nexar is not in violation of its Charter or
By-Laws, in violation of any law, administrative regulation, ordinance or order
of any court or governmental agency, arbitration panel or authority applicable
to Nexar, which violation, individually or in the aggregate, would have a
material adverse effect on the business or financial condition of Nexar, or in
default in any material respect in the performance of any obligation, agreement
or condition contained in any bond, debenture, note or any other evidence of
indebtedness in any indenture, mortgage, deed of trust or any other agreement or
instrument to which Nexar is a party or by which Nexar is bound or by which the
properties of Nexar are bound or affected, and there exists no condition which,
with the passage of time or the giving of notice or both, would constitute a
material default under any such document or instrument or result in the
imposition of any material penalty or the acceleration of any indebtedness.
SECTION 5.8. Governmental Permits, Etc. Nexar has all necessary
franchises, licenses, certificates and other authorizations from any foreign,
federal, state or local government or governmental agency, department, or body
that are currently necessary for the operation of the business of Nexar as
currently conducted, the absence of which would have a material adverse effect
on the business or operations of Nexar.
SECTION 5.9. Financial Statements. The Company has made available to
Purchaser audited financial statements of Nexar (the "Financial Statements").
The Financial Statements and the related notes present fairly the financial
position of Nexar as of the dates indicated therein and its results of
operations and cash flows for the period therein specified. Such Financial
Statements (including the related notes) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods therein specified.
SECTION 5.10. No Material Adverse Change. Since the date of the most
recent audited balance sheet included in the Financial Statements, Nexar has not
incurred any material liabilities or obligations, direct or contingent, other
than in the ordinary course of business, and there has not been any material
adverse change in its business, financial condition or results of operations.
SECTION 5.11. Intellectual Property. Nexar has the right to use all
intellectual property (the "Intellectual Property") now used by it in its
business. Nexar owns all right, title and interest in and to, all of the
intellectual property it owns, free and clear of any liens or encumbrances. In
any case in which Nexar does not own the Intellectual Property, it has good and
valid licenses for the same which are in full force and effect. No claims have
been asserted
<PAGE>
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with respect to the use of any such Intellectual Property or
challenging or questioning the validity or effectiveness of any such license or
agreement.
SECTION 5.12. Title to Properties and Assets. Nexar has good and
marketable title to its properties and assets, and has good title to its
leasehold interests, in each case, free and clear of any liens, except (i) the
lien of current taxes not yet due and payable and (ii) minor liens arising in
the ordinary course of business which do not in any case materially detract from
the value of the property subject thereto or impair Nexar's operations.
SECTION 6. Representations, Warranties and Covenants of the Purchaser.
(a) The Purchaser represents and warrants to, and covenants
with, the Company, as of the date hereof and as of the Closing Date, that: (i)
the Purchaser is an "accredited investor" as defined in Rule 501 of Regulation D
promulgated under the Securities Act; (ii) the Purchase is acquiring the Shares
for its own account for investment and with no present intention of distributing
any of such Shares other than to any affiliate of the Purchaser unless the
resale of the Shares is registered under the Securities Act; (iii) the Purchaser
will not, directly or indirectly, voluntarily offer, sell, pledge, transfer or
otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of the Shares, except in compliance with the
Securities Act and the rules and regulations promulgated thereunder; (iv) the
Purchaser has had an opportunity to ask questions and receive answers from the
management of the Company and Nexar regarding Nexar, its business and the
offering of the Shares; and (v) the Purchase has, in connection with its
decision to purchase Shares, relied solely upon the representations and
warranties of the Company contained herein.
(b) The Purchaser agrees not to make any sale of the Shares
except pursuant to an effective registration statement under the Securities Act
or an exemption from the registration requirements thereof.
(c) The Purchaser further represents and warrants to, and
covenants with, the Company that (i) the Purchaser has full right, power,
authority and capacity to enter into this Agreement and to consummate the
transactions contemplated hereby and has taken all necessary action to authorize
the execution, delivery and performance of this Agreement, and (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, usury, fraudulent conveyance or similar
laws affecting creditors' and contracting parties' rights generally and except
as enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(d) The Purchase represents that it understands and agrees that,
until registered under the Securities Act or transferred pursuant to the
provisions of Rule 144 promulgated thereunder, all certificates evidencing the
Shares shall bear a legend, prominently stamped or printed therein, reading
substantially as follows:
<PAGE>
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"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state. These securities have been
acquired for investment and not with a view toward distribution
or resale. Such securities may not be offered for sale, sold,
delivered after sale, transferred, pledged or hypothecated in
the absence of an effective registration statement covering such
securities under the Act and any applicable state securities
laws, unless the holder shall have obtained an opinion of
counsel satisfactory to the corporation that such registration
is not required."
SECTION 7. Survival of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Purchaser herein shall survive the Closing.
SECTION 8. Lock-up Agreements with Underwriters; Registration. In the
event of an initial underwritten public offering of Nexar's equity securities,
the Purchaser agrees to enter into an agreement with the Underwriter or
Underwriters' Representative for such offering restricting the sale, transfer or
other disposition of the Shares for a period not to exceed 180 days to the
extent that such agreement is required to be executed by members of senior
management of Nexar.
SECTION 9. Legal Fees. The Company agrees to pay the reasonable fees and
expenses of the Purchaser's counsel in connection with the purchase and sale of
the Shares up to a maximum of $5,000.
SECTION 10. Conditions to Closing.
(a) The obligations of the Purchaser to consummate the
transactions contemplated hereby shall be subject to the satisfaction by the
Company of each of the following conditions on or before the Closing Date, any
one or more of which may be waived by the Purchaser:
(i) The representations and warranties of the Company and
Palomar set forth in this Agreement delivered to the Purchaser by or on behalf
of the Company, Palomar or Nexar in connection herewith shall be true and
correct on the Closing Date as if made on the Closing Date.
(ii) Each of the covenants, agreements and conditions to be
performed and satisfied by the Company pursuant to this Agreement at or prior to
Closing shall have been duly performed and satisfied.
(iii) Nexar and Purchaser shall have entered into a
Registration Rights Agreement on mutually satisfactory terms and conditions.
<PAGE>
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(b) The obligations of the Company to consummate the
transactions contemplated hereby shall be subject to the satisfaction by the
Purchaser of each of the following conditions on or before the Closing Date, any
one or more of which may be waived by the Company:
(i) The representations and warranties of the Purchaser set
forth in this Agreement shall be true and correct as if made on the Closing
Date.
(ii) Each of the covenants, agreements and conditions to be
performed and satisfied by the Purchaser pursuant to this Agreement at or prior
to Closing shall have been duly performed and satisfied.
(iii) The Purchaser shall have paid the Purchase Price in
accordance with Section 3.
SECTION 11. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified mail, postage prepaid, and shall be deemed given when so
mailed:
(a) if to the Company, to:
General Counsel
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attn.: David Broadwin
(b) if to the Purchaser, at its address as set forth at the end
of this Agreement, or at such other address or addresses as may have been
furnished to the Company in writing.
SECTION 12. Termination. Either party to this Agreement may terminate
this Agreement upon written notice to the other at any time prior to the
Closing.
SECTION 13. Changes. Any term of the Agreements may be amended or
compliance therewith waived with the written consent of the Company and the
holders of a majority of the Shares purchased pursuant to the Agreement.
<PAGE>
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SECTION 14. Tag Along Rights. In the event the Company should decide to
sell from time to time any shares of Common Stock or other common stock
equivalent to any third party, Purchaser shall have the right to sell its pro
rate portion o the Shares to such third party on the same terms and conditions.
The Company shall give prompt written notice to Purchaser of the terms of any
such offer. Notwithstanding the foregoing, if Purchaser should own less than
2.5% of the outstanding Common Stock, it shall be entitled to sell the greater
of (x) the remaining Shares or (y) its pro rate portion.
SECTION 15. Confidentiality. No press release or public announcement may
be made naming Purchaser or its affiliates without the prior consent of
Purchaser; provided that Nexar may disclose Purchaser's stockholdings in the
prospectus for Nexar's initial public offering or as may be required by law.
SECTION 16. No Impairment. Each of Palomar, the Company and Nexar agree
that until such time as the Shares have been registered pursuant to the terms of
the Registration Rights Agreement and sold by Purchaser, they will not take any
action, directly or indirectly, that could reasonably be expected to adversely
affect or otherwise impair (i) the value of the Shares or (ii) the rights of
Purchaser under this Agreement, the Registration Rights Agreement or otherwise
under law.
SECTION 17. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 18. Severability. If any provision contained in this Agreement
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
SECTION 19. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of The Commonwealth of
Massachusetts and United States federal law.
SECTION 20. Counterparts. This Agreement may be executed in two
counterparts, each of which shall constitute an original, but both of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be executed by their duly authorized representatives as of
the following date.
Dated: December 31, 1996 PALOMAR ELECTRONICS CORPORATION
By: /s/
----------------------------------------
Name: Joseph P. Caruso
Title: Chief Financial Officer
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
----------------------------------------
Name: Joseph P. Caruso
Title: Chief Financial Officer
[Purchaser Signature Page Continues on the Following Page]
<PAGE>
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SECURITY PURCHASE AGREEMENT
PURCHASER SIGNATURE PAGE AND QUESTIONNAIRE
The undersigned Purchaser hereby executed the Securities Purchase
Agreement with Palomar Electronics Corporation and Palomar Medical Technologies,
Inc. (the "Company") and hereby authorizes this signature page to be attached to
a counterpart of such document executed by a duly authorized officer of the
Company.
GFL ADVANTAGE FUND LIMITED
By: /s/
-------------------------
Name: A.P. de Groot
Title: President
Name in which Shares are to
be registered: GFL Advantage Fund Limited
Address of registered holder: c/o Genesee International
10500 NE 8th Street, Suite 1920
Bellevue, Washington 98004
Social Security or Tax ID Number: None
Contact name and telephone number
regarding settlement and Christopher R. Purnier
registration: Name
(206)462-1673
Telephone Number
-102-
OPTION AGREEMENT
THIS OPTION AGREEMENT, dated as of December 31, 1996 (this "Agreement"),
by and between PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware corporation (the
"Company"), and GFL ADVANTAGE FUND LIMITED, a British Virgin Islands corporation
("GFL").
W I T N E S S E T H:
WHEREAS, GFL, the Company and Palomar Electronics Corporation, a
Delaware corporation ("PEC"), are contemporaneously with the execution and
delivery of this Agreement executing and delivering, one to the other, a
Securities Purchase Agreement, dated as of the date hereof (the "Securities
Purchase Agreement"), which provides, among other things, for the purchase by
GFL from PEC of 200,000 shares of Common Stock, $.01 par value per share, of
Nexar Technologies, Inc. (the "Nexar Shares"), a Delaware corporation ("Nexar"),
which is a subsidiary of the Company, at a purchase price of $10.00 per share
for an aggregate purchase price of $2,000,000.00.
WHEREAS, contemporaneously with the execution and delivery of the
Securities Purchase Agreement, Nexar and GFL have executed and delivered, one to
the other, a Registration Rights Agreement, dated as of the date hereof (the
"Registration Rights Agreement"); and
WHEREAS, in consideration of the purchase by GFL of the Nexar Shares,
the Company wishes to grant to GFL the option to require the Company to exchange
the Nexar Shares for shares of Common Stock, $.01 par value per share (the
"Company Common Stock"), of the Company upon the terms and subject to the
conditions of this Agreement;
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Grant of Option. The Company hereby grants GFL an irrevocable option
(the "Option") which shall entitle GFL, if an Option Exercise Event occurs, to
require the Company to issue upon each exercise of the Option a number of shares
of Company Common Stock in exchange for the number of Nexar Shares surrendered
for exchange by GFL in connection with such exercise of the Option equal to the
quotient obtained by dividing (1) the product obtained by multiplying (A) the
number of Nexar Shares to be exchanged upon such exercise of the Option times
(B) $10.00 by (2) the Exchange Value on the date of such exercise of the Option.
As used in this Agreement, the following terms shall have the following
meanings:
<PAGE>
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"Closing Bid Price" of any security on any date shall mean the
closing bid price of such security on such date on the principal
securities exchange or market on which such security is traded as
reported by such exchange or market.
"Computation Date" means (1) the date which is 60 days after the
First Option Closing (as defined herein), unless the Registration
Statement theretofore has been declared effective by the SEC, (2) each
date which is 30 days after a Computation Date, if the Registration
Statement has not been declared effective by the SEC prior to such 30th
day, (3) if the Registration Statement has not been declared effective
by the SEC within 60 days after the First Option Closing, the date on
which the Registration Statement is declared effective by the SEC, (4)
the date which is 30 days after the date on which the Registration
Statement ceases to be available for use by GFL, if, at any time during
which the Registration Statement is required by the Registration Rights
Agreements to remain available for such, the Registration Statement
ceases to be so available for any reason (including, without limitation,
by reason of an SEC stop order, a material misstatement or omission
therein not caused by the information provided in writing by GFL
expressly for use therein or the information contained in the
Registration Statement having become outdated) and shall remain so
unavailable on such 30th day, (5) the date on which the Registration
Statement becomes available for use by GFL, if the Registration
Statement shall have become unavailable for such use as described in the
preceding clause (4) of this paragraph, (6) the date which is 30 days
after the date on which GFL shall have become unable to obtain Company
Common Stock upon exercise of the Option or the Company Call for any
reason (other than by reason of the 4.9% limitation set forth in Section
9), if GFL shall remain unable so to obtain shares of Company Common
Stock on such 30th day, and (7) the date on which GFL become able to so
obtain Company Common Stock, if GFL shall have become unable so to
obtain Company Common Stock as described in the preceding clause (6) of
this paragraph.
"Exchange Value" for any date means 85% of the arithmetic
average of the Closing Bid Prices of the Company Common Stock for the
five consecutive trading days ending one trading day prior to such date,
except that, if (x) the Registration Statement is not ordered effective
by the SEC within 60 days after the First Option Closing, (y) the
Registration Statement shall cease to be available for use by GFL for
any reason (including, without limitation, by reason of a stop order of
the SEC, a material misstatement or omission in the Nexar Registration
Statement not caused by the information provided in writing by GFL
expressly for use therein or the information contained in the
Registration Statement having become outdated) or (z) GFL having become
unable to obtain shares of Company Common Stock from the Company as and
when required by this Agreement upon exercise of the Option or the
Company Call in accordance with this Agreement (other than by reason of
the 4.9% Limitation set forth in Section 9), then in
<PAGE>
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each such case the percentage stated above in this paragraph shall be
reduced by two percentage points on each Computation Date (not to exceed
2% on any Computation Date in case more than one event resulting in a
Computation Date occurs during the same period of time) (pro rated in
the case of any Computation Date which is less than 30 days after a
Computation Date).
"Registration Statement" shall mean the Registration Statement
required to be filed by the Company with the SEC pursuant to Section
2(a) of the Company Registration Rights Agreement (as defined herein).
"SEC" shall mean the United States Securities and Exchange
Commission.
2. Exercise of Option. (a) Subject to the provisions of Section 7, upon
the occurrence of an Option Exercise Event, the Option may be exercised by GFL,
in whole or in increments of at least 20,000 of the Nexar Shares, at any time
prior to June 30, 1997.
(b) If GFL wishes to exercise the Option, it shall send a
written notice to the Company specifying the number of Company Common
Stock to be issued in exchange for Nexar Shares upon such exercise and a
place and date (not later than ten (10) business days after the date
such notice is given) for the closing of such issuance and exchange.
Each exercise of the Option shall be deemed to have been made on the
date such notice is given with respect to such exercise.
3. Exchange and Delivery of Certificate(s), Etc. Each closing hereunder
pursuant to the exercise of the Option by GFL pursuant to Section 2 shall occur
at the time and place set forth in the notice referred to in Section 2(b)
hereof. At each such closing hereunder, (a) GFL will surrender to the Company
the certificates for the number of Nexar Shares to be exchanged for Company
Common Stock by reason of such exercise of the Option, and (b) the Company will
deliver to GFL a certificate or certificates representing the number of Company
Common Stock so purchased in the denominations designated by GFL in its notice
of exercise.
4. Call of the Option. The Company shall have the right to call (the
"Company Call") all but not less than all of the Option and force GFL to
exchange all Nexar Shares owned by GFL at the time of closing of the exercise by
the Company of the Company Call for shares of Company Common Stock on the same
basis provided in Section 1 for exercise of the Option by GFL at any time (i)
before April 1, 1997 provided that the Company reasonably concludes that Nexar
will not complete an initial public offering pursuant to the Nexar Registration
Statement or (ii) after June 30, 1997 so long as the Nexar Registration
Statement (as defined herein) shall be effective at the time the Company
exercises the Company Call and at the time the Company delivers the shares of
Company
<PAGE>
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Common Stock to GFL in connection with the exercise by the Company of the
Company Call.
5. Exercise of Company Call. If the Company wishes to exercise the
Company Call, it shall send a written notice to GFL stating that the Company is
exercising the Company Call and specifying a place and date (not later than ten
(10) business days after the date such notice is given) for the closing of the
issuance of shares of Company Common Stock in exchange for Nexar Shares. The
Company's exercise of the Company Call pursuant to Section 4 shall be deemed to
have been made on the date such notice is given with respect to such Company
Call.
6. Exchange and Delivery of Certificate(s), Etc. Each closing hereunder
pursuant to the exercise of the Company Call by the Company pursuant to Section
5 shall occur at the time and place set forth in the notice referred to in
Section 5 hereof. At each such closing hereunder, (a) GFL will surrender to the
Company the certificates for the number of Nexar Shares to be exchanged for
Company Common Stock by reason of such exercise of the Company Call, and (b) the
Company will deliver to GFL a certificate or certificates representing the
number of shares of Company Common Stock so purchased in the denominations
designated by GFL prior to such closing.
7. Option Exercise Events. As used in this Agreement, the term Option
Exercise Event shall mean:
(a) the Registration Statement of Nexar on Form S-1 filed with
the Securities and Exchange Commission (the "SEC") on December 20, 1996
(as amended to the date the same is declared effective, the "Nexar
Registration Statement") shall not be declared effective by the SEC on
or before April 1, 1997;
(b) the Nexar Registration Statement shall fail to name GFL as
selling stockholder of the Nexar Shares;
(c) the initial public offering price of the Nexar Common Stock
in the offering covered by the Nexar Registration Statement shall be
$11.75 or less;
(d) Nexar shall fail to comply in any material respect with the
Registration Rights Agreement; or
(e) the Underwriter or Underwriters' Representatives (as defined
in the Securities Purchase Agreement) shall request GFL to enter into
any agreement contemplated by Section 8 of the Securities Purchase
Agreement which restricts the sale by GFL of the Nexar Shares.
Notwithstanding the foregoing, if GFL shall not have exercised the
Option prior to the closing of Nexar's initial public offering, GFL shall have
no right to exercise the Option
<PAGE>
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after the closing of such initial public offering and this Option Agreement
shall thereupon terminate.
8. Registration Rights. At the first closing under Section 3 or Section
6 (the "First Option Closing"), the Company and GFL agree to execute and
deliver, one to the other, a Registration Rights Agreement (the "Company
Registration Rights Agreement") relating to the shares of Company Common Stock
issuable upon exercise of the Option or the Company Call, as the case may be,
which Company Registration Rights Agreement shall be in substantially the same
form as the Registration Rights Agreement, dated as of September 26, 1996, by
and between the Company and Genesee Fund Limited ("Genesee"), rights under which
have been transferred to GFL pursuant to the Stock Purchase and Sale Agreement,
dated as of October 31, 1996, by and between Genesee GFL and GFL Performance
Fund Limited, except that the Company Registration Rights Agreement will provide
as follows:
1. The Company shall be obligated to file a Registration
Statement on Form S-3 relating to 415,000 shares of Company Common Stock
as Registrable Securities (as defined in the Company Registration Rights
Agreement) within 30 days after the First Option Closing;
2. Section 2(c) thereof shall be deleted; and
3. The transfer of registration rights pursuant to Section 9
thereof shall not be restricted based on the number of shares of Company
Common Stock transferred.
9. Option and Call Limitation. Notwithstanding any other provision of
this Agreement, in no event shall GFL be entitled to exercise the Option or
shall the Company be entitled to exercise the Company Call in respect of in
excess of that number of Nexar Shares in excess of the number of Nexar Shares
upon exchange of which the sum of (1) the number of shares of Company Common
Stock beneficially owned by GFL and any person whose beneficial ownership of
shares of Company Common Stock would be aggregated with GFL's beneficial
ownership of shares of Company Common Stock for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Regulation
13D-G thereunder (each a "GFL Person" and collectively, the "GFL Persons")
(other than shares of Common Stock deemed beneficially owned through the
ownership of unconverted shares of Convertible Preferred Stock, unexercised
Common Stock Purchase Warrants which contain provisions similar to this Section
9) and (2) the number of shares of Company Common Stock issuable upon exercise
of the Option or the Company Call, as the case may be, with respect to which the
determination in this Section 9 is being made, would result in beneficial
ownership by any GFL Person of more than 4.9% of the outstanding shares of
Common Stock. For purposes of this Section 9, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act
<PAGE>
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and Regulation 13D-G thereunder, except as otherwise provided in clause (1) of
the first sentence of this Section.
10. Representations, Warranties Etc. of the Company. The Company hereby
represents and warrants to, and covenants and agrees with, GFL as follows:
(a) Due Authorization. This Agreement and the Company
Registration Rights Agreement have been duly authorized by all necessary
corporate action on the part of the Company and this Agreement has been,
and on or before the First Option Closing the Company Registration
Rights Agreement will be, duly executed by a duly authorized officer of
the Company.
(b) Company Common Stock. The Company has taken all necessary
corporate action to authorize and reserve for issuance upon exercise of
the Option or the Company Call 415,000 authorized but unissued shares of
Company Common Stock and any shares of Company Common Stock issued and
delivered upon exercise of the Option or the Company Call, when issued
and in accordance with this Agreement, will be fully paid and
nonassessable.
(c) Conflicting Instruments. Neither the execution and delivery
of this Agreement or the Company Registration Rights Agreement, nor the
consummation of the transactions contemplated hereby or thereby will
violate or result in any violation of or be in conflict with or
constitute a default under any term of the Certificate of Incorporation
or By-laws of the Company or of any agreement or other instrument
applicable to the Company or any of its subsidiaries.
(d) Due Organization. The Company is a corporation duly
organized, validly existing in good standing under the laws of the State
of Delaware and has the requisite corporate power to enter into and
perform this Agreement and the Company Registration Rights Agreement.
(e) Purchase for Investment. The Company is purchasing any Nexar
Shares acquired pursuant to this Agreement for its own account for
investment only and not with a view towards the public sale or
distribution thereof, unless registered under the Security Act of 1933,
as amended, (the "1933 Act"), or except from such registration.
(f) Accredited Investor. The Company is an "accredited investor"
as that term is defined in Rule 501 of the General Rules and Regulations
under the 1933 Act by reason of Rule 501(a)(3).
(g) Resales. All subsequent offers and sales of the Securities
by the Company shall be made pursuant to registration of the shares
being offered and sold under the 1933 Act acquired
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pursuant to this Agreement or pursuant to an exemption from
registration.
11. Representations, Warranties Etc. of GFL. GFL represents and warrants
to, and covenants and agrees with, the Company as follows:
(a) Purchase for Investment. GFL is purchasing any shares of
Company Common Stock acquired pursuant to this Agreement for its own
account for investment only and not with a view towards the public sale
or distribution thereof, unless registered under the Security Act of
1933, as amended, (the "1933 Act"), or except from such registration.
(b) Accredited Investor. GFL is an "accredited investor" as that
term is defined in Rule 501 of the General Rules and Regulations under
the 1933 Act by reason of Rule 501(a)(3).
(c) Resales. All subsequent offers and sales of the Securities
by GFL shall be made pursuant to registration of the shares being
offered and sold under the 1933 Act acquired pursuant to this Agreement
or pursuant to an exemption from registration.
12. Miscellaneous.
(a) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected,
impaired or invalidated.
(b) Assignment. The Option shall not be assigned by GFL, without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. The Company Call shall not be assigned by the
Company.
(c) Amendments. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a
written instrument executed by the party to be charged with enforcement.
(d) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given if so given) if delivered in
person or by courier, telephone line facsimile transmission or by mail
(certified mail, postage prepaid, return receipt requested) to the
respective parties as follows:
<PAGE>
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If to the Company:
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
Attention: General Counsel
Facsimile No.: 508-921-5801
If to GFL:
GFL Advantage Fund Limited
c/o CITCO
Kaya Flamboyan
9 Curacao
Attention: Mr. A.P. deGroot
Facsimile No.: 599-9-322008
with a copy to:
Genesee Investments
10500 N.E. 8th Street
Suite 1920
Bellevue, Washington 98004-4332
Attention: Mr. Christopher R. Purrier
Facsimile No.: 206-462-4645
and shall be effective on receipt in the case of delivery in person, by courier
or by telephone line facsimile transmission or five day after mailing in the
case of delivery by mail, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall only be effective upon receipt.
(e) Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive law of the State of New
York without giving effect to the principles of conflict of laws
thereof.
(f) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
(g) Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction thereof.
(h) Expenses. All reasonable expenses incurred by GFL in
connection with this Agreement and the Company Registration Rights
Agreement, including but not limited to legal fees, shall be paid by the
Company.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
date first set forth above.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
------------------------------
Name: Joseph P. Caruso
Title: Chief Financial Officer
GFL ADVANTAGE FUND LIMITED
By: /s/
------------------------------
Name: A.P. de Groot
Title: President
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THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED
UNDER THOSE LAWS OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO IT THAT AN EXEMPTION FROM REGISTRATION UNDER EACH OF THOSE LAWS
IS AVAILABLE.
Right to Purchase 50,000 Shares of Common Stock of
Palomar Medical Technologies, Inc.
PALOMAR MEDICAL TECHNOLOGIES, INC.
Common Stock Purchase Warrant
PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, GFL Advantage Fund Limited or
registered assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time after the
date hereof, and before 5:00 p.m., New York City time, on the Expiration Date
(as hereinafter defined), 50,000 fully paid and nonassessable shares of Common
Stock, $.01 par value per share, of the Company at a purchase price per share
equal to the Purchase Price (as hereinafter defined). The number of such shares
of Common Stock and the Purchase Price are subject to adjustment as provided in
this Warrant.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Business Day" as used herein shall mean a day on which
the New York Stock Exchange is open for business.
(b) The term "Common Stock" includes the Company's Common Stock, $.01
par value per share, as authorized on the date hereof, and any other
securities into which or for which the Common Stock may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise.
(c) The term "Company" shall include Palomar Medical Technologies,
Inc. and any corporation that shall succeed to or assume the obligation of
Palomar Medical Technologies, Inc. hereunder.
(d) The term "Expiration Date" refers to December 31, 2001.
<PAGE>
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(e) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate
or otherwise) which the Holder of this Warrant at any time shall be
entitled to receive, or shall have received, on the exercise of this
Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4.
(f) The term "Purchase Price" shall mean $6.5625, subject to
adjustment as provided in this Warrant.
1. Exercise of Warrant.
1.1 Exercise. (a) This Warrant may be exercised by the Holder hereof
in full or in part at any time or from time to time during the exercise
period specified in the first paragraph hereof until the Expiration Date by
surrender of this Warrant and the subscription form annexed hereto (duly
executed) by such Holder, to the Company at its principal office,
accompanied by payment, in cash or by certified or official bank check
payable to the order of the Company in the amount obtained by multiplying
(a) the number of shares of Common Stock designated by the Holder in the
subscription form by (b) the Purchase Price then in effect. On any partial
exercise the Company will forthwith issue and deliver to or upon the order
of the Holder hereof a new Warrant or Warrants of like tenor, in the name
of the Holder hereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may request, providing in the aggregate on the
face or faces thereof for the purchase of the number of shares of Common
Stock for which such Warrant or Warrants may still be exercised.
(b) Notwithstanding any other provision of this Warrant, in no
event shall GFL Advantage Fund Limited ("GFL") be entitled at any time
to purchase a number of shares of Common Stock on exercise of this
Warrant in excess of that number of shares upon purchase of which the
sum of (1) the number of shares of Common Stock beneficially owned by
GFL and any person whose beneficial ownership of shares of Common
Stock would be aggregated with GFL's beneficial ownership of shares of
Common Stock for purposes of Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Regulation 13D-G
thereunder, (each a "GFL Person" and collectively, the "GFL Persons")
(other than shares of Common Stock deemed beneficially owned through
the ownership of the unexercised portion of this Warrant, unconverted
shares of Series G Convertible Preferred Stock, $.01 par value, of the
Company beneficially owned by all GFL Persons and other rights to
acquire shares of Common Stock which contain limitations similar to
this Section 1.1(b)) and (2) the number of shares of Common Stock
issuable upon exercise of the portion of this Warrant with respect to
which the determination in this sentence is being
<PAGE>
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made, would result in beneficial ownership by any GFL Person of more
than 4.9% of the outstanding shares of Common Stock. For purposes of
the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and
Regulation 13D-G thereunder, except as otherwise provided in clause
(1) of the immediately preceding sentence. For purposes of the second
preceding sentence, the Company shall be entitled to rely, and shall
be fully protected in relying, on any statement or representation made
by Genesee to the Company in connection with a particular exercise of
this Warrant, without any obligation on the part of the Company to
make any inquiry or investigation or to examine its records or the
records of any transfer agent for the Common Stock.
1.2 Net Issuance. Notwithstanding anything to the contrary contained
in Section 1.1, the Holder may elect to exercise this Warrant in whole or
in part by receiving shares of Common Stock equal to the net issuance value
(as determined below) of this Warrant, or any part hereof, upon surrender
of this Warrant at the principal office of the Company together with notice
of such election, in which event the Company shall issue to the Holder a
number of shares of Common Stock computed using the following formula:
X = Y (A-B)
A
Where: X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common Stock
calculated as of the last trading day immediately preceding the
exercise of this Warrant
B = the Purchase Price
As used herein, current fair market value of Common Stock as of a
specified date shall mean with respect to each share of Common Stock the
average of the closing bid prices of the Common Stock on the principal
securities market on which the Common Stock may at the time be traded over
a period of five Business Days consisting of the day as of which the
current fair market value of a share of Common Stock is being determined
(or if such day is not a Business Day, the Business Day next preceding such
day) and the four consecutive Business Days prior to such day. If on the
date for which current fair market value is to be determined the Common
Stock is not eligible for trading on any securities market, the current
fair market value of Common Stock shall be the highest price per share
which the Company could then obtain from a willing buyer (not a current
employee or director)
<PAGE>
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for shares of Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by the Board of Directors of
the Company, unless prior to such date the Company has become subject to a
merger, acquisition or other consolidation pursuant to which the Company is
not the surviving party, in which case the current fair market value of the
Common Stock shall be deemed to be the value received by the holders of the
Company's Common Stock for each share thereof pursuant to the Company's
acquisition.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within three
business days thereafter, the Company at its expense (including the payment by
it of any applicable issue or stamp taxes) will cause to be issued in the name
of and delivered to the Holder hereof, or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such Holder shall be entitled on such
exercise, in such denominations as may be requested by such Holder, plus, in
lieu of any fractional share to which such Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then current fair market value (as
determined in accordance with subsection 1.2) of one full share, together with
any other stock or other securities any property (including cash, where
applicable) to which such Holder is entitled upon such exercise pursuant to
Section 1 or otherwise.
3. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time, all the holders
of Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of earnings
or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such case the Holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the
<PAGE>
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cases referred to in subdivisions (b) and (c) of this Section 3) which such
Holder would hold on the date of such exercise if on the date hereof the Holder
had been the holder of record of the number of shares of Common Stock called for
on the face of this Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property (including cash
in the case referred to in subdivisions (b) and (c) of this Section 3)
receivable by the Holder as aforesaid during such period, giving effect to all
adjustments called for during such period by Section 4.
4. Exercise upon Reorganization, Consolidation, Merger, etc. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition of such reorganization, consolidation, merger, sale or
conveyance, the Company shall give at least 30 days notice to the Holder of such
pending transaction whereby the Holder shall have the right to exercise this
Warrant prior to any such reorganization, consolidation, merger, sale or
conveyance. Any exercise of this Warrant pursuant to notice under this paragraph
shall be conditioned upon the closing of such reorganization, consolidation,
merger, sale or conveyance which is the subject of the notice and the exercise
of this Warrant shall not be deemed to have occurred until immediately prior to
the closing of such transaction.
5. Adjustment for Extraordinary Events. In the event that the Company shall
(i) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock, or (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 5.
The Holder of this Warrant shall thereafter, on the exercise hereof as provided
in Section 1, be entitled to receive that number of shares of Common Stock
determined by multiplying the number of shares of Common Stock which would be
issuable on such exercise as of immediately prior to such issuance by a fraction
of which (i) the numerator is the Purchase Price in effect immediately prior to
<PAGE>
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such issuance and (ii) the denominator is the Purchase Price in effect on the
date of such exercise.
6. Further Assurances. The Company will take all action that may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock, free from all taxes, liens and
charges with respect to the issue thereof, on the exercise of all or any portion
of this Warrant from time to time outstanding.
7. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend on, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all
or substantially all of the assets of the Company to or consolidation or
merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder, at least ten days prior to such record date, a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall also state that the action in question or the
record date is subject to the effectiveness of a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), or a favorable
vote of stockholders if either is required. Such notice shall be mailed at least
ten days prior to the date specified in such notice on
<PAGE>
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which any such action is to be taken or the record date, whichever is earlier.
8. Reservation of Stock, etc., Issuable on Exercise of Warrants. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
9. Transfer of Warrant. This Warrant shall inure to the benefit of the
successors to and assigns of the Holder. This Warrant and all rights hereunder,
in whole or in part, is registrable at the office or agency of the Company
referred to below by the Holder hereof in person or by his duly authorized
attorney, upon surrender of this Warrant properly endorsed.
10. Register of Warrants. The Company shall maintain, at the principal
office of the Company (or such other office as it may designate by notice to the
Holder hereof), a register in which the Company shall record the name and
address of the person in whose name this Warrant has been issued, as well as the
name and address of each successor and prior owner of such Warrant. The Company
shall be entitled to treat the person in whose name this Warrant is so
registered as the sole and absolute owner of this Warrant for all purposes.
11. Exchange of Warrant. This Warrant is exchangeable, upon the surrender
hereof by the Holder hereof at the office or agency of the Company referred to
in Section 10, for one or more new Warrants of like tenor representing in the
aggregate the right to subscribe for and purchase the number of shares of Common
Stock which may be subscribed for purchase hereunder, each of such new Warrants
to represent the right to subscribe for and purchase such number of shares as
shall be designated by said Holder hereof at the time of such surrender.
12. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
13. Warrant Agent. The Company may, by written notice to the Holder,
appoint an agent having an office in the United States of America, for the
purpose of issuing Common Stock (or Other Securities) on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 11,
and replacing this Warrant pursuant to Section 12, or any of the foregoing, and
thereafter any such issuance, exchange or
<PAGE>
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replacement, as the case may be, shall be made at such office by such agent.
14. Remedies. The Company stipulates that the remedies at law of the Holder
of this Warrant in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.
15. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the Holder hereof to purchase Common Stock, and no mere enumeration
herein of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Purchase Price or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
16. Notices, etc. All notices and other communications from the Company to
the registered Holder of this Warrant shall be mailed by first class certified
mail, postage prepaid, at such address as may have been furnished to the Company
in writing by such Holder or at the address shown for such Holder on the
register of Warrants referred to in Section 10.
17. Transfer Restrictions. By acceptance of this Warrant, the Holder
represents to the Company that this Warrant is being acquired for the Holder's
own account and for the purpose of investment and not with a view to, or for
sale in connection with, the distribution thereof, nor with any present
intention of distributing or selling the Warrant or the Common Stock issuable
upon exercise of the Warrant. The Holder acknowledges and agrees that this
Warrant and, except as otherwise provided in the Registration Rights Agreement
by and between the Company and the original Holder of this Warrant (the
"Registration Rights Agreement"), the Common Stock issuable upon exercise of
this Warrant (if any) have not been (and at the time of acquisition by the
Holder, will not have been or will not be), registered under the Securities Act
or under the securities laws of any state, in reliance upon certain exemptive
provisions of such statutes. The Holder further recognizes and acknowledges that
because this Warrant and, except as provided in the Registration Rights
Agreement, the Common Stock issuable upon exercise of this Warrant (if any) are
unregistered, they may not be eligible for resale, and may only be resold in the
future pursuant to an effective registration statement under the Securities Act
and any applicable state securities laws, or pursuant to a valid exemption from
such registration requirements. Unless the shares of Common Stock issuable upon
exercise of this Warrant have theretofore been
<PAGE>
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registered for resale under the Securities Act, the Company may require, as a
condition to the issuance of Common Stock upon the exercise of this Warrant (i)
in the case of an exercise in accordance with Section 1.1 hereof, a confirmation
as of the date of exercise of the Holder's representations pursuant to this
Section 17, or (ii) in the case of an exercise in accordance with Section 1.2
hereof, an opinion of counsel reasonably satisfactory to the Company that the
shares of Common Stock to be issued upon such exercise may be issued without
registration under the Securities Act.
18. Legend. Unless theretofore registered for resale under the Securities
Act, each certificate for shares issued upon exercise of this Warrant shall bear
the following legend:
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 the Securities Act of 1933, as
amended, or an opinion of counsel that registration is not required
under said Act.
19. Miscellaneous. This Warrant and any terms hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of Delaware. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
<PAGE>
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IN WITNESS WHEREOF, Palomar Medical Technologies, Inc. has caused this
Warrant to be executed on its behalf by one of its officers thereunto duly
authorized.
Dated: December 31, 1996 PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
---------------------------
Joseph P. Caruso
Title: Chief Financial Officer
<PAGE>
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FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO PALOMAR MEDICAL TECHNOLOGIES, INC.
1. The undersigned Holder of the attached original, executed Warrant hereby
elects to exercise its purchase right under such Warrant with respect to
______________ shares of Common Stock, as defined in the Warrant, of Palomar
Medical Technologies, Inc. (the "Company").
2. The undersigned Holder (check one):
(a) elects to pay the aggregate purchase price for such shares of
Common Stock (the "Exercise Shares") (i) by lawful money of the United
States or the enclosed certified or official bank check payable in United
States dollars to the order of the Company in the amount of $___________,
or (ii) by wire transfer of United States funds to the account of the
Company in the amount of $____________, which transfer has been made before
or simultaneously with the delivery of this Form of Subscription pursuant
to the instructions of the Company;
or
(b) elects to receive shares of Common Stock having a value equal to
the value of the Warrant calculated in accordance with Section 1.2 of the
Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other names as is specified below:
4. If this form is being submitted by GFL Advantage Fund Limited ("GFL"),
GFL hereby represents to the Company that the exercise of the Warrant elected
hereby does not violate Section 1.1(b) of the Warrant.
Name:
-------------------------------------
Address:
-------------------------------------
-------------------------------------
Dated:____________ ___, ____ ____________________________
(Signature must conform to name of Holder
as specified on the face of the Warrant)
----------------------------
----------------------------
(Address)
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NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on .
"WARRANT A" TO PURCHASE COMMON STOCK
OF
PALOMAR MEDICAL TECHNOLOGIES, INC.
FOR VALUE RECEIVED, PALOMAR MEDICAL TECHNOLOGIES, INC. (the "Company"), a
Delaware corporation, hereby certifies that , or its permitted assigns, is
entitled to purchase from the Company, at any time or from time to time
commencing , and prior to 5:00 P.M., Eastern Standard Time, on , a total of
fully paid and non assessable shares of the Common Stock, par value $.01 per
share at $ per share. (Hereinafter,
- ---------------------------------------------------- --------- (i) said Common
Stock, together with any other equity securities which may be issued by the
Company with respect thereto or in substitution therefor, is referred to as the
"Common Stock", (ii) the shares of the Common Stock purchasable hereunder are
referred to as the "Warrant Shares", (iii) the aggregate purchase price payable
hereunder for the Warrant Shares is referred to as the "Aggregate Warrant
Price", (iv) the price payable hereunder for each of the Warrant Shares is
referred to as the "Per Share Warrant Price", (v) this Warrant, and all warrants
hereafter issued in exchange or substitution for this Warrant are referred to as
the "Warrant" and (vi) the holder of this Warrant is referred to as the
"Holder".).
1. Exercise of Warrant. This Warrant may be exercised, in whole at any time
or in part from time to time, commencing , and prior to 5:00 P.M., Eastern
Standard Time on , by the Holder of this Warrant by the surrender of this
Warrant (with the subscription form at the end hereof duly executed) at the
address set forth in Subsection 8 (a) hereof, together with proper payment as
follows. THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON A CASHLESS EXERCISE
SHALL BE DETERMINED BY MULTIPLYING (1) THE DIFFERENCE BETWEEN (A) THE CLOSING
BID PRICE OF THE COMMON STOCK ON THE DAY PRIOR TO THE DATE EXERCISED, AS
REPORTED BY THE NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATION
SYSTEM ("NASDAQ"), AND (B) THE EXERCISE PRICE, BY (2) THE NUMBER OF WARRANT
SHARES; DIVIDED BY THE CLOSING BID PRICE OF THE COMMON STOCK ON THE DAY PRIOR TO
THE DATE EXERCISED. If this Warrant is exercised in part, this Warrant must be
exercised for a minimum of 1000 shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the
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Holder for the largest number of whole shares of the Common Stock to which the
Holder shall be entitled, and (b) deliver the proportionate part thereof if this
Warrant is exercised in part, pursuant to the Provisions of the Warrant.
2. Reservation of Warrant Shares. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and in
reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares of the Common Stock as from time to time
shall be receivable upon the exercise of this Warrant.
3. Fully Paid Stock; Taxes. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and non-assessable, and not
subject to preemptive rights, and the Company will take all such actions as may
be necessary to assure that the par value or stated value, if any, per share of
the Common Stock is at all times equal to or less than the then Per Share
Warrant Price. The Company further covenants and agrees that it will pay, when
due and payable, any and all Federal and State stamp, original issue or similar
taxes that may be payable in respect of the issue of any Warrant Share or
certificate therefor.
4. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant Shares
issuable upon the exercise hereof have been registered under the Securities Act
of 1933, as amended (the "Securities Act") or under any state securities laws
and unless so registered may not be transferred, sold, pledged, hypothecated or
otherwise disposed of unless an exemption from such registration is available.
In the event Holder desires to transfer this Warrant or any of the Warrant
Shares issued, the Holder must give the Company prior written notice of such
proposed transfer including the name and address of the proposed transferee.
Such transfer may be made only either (i) upon publication by the Securities and
Exchange Commission (the "Commission") of a ruling, interpretation, opinion or
"no action letter" based upon facts presented to said Commission, or (ii) upon
receipt by the Company of an opinion of Counsel to the Company in either case to
the effect that the proposed transfer will not violate the provisions of the
Securities Act, The Securities Exchange Act of 1934, as amended, or the rules
and regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the Warrant or Warrant Shares to be sold or
transferred has been registered under the Securities Act of 1933, as amended,
and that there is in effect a current prospectus meeting the requirements of
Subsection 10 (a) of the Securities Act, which is being or will be delivered to
the purchaser or transferee at or prior to the time of delivery of the
certificates evidencing the Warrant or Warrant Stock to be sold or transferred.
(b) Conditions to Transfer. Prior to any such proposed transfer, and
as condition thereto, if such transfer is not made pursuant to an effective
registration statement under the Securities Act, the Holder will, if requested
by the Company, deliver to the Company (i) an investment covenant signed by the
proposed transferee (ii) an agreement by such transferee to the impression of
the restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee, (iii) an
agreement by such transferee that the Company may place a "stop transfer order"
with its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in the next succeeding
paragraph.
(c) Indemnity. The Holder acknowledges that the Holder understands the
meaning and legal consequences of this Section 4, and the Holder hereby agrees
to indemnify and hold harmless the Company, its representatives and each officer
and director thereof from and against any and all loss,
<PAGE>
-124-
damage or liability (including all attorneys' fees and costs incurred in
enforcing this indemnity provision) due to or arising out of (a) the inaccuracy
of any representation or the breach of any warranty of the Holder contained in,
or any other breach, (b) any transfer of the Warrant or any of the Warrant
Shares in violation of the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated under either of such acts,
(c) any transfer of the Warrant or any of the Warrant Shares not in accordance
with this Warrant or (d) any untrue statement or omission to state any material
fact in connection with the investment representations or with respect to the
facts and representations supplied by the Holder to counsel to the Company upon
which its opinion as to a proposed transfer shall have been based.
(d) Transfer. Except as restricted hereby, this Warrant and the
Warrant Shares issued may be transferred by the Holder in whole or in part at
any time or from time to time. Upon surrender of this Warrant to the Company or
at the office of its stock transfer agent, if any, with assignment documentation
duly executed and funds sufficient to pay any transfer tax, and upon compliance
with the foregoing provisions, the Company shall, without charge, execute and
deliver a new Warrant in the name of the assignee named in such instrument of
assignment, and this Warrant shall promptly be canceled. Any assignment,
transfer, pledge, hypothecation or other disposition of this Warrant attempted
contrary to the provisions of this Warrant, or any levy of execution, attachment
or other process attempted upon the Warrant, shall be null and void and without
effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant Shares have
been registered under the Securities Act, upon exercise of any part of the
Warrant and the issuance of any of the shares of Warrant Shares, the Company
shall instruct its transfer agent to enter stop transfer orders with respect to
such shares, and all certificates representing Warrant Shares shall bear on the
face thereof substantially the following legend, insofar as is consistent with
Delaware law:
"The shares of common stock represented by this certificate have not
been registered under the Securities Act of 1933, as amended, and may
not be sold, offered for sale, assigned, transferred or otherwise
disposed of unless registered pursuant to the provisions of that Act
or an opinion of counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from such
registration."
(f) Lockup Agreements with Underwriters. In the event of a public
offering of the Company's securities, the Holder agrees to enter into an
agreement with the Underwriter or Underwriter's Representative for such offering
restricting the sale, transfer or other disposition of this Warrant or the
Warrant Shares for a period of six months following the public offering.
5. Registrations Rights. The Company agrees to file and use reasonable
efforts to make effective a registration statement with the Securities and
Exchange Commission (the "SEC") (on Form S-3, its successor form, or any other
form under the Securities Act of 1933 under which the Shares underlying the
Units are eligible to be registered), by January 31, 1997, covering the Shares
underlying the Warrants, at the Company's cost and expense (excluding the costs
of legal counsel to the holders of the Warrants). The Buyer shall furnish the
Company with such information as the Company may request in writing and as shall
be required in connection with any registration thereunder.
6. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of the Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
<PAGE>
-125-
7. Warrant Holder Not Shareholder. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder, prior
to the exercise hereof.
8. Communication. No notice or other communication under this Warrant shall
be effective unless the same is in writing and is mailed by first-class mail,
postage prepaid, addressed to:
(a) the Company at 66 Cherry Hill Drive, Beverly, Massachusetts 01915,
Attn.: Paul S. Weiner, Director of Finance, or such other address as the Company
has designated in writing to the Holder, or
(b) the Holder at ___________________________________ or such other
address as the Holder has designated in writing to the Company.
9. Headings. The headings of this Warrant have been inserted as a matter of
convenience and shall not affect the construction hereof.
10. Applicable Law. This Warrant shall be governed by and construed in
accordance with the law of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
IN WITNESS WHEREOF, PALOMAR MEDICAL TECHNOLOGIES, INC. has caused this
Warrant to be signed by its Chairman and its corporate seal to be hereunto
affixed and attested by its Secretary this day of , 199__.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
-----------------------------
Steven Georgiev
Chairman
[Corporate Seal]
<PAGE>
-126-
SUBSCRIPTION
The undersigned, _______________________________________________, pursuant
to the provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of ___________ shares of the Common Stock of PALOMAR MEDICAL
TECHNOLOGIES, INC. covered by said Warrant, and makes payment therefor in full
at the price per share provided by said Warrant.
Dated: Signature:
-------------------------
Address:
-------------------------
-------------------------
Soc Sec # or Fed ID #:
-------------------------
ASSIGNMENT
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto ____________________________________ the foregoing
Warrant and all rights evidenced thereby, and does irrevocably constitute and
appoint ________________________________________, attorney, to transfer said
Warrant on the books of PALOMAR MEDICAL TECHNOLOGIES, INC.
Signature: Assignee
-----------------------
Dated:
----------------------
Address: Address:
---------------------- --------------------
---------------------- --------------------
SS/Fed ID #: SS/Fed ID #:
--------------------- --------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ________________________________________ hereby assigns
and transfers unto ____________________________________________ the right to
purchase ___________ shares of the Common Stock of PALOMAR MEDICAL TECHNOLOGIES,
INC. by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced hereby, and does irrevocably constitute and appoint
__________________________________________, attorney, to transfer that part of
said Warrant on the books of PALOMAR MEDICAL TECHNOLOGIES, INC.
Signature: Assignee
-----------------------
Dated:
----------------------
Address: Address:
---------------------- --------------------
---------------------- --------------------
SS/Fed ID #: SS/Fed ID #:
--------------------- --------------------
-127-
SUBSCRIPTION AGREEMENT
PALOMAR MEDICAL TECHNOLOGIES, INC.
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
BECAUSE THEY ARE BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER SECTIONS 4(2) AND
4(6) OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS SUBSCRIPTION
AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER
TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR
TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
IN REACHING THE CONCLUSION THAT BUYER DESIRES TO PURCHASE THE UNITS,
BUYER HAS CAREFULLY EVALUATED BUYER'S FINANCIAL RESOURCES AND INVESTMENT
POSITION, AND THE RISKS ASSOCIATED WITH THIS INVESTMENT, AND ACKNOWLEDGES THAT
THE UNITS INVOLVE A HIGH DEGREE OF RISK AND THAT BUYER COULD LOSE THE ENTIRE
INVESTMENT.
This Subscription Agreement (the "Agreement") is entered into by and
between Palomar Medical Technologies, Inc., a Delaware corporation (the
"Company", "PMTI" or "Seller"), and the undersigned (the "Buyer") in connection
with the offer and subscription by the Buyer to purchase 60 Units, each Unit for
$XXXXXX, for an aggregate amount of ($XXXXXXUS). Each Unit consists of 10,000
shares of PMTI Common Stock (the "Common Stock") and three (3) warrants to
purchase Common Stock (the "Warrants") expiring on February 28, 1997 as follows:
Warrant A - representing 7,000 shares of Common Stock at $7.50 per share;
Warrant B - representing 5,000 shares of Common Stock at $9.50 per share and;
Warrant C - representing 3,000 shares of Common Stock at $11.50 per share
(collectively, the "Warrant Shares"). The number of shares of Common Stock
issuable upon a cashless exercise shall be determined by multiplying (1) the
difference between (a) the closing bid price of the Common Stock on the day
prior to the date exercised, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), and (b) the exercise
price, by (2) the number of Warrant Shares. The shares of Common Stock and the
shares of Common Stock underlying the Warrants are collectively referred to as
the "Shares". This Subscription and, if accepted by the Company, the offer and
sale of the Units, are being made in reliance upon the provisions of Sections
4(2) and 4(6) of the United States Securities Act of 1933, as amended (the
"Act"). The undersigned, in order to induce the Company will rely thereon,
represents, warrants and agrees as follows:
<PAGE>
-128-
1. OFFER TO SUBSCRIBE; PURCHASE PRICE
The Buyer hereby offers to purchase and subscribes for the number of
Units set forth above. The Closing shall be deemed to occur when this
Agreement has been executed by both Buyer and Company (the "Closing
Date"). The Company agrees to deliver certificates representing the
Common Stock and Warrants subscribed within 10 days of Closing. On or
prior to the Closing Date, the Buyer shall pay the purchase price by
delivering good funds in United States Dollars to the Company by wire
transfer to the account set forth below.
Citibank
399 Park Avenue
New York, NY 10048
ABA 021000089
Account Number: 40611172
Account Name: Dean Witter Reynolds, Inc.
For Further Credit to: Account Number: 593109782
Account Name: Palomar Medical Technologies, Inc.
2. REPRESENTATIONS AND WARRANTIES BY BUYER
Buyer hereby represents and warrants as follows:
(a) Buyer is an Accredited Investor as evidenced by the Buyer
meeting at least one of the following standards:
(A) is an individual and had income in excess of
$200,000 in the two most recent tax years (or $300,000 income
jointly with his spouse) and reasonably expect to have income at
the same level in the current tax year; or
(B) is an individual and his net worth (i.e. excess of
total assets over total liabilities), either individually or
together with my spouse, is at least $1,000,000; or
(C) is a trust, corporation, partnership, or
organization defined in Section 501(c)(3) of the Code, not
formed for the purpose or purchasing the Units, with assets in
excess of $5,000,000; or
(D) is a national bank; a state banking institution, the
business of which is substantially confined to banking and is
supervised by state banking officials; a savings and loan
association; a broker or dealer registered pursuant to Section
15 of the Securities Exchange Act of 1934; an insurance company;
an investment company registered under the Investment Company
Act of 1940; a business development company as defined in
Section 2(a)(48) of that Act or a private business development
company as defined in Section 202(a)(22) of the
<PAGE>
-129-
Investment Advisors Act of 1940; a Small Business Investment
Company licensed by the Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of
1958; or an employee benefit plan within the meaning of Title I
of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and
loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in
excess of $5,000,000 or, a self-directed plan where the
investment decisions are made by accredited investors; or
(E) is an entity in which each of the equity owners meet
the standards set forth in any of the immediately preceding
subparagraphs (A), (B), (C), or (D). (IF YOU MEET THE STANDARDS
IN THIS SUBPARAGRAPH, PLEASE ALSO COMPLETE THE FOLLOWING:)
I certify that the following is a complete list of all owners of
equity or trustees, that each such owner or trustee has
initialed the space opposite his name and that each such owner
or trustee understands that by initialing that space he is
representing that he is an accredited investor satisfying either
A, B, C or D above.
Name of Owner of Type of
Equity or Trustee Accredited Investor Initials
----------------- ------------------- --------
----------------- ------------------- --------
----------------- ------------------- --------
(b) The Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Units and
the offer of the Shares which have been requested by the Buyer. The
Buyer and its advisors, if any, have been afforded the opportunity to
ask questions of the Company and have received complete and satisfactory
answers to any such inquiries. Without limiting the generality of the
foregoing, the Buyer has had the opportunity to obtain and to review the
Company's (1) Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995 (as amended by Amendment No. 1 thereto on Form
10-KSB/A filed with the Securities and Exchange Commission (the "SEC" on
August 23, 1996), (2) Quarterly Reports on Form 10-QSB for the fiscal
quarters ended March 31, 1996 (as amended by Amendment No. 1 thereto on
Form 10-QSB/A filed with SEC on August 23, 1996), June 30, 1996 and
September 30, 1996, (3) Current Report on Form 8-K, dated May 3, 1996,
as amended by Amendment No. 1 thereto on Form 8-K/A dated May 3, 1996,
(4) definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders, and (5) Registration Statement on Form S-3 (the "October
Registration Statement") declared effective on October 17, 1996
(Registration No. 333-10681), in each case as filed with the SEC.
<PAGE>
-130-
(c) Buyer is acquiring the Units solely for Buyer's own account,
for investment, and not with a view to the distribution thereof. Buyer's
financial condition is such that he is not under any present necessity
or constraint to dispose of the Units to satisfy any existing or
contemplated debt or undertaking. If Buyer is a corporation, trust,
association, partnership, or any other entity other than an individual,
the purchase of the Units by Buyer has been duly authorized as required
by law or agreement to be taken, and the Units constitute a legal
investment for such entity.
(d) Buyer is aware of the fact that the Units have not been
registered under the Securities Act of 1933 (the "Act"), and,
accordingly, no federal agency has recommended or endorsed the purchase
of the Units or passed on the adequacy or accuracy of the information
provided by the Company. Buyer understands that since the Units have not
been registered under the Act, they must be held indefinitely unless
they are subsequently registered under the Act or unless, in the opinion
of counsel for the Company, a sale or transfer may be made without
registration thereunder. Buyer agrees that the Units, the Shares and the
Warrants may bear a legend restricting the transfer thereof consistent
with the foregoing and that a notation may be made in the records of the
Company's transfer agent restricting the transfer of the Units in manner
consistent with the foregoing.
(e) Buyer, in electing to subscribe for the Units hereunder, has
relied upon an independent investigation made by it and its
representative, if any. Buyer has been given no oral or written
representations or assurances from the Company or any representation of
the Company other than as set forth in this Agreement or in a document
executed by a duly authorized representative of the Company making
reference to this Agreement.
3. REGISTRATION RIGHTS
The Company agrees to file and use reasonable efforts to make effective
a registration statement with the Securities and Exchange Commission (the "SEC")
(on Form S-3, its successor form, or any other form under the Securities Act of
1933 under which the Shares underlying the Units are eligible to be registered),
by January 31, 1997, covering the Shares underlying the Units, at the Company's
cost and expense (excluding the costs of legal counsel to the holders of the
Units). The Buyer shall furnish the Company with such information as the Company
may request in writing and as shall be required in connection with any
registration thereunder.
4. RESALES
Buyer acknowledges and agrees that the Securities may only be resold (a)
pursuant to a Registration Statement under the Act; or (b) pursuant to an
exemption from registration.
If Buyer desires to sell and distribute Shares pursuant to an effective
registration statement, then Buyer shall execute and deliver to the Company such
written undertakings as the Company and its Counsel may reasonably require in
order to assure full compliance with relevant provisions of the Securities Act
and the Exchange Act including, without limitation, providing the Company with
48 hours' prior written notice of each such sale and providing the Company with
<PAGE>
-131-
assurances, reasonably satisfactory to the Company, that Buyer will meet the
prospectus delivery requirements under the Security Act.
5. SUBSEQUENT TRANSFER OF SECURITIES
Once a registration statement has been filed and declared effective as
contemplated in Section 3 above, the Company agrees, and shall instruct its
transfer agent, that the Securities may be transferred to any person or entity
who is not an affiliate of the Company without (a) any further restriction on
transfer or (b) the entry of a "stop transfer" order against such Securities,
provided that the person(s) or entity(ies) requesting transfer furnish the
appropriate representations to the Company's legal counsel.
6. RELEASE OF PROCEEDS TO THE COMPANY
The proceeds of the offering shall be released to the Company upon the
Closing of this offering, as defined in Section 1 of this Agreement.
7. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts except for matter arising under the
Act or the Securities Exchange Act of 1934 which matters shall be construed and
interpreted in accordance with such laws.
8. NOTICES
All communications hereunder shall be in writing, and, if sent to the
Buyer shall be sufficient in all respects if delivered, sent by registered mail,
or by telecopy and confirmed to the Buyer at:
Name:
Address:
City:
Country:
Attention:
or, if sent to the Company, shall be delivered, sent by registered mail or by
telecopy and confirmed to the Company at:
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915
Attention: Paul S. Weiner, Director of Finance
Telephone: (508) 921-9300
Telecopy: (508) 921-5801
<PAGE>
-132-
9. FEES AND EXPENSES
Each of the Buyer and the Seller agrees to pay its own expenses incident
on the performance of its obligations hereunder, including but not limited to,
the fees, expenses and disbursements of such party's counsel.
The undersigned acknowledges that this subscription shall not be
effective unless accepted by the Company as indicated below.
Dated this 19 day of December, 1996.
Finmanagement, Inc.
(Printed Name)
/s/
- --------------------------------
Conrad Meyer
(Signature)
(Mailing Address)
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE 27 DAY OF December, 1996.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
----------------------------------------
Printed Name/Title: Steven Georgiev
Chief Executive Officer
Chairman
-133-
SUBSCRIPTION AGREEMENT
(GFL Advantage Fund himited)
THIS SUBSCRIPTION AGREEMENT, dated as of the date of acceptance set forth
below, by and between PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware
corporation, with headquarters located at 66 Cherry Hill Drive, Beverly,
Massachusetts 01915 (the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer 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 "1933 Act"); and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, shares of non-voting, convertible preferred stock
of the Company which will be convertible into shares o Common Stock, $.O1 par
value (the "Common Stock"), of the Company upon the terms and subject to the
conditions of such preferred stock, and in connection therewith to receive
warrants to purchase shares of Common Stock, subject to acceptance of this
Agreement by the Company;
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 parties agree as follows:
1. AGREEMENT TO SU3SCRIBE; PURCHASE PRICE; WARRANTS.
a. Subscrition. The undersigned hereby agrees to purchase from the
Company the number of shares (the "Preferred Shares") of Series E
Convertible Preferred Stock, $.01 par value (the "Preferred Stock"), of the
Company set forth on the signature page of this Agreement, having the terms
and conditions as set forth in the form of Certificate of Designations
attached hereto as Annex I (the "Certificate of Designations) at the price
per share and for the aggregate purchase price set forth on the signature
page of this Agreement. The purchase price for the Preferred Stock shall be
payable in United States Dollars. In addition to issuance of the Preferred
Shares, the Company shall issue to the Buyer on the Closing Date (as herein
defined) warrants to purchase shares of Common Stock, such warrants to be
in the form attached hereto as Annex II (the "Warrantsn). The number of
shares of Common Stock initially purchasable upon exercise of the Warrants
to be issued by the Buyer on the Closing Date shall be the uotient obtained
by dividing (1) the number of shares of Common Stock into which the number
of Preferred Shares to be issued to the Buyer on the Closing Date would be
convertible on the Closing Date, if the Preferred Shares were convertible
on the Closing Date, by (2) four (4). The shares of Common Stock
<PAGE>
-134-
issuable upon conversion of the Preferred Shares are referred to herein as
the "Conversion Shares." The shares of Common Stock issuable upon exercise
of the Warrants are referred to herein as the "Warrant Shares." The
Conversion Shares and the Warrant Shares are referred to herein
collectively as the "Common Shares." The Common Shares and the Preferred
Shares are referred to herein collectively as the "Shares." The Shares and
the Warrants are referred to herein collectively as the "Securities."
b. Form of Payment. The Buyer shall pay the purchase price for the
Preferred Shares by delivering good funds in United States ollars to the
escrow agent identified in the Joint Escrow Instructions attached hereto as
Annex III (the "Escrow Agent"). Such delivery of funds shall be made
against delivery by the Company of the certificates for the Preferred
Shares registered in the name of the Buyer. Promptly following payment by
the Buyer to the Escrow Agent of the purchase price of the Preferred
Shares, but in no event later than the Closing Date, the Company shall
deliver certificates for the Preferred Shares, registered in the name of
the Buyer, to the Escrow Agent. By signing this Agreement, the Buyer and
the Company each agrees to all of the terms and conditions of, and becomes
a party to, the Joint Escrow Instructions attached hereto as Annex III, all
of the provisions of which are incorporated herein by this reference as if
set forth in full.
c. Method of Payment. Payment of the purchase price for the Preferred
Shares shall be made by wire transfer of funds to:
Citibank, N.A.
153 East 53rd Street
New York, New York 10043
ABA#021000089
For Further Credit to A/C#37179446
for credit to the account of Brian W. Pusch Attorney
Escrow Account
Reference: GFL/Palomar
Not later than 4:00 p.m., New York City time, on the date which is five New
York Stock Exchange trading days after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Buyer,
the Buyer shall deposit with the Escrow Agent the aggregate purchase price
for the Preferred Shares.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
<PAGE>
-135-
a. The Buyer is purchasing the Preferred Shares and the Warrants for
its own account for investment only and not with a view towards the public
sale or distribution thereof;
b. The Buyer is an "accredited investor as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason
of Rule 501(a)(3);
c. All subsequent offers and sales of the Securities by the Buyer
shall be made pursuant to registration of the Securities being offered and
sold under the 1933 Act or pursuant to an exemption from registration;
d. The Buyer understands that the Preferred Shares and the Warrants
are being offered and sold, and the Common Shares are being offered, to it
in reliance on 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 the Buyer's compliance with,
the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire
the Preferred Shares and the Warrants and to receive an offer of the Common
Shares;
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Preferred Shares and
the Warrants and the offer of the Common Shares which have been requested
by the Buyer. The Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality
of the foregoing, the Buyer has had the opportunity to obtain and to review
the Company's (1) Annual Report on Form 10- KSB for the fiscal year ended
December 31, 1995 and (2) the Company's definitive Proxy Statement for its
1995 Annual Meeting of StockhoIders, in each case as filed with the SEC.
The Buyer understands that its investment in the Shares involves a high
degree of risk;
f. The Buyer understands that no United States federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities; and
g. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of
the Buyer enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors rights generally.
<PAGE>
-136-
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
a. Concerning the Securities. The Securities have been duly authorized
and the Preferred Shares, when issued and paid for in accordance with this
Agreement, and the Common Shares, when issued upon conversion of the
Preferred Shares or eercise of the Warrants, as the case may be, will be
duly and validly issued, fully paid and non-assessable and will not subject
the holder thereof to personal liability by reason of being such holder.
There are no preemptive right,s of any stockholder of the Company, as such,
to acquire any of the Securities. The Common Stock is listed for trading on
the Nasdaq SmallCap Market ("Nasdaq") and (1) the Company and the Common
Stock meet the criteria for continued listing and trading on Nasdaq; (2)
the Company has not been notified since January 1, 1994 by the National
Association of Securities Dealers, Inc. of any failure or potential failure
to meet the criteria for continued listing and trading on Nasdaq and (3) no
suspension of trading in the Common Stock is in effect.
b. Subscription Agreement; Resistration Right Agreement; Warrants.
This Agreement, the Registration Rights Agreement, the form of which is
attached hereto as Annex IV (the "Registration Rights Agreement"), and the
Warrants have been duly and validly authorized by the Company, this
Agreement has been duly executed and delivered on behalf of the Company and
this Agreement is and the Registration Rights Agreement and the Warrants,
when executed and delivered by the Company, will be valid and binding
agreements of the Company enforceable in accordance with their respective
terms, subject as to enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
c. Non-contraention. The execution and delivery of this Agreement by
the Company and the consummation by the Company of the issuance of the
Shares and the Warrants and the other transactions contemplated by this
Agreement, the Registration Rights Agreement, the Warrants and the terms of
the Preferred Stock do not and will not conflict with or result in a breach
by the Company of any of the terms or provisions of, or constitute a
default under, the certificate of incorporation or by-laws of the Company,
or any indenture, mortgage, deed of trust or other material agreement or
instrument to which the Company is a party or by which it or any of its
properties or assets are bound, or any applicable law, rule or regulation
or any applicable decree, judgment or order of any court, United States
federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any of its
properties or assets.
d. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-
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regulatory organization, or stock exchange or market or the stockholders of
the Company is required to be obtained by the Company for the issuance and
sale of the Shares and the Warrants as contemplated by this Agreement, the
terms of the Preferred Stoc and the Warrants.
e. Information Proided. The information provided by or on behalf of
the Company to the Buyer and referred to in Section 2(e) of this Agreement
does not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are made, not misleading.
f. Absence of Certain Change. Since December 31, 1995, there has been
no material adverse change and no material adverse development in the
business, properties, operations, financial condition, results of
operations or prospects of the Company, except as disclosed in the
documents referred to in Section 2(e) hereof.
g. Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body
pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company or any of its subsidiaries,
wherein an unfavorable decision, ruling or finding would have a material
adverse effect on the properties, business, condition (financial or other),
results of operations or prospects of the Company and its subsidiaries
taken as a whole or the transactions contemplated by this Agreement or any
of the documents contemplated hereby or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company
to perform its obligations under, this Agreement or any of such other
documents.
4. CERTAIN COVENANTS AND ACRNOWLEDGMENTS.
a. Transfer RestrictionS. The Buyer acknowledges that (1) the
Preferred Shares and the Warrants have not been and are not being
registered under the provisions of the 1933 Act and, except as provided in
the Registration Rights Agreement, the Common Shares have not been and are
not being registered under the 1933 Act, and may not be transferred unless
(A) subsequently registered thereunder or () the Buyer shall have delivered
to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the Shares to be
sold or transferred may be sold or transferred pursuant to an exemption
from such registration; (2) any sale of the Shares or the Warrants made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Shares or Warrants 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 used in the 1933 Act, may
require compliance with some other exemption under the 1933 Act or the
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rules and regulations of the SEC thereunder; and (3) neither the Company
nor any other person is under any obligation to register the Shares (other
than pursuant to the Registration Rights Agreement) or the Warrants under
the 1933 Act or to comply with the terms and conditions of any exemption
thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the
certificates for the Preferred Shares, the Warrants, and, until such time
as the Shares have been registered under the 1933 Act as contemplated by
the Registration Rights Agreement, the certificates for the Common 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
the Shares):
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 the Securities
Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
c. Registration Rights Agreement. The parties hereto agree to enter
into the Registration Rights Agreement, in the form attached hereto as
Annex IV, on or before the Closing Date.
d. Authorization for Trading; Reporting Statu. On or before the
Closing Date, the Company shall cause the Common Shares to be authorized
for trading on Nasdaq. So long as the Buyer beneficially owns any of the
Preferred Shares, the Warrants or the Common Shares, the Company shall file
all reports required to be filed with the SEC pursuant to Section 13 or 15
(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act), and
the Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination.
e. Use of Proceeds. The Company will use the proceeds from the sale of
the Preferred Shares and the Warrants for the Company's internal working
capital purposes, mergers and acquisitions, investments and general
corporate purposes.
f. Blue Sky Laws. On or before the Closing Date, the Company shall
take such action as shall be necessary to qualify, or to obtain an
exemption for, the Preferred Shares and the Warrants for sale to the Buyer
pursuant to this Agreement and the Common Shares for sale to the Buyer on
conversion of the Preferred Shares and on exercise of the Warrants under
such of the securities or "blue sky' laws of jurisdictions in the United
States as shall be applicable to the sale of the Shares to the Buyer
pursuant to this Agreement. The Company shall furnish copies of all
filings, applications, orders and grants or
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confirmations of exemptions relating to s.uch securities or "blue sky" laws
on or prior to the Closing Date.
g. Certain Exen-e-. Whether or not any closing occurs, the Company
shall pay or reimburse the Buyer for all reasonable legal fees and expenses
of counsel to the Buyer for the preparation and negotiation of, and closing
under, this Agreement (but not to exceed $15,000). The obligations of the
Company under the provisions of this Section 4(g) shall be in addition to
the obligation of the Company for expenses under the Registration Rights
Agreement.
5. TRANSFER AGENT INSTRUCTIONS; CONVERSION PROCEDURE.
a. Transfer Agent Instruction-. Promptly following the delivery by the
Buyer of the aggregate purchase price for the Preferred Shares in
accordance with Section l(c) hereof, and prior to the Closing Date the
Company will irrevocably instruct its transfer agent to issue certificates
for the Common Shares from time to time upon conversion of the Preferred
Shares and exercise of the Warrants in such amounts as specified from time
to time to the transfer agent in the Conversion Certiicates surrendered in
connection with such conversions and referred to in Section 5(b) of this
Agreement or in the subscription forms attached to the Warrants, as the
case may be, such certificates to bear the restrictive legend specified in
Section 4(b) of this Agreement prior to registration of the Common Shares
under the 1933 Act, registered in the name of the Buyer or its nominee and
in such denominations to be specified by the Buyer in connection with each
conversion of Preferred Shares or exercise of Warrants, as the case may be.
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 4(a) hereof prior to registration of the Common Shares under the
1933 Act will be given by the Company to the transfer agent and that the
Common Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement.
Nothing in this Section 5(a) shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws
upon resale of the Shares. If the Buyer provides the Company with an
opinion of counsel reasonably satisfactory in form, scope and substance to
the Company that registration of a resale by the Buyer of any of the
Securities in accordance with clause (l)(B) of Section 4(a) of this
Agreement is not required under the 1933 Act (which opinion expressly
states that it may be relied upon by the Company and its counsel in
delivering instructions to the Company's transfer agent), the Company shall
permit the transfer of such Securities and, in the case of the Common
Shares, promptly, but in no event later than three days after receipt of
such opinion, instruct the Company's transfer agent to issue one or more
share certificates in such name and in such denominations as specified by
the Buyer. The provisions of Section 3(n) of the Registration Rights
Agreement shall supersede this Section 5(a) once said Section 3(n) becomes
applicable.
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b. Converion Procedure. In connection with the exercise of conversion
rights relating to the Preferred Shares, if the Common Shares issuable upon
conversion of Preferred Shares have not been registered under the 1933 Act
prior to such conversion, the Buyer or any subsequent holder of the
Preferred Shares shall, in addition to any other requirement imposed by the
terms of the Preferred Shares as set forth in the Certificate of
Designation, complete, sign and furnish to the Company a conversion
certificate in the form attached hereto as Annex V.
6. STOCK DEIVERY INSTRUCTIONS.
The certificates for the Preferred Shares and Warrants shall be delivered
by the Company to the Escrow Agent pursuant to Section l(b) hereof on a delivery
against payment basis at the closing.
7. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Shares and
issuance of the Warrants (the "Closing Date") shall be 12:00 noon, New York City
time, on the date which is three New York Stock Exchange trading days after the
date on which the Buyer has deposited the purchase price for the Preferred
Shares with the Escrow Agent in accordance with Section l(c) hereof, or such
other mutually agreed to time. The closing shall occur on the Closing Date at
the offices of the Escrow Agent.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ISSUE.
The Buyer understands that the Company's obligations to sell the Preferred
Shares and issue the Warrants to the Buyer pursuant to this Agreement is
conditioned upon:
a. The receipt and acceptance by the Company of this Agreement as
evidenced by execution of this Agreement by the Company and delivery of an
executed counterpart of this Agreement to the Buyer or its legal counsel;
b. Delivery by the Buyer to the Escrow Agent of good funds as payment
in full of an amount equal to the purchase price for the Preferred Shares
in accordance with Section l(c) hereof; and
c. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the
Closing Date and the performance by the Buyer on or before the Closing Date
of all covenants and agreements of the Buyer required to be performed on or
before such Closing Date.
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9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Shares and acquire the Warrants is conditioned upon:
a. Delivery by the Company to the Escrow Agent of the certificates for
the Preferred Shares and the Warrants in accordance with this Agreement;
b. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the
Closing Date and the performance by the Company on or before the Closing
Date of all covenants and agreements of the Company required to be
performed on or before such Closing Date; and
c. Receipt by the Buyer on the Closing Date of an opinion of counsel
for the Company, dated the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, to the effect set forth in Annex VI
attached hereto.
10. GOVERNING LAW; MISCELLANEOUS. This Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts. A
facsimile transmission of this signed Agreement shall be legal and binding on
all parties hereto. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. 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. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by mail or delivered personally (which shall
include telephone line facsimile transmission) or by courier and shall be
effective five days after being placed in the mail, if mailed, or upon receipt,
if delivered personally or by courier, in each case addressed to a party at such
party's address shown in the introductory paragraph or on the signature page of
this Agreement (facsimile number 508-921-5801, in the case of the Company, and
703-834-6627, in the case of the Buyer) or such other address as a party shall
have provided by notice to the other party in accordance with this provision
and, in the case of notice to the Company, with a copy to Foley, Hoag & Eliot,
One Post Office Square, Boston, Massachusetts 02109, Attention: David Broadwin,
Esq. (facsimile number 617-832-7000) and, in the case of notice to the Buyer,
with a copy to Law Offices of Brian W Pusch, Penthouse Suite, 29 West 57th
Street, New York, New York 10019 (facsimile number 212-980-7055). The Buyer
shall have the right to assign it rights and obligations under this Agreement
with respect to the purchase of all or any portion of the Preferred Shares to
another
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investment fund, provided such assignee, by written instrument duly executed by
such assignee, assumes all obligations of the Buyer hereunder with respect to
the purchase of the portion of the Preferred Shares so assigned and makes the
same representations and -warranties with respect thereto as the Buyer makes in
this Agreement, whereupon the Buyer shall be relieved of any further
obligations, responsibilities and liabilities with respect to the purchase of
all or the portion of the Preferred Shares so assigned. In the case of any such
assignment, the Company shall agree in writing with such assignee to make
available to such assignee the benefits of the Registration Rights Agreement
with respect to the Common Shares issuable on conversion of the Preferred Shares
with respect to which the purchase under this Agreement has been so assigned.
<PAGE>
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IN WITNESS WHEREOF, this Agreemetn has been duly executed by the Buyer or
one of its officers thereunto duly authorized as of the date set forth below
NUMBER OF SHARES 10,000
PRICE PER SHARE: $1,000.00
AGGREGATE PURCHASE PRICE $10,000,000.00
NAME OF BUYER: GFL ADVANTAGE FUND LIMITED
SIGNATURE: /S/
---------------------------
A.P. de Groot
Title: President
Date: April 12, 1996
Address: c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
This Agreement has been accepted as of the date set forth below
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
-------------------------------
Steven Georgiev
Title: Chairman and Chief Executive Officer
Date: 4/12/96
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of April 17, 1996 (this
"Agreement"), is made by and between PALOMAR MEDICAL TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), and the person named on the signature page
hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, in connection with the Subscription Agreement, dated as of April
12, 1996, between the Initial Investor and the Company (the "Subscription
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Subscription Agreement, to issue and sell to the Initial
Investor an aggregate of 10,000 shares (the "Preferred Shares") of preferred
stock of the Company as provided in the Subscription Agreement, which shares of
Preferred Stock are convertible into shares (the "Conversion Shares") of Common
Stock, $.01 par value per share (the "Common Stock"), and warrants (the
"Warrants") to purchase shares (the "Warrant Shares" and, together with the
Conversion Shares, the "Shares") of Common Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription 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 with respect to the
Shares;
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
Investor hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investor" means the Initial Investor and any transferee or
assignee who agrees 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
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effectiveness of such Registration Statement by the United States Securities and
Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Shares and any shares of
Common Stock issued by the Company to any Investor as a dividend on the
Preferred Shares.
(iv) "Registration Statement" means a registration statement of
the Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare, and on or prior
to the date which is 15 days after the date of the closing under the
Subscription Agreement (the "Closing Date"), file with the SEC a Registration
Statement covering at least 1,950,000 shares of Common Stock as Registrable
Securities, and which Registration Statement shall state that, in accordance
with Rule 416 under the Securities Act, such Registration Statement also covers
such indeterminate number of additional shares of Common Stock as may become
issuable upon conversion of the Preferred Shares and exercise of the Warrants to
prevent dilution resulting from stock splits, stock dividends or similar
transactions or by reason of changes in the conversion price of the Preferred
Shares and the exercise price of the Warrants in accordance with the respective
terms thereof. If at any time the number of shares included in the Registration
Statement required to be filed as provided in the first sentence of this Section
2(a) shall not be sufficient to cover the number of shares of Common Stock
issuable on conversion in full of the unconverted Preferred Shares and the
unexercised Warrants, then promptly, but in no event later than 15 days after
such insufficiency shall occur, the Company shall file with the SEC an
additional Registration Statement on Form S-3 or other applicable form covering
such number of shares of Common Stock as shall be sufficient to permit such
conversion and exercise. For all purposes of this Agreement (other than Section
2(c) hereof) such additional Registration Statement shall be deemed to be the
Registration Statement required to be filed by the Company pursuant to Section
2(a) of this Agreement, and the Company and the Investors shall have the same
rights and obligations (other than Section 2(c) hereof) with respect to such
additional Registration Statement as they shall have with respect to the
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initial Registration Statement required to be filed by the Company pursuant to
this Section 2(a).
(b) 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 shall have the right to select one legal counsel 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. The Investors who hold the Registrable Securities
to be included in such underwriting shall pay all underwriting discounts and
commissions and other fees and expenses of such investment banker or bankers and
manager or managers so selected in accordance with this Section 2(b) (other than
fees and expenses relating to registration of Registrable Securities under
federal or state securities laws, which are payable by the Company pursuant to
Section 5 hereof) with respect to their Registrable Securities and the fees and
expenses of such legal counsel so selected by the Investors.
(c) ADJUSTMENT IN CONVERSION PRICE. If the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a) hereof is not effective within 90 days after the Closing Date,
then the conversion price of the Preferred Shares shall be adjusted as provided
in the Certificate of Designations for the Preferred Shares.
(d) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the Securities
Act of any of its equity securities, other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each Investor, who is entitled to registration rights under this Section
2(a) written notice of such determination and, if within twenty (20) days after
receipt of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, such limitation is necessary to
effect an orderly public distribution, then the Company shall be obligated to
include in such Registration Statement only such limited portion of the
Registrable Securities with respect to
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which such Investor has requested inclusion hereunder. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities the holders of which are not entitled
by right to inclusion of securities in such Registration Statement; and provided
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement. No right to registration of Registrable Securities under
this Section 2(d) shall be construed to limit any registration required under
Section 2(a) hereof. The obligations of the Company under this Section 2(d) may
be waived by Investors holding a majority in interest of the Registrable
Securities and shall expire after the Company has afforded the opportunity for
the Investors to exercise registration rights under this Section 2(d) for two
registrations; provided, however, that any Investor who shall have had any
Registrable Securities excluded from any Registration Statement in accordance
with this Section 2(d) shall be entitled to include in an additional
Registration Statement filed by the Company the Registrable Securities so
excluded. Notwithstanding any other provision of this Agreement, if the
Registration Statement required to be filed pursuant to Section 2(a) of this
Agreement shall have been ordered effective by the SEC and thereafter the
Company shall have complied in all material respects with its obligations under
this Agreement in respect of such Registration Statement, then the Company shall
not be obligated to register any Registrable Securities on any Registration
Statement referred to in this Section 2(d).
(e) 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 Investor and any 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:
(a) use its best efforts to cause each Registration Statement relating
to Registrable Securities to become effective as soon as possible after such
Registration Statement is filed with the SEC, and keep the Registration
Statement effective pursuant to Rule 415 at all times until the later of (1) in
the case of any Regitrable Securities, the earlier of (i) such date as is three
years after the date such Registration Statement is
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first ordered effective by the SEC and (ii) the date on which all Registrable
Securities have been sold by the Investors under circumstances in which the
buyers may resell the Registrable Securities without registration under the
Securities Act and, (2) in the case of Registrable Securities that are Warrant
Shares, the later of (i) the date which is three years after the date such
Registration Statement if first ordered effective by the SEC (but in no event
later than the date on which all Registrable Securities that are Warrant Shares
have been sold by the Investors under circumstances in which the buyers may
resell the Registrable Securities that are Warrant Sahres without registration
under the Securities Act), in case the Warrants have been exercised in full on a
net exercise basis and (ii) the date which is three years after the latest
exercise of the Warrants for cash (but in no event later than the date on which
all Registrable Securities that are Warrant Shares have been sold by the
Investors under circumstances in which the buyers may resell the Registrable
Securities that are Warrant Sahres without registration under the Securities
Act) (the "Termination Date"), which Registration Statement (including any
amendments or supplements thereto and prospectuses contained 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, in
light of the circumstances in which they were made, not misleading;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times until the
Termination Date, 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 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;
(c) furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel, (1) 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,
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
relating to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential
treatment) and (2) such number of copies of a prospectus, including a
preliminary prospectus, and all amendments and supplements thereto and such
other documents, as
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such Investor may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such Investor;
(d) 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 as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request, (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 at all
times until the Termination Date, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times until the Termination Date 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 (I) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (II) subject itself to general taxation in any such
jurisdiction, (III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than nominal expense
or burden to the Company or (V) make any change in its charter or by-laws, 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 Investors who hold a majority in interest of the
Registrable Securities being offered in the offering select underwriters for the
offering, 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) (i) as promptly as practicable after becoming aware of such event,
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
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, 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.
(ii) If at the time the Company notifies the Investors as
contemplated by Section 3(f)(i): (1) the Registration Statement required by
Section 2(a) of this Agreement shall have
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been effective for at least 90 consecutive days and (2) the Company shall be in
compliance in all material respects with its obligations under this Agreement,
the terms of the Preferred Shares and the Warrants and such event relates to a
prospective development of the Company, then the Company shall not be required
to make such amendment or supplement prior to five days after such notice;
provided, however, that the Company may not invoke the provisions of this
Section 3(f)(ii) until at least 50 days after the Company shall have previously
invoked such provisions.
(iii) If at the time the Company notifies the Investors as
contemplated by Section 3(f)(i): (1) the Registration Statement required by
Section 2(a) of this Agreement shall not have been effective for at least 90
consecutive days and (2) the Company shall be in compliance in all material
respects with its obligations under this Agreement, the terms of the Preferred
Shares and the Warrants and such event relates to a prospective development of
the Company, then the Company shall not be required to make such amendment or
supplement prior to ten trading days after such notice; provided, however, that
the Company may not invoke the provisions of this Section 3(f)(iii) until at
least 30 days after the end of the most recent period during which the Company
shall have previously invoked such provisions; and provided further, however,
that any period during which the Company has invoked the provisions of this
Section 3(f)(iii) shall, regardless of when such period actually shall occur, be
treated as if it were a period subsequent to 90 days after the Closing Date
during which the Registration Statement had not become effective for the
purposes of Section 9 of the Certificate of Designations relating to the
Preferred Shares (the "Certificate of Designations") and the Conversion
Percentage (as defined in the Certificate of Designations) applicable to the
Preferred Shares shall be adjusted as provided in such Section 9 in respect of
the period during which the Company has invoked the provisions of this Section
3(f)(iii). In lieu of any such adjustment of the Conversion Percentage (as so
defined) applicable to the Preferred Shares, the Company shall have the right,
exercisable by notice to the Initial Investor given not later than the date the
Company gives notice as contemplated by Section 3(f)(i), to make payments to the
Initial Investor in U.S. dollars in such amounts and at such times as shall be
determined pursuant to this Section 3(f)(iii). The amount to be paid by the
Company to the Initial Investor shall be paid at the rate of two percent (2%)
per 30-day period of the aggregate purchase price paid by the Initial Investor
for the Preferred Shares purchased by the Initial Investor pursuant to the
Subscription Agreement for each period during which, in accordance with this
Section 3(f)(iii), the Registration Statement is unavailable for use by the
Investors. Such amount shall be paid by the Company in immediately available
funds within three business days after each such period.
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(g) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any stop order or other suspension of effectiveness of the
Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in interest of the
Registrable Securities being sold to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing with the SEC, and shall not file any document in a form to which such
counsel reasonably objects;
(i) 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 the Investors who hold a majority in interest of
the Registrable Securities being sold, furnish on the date that Registrable
Securities are delivered to an underwriter for sale in connection with the
Registration Statement (i) 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; and (ii) an
opinion, dated such date, from counsel representing the Company for purposes of
such Registration Statement, in form and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors;
(k) make available for inspection by any Investor, any underwriter
participating in any disposition pursuant to the Registration Statement, and any
attorney, accountant or other agent retained by any such Investor or underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary 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 (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any
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Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court or government body of competent
jurisdiction or (iii) 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 in the form of 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. The Company shall hold in confidence and
shall not make any disclosure of information concerning an Investor provided to
the Company pursuant to Section 4(e) hereof 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 or (iv) such information has been
made generally available to the public other than by disclosure in violation of
this or any other agreement. 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, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, such
information;
(l) use its best efforts either to (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on a 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 designation of all the Registrable
Securities covered by the Registration Statement as a National Association of
Securities Dealers Automated Quotations System ("NASDAQ") "national market
system security" within the meaning of Rule 11Aa2-1 of the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
quotation of the Registrable Securities on the NASDAQ National Market System or,
if, despite the Company's best efforts to satisfy the preceding clause (i) or
(ii), the Company is unsuccessful in satisfying the preceding clause (i) or
(ii), to secure listing on a national securities exchange or NASDAQ
authorization and quotation for such Registrable Securities and, without
limiting the generality of
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the foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities;
(m) 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;
(n) 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 business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and 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
instruction in the form attached hereto as EXHIBIT 1 (without substantive
additions thereto) and an opinion of such counsel in the form attached hereto as
EXHIBIT 2 (without substantive additions thereto); and
(o) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the 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. Promptly after the
Company furnishes to an Investor a draft of the Registration Statement as
contemplated by Section 3(h), such Investor shall complete and submit to the
Company an Investor Questionnaire in the form attached hereto as EXHIBIT 3. Each
Investor will notify the Company promptly of any material change
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in the information provided by such Investor in its Investor Questionnaire
(other than a change in beneficial ownership of securities as a result of sales
of Registrable Securities pursuant to such Registration Statement). If the
Company shall have furnished such draft of the Registration Statement to an
Investor and, at least one (1) business day prior to the filing date the Company
has not received the Investor Questionnaire from such Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(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) In the event Investors holding a majority in interest of the
Registrable Securities being registered 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;
(d) 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;
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required
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under the terms of such underwriting arrangements and (iii) agrees to pay its
pro rata share of all underwriting discounts and commissions and other fees and
expenses of investment bankers and any manager or managers of such underwriting
and legal expenses of the underwriters applicable with respect to its
Registrable Securities, in each case to the extent not payable by the Company
pursuant to the terms of this Agreement; and
(f) 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 use its reasonable best
efforts to comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale.
5. EXPENSES OF REGISTRATION. All expenses, other than underwriting
discounts and commissions and other fees and expenses of investment bankers and
other than brokerage commissions, incurred in connection with registrations,
filings or qualifications pursuant to Section 3, including, without limitation,
all registration, listing and qualifications fees, printers and accounting fees
and the fees and disbursements of counsel for the Company and the Investors,
shall be borne by the Company; provided, however, that the Investors shall bear
the fees and out-of-pocket expenses of the one legal counsel selected by the
Investors pursuant to Section 2(c) hereof.
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 and
hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Investors, the directors, if any, of such underwriter
and the officers, if any, of such underwriter, and each person, if any, who
controls any such underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, expenses or liabilities (joint or several) (collectively, "Claims") to
which any of them may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations in the Registration
Statement, or any post-effective amendment thereof, or any prospectus included
therein: (i) any untrue statement or alleged untrue statement of a material fact
contained in
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the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein 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 state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6(d) with respect to the number of
legal counsel, the Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any 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 any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (II) with respect to any preliminary prospectus
shall not inure to the benefit of any such person from whom the person asserting
any such Claim purchased the Registrable Securities that are the subject thereof
(or to the benefit of any person controlling such person) if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected in the prospectus, as then amended or supplemented, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; and (III) 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. 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 to indemnify and hold harmless, 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
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Statement, each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, any underwriter 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
(collectively and together with an Indemnified Person, 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 such Investor will reimburse
any legal or other expenses 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 Section
6(b) for only that amount of a Claim as does not exceed the amount, if any, by
which (1) the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement exceed (2) the
purchase price paid by such Investor for the Registrable Securities sold by such
Investor 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.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration Statement.
(d) 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
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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
parties; provided, however, that 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 differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The Company shall pay for only one separate legal
counsel for the Investors; such legal counsel shall be selected by the Investors
holding a majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates. The 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 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 (a) 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, (b) no seller of Registrable Securities 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 (c)
contribution 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 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:
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(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns 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 THE REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to transferees or assignees of all or
any portion of such securities which was issued upon conversion of at least
1,000 Preferred Shares, or any transferee of any portion of the Preferred Shares
which is at least 1,000 Preferred Shares, or any combination thereof, only if:
(a) 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, (b) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (i) the
name and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned, (c)
immediately 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, and (d) at or before the time the
Company received the written notice contemplated by clause (b) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision 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 the
written consent of the Company 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
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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) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission or other means)
or sent by certified mail, return receipt requested, properly addressed and with
proper postage pre-paid (i) if to the Company, at Palomar Medical Technologies,
Inc., 66 Cherry Hill Drive, Beverly, Massachusetts 01915, Attention: Chief
Financial Officer, (ii) if to the Initial Investor, at the address set forth
under its name in the Subscription Agreement and (iii) if to any other 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), and shall be effective, when personally
delivered, upon receipt and, when so sent by certified mail, four days after
deposit with the United States Postal Service.
(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 enforced, governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts applicable to
agreements made and to be performed entirely within such State. In the event
that any provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(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.
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(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(i) The Company acknowledges that any failure by the Company to
perform its obligations under this Agreement, including, without limitation, the
Company's obligations under Section 3(n), or any delay in such performance could
result in both direct and consequential damages to the Investors and the Company
agrees that, in addition to any other liability the Company may have by reason
of any such failure or delay, the Company shall be liable for all direct and
consequential damages caused by any such failure or delay.
(j) 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 telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of day and
year first above written.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
------------------------------
Name: Steven Georgiev
Title: Chairman and Chief Executive Officer
INITIAL INVESTOR:
NAME: GFL ADVANTAGE FUND LIMITED
By: /s/
----------------------------------------
Name: A/P. de Groot
Title: President
<PAGE>
-163-
EXHIBIT 1
TO
REGISTRATION
RIGHTS AGREEMENT
[Company Letterhead]
[Date]
[Name and address of Transfer Agent]
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction to
you (1) to transfer or re-register the certificates for the shares of Common
Stock, $.01 par value per share (the "Common Stock"), of Palomar Medical
Technologies, Inc., a Delaware corporation (the "Company"), represented by
certificate number _______ for _______ shares (the "Outstanding Common Shares")
of Common Stock presently registered in the name of [Name of Investor] upon
surrender of such certificate to you, notwithstanding the legend appearing on
such certificate and (2) to issue shares (the "Conversion Common Shares") of
Common Stock to or upon the order of the holders of record from time to time of
shares (the "Preferred Shares") of Series E Convertible Preferred Stock, $.01
par value per share, of the Company upon surrender to you for conversion of
certificates for Preferred Shares and a properly completed and duly executed
Notice of Conversion in the form enclosed herewith. The transfer or
re-registration of certificates for the Outstanding Common Shares by you should
be made at such time as you are requested to do so by the record holder of the
Outstanding Common Shares. The certificate issued upon such transfer or
re-registration should be registered in such name as requested by the holder of
record of the certificate surrendered to you and should not bear any legend
which would restrict the transfer of the shares represented thereby. In
addition, you are hereby directed to remove any stop-transfer instruction
relating to the Outstanding Common Shares. Certificates for the Conversion
Common Shares should not bear any restrictive legend and should not be subject
to any stop-transfer restriction.
Contemporaneously with the delivery of this letter, the Company is
delivering to you an opinion of Foley, Hoag & Eliot as to registration of the
resale of the Outstanding Common Shares and the Conversion Common Shares under
the Securities Act of 1933, as amended.
<PAGE>
164
Should you have any questions concerning this matter, please contact me.
Very truly yours,
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
------------------------------
Name:
Title:
Enclosure
cc: [Name of Investor]
<PAGE>
165
EXHIBIT 2
TO
REGISTRATION
RIGHTS AGREEMENT
[Date]
[Name and address
of transfer agent]
PALOMAR MEDICAL TECHNOLOGIES, INC.
SHARES OF COMMON STOCK
Ladies and Gentlemen:
We are counsel to Palomar Medical Technologies, Inc., a Delaware
corporation (the "Company"), and we understand that [Name of Investor] (the
"Holder") has purchased from the Company an aggregate of shares (the "Preferred
Shares") of the Company's Series E Convertible Preferred Stock, $.01 par value
per share, represented by Certificate Nos. , and , respectively. The Preferred
Shares were purchased by the Holder pursuant to a Subscription Agreement, dated
as of , 1996, between the Holder and the Company (the "Subscription Agreement").
Pursuant to a Registration Rights Agreement, dated as of November __, 1995,
between the Company and the Holder (the "Registration Rights Agreement") entered
into in connection with the purchase by the Holder of the Preferred Shares
pursuant to the Subscription Agreement, the Company agreed with the Holder,
among other things, to register for resale by the Holder shares (the "Common
Shares") of Common Stock, $.01 par value (the "Common Stock"), issuable upon
conversion of the Preferred Shares under the Securities Act of 1933, as amended
(the "Securities Act"), upon the terms provided in the Registration Rights
Agreement. In connection with the exercise by the Holder of its registration
rights under the Registration Rights Agreement, on __________, 1996 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 Common Shares, which names the Holder as a selling stockholder thereunder.
[If notice from SEC is available: The Company has received a notice from the SEC
that the Registration Statement has been declared effective. A copy of such
notice is attached hereto.]
Based on the foregoing, we are of the opinion that the Common Shares have
been registered under the Securities Act.
<PAGE>
166
This opinion has been furnished to you in connection with the
above-referenced transaction and may not be used for any other purpose or by any
other person. We assume no responsibility to inform you of events or changes
occurring after the date hereof.
[Other appropriate language to be included.]
Very truly yours,
-----------------------------------
cc: [Name of Investor]
<PAGE>
167
EXHIBIT 3
TO
REGISTRATION
RIGHTS AGREEMENT
INVESTOR QUESTIONNAIRE
Reference is made to the Registration Rights Agreement, dated as of April
__, 1996 (the "Agreement"). In connection with the preparation of the
registration statement which is the subject of the Agreement, please provide us
with the following information:
1. Pursuant to the "Selling Shareholder" section of the Registration
Statement, please state your organization's name exactly as it should appear in
the Registration Statement and provide the following information, as of April
__, 1996:
---------------------
[name]
(1) (2)
Number of shares, if any,
Number of shares which which will be
are being included in owned after completion
the Registration Statement of sale of shares
included in
Registration Statement
2. Have you or your organization had any position, office or other material
relationship within the past three years with the Company or its affiliates
other than as disclosed in the Prospectus included in this Registration
Statement?
---- ----
Yes No
If yes, please indicate the nature of any such relationships below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[NAME OF INVESTOR]
By:
Name:
Title:
168
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED
UNDER THOSE LAWS OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO IT THAT AN EXEMPTION FROM REGISTRATION UNDER EACH OF THOSE LAWS
IS AVAILABLE.
Right to Purchase 304,259
Shares of Common Stock of
Palomar Medical Technologies, Inc.
PALOMAR MEDICAL TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware corporation (the "Company")
hereby certifies that, for value received, GFL Advantage Fund Limited or
registered assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time after the
date hereof, and before 5:00 p.m., New York City time, on the Expiration Date
(as hereinafter defined), 304,259 fully paid and nonassessable shares of Common
Stock, $.01 par value per share, of the Company at a purchase price per share
equal to the Purchase Price (as hereinafter defined). The number of such shares
of Common Stock and the Purchase Price are subject to adjustment as provided in
this Warrant.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Business Day" as used herein shall mean a day on which
the New York Stock Exchange is open for business.
(b) The term "Common Stock" includes the Company's Common Stock, $.01
par value per share, as authorized on the date hereof, and any other
securities into which or for which the Common Stock may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise.
(c) The term "Company" shall include Palomar Medical Technologies,
Inc. and any corporation that shall succeed to or assume the obligation of
Palomar Medical Technologies, Inc. hereunder.
<PAGE>
169
(d) The term "Expiration Date" refers to April 17, 2001.
(e) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate
or otherwise) which the Holder of this Warrant at any time shall be
entitled to receive, or shall have received, on the exercise of this
Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4.
(f) The term "Purchase Price" shall mean $15.00, subject to adjustment
as provided in this Warrant.
1. EXERCISE OF WARRANT.
1.1 EXERCISE. (a) This Warrant may be exercised by the Holder hereof in
full or in part at any time or from time to time during the exercise period
specified in the first paragraph hereof until the Expiration Date by surrender
of this Warrant and the subscription form annexed hereto (duly executed) by such
Holder, to the Company at its principal office, accompanied by payment, in cash
or by certified or official bank check payable to the order of the Company in
the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the Holder in the subscription form by (b) the Purchase Price then
in effect. On any partial exercise the Company will forthwith issue and deliver
to or upon the order of the Holder hereof a new Warrant or Warrants of like
tenor, in the name of the Holder hereof or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may request, providing in the aggregate
on the face or faces thereof for the purchase of the number of shares of Common
Stock for which such Warrant or Warrants may still be exercised.
(b) Notwithstanding any other provision of this Warrant, in no event
shall GFL Advantage Fund Limited ("Advantage") be entitled at any time to
purchase a number of shares of Common Stock on exercise of this Warrant in
excess of that number of shares upon purchase of which the sum of (1) the
number of shares of Common Stock beneficially owned by Advantage, or any
person associated with, or serving as an adviser to Advantage (each a "GFL
Person" and collectively, the "GFL Persons") (other than shares of Common
Stock deemed beneficially owned through the ownership of the unexercised
portion of this Warrant and shares of Series E Convertible Preferred Stock,
$.01 par value, of the Company beneficially owned by all GFL Persons) and
(2) the number of shares of Common Stock issuable upon exercise of the
portion of this Warrant with respect to which the determination in this
sentence is being made, would result in beneficial ownership by any GFL
Person of more than 4.9% of the
<PAGE>
170
outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13D-G thereunder, except as otherwise provided in clause (1) of
the immediately preceding sentence. For purposes of the second preceding
sentence, the Company shall be entitled to rely, and shall be fully
protected in relying, on any statement or representation made by Advantage
to the Company in connection with a particular exercise of this Warrant,
without any obligation on the part of the Company to make any inquiry or
investigation or to examine its records or the records of any transfer
agent for the Common Stock.
1.2 NET ISSUANCE. Notwithstanding anything to the contrary contained in
Section 1.1, in the case of any exercise on or prior to April 17, 1998 the
Holder may elect to exercise this Warrant in whole or in part by receiving
shares of Common Stock equal to the net issuance value (as determined below) of
this Warrant, or any part hereof, upon surrender of this Warrant at the
principal office of the Company together with notice of such election, in which
event the Company shall issue to the Holder a number of shares of Common Stock
computed using the following formula:
X = Y (A-B)
-----
A
Where: X = the number of shares of Common Stock to be
issued to the Holder
Y = the number of shares of Common Stock as to
which this Warrant is to be exercised
A = the current fair market value of one share of Common
Stock calculated as of the last trading day immediately
preceding the exercise of this Warrant
B = the Purchase Price
As used herein, current fair market value of Common Stock as of a specified
date shall mean with respect to each share of Common Stock the average of the
closing bid prices of the Common Stock on the principal securities market on
which the Common Stock may at the time be traded over a period of five Business
Days consisting of the day as of which the current fair market value of a share
of Common Stock is being determined (or if such day is not a Business Day, the
Business Day next preceding such day) and the four consecutive Business Days
prior to such day. If on the date for which current fair market value is to be
determined the Common Stock is not eligible for trading on any securities
market, the current fair market value of Common
<PAGE>
171
Stock shall be the highest price per share which the Company could then obtain
from a willing buyer (not a current employee or director) for shares of Common
Stock sold by the Company, from authorized but unissued shares, as determined in
good faith by the Board of Directors of the Company, unless prior to such date
the Company has become subject to a merger, acquisition or other consolidation
pursuant to which the Company is not the surviving party, in which case the
current fair market value of the Common Stock shall be deemed to be the value
received by the holders of the Company's Common Stock for each share thereof
pursuant to the Company's acquisition.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as
practicable after the exercise of this Warrant, and in any event within three
days thereafter, the Company at its expense (including the payment by it of any
applicable issue or stamp taxes) will cause to be issued in the name of and
delivered to the Holder hereof, or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, in such
denominations as may be requested by such Holder, plus, in lieu of any
fractional share to which such Holder would otherwise be entitled, cash equal to
such fraction multiplied by the then current fair market value (as determined in
accordance with subsection 1.2) of one full share, together with any other stock
or other securities any property (including cash, where applicable) to which
such Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time, all the holders
of Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of earnings
or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such case the Holder of this Warrant, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
<PAGE>
172
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 3) which such Holder
would hold on the date of such exercise if on the date hereof the Holder had
been the holder of record of the number of shares of Common Stock called for on
the face of this Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property (including cash
in the case referred to in subdivisions (b) and (c) of this Section 3)
receivable by the Holder as aforesaid during such period, giving effect to all
adjustments called for during such period by Section 4.
4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition of such reorganization, consolidation, merger, sale or
conveyance, the Company shall give at least 30 days notice to the Holder of such
pending transaction whereby the Holder shall have the right to exercise this
Warrant prior to any such reorganization, consolidation, merger, sale or
conveyance. Any exercise of this Warrant pursuant to notice under this paragraph
shall be conditioned upon the closing of such reorganization, consolidation,
merger, sale or conveyance which is the subject of the notice and the exercise
of this Warrant shall not be deemed to have occurred until immediately prior to
the closing of such transaction.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that the Company shall
(i) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock, or (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 5.
The Holder of this Warrant shall thereafter, on the exercise hereof as provided
in Section 1, be entitled to receive that number of shares of Common Stock
determined by multiplying the
<PAGE>
173
number of shares of Common Stock which would be
issuable on such exercise as of immediately prior to such issuance by a fraction
of which (i) the numerator is the Purchase Price in effect immediately prior to
such issuance and (ii) the denominator is the Purchase Price in effect on the
date of such exercise.
6. FURTHER ASSURANCES. The Company will take all action that may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of stock, free from all taxes, liens and
charges with respect to the issue thereof, on the exercise of all or any portion
of this Warrant from time to time outstanding.
7. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend on, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all
or substantially all of the assets of the Company to or consolidation or
merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder, at least ten days prior to such record date, a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall also state that the action in question or the
record date is subject to the effectiveness of a registration statement under
the Securities
<PAGE>
174
Act of 1933, as amended (the "Securities Act"), or a favorable vote of
stockholders if either is required. Such notice shall be mailed at least ten
days prior to the date specified in such notice on which any such action is to
be taken or the record date, whichever is earlier.
8. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
9. TRANSFER OF WARRANT. This Warrant shall inure to the benefit of the
successors to and assigns of the Holder. This Warrant and all rights hereunder,
in whole or in part, is registrable at the office or agency of the Company
referred to below by the Holder hereof in person or by his duly authorized
attorney, upon surrender of this Warrant properly endorsed.
10. REGISTER OF WARRANTS. The Company shall maintain, at the principal
office of the Company (or such other office as it may designate by notice to the
Holder hereof), a register in which the Company shall record the name and
address of the person in whose name this Warrant has been issued, as well as the
name and address of each successor and prior owner of such Warrant. The Company
shall be entitled to treat the person in whose name this Warrant is so
registered as the sole and absolute owner of this Warrant for all purposes.
11. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon the surrender
hereof by the Holder hereof at the office or agency of the Company referred to
in Section 10, for one or more new Warrants of like tenor representing in the
aggregate the right to subscribe for and purchase the number of shares of Common
Stock which may be subscribed for purchase hereunder, each of such new Warrants
to represent the right to subscribe for and purchase such number of shares as
shall be designated by said Holder hereof at the time of such surrender.
12. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
13. WARRANT AGENT. The Company may, by written notice to the Holder,
appoint an agent having an office in the United States of America, for the
purpose of issuing Common Stock (or
<PAGE>
175
Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 11, and replacing this Warrant
pursuant to Section 12, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
14. REMEDIES. The Company stipulates that the remedies at law of the Holder
of this Warrant in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.
15. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the Holder hereof to purchase Common Stock, and no mere enumeration
herein of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Purchase Price or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
16. NOTICES, ETC. All notices and other communications from the Company to
the registered Holder of this Warrant shall be mailed by first class certified
mail, postage prepaid, at such address as may have been furnished to the Company
in writing by such Holder or at the address shown for such Holder on the
register of Warrants referred to in Section 10.
17. TRANSFER RESTRICTIONS. By acceptance of this Warrant, the Holder
represents to the Company that this Warrant is being acquired for the Holder's
own account and for the purpose of investment and not with a view to, or for
sale in connection with, the distribution thereof, nor with any present
intention of distributing or selling the Warrant or the Common Stock issuable
upon exercise of the Warrant. The Holder acknowledges and agrees that this
Warrant and, except as otherwise provided in the Registration Rights Agreement
by and between the Company and the original Holder of this Warrant (the
"Registration Rights Agreement"), the Common Stock issuable upon exercise of
this Warrant (if any) have not been (and at the time of acquisition by the
Holder, will not have been or will not be), registered under the Securities Act
or under the securities laws of any state, in reliance upon certain exemptive
provisions of such statutes. The Holder further recognizes and acknowledges that
because this Warrant and, except as provided in the Registration Rights
Agreement, the Common Stock issuable upon exercise of this Warrant (if any) are
unregistered, they may not
<PAGE>
176
be eligible for resale, and may only be resold in the future pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws, or pursuant to a valid exemption from such registration
requirements. Unless the shares of Common Stock issuable upon exercise of this
Warrant have theretofore been registered for resale under the Securities Act,
the Company may require, as a condition to the issuance of Common Stock upon the
exercise of this Warrant (i) in the case of an exercise in accordance with
Section 1.1 hereof, a confirmation as of the date of exercise of the Holder's
representations pursuant to this Section 17, or (ii) in the case of an exercise
in accordance with Section 1.2 hereof, an opinion of counsel reasonably
satisfactory to the Company that the shares of Common Stock to be issued upon
such exercise may be issued without registration under the Securities Act.
18. LEGEND. Unless theretofore registered for resale under the Securities
Act, each certificate for shares issued upon exercise of this Warrant shall bear
the following legend:
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 the Securities
Act of 1933, as amended, or an opinion of counsel that
registration is not required under said Act.
19. MISCELLANEOUS. This Warrant and any terms hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement or such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of Delaware. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
<PAGE>
177
IN WITNESS WHEREOF, Palomar Medical Technologies, Inc. has caused this
Warrant to be executed on its behalf by one of its officers thereunto duly
authorized.
Dated: , 1996 PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
-------------------------------
Joseph P. Caruso
Title: Chief Financial Officer
<PAGE>
178
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO PALOMAR MEDICAL TECHNOLOGIES, INC.
1. The undersigned Holder of the attached original, executed Warrant hereby
elects to exercise its purchase right under such Warrant with respect to
______________ shares of Common Stock, as defined in the Warrant, of Palomar
Medical Technologies, Inc. (the "Company").
2. The undersigned Holder
(a) elects to pay the aggregate purchase price for such shares of
Common Stock (the "Exercise Shares") (i) by lawful money of the
United States or the enclosed certified or official bank check
payable in United States dollars to the order of the Company in
the amount of $___________, or (ii) by wire transfer of United
States funds to the account of the Company in the amount of
$____________, which transfer has been made before or
simultaneously with the delivery of this Form of Subscription
pursuant to the instructions of the Company;
or
(b) elects to receive shares of Common Stock having a value equal to
the value of the Warrant calculated in accordance with Section
1.2 of the Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other names as is specified below:
4. If this form is being submitted by GFL Advantage Fund Limited ("GFL"),
GFL hereby represents to the Company that the exercise of the Warrant elected
hereby does not violate Section 1.1(b) of the Warrant.
Name:
-------------------------------------
Address:
-------------------------------------
-------------------------------------
Dated: 199
------------ ---, -- ----------------------------
(Signature must conform
to name of Holder as
specified on the face of the
Warrant)
- ----------------------------
- ----------------------------
(Address)
<PAGE>
179
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO REGULATION S UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED.
Void after 5:00 p.m. Eastern Standard Time, on February 1 , 1999.
WARRANT TO PURCHASE COMMON STOCK
OF
PALOMAR MEDICAL TECHNOLOGIES, INC.
FOR VALUE RECEIVED, PALOMAR MEDICAL TECHNOLOGIES, INC. (the "Company"), a
Delaware corporation, hereby certifies that , or his permitted assigns, is
entitled to purchase from the Company, at any time or from time to time
commencing February 1 , 1996, and prior to 5:00 P.M., Eastern Standard Time, on
February 1, 1999, a total of fully paid and non assessable shares of the Common
Stock, par value $.01 per share, of the Company for an aggregate purchase price
of five dollars ($5) per share. (Hereinafter, (i) said Common Stock, together
with any other equity securities which may be issued by the Company with respect
thereto or in substitution therefor, is referred to as the "Common Stock", (ii)
the shares of the Common Stock purchasable hereunder are referred to as the
"Warrant Shares", (iii) the aggregate purchase price payable hereunder for the
Warrant Shares is referred to as the "Aggregate Warrant Price", (iv) the price
payable hereunder for each of the Warrant Shares is referred to as the "Per
Share Warrant Price", (v) this Warrant, and all warrants hereafter issued in
exchange or substitution for this Warrant are referred to as the "Warrant" and
(vi) the holder of this Warrant is referred to as the "Holder".)
1. Exercise of Warrant. This Warrant may be exercised, in whole at any time
or in part from time to time, commencing February 1 , 1996, and prior to 5:00
P.M., Eastern Standard Time then current, on February 1 , 1999, by the Holder of
this Warrant by the surrender of this Warrant (with the subscription form at the
end hereof duly executed) at the address set forth in Subsection 9 (a) hereof,
together with proper payment of the Aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised in part. Payment for
Warrant Shares shall be made by certified or official bank check payable to the
order of the Company. If this Warrant is exercised in part, this Warrant must be
exercised for a minimum of 1000 shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares.
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Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the largest number of
whole shares of the Common Stock to which the Holder shall be entitled, and (b)
deliver the proportionate part thereof if this Warrant is exercised in part,
pursuant to the Provisions of the Warrant. Upon exercise of the Warrant, Buyer
will certify in writing that it is not a U.S. person and the Warrant is not
being exercised on behalf of a U.S. person.
No warrant granted herein shall be exercisable after 5:00 p.m. Eastern
Standard Time on the third anniversary of the date of issuance.
2. Reservation of Warrant Shares. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and in
reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares of the Common Stock as from time to time
shall be receivable upon the exercise of this Warrant.
3. Fully Paid Stock; Taxes. The Company agrees that the shares of the
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and non-assessable, and not
subject to preemptive rights, and the Company will take all such actions as may
be necessary to assure that the par value or stated value, if any, per share of
the Common Stock is at all times equal to or less than the then Per Share
Warrant Price. The company further covenants and agrees that it will pay, when
due and payable, any and all Federal and State stamp, original issue or similar
taxes that may be payable in respect of the issue of any Warrant Share or
certificate therefor.
4. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant Shares
issuable upon the exercise hereof have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), or under any state
securities laws and unless so registered may not be transferred, sold,
pledged, hypothecated or otherwise disposed of unless an exemption from
such registration is available. In the event Holder desires to transfer
this Warrant or any of the Warrant Shares issued, the Holder must give the
Company prior written notice of such proposed transfer including the name
and address of the proposed transferee. Such transfer may be made only
either (i) upon publication by the Securities and Exchange Commission (the
"Commission") of a ruling, interpretation, opinion or "no action letter"
based upon facts presented to said Commission, or (ii) upon receipt by the
Company of an opinion of Counsel to the Company in either case to the
effect that the proposed transfer will not violate the provisions of the
Securities Act, The Securities Exchange Act of 1934, as amended, or the
rules and regulations promulgated under either such act.
(b) Lockup Agreements. The Warrant Shares may be sold no earlier than
180 days after the above Warrant date. In the event of a public offering of
the Company's securities, the Holder agrees to enter into an agreement with
the Underwriter or Underwriter's Representative for such offering
restricting the sale, transfer or other disposition of this Warrant or the
Warrant
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181
Shares to the extent that such agreement is required to be executed by the
other security holders of the Company generally.
(c) Conditions to Transfer. Prior to any such proposed transfer, and
as condition thereto, the Holder will, if requested by the Company, deliver
to the Company (i) an investment covenant signed by the proposed transferee
(ii) an agreement by such transferee to the impression of the restrictive
investment legend set forth herein on the certificate or certificates
representing the securities acquired by such transferee, (iii) an agreement
by such transferee that the Company may place a "stop transfer order" with
its transfer agent or registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in the next
succeeding paragraph.
(d) Indemnity. The Holder acknowledges that the Holder understands the
meaning and legal consequences of this Section 5, and the Holder hereby
agrees to indemnify and hold harmless the Company, its representatives and
each officer and director thereof from and against any and all loss, damage
or liability (including all attorneys' fees and costs incurred in enforcing
this indemnity provision) due to or arising out of (a) the inaccuracy of
any representation or the breach of any warranty of the Holder contained
in, or any other breach, (b) any transfer of the Warrant or any of the
Warrant Shares in violation of the Securities Act, the Securities Exchange
Act of 1934, as amended, or the rules and regulations promulgated under
either of such acts, (c) any transfer of the Warrant or any of the Warrant
Shares not in accordance with this Warrant or (d) any untrue statement or
omission to state any material fact in connection with the investment
representations or with respect to the facts and representations supplied
by the Holder to counsel to the Company upon which its opinion as to a
proposed transfer shall have been based.
(e) Transfer. Except as restricted hereby, this Warrant and the
Warrant Shares issued may be transferred by the Holder in whole or in part
at any time or from time to time. Upon surrender of this Warrant to the
Company or at the office of its stock transfer agent, if any, with
assignment documentation duly executed and funds sufficient to pay any
transfer tax, and upon compliance with the foregoing provisions, the
Company shall, without charge, execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment, and this
Warrant shall promptly be canceled. Any assignment, transfer, pledge,
hypothecation or other disposition of this Warrant attempted contrary to
the provisions of this Warrant, or any levy of execution, attachment or
other process attempted upon the Warrant, shall be null and void and
without effect.
(f) Legend and Stop Transfer Orders. Upon exercise of any part of the
Warrant and the issuance of any of the shares of Warrant Shares, the
Company shall instruct its transfer agent to enter stop transfer orders
with respect to such shares to the effect that such shares may not be sold,
offered for sale, assigned, transferred or otherwise disposed of until 180
days after the above Warrant date unless an opinion of counsel to the
Company is obtained stating that such disposition is permitted. 180 days
after the above Warrant date, the 180 day restricted period will have
expired and the restrictions on transfer and resale imposed upon the Shares
by Regulation S shall lapse and will no longer be necessary. Therefore,
certificates representing the Shares issued on and after that date may be
issued without stop-transfer instructions.
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182
5. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of the Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
6. Warrant Holder Not Shareholder. Except as otherwise provided herein,
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder, prior
to the exercise hereof.
7. Communication. No notice or other communication under this Warrant shall
be effective unless the same is in writing and is mailed by first-class mail,
postage prepaid, addressed to:
(a) the Company at 66 Cherry Hill Drive, Beverly Massachusetts 01915,
or such other address as the Company has designated in writing to the
Holder, or
(b) the Holder at ________________________, or such other address as
the Holder has designated in writing to the Company.
8. Headings. The headings of this Warrant have been inserted as a matter of
convenience and shall not affect the construction hereof.
9. Applicable Law. This Warrant shall be governed by and construed in
accordance with the law of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
IN WITNESS WHEREOF, PALOMAR MEDICAL TECHNOLOGIES, INC. has caused this
Warrant to be signed by its Chairman and its corporate seal to be hereunto
affixed and attested by its Secretary this 1 day of February , 1996.
ATTEST: PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ By: /s/
------------------------- --------------------------
Michael Smotrich Steven Georgiev
Secretary Chairman
[Corporate Seal]
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SUBSCRIPTION
The undersigned, _______________________________________________, pursuant
to the provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of ___________ shares of the Common Stock of PALOMAR MEDICAL
TECHNOLOGIES, INC. covered by said Warrant, and makes payment therefor in full
at the price per share provided by said Warrant.
Dated: Signature:
Address:
Soc Sec # or Fed ID #:
ASSIGNMENT
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto ____________________________________ the foregoing
Warrant and all rights evidenced thereby, and does irrevocably constitute and
appoint ________________________________________, attorney, to transfer said
Warrant on the books of PALOMAR MEDICAL TECHNOLOGIES, INC.
Signature: Assignee
Dated:
Address: Address:
SS/Fed ID #: SS/Fed ID #:
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ________________________________________ hereby assigns and
transfers unto ____________________________________________ the right to
purchase ___________ shares of the Common Stock of PALOMAR MEDICAL TECHNOLOGIES,
INC. by the foregoing Warrant, and a proportionate part of said Warrant and the
rights evidenced hereby, and does irrevocably constitute and appoint
__________________________________________, attorney, to transfer that part of
said Warrant on the books of PALOMAR MEDICAL TECHNOLOGIES, INC.
Signature: Assignee
Dated:
Address: Address:
SS/Fed ID #: SS/Fed ID #:
184
APPENDIX II
PALOMAR MEDICAL TECHNOLOGIES, INC.
SUBSCRIPTION AGREEMENT
Name:
Number:
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185
OFFSHORE STOCK SUBSCRIPTION AGREEMENT
This Stock Subscription Agreement (the "Agreement"), dated _____________,
1995, is entered into by and between Palomar Medical Technologies, Inc., a
Delaware corporation (the "Company", "PMTI," or "Seller"), and
___________________________ a corporation/citizen under the laws of
_______________ (the "Buyer").
The Company has offered for sale outside the United States, (as that term
is defined in Regulation S ("Regulation S") under the United States Securities
Act of 1933, as amended (the "Act") to the Buyer certain securities as set forth
in paragraph 1 below.
The parties hereto agree as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(a) Subscription. Upon the basis of the representations and warranties, and
subject to the terms and conditions set forth in this Agreement, the Seller
covenants and agrees to sell to Buyer __________ shares of PMTI Common Stock
(the "Common Stock") for an aggregate amount of ($ US). The purchase price of
the Common Stock shall be 5% below the average closing bid price of the Common
Stock from November 20, 1995 to November 25, 1995, as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"). For
every two shares of Common Stock purchased, a warrant to purchase one share of
Common Stock (the "Warrant") will be issued expiring in three years at an
exercise price of $5 per share of Common Stock. The shares of Common Stock and
the shares of Common Stock underlying the Warrants (the "Shares") may be sold no
earlier than 180 days after the closing date.
b. Form of Payment and Closing Date. Buyer shall pay the purchase price by
delivering good funds in United States Dollars to "Foley, Hoag & Eliot Client
Funds Account", One Post Office Square, Boston, MA 02109 as Escrow Agent. The
closing of the offering shall take place on or before November 30, 1995 by
delivery of the Warrants and stock certificates representing the shares of
Common Stock to the Buyer upon notification by the Escrow Agent to the Seller
that payment in full has been received, and the funds have been wired to
Seller's bank account which has been specified to the Escrow Agent.
2. SUBSCRIBER REPRESENTATIONS; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION.
a. Offshore Transaction. Buyer represents and warrants to Seller as
follows:
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(i) Buyer is not organized under the laws of the United States and
was not formed for the purpose of investing in Regulation S
securities and is not registered under the Securities Act;
(ii) At the time the buy order was originated, Buyer was outside the
United States;
(iii)No offer to purchase the Shares or the Warrants was made in the
United States;
(iv) Buyer is purchasing the Shares and the Warrants for its own
account and for investment purposes and not with a view towards
distribution;
(v) All subsequent offers and sales of the Shares and the Warrants
delivered at the Closing Date in the United States or to U.S.
persons shall be made in compliance with Regulation S pursuant to
registration of securities under the Securities Act of 1933 or
pursuant to an exemption from registration. In any case, the
Common Stock and Warrants delivered at the Closing Date and the
Common Stock issuable upon the exercise of the Warrants shall not
be resold to U.S. persons or within the United States during a
prohibited period of one hundred eighty (180) days commencing on
the date of Closing of the purchase of the Shares;
(vi) Buyer understands that the Shares and the Warrants are being
offered and sold to it in reliance of specific exemptions from
the registration requirements of Federal and State securities
laws and that the Seller is relying upon the truth and accuracy
of the representations, warranties, agreements acknowledgments
and understandings of Buyer set forth herein in order to
determine the applicability of such exemptions and the
suitability of Buyer to acquire the Shares and the Warrants;
(vii)The Buyer understands that no federal or state agency has passed
on or made any recommendation or endorsement of the Common Stock
or the Warrants; and
(viii) The transactions contemplated by this Agreement have not been
pre-arranged with a Buyer located in the United States or who is
a U.S. Person and are not part of a plan or scheme to evade the
registration provisions of the Act.
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(ix) Upon exercise of the Warrant, Buyer will certify in writing that
it is not a U.S. person and the Warrant is not being exercised on
behalf of a U.S. person.
3. SELLER REPRESENTATIONS
a. Reporting Company Status. Seller is a "Reporting Company" as defined by
Rule 902 of Regulation S. For at least the last 12 months, Seller has fully
complied, to the extent applicable, with all reporting obligations under Section
13(d) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Seller has registered its Common Stock pursuant to Section 12(b) of the
Exchange Act and the Common Stock trades on NASDAQ SmallCap Market.
b. Current Public Information. Seller has furnished Buyer with copies of
the Company's most recent Annual Report on the Form 10-KSB filed with the
Securities and Exchange Commission and the Forms 10-Q filed thereafter
(collectively the "SEC Filings"), and other publicly available documents.
c. Offshore Transaction.
(i) Seller has not offered the securities which are the subject of
this transaction to any person in the United States, any
identifiable groups of U.S. citizens abroad, or to any U.S.
person as that term is defined in Regulation S.
(ii) At the time the buy order was originated, Seller and/or its
agents reasonably believed Buyer was outside of the United States
and was not a U.S. person.
(iii)Seller and/or its agents reasonably believe that the transaction
has not been pre-arranged with a buyer in the United States.
d. No directed Selling Efforts. In regard to this transaction, neither
Seller nor any person acting on its behalf has conducted any "directed selling
efforts" as that term is defined in Rule 902 of Regulation S nor has Seller or
any such person conducted any general solicitation relating to the offer and
sale of the securities which are the subject of this transaction to persons
resident within the United States or elsewhere.
e. Concerning the Shares. The Common Stock when issued and delivered will
be duly and validly authorized and issued, fully paid and non-assessable and
will not subject the holders thereof to personal liability by reason of being
such holders. There are no preemptive rights of any shareholder of the Company.
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f. Subscription Agreement The Subscription Agreement has been duly
authorized, validly executed and delivered on behalf of the Seller and is a
valid and binding agreement in accordance with its terms, subject to general
principles of equity and to bankruptcy and other laws effecting the enforcement
of creditors rights generally.
g. Non-contravention The execution and delivery of the Subscription
Agreement and the consummation of the issuance of the Shares and the Warrants
and the transactions contemplated by the Subscription Agreement do not and will
not conflict with or result in a breach by the Seller of any of the terms or
provisions of, or constitute a default under, the articles of incorporation or
by-laws of the Seller, or any indenture, mortgage, deed of trust or other
material agreement or instrument to which the Seller is a party or by which it
or any of its properties or assets are bound, or any existing applicable law,
rule or regulation or any applicable decree, judgment or order of any court,
Federal or State regulatory body, administrative agency or other governmental
body having jurisdiction over the Seller or any of its properties or assets.
h. Approvals Seller is not aware of any authorization, approval or consent
of any governmental body.
4. EXEMPTION; RELIANCE ON REPRESENTATIONS
Buyer understands that the offer and sale of the Shares and the Warrants
are not being registered under the 1933 Act. Seller is relying on the rules
governing offers and sales made outside the United States pursuant to Regulation
S.
5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
Buyer understands that Seller's obligations to sell the Shares is
conditioned upon:
a. The receipt and acceptance by Seller of this Subscription Agreement for
all of the Shares as evidenced by execution of this Subscription Agreement by
the Seller; and
b. Delivery into escrow by Buyer of good funds as payment in full for the
purchase of the Shares.
6. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE
Seller understands that Buyer's obligation to purchase the Shares is
conditioned upon:
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189
a. Acceptance execution by Buyer of this Subscription Agreement for the
sale of Shares; and
b. Delivery of Shares with the restrictions as described herein.
7. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Massachusetts. A facsimile transmission of this
signed agreement shall be legal and binding on all parties hereto.
8. NOTICES
All communications hereunder shall be in writing, and, if sent to the Buyer
shall be sufficient in all respects if delivered, sent by registered mail, or by
telecopy and confirmed to the Buyer at:
Name:
Address:
City:
Country:
Attention:
or, if sent to the Seller, shall be delivered, sent by registered mail or by
telecopy and confirmed to the Company at:
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915
Attention: Paul S. Weiner, Corporate Controller
Telephone: (508) 921-9300
Telecopy: (508) 921-5801
9. FEES AND EXPENSES
Each of the Buyer and the Seller agrees to pay its own expenses incident on
the performance of its obligations hereunder, including but not limited to, the
fees, expenses and disbursements of such party's counsel.
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190
IN WITNESS THEREOF, this Offshore Securities Subscription Agreement was
duly executed on the date first written below.
Dated this _____ day of the month of ________________, 1995.
Official Signatory of SELLER
PALOMAR MEDICAL TECHNOLOGIES, INC.
BY:
-----------------------------------------
(Authorized Signature)
-----------------------------------------
(Print Name and Title)
Accepted this ____ day of the month of ________________, 1995.
Official signature of BUYER
- ----------------------------------------------
(Authorized Signature)
- ----------------------------------------------
(Print Name and Title)
191
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "Agreement"), dated as of March 10, 1997,
has been executed by the undersigned (the "Subscriber") in connection with the
purchase of 5% Convertible Debentures due March 10, 2002 (the "Debentures") of
Palomar Medical Technologies, Inc., a Delaware corporation, having an address at
66 Cherry Hill Drive, Beverly, Massachusetts 01915 (the "Company"), convertible
into shares of Common Stock, par value $.01 per share (the "Common Stock"), of
the Company. The Company is offering an aggregate amount of up to 5,500,000 of
Debentures, at an aggregate price of up to $5,225,000 (the "Offering"). The form
of the Debentures to be purchased by the Subscriber hereunder, including the
terms on which such Debentures may be converted into Common Stock, is attached
hereto as Exhibit A. The solicitation of this Agreement and, if accepted by the
Company, the offer and sale of the Debentures are being made by the Company in
reliance upon the provisions of Regulation D ("Regulation D") promulgated by the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "Securities Act"), or under the exemption from registration set
forth in Section 4(2) of the Securities Act. The shares of Common Stock issuable
upon the conversion of the Debentures are sometimes collectively referred to in
this Agreement as the "Shares." The Debentures and the Shares are sometimes
collectively referred to in this Agreement as the "Securities."
The Subscriber wishes to subscribe for, and the Company wishes to issue,
the aggregate principal amount of Debentures at the aggregate purchase price set
forth in Section 14 and in accordance with the other terms and conditions of
this Agreement. In consideration of the mutual promises, representations,
warranties and conditions set forth herein, and intending to be legally bound
hereby, the Company and the Subscriber agree as follows:
1. PURCHASE AND SALE OF SECURITIES; CLOSING CONDITIONS.
1.1. Purchase and Sale of Securities.
(a) Purchase of Debentures. The Company shall issue to the Subscriber
and the Subscriber shall purchase from the Company such number of
Debentures as is set forth in Section 14 hereof for an aggregate purchase
price equal to ____________________ Dollars (U.S. $_______)
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192
("Purchase Price"). The issuance, sale and purchase of the Debentures shall
take place in one closing (the "Closing").
(b) Form of Payment. On the Closing Date (as defined below), (i) the
Subscriber shall pay the Purchase Price for the Debentures to be issued and
sold at the Closing by wire transfer to the escrow agent ("Escrow Agent"),
in accordance with the Escrow Agent's written wiring instructions (the
"Escrow Agreement"), against delivery of duly executed Debentures which the
Subscriber is purchasing, and (ii) the Escrow Agent shall deliver to the
Subscriber such Debentures against delivery of such Purchase Price.
(c) Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 1.2 and Section 1.3 below, the date
and time of the issuance and sale of the Debentures pursuant to this
Agreement shall be 12:00 noon Eastern Standard Time on March 10, 1997 (the
"Closing Date"), or at such other mutually agreed upon time. The Closing
shall occur on the Closing Date at such place and time as the parties shall
determine.
1.2. Conditions Precedent to the Obligation of the Company to Issue the
Debentures. The obligation hereunder of the Company to issue the Debentures to
the Subscriber at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion.
(a) Payment of Purchase Price. The Subscriber shall have delivered to
the Escrow Agent the Purchase Price payable by the Subscriber at the
Closing.
(b) Accuracy of the Subscriber's Representations and Warranties. The
representations and warranties of the Subscriber contained herein shall be
true and correct as of the date when made and as of the Closing Date as
though made at such time.
(c) Performance by the Subscriber. The Subscriber shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Subscriber at or prior to the Closing.
(d) No Injunction. 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
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193
competent jurisdiction which prohibits or adversely affects any of the
transactions contemplated by this Agreement or any of the transactions
contemplated by any of the other agreements related to such transactions
(the "Related Agreements"), and no proceeding shall have been commenced
which may have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement or any of the Related
Agreements.
1.3. Conditions Precedent to the Obligation of the Subscriber to Acquire
the Debentures. The obligation of the Subscriber hereunder to acquire and pay
for the Debentures at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions. Each of these conditions
is for the Subscriber's sole benefit and may be waived in writing by the
Subscriber at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company contained herein and in the
Related Agreements shall be true and correct as of the date when made and
as of the Closing Date as though made at each such time.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement or any of the Related Agreements to
be performed, satisfied or complied with by the Company at or prior to the
Closing.
(c) No Injunction. 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 which prohibits or adversely effects any of the transactions
contemplated by this Agreement or any Related Agreement, and no proceeding
or investigation shall have been commenced or threatened which may have the
effect of prohibiting or adversely affecting any of such transactions.
(d) Adverse Changes. Since December 31, 1995, no event has occurred
which has had or is likely to have a material adverse effect on the
condition (financial or otherwise), earnings, operations, prospects or
business of the Company, other than continued operating losses consistent
with the historical operating losses of the Company disclosed in the
Exchange Act Reports (as defined in Section 2.4 hereof).
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194
(e) No Suspension of Trading In or Delisting of Common Stock. From the
date hereof to and including the Closing Date, the trading of the Common
Stock shall not have been suspended by the SEC, the Nasdaq Stock Market
("Exchange") or the National Association of Securities Dealers, Inc. (the
"NASD"), and the Common Stock shall not have been delisted from the
Exchange and trading in securities generally on the New York Stock Exchange
or the Exchange shall not have been suspended or limited.
(f) The Legal Opinion. The Company shall have delivered to the
Subscriber the opinion of Foley, Hoag & Eliot LLP, independent counsel to
the Company, dated as of the Closing Date and in form and substance
reasonably satisfactory to the Subscriber and its counsel.
(g) Officer's Certificate. The Company shall have delivered to the
Subscriber a certificate in form and substance reasonably satisfactory to
the Subscriber and its counsel, executed by an executive officer of the
Company as of the Closing Date, to the effect that all the conditions to
the Closing required to be satisfied by the Company shall have been
satisfied.
(h) Registration Rights Agreement. The Company and the Subscriber
shall have entered into the Registration Rights Agreement, in the form of
Exhibit B annexed hereto (the "Registration Rights Agreement").
(i) Transfer Agent Irrevocable Instruction. The Company shall have
delivered to the transfer agent for its Common Stock the Transfer Agent
Irrevocable Instruction, in the form of Exhibit C annexed hereto.
(j) Delivery of Debentures. The Company shall have executed and
delivered to the Escrow Agent the Debentures being purchased by the
Subscriber pursuant to the terms hereof.
2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER.
The Subscriber represents and warrants to the Company that:
2.1. No Government Recommendation or Approval. The Subscriber understands
that no United States federal or state agency or similar agency of any other
country has passed upon or made any
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195
recommendation or endorsement of the Company or the offering of the Securities.
2.2. Intent. The Subscriber is purchasing the Securities for its own
account and not with a view towards distribution thereof and the Subscriber has
no present arrangement (whether or not legally binding) at any time to sell the
Securities to or through any person or entity; provided, however, that by making
the representations herein, the Subscriber 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 federal and state securities laws
applicable to such disposition. The Subscriber understands that the Securities
must be held indefinitely unless such Securities are subsequently registered
under the Securities Act or an exemption from registration is available. The
Subscriber has been advised or is aware of the provisions of Rule 144.
2.3. Sophisticated Investor. The Subscriber is a sophisticated investor (as
described in Rule 506(b)(2)(ii) of Regulation D promulgated under the Securities
Act ("Regulation D")) and an accredited investor (as defined in Rule 501 of
Regulation D), and Subscriber has such experience in business and financial
matters that it is capable of evaluating the merits and risks of an investment
in the Securities. The Subscriber acknowledges that the Securities are
speculative and involve a high degree of risk.
2.4. Independent Investigation. The Subscriber, in making its decision to
purchase the Securities subscribed for hereunder, has relied upon an independent
investigation made by it and/or its representatives of the public filings of the
Company described below, and has not relied on any information or
representations made by third parties or on any oral or written representations
or assurances from the Company or any representative or agent of the Company,
other than as set forth in this Agreement. Prior to the date hereof, the
Subscriber has been furnished with and has reviewed the Company's latest proxy
statement and Annual Report on Form 10-K sent to the Company's shareholders and
all documents filed by the Company with the SEC since December 31, 1995 pursuant
to sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (excluding preliminary proxy statement filings)
(such documents are collectively referred to in this Agreement as the "Exchange
Act Reports"). The Subscriber has had a reasonable opportunity to ask questions
of and receive answers from the Company concerning the Company and the Offering.
The Subscriber acknowledges that the price and terms of the Securities offered
hereby has been determined by negotiation based, in part, on the market price
for the
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Common Stock, and does not necessarily bear any relationship to the
assets, book value or potential performance of the Company or any other
recognized criteria of value.
2.5. Authority. This Agreement has been duly authorized and validly
executed and delivered by the Subscriber and is a valid and binding agreement of
the Subscriber enforceable against the Subscriber in accordance with its terms,
subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally.
2.6. No Legal Advice From Company. The Subscriber acknowledges that it has
had the opportunity to review this Agreement and the transactions contemplated
by this Agreement and the Related Agreements with his or its own legal counsel
and tax advisors. Except for any statements or representations of the Company
made in this Agreement or any Related Agreement and in the Exchange Act Reports,
the Subscriber is relying solely on such counsel and advisors and not on any
statements or representations of the Company or any of its representatives or
agents for legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
2.7. No Brokers. The Subscriber has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company relating to this Agreement, the Related Agreements or
the transactions contemplated hereby or thereby, except for dealings with
Promethean Investment Group, L.L.C., whose fees will be paid for by the
Subscriber.
2.8. Not an Affiliate. The Subscriber is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
2.9. Reliance on Representations and Warranties. The Subscriber understands
that the Securities are being offered and sold to it in reliance on specific
provisions of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Subscriber set
forth in this Agreement in order to determine the applicability of such
provisions.
2.10. Financial Condition. The Subscriber's financial condition is such
that it is not under any present necessity or constraint to dispose of
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the Debentures to satisfy any existing or contemplated debt or undertaking.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Subscriber that:
3.1. Company Status. The Company has registered its Common Stock pursuant
to Section 12(b) or 12(g) of the Exchange Act, is in full compliance with all
reporting requirements of the Exchange Act, and has maintained all requirements
for the continued listing of its Common Stock, and such Common Stock is
currently listed on the Exchange.
3.2. Current Public Information. The Exchange Act Reports are the only
filings made by the Company since December 31, 1995 pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act.
3.3. No Directed Selling Efforts or General Solicitation in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf has conducted any "directed selling
efforts" with respect to the Debentures, nor has the Company conducted any
general solicitation (as that term is used in Regulation D) with respect to any
of the Securities, nor has any such person 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 under the Securities Act.
3.4. Capitalization; Valid Issuance of Debentures and Capital Stock. The
Company has an authorized capitalization consisting of 100,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock,
par value $.01 per share, convertible notes and unit options outstanding that
are convertible into or exercisable for an aggregate of no more than 19,963,168
shares of Common Stock, and stock options granted to employees as described in
the Exchange Act Reports. There are no other outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for any
shares of capital stock of the Company or arrangements by which the Company is
or may become bound to issue additional shares of its capital stock. As of
February 26, 1997, the Company had 31,028,049 shares of Common Stock issued, of
which 31,028,049 of such shares were outstanding. The Company has no more than
16,000 shares of Preferred Stock issued, of which no more than 16,000 of such
shares are outstanding. All of the issued shares of Common Stock and Preferred
Stock of the Company
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198
have been duly and validly authorized and issued and are fully paid and
non-assessable; upon issuance of the Securities, the Securities will be duly and
validly issued, fully paid and non-assessable; the shares of Common Stock
issuable upon conversion of the Debentures when issued and delivered in
accordance with the terms of the Debentures, will be duly and validly issued,
fully paid and non-assessable; and the holders of outstanding capital stock of
the Company are not and shall not be entitled to preemptive or other rights
afforded by the Company to subscribe for the capital stock or other securities
of the Company as a result of the sale of the Securities or the issuance of
Common Stock upon the conversion thereof.
3.5. Organization and Qualification. The Company is a corporation duly
incorporated and validly existing in good standing under the laws of the State
of Delaware and has the requisite corporate power and authority to own its
properties and to carry on its business as now being conducted. The Company does
not have any subsidiaries, except for those listed on Schedule 3.5 annexed
hereto and hereby made a part hereof. The Company and each such subsidiary is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any effect on the business, operations, properties,
prospects, or condition (financial or otherwise) of the entity with respect to
which such term is used and which is material and adverse to such entity or to
other entities controlling or controlled by such entity, and/or any condition or
situation which would prohibit or otherwise interfere with the ability of the
entity with respect to which said term is used to enter into and perform its
obligations under this Agreement, the Debentures or the Registration Rights
Agreement or any other Related Agreements.
3.6. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Debentures, the Registration Rights Agreement and such of the other Related
Agreements to which it is a party; and to issue the Securities in accordance
with the terms thereof; (ii) the execution, delivery and performance of this
Agreement, the Debentures, the Registration Rights Agreement and the other
Related Agreements by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including without limitation the
issuance of the Shares, have been duly authorized by all necessary corporate
action, and no further consent or authorization of the Company or its Board of
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Directors or stockholders is required; (iii) this Agreement, the Debentures, the
Registration Rights Agreement and the other Related Agreements have been duly
executed and delivered by the Company; and (iv) this Agreement, the Registration
Rights Agreement and the other Related Agreements constitute, and upon issuance
and delivery thereof the Debentures shall be, valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
3.7. Corporate Documents. The Company has furnished or made available to
the Subscriber true and correct copies of the Company's Certificate of
Incorporation, as amended and in effect on the date hereof (the "Certificate"),
and the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
3.8. No Conflicts. The execution, delivery and performance by the Company
of this Agreement, the Debentures, the Registration Rights Agreement and the
other Related Agreements and the consummation by the Company of the transactions
contemplated hereby and thereby, including without limitation the issuance of
the Shares, do not and will not (i) result in a violation of the Certificate 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 federal, state, local
or foreign law, rule, regulation, order, judgment or decree (including 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, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). Neither
the business of the Company nor any of its subsidiaries is being conducted in
violation of any law, ordinance or regulation of any governmental entity, in any
manner or in any manner that is inconsistent with or in violation of the
Certificate or By-laws, or in violation of any contract or agreement to which
the Company or any of its subsidiaries is a party, except for possible
violations which either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation in the United States to obtain any consent,
authorization or
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200
order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Debentures, the Registration Rights
Agreement and the other Related Agreements or any of the Securities or to issue
and sell the Securities in accordance with the terms hereof and thereof (other
than any SEC, NASD, Exchange or state securities filings which may be required
to be made by the Company from time to time, and any registration statement
which may be filed pursuant hereto); provided, that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Subscriber
herein.
3.9. Exchange Act Reports. The Company has delivered or made available to
the Subscriber true and complete copies of the Exchange Act Reports (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Subscriber any information which, according to
applicable law, rule or regulation, should have been disclosed publicly prior to
the date hereof by the Company but which has not been so disclosed. As of their
respective dates, the Exchange Act Reports complied in all material respects
with the requirements of the Exchange Act and rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such Exchange Act Reports, and none of the Exchange
Act Reports 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. The financial statements of the Company included in the
Exchange Act Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis 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 not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). As of the Closing Date, the Company has filed all reports required
to be filed by it pursuant to the Exchange Act and is otherwise eligible to
effect registration of its Common Stock on Form S-3.
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201
3.10. No Material Adverse Change. Since December 31, 1995, no event or
circumstance has occurred or arisen which has had or is reasonably likely to
have a Material Adverse Effect on the Company or any of its subsidiaries, other
than continued operating losses consistent with the historical operating losses
of the Company disclosed in the Exchange Act Reports.
3.11. No Undisclosed Liabilities. The Company and its subsidiaries have no
liabilities or obligations which are not disclosed in the Exchange Act Reports,
other than those incurred in the ordinary course of the Company's or its
subsidiaries' respective businesses since December 31, 1995, and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or any of its subsidiaries.
3.12. No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or condition (financial
or otherwise), which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed.
3.13. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, at any time since August 26, 1996, made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D promulgated under the Securities Act in connection with the offer
and sale of the Securities as contemplated hereby.
3.14. 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 the Subscriber relating to this Agreement, the Debentures, the
Registration Rights Agreement or any of the other Related Agreements for the
transactions contemplated hereby, except for dealings with Promethean Investment
Group, L.L.C., whose fees will be paid for by the Subscriber.
<PAGE>
202
4. COVENANTS OF THE COMPANY.
4.1. Registration Rights. The Company agrees that, at the Closing, it will
enter into a Registration Rights Agreement.
4.2. Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to satisfy any obligation to issue
shares of its Common Stock upon conversion of the Debentures; provided, however,
that (i) the aggregate number of shares so reserved, except as provided herein
and in the Debentures, shall initially be 1,320,000 shares and (ii) a pro rata
portion (based on the respective original principal amount of the Debentures) of
such aggregate amount shall be reserved for conversion of each Debenture, such
portion to be reduced by the number of shares actually issued upon conversion of
such Debenture. The number of shares so reserved may be reduced by the number of
shares actually delivered pursuant to conversion of Debentures (provided that in
no event shall the number of shares so reserved be less than the Minimum Number
of Shares (as defined in the Debentures) applicable to any Debenture) and the
number of shares so reserved shall be increased to reflect stock splits, stock
dividends and other distributions or reclassifications and other adjustments in
accordance with the terms of the Debentures. In the event that the number of
shares so reserved (either in the aggregate or as to any Debenture) shall be
insufficient for issuance upon conversion of the Debentures (without giving
effect to any applicable conversion restrictions), or if the Holders of the
Debentures would at any time upon conversion thereof be entitled to the issuance
of shares of Common Stock in excess of the limitation in Paragraphs 5(d) and
9(b) of the Debentures, then in either case, upon receipt by the Company of
notice from any Holder, the Company shall use its best efforts and all due
diligence to increase the number of shares so reserved (without giving effect to
any applicable conversion restrictions) to cure all such deficiencies (either in
the aggregate or as to any Debenture), and, if necessary, to obtain the approval
by its shareholders therefor, including the authorization of such additional
number of shares of Common Stock as may be required in excess of the number so
reserved (either in the aggregate or as to any Debenture) or in excess of such
limitation, as the case may be.
4.3. Listing of Underlying Shares. The Company hereby agrees to take such
action to cause the Shares to be listed on the Exchange on the first date
permitted by the rules of the Exchange. The Company further agrees, if the
Company applies to have the Common Stock traded on any
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203
other principal stock exchange or market, it will include in such application
the Shares and will take such other action as is necessary or desirable to cause
the Shares to be listed on such other exchange or market as promptly as
possible.
4.4. Exchange Act Registration. The Company will cause its Common Stock to
continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act. The Company will take all action under its
control to continue the listing and trading of its Common Stock on the Exchange
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD and the Exchange.
4.5. Legends. The Shares and certificates evidencing the same shall,
promptly upon the effectiveness of the Registration Statement contemplated by
the Registration Rights Agreement, be free of legends, "stop transfers," "stock
transfer restrictions," or other restrictions, provided, that customary stock
transfer restriction legends may appear on any certificate evidencing any of
such Shares if the SEC or other governmental authority with appropriate
jurisdiction has issued an active stop order, injunction or other order or
requirement suspending the effectiveness of the Registration Statement.
4.6. Corporate Existence. The Company will take all steps necessary to
preserve and continue its corporate existence.
5. LEGENDS.
5.1. Legends. The Company will issue one or more Debentures in the name of
the Subscriber and in such denominations (of not less than $100,000 each, unless
the total principal amount of Debentures held by such Holder is less than
$100,000, then in a denomination equal to such lesser amount) to be specified by
the Subscriber prior to (or from time to time subsequent to) the Closing. The
Debentures and certificates evidencing any shares of Common Stock issued upon
conversion thereof prior to the effectiveness of the Registration Statement will
bear the following legend (the "Legend"):
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204
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Prior to Closing, the Company will issue to the transfer agent for its
Common Stock (and to any substitute or replacement transfer agent for its Common
Stock concurrently with the Company's appointment of any such substitute or
replacement transfer agent) instructions in substantially the form and substance
of the Transfer Agent Irrevocable Instruction in the form attached as Exhibit C.
Such instructions shall be irrevocable by the Company from and after the Closing
or from and after the issuance thereof to any such substitute or replacement
transfer agent, as the case may be. Such instructions shall provide that the
transfer agent will immediately confirm its receipt of a Conversion Notice (as
defined in the Debentures) by facsimile to the Company. It is the intent and
purpose of such instructions, as provided therein, to require the transfer agent
for the Common Stock from time to time to issue certificates evidencing Shares
free of the Legend during the following periods and under the following
circumstances and without consultation by the transfer agent with the Company or
its counsel and without the need for any further advice or instruction to the
transfer agent by or from the Company, or its counsel, except with respect to
the Company's ability to immediately verify the calculation of the number of
Shares issuable upon conversion of the Debentures to the holder thereof:
(a) At any time from and after the effectiveness of the Registration
Statement, and so long as no stop order, injunction or other order of the
SEC or other applicable governmental authority with appropriate
jurisdiction is then in effect suspending effectiveness of the Registration
Statement:
(i) upon any surrender of one or more Debentures for conversion
into Shares;
(ii) upon any surrender of one or more certificates evidencing
Shares and which bear the Legend; and
(b) At any time from and after the Closing Date, upon any surrender of
one or more certificates evidencing Shares and
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205
which bear the Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those
surrendered and accompanied by representations and an opinion of counsel
that (i) the Holder thereof is permitted to dispose thereof pursuant to
Rule 144(k) under the Securities Act or (ii) the Holder intends to effect
the sale or other disposition of such Shares, whether or not pursuant to
the Registration Statement, to a purchaser or purchasers in a transaction
not subject to the registration requirements of the Securities Act, or
(iii) such Holder is not then subject to such requirements.
If any Holder does not transfer any Shares received by such Holder
upon conversion of its Debentures within 20 business days after conversion
of such Debentures, the Holder will return any certificate evidencing such
unsold Shares to the transfer agent so that the transfer agent may add the
Legend, as applicable, unless such Legend is not required pursuant to
Section 5.1 herein.
In addition, and if applicable, the Company shall reissue the Debentures
without the Legend set forth above at such time as (i) the Holder thereof is
permitted to dispose thereof pursuant to Rule 144(k) under the Securities Act or
(ii) the Holder intends to effect a sale thereof to a purchaser or purchasers in
a transaction not subject to the registration requirements of the Securities
Act, or (iii) the Holder is not then subject to such requirements.
5.2. No Other Legend or Stock Transfer Restrictions. No Legend has been or
shall be placed on the share certificates representing the Securities and no
instructions or "stop transfers," "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as set forth in this Section 5.1.
5.3. Subscriber's Compliance. Nothing in this section shall affect in any
way the Subscriber's obligations under and agreement to comply with all
applicable securities laws upon resale of the Securities.
6. [INTENTIONALLY OMITTED]
7. CHOICE OF LAW AND VENUE.
THIS AGREEMENT SHALL BE CONSTRUED UNDER THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE
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206
OF LAW THEREOF. Each of the parties hereby (i) irrevocably submits to the
exclusive jurisdiction of the United States District Court for the Southern
District of New York for the purposes of any suit, action or proceeding arising
out of or relating to this Agreement, the Debentures, the Registration Rights
Agreement or any other Related Agreement and (ii) waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the parties consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing in this paragraph shall affect or limit any right to
serve process in any other manner permitted by law.
8. ASSIGNMENT; ENTIRE AGREEMENT; AMENDMENT.
8.1. Assignment. Neither this Agreement nor any rights of the Subscriber
hereunder may be assigned by either party to any other person. Notwithstanding
the foregoing, the provisions of this Agreement shall inure to the benefit of,
and be enforceable by, any transferee of any of the Securities purchased or
acquired by the Subscriber hereunder with respect to the Securities held by such
person.
8.2. Entire Agreement; Amendment. This Agreement (including the Schedules
and Exhibits hereto), the Debentures, the Registration Rights Agreement, the
other Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subject matter hereof and thereof, and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth in this Agreement
or therein. Except as expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.
9. PUBLICITY.
The Company agrees that it will not disclose, and will not include in any
public announcement, the name of the Subscriber without its consent, unless and
until such disclosure is required by law or
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207
applicable regulation, and then only to the extent of such requirement. In the
case of any such required disclosure, the Company shall, prior to any such
disclosure, (i) notify the Subscriber, (ii) permit the Subscriber the
opportunity to review the proposed disclosure, and (iii) accommodate all
reasonable comments and requests for changes made by the Subscriber or its
counsel.
10. NOTICES, ETC.; EXPENSES; INDEMNITY.
10.1. Notices. Any notice, demand or request required or permitted to be
given by either the Company or the Subscriber pursuant to the terms of this
Agreement shall be in writing and 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 at the end of this Agreement or such other address as a
party may request by notifying the other in writing and communications shall be
deemed to have been received when delivered personally or, if sent by mail or
facsimile, when actually received by the party to whom it is addressed. Copies
of all notices to the Company shall be sent to Paul S. Weiner, Director of
Finance of the Company, and to the attention of the General Counsel of the
Company. Copies of all notices to the Subscriber shall be sent to its designee
or representative.
10.2. Indemnification. Each party shall indemnify the other against any
loss, cost, expenses, liabilities or damages (including reasonable attorney's
fees and expenses) incurred as a result of such parties' breach of any
representation, warranty, covenant or agreement in this Agreement.
11. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be enforceable against the parties actually executing such counterparts,
and all of which together shall constitute one instrument.
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12. SURVIVAL; SEVERABILITY.
The representations, warranties, covenants and agreements of the parties
hereto shall survive the Closing, provided that the representations and
warranties shall survive only until the fifth anniversary of the Closing. In the
event that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision.
13. TITLE AND SUBTITLES.
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
14. AMOUNT.
The undersigned Subscriber hereby subscribes for U.S. $_______ in principal
amount of Debentures and agrees to pay therefor funds, which constitute 95% of
the principal amount of the Debentures, in the amount of
_____________________________ Dollars (U.S. $________).
The undersigned acknowledges that this subscription shall not be effective
unless accepted by the Company as indicated below.
Subscriber's Representative: Name of Subscriber:
- --------------------------- ------------------------------
Attn: By
Name:
Title:
Subscription dated as of:
March 10, 1997
Address:
Place of Execution:
Telephone: Place of Organization or Citizenship:
Fax: Place of Residency and/or Principal
Place of Business:
With a copy to:
- --------------------------
Registration Instructions:
- ------------------------- ----------------------------------
(Name)
- -------------------------
(Please Print)
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY AS OF THE 10TH DAY OF MARCH,
1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
----------------------------
Name:
Title:
209
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Registration Rights Agreement"),
entered into as of March 10, 1997, between ___________________ with offices at
________________ (the "Purchaser"), and Palomar Medical Technologies, Inc., a
Delaware corporation, with offices at 66 Cherry Hill Drive, Beverly,
Massachusetts 01915 (the "Company").
W I T N E S S E T H:
WHEREAS, pursuant to a Subscription Agreement, dated as of March 10, 1997
(the "Agreement"), by and between the Company and the Purchaser, the Company has
agreed to sell and the Purchaser has agreed to purchase up to ___________
Dollars (U.S.$_______) of the Company's 5% Convertible Debentures due March 10,
2002 (the "Debentures") convertible into shares of the Company's Common Stock,
$.01 par value. The shares of Common Stock issuable upon conversion of the
Debentures are referred to herein as the "Shares".
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Purchaser's agreement to enter into the Agreement, the Company has agreed to
provide the Purchaser with certain registration rights with respect to the
Shares;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth herein, the Company and the
Purchaser agree as follows:
1. Certain Definitions. As used in this Registration Rights Agreement, the
following terms shall have the following respective meanings. Other terms used
herein which are defined in the Agreement shall have the same meanings herein as
are set forth for such terms in the Agreement or, if not defined therein, in the
Debentures.
"Commission" or "SEC" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Minimum Number of Shares" shall mean, at any time, the sum of (i) the
number of shares of Common Stock issued prior to such time upon conversion
of all or any part of the Debentures, plus (ii) the number of shares (as
may be adjusted in accordance with the terms of the
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Debenture) of Common Stock issuable at such time upon conversion of the
Debentures (without giving effect to any applicable conversion
restrictions), minus (iii) the number of shares of Common Stock described
in clause (i) above that have been sold prior to such time by the Holders
pursuant to a registration statement or Rule 144.
"Registrable Securities" shall mean: (i) Shares issued to the Purchaser or
its designee upon conversion of the Debentures; (ii) any securities into
which or for which any such Shares shall have been converted or exchanged
pursuant to any recapitalization, reorganization or merger; and (iii) any
securities issued with respect to the foregoing pursuant to a stock split
or stock dividend.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with the Purchaser's exercise of its registration
rights under this Registration Rights Agreement, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions, if any, applicable to the sale of such Holder's Registrable
Securities and all fees and disbursements of counsel for such Holder.
"Holder" shall include the Purchaser and any transferee of Debentures,
Shares or Registrable Securities which have not been sold to the public to
whom the registration rights conferred by this Registration Rights
Agreement have been transferred in compliance with Section 10 of this
Registration Rights Agreement.
"Registration Statement" shall have the meaning set forth in Section 2(a)
herein.
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"Regulation D" shall mean Regulation D promulgated under the Securities
Act, as amended from time to time.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
2. Registration Requirements. The Company shall file by the sixtieth (60th)
calendar day after the Closing Date, and use its best efforts to cause to become
effective, as promptly as possible and in any event by the one hundred twentieth
(120th) calendar day after the Closing Date, a registration statement on Form
S-3 under the Securities Act or, if Form S-3 is not then available, on another
appropriate form covering the resale of the Registrable Securities, covering
1,100,000 shares and shall take all action necessary to qualify the Registrable
Securities under state "blue sky" laws as hereinafter provided. The Company
shall use its diligent best efforts to effect the registrations contemplated by
the foregoing (including, without limitation, the execution of an undertaking to
file amendments and post-effective amendments, appropriate qualification under
and compliance with applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) and as would permit or facilitate the sale and distribution of all the
Registrable Securities in all states reasonably requested by the Holder for
purposes of maximizing the proceeds realizable by the Holder, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation in any jurisdiction in which it is not
otherwise required to be so qualified, except the State of New York (if required
in order to satisfy New York blue sky laws), from such sale and distribution.
Such best efforts by the Company shall include, without limitation, the
following:
(a) The Company shall file (i) registration statement(s) with the
Commission pursuant to Rule 415 under the Securities Act on Form S-3 under
the Securities Act and the Company shall use its best efforts to qualify
for the use of such Form (or in the event that the Company is ineligible to
use such form, such other form as the Company is eligible to use under the
Securities Act) covering all of the Registrable Securities so to be
registered (each, a "Registration Statement"); (ii) within fifteen business
days after the Company receives notice from any Holder that the number of
Registrable Securities covered by the Registration Statement is at any time
less than one hundred ten percent (110%) of the Minimum Number of Shares,
an amendment to the Registration Statement to increase by twenty percent
(20%) the number of Registrable Securities originally covered by the
Registration Statement; (iii) thereafter, as promptly as possible, and in
any event within thirty
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calendar days after the Company receives notice from any Holder that the
number of Registrable Securities covered by the Registration Statement
shall at any time be insufficient to cover one hundred ten percent (110%)
of the Minimum Number of Shares, one or more additional registration
statements covering two hundred percent (200%) of the Minimum Number of
Shares; (iv) such blue sky filings as shall be reasonably requested to
permit such sales, provided, however, that the Company shall not be
required to register the Registrable Securities in any jurisdiction that
would subject it to general service of process in any such jurisdiction
where it is not then so subject or subject the Company to any tax in any
such jurisdiction where it is not then so subject or require the Company to
qualify to do business in any jurisdiction where it is not then so
qualified; and (v) required filings with the National Association of
Securities Dealers, Inc. ("NASD") or exchange where the Shares are traded;
all as soon as practicable after the date hereof. The Company shall use its
best efforts to have the Registration Statement, or such amendments and any
such additional registration statements and other filings declared
effective as soon as may be practicable after filing in accordance with
this paragraph.
(b) The Company shall enter into such customary agreements (including
a customary underwriting agreement with the underwriter or underwriters, if
any) and take all such other reasonable actions in connection therewith in
order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, the Company shall:
(i) make such representations and warranties to the underwriter
or underwriters, if any, in form and substance and scope as are
customarily made by issuers to underwriters in secondary underwritten
offerings;
(ii) in the case of an underwritten offering, cause to be
delivered to the sellers of Registrable Securities and the underwriter
or underwriters, if any, opinions of counsel to the Company, dated the
effective date (or in the case of an underwritten offering, dated the
date of delivery of any Registrable Securities sold pursuant thereto)
of the applicable registration statement (which counsel, and opinions
(in form, scope and substance), shall be reasonably satisfactory to
the managing underwriter or underwriters, if any, and the appointed
representative or counsel of the Holder), addressed to the Holder and
each underwriter, if any, covering the matters customarily covered in
opinions requested in underwritten secondary offerings and, in the
case of any
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underwritten offering, such other matters as may be reasonably
requested by the Holder;
(iii) in the case of an underwritten offering, cause to be
delivered, immediately prior to the effectiveness of the applicable
Registration Statement (and, in the case of an underwritten offering,
at the time of delivery of any Registrable Securities sold pursuant
thereto), letters from the Company's independent certified public
accountants addressed to the Holder and each underwriter, if any,
stating that such accountants are independent public accountants
within the meaning of the Securities Act and the applicable published
rules and regulations thereunder, and otherwise in customary form and
covering such financial and accounting matters as are customarily
covered by letters of the independent certified public accountants
delivered in connection with underwritten secondary public offerings;
(iv) if an underwriting agreement is entered into, cause the same
to set forth indemnification and contribution provisions and
procedures which are no less favorable to the Holder and the Company
than those contemplated by sections 9 and 10 with respect to all
parties to be indemnified pursuant to such sections;
(v) deliver such documents and certificates as may be reasonably
requested by the Holder of the Registrable Securities being sold or
the managing underwriter or underwriters, if any, to evidence
compliance with clause (i) above and with any customary conditions
contained in the underwriting agreement, if any, or other agreement
entered into by the Company;
the foregoing in this paragraph 2(b) shall be done at each closing under any
such underwriting or similar agreement or as and to the extent required
thereunder; provided, however, that the Company shall not be required to effect
an underwritten offering of the Registrable Securities on more than one (1)
occasion.
(c) At least ten (10) business days prior to the anticipated filing
thereof with the SEC, the Company shall make available for inspection and
review by the Holder, a representative or representatives of the Holder,
any underwriter participating in any disposition pursuant to a Registration
Statement, and any attorney or accountant retained by such Holder or
underwriter, any such registration statement or amendment or supplement or
any blue sky, NASD or other filing, all
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financial and other records, pertinent corporate documents and properties
of the Company as they may reasonably request for the purpose, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with such Registration Statement; provided,
however, that the Holder and its representatives, if any, shall first agree
in writing with the Company that any information that is reasonably and in
good faith designated by the Company in writing as confidential at the time
of delivery of such information shall be kept confidential by the Holder
and its representatives, if any, and that the Holder and its
representatives, if any, will use reasonable efforts to cause its
representatives and such other persons so to keep such information
confidential, unless (i) disclosure of such information is required by
court or administrative order or is necessary to respond to inquiries of
regulatory authorities, (ii) disclosure of such information is required by
law (including any disclosure requirements pursuant to Federal securities
laws in connection with the filing of any Registration Statement or the use
of any prospectus referred to in this Agreement), (iii) such information
becomes generally available to the public other than as a result of a
disclosure or failure to safeguard by any such person, (iv) such
information becomes available to any such person from a source other than
the Company and such source, to the knowledge of such persons, is not bound
by a confidentiality agreement with the Company, or (v) such information
was known to or is developed by such persons without reference to such
confidential information of the Company. In the case of any disclosure in
clauses (i) and (ii) above, the Holder will use reasonable efforts to give
to the Company as much notice as possible prior to such disclosure.
In connection with any registration of securities of the Holder hereunder,
the Holder shall promptly complete and return to the Company all selling
stockholder questionnaires, and otherwise furnish to the Company all information
regarding the Holder, reasonably requested by the Company to assist the Company
in preparing any Registration Statement, any amendment or supplement thereto, or
any blue sky, NASD or other filing to be made in connection therewith.
(d) The Company will keep, to the maximum extent permitted by
applicable law, the economic terms of the Debentures and the offering
related thereto confidential. If the Company is required by applicable law
to file the form of Debenture, any written summary of the material economic
terms of the Debentures or any other documents related to the transactions
contemplated hereby with the Commission or any other governmental
authority, the Company shall, prior to any such
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filing, (i) notify the Holders, (ii) seek to have the Commission afford
confidential treatment to the filing, (iii) permit the Holders the
opportunity to review the proposed filing and any requests for confidential
treatment, and (iv) accommodate all reasonable comments and requests for
changes made by the Holders or their counsel.
Notwithstanding the foregoing, the Holder hereby consents to the filing by
the Company of the form of Debenture, the Agreement and this Registration Rights
Agreement as exhibits to any registration statements filed under the Securities
Act and any Exchange Act Reports (as defined in the Agreement) filed after the
date of this Registration Rights Agreement.
3. Underwritten Distribution. If the Holder intends to distribute the
Registrable Securities covered by a Registration Statement by means of an
underwriting, the Holder shall so advise the Company and, within 30 days of the
date thereof and without limiting the generality of other provisions hereof, the
Company will prepare and file such amendment or amendments to the Registration
Statement and make such other filings as may be necessary or appropriate to
effect any such underwritten distribution.
4. Multiple Holders. If there is more than one Holder, such Holders shall
act with respect to their rights under this Registration Rights Agreement
according to the vote of two-thirds-in-interest.
5. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Registration Rights Agreement shall be borne by the Company, and all Selling
Expenses shall be borne by each Holder.
6. Registration Delay or Failure. The Company acknowledges that its failure
to register the Registrable Securities in accordance with the Agreement and this
Registration Rights Agreement will cause the Holder to suffer damages and
undertake risks in amounts that will be difficult to ascertain and were not
anticipated in negotiating the terms hereof or of the Agreement or the
Debentures. Accordingly, the parties agree that it is appropriate to include
herein a provision for liquidated damages and to compensate the Holder fairly
for the additional risk undertaken by the Holder resulting from the Company's
delay or failure to effect such registrations. The parties acknowledge and agree
that the provisions hereinafter set forth in this Paragraph 6 represent the
parties' good faith effort to quantify such damages and to compensate for such
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additional risk and, as such, agree that the form and amount of damages and risk
compensation are reasonable and will not constitute a penalty.
(a) If the Registration Statement covering the resale of the Shares is
not declared effective by the one hundred twentieth (120th) calendar day
after the Closing Date, then the Company shall pay, in cash, to the Holder
on such 120th day and on each succeeding 30th day thereafter (or earlier
date when the Registration Statement becomes effective) upon which such
Registration Statement still has not become effective, an amount equal to
two percent (2%) of the original principal amount of the Debentures of the
Holder on the payment date (or the date upon which the Registration
Statement becomes effective) until the earlier of (i) the Registration
Statement being declared effective or (ii) the two hundred seventieth
(270th) day after the Closing Date. The amounts payable pursuant to the
foregoing sentence shall not exceed ten percent (10%) of the Outstanding
Amount of the Debentures if, on or prior to the payment date for any 30-day
period that would require payments in excess of such amounts, the Company
has established to the reasonable satisfaction of the Holder that the
Company has adequate liquidity to redeem the Debentures pursuant to Section
6 thereof. In addition, in the event that any principal of the Debentures
is converted prior to the 120th day, the Company will pay, in cash, to the
Holder, in addition to the Shares issued upon conversion, two (2) percent
of the original principal amount of the Debenture on the applicable Holder
Conversion Date.
(b) If such Registration Statement still has not become effective by
the 270th calendar day after the Closing Date, then, at the Holder's option
exercised at any time thereafter until the effectiveness of the
Registration Statement (which shall not be subject to any stop orders or
other prohibitions on sale of shares thereunder), the Company shall redeem
the Holder's Debentures, at a price equal to one hundred twenty percent
(120%) of the original principal amount of the Holder's Debentures in
accordance with the procedures set forth in Section 6 (without regard to
Sections 6(d) or 6(e)) of the Debentures.
(c) If such Registration Statement is insufficient to cover the number
of Shares issuable upon conversion of the Debentures by any Holder, then,
at the Holder's option exercised at any time during which such Registration
Statement is insufficient to cover the number of Shares issuable upon
conversion of such Holder's Debentures, the Company shall redeem the number
of Shares not covered by the Registration Statement pursuant to Section 6
(without regard to Sections 6(d) or 6(e)) of the Debentures.
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(d) Notwithstanding any of the foregoing, failure to cause the
Registration Statement to become effective shall not constitute an Event of
Default under Section 17 of the Debenture as long as (i) the Company
continues to use its best efforts to cause the Registration Statement to
become effective as required by Section 6(a) hereof, (ii) the Company makes
timely payments of the amounts required by Section 6(a) hereof, (iii) on or
prior to the 270th calendar day after the Closing Date and at all times
thereafter until the effectiveness of the Registration Statement or the
redemption of all the Debentures, the Company shall have established to the
reasonable satisfaction of the Holder that the Company has adequate
liquidity to redeem the Debentures pursuant to Section 6 thereof, and (iv)
the Registration Statement shall have been filed by the 60th day after the
Closing Date.
7. Registration Procedures. In the case of each registration effected by
the Company pursuant to this Registration Rights Agreement, the Company will
keep the Holder advised in writing as to initiation of each registration and as
to the completion thereof. At its expense, the Company will use its best efforts
to:
(a) Keep such registration effective for the period ending (i) 180
days after the Maturity Date of the Debentures, (ii) when the Holder has
completed the distribution of the Registrable Securities described in the
registration statement relating thereto, or (iii) the date on which the
Registrable Securities are saleable pursuant to Rule 144(k) promulgated
under the Securities Act, whichever first occurs.
(b) Furnish such number of prospectuses and other documents incident
thereto as the Holder from time to time may reasonably request.
8. Indemnification.
(a) Company Indemnity. The Company will indemnify the Holder, each of
its officers, directors and partners, and each person controlling the
Holder within the meaning of Section 15 of the Securities Act and the rules
and regulations thereunder, and each underwriter, if any, and each person
who controls, within the meaning of Section 15 of the Securities Act and
the rules and regulations thereunder, any underwriter, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other
document (including any related registration statement, notification or the
like) incident to any registration effected
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pursuant to this Registration Rights Agreement, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation by
the Company of the Securities Act or any state securities law or in either
case, any rule or regulation thereunder applicable to the Company and
relating to action or inaction required of the Company in connection with
any such registration, and will reimburse the Holder, each of its officers,
directors and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises
out of or is based on any untrue statement or omission (or alleged untrue
statement or omission) based upon written information furnished to the
Company by the Holder and stated to be specifically for use therein. The
indemnity agreement contained in this Section 8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company
(which consent will not be unreasonably withheld).
(b) Holder Indemnity. The Holder will, if Registrable Securities held
by it are included in a registration statement effected pursuant to this
Registration Rights Agreement, indemnify the Company, each of its
directors, officers, partners, each person who controls the Company within
the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder, each other Holder (if any), and each of their
officers, directors and partners, and each person controlling such other
Holder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document incident to any
registration of Registrable Securities pursuant to this Registration Rights
Agreement, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
other Holders and their directors, officers and partners or control persons
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity
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with written information furnished to the Company by the Holder and stated
to be specifically for use therein; provided, however, that the obligations
of the Holder shall not apply to amounts paid in settlement of any such
claims, losses, damages or liabilities if such settlement is effected
without the consent of the Holder (which consent shall not be unreasonably
withheld). Notwithstanding anything to the contrary in this Section 8, the
Holder's liability under this paragraph 8(b) with respect to any particular
registration shall be limited to an amount equal to the proceeds received
by the Holder from the Registrable Securities sold by the Holder in such
registration.
(c) Procedure. Each party entitled to indemnification under this
Section 8 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim in any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Parties (whose approval shall not be unreasonably withheld),
and the Indemnified Party may participate in such defense at its own
expense, and provided, further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section except to the extent that the
Indemnifying Party is actually prejudiced by such failure to provide
notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of the Indemnified Parties,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to all Indemnified Parties of a release from all liability in
respect of such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as any
Indemnifying Party may reasonably request in writing.
9. Contribution. If the indemnification provided for in Section 8 herein is
unavailable to the Indemnified Parties in respect of any losses, claims, damages
or liabilities referred to herein, then each such Indemnifying Party, in lieu of
indemnifying the Indemnified Parties, shall contribute to the amount paid or
payable by such Indemnified Parties as a result of such losses, claims, damages
or liabilities (i) as between the Company on the one hand and the Indemnified
Parties on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Indemnified
Parties on the other hand from the registration of the Registrable Securities,
or (ii) if such
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allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and of the Indemnified Parties, on the
other hand in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations.
The relative benefits received by the Company on the one hand and the
Indemnified Parties, on the other hand shall be deemed to be in the same
proportion as the proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company from the
initial sale of the Debentures by the Company pursuant to the Agreement bear to
the gain realized by the Holder in connection with the sale of Registrable
Securities by the Holder pursuant to the registration. The relative fault of the
Company on the one hand and of the Holder, on the other hand shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission to state a material fact relates to
information supplied by the Company by the Holder.
In no event shall the obligation of any Indemnifying Party to contribute
under this Section 9 exceed the amount that such Indemnifying Party would have
been obligated to pay by way of indemnification if the indemnification provided
for under Section 8(a) or 8(b) hereof had been available under the
circumstances.
The Company and the Holder agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro rata allocation
(even if the Indemnified Parties were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraphs. The amount
paid or payable by an Indemnified Party as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraphs
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
10. Survival. The indemnity and contribution agreements contained in
Sections 8 and 9 shall remain operative and in full force and effect regardless
of (i) any termination of the Agreement, (ii) any
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investigation made by or on behalf of any Indemnified Party or by or on behalf-
of the Company or (iii) the consummation of the sale or successive resales of
the Registrable Securities.
11. Information By Holder and Any Underwriters. The Holder shall furnish to
the Company, within 20 business days of the Company's request therefor, such
information regarding the Holder or underwriters, as the case may be, and the
distribution proposed by such Holder or underwriters as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this
Registration Rights Agreement.
Each Holder 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 Holder shall use its reasonable best
efforts to comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale.
Each Holder agrees to use its reasonable best efforts to notify the Company
promptly after the date on which all Registrable Securities owned by such Holder
have been sold by such Holder, if such date is prior to the Maturity Date, so
that the Company may comply with its obligation to terminate the Registration
Statement in accordance with Item 512 of Regulation SK or Regulation SB, as the
case may be.
12. Transfer of Assignment of Registration Rights. The rights granted to
the Holder by the Company under this Registration Rights Agreement, to cause the
Company to register Registrable Securities, may be transferred or assigned to a
transferee or assignee of any of not less than $100,000 in principal amount of
Debentures, provided that the Company is given written notice by the Holder at
the time of or within a reasonable time after said transfer or assignment,
stating the name and address of said transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned, and provided, further, that the transferee or assignee of such
rights is not deemed by the Board of Directors of the Company, in its reasonable
judgment, to be a competitor of the Company and provided, further, that the
transferee or assignee of such rights agrees to be bound by this Registration
Rights Agreement.
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13. Miscellaneous.
(a) Entire Agreement; Counterparts. This Registration Rights
Agreement, the Subscription Agreement (including the Schedules and Exhibits
thereto), the Debentures and the other Related Agreements contain the
entire understanding and agreement of the parties with respect to the
subject matter hereof. This Registration Rights Agreement may not be
modified or terminated except by a written agreement signed by both
parties. This Registration Rights Agreement may be executed in any number
of counterparts.
(b) Notices. Any notice or other communication given or permitted
under this Agreement shall be in writing and 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, (a) if to Purchaser, at its address hereinabove set forth
(if Angelo, Gordon & Co., L.P., or an affiliated entity, then a copy to
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, New York,
New York - 10022, Attention: Stephen M. Vine, Esq., Telecopy No.: (212)
872-1002, Telephone No.: (212) 872-1000), (b) if to the Company, at its
address hereinabove set forth, (c) if, to a Holder other than the
Purchaser, at the address thereof furnished by like notice to the Company,
or (d) to any such addressee at such other address or addresses as shall be
so furnished to the other parties hereto by like notice. Communications
shall be deemed to have been received when personally delivered or, if sent
by mail or facsimile, when actually received by the party to whom it is
addressed. Copies of all notices to the Company shall be sent to Paul S.
Weiner, Director of Finance of the Company, and to the attention of the
General counsel of the Company. Copies of all notices to the Holder shall
be sent to its designee or representative.
(c) Gender of Terms. All terms used herein shall be deemed to include
the feminine and the neuter, and the singular and the plural, as the
context requires.
(d) Governing Law; Consent of Jurisdiction. This Registration Rights
Agreement shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts, without regard to the principles of
conflicts of laws thereof. Each of the Company and the Purchaser (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States
District Court for the Southern District of New York for the purposes of
any suit, action or proceeding arising out of
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223
or relating to this Registration Rights Agreement and (ii) hereby waives,
and agrees not to assert in any such suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the
Company and the Purchaser consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Registration Rights
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this paragraph shall
affect or limit any right to serve process in any other manner permitted by
law.
(e) Title. The titles used in this Registration Rights Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Registration Rights Agreement.
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224
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed as of the date first above written.
INVESTOR:
By its:
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
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225
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
NO. $
----------- -------------
5% CONVERTIBLE DEBENTURE DUE MARCH 10, 2002
THIS CONVERTIBLE DEBENTURE ("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 "Company"),
designated as its 5% Convertible Debentures Due March 10, 2002 in an aggregate
principal amount not exceeding Five Million Five Hundred Thousand U.S. Dollars
(U.S. $5,500,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to ______________________,
having an address at ______________________, the holder hereof, or its order
(the "Holder"), the principal sum of ______________________ United States
Dollars (U.S. $_______) on March 10, 2002 (the "Maturity Date") and to pay
interest on the principal sum outstanding under this Debenture, at the rate of
5% per annum due and payable in arrears on the Maturity Date 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 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 Company
regarding registration and transfers of the Debentures (the "Debenture
Register"); provided, however, that the Company'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 Subscription Agreement, dated as
of March 10, 1997, between the Company and the subscriber to the original issue
of the Debentures (as amended from time to time and in effect, the "Subscription
Agreement"). The Company shall be entitled to withhold from all payments of
interest
<PAGE>
226
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 Company to the reasonable satisfaction of the Holder.
The principal of and interest on this Debenture are payable in United States
Dollars at the address last appearing on the Debenture Register of the Company
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 Paragraph 5 hereof, the Company 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.
This Debenture is subject to the following additional provisions:
1. Exchange. The Debentures are exchangeable for an equal aggregate
principal amount of Debentures of different denominations, of not less than
$100,000 (or the total principal amount, if less than $100,000) each as
requested by the Holder surrendering the same. No service charge will be made
for such exchange.
2. Transfers. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged in the United States only in compliance with the Securities Act of
1933, as amended (the "Act") and applicable state securities laws and in
accordance with other applicable provisions hereof. Prior to due presentment for
transfer of this Debenture, the Company may treat the person in whose name this
Debenture is duly registered on the Company's Debenture Register as the owner
hereof for the purpose of receiving payment as herein provided and all other
purposes, whether or not this Debenture is then overdue, and the Company shall
not be affected by notice to the contrary.
3. Definitions. For purposes hereof, the following terms shall have the
following meanings:
"Closing Date" shall mean the date of original issuance of this Debenture.
"Common Stock" shall mean the Common Stock, par value $.01 per share, of
the Company.
<PAGE>
227
"Conversion Date Market Price" shall mean, at any Holder Conversion Date or
Forced Conversion Date, as the case may be, the lesser of (i) an amount
that is equal to the percentage set forth in the table below (the
"Applicable Percentage") opposite the period in which the Holder Conversion
Date or the Forced Conversion Date shall have occurred of the average
Market Price for Shares of Common Stock for the five trading days
immediately preceding the Holder Conversion Date or Forced Conversion Date,
and (ii) an amount that is equal to the Applicable Percentage opposite the
period in which the Holder Conversion Date or the Forced Conversion Date
shall have occurred of the average Market Price for Shares of Common Stock
for the ten trading days immediately preceding the Holder Conversion Date
or Forced Conversion Date.
Holder Conversion Date or Applicable Percentage
Forced Conversion Date
0 to 89 days after Closing Date 100%
90 days or more after Closing Date 90%
"Conversion Deficiency" shall have the meaning set forth in Paragraph 9(b).
"Conversion Notice" shall have the meaning set forth in Paragraph 5(c).
"Conversion Rate" shall have the meaning set forth in Paragraph 5(b).
"Equity Offerings" shall mean the issuance or sale by the Company of any
Common Stock or securities which are convertible into or exchangeable for
Common Stock, or any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any such
convertible or exchangeable securities (other than shares or options issued
or which may be issued pursuant to the Company's employee or director
option plans or shares issued upon exercise of options, warrants or rights
outstanding on the Closing Date and listed in the Exchange Act Reports).
Event of Default" shall have the meaning set forth in Paragraph 17.
"Forced Conversion Date" shall have the meaning set forth in Paragraph
(5)(c)(ii).
<PAGE>
228
"Holder Conversion Date" shall have the meaning set forth in Paragraph
5(c)(i).
"Market Price for Shares of Common Stock" shall mean the price of one share
of Common Stock determined as follows:
(i) If the Common Stock is listed on the Exchange, the closing bid
price on the date of valuation, as reported by Bloomberg Financial Markets;
or
(ii) If the Common Stock is listed on any other national securities
exchange, the closing bid price on the date of valuation, as reported by
Bloomberg Financial Markets; or
(iii) If neither (i) nor (ii) apply, but the Common Stock is quoted in
the over-the-counter market on the pink sheets or bulletin board, the
lowest sales price on the date of valuation, as reported by Bloomberg
Financial Markets; or
(iv) If none of clause (i), (ii) or (iii) above applies, the market
value as determined by an independent nationally recognized investment
banking firm or financial advisor retained in good faith by the Company for
such purpose, taking into consideration, among other factors, the earnings
history, book value and prospects for the Company, and the prices at which
shares of Common Stock recently have been traded. Such determination shall
be conclusive and binding on all persons.
"Minimum Number of Shares" shall mean, at any time, the sum of (i) the
number of shares of Common Stock issued prior to such time upon conversion
of all or any part of the Debentures, plus (ii) the number of shares (as
may be adjusted in accordance with the terms hereof) of Common Stock
issuable at such time upon conversion of the Debentures (without giving
effect to any applicable conversion restrictions), minus (iii) the number
of shares of Common Stock described in clause (i) above that have been sold
prior to such time by the Holders pursuant to a registration statement or
Rule 144.
"Outstanding Amount" shall mean the principal sum outstanding under this
Debenture and all accrued but unpaid interest thereon.
"Paragraph 4 Transaction" shall mean a merger, consolidation, or other
transaction referred to in Paragraph 4.
<PAGE>
229
"Redemption Date" shall have the meaning set forth in Paragraph 6(c).
"Registration Rights Agreement" shall have the meaning set forth in the
Subscription Agreement.
"Subscription Agreement" shall mean the Subscription Agreement, dated as of
March 10, 1997, between the Company and the Subscriber to the original
issue of the Debentures, as such Subscription Agreement may be amended from
time to time.
Other terms defined in the Subscription Agreement and not otherwise defined
herein shall have the same meanings herein as are set forth for such terms in
the Subscription Agreement.
4. Merger; Consolidation. If at any time there occurs any consolidation or
merger of the Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving corporation) or any other
corporate reorganization or similar transaction or series of related
transactions in which greater than 50% of the Company's voting power is
transferred (a "Paragraph 4 Transaction"), the Holder of this Debenture, to the
extent then outstanding, and notwithstanding anything in Paragraph 5(a) to the
contrary, shall participate in any such transaction as a class with common
stockholders of the Company on the same basis as if this Debenture had been
converted one day prior to the record date or effective date of such Paragraph 4
Transaction; provided, however, that if a Paragraph 4 Transaction or the record
date for determination of the Company's stockholders entitled to participate in
such Paragraph 4 Transaction shall occur at any time before the first
anniversary of the effectiveness of the Registration Statement contemplated by
the Registration Rights Agreement, then, at the option of the Holder of this
Debenture, such Holder may treat the effective date of such Paragraph 4
Transaction as a Redemption Date and shall be entitled to receive the redemption
price with respect to such Redemption Date as is provided in Paragraph 6. Such
Holder shall be entitled to make such election at any time up to ten (10)
trading days after the effective time and date of the Paragraph 4 Transaction.
Nothing in this Section 4 shall prohibit the Holder from converting any part or
all of this Debenture in accordance with the terms hereof, up to and including
the effective time and date of the Paragraph 4 Transaction.
<PAGE>
230
5. Conversion. This Debenture is subject to conversion as follows:
(a) (i) Holder's Right to Convert. This Debenture shall be convertible
at any time and from time to time during the first 89 days after the
Closing Date, in whole or in part, at the option of the Holder hereof, into
fully paid, validly issued and nonassessable shares of Common Stock. This
Debenture shall be convertible at any time and from time to time commencing
with the 90th day after the Closing Date and until the Maturity Date, in
whole or in part, at the option of the Holder hereof, into fully paid,
validly issued and nonassessable shares of Common Stock; provided, that, in
any 30 calendar day period commencing on such 90th day after the Closing
Date and thereafter, the Holder hereof, together with any affiliates of
such Holder, may convert no more than one-third of the original principal
amount of all Debentures held by such Holder and its affiliates, as a
group. The foregoing conversion restrictions shall immediately terminate,
and the Holder shall be permitted to convert all or any part of this
Debenture without regard to the conversion restrictions, upon the
occurrence of any Event of Default, Paragraph 4 Transaction or upon the
commencement by any person (other than the Holder) of any tender offer for
shares of Common Stock. Notwithstanding anything herein to the contrary, if
the Company obtains any financing through the issuance of convertible,
exercisable or exchangeable securities at any time after February 1, 1997,
and the holders of such securities are permitted to convert such securities
in amounts that are any less restrictive than the restrictions contemplated
by this paragraph (a)(i), then (A) the Company shall immediately notify the
Holders in writing of such financing and the material terms of such
securities, and (B) at the option of any Holder as evidenced by written
notice to the Company, the conversion restrictions set forth in this
paragraph (a)(i) shall be amended, without any further action by the
Company or the Holders, to be no more restrictive than the terms of such
new securities.
(ii) Company's Right to Force Conversion. The Company may require
conversion of all or any part of this Debenture from time to time into
fully paid, validly issued and nonassessable shares of Common Stock;
provided, that
(A) in any 30 calendar day period commencing after the 365th
day described in Paragraph 5(a)(ii)(B) and until the Maturity
Date, the Company may require conversion of no more than
one-third of the original principal amount of this Debenture;
<PAGE>
231
(B) prior to the date on which the Company may require such
conversion, the Registration Statement contemplated by the
Registration Rights Agreement shall have been effective (and not
subject to any stop orders or other prohibitions on sale of
Common Stock thereunder) for at least 365 days during which such
Registration Statement shall have permitted the sale thereunder
of not less than the Minimum Number of Shares;
(C) the Registration Statement shall be effective (and not
subject to any stop orders or other prohibitions on sale of
Common Stock thereunder) as of the date of delivery of the Forced
Conversion Notice (as defined in Paragraph 5(c)(ii)) and for each
trading day commencing with the date of delivery of the Forced
Conversion Notice and ending on the Forced Conversion Date (as
defined in Paragraph 5(c)(ii)) for the sale thereunder of not
less than the Minimum Number of Shares;
(D) the closing bid price per share of Common Stock for each
of the 20 trading days immediately proceeding the delivery of the
Forced Conversion Notice shall have been greater than or equal to
the closing bid price per share of Common Stock on the Closing
Date, subject to adjustments for stock splits, reverse stock
splits or other recapitalizations involving Common Stock;
(E) no Events of Default shall have occurred prior to the
Forced Conversion Date;
(F) no Conversion Deficiency, as defined in Paragraph 9(b),
shall have occurred prior to the Forced Conversion Date; and
(G) any such required conversion shall be made from each
Holder, pro rata according to the portion of the total
Outstanding Amount of all Debentures held by each Holder.
(iii) Automatic Conversion. At the Maturity Date, the principal
indebtedness then outstanding hereunder (including without limitation
all interest accrued thereon plus any unpaid charges or amounts) shall
automatically be converted into fully paid, validly issued and
nonassessable shares of Common Stock and, except for the Holder's
right to receive the Common Stock into which this Debenture is
automatically so converted, and except for any portion of this
Debenture which cannot be converted because of the limitations
contained in Sections 5(d) and 9(b) of this Debenture, this Debenture
shall be deemed
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232
to have been canceled whether or not surrendered upon such automatic
conversion.
(iv) Accrued But Unpaid Interest. Notwithstanding anything in
this Debenture to the contrary, the Outstanding Amount of this
Debenture on any Holder Conversion Date or any Forced Conversion Date,
as the case may be, shall include, without limitation, all accrued but
unpaid interest under this Debenture through such date.
(b) Conversion Price for Holder Converted Shares. The Outstanding
Amount of this Debenture that is converted into shares of Common Stock
shall be convertible into the number of shares of Common Stock determined
in accordance with the following formula:
P + I
-------------------------------------
Conversion Date Market Price
P = principal amount of this Debenture submitted for
conversion
I = accrued but unpaid interest on the principal amount
of this Debenture submitted for conversion plus any
unpaid charges or amounts through the Holder
Conversion Date or Forced Conversion Date, as the
case may be.
The number of shares of Common Stock into which the Outstanding Amount
of this Debenture may be converted pursuant to this paragraph is hereafter
referred to as the "Conversion Rate."
(c) (i) Mechanics of Conversion by Holder. In order to convert this
Debenture (in whole or in part) into full shares of Common Stock, the
Holder shall surrender this Debenture, duly endorsed, by either overnight
courier or two-day courier, to the Company, and, in case of any conversion
pursuant to Section 5(a)(i), shall give written notice in the form of
Exhibit A hereto (the "Conversion Notice") by facsimile (with the original
of such notice forwarded with the foregoing courier) to the Company that
the Holder elects to convert all or the portion of the Outstanding Amount
of this Debenture specified therein, which notice and election shall be
irrevocable by the Holder unless the Company shall default in or fail to
fulfill any or all of its obligations arising hereunder or otherwise by
reason of such notice or election, in which case, in addition to and not in
lieu of any and all other rights and remedies to which the Holder may
thereby be and become entitled, such notice and election, by
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233
further notice to the Company may be revoked and rescinded at the election
of the Holder exercised in its sole discretion; provided, however, that the
Company shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon conversion unless this Debenture with
evidence of the principal amount hereof to be converted is delivered to the
Company as provided above, or the Holder notifies the Company that this
Debenture has been lost, stolen or destroyed and promptly executes an
agreement reasonably satisfactory to the Company to indemnify the Company
from any loss which may be incurred by it in connection with this
Debenture; and provided, further, that each Conversion Notice shall provide
for the Holder's election to convert either (A) at least $100,000 of the
Outstanding Amount of this Debenture, or (B) if such Outstanding Amount
shall then be less than $100,000, the entire Outstanding Amount. The date
on which a Conversion Notice is given (the "Holder Conversion Date") shall
be deemed to be the date the Company received by facsimile the Conversion
Notice, as evidenced by a printed confirmation of receipt received by the
Holder. Upon receipt of any Conversion Notice, the Company shall
immediately verify the Holder's calculation of the Conversion Rate.
(ii) Mechanics of Forced Conversion by Company. In order to
require conversion of this Debenture pursuant to Section 5(a)(ii)
above, the Company shall give written notice in the form of Exhibit B
hereto, appropriately completed (the "Forced Conversion Notice"), by
facsimile (with the original of such notice forwarded with the
foregoing courier) to each Holder of Debentures that the Company
elects to force conversion of all or a portion of the Outstanding
Amount of the Debenture of each Holder specified therein, which notice
and election shall be irrevocable by the Company and shall be
delivered at least 20 trading days prior to the date of conversion
specified in the Forced Conversion Notice (the "Forced Conversion
Date"). Each Holder will within two business days after the Forced
Conversion Date, to the extent the Debenture has not been converted by
such Holder prior to the Forced Conversion Date, deliver such
Debenture evidencing the Outstanding Amount of such Debenture to be
converted to the Company, duly endorsed, by either overnight courier
or two-day courier, or notify the Company that such Debenture has been
lost, stolen or destroyed and promptly execute an agreement reasonably
satisfactory to the Company to indemnify the Company from any loss
which may be incurred by it in connection with such Debenture.
Notwithstanding anything herein to the contrary, any Holder may
convert any portion of its Debentures prior to the Forced Conversion
Date.
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234
(iii) Issuance of Certificates. In the case of any Conversion
Notice given by the Holder or any Forced Conversion Notice given by
the Company, the Company shall use its best efforts to cause the
transfer agent to issue and deliver as promptly as practicable and in
no event later than two (2) business days after delivery to the
Company of the Debenture, or after receipt of such agreement and
indemnification, to such Holder or to its designee, a certificate or
certificates for the number of shares of Common Stock to which the
Holder shall be entitled, together with a Debenture for the principal
amount not submitted for conversion or forced to convert, as the case
may be. The person or persons entitled to receive the shares of Common
Stock issuable upon conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on the
Holder Conversion Date or the Forced Conversion Date, as the case may
be. If the Company shall not have the requisite number of shares of
Common Stock issuable upon conversion of the Debentures by any Holder,
then, without limiting the Company's obligation to convert all of the
Debentures, such conversion shall be made for each Holder, pro rata
according to the portion of the total Outstanding Amount of the
portion of the Debentures sought to be converted. At the Holder's
option, the request for conversion by the Holder or the required
conversion by the Company shall be null and void for any portion of
the Debentures for which the Company does not have shares of Common
Stock issuable upon conversion as of the Holder Conversion Date or the
Forced Conversion Date.
(d) Limitations on Conversion. In connection with a conversion of this
Debenture effected pursuant to the terms of this Section 5, in no event
shall the Company issue to the Holder more than that number of shares of
Common Stock which, together with the Common Stock theretofore issued upon
conversion of Debentures would exceed 6,151,451 shares of Common Stock, as
such number is adjusted from time to time pursuant to the provisions hereof
(the "Maximum Share Amount"). Once the Maximum Share Amount has been
issued, the entire remaining Outstanding Amount of this Debenture shall be
immediately due and payable by the Company to the Holder in immediately
available funds at an amount equal to the Redemption Price.
6. Redemption.
(a) Company's Obligation To Redeem. Any portion of this Debenture
which, at any time on or before the Maturity Date, shall be required to be
redeemed at the option of the Holder under the provisions hereof or under
any provision of any Related Agreement (as defined in the
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235
Subscription Agreement) shall be redeemed by the Company in accordance with
this Section 6.
(b) Company's Option To Redeem. Any portion of this Debenture may be
redeemed at the Company's option expressed by a written notice (a
"Redemption Notice") to the Holder; provided that
(i) the Redemption Notice delivered by the Company shall be
received by the Holder at least 20 trading days (but not more than 40
trading days) prior to the date (the "Redemption Date") of redemption;
(ii) at all times from and after the effective date of the
Registration Statement contemplated by the Registration Rights
Agreement (or, if earlier, the 270th day after the Closing Date), the
Registration Statement shall have been effective for sale thereunder
(except pursuant to suspension periods contemplated by the
Registration Rights Agreement) of not less than the Minimum Number of
Shares;
(iii) the Registration Statement shall be effective (and not
subject to any stop orders or other prohibitions on sale of Common
Stock thereunder) on the date of delivery of the Redemption Notice and
on each day from the date of such delivery through the Redemption Date
for the sale thereunder of not less than the Minimum Number of Shares;
(iv) on the date of the Redemption Notice, the Company shall have
deposited at least seventy percent (70%) of the Redemption Price in an
escrow account reasonably satisfactory to the Holder, and shall have
otherwise established to the reasonable satisfaction of the Holder
that the Company shall have adequate liquidity to pay the Redemption
Price on the Redemption Date, and shall not be prohibited under the
terms of any financing or other agreements or applicable law from
redeeming the Debentures on the Redemption Date; and
(v) no Conversion Deficiency, as defined in Section 9(b), shall
have occurred prior to the Redemption Date.
If the Company delivers a Redemption Notice, and then for any reason, other than
conversion by the Holder of this Debenture or the failure for any other reason
of the Holder upon redemption to deliver such Holder's Debentures to the Company
or the failure of such Holder to notify the Company that such Debentures have
been lost, stolen or destroyed and to
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236
promptly execute an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss which may be incurred by it in connection
with such Debentures, fails to pay the entire Redemption Price on the Redemption
Date for the portion of the Debentures identified in the Redemption Notice, then
the Company shall have no further right to require redemption of any portion of
the Debentures pursuant to this Section 6(b).
(c) Redemption Price. The redemption price for the portion of this
Debenture being redeemed, except as provided in the Registration Rights
Agreement, shall equal 110% of the Outstanding Amount of this Debenture
being so redeemed, plus all late payment charges and all other amounts
accrued under this Debenture and not previously paid (the "Redemption
Price").
(d) Mechanics of Redemption. In the event the Company shall be
required or elects to redeem any part or all of the Outstanding Amount of
the Debentures, the Company shall send by either overnight courier or
two-day courier (with a copy sent by facsimile) confirmation of such
determination or obligation to the record Holders of the Debentures being
redeemed (the "Redemption Debentures"), which confirmation shall be
included in the Redemption Notice, if the redemption is made pursuant to
Paragraph 6(b) above. Such confirmation shall specify the Redemption Date,
which shall be (i) no later than seven (7) business days after the receipt
by the Company of the notice requiring redemption pursuant to Paragraph
6(a) above, or (ii) at least 20 trading days (but not more than 40 trading
days) after receipt by the Holder of the Redemption Notice, as applicable.
On the Redemption Date, the Redemption Debentures shall be redeemed
automatically without any further action by the Holders of such Debentures
and whether or not the Debentures are surrendered to the Company (but only
to the extent that the Company complies with its obligation to pay the
Redemption Price therefor); provided, that the Company shall be obligated
to pay the cash consideration due to a Holder of such Debentures upon
redemption when such Debentures are either delivered to the principal
office of the Company or the Holder notifies the Company that such
Debentures have been lost, stolen or destroyed and executes an agreement
reasonably satisfactory to the Company to indemnify the Company from any
loss which may be incurred by it in connection with such Debenture.
Thereupon, there shall be promptly issued and delivered to such Holder,
within seven (7) business days after the Redemption Date and delivery to
the Company of such Debentures, or after receipt of such agreement and
indemnification, at the address of such Holder on the books of the Company,
payment in immediately available funds to the name as shown on the books of
the Company in the
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237
amount of the redemption price as calculated as set forth in Paragraph
6(c). If the Company shall not have the funds available to pay the
aggregate Redemption Price of all Redemption Debentures, then, without
limiting the Company's obligation to redeem all Redemption Debentures, such
redemption shall be made from each Holder, pro rata according to the
portion of the total Outstanding Amount of all Redemption Debentures then
held by each Holder and the Company shall not be permitted to require any
further redemption in accordance with Paragraph 6(b).
Notwithstanding anything to the contrary contained herein, the Holders'
rights of conversion pursuant to Section 5 hereof shall not be limited in any
manner by the Company's rights of redemption pursuant to this Section 6(d).
(e) Failure to Redeem. In the event that the Company fails to redeem
any portion of the Outstanding Amount of the Debentures required to be
redeemed on any Redemption Date, the Company shall pay, in cash, to each
Holder on such Redemption Date, and on the last day of each 30-day period
thereafter until the Company redeems such unredeemed portion, an amount
equal to two percent (2%) of the unredeemed portion of the Outstanding
Amount of the Debentures of such Holder.
7. Stock Splits: Dividends, Adjustments, Reorganizations.
(a) Stock Splits and Combinations. The Company shall not effect or fix
a record date for any stock split, subdivision or combination with an
effective date within ten (10) trading days of a Redemption Date, the
receipt of a Conversion Notice, a Forced Conversion Date, or the effective
date of a Paragraph 4 Transaction.
(b) Certain Dividends and Distributions. The Company shall not make,
or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, with an effective date within ten (10) trading days
of a Redemption Date, the receipt of a Conversion Notice, a Forced
Conversion Date, or the effective date of a Paragraph 4 Transaction.
(c) Subdivisions, Combinations, etc. If the Company shall subdivide
its outstanding Common Stock, by split-up, spin-off, or otherwise, or
combine its outstanding Common Stock, then the Conversion
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238
Rate in effect as of the date of such subdivision, split-up, spin-off or
combination shall forthwith be proportionately adjusted.
(d) Adjustment for Dividends and Distributions. In the event the
Company at any time or from time to time after the Closing Date makes, or
fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities
of the Company other than shares of Common Stock (including, without
limitation, rights to acquire Common Stock or such other securities), then
and in each such event provision shall be made so that the Holders of
Debentures shall receive upon conversion thereof pursuant to Paragraph 5
hereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of such other securities of the Company to which a
Holder on the relevant record or payment date, as applicable, of the number
of shares of Common Stock so receivable upon conversion would have been
entitled, plus any dividends or other distributions which would have been
received with respect to such securities, had such Holder thereafter,
during the period from the date of such event to and including the Holder
Conversion Date or Forced Conversion Date, as the case may be, retained
such securities, subject to all other adjustments called for during such
period under this Paragraph 7 with respect to the rights of the Holders of
the Debentures. For purposes of this Paragraph 7(d), the number of shares
of Common Stock so receivable upon conversion shall be deemed to be that
number which the Holder would have received upon conversion of the entire
Outstanding Amount hereof if the Holder Conversion Date or Forced
Conversion Date, as the case may be, had been the day preceding the date
upon which the Company announced the making of such dividend or other
distribution.
(e) Adjustment for Merger, Reorganization; etc. In the event that at
any time or from time to time after the Closing Date, the Common Stock
issuable upon conversion of the Debentures is changed into the same or a
different number of shares of any class or classes of stock, whether in
connection with a merger or consolidation, by recapitalization,
reclassification, reorganization or otherwise (other than a subdivision or
combination of shares or stock dividend or reorganization provided for
elsewhere in this Paragraph 7 or a merger or consolidation provided for in
Paragraph 4), then and in each such event each Holder of Debentures shall
have the right thereafter to convert such Debenture into the kind of
securities receivable upon such merger, recapitalization, reclassification
or other change, all subject to further adjustment as provided herein. In
such event, the formulae set forth herein for conversion and redemption
shall be equitably adjusted to reflect such change in number of shares or,
if shares of a new class of stock are issued, to reflect the market price
of
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the class or classes of stock (applying the same factors used in
determining the Market Price for Shares of Common Stock) issued in
connection with the above described transaction.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment pursuant to this Section 7, the Company at its expense shall
furnish to each Holder a certificate from its independent auditors or an
investment banking firm setting forth (i) in reasonable detail the facts
upon which such adjustment is based, and (ii) the number of shares of
Common Stock and the amount of other property or securities that after
giving effect thereto would be received by the Holder upon conversion of
this Debenture.
(g) Disputes. In the event of a reasonable, good faith dispute between
a Holder of Debentures and the Company with respect to the adjustments
required by Paragraphs 7(c), (d) or (e), then, at the option of either the
Holders of Debentures evidencing 50% or more of the principal indebtedness
evidenced by all Debentures held by Holders involved in such dispute or the
Company, the dispute shall be submitted to the American Arbitration
Association for resolution according to the then applicable rules thereof.
The cost of such proceeding shall be shared 50% by the Holder or Holders
involved in the dispute and 50% by the Company, except that each party
shall bear its own legal and other expenses.
8. Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder. The
number of shares of Common Stock that are issuable upon any conversion shall be
rounded up or down to the nearest whole share.
9. Reservation of Stock Issuable Upon Conversion.
(a) Reservation Requirement. The Company has reserved and the Company
shall continue to reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue shares of its Common Stock upon
conversion of the Debentures; provided, however, that (i) the aggregate
number of shares so reserved shall initially be 1,320,000 shares and (ii) a
pro rata portion (based on the respective original principal amount of the
Debentures) of such aggregate amount shall be reserved for conversion of
each Debenture, such portion to be reduced by the number of shares actually
issued upon conversion of such Debenture. The number of shares so reserved
may be reduced by the
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240
number of shares actually delivered pursuant to conversion of Debentures
(provided that in no event shall the number of shares so reserved be less
than the Minimum Number of Shares applicable to any Debenture) and the
number of shares so reserved shall be increased or decreased proportionally
to reflect stock splits, stock dividends and other distributions. In the
event that the number of shares so reserved (either in the aggregate or as
to any Debenture) shall be insufficient for issuance upon conversion of the
Debentures (without giving effect to any applicable conversion
restrictions), or if the Holders of the Debentures would at any time upon
conversion thereof be entitled to the issuance of shares of Common Stock in
excess of the limitation in Paragraphs 5(d) and 9(b) herein, then in either
case, upon receipt by the Company of notice from any Holder, the Company
shall use its best efforts and all due diligence to increase the number of
shares so reserved (without giving effect to any applicable conversion
restrictions) to cure all such deficiencies (either in the aggregate or as
to any Debenture) and, if necessary, to obtain the approval by its
shareholders therefor, including the authorization of such additional
number of shares of Common Stock as may be required to issue such shares in
excess of the number so reserved (either in the aggregate or as to any
Debenture) or in excess of such limitation, as the case may be.
(b) Conversion Deficiency. If the Company does not have a sufficient
number of shares of Common Stock available to satisfy the Company's
obligations to issue Common Stock upon conversion of all or any of the
Debentures (whether or not a Conversion Notice shall have been given with
respect thereto) (a "Conversion Deficiency"), any Holder of the Debentures
shall have the right to demand from the Company immediate redemption of any
portion of the Debentures with respect to which the Company does not have a
sufficient number of shares available to satisfy such conversion
obligations, in cash at the Redemption Price pursuant to Section 6 hereof,
without regard to Sections 6(d) or 6(e) hereof.
Within three business days of the occurrence of any Conversion Deficiency,
the Company shall notify each Holder whether the Company has adequate liquidity
to redeem such portion of the Debentures as required by the foregoing paragraph
(and, if requested by such Holder, will provide reasonable written support for
its position with respect thereto within ten business days of the occurrence of
any Conversion Deficiency) and whether such redemption is prohibited under the
terms of any financing or other agreements or applicable law.
In the event that the Company establishes to the reasonable satisfaction of
the Holder that the Company has adequate liquidity and is
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241
not otherwise restricted from redeeming such portion of this Debenture, then the
Company shall pay, in cash, to such Holder within three business days after
which a Conversion Deficiency shall have occurred and on the last day of each
30-day period for which a Conversion Deficiency is continuing, an amount equal
to one percent (1%) of the amount of such portion of the Debentures which such
Holder does not require the Company to redeem, for a maximum of three percent
(3%) for such Conversion Deficiency.
In the event that the Company does not establish to the reasonable
satisfaction of the Holder that the Company has adequate liquidity to redeem
such portion of the Debentures or that the Company is not otherwise restricted
from redeeming such portion of this Debenture, the Company shall pay, in cash,
to such Holder within three business days after which a Conversion Deficiency
shall have occurred and on the last day of each 30-day period for which a
Conversion Deficiency is continuing (or until the Company establishes to the
reasonable satisfaction of the Holder that the Company has adequate liquidity to
and is not otherwise prohibited from redeeming such Holder's Debentures, in
which case the provisions of the foregoing paragraph shall govern), two percent
(2%) of the amount of such portion of the Debentures which such Holder does not
require the Company to redeem.
10. No Impairment. The Company shall not intentionally take any action
which would impair the contractual rights and privileges of the Debentures set
forth herein or of the Holders thereof.
11. Holders' Rights if Shares are Delisted or if Trading in Common Stock is
Suspended. In the event that at any time on or after the date hereof and prior
to the fifth anniversary of the Closing Date, trading in the shares of the
Company's Common Stock is suspended on the Exchange for a period of five
consecutive trading days, other than as a result of the suspension of trading in
securities in general, or if such Shares are delisted and not relisted within
twenty (20) days thereafter, then, at a Holder's option, the Company shall
redeem such Holder's Debentures on a Redemption Date designated by such Holder,
and at the Redemption Price and in accordance with Section 6 hereof, without
regard to Sections 6(d) or 6(e) hereof.
12. Limitations on Holder's Obligation to Convert. Notwithstanding anything
to the contrary contained herein, no Holder shall be required to convert any
part of this Debenture in excess of the portion then convertible into that
number of shares of Common Stock specified in the Holder's representation to the
Company that, after giving
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242
effect to the shares of the Company's Common Stock to be issued pursuant to such
Conversion Notice, the total number of shares of Common Stock deemed
beneficially owned by the Holder, together with all shares of the Company's
Common Stock deemed beneficially owned by the Holder's "affiliates" as defined
in Rule 144 of the Act, would exceed 4.9% of the total issued and outstanding
shares of the Company's Common Stock.
13. Obligations Absolute. No provision of this Debenture, other than
conversion as provided herein, shall alter or impair the obligation of the
Company, 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.
14. Waivers of Demand, Etc. The Company 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.
15. Replacement Debentures. In the event that the Holder notifies the
Company that its Debenture has been lost, stolen or destroyed, a replacement
Debenture identical in all respects to the original Debenture (except for
registration number and Outstanding Amount, if different than that shown on the
original Debenture) shall be issued to the Holder, provided that the Holder
executes and delivers to the Company an agreement reasonably satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection with
the Debenture and provided that the Company is provided a form of Debenture for
such replacement purposes.
16. Payment of Expenses. The Company agrees to pay all debts and expenses,
including reasonable attorneys' fees and expenses, which may be incurred by the
Holder in enforcing the provisions of this Debenture and/or collecting any
amount due under this Debenture, the Subscription Agreement, the Registration
Rights Agreement or any other Related Agreement.
17. Defaults. If one or more of the following events (hereinafter called
"Events of Default") shall occur:
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(a) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, in the Registration Rights
Agreement, in any other Related Agreement, or in any certificate, financial
statements or press releases of the Company heretofore or hereafter
furnished by or on behalf of the Company in connection with the execution
and delivery of this Debenture, the Subscription Agreement, the
Registration Rights Agreement or any other Related Agreement shall be false
or (when taken together with other information furnished by or on behalf of
the Company, including Exchange Act Reports) misleading in any material
respect at the time made; or
(b) The Company shall fail to perform or observe any covenant or
agreement in the Subscription Agreement, the Registration Rights Agreement
or any other Related Agreement or any other covenant, term, provision,
condition, agreement or obligation of the Company under this Debenture, and
such failure shall continue uncured for a period of ten (10) business days
after notice from the Holder of such failure, or the Company shall fail to
make any payments upon redemption of this Debenture or fail to issue shares
of Common Stock upon conversion of this Debenture; or
(c) The Company shall (i) become insolvent; (ii) admit in writing its
inability to pay its debts generally as they mature; (iii) make a general
assignment for the benefit of creditors or commence proceedings for its
dissolution; or (iv) apply for or consent to the appointment of a trustee,
liquidator or receiver for it or for a substantial part of its property or
business; or
(d) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
(e) Any governmental agency or any court of competent jurisdiction
shall assume custody or control of the whole or any substantial portion of
the properties or
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244
assets of the Company and shall not be dismissed within sixty (60) days
thereafter, or
(f) Any money judgment, writ or warrant of attachment or similar
process in excess of Five Hundred Thousand Dollars ($500,000) in the
aggregate shall be entered or filed against the Company or any of its
properties or other assets and shall remain unpaid, unvacated, unbonded and
unstayed for a period of sixty (60) days or in any event later than ten
(10) days prior to the date of any proposed sale thereunder; or
(g) 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 sixty (60)
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;
then, or at any time thereafter prior to the date on which all continuing Events
of Default have been cured, and in each and every such case, unless such Event
of Default shall have been waived in writing by the Holder (which waiver shall
not be deemed to be a waiver of any subsequent default) at the option of the
Holder and in the Holder's sole discretion, the Holder may, by notice to the
Company declare this Debenture immediately due and payable, and the Holder may
immediately, and without expiration of any period of grace, enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law. In such event, the Debenture shall be redeemed at a
redemption price per Debenture equal to the redemption price provided in
Paragraph 6(c).
18. 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.
<PAGE>
245
19. Entire Agreement. This Debenture and the agreements referred to in this
Debenture constitute the full and entire understanding and agreement between the
Company and the Holder with respect to the subject hereof. Neither this
Debenture nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Company and a
two-thirds-in-interest of the Holders.
20. Assignment, Etc. The Holder may, subject to compliance with the
Subscription Agreement, without 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; provided, however, that before the Registration Statement
contemplated by the Registration Rights Agreement becomes effective, Holder will
furnish the Company with an opinion of counsel to the effect that such
assignment, transfer, mortgage or other encumbrance is exempt from the
registration requirements under the Securities Act. Each such assignee,
transferee and mortgagee shall have all of the rights and obligations of the
Holder under this Debenture. The Company agrees that, subject to compliance with
the Subscription Agreement, after receipt by the Company 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 Company and its
successors and shall inure to the benefit of the Holder and its successors and
assigns.
21. 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.
22. 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
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246
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 Company shall be sent to Paul S. Weiner,
Director of Finance of the Company, and to the attention of the General Counsel
of the Company. 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.
23. Choice of Law and Venue: Waiver of Jury Trial. THIS DEBENTURE SHALL BE
CONSTRUED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW THEREOF. The Company hereby (i)
irrevocably submits to the exclusive jurisdiction of the United States District
Court for the Southern District of New York for the purposes of any suit, action
or proceeding arising out of or relating to this Debenture and (ii) waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. The Company consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
the Company at the address in effect for notices to it under this Debenture and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing in this paragraph shall affect or limit any right to
serve process in any other manner permitted by law.
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247
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated as of: March 10, 1997
PALOMAR MEDICAL
TECHNOLOGIES, INC.
By:
-------------------------
Name:
-------------------------
Title:
-------------------------
66 Cherry Hill Drive
Beverly, MA 01915
ATTEST:
- -------------------------
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248
SUBSCRIPTION AGREEMENT
PALOMAR MEDICAL TECHNOLOGIES, INC.
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE BECAUSE THEY
ARE BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER SECTIONS 4(2) AND 4(6) OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS SUBSCRIPTION AGREEMENT
SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED
EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM.
IN REACHING THE CONCLUSION THAT SUBSCRIBER DESIRES TO PURCHASE THE
DEBENTURES, SUBSCRIBER HAS CAREFULLY EVALUATED SUBSCRIBER'S FINANCIAL RESOURCES
AND INVESTMENT POSITION, AND THE RISKS ASSOCIATED WITH THIS INVESTMENT, AND
ACKNOWLEDGES THAT THE DEBENTURES INVOLVE A HIGH DEGREE OF RISK AND THAT
SUBSCRIBER COULD LOSE THE ENTIRE INVESTMENT.
This Subscription Agreement (the "Agreement") is executed by the
undersigned (the "Subscriber") in connection with the offer and subscription by
the undersigned to purchase 6% Convertible Debentures Due _____________, 2002 (5
years from Closing Date), with all interest due at maturity ("Debentures") of
Palomar Medical Technologies, Inc., a Delaware corporation (the "Company") in an
aggregate principal amount of $_________________ U.S. The terms on which the
Debentures may be converted into Common Stock (such Common Stock underlying the
Debentures being referred to herein as (the "Shares") and the other terms of the
Debentures are set forth therein and in Sections herein. This Subscription and,
if accepted by the Company, the offer and sale of Debentures and the Shares
(collectively, the "Securities"), are being made in reliance upon the provisions
of Sections 4(2) and 4(6) of the United States Securities Act of 1933, as
amended (the "Act"). The undersigned, in order to induce the Company will rely
thereon, represents, warrants and agrees as follows:
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249
1. OFFER TO SUBSCRIBE; PURCHASE PRICE
The Subscriber hereby offers to purchase and subscribes for the number of
Debentures set forth on the signature page hereto, at a price of 100%. The
Closing shall be deemed to occur when this Agreement has been executed by
both Subscriber and Company (the "Closing Date" or "Debenture Date"). The
Company agrees to deliver certificates representing the Debentures
subscribed within 10 days of Closing. On or prior to the Closing Date, the
Subscriber will deliver to the Company the full amount of the Purchase
Price by wire transfer to the account set forth below.
Citibank
399 Park Avenue
New York, NY 10048
ABA 021000089
Account Number: 40611172
Account Name: Dean Witter Reynolds, Inc.
For Further Credit to:
Account Number: 593109782
Account Name: Palomar Medical Technologies, Inc.
2. REPRESENTATIONS AND WARRANTIES BY SUBSCRIBER
Subscriber hereby represents and warrants as follows:
(a) Subscriber is an Accredited Investor as evidenced by the
Subscriber meeting at least one of the following standards:
(A) is an individual and had income in excess of $200,00 in the
two most recent tax years (or $300,000 income jointly with his spouse)
and reasonably expect to have income at the same level in the current
tax year; or
(B) is an individual and his net worth (i.e. excess of total
assets over total liabilities), either individually or together with
my spouse, is at least $1,000,000; or
(C) is a trust, corporation, partnership, or organization defined
in Section 501(c)(3) of the Code, not formed for the purpose or
purchasing the Debentures, with assets in excess of $5,000,000; or
(D) is a national bank; a state banking institution, the business
of which is substantially confined to banking and is supervised by
state banking officials; a savings and loan association; a broker or
dealer registered pursuant to Section 15 of the Securities Exchange
Act of 1934; an insurance company; an investment company registered
under the Investment Company Act of 1940; a business
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250
development company as defined in Section 2(a)(48) of that Act or a
private business development company as defined in Section 202(a)(22)
of the Investment Advisors Act of 1940; a Small Business Investment
Company licensed by the Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958; or an
employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, if the investment decision is
made by a plan fiduciary, as defined in Section 3(21) of such Act,
which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, a self-directed plan
where the investment decisions are made by accredited investors; or
(E) is an entity in which each of the equity owners meet the
standards set forth in any of the immediately preceding subparagraphs
(A), (B), (C), or (D). (IF YOU MEET THE STANDARDS IN THIS
SUBPARAGRAPH, PLEASE ALSO COMPLETE THE FOLLOWING:)
I certify that the following is a complete list of all owners of
equity or trustees, that each such owner or trustee has initialed
the space opposite his name and that each such owner or trustee
understands that by initialing that space he is representing that
he is an accredited investor satisfying either A, B, C or D
above.
Name of Owner of Type of
Equity or Trustee Accredited Investor Initials
----------------- ------------------ ----------
----------------- ------------------ ----------
---------------- ------------------ ----------
(b) The Subscriber and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Debentures and
the offer of the Shares which have been requested by the Subscriber. The
Subscriber and its advisors, if any, have been afforded the opportunity to
ask questions of the Company and have received complete and satisfactory
answers to any such inquiries. Without limiting the generality of the
foregoing, the Subscriber has had the opportunity to obtain and to review
the Company's (1) Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995 (as amended by Amendment No. 1 thereto on Form 10-KSB/A
filed with the Securities and Exchange Commission (the "SEC" on August 23,
1996), (2) Quarterly Reports on Form 10-QSB for the fiscal quarters ended
March 31, 1996 (as amended by Amendment No. 1 thereto on Form 10-QSB/A
filed with SEC on August 23, 1996), June 30, 1996 and September 30, 1996,
(3) Current Report on Form 8-K, dated May 3, 1996, as amended by Amendment
No. 1 thereto on Form 8-K/A dated May 3, 1996, (4) definitive Proxy
Statement for its 1996 Annual Meeting of Stockholders, and (5) Registration
Statement
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251
on Form S-3 (the "December Registration Statement") declared effective on
December 27, 1996 (Registration No. 333-18003), in each case as filed with
the SEC.
(c) Subscriber is acquiring the Debentures solely for Subscriber's own
account, for investment, and not with a view to the distribution thereof.
Subscriber's financial condition is such that he is not under any present
necessity or constraint to dispose of the Debentures to satisfy any
existing or contemplated debt or undertaking. If Subscriber is a
corporation, trust, association, partnership, or any other entity other
than an individual, the purchase of the Debentures by Subscriber has been
duly authorized as required by law or agreement to be taken, and the
Debentures constitute a legal investment for such entity.
(d) Subscriber is aware of the fact that the Debentures have not been
registered, nor is registration contemplated, under the Securities Act of
1933 (the "Act"), and, accordingly, no federal agency has recommended or
endorsed the purchase of the Debentures or passed on the adequacy or
accuracy of the information set forth in the Form 10-KSB. Subscriber
understands that since the Debentures have not been registered under the
Act, they must be held indefinitely unless they are subsequently registered
under the Act or unless, in the opinion of counsel for the Company, a sale
or transfer may be made without registration thereunder. Subscriber agrees
that the Debentures may bear a legend restricting the transfer thereof
consistent with the foregoing and that a notation may be made in the
records of the Company's transfer agent restricting the transfer of the
Debentures in manner consistent with the foregoing.
(e) Subscriber, in electing to subscribe for the Securities hereunder,
has relied upon an independent investigation made by it and its
representative, if any. Subscriber has been given no oral or written
representations or assurances from the Company or any representation of the
Company other than as set forth in this Agreement or in a document executed
by a duly authorized representative of the Company making reference to this
Agreement.
(f) If Subscriber desires to sell and distribute Registered Shares
over a period of time, or from time to time, at then prevailing market
prices, then Subscriber shall execute and deliver to the Company such
written undertakings as the Company and its Counsel may reasonably require
in order to assure full compliance with relevant provisions of the
Securities Act and the Exchange Act including, without limitation,
providing the Company with 48 hours' prior written notice of each such sale
and providing the Company with assurances, reasonably satisfactory to the
Company, that Subscriber will meet the prospectus delivery requirements
under the Security Act.
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252
3. REGISTRATION RIGHTS
The Company agrees to file and use reasonable efforts to make effective a
registration statement with the Securities and Exchange Commission (the "SEC")
(on Form S-3, Form S-2, its successor form, or any other form under the
Securities Act of 1933 under which the Shares underlying the Debentures are
eligible to be registered), within 180 days of the Closing Date, covering the
Shares underlying the Debentures, at the Company's cost and expense (excluding
the costs of legal counsel to the holders of the Debentures). The subscriber
shall furnish the Company with such information as the Company may request in
writing and as shall be required in connection with any registration thereunder.
4. RESALES
Subscriber acknowledges and agrees that the Securities may only be resold
(a) pursuant to a Registration Statement under the Act; or (b) pursuant to an
exemption from registration.
5. SUBSEQUENT TRANSFER OF SECURITIES
Once a registration statement has been filed and declared effective as
contemplated in Section 3 above, the Company agrees, and shall instruct its
transfer agent, that the Securities may be transferred to any person or entity
who is not an affiliate of the Company without (a) any further restriction on
transfer or (b) the entry of a "stop transfer" order against such Securities,
provided that the person(s) or entity(ies) requesting transfer furnish the
appropriate representations to the Company's legal counsel.
6. RELEASE OF PROCEEDS TO THE COMPANY
The proceeds of the offering shall be released to the Company upon the
Closing of this offering, as defined in Section 1 of this Agreement.
7. TERMS OF CONVERSION
The Debentures shall contain the following provisions in Section 3 thereof
regarding the conversion of the Debentures:
The Holder of this Debenture is entitled, at its option, at any time after
180 days after the Debenture Date until maturity hereof, to convert the
principal amount of the Debenture or any portion of the principal amount
hereof which is at least One Hundred Thousand Dollars ($100,000 U.S.) or,
if at the time of such election to convert, the aggregate principal amount
of all Debentures registered to the Holder is less than One Hundred
Thousand Dollars ($100,000 U.S.), then the whole amount thereof, into
Shares of Common Stock of the Company at a conversion price for each share
of Common Stock equal to $11.00 U.S.; provided that in any 30 day period
the Holder of these Debentures (or its transferee) may convert no more than
33% (or 34% of the Debentures, in the last 30 day period available for
conversion of the Debentures) of the Debentures purchased by the Holder,
whether or not such Holder exercised its right to
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253
convert the Debenture after 180 days after the Debenture Date. Such
conversion shall be effectuated by surrendering the Debentures to be
converted to the Company with the form of conversion notice attached hereto
as Exhibit A, executed by the Holder of this Debenture evidencing such
Holder's intention to convert this Debenture or a specified portion (as
above provided) hereof, and accompanied, if required by the Company, by
proper assignment hereof in blank. The Company shall use its best efforts
to have the Shares of Common Stock issued and delivered to the Holder
thereof within ten business days of the receipt of the conversion form and
Debentures(s). If the Debenture is converted into Shares of Common Stock of
the Company within the twelve months following the Closing Date, all
accrued but unpaid interest shall be waived by the Holder. If, however, the
Debenture is converted into shares of Common Stock after twelve months from
the Closing Date, then the amount of all accrued but unpaid interest shall
be shall be subject to conversion. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded down to the nearest whole share.
The date on which notice of conversion is given shall be deemed to be the
date on which the Holder has delivered the Debenture, with the conversion
notice duly executed, to the Company.
8. TERMS OF REDEMPTION
The Debentures shall contain the following provisions in Section 5 thereof
regarding the redemption of the Debentures:
The Company may, at any time the Debentures are outstanding, upon 20 days
written notice to the Holder, elect to redeem the full amount of the
Debentures then outstanding or a pro rata portion thereof. The Holder shall
have 10 days after receipt of written notice of redemption to submit a
Notice of Conversion to the Company if the Holder desires to convert. The
redemption price shall be calculated at 110% of the amount of the Debenture
being redeemed. All accrued but unpaid interest shall be waived at the time
of redemption. All accrued but unpaid interest will also be paid at the
time of redemption. Each Holder of the Debenture shall be entitled to
redeem a pro rata portion of the Debentures being redeemed by the Company.
9. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts except for matter arising under the
Act or the Securities Exchange Act of 1934 which matters shall be construed and
interpreted in accordance with such laws.
<PAGE>
254
10. NOTICES
All communications hereunder shall be in writing, and, if sent to the
Subscriber shall be sufficient in all respects if delivered, sent by registered
mail, or by telecopy and confirmed to the Subscriber at:
Name:
Address:
City:
Country:
Attention:
or, if sent to the Company, shall be delivered, sent by registered mail or by
telecopy and confirmed to the Company at:
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915
Attention: Paul S. Weiner, Director of Finance
Telephone: (508) 921-9300
Telecopy: (508) 921-5801
<PAGE>
255
The undersigned hereby subscribes for $______________ U.S. in principal
amount of Debentures and pays herewith funds in the same amount.
The undersigned acknowledges that this subscription shall not be effective
unless accepted by the Company as indicated below.
Dated this 12 day of February, 1997.
Soginvest Bank
(Printed Name)
/s/ /s/
- ---------------------------- ----------------------------------
B. Pini M. Wenger
(Signature)
V. Stazione 9 C.P. 663 CH - 6602 Locarno-Muralto
(Mailing Address)
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE 13 DAY OF March, 1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
------------------------------
Printed Name/Title: Joseph P. Caruso
Chief Financial Officer
<PAGE>
256
EXHIBIT 10.45
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE BECAUSE THEY ARE
BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER SECTION 4(2) AND 4(6) OF THE ACT.
THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM.
No. $ U.S.
PALOMAR MEDICAL TECHNOLOGIES, INC.
6% CONVERTIBLE DEBENTURE DUE _____________, 2002
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 (the "Company") designated as its 6% Convertible
Debentures Due __________, 2002, in an aggregate principal amount not exceeding
$ 10,000,000 U.S.
FOR VALUE RECEIVED, the Company promises to pay to , the registered holder
hereof (the "Holder"), the principal sum of Dollars ($________ U.S.) on
___________, 2002 , (the "Maturity Date") and to pay interest on the principal
sum outstanding from time to time in arrears on the Maturity Date, at the rate
of 6% per annum accruing from the date of initial issuance. Accrual of interest
shall commence on the first such business day to occur after the date hereof
until payment in full of the principal sum has been made or duly provided for.
The interest so payable will be paid on the Maturity Date to the person in whose
name this Debenture (or one or more predecessor Debentures) is registered on the
records of the Company regarding registration and transfers of the Debentures
(the "Debenture Register") on the tenth day prior to the Maturity Date;
provided, however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions of the Subscription Agreement executed
by the original Holder. The principal of, and interest on, this Debenture are
payable in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts, at the
address last appearing on the Debenture Register of the Company as designated in
writing by the Holder from time to time. The Company will pay the principal of
and interest upon this Debenture on the Maturity Date, less any amounts required
by law to be deducted, to the registered holder of the Debenture as of the tenth
day prior to the (CONTINUED ON REVERSE)
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
PALOMAR MEDICAL TECHNOLOGIES, INC.
Dated: By:
------------ ------------------------------
<PAGE>
257
Maturity Date and addressed to such holder at the last address appearing on the
Debenture Register. The forwarding of such check shall constitute a payment of
interest hereunder and shall satisfy and discharge the liability for principal
and interest on this Debenture to the extent of the sum represented by such
check plus any amounts so deducted unless such check is not paid at par.
This Debenture is subject to the following additional provisions:
1. The Company shall be entitled to withhold from all payments of principal
of, and interest on, the Debenture any amounts required to be withheld under the
applicable provisions of the Untied States income tax laws or other applicable
laws at the time of such payments.
2. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"). Prior to due
presentment for transfer of the Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly registered on
the Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the Contrary.
3. The Holder of this Debenture is entitled, at its option, at any time
after 180 days after the Debenture Date until maturity hereof, to convert the
principal amount of the Debenture or any portion of the principal amount hereof
which is at least One Hundred Thousand Dollars ($100,000 U.S.) or, if at the
time of such election to convert, the aggregate principal amount of all
Debentures registered to the Holder is less than One Hundred Thousand Dollars
($100,000 U.S.), then the whole amount thereof, into Shares of Common Stock of
the Company at a conversion price for each share of Common Stock equal to $11.00
U.S.; provided that in any 30 day period the Holder of these Debentures (or its
transferee) may convert no more than 33% (or 34% of the Debentures, in the last
30 day period available for conversion of the Debentures) of the Debentures
purchased by the Holder, whether or not such Holder exercised its right to
convert the Debenture after 180 days after the Debenture Date. Such conversion
shall be effectuated by surrendering the Debentures to be converted to the
Company with the form of conversion notice attached hereto as Exhibit A,
executed by the Holder of this Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion (as above provided) hereof, and
accompanied, if required by the Company, by proper assignment hereof in blank.
The Company shall use its best efforts to have the Shares of Common Stock issued
and delivered to the Holder thereof within ten business days of the receipt of
the conversion form and Debenture(s). If the Debenture is converted into Shares
of Common Stock of the Company within the twelve months following the Closing
Date, all accrued but unpaid interest shall be waived by the Holder. If,
however, the Debenture is converted into shares of Common Stock after twelve
months from the Closing Date, then the amount of all accrued but unpaid interest
shall be shall be subject to conversion. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded down to the nearest whole share. The date on
which notice of conversion is given shall be deemed to be the date on which the
Holder has delivered the Debenture, with the conversion notice duly executed, to
the Company.
4. The Company may, at any time the Debentures are outstanding, upon 20
days written notice to the Holder, elect to redeem the full amount of the
Debentures then outstanding or a pro rata portion thereof. The Holder shall have
10 days after receipt of written notice of redemption to submit a Notice of
Conversion to the Company if the Holder desires to convert. The redemption price
shall be calculated at 110% of the amount of the Debenture being redeemed. All
accrued but unpaid interest will also be paid at the time of redemption. Each
Holder of the Debenture shall be entitled to redeem a pro rata portion of the
Debentures being redeemed by the Company.
5. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
6. The Holder of this Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture of the Shares of Common Stock
issuable upon exercise thereof except under circumstances which will not result
in violation of the Act or any applicable state Blue Sky law or similar laws
relating to the sale of securities.
7. This Debenture shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
<PAGE>
258
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture
No(s). into Shares of Common Stock of Palomar Medical Technologies, Inc. (the
"Company") according to the conditions hereof, as of the date written below.
Date of Conversion*
---------------------------
Applicable Conversion Price
---------------------------
Signature
---------------------------
Printed Name
Address:
---------------------------
---------------------------
---------------------------
Soc. Sec/Fed ID #:
---------------------------
* The date on which notice of conversion is given shall be deemed to be the date
on which the Holder has delivered this Debenture, with the conversion notice
duly executed, to the Company.
<PAGE>
259
ASSET PURCHASE AND SETTLEMENT AGREEMENT
This Asset Purchase and Settlement Agreement (this "Agreement") is made as
of February 28, 1997 by and among Palomar Medical Technologies, Inc., a Delaware
corporation ("Palomar"), Nexar Technologies, Inc., a Delaware corporation which
is a majority owned subsidiary of Palomar ("Nexar"), Technovation Computer Labs,
Inc., a Nevada corporation ("Seller"), and Babar I. Hamirani.
W I T N E S S E T H:
WHEREAS, Babar I. Hamirani has conceived, developed, authored, made or
otherwise acquired or asserted ownership of technology, proprietary information
and/or intellectual property for facilitating the installation, replacement or
upgrading of personal computer components, such technology, proprietary
information and/or intellectual property including but not limited to United
States Patent Application Serial No. 08/409,317, filed on 3/23/95, entitled
"System Permitting the External Replacement of the CPU and/or DRAM SIMMs
Microchip Board" and further including but not limited to an "additional" patent
application on Hamirani's behalf, as referred to in a letter dated December 19,
1996, from Hamirani's counsel, Law Offices of Dan A. Craddock, to Mr. Ronald J.
Kransdorf;
WHEREAS, Nexar contends that it has been assigned certain techn logy,
proprietary information and/or intellectual property of Babar I. Hamirani in
accord with a Key Employment Agreement executed by him on or about August 1,
1995 (the "Employment Agreement"); Babar I. Hamirani contends otherwise;
WHEREAS, Nexar contends that Babar I. Hamirani was the holder of certain
rights to options in Palomar Electronics Corporation, a subsidiary of Palomar,
which rights lapsed unvested upon Babar I. Hamirani's termination of employment
on November 29, 1996; Babar I. Hamirani contends otherwise;
WHEREAS, Babar I. Hamirani contends that he is the holder of certain rights
to options in Nexar and/or Palomar Electronics Corporation; Nexar and Palomar
contend otherwise;
WHEREAS, Seller is the owner of assets including all technology,
proprietary information and/or intellectual property licensed to Nexar under the
License Agreement between the parties dated August 25, 1995 (the "License
Agreement"), and including technology, proprietary information and/or
intellectual property acquired from Babar I. Hamirani;
WHEREAS, Seller and Babar I. Hamirani desire to sell, and Palomar desires
to buy, all of the existing technology, proprietary information and/or
intellectual property of Seller and Babar I. Hamirani pertaining to technologies
intended to facilitate the installation, replacement and upgrading of personal
computers, including without limitation all of the technology,
<PAGE>
260
proprietary information and/or intellectual property licensed to Nexar under the
License Agreement, or otherwise owned by Seller;
WHEREAS, Babar I. Hamirani's employment with Nexar was terminated on
November 29, 1996 and Babar I. Hamirani has raised certain issues in connection
with such termination;
WHEREAS, the parties wish to settle for all time all known and unknown
claims relating to Babar I. Hamirani's termination, the License Agreement, the
Employment Agreement, including Babar I. Hamirani's options claims, and further
wish to effect a sale of technology, proprietary information and intellectual
property described below by Seller and Babar I. Hamirani to Palomar;
WHEREAS, Babar I. Hamirani is a principal of Amerisel, Inc, a California
corporation (d/b/a Computer Universe) ("Computer Universe"), which Nexar
contends is indebted to it in the approximate amount of $271,000 for goods sold
by Nexar, and Nexar is willing to forgive such indebtedness in consideration of
the mutual covenants and obligations of the parties to this Agreement and for
mutual releases between Nexar and Computer Universe;
NOW, THEREFORE, in consideration of the mutual covenants, representations
and warranties hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.0 Definitions. As used in this Agreement, the term "Hamirani" refers to
Babar I. Hamirani. As used in this Agreement, the term "affiliates" refers to
those persons listed on Exhibit 1.0 hereto.
1.1 Purchased Assets. Subject to the terms and conditions of this
Agreement, at the Closing (as defined in Section 1.4) Seller and Hamirani shall
sell, convey, transfer, assign and deliver to Palomar, and Palomar shall
purchase, all right, title and interest in the assets defined below
(collectively, the "Purchased Assets"):
(i) Technology. The Purchased Assets shall include all right, title
and interest in the following technology, proprietary information, and
intellectual property (collectively, the "Technology"):
(a) ISPA and XPA. All right, title and interest in any invention,
modification, or advance (whether or not patentable) created,
developed, realized, acquired, owned, conceived or made by or on
behalf of Seller or Hamirani (independently or with others), or in
which Seller or Hamirani have a legal or equitable right of ownership,
through the Closing Date (as defined in Section 1.4), pertaining to
technologies intended to facilitate
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261
the installation, replacement, and/or upgrading of personal computer
components (including, by way of non-limiting example, technologies
sometimes referred to as "Inverted Socket Processor Architecture,"
"ISPA," "ISPA 1," "ISPA 2," "ISPA 3," "Cross Processor Architecture,"
and/or "XPA");
(b) Patents and Applications. All right, title and interest in
all patents and patent applications owned by, acquired by, issued to,
naming, filed by or on behalf of, Seller or Hamirani, or in which
Seller or Hamirani have a legal or equitable right of ownership,
through the Closing Date, disclosing or claiming any invention,
modification, or advance referred to in Section 1.1(i)(a); any further
applications claiming a right of priority from such patents or patent
applications (including, without limitation, any divisional,
continuation, continuation-in-part, or convention applications); and
any patents issuing on any such applications; any reissue,
reexamination or extension of any such patents; such patents and
applications including, by way of non-limiting example, United States
Patent Application Serial No. 08/409,317, filed on 3/23/95, entitled
"System Permitting the External Replacement of the CPU and/or DRAM
SIMMs Microchip Board" (the "Patent Application") and the
aforementioned "additional" patent application (not yet filed)
referred to in the letter dated December 19, 1996, from Hamirani's
counsel to Mr. Ronald J. Kransdorf (the "Additional Patent
Application");
(c) Copyright. All right, title and interest, if any should
exist, in any works of authorship, copyright applications or copyright
registrations created by, owned by, acquired by, issued to, naming,
filed by or on behalf of, Seller or Hamirani, or in which Seller or
Hamirani have a legal or equitable right of ownership, through the
Closing Date, relating to any invention, modification, advance,
technology, patent, or application referred to in Sections 1.1(i)(a) -
(b) (as used herein and throughout this agreement, "copyright"
includes copyright, moral rights and semiconductor mask work rights);
(d) Trademark. All right, title and interest, if any should
exist, in any trademarks, trademark applications or trademark
registrations, created by, owned by, acquired by, issued to, naming,
filed by or on behalf of, Seller or Hamirani, or in which Seller or
Hamirani have a legal or equitable right of ownership, through the
Closing Date, for use in connection with goods or services relating to
any invention, modification, advance, technology, patent, or
application referred to in Sections 1.1(i)(a) - (b) (including, by way
of non-limiting example, actual or potential trademarks such as
"Inverted Socket Processor Architecture," "ISPA," "ISPA 1," "ISPA 2,"
"ISPA 3," "Cross Processor Architecture," and/or "XPA"), as well as
the goodwill of Seller's or Hamirani's businesses (or that part of the
such goodwill) connected with the use of and symbolized by such
trademarks; in the case of trademarks and trademark applications for
which there is an intent to use, Seller and Hamirani acknowledge that
assignment of such trademarks and trademark applications is being made
concurrent with the assignment of such businesses or portions thereof
to which those trademarks and trademark applications pertain, which
businesses are ongoing and existing; the term "trademark" as used
herein and throughout this agreement refers to both trademarks and
service marks;
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262
(e) Trade Secrets. All right, title and interest, if any should
exist, in any trade secrets and know-how developed, realized,
acquired, owned, or made by or on behalf of Seller or Hamirani
(independently or with others), or in which Seller or Hamirani have a
legal or equitable right of ownership, through the Closing Date,
relating to any invention, modification, advance, technology, patent,
or application referred to in Sections 1.1(i)(a) - 1.1(i)(b);
(f) Documentation. All right, title and interest, if any should
exist, to any documentation (in whatever form and stored on whatever
medium) created by, owned by, acquired by, issued to, filed by or on
behalf of, Seller or Hamirani, or in which Seller or Hamirani have a
legal or equitable right of ownership, through the Closing Date,
relating to any invention, modification, advance, technology, patent,
or application referred to in Sections 1.1(i)(a) - 1.1(i)(b); such
documentation including, without limitation, all design and
engineering drawings and specifications (the "Documentation");
(g) Prototypes. All right, title and interest, if any should
exist, to any prototypes, mock-ups, simulations, or other
implementations (whether or not completed or functional) created,
developed, realized, acquired, owned, or made by or on behalf of
Seller or Hamirani (independently or with others), or in which Seller
or Hamirani have a legal or equitable right of ownership, through the
Closing Date, relating to any invention, modification, advance,
technology, patent, or application referred to in Sections 1.1(i)(a) -
1.1(i)(b);
(h) Other Seller Assets. All right, title and interest in the
technology, proprietary information and/or intellectual property
licensed to Nexar under the License Agreement, including without
limitation that constituting the "Licensed Technology and Know-How",
"Invention", "Technical Information", "Documentation", "Licensed
Patent Rights", and "Improvement" through the Closing Date;
(ii) Causes of Actions. The Purchased Assets shall also include all
right, title and interest in all causes of action, claims and similar
rights arising under law or contract for assignment or other transfer to
Seller or Hamirani, or for performance of duties on behalf of Seller or
Hamirani, relating to any invention, modification, advance, technology,
patent or application therefor, trademark, trademark registration or
application therefore, work of authorship, copyright registration or
application therefor, trade secret or know-how, documentation, prototype
mock-ups, simulations, or other implementations referred to in Sections
1.1(i)(a) -1.1(i)(g) through the Closing Date. In the event Palomar and/or
Nexar pursue a cause of action under this paragraph and Seller and/or
Hamirani are named as parties in any such legal proceeding, then Palomar
and/or Nexar agree to defend and hold Seller and/or Hamirani harmless
pursuant to paragraph 8.3 below except insofar as such actions are the
result of an act or omission by Seller and/or Hamirani in contravention of
the purposes and terms of this Agreement.
<PAGE>
263
As used in this Section 1.1, the terms patent, patent application,
trademark, trademark application, trademark registration, copyright, copyright
application, copyright registration, and the like, refer to the corresponding
domestic, international, regional and foreign intellectual property rights, if
any should exist. Thus, by way of non-limiting example, the references in
Section 1.1(i)(b) to patents and patent application refers to domestic patents
and patent applications, international patents and patent applications, regional
patents and patent applications, and foreign patents and patent applications.
The purchase and sale transactions described above in this Section 1.1 is
herein referred to as the "Asset Sale."
1.2 No Assumption of Liabilities. Neither Nexar nor Palomar shall assume
any liabilities or obligations of Seller or Hamirani whatsoever, including,
without limitation, any obligation or liability relating to any of the
agreements included in the Purchased Assets or product warranty, liability or
similar claims relating to products delivered or services performed on or prior
to the date of the Closing or any other claims arising out of actions (or
inaction) or other events initially occurring on or prior to the date of the
Closing. It is agreed that Seller and Hamirani shall be solely liable for all
liabilities and obligations arising from Seller's or Hamirani's respective
ownership, possession, use or operation of the Purchased Assets, the sale,
licensing or other disposition of the Technology, and other incidents and
occurrences relating to the Purchased Assets during the period on or prior to
the date of the Closing.
1.3. Escrow Agent; Escrow Agreement. Union Bank of California or other
appropriate California financial institution shall serve as Escrow Agent
pursuant to the terms of an Escrow Agreement substantially in the form of
Exhibit 1.3 hereto and to be mutually agreed upon by the parties thereto which
shall be executed at the Closing by the parties hereto and said Escrow Agent.
1.4 The Closing. On the earlier of April 30, 1997 or the closing of the
initial public offering of the common stock of Nexar (the "Closing Date"), (i)
Seller and Hamirani will deliver to Palomar and Nexar the various certificates,
instruments and documents referred to in Section 6.1, and (ii) Palomar and Nexar
will deliver, or cause to be delivered, to Seller, Hamirani, Computer Universe
and the Escrow Agent, as the case may be, the consideration specified in Section
5.1(b), (c), (d) and (e) and the various instruments and documents referred to
in Section 6.2 (the "Closing"). If the closing of the initial public offering of
the common stock of Nexar occurs before April 30, 1997, then the Closing shall
occur on the same date as the closing of the Nexar initial public offering and
the Closing will be first in time. The Closing shall take place at the offices
of Ropers, Majeski, Kohn & Bentley, 80 North First Street, San Jose, California,
or such other place as agreed to by the parties.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND HAMIRANI
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264
Seller and Hamirani each jointly and severally represent and warrant to
Palomar and Nexar that the following are true and complete as of the date
hereof.
2.1 Organization, Standing and Power. Seller is a corporation duly
organized, validly existing and in good standing under the laws of Nevada and
has full corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Seller is duly qualified
and in good standing as a foreign corporation in California and every other
jurisdiction where the conduct of its business or the character of its
properties requires such qualification, or Seller believes qualification is
unnecessary at this time. Seller has duly obtained all permits, licenses and
other qualifications under all applicable laws, regulations, ordinances or
orders of public authorities, or otherwise, that Seller believes are necessary
to the current conduct of its business. Seller has no subsidiaries and does not
control directly or indirectly or have any direct or indirect equity
participation in any corporation, partnership, trust or other business.
2.2 Authority and Binding Obligation. This Agreement has been duly
authorized, executed and delivered by each of the Seller and Hamirani, and
Seller has the corporate power and authority to enter into and perform the
obligations to be performed by it hereunder, and Hamirani has the power and
authority to enter into and perform the obligations to be performed by him
hereunder. This Agreement and the Bills of Sale and other instruments of
transfer and agreements of Seller and Hamirani referred to in Section 6.1
respectively constitute the valid and binding obligations of Seller and
Hamirani, enforceable against each in accordance with their respective terms,
except that such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to enforcement of
creditor's rights generally and is subject to general principles of equity.
2.3 No Consents Necessary. No consents or approvals of or notifications to
any governmental authority or other person not a party hereto is required in
connection with the execution and delivery of this Agreement by Seller and
Hamirani or the performance by Seller and Hamirani of all of their respective
obligations hereunder.
2.4 No Breach. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (a) violate any
provision of the charter or bylaws of Seller or Hamirani's affiliates, or any
material law, regulation, ordinance, judgment or decree applicable to Seller or
Hamirani or any of their respective properties or assets; (b) violate, conflict
with or result in the breach or termination of, or otherwise give any other
contracting party the right to terminate, or constitute (or with notice or lapse
of time, or both, would constitute) a default under the terms of any material
written contract, mortgage, lease, bond, indenture, agreement, franchise or
other instrument or obligation of Seller or Hamirani; or (c) result in the
creation of any lien or encumbrance (collectively, "Liens") upon the Purchased
Assets.
2.5 Intellectual Property.
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(a) Seller and/or Hamirani own the Technology in its entirety both
legally and beneficially that is to be sold, conveyed, transferred,
assigned and delivered to Palomar by this Agreement. Seller and/or Hamirani
have not assigned, licensed, transferred or otherwise conveyed any rights
in the Technology to Computer Universe, Khurum Hamirani, Tariq Hamirani or
others.
(b) Seller and/or Hamirani own legally enforceable rights to make,
use, sell, offer for sale, import, disclose, duplicate, distribute, display
and to prepare derivatives of apparatus, processes, articles of
manufacture, works of authorship and copies in any medium, goods and
services embodying the Technology, subject, prior to the close of business
on the date hereof, only to the terms of the License Agreement.
Exhibit 2.5(a) sets forth a true and complete list of all trademarks,
trademark applications, trademark registrations, patents and patent
applications, copyright applications, copyright registrations, included in the
Technology (collectively, the "Assigned Applications/Registrations"), and
specifies (i) for each such trademark application, trademark registration,
patent application, patent, copyright application, and copyright registration,
the jurisdiction in which it has been filed and/or issued, the date of filing,
the application number, and the registration number (where applicable), and (ii)
for each such trademark, the identity of the mark, its dates of first use
anywhere and first use in interstate commerce, the goods and/or services with
which it is used, and the jurisdictions in which it has been used.
Exhibit 2.5(b) sets forth a true and complete list of all tangible and
intangible assets, other then the Assigned Applications/Registrations, included
in the Purchased Assets, including without limitation apparatus, articles of
manufacture, prototypes and Documentation or other tangible media, contract
rights, causes of action, claims and similar rights, whether accrued or not.
Exhibit 2.5(c) sets forth a true and complete list of all material
third-party patents, trademarks, copyrights, know-how, proprietary information
or other technology (including software) (the "Third Party Intellectual Property
Rights"), and any other property of third parties which are incorporated in,
are, or form a part of, the Technology. Exhibit 2.5(c) also sets forth a true
and complete list of (i) all material licenses, sublicenses and other agreements
as to which Seller and/or Hamirani is a party and pursuant to which any person
is authorized to use any of the Technology and/or the Assigned
Applications/Registrations; (ii) all material licenses, sublicenses and other
agreements as to which Seller is a party and pursuant to which Seller and/or
Hamirani is authorized to use any Third Party Intellectual Property Rights
relating to any technology referred to in Section 1.1(i)(a); and (iii) all
material licenses, sublicenses and other agreements as to which Seller and/or
Hamirani is a party and pursuant to which Seller and/or Hamirani is authorized
to make, use, sell, offer for sale, import, disclose and/or modify any
Technology and/or the Assigned Applications/Registrations.
No claims are currently pending or, to the knowledge of Seller or Hamirani,
threatened by any person or entity, nor do Seller or Hamirani know of any valid
grounds for any bona fide claims (i) to the effect that the manufacture, use,
sale, offering for sale, import, disclosure,
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duplication, distribution, display, licensing, assignment, and/or preparation of
derivatives based on any product, process, work of authorship or copy utilizing
the Technology infringes on any copyright, patent, trademark, or trade secret of
a third party; (ii) against the use by Seller or Hamirani of the any trademarks,
trade names, trade secrets, copyrights, patents, patent applications,
technology, know-how or computer software programs and applications relating to
any technology referred to in Section 1.1(i)(a) used in their respective
businesses as currently conducted; (iii) challenging the ownership, validity or
effectiveness of any of Assigned Applications/Registrations, the Technology,
and/or the Purchased Assets; or (iv) challenging Seller's or Hamirani's license
or legally enforceable right to make use of Third Party Intellectual Rights.
Notwithstanding the above, all parties are aware, as evidenced by Nexar's recent
filings with the Securities and Exchange Commission, that Liaqat Y. Khan may
have a threatened claim regarding the subject technology.
To the knowledge of Seller and Hamirani, all patents, patent applications,
trademarks, trademark applications, registered trademarks, copyright
applications, and registered copyrights included in the Technology are valid and
subsisting. To the knowledge of Seller and Hamirani, there is no material
unauthorized use, infringement or misappropriation of any Assigned
Applications/Registrations or the Technology by any third party, including any,
current or former officer, director, stockholder, or employee of Seller or
Hamirani. Notwithstanding the above, Seller and/or Hamirani may have a claim
against GDA for material unauthorized use, infringement or misappropriation of
the Technology in design work for Nexar (all right, title and interest in such
claim, as well as in any related cause of action or similar rights arising under
law or contract, are assigned and transferred to Palomar pursuant to Section
1.1(ii) hereof).
(c) All copies of any source code for software or firmware
constituting part of the Technology are in Seller's and/or Hamirani's
possession and control (and shall be delivered to Palomar upon Closing) and
no officers, employees, agents, outside consulting or contract engineers or
designers or actual or potential customers of Seller, or any other third
party, have any rights to or possess such source code.
(d) There are no licenses or other authorizations not possessed by
Seller or Hamirani which are required for Palomar and Nexar to utilize,
modify, market and distribute the Technology and Documentation to at least
the same extent as Seller and/or Hamirani prior to the Closing Date.
(e) Seller and Hamirani have taken all appropriate actions to protect
the secrecy and confidentiality of the Technology and the non-public
information included in the Documentation. To the knowledge of Seller and
Hamirani, the Assigned Applications/Registrations are presently protectable
and are not part of the public domain or literature, nor have they been
used, divulged or appropriated for the benefit of any past or present
employees or other persons, or to the detriment of Seller or Hamirani. All
persons who have been involved in the development of the Technology and
Documentation have executed confidentiality and nondisclosure agreements
covering all non-public information included in the Documentation in the
forms previously delivered to Palomar. Notwithstanding the above, Seller
and/or Hamirani have not obtained a written Nondisclosure Agreement with
HCL-Hewlett Packard, Ltd. or HCL America ("HCL
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America") relating to design work performed for Seller and/or Hamirani
regarding United States Patent Application Serial No. 08/409,317. Seller
and/or Hamirani have not assigned, licensed, transferred or otherwise
conveyed any rights in the Technology to HCL America.
(f) Seller and/or Hamirani pay no royalty under any Technology and
have the right to bring actions for the infringement thereof (except as
limited by the License Agreement).
(g) There are no legal or governmental proceedings pending, other than
patent, trademark, and copyright application prosecution proceedings,
relating to the Technology, and to Seller's and Hamirani's knowledge, no
such proceedings are threatened or contemplated by governmental authorities
or others.
(h) Seller and/or Hamirani are not aware of any facts that would
preclude assignment to Palomar and Nexar of clear title to the Technology,
including without limitation the Assigned Applications/Registrations, free
from any encumbrances or liens.
(i) The Seller and/or Hamirani have complied with the USPTO duty of
candor and disclosure for each of the patents and patent applications
included in the Technology.
(j) The Seller and/or Hamirani are not aware of any facts which would
render any patent, copyright or trademark registrations included in, or
that may issue from the Technology, unenforceable or invalid.
(k) The Seller and/or Hamirani are unaware of any facts which would
preclude the grant of a patent, trademark registration or copyright
registration from pending applications therefor included in the Technology.
2.6 Agreements and Other Arrangements. Exhibit 2.6 lists all of the
agreements and other arrangements, if any, to which Seller or Hamirani are a
party or by or to which they or their assets are bound or subject and which are
material to Seller or Hamirani, their businesses, the Technology, including,
without limitation, the following: (a) design, engineering, manufacturing,
assembly, joint venture and partnership agreements; (b) license agreements; (c)
agreements with any outside consulting or contract engineers or designers or
other representative of Seller or Hamirani. There have been delivered or made
available to Nexar true and complete copies of all of the agreements and other
arrangements listed in Exhibit 2.6 and all other Exhibits hereto. All such
agreements and arrangements are in full force and effect and constitute legal,
valid and binding obligations upon Seller and/or Hamirani and, to their
knowledge, the respective other parties thereto, enforceable in accordance with
their respective terms (except that such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and is subject to general
principles of equity). Seller and/or Hamirani have paid in full or accrued all
material amounts due by it thereunder and has satisfied in all material
respects, or provided for, all of its material liabilities and obligations
thereunder. Except as disclosed in Exhibit 2.6, Seller and/or Hamirani are not
in default under any material provision of any such agreement or arrangement,
nor, to its knowledge, is any other party to such agreement or arrangement in
default of any material
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provision thereunder, nor does any condition exist that, with notice or lapse of
time or both, would constitute a default thereunder, which default would have a
materially adverse effect on Seller and/or Hamirani or their respective
businesses.
2.7 No Employees. Other than Babar I. Hamirani, Seller has no employees and
no employee has ever been compensated for any services rendered for or on behalf
of Seller or is due any such compensation for services rendered. Any individual
or entity engaged by Seller or Hamirani to perform any design, engineering,
manufacturing or assembly services with respect to the Technology has been
retained strictly on the basis of work-for-hire and no liens or ownership
interest of any kind whatsoever has arisen in connection with any such services.
2.8 Purchase of Securities for Investment. The Seller and/or Hamirani are
acquiring the Palomar Shares (as defined in Section 5.1(b)) for its own account
for investment purposes only and not with a view to distribution. Each of Seller
and Hamirani has such knowledge and experience in financial and business
matters, either alone or with advisors, that each is capable of evaluating the
merits and risks of acquiring the Palomar Shares.
2.9 Affiliates. The affiliates of Hamirani are listed on Exhibit 1.0
hereto. Hamirani is the sole shareholder of Seller. Other than Seller and
Computer Universe, Hamirani does not have any other affiliated businesses.
2.10 No Excluded Technology. There is no technology, proprietary
information or intellectual property owned by Seller or Hamirani, or in which
Seller or Hamirani have a legal or equitable right of ownership, which will not
be included in the Purchased Assets transferred to Palomar and Nexar by the
Bills of Sale and other instruments of transfer referred to in Section 6.1 of
the Agreement, and which are related to the Technology.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PALOMAR AND NEXAR
Palomar and Nexar each represent and warrant to Seller that the following
are true and complete as of the date hereof:
3.1 Organization, Standing and Power. Each of Nexar and Palomar is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware, duly qualified as a foreign corporation to do business in
Massachusetts and California and has full corporate power and authority to own,
lease and operate its respective properties and to carry on its respective
business as proposed to be conducted.
3.2 Authority and Binding Obligation. This Agreement has been duly
authorized, executed and delivered by each of Nexar and Palomar, and each of
Nexar and Palomar has the corporate power and authority to enter into and
perform the obligations to be performed respectively by each hereunder. This
Agreement constitutes the valid and binding obligations of
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each of Nexar and Palomar, enforceable against each in accordance with its
respective terms, except that such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
enforcement of creditor's rights generally and is subject to general principles
of equity.
3.3 Consents and Approvals. No consents or approvals of nor notification to
any governmental authority or other person not a party hereto is required in
connection with the execution and delivery of this Agreement by Nexar and
Palomar or the performance by Nexar and Palomar of their respective obligations
hereunder.
3.4 No Breach. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (a) violate any
provision of the charter or by-laws of Nexar or Palomar nor any material law,
regulation, ordinance, judgment or decree applicable to Nexar or Palomar or
their respective properties or assets; or (b) violate or conflict with any
agreement to which Nexar or Palomar is a party.
ARTICLE IV
SETTLEMENT OF CLAIMS
4.1. Seller and Hamirani shall deliver to Palomar and Nexar at the Closing
a duly executed General Release identical in form to Exhibit 4.1 hereof.
4.2. Palomar and Nexar shall deliver to Seller and Hamirani at the Closing
a duly executed General Release identical in form to Exhibit 4.2 hereof.
4.3. Seller and Hamirani shall cause Computer Universe to deliver to Nexar
at the Closing a duly executed General Release identical in form to Exhibit
4.3(a) hereof; Nexar shall deliver to Computer Universe at the Closing a duly
executed General Release identical in form to Exhibit 4.3(b) hereof.
ARTICLE V
CONSIDERATION
5.1 Consideration. The consideration for the Purchased Assets and releases
by Seller, Hamirani and Computer Universe of all subject claims shall be as
follows:
(a) $75,000 in the aggregate, which shall be paid to Seller and/or
Hamirani on the date of execution of this Agreement by the parties hereto;
and
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(b) The number of shares of the common stock of Palomar, $.01 par
value per share ("Palomar Common Stock"), which have an aggregate market
value (based on the per share closing bid of the Palomar Common Stock on
the business day immediately prior to The Nasdaq Stock Market on the
Closing Date of $1,500,000 (the "Palomar Shares"), to be delivered to
Seller and/or Hamirani on the Closing Date; and
(c) $425,000 in the aggregate to be paid to Seller and/or Hamirani on
the Closing Date; and
(d) $700,000 in deferred consideration to be delivered to the Escrow
Agent on the Closing Date pursuant to the terms of the Escrow Agreement;
and
(e) $50,000 to be paid to Computer Universe on the Closing Date
pursuant to the terms of the mutual releases between Nexar and Computer
Universe in the form of Exhibits 4.3(a) and (b) attached hereto.
ARTICLE VI
CLOSING
6.1. Obligations of Seller and Hamirani at the Closing. At the Closing,
Seller and Hamirani shall deliver or cause to be delivered to Palomar and/or
Nexar the following:
(a) (i) Bills of Sale identical in form to Exhibit 6.1(a)(i), and such
other instruments of transfer for the Purchased Assets (including by
non-limiting example assignments of patents, patent applications,
copyrights and trademarks) in form and substance reasonably satisfactory to
Palomar, Nexar and their counsel and sufficient to convey to Palomar all of
Seller's and Hamirani's right, title and interest in and to the Purchased
Assets; and (ii) such instruments of transfer shall include, by
non-limiting example, assignments of the Patent Application, the Additional
Patent Application and other technology in the form of an Assignment of
Technology identical in form to Exhibit 6.1(a)(ii) sufficient for
recordation with the United States Patent and Trademark Office and other
governmental offices;
(b) all Documentation and any tangible or intangible reduction to
practice or other representation of the Technology not already in Palomar's
or Nexar's possession; and
(c) a counterpart to the Escrow Agreement, duly executed by Seller,
Hamirani and the Escrow Agent;
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(d) a counterpart of the Investment and Registration Rights Agreement
in the form of Exhibit 6.1(d) ("Investment Agreement"), duly executed by
Seller and Hamirani;
(e) a General Release identical in form to Exhibit 4.1, duly executed
by Seller and Hamirani;
(f) a General Release identical in form to Exhibit 4.3(a), duly
executed by Computer Universe;
(g) all copies of the Assigned Applications/Registrations (including
the Patent Application and the Additional Patent Application not yet
filed), along with copies of the Patent Application's entire history of
prosecution, or "file history", before the respective government offices
(such file history to include, but not be limited to, copies of the
application, filing receipts, office actions, responses, notices of
allowability and/or allowance, and any other correspondence between the
applicant and respective government office with respect to such Assigned
Applications/Registrations), which copies Palomar and Nexar shall have a
right to conduct a nonqualitative inspection at the Closing; and
(h) such other certificates, and documents and instruments as Nexar
may reasonably request to effectuate and evidence the transactions
contemplated hereby and the satisfaction of the obligations of Seller and
Hamirani under this Agreement.
6.2 Obligations of Nexar and Palomar at the Closing. At the Closing,
Palomar and Nexar shall deliver or cause to be delivered to Seller and Hamirani
the following:
(a) the $425,000 cash consideration specified in Section 5.1(c);
(b) the Palomar Shares;
(c) the $700,000 deferred consideration to be delivered to the Escrow
Agent pursuant to the Escrow Agreement;
(d) the $50,000 cash consideration to be delivered to Computer
Universe;
(e) a General Release identical in form to Exhibit 4.2, duly executed
by Nexar and Palomar;
(f) a General Release identical in form to Exhibit 4.3(b), duly
executed by Nexar;
(g) a counterpart to the Escrow Agreement, duly executed by Palomar;
(h) a counterpart to the Investment Agreement, duly executed by
Palomar; and
(i) a copy of the lock-up agreement between Nexar and its directors
and officers; and
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(j) such other certificates, documents and instruments as Seller may
reasonably request to effectuate and evidence the transactions contemplated
hereby and the satisfaction of the obligations of Palomar and Nexar under
this Agreement. By the Closing Date, Seller and Hamirani will provide
specific Closing instructions regarding which portions of the consideration
shall be made out to Seller as opposed to Hamirani.
ARTICLE VII
OTHER COVENANTS AND AGREEMENTS
7.1 Prior Agreement Terminated. The License Agreement to which Nexar and
Seller are parties, shall be automatically terminated and have no further force
and effect as of the close of business on the Closing Date and neither party
shall thereafter have any liability whatsoever to the other thereunder.
7.2 Non-Compete; Non-Disparagement; No Bad Acts. Hamirani and Seller agree
that neither will during the period commencing upon execution of this Agreement
and ending on the Closing Date, either alone or jointly with, or as manager or
agent for, any person, corporation, partnership, joint venture or other business
organization, directly or indirectly engage or participate in, assist or consult
with in any manner or in any capacity, or have any interest in or make any loan
to any person, corporation, partnership, joint venture or other business
organization, or any company, which is engaged in manufacturing, development, or
sale of products incorporating any technology referred to in Section 1.1(i).
Hamirani and Seller further agree that neither will during the period
ending six months following the Closing Date, either alone or jointly with, or
as manager or agent for, any person, corporation, partnership, joint venture or
other business organization, directly or indirectly, solicit any person or
persons in the employment of Palomar or Nexar in any capacity whatsoever to
terminate such association and work for Hamirani, Seller, or any affiliates.
Commencing upon execution of this Agreement through the period ending 12
months following the Closing Date, the parties mutually agree that they will not
make any statement, orally or in writing, which disparages or damages the
reputation, quality of work, capabilities or integrity of any other party, as
the law provides, or do any wrongful act or omission which may damage the
reputation, quality of work, capabilities or integrity of any other party, as
the law provides.
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Commencing upon execution of this Agreement through the period ending 12
months following the Closing Date, the parties mutually agree that they will not
interfere with or damage any beneficial or contractual relationship of the other
party, as the law provides.
7.3 Further Assurances of Seller and Hamirani. Commencing upon execution of
this Agreement (and thereafter, as applicable), Seller and Hamirani shall (i)
maintain the pendency, validity and enforceability of Assigned
Applications/Registrations and shall not allow them to go abandoned or reduce
their scope; (ii) maintain the secrecy of all legally protectable trade secrets
and know-how included in Technology; and (iii) take no other actions tending to
reduce the scope of the Technology and/or Purchased Assets. After the Closing,
Seller and Hamirani each hereby covenant that they will (i) execute, acknowledge
and deliver any further assignments, conveyances and other assurances, documents
and instruments of transfer reasonably requested by Palomar and/or Nexar from
time to time and shall take any other action consistent with the terms of this
Agreement that may be reasonably requested by Palomar and/or Nexar for the
purpose of selling, transferring, assigning, granting, conveying, delivering or
confirming to Palomar and/or Nexar as of the date of the Closing (or such other
date thereafter as the parties shall deem appropriate) any or all of the
Purchased Assets; (ii) provide any further facts and documents as may be known
and accessible to Seller and/or Hamirani requested by Palomar and/or Nexar
relating to the Technology, and testify (at Palomar and/or Nexar's cost) as to
the same in any interference, opposition, litigation or proceeding related
thereto, and (iii) execute, acknowledge and deliver any further instruments or
affidavits reasonably requested by Palomar and/or Nexar from time to time to
apply for, obtain maintain, and enforce patents, copyrights, trade secrets and
other proprietary rights in the Technology assigned hereunder or to otherwise
carry out the purposes hereof. Neither the Seller nor Hamirani shall retain any
copies of the Purchased Assets or materials disclosing or containing nonpublic
aspects of the same. If requested by Palomar and/or Nexar, Seller and/or
Hamirani, at Palomar and/or Nexar's cost, shall prosecute or otherwise enforce
in Seller's and/or Hamirani's own names for the benefit of Palomar and/or Nexar
any claims, rights or benefits that are transferred to Palomar and/or Nexar by
this Agreement and that require prosecution or enforcement in Seller's and/or
Hamirani's names.
7.4 Further Assurances of Palomar and Nexar. All officers and directors of
Nexar shall agree to hold their shares of Nexar stock for a period not less than
six (6) months from the date of closing of Nexar's initial public offering. A
copy of the lock-up agreement confirming same shall be provided to Seller and
Hamirani at the Closing. Palomar and Nexar shall not fund any litigation or
other legal proceeding (except any defense or counterclaim) brought in the name
of any Palomar or Nexar director, officer, employee, or any others against
Seller or Hamirani for the period ending four years following the Closing Date.
ARTICLE VIII
INDEMNIFICATION
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8.1 Survival of Representations and Warranties. The representations and
warranties made by each of the parties in this Agreement shall be deemed to have
been relied upon by the other parties hereto and shall survive the Closing,
provided that in no event shall any party be entitled to seek indemnification in
respect of any breach of a representation or warranty made herein pursuant to
this Article VIII unless the party seeking indemnification has made a written
claim therefor pursuant to Section 9.9 prior to January 1, 2000.
8.2 Indemnification Provisions.
(i) In the event Seller and/or Hamirani breaches (or in the event any
third party alleges facts that, if true, would mean Seller and/or Hamirani
has breached) any of their representations, warranties, and covenants
contained herein, provided that Palomar and/or Nexar makes a written claim
for indemnification against Seller and/or Hamirani by notice to Hamirani
pursuant to Section 9.9 prior to January 1, 2000, then Seller and Hamirani
jointly and severally agree to indemnify Nexar and Palomar from and against
the entirety of any actions, suits, proceedings, hearing, investigations,
charges, complaints, claims, demands, injunctions, judgments, orders,
decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in
settlement, liabilities, obligations, taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorney's fees and expenses
("Adverse Consequences") Nexar or Palomar may suffer through and after the
date of the claim for indemnification (including any Adverse Consequences
Nexar or Palomar may suffer after December 31, 1999) resulting from,
arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
(ii) In the event Palomar or Nexar breaches (or in the event any third
party alleges facts that, if true, would mean Palomar or Nexar has
breached) any of its representations, warranties, and covenants contained
herein, provided that Hamirani makes a written claim for indemnification
against Palomar or Nexar pursuant to Section 9.9 prior to January 1, 2000,
then Palomar and Nexar agree to indemnify each of the Seller and Hamirani
from and against the entirety of any Adverse Consequences the Seller or
Hamirani may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Seller or Hamirani
may suffer after December 31, 1999) resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged
breach).
8.3 Matters Involving Third Parties.
(i) If any third party shall notify any party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against any other party (the
"Indemnifying Party") under this Article VIII, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
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(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 8.3(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not
to be withheld unreasonably).
(iv) In the event any of the conditions in Article 8.3(ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C) the
Indemnifying Parties will remain responsible for any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Article VIII.
8.4 Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any party may have for breach of representation,
warranty, or covenant.
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ARTICLE IX
GENERAL PROVISIONS
9.1 Publicity. Neither Hamirani nor Seller or any of their affiliates shall
issue any press release or other public statement with respect to the
transactions contemplated by this Agreement without the prior written consent of
Palomar and Nexar, which consent will not be unreasonably withheld.
9.2 Headings. The subject headings of the Sections and subsections of this
Agreement are included for purposes of convenience only and shall not affect the
interpretation of any of its provisions.
9.3 Entire Agreement; Amendments and Waivers. This Agreement constitutes
the entire agreement among the parties pertaining to the subject matter
contained herein and supersedes all prior agreements, representations and
understandings of the parties. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by the party to be bound.
No waiver of any of the provisions of this Agreement shall be deemed a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.
9.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Severability; Reformation. In case any one or more of the provisions
(or parts of a provision) contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision (or part of
a provision) of this Agreement; and this Agreement shall, to the fullest extent
lawful, be reformed and construed as if such invalid, illegal or unenforceable
provision (or part of a provision) had never been contained herein, and such
provision (or part) reformed so that it will be valid, legal and enforceable to
the maximum extent possible, consistent with the parties' intent.
9.6 Other Parties. Nothing in this Agreement, whether express or implied,
is intended to confer any rights or remedies under this Agreement on any persons
other than the parties to it and their respective successors and permitted
assigns, nor is anything in this Agreement intended to relieve or discharge the
obligation or liability of any third persons to any party to this Agreement, nor
shall any provision give any third persons any right of subrogation or action
against any party to this Agreement.
9.7 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Neither this Agreement nor
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any of the rights, interests and obligations hereunder shall be assigned by any
of the parties hereto without the prior written consent of the other, which
consent shall not be unreasonably withheld, except that Palomar may assign this
Agreement to any of its subsidiaries (provided that Palomar remains obligated
hereunder) or to any purchaser of all or substantially all of the capital stock
or assets of Palomar, whether by merger or otherwise.
9.8 Governing Law. Except for the General Releases in the form of Exhibits
4.1, 4.2, 4.3(a) and 4.3(b) which shall be construed in accordance with, and
governed by, the laws of the State of California, this Agreement and the
exhibits hereto shall be construed in accordance with, and governed by, the laws
of The Commonwealth of Massachusetts, including, without limitation, its
statutes of limitations, but without giving effect to its rules governing choice
of law.
9.9 Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and delivered by personal delivery, mail,
overnight courier or telecopy. Such communications shall be deemed given, if by
personal delivery, when received; if by mail, when mailed by certified or
registered mail (postage prepaid and return receipt requested); or if by
overnight courier or telecopy, when delivered to such courier or sent by
telecopy (provided that the party giving such communication has confirmation of
such courier delivery or telecopy delivery), and, in each case, addressed to the
party to whom notice is to be given as set forth below:
Palomar:
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
Telephone: (508) 921-9300
Facsimile: (508) 921-5801
Attention: Steven Georgiev, Chairman
Nexar:
Nexar Technologies, Inc.
182 Turnpike Road
Westborough, Massachusetts 01581
Attention: Albert J. Agbay
Chairman and Chief Executive Officer
Telephone: (508) 836-8700
Facsimile: (508) 836-8729
with a copy to:
Stephen K. Fogg, Esq.
Choate, Hall & Stewart
Exchange Place
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278
53 State Street
Boston, Massachusetts 02109
Telephone: (617) 248-5000
Facsimile: (617) 248-4000
Seller and Hamirani:
c/o Babar I. Hamirani
180 Victory Circle
San Ramon, California 94583
Telephone:
Facsimile:
with a copy to:
Michael J. Ioannou, Esq.
Ropers, Majeski, Kohn & Bentley
60 North First Street
San Jose, California 95110
Telephone: (408) 287-6262
Facsimile: (408) 297-6819
Any party may change its address or the individual(s) to whom notice is to be
given for purposes of this Section 9.9 by giving the other parties notice of the
new address or individual in the manner set forth above; provided that any such
notice of change of address or individual shall not be in effect until received.
9.10 Arbitration. For the period ending 12 months following the Closing
Date, or so long as there is deferred compensation held by the Escrow Agent
pursuant to the Escrow Agreement, the sole forum for the litigation of any
dispute arising under or in connection with this Agreement or any exhibit hereto
shall be by binding arbitration conducted by J.A.M.S/ENDISPUTE in San Francisco,
California by a person chosen by mutual agreement of the parties, and if the
parties fail to agree, chosen by J.A.M.S/ENDISPUTE. The parties agree that if
the amount in controversy exceeds $100,000, then the discovery procedures as
established by the Federal Rules of Civil Procedure shall be incorporated into
the J.A.M.S/ENDISPUTE applicable rules. The prevailing party in any such
proceeding shall be entitled to recover attorney's fees and costs incurred in
that proceeding.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed under seal as of the date and year first above written.
PALOMAR MEDICAL TECHNOLOGIES, INC.,
/s/
- ------------------------------ By: /s/
Witness -----------------------------
Joseph P. Caruso
Treasurer and Chief Financial
Officer
NEXAR TECHNOLOGIES, INC.
/s/
- ----------------------------- By: /s/
Witness ----------------------------
Albert J. Agbay
Chairman and
Chief Executive Officer
TECHNOVATION COMPUTER LABS, INC.
/s/
- ---------------------------- By: /s/
Witness -----------------------------
Babar I. Hamirani
President
/s/ /s/
- --------------------------- --------------------------------
Witness Babar I. Hamirani
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280
Exhibit 1.0
Affiliates
Michelle Hamirani
Technovation Computer Labs, Inc.
Amerisel, Inc. (d/b/a Computer Universe)
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281
List of Exhibits to Asset and Purchase Settlement Agreement
<TABLE>
<C> <C>
Exhibit 2.5(a) List of Trademarks, Trademark Applications, Trademark Registrations, Patents
and Patent Applications, Copyright Applications and Copyright Registrations
Exhibit 2.5(b) List of Tangible and Intangible Assets
Exhibit 2.5(c) List of Material Third-party Patents, Trademarks, Copyrights, Know-how,
Proprietary Information
Exhibit 2.6 List of Agreements and Arrangements
Exhibit 4.1 General Release by and between Babar I. Hamirani and Technovation Computer
Labs, Inc.
Exhibit 4.2 General Release by and between Babar I. Hamirani and Nexar Technologies, Inc.
Exhibit 4.3(a) General Release by Amerisel, Inc.
Exhibit 4.3(b) General Release by Nexar Technologies, Inc.
Exhibit 4.4(a) General Release by and between Babar I. Hamirani and Technovation Computer
Labs, Inc.
Exhibit 4.4(b) General Release by GDA Technologies, Inc.
Exhibit 6.1(a)(i) Bill of Sale by Technovation Computer Labs, Inc. to Palomar Medical
Technologies, Inc.
Exhibit 6.1(a)(ii) Assignment of Technology
</TABLE>
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282
EMPLOYMENT AGREEMENT THIS
EMPLOYMENT AGREEMENT (this "Agreement") made as of January 1, 1997,between
Palomar Medical Technologies, Inc., a Delaware corporation (the"Company"), and
Steven Georgiev, an individual (the "Executive"),
W I T N E S S E T H T H A T:
WHEREAS, the Company desires to employ Executive as its Chief
ExecutiveOfficer for the period and upon and subject to the terms herein
provided; and
WHEREAS, the Company desires to be assured that Executive will notcompete
with the Company for the period and within the geographical areashereinafter
specified; and
WHEREAS, Executive is willing to agree to be employed by the Company forthe
period and upon and subject to the terms herein provided; and
WHEREAS, Executive does not desire to work for the Company in a
positionlower than that of Chief Executive Officer and is willing to agree not
to compete with the Company;
NOW, THEREFORE, in consideration of the premises, the parties
heretocovenant and agree as follows:
Section 1. Term of Employment; Compensation. The Company agrees toemploy
Executive from the date hereof until December 31, 1999 (the "Term") asits Chief
Executive Officer, with the responsibilities normally associated withsuch
position (the "Executive Position"). The Company will pay Executive for
hisservices during the term of his employment hereunder at an annual rate of
ThreeHundred Fifty Thousand Dollars ($350,000), subject to a 10% increase per
year,payable in arrears, in equal installments, in accordance with standard
Companypractice, but in any event not less often than monthly, subject only to
suchpayroll and withholding deductions as are required by law.
Section 2. Office and Duties. Executive shall have the usual
duties,responsibilities and authority (the "Executive's Authority") of a
ChiefExecutive Officer, and shall report to the Board of Directors of the
Company,and shall perform such specific other tasks, consistent with his
position as Chief Executive Officer, as may from time to time be assigned to him
by theBoard of Directors. Executive shall devote substantially all of his
businesstime, labor, skill, undivided attention and best ability to the
performance ofhis duties hereunder. Executive may not, without Executive's
consent, berequired to perform Executive's duties at any location that is more
than fifty(50) miles from the Company's principal office in Beverly,
Massachusetts, exceptthat Executive agrees that he will travel to whatever
extent is reasonablynecessary in the conduct of the Company's business.
Section 3. Expenses. Executive shall be entitled to reimbursement
forexpenses incurred by him in connection with the performance of his
dutieshereunder upon receipt of vouchers therefor in accordance with such
proceduresas the Company has heretofore or may hereafter establish.
Section 4. Vacation During Employment. Executive shall be entitled tosuch
reasonable vacations as may be allowed by the Company in accordance withgeneral
practices to be established, but in any event not less than four (4) weeks
during each twelve (12) month period.
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Section 5. Additional Benefits. The Company shall make available
toExecutive at least those perquisites presently granted to Executive.
Nothingherein contained shall preclude Executive, to the extent he is
otherwiseeligible, from participation in all group insurance programs or other
fringebenefit plans which the Company may hereafter in its sole and
absolutediscretion make available generally to its employees, but the Company
shall notbe required to establish or maintain any such program or plan.
Section 6. Termination by the Company. The Company shall have the rightto
terminate Executive's employment at any time for "Cause". For purposes ofthis
Agreement, "Cause" shall mean (a) termination by action of a majority ofthe
members of the Company's Board of Directors, acting on the written opinionof
counsel, because of Executive's willful and continued refusal, without
propercause, to perform substantially Executive's duties under this Agreement;
or (b)the conviction of Executive of a felony or an act of fraud or
embezzlementagainst the Company or any of its divisions, subsidiaries of
affiliates (whichthrough lapse of time or otherwise is not subject to appeal).
Such terminationshall be effected by written notice thereof, personally hand
delivered by theCompany to Executive, and, except as hereinafter provided, shall
be effective asof the thirtieth (30th) calendar day after such notice; provided,
however, thatif within such thirty (30) calendar day period Executive shall
cease Executive'srefusal and shall use Executive's best efforts to perform such
obligations, thetermination shall not be effective.
Section 7. Termination by Death. In the event Executive dies during
theTerm, Executive's employment shall terminate (effective on the date
ofExecutive's death) and the provisions of Section 10 shall be applicable.
Section 8. Termination by Disability. In the event that Executivesuffers a
disability which prevents Executive from substantially performing Executive's
duties under this Agreement for a period of at least one hundred eighty (180)
consecutive or nonconsecutive calendar days within any threehundred sixty-five
(365) calendar day period, the Company shall have the right,after such one
hundred eighty (180) calendar day period has elapsed, toterminate Executive's
employment hereunder upon thirty (30) calendar dayswritten notice to Executive
and the provisions of Section 10 shall beapplicable.
Section 9. Termination by Executive. Notwithstanding any otherprovisions of
this Agreement, Executive may terminate Executive's employmenteither (i) in the
event of a "Change in Control" or (ii) by written noticeserved upon the Company
within thirty (30) calendar days after Executive hasknowledge of an event
constituting "Good Reason."
For purposes of this Agreement, the term "Change in Control" shall
meaneither (i) that, after the date hereof, any person (an "Acquiring
Person"),together with its affiliates and associates (as defined in Rule 12b-2
under the Securities Exchange Act of 1934, or any successor rule thereto) shall
become the beneficial owner (as defined in Rule 13d-3 under the Securities and
ExchangeAct), including by merger or otherwise, of more than fifty percent (50%)
of the total voting power of all classes of voting stock of the Company or (ii)
thatone or more Acquiring Persons has succeeded as the result of or in response
toactual or threatened election contests, whether by settlement or otherwise,
inhaving elected to the Board of Directors of the Company, whether at one time
oron a cumulative basis, a sufficient number of its nominees to constitute
(x)more than thirty percent (30%) of the members of the Company's Board
ofDirectors, rounded down to the nearest whole number, if the number of
directorson the Company's Board is eight or less, or (y) more than forty percent
(40%) ofthe members of the Company's Board, rounded down to the nearest whole
number, ifthe number of directors on the Company's Board is nine or more.
For purposes of this Agreement, the term "Good Reason" shall mean:
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284
(i) any action by the Company which results in a diminution in the
Executive Position or in the Executive's Authority;
(ii) any failure by the Company to timely pay the amounts or provide
the benefits described in this Agreement, other than an isolated failure
not occurring in bad faith and which is remedied promptly after receipt of
written notice thereof given by Executive; or
(iii) a material breach by the Company of any of the provisions of
this Agreement which failure or breach shall have continued for thirty (30)
days after written notice from Executive to the Company specifying the
nature of such failure or breach; or
(iv) any action by the Company that would result in a violation of
Section 2.
Section 10. Effect of Termination. (a) For Cause; Without Good Reasonand No
Change in Control; and Death. In the event of termination of thisAgreement (i)
by the Company for Cause, (ii) by the Executive without GoodReason or with no
Change in Control or (iii) by reason of the death of theExecutive, the Company
shall pay Executive (or Executive's beneficiary in theevent of the Executive's
death) any base salary or other compensation earned(and a pro rata portion of
the bonus payable with respect to the year in which termination occurred) but
not paid to Executive prior to the effective date of such termination and, in
the case of termination by reason of death, the Company shall pay Executive's
beneficiary (i) the base salary that Executive would have earned for a period of
twelve (12) months following his death, plus (ii) a prorata portion of any
bonuses or other incentive compensation that Executive would have earned if he
had been employed for the full fiscal year in which he died payable at the time
of payment of similar bonuses made to other Executives ofthe Company, plus (iii)
any death benefits that Executive is entitled to underthe Company's policies in
effect on Executive's date of death.
(b) Without Cause; For Good Reason. In the event of (i) termination ofthis
Agreement by the Company other than for Cause, or (ii) termination of
thisAgreement by Executive for Good Reason, in either case, other than within
oneyear of a Change in Control, the Company shall pay Executive, in a lump
sumwithin thirty (30) days after termination under this Section 10(b), the sum
of(A) the amount described in Section 10(a) of this Agreement (other than
thepayments to be paid in case of termination by death), and (B) the amount
equalto four times (4x) the Executive's annual base salary in effect at the time
oftermination under this Section 10(b), and the Company shall continue during
theTerm all of the benefits and perquisites set forth in Section 5,
notwithstandingthe fact that Executive may no longer be an employee eligible to
participate inone or more of the employee benefit plans maintained by the
Company.
(c) Change in Control (other than an Approved Change in Control). In
theevent of termination of this Agreement by the Company or Executive within
one(1) year after a Change in Control (other than an Approved Change in
Control),the Company shall pay Executive, in a lump sum payment within thirty
(30) daysafter termination under this Section 10(c), the sum of (A) the amount
describedin Section 10(a) of this Agreement (other than the payments to be made
in caseof termination by death), and (B) the amount equal to eight (8x) times
Executive's Annual Compensation, and the Company shall continue during the
Termall of the benefits and perquisites set forth in Section 5, notwithstanding
thefact that Executive may no longer be an employee eligible to participate in
oneor more of the employee benefit plans maintained by the Company.
For purposes of this Agreement, the term "Approved Change in Control" shall
mean a Change of Control that has occurred with the prior approval of a majority
of the Continuing
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285
Directors and the term "Continuing Director" shall mean any member of the Board
of Directors of the Company who is not an Acquiring Person or a nominee or
representative of an Acquiring Person or of any affiliate or associate of an
Acquiring Person and any successor to a Continuing Director who was recommended
for election or elected to succeed a Continuing Director by a majority of the
Continuing Directors then on the Board of Directors of the Company.
For purposes of this Section 10(c) of this Agreement the term
"Executive's Annual Compensation" shall mean (i) the sum of (A) the Executive's
base salary set forth in Section 1 and (B) any bonus compensation to which
Executive would have been entitled if Executive continued to be employed under
this Agreement to the end of 1996, provided that if the Executive's base salary
or bonuses compensation is increased after 1996 the term shall mean the higher
of the Executive annual salary immediately prior to such change or the sum of
(a) the base salary in effect at the time of termination and (b) any bonus
compensation to which Executive would have been entitled if Executive had
continued to be employed under this Agreement to the end of the Company's fiscal
year in which his employment terminated.
(d) With Good Reason following an Approved Change in Control. In the
event of termination of this Agreement by Executive with Good Reason within one
(1) year after an Approved Change in Control, the Company shall pay Executive,
in a lump sum payment within thirty (30) days after termination under this
Section 10(c), the sum of (A) the amount described in Section 10(a) of this
Agreement (other than the payments to be made in case of termination by death),
(B) the amount equal to eight (8x) times the sum of (i) Executive's annual base
salary in effect at the time of termination, and (ii) any bonus compensation to
which Executive would have been entitled if Executive had remained as an
employee under this Agreement to the end of the Company's fiscal year in which
his employment terminated, and the Company shall continue during the Term all of
the benefits and perquisites set forth in Section 5, notwithstanding the fact
that Executive may no longer be an employee eligible to participate in one or
more of the employee benefit plans maintained by the Company.
(e) Disability. In the event of termination of this Agreement by reason
of disability, the Company shall continue to pay Executive's base salary at the
time of such termination for the remainder of the Term, reduced by the maximum
amount of salary which may be insured under the Company's Long Term Disability
Plan at the time of disability.
Section 11. Excise Taxes. In the event that Executive shall have imposed
upon him the tax which is imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"), or by any successor provision, by reason of
any payment or benefit which Executive has received under this Agreement, the
Company shall pay as additional compensation to Executive an amount equal to the
amount of the tax imposed by Code Section 4999 (the "Special Tax Payment") as a
result of the receipt of such payment, or benefit; provided that the Special Tax
Payment shall not be increased to account for excise or other tax imposed as a
result of the making of the Special Tax Payment.
Section 12. Acceleration and Expiration of Options. Any options or
warrants to purchase capital stock of the Company (collectively, the "Options")
granted by the Company to Executive that have not yet become exercisable shall
become exercisable upon the earliest to occur of (a) the termination of
Executive's employment as a result of Executive's death or disability; (b) the
termination by Executive with Good Reason; or (c) the termination by Executive
after a Change in Control (other than an Approved Change in Control).
Notwithstanding the foregoing, all Options, whether currently exercisable or
not, shall expire and cease to be exercisable as follows:
(a) if the Company terminates Executive's employment for Cause,
immediately upon the effective date of such termination;
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286
(b) if Executive terminates Executive's employment with the Company
other than for Good Reason, a Change in Control, death, or disability,
immediately upon the effective date of such termination;
(c) if Executive terminates Executive's employment with the Company with
Good Reason or after a Change in Control (other than an Approved Change in
Control), ninety (90) days after the effective date of such termination (but in
no event later than the date the Term would expire without giving effect to any
automatic renewal.
(d) if Executive dies while employed by the Company, six (6) calendar
months after Executive's death (but in no event later than the date the Term
would expire without giving effect to any automatic renewal); and
(e) if Executive's employment is terminated as a result of disability,
six (6) calendar months after the effective date of such termination (but in no
event later than the date the Term would expire without giving effect to any
automatic renewal.
Section 13. No Mitigation; No Offset. Executive shall be under no
obligation to mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, and there shall be no
offset against amounts due Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that Executive may
obtain.
Section 14. Disclosure and Assignment of Intellectual Property.
(a) Executive agrees that the Company, and its successors and assigns
shall own all right, title and interest throughout the world in and to all
research, information, inventions, designs, procedures, developments,
discoveries, improvements, patents and applications therefor, trademarks and
applications therefor, copyrights and applications therefor, trade secrets,
drawings, plans, systems, methods, specifications, and all other manufacturing,
engineering, technical, research and development data and know-how (herein
sometimes "Intellectual Property") made, conceived, developed and/or acquired by
him solely or jointly with others during the period of his employment with the
Company or within one year thereafter, which relate to the manufacture,
production or processing of any products developed or sold by the Company during
the term of this Agreement or which are within the scope of or usable in
connection with the Company's business as it may, from time to time, hereafter
be conducted or proposed to be conducted, whether or not made during my regular
working hours and whether or not made on the Company's premises.
(b) Executive agrees that any such Intellectual Property shall
constitute a work made for hire under the copyright laws of the United States
and, to the extent any such Intellectual Property shall be determined not to be
a work made for hire, Executive hereby assigns, and, to the extent any such
assignment cannot be made at the present time, Executive hereby agrees to
assign, to the Company all of my right, title and interest throughout the world,
including, without limitation, copyright, patent and trade secret rights, in and
to the Intellectual Property, together with Executive's right to file for and/or
own wholly without restriction United States and foreign patents, trademarks and
copyrights with respect thereto. Executive specifically agrees and acknowledges
that the foregoing assignment covers all results, outputs and products of his
work for the Company prior to the date hereof, whether as an employee or as a
consultant, and all related copyrights, patents and other proprietary rights,
and that all such results, outputs and products shall be Intellectual Property
hereunder and the sole property of the Company hereafter.
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(c) Executive agrees to execute all appropriate patent applications
securing all United States and foreign patents on all Intellectual Property, and
to do, execute and deliver any and all acts and instruments that may be
necessary or proper to vest all Intellectual Property in the Company or its
nominee or designee and to enable the Company, or its nominee or designee, to
obtain all such patents; and Executive agrees to render to the Company, or its
nominee or designee, all such assistance as it may require in the prosecution of
all such patent applications and applications for the re-issue of such patents,
and in the prosecution or defense of all interferences which may be declared
involving any of said patent applications or patents, but the expense of all
such assignments and patent applications, or all other proceedings referred to
herein above, shall be borne by the Company. Executive shall be entitled to fair
and reasonable compensation for any such assistance requested by the Company or
its nominee or designee and furnished by him after the termination of his
employment. Executive shall make and maintain adequate and current written
records of all Intellectual Property, and Executive shall disclose all
Intellectual Property promptly, fully and in writing to the Company immediately
upon development of the same and at any time upon request.
Section 15. Confidentiality. Executive shall not, either during the
period of his employment with the Company or thereafter, reveal or disclose to
any person outside the Company or use for his own benefit, without the Company's
specific written authorization, whether by private communication or by public
address or publication or otherwise, any Confidential Information, as
hereinafter defined. The term "Confidential Information" as used throughout this
Agreement shall mean all trade secrets, proprietary information and other data
or information (and any tangible evidence, record or representation thereof),
whether prepared, conceived or developed by an employee of the Company or
received by the Company from an outside source, which is in the possession of
the Company (whether or not the property of the Company), which in any way
relates to the present or future business of the Company, which is maintained in
confidence by the Company, or which might permit the Company or its customers to
obtain a competitive advantage over competitors who do not have access to such
trade secrets, proprietary information, or other data or information. All
originals and copies of any of the foregoing, relating to the business of the
Company, however and whenever produced, shall be the sole property of the
Company, not to be removed from the premises or custody of the Company without
in each instance first obtaining written consent or authorization of the
Company. Upon the termination of Executive's employment in any manner or for any
reason, Executive shall promptly surrender to the Company all copies of any of
the foregoing, together with any other documents, materials, data, information
and equipment belonging to or relating to the Company's business and in his
possession, custody or control, and Executive shall not thereafter retain or
deliver to any other person, any of the foregoing or any summary or memorandum
thereof.
Section 16. Restriction. The Company has invested and may in the future
be required to invest substantial sums of money, directly or indirectly, to
continue and expand the business heretofore conducted by it and in connection
therewith, and as Executive recognizes that the Company would be substantially
injured by Executive disclosing to others, or by Executive using for his own
benefit, any Intellectual Property or any of the other types of information
referred to in Section 15 as Confidential Information, Executive agrees that
during the period of his employment hereunder and for a period ending
twenty-four (24) months after the term of this Agreement:
(a) Neither he nor any member of his family will be interested, directly
or indirectly, as an investor in any other business or enterprise similar to
that of the Company or in competition with the Company (except as an investor in
securities listed on a national securities exchange or actively traded over the
counter; and
(b) He will not, directly or indirectly, for his own account or as
employee,
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288
officer, director, partner, joint venturer or otherwise, engage within the
United States or Canada, in any phase of the business of manufacturing,
distributing or selling of lasers for use in medical or cosmetic procedures.
(c) Executive shall not solicit, induce, attempt to hire, or hire any
employee of the Company (or any other person who may have been employed by the
Company during the term of his employment with the Company), or assist in such
hiring by any other person or business entity or encourage any such employee to
terminate his or her employment with the Company.
Executive and the Company are of the belief that the period of time, the
geographic area and the range of activities limited by this Section 16 are
reasonable, in view of the nature of the business in which the Company is
engaged and proposes to engage, the state of its product development and
Executive's knowledge of this business. However, if such period, or range of
activities area should be adjudged unreasonable in any judicial proceeding, then
the period of time shall be reduced by such number of months, such area shall be
reduced by elimination of such portion of such area, and/or such range of
activities shall be reduced by elimination of such activities, as are deemed
unreasonable, so that this covenant may be enforced in such area and during such
period of time as is adjudged to be reasonable.
Section 17. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given when delivered or
three (3) days after mailing if mailed by first-class, registered or certified
mail, postage prepaid, addressed (a) if to Executive, at the address set forth
below his name on the signature page hereof, or to such other person(s) or
address(es) as Executive shall have furnished to the Company in writing; and (b)
if to the Company, at 66 Cherry Hill Drive, Beverly, MA 01915, Attn: Mr. Joseph
Caruso, with a copy to Foley, Hoag & Eliot, One Post Office Square, Boston,
Massachusetts 02109, Attn: David A. Broadwin, Esq. or to such other person(s) or
address(es) as the Company shall have furnished to Executive in writing.
Section 18. Assignability. In the event that the Company shall be merged
with, or consolidated into, any other corporation, or in the event that it shall
sell and transfer substantially all of its assets to another corporation, the
terms of this Agreement shall inure to the benefit of, and be assumed by, the
corporation resulting from such merger or consolidation, or to which the
Company's assets shall be sold and transferred. This Agreement shall not be
assignable by Executive, but it shall be binding upon, and shall inure to the
benefit of, his heirs, executors, administrators and legal representatives.
Section 19. Entire Agreement. This Agreement contains the entire
agreement between the Company and Executive with respect to the subject matter
hereof and there have been no oral or other agreements of any kind whatsoever as
a condition precedent or inducement to the signing of this Agreement or
otherwise concerning this Agreement or the subject matter hereof.
Section 20. Expenses. Each party shall pay its own expenses incident to
the performance or enforcement of this Agreement, including all fees and
expenses of its counsel for all activities of such counsel undertaken pursuant
to this Agreement, except as otherwise herein specifically provided.
Section 21. Equitable Relief. Executive recognizes and agrees that the
Company's remedy at law for any breach of the provisions of Sections 14, 15 or
16 hereof would be inadequate, and he agrees that for breach of such provisions,
the Company shall, in addition to such other remedies as may be available to it
at law or in equity or as provided in this Agreement, be entitled to injunctive
relief and to enforce its rights by an action for specific performance to the
extent permitted by law. Should Executive engage in any activities prohibited
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by
this Agreement, he agrees to pay over to the Company all compensation,
remunerations or moneys or property of any sort received in connection with such
activities; such payment shall not impair any rights or remedies of the Company
or obligations or liabilities of Executive which such parties may have under
this Agreement or applicable law.
Section 22. Waivers and Further Agreements. Any waiver of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof; provided, however, that no such written waiver,
unless it, by its own terms, explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision. Each of the parties hereto agrees to execute all
such further instruments and documents and to take all such further action as
the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
Section 23. Amendments. This Agreement may not be amended, nor shall any
waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification, consent or discharge is sought.
Section 24. Severability. If any provision of this Agreement shall be
held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable
as applied to any particular case in any jurisdiction or jurisdictions, or in
all jurisdictions or in all cases, because of the conflicting of any provision
with any constitution or statute or rule of public policy or for any other
reason, such circumstance shall not have the effect of rendering the provision
or provisions in question, invalid, inoperative or unenforceable in any other
jurisdiction or in any other case or circumstance or of rendering any other
provision or provisions herein contained invalid, inoperative or unenforceable
to the extent that such other provisions are not themselves actually in conflict
with such constitution, statute or rule of public policy, but this Agreement
shall be reformed and construed in any such jurisdiction or case as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted in such jurisdiction or in such case.
Section 25. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement, it shall not be necessary to
producemore than one of such counterparts.
Section 26. Section Headings. The headings contained in this Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 27. General Provisions. (a) Executive further agrees that his
obligations under Sections 14, 15 and 16 of this Agreement shall be binding upon
him irrespective of the duration of his employment by the Company, the reasons
for any cessation of his employment by the Company, or the amount of his
compensation and shall survive the termination of this Agreement (whether such
termination is by the Company, by Executive, upon expiration of this Agreement
or otherwise). (b) Executive represents and warrants to the Company that he is
not now under
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any obligations to any person, firm or corporation, and has no other interest
which is inconsistent or in conflict with this Agreement, or which would
prevent, limit or impair, in any way, the performance by him of any of the
covenants or his duties in his said employment.
Section 28. Gender. Whenever used herein, the singular number shall include
the plural, the plural shall include the singular, and the use of any gender
shall include all genders.
Section 29. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed or caused to be executed this
Agreement as of the date first above written.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
-------------------------------
Name: Michael Smotrich
Title: President
BY PLACING MY SIGNATURE HEREUNDER, I ACKNOWLEDGE THAT I HAVE READ ALLTHE
PROVISIONS OF THIS AGREEMENT AND THAT I AGREE TO ALL OF ITS TERMS.
EXECUTIVE:
/s/
---------------------------------
Steven Georgiev
Notice Address:
--------------------------------------
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THIS EMPLOYMENT AGREEMENT (this "Agreement") made as of January 1, 1997,
(the "Executive"),
W I T N E S S E T H T H A T:
WHEREAS, the Company desires to employ Executive as its President for the
period and upon and subject to the terms herein provided; and
WHEREAS, the Company desires to be assured that Executive will not compete
with the Company for the period and within the geographical areas hereinafter
specified; and
WHEREAS, Executive is willing to agree to be employed by the Company for
the period and upon and subject to the terms herein provided; and
WHEREAS, Executive does not desire to work for the Company in a
positionlower than that of President and is willing to agree not to compete with
theCompany; NOW, THEREFORE, in consideration of the premises, the parties
heretocovenant and agree as follows:
Section 1. Term of Employment; Compensation. The Company agrees toemploy
Executive from the date hereof until December 31, 1999 (the "Term") asits
President, with the responsibilities normally associated with such position(the
"Executive Position"). The Company will pay Executive for his servicesduring the
term of his employment hereunder at an annual rate of Two HundredFifty Thousand
Dollars ($250,000), subject to a 10% increase per year, payablein arrears, in
equal installments, in accordance with standard Company practice,but in any
event not less often than monthly, subject only to such payroll andwithholding
deductions as are required by law.
Section 2. Office and Duties. Executive shall have the usual
duties,responsibilities and authority (the "Executive's Authority") of a
President, andshall report to the Board of Directors of the Company, and shall
perform suchspecific other tasks, consistent with his position as President, as
may fromtime to time be assigned to him by the Board of Directors. Executive
shalldevote substantially all of his business time, labor, skill, undivided
attentionand best ability to the performance of his duties hereunder. Executive
may not,without Executive's consent, be required to perform Executive's duties
at anylocation that is more than fifty (50) miles from the Company's principal
officein Beverly, Massachusetts, except that Executive agrees that he will
travel towhatever extent is reasonably necessary in the conduct of the
Company'sbusiness.
Section 3. Expenses. Executive shall be entitled to reimbursement
forexpenses incurred by him in connection with the performance of his
dutieshereunder upon receipt of vouchers therefor in accordance with such
procedures as the Company has heretofore or may hereafter establish.
Section 4. Vacation During Employment. Executive shall be entitled to such
reasonable vacations as may be allowed by the Company in accordance withgeneral
practices to be established, but in any event not less than four (4) weeks
during each twelve (12) month period.
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Section 5. Additional Benefits. The Company shall make available to
Executive at least those perquisites presently granted to Executive.
Nothingherein contained shall preclude Executive, to the extent he is
otherwiseeligible, from participation in all group insurance programs or other
fringe benefit plans which the Company may hereafter in its sole and absolute
discretion make available generally to its employees, but the Company shall
notbe required to establish or maintain any such program or plan.
Section 6. Termination by the Company. The Company shall have the rightto
terminate Executive's employment at any time for "Cause". For purposes ofthis
Agreement, "Cause" shall mean (a) termination by action of a majority ofthe
members of the Company's Board of Directors, acting on the written opinionof
counsel, because of Executive's willful and continued refusal, without
propercause, to perform substantially Executive's duties under this Agreement;
or (b)the conviction of Executive of a felony or an act of fraud or
embezzlementagainst the Company or any of its divisions, subsidiaries of
affiliates (whichthrough lapse of time or otherwise is not subject to appeal).
Such terminationshall be effected by written notice thereof, personally hand
delivered by theCompany to Executive, and, except as hereinafter provided, shall
be effective asof the thirtieth (30th) calendar day after such notice; provided,
however, thatif within such thirty (30) calendar day period Executive shall
cease Executive'srefusal and shall use Executive's best efforts to perform such
obligations, thetermination shall not be effective.
Section 7. Termination by Death. In the event Executive dies during the
Term, Executive's employment shall terminate (effective on the date of
Executive's death) and the provisions of Section 10 shall be applicable.
Section 8. Termination by Disability. In the event that Executive suffers a
disability which prevents Executive from substantially performing Executive's
duties under this Agreement for a period of at least one hundredeighty (180)
consecutive or nonconsecutive calendar days within any three hundred sixty-five
(365) calendar day period, the Company shall have the right, after such one
hundred eighty (180) calendar day period has elapsed, to terminate Executive's
employment hereunder upon thirty (30) calendar days written notice to Executive
and the provisions of Section 10 shall beapplicable.
Section 9. Termination by Executive. Notwithstanding any otherprovisions of
this Agreement, Executive may terminate Executive's employmenteither (i) in the
event of a "Change in Control" or (ii) by written noticeserved upon the Company
within thirty (30) calendar days after Executive hasknowledge of an event
constituting "Good Reason."
For purposes of this Agreement, the term "Change in Control" shall
meaneither (i) that, after the date hereof, any person (an "Acquiring
Person"),together with its affiliates and associates (as defined in Rule 12b-2
under theSecurities Exchange Act of 1934, or any successor rule thereto) shall
become thebeneficial owner (as defined in Rule 13d-3 under the Securities and
ExchangeAct), including by merger or otherwise, of more than fifty percent (50%)
of thetotal voting power of all classes of voting stock of the Company or (ii)
thatone or more Acquiring Persons has succeeded as the result of or in response
toactual or threatened election contests, whether by settlement or otherwise,
inhaving elected to the Board of Directors of the Company, whether at one time
oron a cumulative basis, a sufficient number of its nominees to constitute
(x)more than thirty percent (30%) of the members of the Company's Board
ofDirectors, rounded down to the nearest whole number, if the number of
directorson the Company's Board is eight or less, or (y) more than forty percent
(40%) ofthe members of the Company's Board, rounded down to the nearest whole
number, if the number of directors on the Company's Board is nine or more.
For purposes of this Agreement, the term "Good Reason" shall mean:
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(i) any action by the Company which results in a diminution in the
Executive Position or in the Executive's Authority; (ii) any failure by the
Company to timely pay the amounts or provide the benefits described in this
Agreement, other than an isolated failure not occurring in bad faith and
which is remedied promptly after receipt of written notice thereof given by
Executive; or
(iii) a material breach by the Company of any of the provisions of
this Agreement which failure or breach shall have continued for thirty (30)
days after written notice from Executive to the Company specifying the
nature of such failure or breach; or
(iv) any action by the Company that would result in a violation of
Section 2.
Section 10. Effect of Termination. (a) For Cause; Without Good Reasonand No
Change in Control; and Death. In the event of termination of thisAgreement (i)
by the Company for Cause, (ii) by the Executive without Good Reason or with no
Change in Control or (iii) by reason of the death of theExecutive, the Company
shall pay Executive (or Executive's beneficiary in the event of the Executive's
death) any base salary or other compensation earned(and a pro rata portion of
the bonus payable with respect to the year in which termination occurred) but
not paid to Executive prior to the effective date ofsuch termination and, in the
case of termination by reason of death, the Companyshall pay Executive's
beneficiary (i) the base salary that Executive would haveearned for a period of
twelve (12) months following his death, plus (ii) a prorata portion of any
bonuses or other incentive compensation that Executive wouldhave earned if he
had been employed for the full fiscal year in which he diedpayable at the time
of payment of similar bonuses made to other Executives ofthe Company, plus (iii)
any death benefits that Executive is entitled to underthe Company's policies in
effect on Executive's date of death.
(b) Without Cause; For Good Reason. In the event of (i) termination ofthis
Agreement by the Company other than for Cause, or (ii) termination of this
within thirty (30) days after termination under this Section 10(b), the sum of
(A) the amount described in Section 10(a) of this Agreement (other than
thepayments to be paid in case of termination by death), and (B) the amount
equal to four times (4x) the Executive's annual base salary in effect at the
time of termination under this Section 10(b), and the Company shall continue
during the Term all of the benefits and perquisites set forth in Section 5,
notwithstanding the fact that Executive may no longer be an employee eligible to
participate in one or more of the employee benefit plans maintained by the
Company.
(c) Change in Control (other than an Approved Change in Control). In the
event of termination of this Agreement by the Company or Executive within one
(1) year after a Change in Control (other than an Approved Change in Control),
the Company shall pay Executive, in a lump sum payment within thirty (30) days
after termination under this Section 10(c), the sum of (A) the amount described
in Section 10(a) of this Agreement (other than the payments to be made in case
of termination by death), and (B) the amount equal to eight (8x) times
Executive's Annual Compensation, and the Company shall continue during the Term
all of the benefits and perquisites set forth in Section 5, notwithstanding the
fact that Executive may no longer be an employee eligible to participate in one
or more of the employee benefit plans maintained by the Company.
For purposes of this Agreement, the term "Approved Change in Control" shall
mean a Change of Control that has occurred with the prior approval of a majority
of the Continuing
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Directors and the term "Continuing Director" shall mean any member of the Board
of Directors of the Company who is not an Acquiring Person or a nominee or
representative of an Acquiring Person or of any affiliate or associate of an
Acquiring Person and any successor to a Continuing Director who was recommended
for election or elected to succeed a Continuing Director by a majority of the
Continuing Directors then on the Board of Directors of theCompany.
For purposes of this Section 10(c) of this Agreement the term"Executive's
Annual Compensation" shall mean (i) the sum of (A) the Executive'sbase salary
set forth in Section 1 and (B) any bonus compensation to whichExecutive would
have been entitled if Executive continued to be employed underthis Agreement to
the end of 1996, provided that if the Executive's base salaryor bonuses
compensation is increased after 1996 the term shall mean the higherof the
Executive annual salary immediately prior to such change or the sum of(a) the
base salary in effect at the time of termination and (b) any bonuscompensation
to which Executive would have been entitled if Executive hadcontinued to be
employed under this Agreement to the end of the Company's fiscalyear in which
his employment terminated.
(d) With Good Reason following an Approved Change in Control. In theevent
of termination of this Agreement by Executive with Good Reason within one(1)
year after an Approved Change in Control, the Company shall pay Executive,in a
lump sum payment within thirty (30) days after termination under thisSection
10(c), the sum of (A) the amount described in Section 10(a) of thisAgreement
(other than the payments to be made in case of termination by death),(B) the
amount equal to eight (8x) times the sum of (i) Executive's annual basesalary in
effect at the time of termination, and (ii) any bonus compensation towhich
Executive would have been entitled if Executive had remained as anemployee under
this Agreement to the end of the Company's fiscal year in whichhis employment
terminated, and the Company shall continue during the Term all ofthe benefits
and perquisites set forth in Section 5, notwithstanding the factthat Executive
may no longer be an employee eligible to participate in one ormore of the
employee benefit plans maintained by the Company.
(e) Disability. In the event of termination of this Agreement by reasonof
disability, the Company shall continue to pay Executive's base salary at thetime
of such termination for the remainder of the Term, reduced by the maximumamount
of salary which may be insured under the Company's Long Term DisabilityPlan at
the time of disability.
Section 11. Excise Taxes. In the event that Executive shall have
imposedupon him the tax which is imposed by Section 4999 of the Internal Revenue
Codeof 1986, as amended (the "Code"), or by any successor provision, by reason
ofany payment or benefit which Executive has received under this Agreement,
theCompany shall pay as additional compensation to Executive an amount equal to
theamount of the tax imposed by Code Section 4999 (the "Special Tax Payment") as
aresult of the receipt of such payment, or benefit; provided that the Special
TaxPayment shall not be increased to account for excise or other tax imposed as
aresult of the making of the Special Tax Payment.
Section 12. Acceleration and Expiration of Options. Any options orwarrants
to purchase capital stock of the Company (collectively, the "Options")granted by
the Company to Executive that have not yet become exercisable shallbecome
exercisable upon the earliest to occur of (a) the termination ofExecutive's
employment as a result of Executive's death or disability; (b) thetermination by
Executive with Good Reason; or (c) the termination by Executive after a Change
in Control (other than an Approved Change in Control). Notwithstanding the
foregoing, all Options, whether currently exercisable or not, shall expire and
cease to be exercisable as follows:
(a) if the Company terminates Executive's employment for Cause, immediately
upon the effective date of such termination;
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(b) if Executive terminates Executive's employment with the Companyother
than for Good Reason, a Change in Control, death, or disability,immediately upon
the effective date of such termination;
(c) if Executive terminates Executive's employment with the Company with
Good Reason or after a Change in Control (other than an Approved Change in
Control), ninety (90) days after the effective date of such termination (but in
no event later than the date the Term would expire without giving effect to
anyautomatic renewal.
(d) if Executive dies while employed by the Company, six (6) calendarmonths
after Executive's death (but in no event later than the date the Termwould
expire without giving effect to any automatic renewal); and
(e) if Executive's employment is terminated as a result of disability,six
(6) calendar months after the effective date of such termination (but in noevent
later than the date the Term would expire without giving effect to anyautomatic
renewal.
Section 13. No Mitigation; No Offset. Executive shall be under noobligation
to mitigate damages or the amount of any payment provided for underthis
Agreement by seeking other employment or otherwise, and there shall be nooffset
against amounts due Executive under this Agreement on account of anyremuneration
attributable to any subsequent employment that Executive mayobtain.
Section 14. Disclosure and Assignment of Intellectual Property. (a)
Executive agrees that the Company, and its successors and assignsshall own all
right, title and interest throughout the world in and to allresearch,
information, inventions, designs, procedures, developments,discoveries,
improvements, patents and applications therefor, trademarks andapplications
therefor, copyrights and applications therefor, trade secrets,drawings, plans,
systems, methods, specifications, and all other manufacturing,engineering,
technical, research and development data and know-how (hereinsometimes
"Intellectual Property") made, conceived, developed and/or acquired byhim solely
or jointly with others during the period of his employment with theCompany or
within one year thereafter, which relate to the manufacture,production or
processing of any products developed or sold by the Company duringthe term of
this Agreement or which are within the scope of or usable inconnection with the
Company's business as it may, from time to time, hereafterbe conducted or
proposed to be conducted, whether or not made during my regularworking hours and
whether or not made on the Company's premises.
(b) Executive agrees that any such Intellectual Property shallconstitute a
work made for hire under the copyright laws of the United Statesand, to the
extent any such Intellectual Property shall be determined not to bea work made
for hire, Executive hereby assigns, and, to the extent any suchassignment cannot
be made at the present time, Executive hereby agrees toassign, to the Company
all of my right, title and interest throughout the world,including, without
limitation, copyright, patent and trade secret rights, in andto the Intellectual
Property, together with Executive's right to file for and/orown wholly without
restriction United States and foreign patents, trademarks andcopyrights with
respect thereto. Executive specifically agrees and acknowledgesthat the
foregoing assignment covers all results, outputs and products of hiswork for the
Company prior to the date hereof, whether as an employee or as aconsultant, and
all related copyrights, patents and other proprietary rights,and that all such
results, outputs and products shall be Intellectual Propertyhereunder and the
sole property of the Company hereafter.
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(c) Executive agrees to execute all appropriate patent applicationssecuring
all United States and foreign patents on all Intellectual Property, andto do,
execute and deliver any and all acts and instruments that may benecessary or
proper to vest all Intellectual Property in the Company or itsnominee or
designee and to enable the Company, or its nominee or designee, toobtain all
such patents; and Executive agrees to render to the Company, or itsnominee or
designee, all such assistance as it may require in the prosecution ofall such
patent applications and applications for the re-issue of such patents,and in the
prosecution or defense of all interferences which may be declaredinvolving any
of said patent applications or patents, but the expense of allsuch assignments
and patent applications, or all other proceedings referred toherein above, shall
be borne by the Company. Executive shall be entitled to fairand reasonable
compensation for any such assistance requested by the Company orits nominee or
designee and furnished by him after the termination of hisemployment. Executive
shall make and maintain adequate and current writtenrecords of all Intellectual
Property, and Executive shall disclose allIntellectual Property promptly, fully
and in writing to the Company immediatelyupon development of the same and at any
time upon request.
Section 15. Confidentiality. Executive shall not, either during the period
of his employment with the Company or thereafter, reveal or disclose toany
person outside the Company or use for his own benefit, without the Company's
specific written authorization, whether by private communication or by public
address or publication or otherwise, any Confidential Information, as
hereinafter defined. The term "Confidential Information" as used throughout this
Agreement shall mean all trade secrets, proprietary information and other data
or information (and any tangible evidence, record or representation thereof),
whether prepared, conceived or developed by an employee of the Company or
received by the Company from an outside source, which is in the possession of
the Company (whether or not the property of the Company), which in any way
relates to the present or future business of the Company, which is maintained in
confidence by the Company, or which might permit the Company or its customers to
obtain a competitive advantage over competitors who do not have access to such
trade secrets, proprietary information, or other data or information. All
originals and copies of any of the foregoing, relating to the business of the
Company, however and whenever produced, shall be the sole property of the
Company, not to be removed from the premises or custody of the Company without
in each instance first obtaining written consent or authorization of the
Company. Upon the termination of Executive's employment in any manner or for any
reason, Executive shall promptly surrender to the Company all copies of any of
the foregoing, together with any other documents, materials, data, information
and equipment belonging to or relating to the Company's business and in his
possession, custody or control, and Executive shall not thereafter retain or
deliver to any other person, any of the foregoing or any summary or memorandum
thereof.
Section 16. Restriction. The Company has invested and may in the future be
required to invest substantial sums of money, directly or indirectly, to
continue and expand the business heretofore conducted by it and in connection
therewith, and as Executive recognizes that the Company would be
substantiallyinjured by Executive disclosing to others, or by Executive using
for his ownbenefit, any Intellectual Property or any of the other types of
informationreferred to in Section 15 as Confidential Information, Executive
agrees thatduring the period of his employment hereunder and for a period
endingtwenty-four (24) months after the term of this Agreement:
(a) Neither he nor any member of his family will be interested, directlyor
indirectly, as an investor in any other business or enterprise similar tothat of
the Company or in competition with the Company (except as an investor
insecurities listed on a national securities exchange or actively traded over
thecounter; and
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(b) He will not, directly or indirectly, for his own account or asemployee,
officer, director, partner, joint venturer or otherwise, engage withinthe United
States or Canada, in any phase of the business of manufacturing,distributing or
selling of lasers for use in medical or cosmetic procedures.
(c) Executive shall not solicit, induce, attempt to hire, or hire
anyemployee of the Company (or any other person who may have been employed by
theCompany during the term of his employment with the Company), or assist in
suchhiring by any other person or business entity or encourage any such employee
toterminate his or her employment with the Company.
Executive and the Company are of the belief that the period of time, the
geographic area and the range of activities limited by this Section 16 are
reasonable, in view of the nature of the business in which the Company is
engaged and proposes to engage, the state of its product development
andExecutive's knowledge of this business. However, if such period, or range of
activities area should be adjudged unreasonable in any judicial proceeding,
thenthe period of time shall be reduced by such number of months, such area
shall bereduced by elimination of such portion of such area, and/or such range
ofactivities shall be reduced by elimination of such activities, as are
deemedunreasonable, so that this covenant may be enforced in such area and
during suchperiod of time as is adjudged to be reasonable.
Section 17. Notices. All notices and other communications hereundershall be
in writing and shall be deemed to have been given when delivered or three (3)
days after mailing if mailed by first-class, registered or certifiedmail,
postage prepaid, addressed (a) if to Executive, at the address set forthbelow
his name on the signature page hereof, or to such other person(s) oraddress(es)
as Executive shall have furnished to the Company in writing; and (b)if to the
Company, at 66 Cherry Hill Drive, Beverly, MA 01915, Attn: Mr. JosephCaruso,
with a copy to Foley, Hoag & Eliot, One Post Office Square, Boston,Massachusetts
02109, Attn: David A. Broadwin, Esq. or to such other person(s) oraddress(es) as
the Company shall have furnished to Executive in writing.
Section 18. Assignability. In the event that the Company shall be
mergedwith, or consolidated into, any other corporation, or in the event that it
shallsell and transfer substantially all of its assets to another corporation,
theterms of this Agreement shall inure to the benefit of, and be assumed by,
thecorporation resulting from such merger or consolidation, or to which
theCompany's assets shall be sold and transferred. This Agreement shall not
beassignable by Executive, but it shall be binding upon, and shall inure to
thebenefit of, his heirs, executors, administrators and legal representatives.
Section 19. Entire Agreement. This Agreement contains the entireagreement
between the Company and Executive with respect to the subject matterhereof and
there have been no oral or other agreements of any kind whatsoever asa condition
precedent or inducement to the signing of this Agreement orotherwise concerning
this Agreement or the subject matter hereof.
Section 20. Expenses. Each party shall pay its own expenses incident tothe
performance or enforcement of this Agreement, including all fees andexpenses of
its counsel for all activities of such counsel undertaken pursuantto this
Agreement, except as otherwise herein specifically provided.
Section 21. Equitable Relief. Executive recognizes and agrees that
theCompany's remedy at law for any breach of the provisions of Sections 14, 15
or16 hereof would be inadequate, and he agrees that for breach of such
provisions,the Company shall, in addition to such other remedies as may be
available to itat law or in equity or as provided in this Agreement, be entitled
to injunctive relief and to enforce its rights by an action for specific
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performance to the extent permitted by law. Should Executive engage in any
activities prohibited by this Agreement, he agrees to pay over to the Company
all compensation,remunerations or moneys or property of any sort received in
connection with suchactivities; such payment shall not impair any rights or
remedies of the Company or obligations or liabilities of Executive which such
parties may have under this Agreement or applicable law.
Section 22. Waivers and Further Agreements. Any waiver of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof; provided, however, that no such written waiver,
unless it, by its own terms, explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such
waiveris claimed in all other instances or for all other purposes to require
full compliance with such provision. Each of the parties hereto agrees to
execute all such further instruments and documents and to take all such further
action as the other party may reasonably require in order to effectuate the
terms and purposes of this Agreement.
Section 23. Amendments. This Agreement may not be amended, nor shall any
waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification, consent or discharge is sought.
Section 24. Severability. If any provision of this Agreement shall be held
or deemed to be, or shall in fact be, invalid, inoperative or unenforceable as
applied to any particular case in any jurisdiction or jurisdictions, or in all
jurisdictions or in all cases, because of the conflicting of any provision with
any constitution or statute or rule of public policy or for any other reason,
such circumstance shall not have the effect of rendering the provision or
provisions in question, invalid, inoperative or unenforceable in any other
jurisdiction or in any other case or circumstance or of rendering any other
provision or provisions herein contained invalid, inoperative or unenforceable
to the extent that such other provisions are not themselves actually in conflict
with such constitution, statute or rule of public policy, but this Agreement
shall be reformed and construed in any such jurisdiction or case as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted in such jurisdiction or in such case.
Section 25. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one of such counterparts.
Section 26. Section Headings. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 27. General Provisions.
(a) Executive further agrees that his obligations under Sections 14, 15
and 16 of this Agreement shall be binding upon him irrespective of the duration
of his employment by the Company, the reasons for any cessation of his
employment by the Company, or the amount of his compensation and shall survive
the termination of this Agreement (whether such termination is by the Company,
by Executive, upon expiration of this Agreement or otherwise).
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(b) Executive represents and warrants to the Company that he is not now
under any obligations to any person, firm or corporation, and has no other
interest which is inconsistent or in conflict with this Agreement, or which
would prevent, limit or impair, in any way, the performance by him of any of the
covenants or his duties in his said employment.
Section 28. Gender. Whenever used herein, the singular number shall
include the plural, the plural shall include the singular, and the use of any
gender shall include all genders.
Section 29. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement as of the date first above written.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
---------------------------
Name: Steven Georgiev
Title: Chief Executive Officer
BY PLACING MY SIGNATURE HEREUNDER, I ACKNOWLEDGE THAT I HAVE READ ALLTHE
PROVISIONS OF THIS AGREEMENT AND THAT I AGREE TO ALL OF ITS TERMS.
EXECUTIVE:
/s/
----------------------------------
Michael Smotrich
Notice Address:
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") made as of January 1, 1997,
between Palomar Medical Technologies, Inc., a Delaware corporation (the
"Company"), and Joseph Caruso, an individual (the "Executive"),
W I T N E S S E T H T H A T:
WHEREAS, the Company desires to employ Executive as its Chief Financial
Officer for the period and upon and subject to the terms herein provided; and
WHEREAS, the Company desires to be assured that Executive will not
compete with the Company for the period and within the geographical areas
hereinafter specified; and
WHEREAS, Executive is willing to agree to be employed by the Company for
the period and upon and subject to the terms herein provided; and
WHEREAS, Executive does not desire to work for the Company in a position
lower than that of Chief Financial Officer and is willing to agree not to
compete with the Company;
NOW, THEREFORE, in consideration of the premises, the parties hereto
covenant and agree as follows:
Section 1. Term of Employment; Compensation. The Company agrees to
employ Executive from the date hereof until December 31, 1999 (the "Term") as
its Chief Financial Officer, with the responsibilities normally associated with
such position (the "Executive Position"). The Company will pay Executive for his
services during the term of his employment hereunder at an annual rate of Two
Hundred Thousand Dollars ($200,000), subject to a 15% increase per year, payable
in arrears, in equal installments, in accordance with standard Company practice,
but in any event not less often than monthly, subject only to such payroll and
withholding deductions as are required by law.
Section 2. Office and Duties. Executive shall have the usual duties,
responsibilities and authority (the "Executive's Authority") of a Chief
Financial Officer, and shall report to the Board of Directors of the Company,
and shall perform such specific other tasks, consistent with his position as
Chief Financial Officer, as may from time to time be assigned to him by the
Board of Directors. Executive shall devote substantially all of his business
time, labor, skill, undivided attention and best ability to the performance of
his duties hereunder. Executive may not, without Executive's consent, be
required to perform Executive's duties at any location that is more than fifty
(50) miles from the Company's principal office in Beverly, Massachusetts, except
that Executive agrees that he will travel to whatever extent is reasonably
necessary in the conduct of the Company's business.
Section 3. Expenses. Executive shall be entitled to reimbursement for
expenses incurred by him in connection with the performance of his duties
hereunder upon receipt of vouchers therefor in accordance with such procedures
as the Company has heretofore or may hereafter establish.
Section 4. Vacation During Employment. Executive shall be entitled to
such reasonable vacations as may be allowed by the Company in accordance with
general practices to be established, but in any event not less than four (4)
weeks during each twelve (12) month period.
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Section 5. Additional Benefits. The Company shall make available to
Executive at least those perquisites presently granted to Executive. Nothing
herein contained shall preclude Executive, to the extent he is otherwise
eligible, from participation in all group insurance programs or other fringe
benefit plans which the Company may hereafter in its sole and absolute
discretion make available generally to its employees, but the Company shall not
be required to establish or maintain any such program or plan.
Section 6. Termination by the Company. The Company shall have the right
to terminate Executive's employment at any time for "Cause". For purposes of
this Agreement, "Cause" shall mean (a) termination by action of a majority of
the members of the Company's Board of Directors, acting on the written opinion
of counsel, because of Executive's willful and continued refusal, without proper
cause, to perform substantially Executive's duties under this Agreement; or (b)
the conviction of Executive of a felony or an act of fraud or embezzlement
against the Company or any of its divisions, subsidiaries of affiliates (which
through lapse of time or otherwise is not subject to appeal). Such termination
shall be effected by written notice thereof, personally hand delivered by the
Company to Executive, and, except as hereinafter provided, shall be effective as
of the thirtieth (30th) calendar day after such notice; provided, however, that
if within such thirty (30) calendar day period Executive shall cease Executive's
refusal and shall use Executive's best efforts to perform such obligations, the
termination shall not be effective.
Section 7. Termination by Death. In the event Executive dies during the
Term, Executive's employment shall terminate (effective on the date of
Executive's death) and the provisions of Section 10 shall be applicable.
Section 8. Termination by Disability. In the event that Executive
suffers a disability which prevents Executive from substantially performing
Executive's duties under this Agreement for a period of at least one hundred
eighty (180) consecutive or nonconsecutive calendar days within any three
hundred sixty-five (365) calendar day period, the Company shall have the right,
after such one hundred eighty (180) calendar day period has elapsed, to
terminate Executive's employment hereunder upon thirty (30) calendar days
written notice to Executive and the provisions of Section 10 shall be
applicable.
Section 9. Termination by Executive. Notwithstanding any other
provisions of this Agreement, Executive may terminate Executive's employment
either (i) in the event of a "Change in Control" or (ii) by written notice
served upon the Company within thirty (30) calendar days after Executive has
knowledge of an event constituting "Good Reason."
For purposes of this Agreement, the term "Change in Control" shall mean
either (i) that, after the date hereof, any person (an "Acquiring Person"),
together with its affiliates and associates (as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, or any successor rule thereto) shall become the
beneficial owner (as defined in Rule 13d-3 under the Securities and Exchange
Act), including by merger or otherwise, of more than fifty percent (50%) of the
total voting power of all classes of voting stock of the Company or (ii) that
one or more Acquiring Persons has succeeded as the result of or in response to
actual or threatened election contests, whether by settlement or otherwise, in
having elected to the Board of Directors of the Company, whether at one time or
on a cumulative basis, a sufficient number of its nominees to constitute (x)
more than thirty percent (30%) of the members of the Company's Board of
Directors, rounded down to the nearest whole number, if the number of directors
on the Company's Board is eight or less, or (y) more than forty percent (40%) of
the members of the Company's Board, rounded down to the nearest whole number, if
the number of directors on the Company's Board is nine or more.
For purposes of this Agreement, the term "Good Reason" shall mean:
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(i) any action by the Company which results in a diminution in
the Executive Position or in the Executive's Authority;
(ii) any failure by the Company to timely pay the amounts or
provide the benefits described in this Agreement, other than an isolated
failure not occurring in bad faith and which is remedied promptly after
receipt of written notice thereof given by Executive; or
(iii) a material breach by the Company of any of the provisions
of this Agreement which failure or breach shall have continued for
thirty (30) days after written notice from Executive to the Company
specifying the nature of such failure or breach; or
(iv) any action by the Company that would result in a violation
of Section 2.
Section 10. Effect of Termination. (a) For Cause; Without Good Reason
and No Change in Control; and Death. In the event of termination of this
Agreement (i) by the Company for Cause, (ii) by the Executive without Good
Reason or with no Change in Control or (iii) by reason of the death of the
Executive, the Company shall pay Executive (or Executive's beneficiary in the
event of the Executive's death) any base salary or other compensation earned
(and a pro rata portion of the bonus payable with respect to the year in which
termination occurred) but not paid to Executive prior to the effective date of
such termination and, in the case of termination by reason of death, the Company
shall pay Executive's beneficiary (i) the base salary that Executive would have
earned for a period of twelve (12) months following his death, plus (ii) a pro
rata portion of any bonuses or other incentive compensation that Executive would
have earned if he had been employed for the full fiscal year in which he died
payable at the time of payment of similar bonuses made to other Executives of
the Company, plus (iii) any death benefits that Executive is entitled to under
the Company's policies in effect on Executive's date of death.
(b) Without Cause; For Good Reason. In the event of (i)
termination of this Agreement by the Company other than for Cause, or (ii)
termination of this Agreement by Executive for Good Reason, in either case,
other than within one year of a Change in Control, the Company shall pay
Executive, in a lump sum within thirty (30) days after termination under this
Section 10(b), the sum of (A) the amount described in Section 10(a) of this
Agreement (other than the payments to be paid in case of termination by death),
and (B) the amount equal to four times (4x) the Executive's annual base salary
in effect at the time of termination under this Section 10(b), and the Company
shall continue during the Term all of the benefits and perquisites set forth in
Section 5, notwithstanding the fact that Executive may no longer be an employee
eligible to participate in one or more of the employee benefit plans maintained
by the Company.
(c) Change in Control (other than an Approved Change in
Control). In the event of termination of this Agreement by the Company or
Executive within one (1) year after a Change in Control (other than an Approved
Change in Control), the Company shall pay Executive, in a lump sum payment
within thirty (30) days after termination under this Section 10(c), the sum of
(A) the amount described in Section 10(a) of this Agreement (other than the
payments to be made in case of termination by death), and (B) the amount equal
to eight (8x) times Executive's Annual Compensation, and the Company shall
continue during the Term all of the benefits and perquisites set forth in
Section 5, notwithstanding the fact that Executive may no longer be an employee
eligible to participate in one or more of the employee benefit plans maintained
by the Company.
For purposes of this Agreement, the term "Approved Change in Control"
shall mean a Change of Control that has occurred with the prior approval of a
majority of the Continuing
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Directors and the term "Continuing Director" shall mean any member of the Board
of Directors of the Company who is not an Acquiring Person or a nominee or
representative of an Acquiring Person or of any affiliate or associate of an
Acquiring Person and any successor to a Continuing Director who was recommended
for election or elected to succeed a Continuing Director by a majority of the
Continuing Directors then on the Board of Directors of the Company.
For purposes of this Section 10(c) of this Agreement the term
"Executive's Annual Compensation" shall mean (i) the sum of (A) the Executive's
base salary set forth in Section 1 and (B) any bonus compensation to which
Executive would have been entitled if Executive continued to be employed under
this Agreement to the end of 1996, provided that if the Executive's base salary
or bonuses compensation is increased after 1996 the term shall mean the higher
of the Executive annual salary immediately prior to such change or the sum of
(a) the base salary in effect at the time of termination and (b) any bonus
compensation to which Executive would have been entitled if Executive had
continued to be employed under this Agreement to the end of the Company's fiscal
year in which his employment terminated.
(d) With Good Reason following an Approved Change in Control. In
the event of termination of this Agreement by Executive with Good Reason within
one (1) year after an Approved Change in Control, the Company shall pay
Executive, in a lump sum payment within thirty (30) days after termination under
this Section 10(c), the sum of (A) the amount described in Section 10(a) of this
Agreement (other than the payments to be made in case of termination by death),
(B) the amount equal to eight (8x) times the sum of (i) Executive's annual base
salary in effect at the time of termination, and (ii) any bonus compensation to
which Executive would have been entitled if Executive had remained as an
employee under this Agreement to the end of the Company's fiscal year in which
his employment terminated, and the Company shall continue during the Term all of
the benefits and perquisites set forth in Section 5, notwithstanding the fact
that Executive may no longer be an employee eligible to participate in one or
more of the employee benefit plans maintained by the Company.
(e) Disability. In the event of termination of this Agreement by
reason of disability, the Company shall continue to pay Executive's base salary
at the time of such termination for the remainder of the Term, reduced by the
maximum amount of salary which may be insured under the Company's Long Term
Disability Plan at the time of disability.
Section 11. Excise Taxes. In the event that Executive shall have imposed
upon him the tax which is imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"), or by any successor provision, by reason of
any payment or benefit which Executive has received under this Agreement, the
Company shall pay as additional compensation to Executive an amount equal to the
amount of the tax imposed by Code Section 4999 (the "Special Tax Payment") as a
result of the receipt of such payment, or benefit; provided that the Special Tax
Payment shall not be increased to account for excise or other tax imposed as a
result of the making of the Special Tax Payment.
Section 12. Acceleration and Expiration of Options. Any options or
warrants to purchase capital stock of the Company (collectively, the "Options")
granted by the Company to Executive that have not yet become exercisable shall
become exercisable upon the earliest to occur of (a) the termination of
Executive's employment as a result of Executive's death or disability; (b) the
termination by Executive with Good Reason; or (c) the termination by Executive
after a Change in Control (other than an Approved Change in Control).
Notwithstanding the foregoing, all Options, whether currently exercisable or
not, shall expire and cease to be exercisable as follows:
(a) if the Company terminates Executive's employment for Cause,
immediately upon the effective date of such termination;
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(b) if Executive terminates Executive's employment with the
Company other than for Good Reason, a Change in Control, death, or
disability, immediately upon the effective date of such termination;
(c) if Executive terminates Executive's employment with the
Company with Good Reason or after a Change in Control (other than an
Approved Change in Control), ninety (90) days after the effective date
of such termination (but in no event later than the date the Term would
expire without giving effect to any automatic renewal.
(d) if Executive dies while employed by the Company, six (6)
calendar months after Executive's death (but in no event later than the
date the Term would expire without giving effect to any automatic
renewal); and
(e) if Executive's employment is terminated as a result of
disability, six (6) calendar months after the effective date of such
termination (but in no event later than the date the Term would expire
without giving effect to any automatic renewal.
Section 13. No Mitigation; No Offset. Executive shall be under no
obligation to mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, and there shall be no
offset against amounts due Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that Executive may
obtain.
Section 14. Disclosure and Assignment of Intellectual Property.
(a) Executive agrees that the Company, and its successors and
assigns shall own all right, title and interest throughout the world in and to
all research, information, inventions, designs, procedures, developments,
discoveries, improvements, patents and applications therefor, trademarks and
applications therefor, copyrights and applications therefor, trade secrets,
drawings, plans, systems, methods, specifications, and all other manufacturing,
engineering, technical, research and development data and know-how (herein
sometimes "Intellectual Property") made, conceived, developed and/or acquired by
him solely or jointly with others during the period of his employment with the
Company or within one year thereafter, which relate to the manufacture,
production or processing of any products developed or sold by the Company during
the term of this Agreement or which are within the scope of or usable in
connection with the Company's business as it may, from time to time, hereafter
be conducted or proposed to be conducted, whether or not made during my regular
working hours and whether or not made on the Company's premises.
(b) Executive agrees that any such Intellectual Property shall
constitute a work made for hire under the copyright laws of the United States
and, to the extent any such Intellectual Property shall be determined not to be
a work made for hire, Executive hereby assigns, and, to the extent any such
assignment cannot be made at the present time, Executive hereby agrees to
assign, to the Company all of my right, title and interest throughout the world,
including, without limitation, copyright, patent and trade secret rights, in and
to the Intellectual Property, together with Executive's right to file for and/or
own wholly without restriction United States and foreign patents, trademarks and
copyrights with respect thereto. Executive specifically agrees and acknowledges
that the foregoing assignment covers all results, outputs and products of his
work for the Company prior to the date hereof, whether as an employee or as a
consultant, and all related copyrights, patents and other proprietary rights,
and that all such results, outputs and products shall be Intellectual Property
hereunder and the sole property of the Company hereafter.
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(c) Executive agrees to execute all appropriate patent
applications securing all United States and foreign patents on all Intellectual
Property, and to do, execute and deliver any and all acts and instruments that
may be necessary or proper to vest all Intellectual Property in the Company or
its nominee or designee and to enable the Company, or its nominee or designee,
to obtain all such patents; and Executive agrees to render to the Company, or
its nominee or designee, all such assistance as it may require in the
prosecution of all such patent applications and applications for the re-issue of
such patents, and in the prosecution or defense of all interferences which may
be declared involving any of said patent applications or patents, but the
expense of all such assignments and patent applications, or all other
proceedings referred to herein above, shall be borne by the Company. Executive
shall be entitled to fair and reasonable compensation for any such assistance
requested by the Company or its nominee or designee and furnished by him after
the termination of his employment. Executive shall make and maintain adequate
and current written records of all Intellectual Property, and Executive shall
disclose all Intellectual Property promptly, fully and in writing to the Company
immediately upon development of the same and at any time upon request.
Section 15. Confidentiality. Executive shall not, either during the
period of his employment with the Company or thereafter, reveal or disclose to
any person outside the Company or use for his own benefit, without the Company's
specific written authorization, whether by private communication or by public
address or publication or otherwise, any Confidential Information, as
hereinafter defined. The term "Confidential Information" as used throughout this
Agreement shall mean all trade secrets, proprietary information and other data
or information (and any tangible evidence, record or representation thereof),
whether prepared, conceived or developed by an employee of the Company or
received by the Company from an outside source, which is in the possession of
the Company (whether or not the property of the Company), which in any way
relates to the present or future business of the Company, which is maintained in
confidence by the Company, or which might permit the Company or its customers to
obtain a competitive advantage over competitors who do not have access to such
trade secrets, proprietary information, or other data or information. All
originals and copies of any of the foregoing, relating to the business of the
Company, however and whenever produced, shall be the sole property of the
Company, not to be removed from the premises or custody of the Company without
in each instance first obtaining written consent or authorization of the
Company. Upon the termination of Executive's employment in any manner or for any
reason, Executive shall promptly surrender to the Company all copies of any of
the foregoing, together with any other documents, materials, data, information
and equipment belonging to or relating to the Company's business and in his
possession, custody or control, and Executive shall not thereafter retain or
deliver to any other person, any of the foregoing or any summary or memorandum
thereof.
Section 16. Restriction. The Company has invested and may in the future
be required to invest substantial sums of money, directly or indirectly, to
continue and expand the business heretofore conducted by it and in connection
therewith, and as Executive recognizes that the Company would be substantially
injured by Executive disclosing to others, or by Executive using for his own
benefit, any Intellectual Property or any of the other types of information
referred to in Section 15 as Confidential Information, Executive agrees that
during the period of his employment hereunder and for a period ending
twenty-four (24) months after the term of this Agreement:
(a) Neither he nor any member of his family will be interested,
directly or indirectly, as an investor in any other business or enterprise
similar to that of the Company or in competition with the Company (except as an
investor in securities listed on a national securities exchange or actively
traded over the counter; and
(b) He will not, directly or indirectly, for his own account or
as employee,
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306
officer, director, partner, joint venturer or otherwise, engage within the
United States or Canada, in any phase of the business of manufacturing,
distributing or selling of lasers for use in medical or cosmetic procedures.
(c) Executive shall not solicit, induce, attempt to hire, or
hire any employee of the Company (or any other person who may have been employed
by the Company during the term of his employment with the Company), or assist in
such hiring by any other person or business entity or encourage any such
employee to terminate his or her employment with the Company.
Executive and the Company are of the belief that the period of time, the
geographic area and the range of activities limited by this Section 16 are
reasonable, in view of the nature of the business in which the Company is
engaged and proposes to engage, the state of its product development and
Executive's knowledge of this business. However, if such period, or range of
activities area should be adjudged unreasonable in any judicial proceeding, then
the period of time shall be reduced by such number of months, such area shall be
reduced by elimination of such portion of such area, and/or such range of
activities shall be reduced by elimination of such activities, as are deemed
unreasonable, so that this covenant may be enforced in such area and during such
period of time as is adjudged to be reasonable.
Section 17. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given when delivered or
three (3) days after mailing if mailed by first-class, registered or certified
mail, postage prepaid, addressed (a) if to Executive, at the address set forth
below his name on the signature page hereof, or to such other person(s) or
address(es) as Executive shall have furnished to the Company in writing; and (b)
if to the Company, at 66 Cherry Hill Drive, Beverly, MA 01915, Attn: Mr. Joseph
Caruso, with a copy to Foley, Hoag & Eliot, One Post Office Square, Boston,
Massachusetts 02109, Attn: David A. Broadwin, Esq. or to such other person(s) or
address(es) as the Company shall have furnished to Executive in writing.
Section 18. Assignability. In the event that the Company shall be merged
with, or consolidated into, any other corporation, or in the event that it shall
sell and transfer substantially all of its assets to another corporation, the
terms of this Agreement shall inure to the benefit of, and be assumed by, the
corporation resulting from such merger or consolidation, or to which the
Company's assets shall be sold and transferred. This Agreement shall not be
assignable by Executive, but it shall be binding upon, and shall inure to the
benefit of, his heirs, executors, administrators and legal representatives.
Section 19. Entire Agreement. This Agreement contains the entire
agreement between the Company and Executive with respect to the subject matter
hereof and there have been no oral or other agreements of any kind whatsoever as
a condition precedent or inducement to the signing of this Agreement or
otherwise concerning this Agreement or the subject matter hereof.
Section 20. Expenses. Each party shall pay its own expenses incident to
the performance or enforcement of this Agreement, including all fees and
expenses of its counsel for all activities of such counsel undertaken pursuant
to this Agreement, except as otherwise herein specifically provided.
Section 21. Equitable Relief. Executive recognizes and agrees that the
Company's remedy at law for any breach of the provisions of Sections 14, 15 or
16 hereof would be inadequate, and he agrees that for breach of such provisions,
the Company shall, in addition to such other remedies as may be available to it
at law or in equity or as provided in this Agreement, be entitled to injunctive
relief and to enforce its rights by an action for specific performance to the
extent permitted by law. Should Executive engage in any activities prohibited
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by this Agreement, he agrees to pay over to the Company all compensation,
remunerations or moneys or property of any sort received in connection with such
activities; such payment shall not impair any rights or remedies of the Company
or obligations or liabilities of Executive which such parties may have under
this Agreement or applicable law.
Section 22. Waivers and Further Agreements. Any waiver of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof; provided, however, that no such written waiver,
unless it, by its own terms, explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision. Each of the parties hereto agrees to execute all
such further instruments and documents and to take all such further action as
the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
Section 23. Amendments. This Agreement may not be amended, nor shall any
waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification, consent or discharge is sought.
Section 24. Severability. If any provision of this Agreement shall be
held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable
as applied to any particular case in any jurisdiction or jurisdictions, or in
all jurisdictions or in all cases, because of the conflicting of any provision
with any constitution or statute or rule of public policy or for any other
reason, such circumstance shall not have the effect of rendering the provision
or provisions in question, invalid, inoperative or unenforceable in any other
jurisdiction or in any other case or circumstance or of rendering any other
provision or provisions herein contained invalid, inoperative or unenforceable
to the extent that such other provisions are not themselves actually in conflict
with such constitution, statute or rule of public policy, but this Agreement
shall be reformed and construed in any such jurisdiction or case as if such
invalid, inoperative or unenforceable provision had never been contained herein
and such provision reformed so that it would be valid, operative and enforceable
to the maximum extent permitted in such jurisdiction or in such case.
Section 25. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one of such counterparts.
Section 26. Section Headings. The headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 27. General Provisions.
(a) Executive further agrees that his obligations under Sections
14, 15 and 16 of this Agreement shall be binding upon him irrespective of the
duration of his employment by the Company, the reasons for any cessation of his
employment by the Company, or the amount of his compensation and shall survive
the termination of this Agreement (whether such termination is by the Company,
by Executive, upon expiration of this Agreement or otherwise).
(b) Executive represents and warrants to the Company that he is
not now under
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any obligations to any person, firm or corporation, and has no other interest
which is inconsistent or in conflict with this Agreement, or which would
prevent, limit or impair, in any way, the performance by him of any of the
covenants or his duties in his said employment.
Section 28. Gender. Whenever used herein, the singular number shall
include the plural, the plural shall include the singular, and the use of any
gender shall include all genders.
Section 29. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement as of the date first above written.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
--------------------------------
Name: Steven Georgiev
--------------------------------
Title:
--------------------------------
BY PLACING MY SIGNATURE HEREUNDER, I ACKNOWLEDGE THAT I HAVE READ ALL
THE PROVISIONS OF THIS AGREEMENT AND THAT I AGREE TO ALL OF ITS TERMS.
EXECUTIVE:
/s/
---------------------------------------
Joseph P. Caruso
Notice Address:
---------------------------------------
---------------------------------------
---------------------------------------
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309
KEY EMPLOYEE AGREEMENT
To: Anthony Fiorillo
The undersigned, PALOMAR MEDICAL PRODUCTS INC., a Delaware corporation (the
"Company" or "PMP"), with its principal place of business located at 66 Cherry
Hill Drive, Beverly, MA 01915, hereby agrees with you as follows:
l. Position and Responsibilities.
1.1 You shall serve as PRESIDENT AND CHIEF EXECUTIVE OFFICER of the
Company, or in such other executive capacity as shall be designated by the Board
of Directors or Executive Committee of the Company.
1.2 You will devote your full time and best efforts to the performance of
your duties hereunder and the business and affairs of the Company. You agree to
perform such executive duties as may be assigned to you by or on authority of
the Company's Chief Executive Officer ("CEO"), President or Chairman of the
Board from time to time. After receipt of notice of termination of your
employment hereunder, you shall continue to be available to the Company on a
part-time basis at reasonable and customary hourly rates to assist in any
necessary transition, lawsuits, or other carry-over issues.
1.3 You will duly, punctually, and faithfully perform and observe any and
all rules and regulations that the Company may now or shall hereafter reasonably
establish governing your conduct as an employee and the conduct of its business.
2. Term of Employment
2.1 The initial term of this Agreement shall be for the period of years set
forth on Exhibit A annexed hereto commencing with the date hereof. Thereafter,
this Agreement shall be automatically renewed for successive periods of one (1)
year, unless you or the Company shall give the other party not less than two (2)
months prior written notice of non-renewal. During the initial term of this
Agreement, your employment with the Company may be terminated as provided in
Sections 2.2 or 2.3.
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310
2.2 The Company shall have the right to terminate your employment at any
time under this Agreement prior to the stated term in any of the following ways:
(a) on ten (10) days prior written notice to you upon your disability
(disability shall be defined as your inability to perform with or without
reasonable accommodation all of your essential duties under this Agreement)
(if any question shall arise as to whether during any period you are
disabled, so as to be unable to perform all of your essential duties
hereunder, you may, and at the request of the Company shall, submit to a
medical examination by a physician selected by the Company to whom you or
your duly appointed guardian, if any, have no reasonable objections to
determine whether you are so disabled, and such determination shall for the
purposes of this Agreement be conclusive of the issue; if such question
shall arise and you shall fail to submit to such medical examination, the
Company's determination of the issue shall be binding on you);
(b) immediately without prior notice to you upon your death; if your
employment is terminated because of your death, pursuant to subsection 2.2
(a), all obligations of the Company hereunder cease, except with respect to
amounts and obligations accrued to you, through 30 days from the date
during which your death has occurred;
(c) immediately without prior notice to you by the Company for Cause,
as hereinafter defined;
(d) immediately without prior notice to you or Cause, in the event of
the liquidation or reorganization of the Company under the federal
Bankruptcy Act or any state insolvency or bankruptcy law;
(e) at any time without prior notice to you or Cause, provided that
during the initial term of this Agreement the Company shall be obligated to
pay to you upon notice of termination, as severance pay, Two Hundred
Thousand Dollars ($200,000) in a lump sum payment in addition to all earned
incentive compensation in accordance with Exhibit A attached, less
applicable taxes and other required withholdings and any amounts you may
owe to the Company and continuation of all benefits and insurance payments
to the extent permitted by the Company's plans or policies for one year. If
your employment is terminated without Cause at anytime after the initial
term, the Company shall be obligated to pay a lump sum amount equal to One
Hundred Thousand Dollars ($100,000) in addition to all earned incentive
compensation in accordance with Exhibit A attached, less applicable taxes
and other required withholdings and any amount you may owe to the Company
and continuation of all benefits and insurance payments by the Company to
the extent permitted by the Company's plans or policies for six months. If,
however, a change in control of the Company should occur causing
termination of your employment without Cause at any time during the term of
this Agreement, then you shall be entitled to receive as severance pay Two
Hundred Thousand Dollars ($200,000) in a lump sum payment in addition to
all earned incentive compensation in accordance with Exhibit A attached.
For purposes of this Agreement "change in control" shall be deemed to be
the sale of all or substantially all of the assets of the Company or the
merger of the Company with another entity where the other entity survives
the merger.
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311
2.3 During the initial term of this Agreement, you shall have the right to
terminate your employment hereunder for any reason, upon not less than ninety
(90) days' prior written notice to the Company.
2.4 "Cause" for the purpose of Section 2 of this Agreement shall mean: (i)
the falseness or material inaccuracy of any of your warranties or
representations herein; (ii) your failure, refusal or inability satisfactorily
to perform the services required of you hereby, or to comply with reasonable
explicit directives of the President, Board of Directors or Executive Committee
with respect to the services to be rendered hereunder; (iii) fraud or
embezzlement involving assets of the Company, its customers, suppliers or
affiliates or other misappropriation of the Company's assets or funds; (iv) your
conviction of a criminal felony offense; (v) any material breach of the terms
hereof; provided however, that the Company provides you with 20 days written
notice specifying the breach relied on for such termination, and only if such
breach has not been cured within such 20-day period; (vi) habitual use of drugs;
or (vii) conduct by you that is materially harmful to the business interest or
reputation of the Company or any of its affiliates.
Any dispute, controversy, or claim arising out of, in connection with, or
in relation to this definition of "Cause" shall be settled by arbitration as
provided in Section 9 hereof. The cost of arbitration, exclusive of the cost of
each party's legal representation (which, except as hereinafter otherwise
provided, shall be borne by the party incurring the expense), shall be borne by
the instigating party; provided, however, that the arbitrators' award may
require either party to reimburse the other for the reasonable cost of legal
representation in the arbitration proceedings.
3. Compensation
You shall receive the compensation and benefits set forth on Exhibit A
attached hereto ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Proprietary
Information and Inventions Agreement").
4. Other Activities During Employment
4.1 Except for any outside employment and directorships currently held by
you as listed on Exhibit B attached hereto, and except with the prior written
consent of a disinterested majority of the Company's Board of Directors, which
consent will not be unreasonably withheld, you will not, during the term of this
Agreement, undertake or engage in any other employment, occupation or business
enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B attached
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (i) individually, (ii) as an officer, (iii) as a director, (iv) as an
employee, (v) as a consultant, (vi) as an advisor, (vii) as an agent (whether a
salesperson or otherwise), (viii) as a broker, or (ix) as a partner, covenanter,
stockholder or other proprietor owning directly or indirectly more than five
percent (5) interest in any firm, corporation, partnership, trust, association,
or other organization which is engaged
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312
in the planning, research, development, production, manufacture, marketing,
sales, or distribution of products, equipment, or services similar to those
produced by the Company, (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
"Prohibited Enterprise"). Except as may be shown on Exhibit B attached hereto,
you hereby represent that you are not engaged in any of the foregoing capacities
(i) through (ix) in any Prohibited Enterprise.
5. Former Employers
5.1 You represent and warrant that your employment by the Company will not
conflict with and will not be constrained by any prior or current employment,
consulting, confidentiality, non-competition or other agreement or relationship,
whether oral or written. You represent and warrant that you do not possess
confidential information arising out of any such employment, consulting
agreement or relationship which, in your best judgment, would be utilized in
connection with your employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should find
that confidential information belonging to any other person or entity might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties all
information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or otherwise legally in the public domain.
6. Proprietary Information and Inventions
You agree to execute, deliver and be bound by the provisions of the
Proprietary Information and Inventions Agreement attached hereto as Exhibit C.
7. Post-Employment Activities
7.1 For a period of one (1) year after the termination or expiration of
your employment, for cause or if you terminated the employment with the Company
hereunder (the "Non-Competition Period"), absent the Board of Directors' prior
written approval, you will not directly or indirectly engage in activities
similar to those described in Section 4.2, nor render services similar or
reasonably related to those which you shall have rendered hereunder to, any
person or entity whether now existing or hereafter established which directly
competes with (or proposes or plans to directly compete with) the Company
("Direct Competitor") in the same or similar business. Nor shall you (i) entice,
induce or encourage any of the Company's other employees to engage in any
activity which, were it done by you, would violate any provision of the
Proprietary Information and Inventions Agreement or this Section 7, or (ii)
directly or indirectly solicit or accept business or orders from customers of
the Company (including end users whom the Company's products or services are
sold through distributors, licensees and the like) for any business which is
similar to or competitive with the business of the Company as then being
conducted. As used in this Agreement, the term "any line of business engaged in
or under
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313
demonstrable development by the Company" shall be applied as at the date of
termination of your employment, or, if later, as at the date of termination of
any post-employment consultation.
7.2 During the Non-Competition Period, the provisions of Section 4.2 shall
be applicable to you and you shall comply therewith.
7.3 Until the conclusion of the Non-Competition Period, you shall give
notice to Company of each new business activity you plan to undertake, at least
fourteen (14) days prior to beginning any such activity. Such notice shall state
the name and address of the person for whom such activity is undertaken and the
nature of your business relationship(s) and position(s) with such persons. You
shall provide the Company with such other pertinent information concerning such
business activity as the Company may reasonably request in order to determine
your continued compliance with your obligations hereunder.
7.4 No provision of this Agreement shall be construed to preclude you from
performing the same services which the Company hereby retains you to perform for
any person or entity which is not a Direct Competitor of the Company upon the
expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of this Agreement
or the Proprietary Information and Inventions Agreement.
7.5 You and the Company are of the belief that the period of time, the area
specified and the nature and scope of the restrictions in Section 7.1 are
reasonable in view of the nature of the business in which the Company is engaged
and proposes to engage, the state of its business development and your knowledge
of this business. However, if such period, such area or the nature and scope of
the restrictions should be adjudged unreasonable in any judicial proceeding,
then the period of time shall be reduced by such number of months, such area
shall be reduced by elimination of such portion of such area, or such nature and
scope of the restrictions shall be modified, as are deemed unreasonable, so that
this covenant may be enforced in such area and during such period of time as is
adjudged to be reasonable.
7.6 You agree and covenant that you will not, unless acting with the
Company's express written consent, directly or indirectly, during the
Non-Competition Period, solicit, entice away or interfere with the Company's
contractual relationships with any customer, client, officer or employee of the
Company.
7.7 You recognize and agree that the injury that the Company will suffer in
the event of your breach of any covenant or agreement contained in this Section
7 cannot be compensated by monetary damages alone, and you therefore agree that
the Company, in addition to and without limiting any other remedies or rights
that it may have, either under this Agreement or otherwise, shall have the right
to obtain an injunction against you, enjoining any such breach, and that you
shall reimburse the Company for its costs and attorneys' fees of such action.
8. Survival of Terms and Remedies
Your obligations under the Proprietary Information and Inventions Agreement
and the provisions of Sections 7, 8, 9, and 11 of this Agreement (as modified by
Section 4, if applicable)
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314
shall survive the expiration or termination of your employment (whether through
your resignation or otherwise) with the Company. You acknowledge that a remedy
at law for any breach or threatened breach by you of the provisions of the
Proprietary Information and Inventions Agreement or Sections 4 or 7 hereof would
be inadequate and you therefore agree that the Company shall be entitled to such
injunctive relief in case of any such breach or threatened breach. Should you
engage in any activities prohibited by this Agreement, you agree to pay over to
the Company all compensation, remuneration or monies or property of any sort
received in connection with such activities; such payment shall not impair any
other rights or remedies of the Company or your obligations or liabilities which
you and the Company may have under this Agreement or applicable law.
9. Arbitration
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that claims or disputes involving the (i)
unauthorized use or disclosure of Confidential Information (as defined in
Exhibit C), or (ii) the breach or alleged breach by you of any obligations set
forth in Section 7, shall be settled by either a Federal or state court sitting
in Massachusetts and shall not be decided by arbitration pursuant to this
Section, unless you and the company expressly agree otherwise in writing.
Judgment upon any arbitration award may be entered in the highest court, state
or federal, having jurisdiction. Except as otherwise provided in Section 2.4,
the cost of such arbitration shall be borne equally between the parties thereto
unless otherwise determined by such arbitrator; each party shall separately pay
its or his own counsel fees and other costs in connection with the arbitration.
10. Assignment
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of any successor or successors of the Company by
reorganization, merger or consolidation and any assignee of all or substantially
all of its business and properties, but, except as to any such successor or
assignee of the Company, neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or by you, except by operation of law
or by a further written agreement by the parties hereto.
11. Interpretation
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any one or more of the provisions contained in this Agreement is
or becomes or is deemed invalid, illegal or unenforceable or in case any shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, such provision shall be construed by amending,
limiting and/or reducing it to conform to applicable laws so as to be valid and
enforceable or, if it cannot be so amended without materially altering the
intention of the parties, it shall be stricken and the remainder of this
Agreement shall remain in full force and effect.
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315
12. Notices
Any notice which the Company is required to or may desire to give you shall
be given by registered or certified mail, return receipt requested, addressed to
you at your address of record with the Company, or at such other place as you
may from time to time designate in writing. Any notice which you are required or
may desire to give to the Company hereunder shall be given by registered or
certified mail, return receipt requested, addressed to the Chairman of the Board
of the Company at its principal office, or at such other office as the Company
may from time to time designate in writing, with a copy to the General Counsel
of Palomar Medical Technologies, Inc. at its principal office.
13. Waivers
Failure by the Company to insist upon strict compliance with any of the
terms, covenants, or conditions hereof shall not be deemed a waiver of such
terms, covenants or conditions. No waiver of any right under this Agreement
shall be deemed effective unless contained in a writing signed by the party
charged with such waiver, and no waiver of any right arising from any breach or
failure to perform shall be deemed to be a waiver of any future such right or of
any other right arising under this Agreement.
14. Complete Agreement; Amendments
The foregoing, including Exhibits A, B and C attached hereto, is the entire
agreement of the parties with respect to the subject matter hereof, superseding
any previous oral or written communications, representations, understandings, or
agreements with the Company or any officer or representative thereof. This
Agreement may be amended or modified or certain provisions waived only by a
written instrument signed and agreed to by the parties hereto, upon
authorization of the Company's Board of Directors.
15. Headings
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
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316
17. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts without regard to its principles of
conflict of laws.
18. Effective Date
The effective Date of this Agreement is .
If you are in agreement with the foregoing, please sign your name below and
also at the bottom of the Proprietary Information and Inventions Agreement,
whereupon both Agreements shall become binding in accordance with their terms.
Please then return this Agreement to the Company. (You may retain for your
records the accompanying counterpart of this Agreement enclosed herewith.)
Very truly yours,
PALOMAR MEDICAL PRODUCTS INC.
By: /s/
-----------------------------
Steven Georgiev
Chairman of the Board
Duly Authorized
Accepted and Agreed:
- --------------------------
Anthony Fiorillo
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317
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF
Anthony Fiorillo
President and Chief Executive Officer
1. Term
The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for three (3) years from the effective date of this
Agreement, unless renewed in accordance with Section 2.1 of the Agreement or
terminated prior thereto in accordance with Section 2.2 or 2.3 of the Agreement.
2. Compensation
(a) Base Salary. Your Base Salary shall be Two Hundred and Seventy-five
Thousand Dollars ($275,000) per annum, to be paid in accordance with the
Company's payroll policies, and if the Agreement is renewed in accordance
with Section 2.1, to be subject to increases thereafter as determined by
the Company's Board of Directors or Executive Committee.
(b) Performance Compensation. You will be eligible for a bonus at the end
of each fiscal year that is up to 50% of your Base Salary.
You will receive an incentive payment of $500,000, to be paid either
in stock of Palomar Medical Technologies, Inc. ("Palomar") (to be
determined on the basis of the stock's then current market value) or cash,
at Palomar's sole discretion, if the Company achieves a 12% operating
income and One Hundred Million Dollars ($100,000,000) in annual revenue
during the initial term of the Agreement, as long as you are continuously
employed by the Company during the initial term of the Agreement.
You will receive an incentive stock payment of $1,000,000 worth of
Palomar stock (to be determined on the basis of the stock's then current
market value) if the Company achieves a 20% operating income and Two
Hundred Million Dollars ($200,000,000) in annual revenue during the first
five years from the date of this Agreement, as long as you are continuously
employed by the Company during that five year period.
(c) You will receive a five year warrant for 300,000 shares of Palomar
stock at its current market value; 60,000 of the 300,000 shares will vest
every six months from the date of this Agreement. If your employment is
terminated pursuant to Section 2.1 or 2.2(d) of the Agreement, any vested
shares must be exercised within three months of the date of such
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318
termination; if your employment is terminated for any other reason, any
vested shares must be exercised within six months of the date of such
termination.
3. Vacation
You shall be paid for and entitled to all legal holidays, and three (3)
weeks paid vacation per annum. You shall arrange for vacations in advance at
such time or times as shall be mutually agreeable to you and the Company. Any
vacation time not used in any particular year may be carried forward into the
subsequent year. You may not receive pay in lieu of vacation.
4. Insurance and Benefits
You shall be eligible for participation in any health or other group
insurance plan which may be established by the Company or which the Company is
required to maintain by law. You shall also be entitled to participate in any
employee benefit program which the Company may establish for its key employees
or for its employees generally, including, but in no way limited to, bonuses and
stock purchase or option plans. The Company may alter, modify, add to or delete
its employee benefit plans at any time as it, in its sole judgment, determines
to be appropriate, without recourse by you. The Company shall provide
comprehensive health insurance for you and your dependents. Should your
employment be terminated for any reason, the Company will use its best efforts
to allow you to assume these policies.
5. Expenses
The Company shall reimburse you promptly for all reasonable and ordinary
business and out-of-pocket expenses incurred by you in connection with the
Company's business and in the scope of your employment hereunder, as approved by
the Company, including, without limitation, reasonable and necessary relocation,
travel, lodging, temporary housing, entertainment and meal expenses incurred by
you during the term of this Agreement, provided the expenses are incurred in
furtherance of the Company's business and at the request of the Company. You
agree to keep and maintain records of the aforesaid expenses as may be requested
by the Company and to account to the Company for the expenses prior to
reimbursement.
If you relocate in furtherance of the Company's business and at the request
of the Company, the Company will guaranty that you receive the market value of
your current principle residence ("Residence") upon your sale of the Residence,
by obligating itself to pay any difference between the sale price of the
Residence and its market value, as long as you in good faith endeavor to obtain
the highest sale price for the Residence within a reasonable period of time from
when the Residence is put on the market.
The Company shall lease a vehicle for you for the initial term of this
Agreement.
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319
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
OF
Anthony Fiorillo
Two year consulting agreement (11/1/96 - 11/1/98) with American Dental
Technologies.
Member of Board of Directors of Labconco, Inc.
Member of Board of Directors of Solid State Farm, Inc.
Member of Board of Directors of Dial, Inc.
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320
EXHIBIT C
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
As of
----------------------
To: Anthony Fiorillo
The undersigned, in consideration of and as a condition of my employment or
continued employment by you and/or by your parent company or companies which you
own, control, or are affiliated with or their successors in business
(collectively, the "Company"), hereby agrees as follows:
1. All Business to be the Property of the Company
I agree that any and all presently existing business of the Company and all
business developed by me or any other employee of the Company including without
limitation all contracts, fees, commissions, compensation, records, customer or
client lists, agreements and any other incident of any business developed,
earned or carried on by me for the Company is and shall be the exclusive
property of the Company, and (where applicable) shall be payable directly to the
Company.
2. Confidentiality
I recognize that my relationship with the Company is one of high trust and
confidence by reason of my access to and contact with the trade secrets and
confidential and proprietary information of the Company. I agree to keep
confidential, except to the extent authorized by the Company in writing for its
benefit, not to disclose or make any use of at any time either during or
subsequent to my employment, any Inventions (as hereinafter defined), trade
secrets and confidential information, knowledge, data or other information of
the Company which is either not generally known outside the Company or is
proprietary and confidential information of the Company or any of its customers
or suppliers relating to products, processes, know-how, techniques, methods,
designs, formulas, test data, customer, employee and supplier lists, business
plans, budgets, costs, markets, marketing plans and strategies, pricing
strategies, operations or other subject matter pertaining to any existing or
contemplated business of the Company or any of its affiliates, which I may
produce, obtain, or otherwise acquire during the course of my employment,
whether I have such information in my memory or embodied in writing or other
tangible form, except as herein provided. I further agree not to deliver,
reproduce or in any way allow any such trade secrets and confidential
information, knowledge, data or other information, or any documentation relating
thereto, to be delivered to or used by any third parties without specific
direction or consent of a duly authorized representative of the Company.
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3. Return of Confidential Material
In the event my employment with the Company terminates for any reason
whatsoever, I agree to promptly surrender and deliver to the Company all of the
tangible forms of Confidential Information listed in Section 2, all records,
information, materials, equipment, drawings, computer disks, documents and data
of which I may obtain or produce during the course of my employment, and I will
not take with me any description containing or pertaining to any confidential
information, knowledge or data of the Company which I may produce or obtain
during the course of my employment.
4. Assignment of Inventions
4.1 I hereby acknowledge and agree that the Company is the owner of all
Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions (without any separate
remuneration or compensation other than that received from time to time in the
course of my employment).
4.2 For purposes of this Agreement, "Inventions" shall mean all research
information, inventions, technical innovations, writings, tabulations,
procedures, developments, know-how, plans, programs, trade secrets, discoveries,
processes, designs, methods, techniques, technology, devices, or improvements in
any of the foregoing or other ideas, whether or not patentable or copyrightable
and whether or not reduced to practice, made or conceived by me (whether solely
or jointly with others) during the period of my employment with the Company
which relate in any manner to the actual or demonstrably anticipated business,
work, or research and development of the Company, or result from or are
suggested by any task assigned to me or any work performed by me for or on
behalf of the Company.
4.3 Any discovery, process, design, method, technique, technology, device,
or improvement in any of the foregoing or other ideas, whether or not patentable
or copyrightable and whether or not reduced to practice, made or conceived by me
whether solely or jointly with others which I develop entirely on my own time
not using any of the Company' equipment, supplies, facilities, or trade secret
information ("Personal Invention") is excluded from this Agreement provided such
Personal Invention (i) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (ii) does not result,
directly or indirectly, from any work performed by me for or on behalf of the
Company.
5. Disclosure of Inventions
I agree that in connection with any Invention, I will promptly disclose
such Invention to the President, Board of Directors and the Executive Committee
of the Company in order to permit the Company to enforce its property rights to
such Invention in accordance with this Agreement. My disclosure shall be
received in confidence by the Company.
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322
6. Patents and Copyrights: Execution of Documents
6.1 Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my employment in every reasonable
way to obtain for its own benefit patents and copyrights for Inventions in any
and all countries. Such patent and copyrights shall be and remain the sole and
exclusive property of the Company or its nominee. I agree to perform such lawful
acts as the Company deems to be necessary to allow it to exercise all right,
title and interest in and to such patents and copyrights.
6.2 In connection with this Agreement, I agree to execute, acknowledge and
deliver to the Company or its nominee upon request and at its expense all
documents, including assignments of title, patent or copyright applications,
assignments of such applications, assignments of patents or copyrights upon
issuance, as the Company may determine necessary or desirable to protect the
Company's or its nominee's interest in Inventions, and/or to use in obtaining
patents or copyrights in any and all countries and to vest title thereto in the
Company or its nominee to any of the foregoing.
7. Maintenance of Records
It is understood that all Personal Inventions if any, whether patented or
unpatented, which I made prior to my employment by the Company, are excluded
from this Agreement. To preclude any possible uncertainty, I have set forth on
Schedule A attached hereto a complete list of all of my prior Personal
Inventions, including numbers of all patents and patent applications and a brief
description of all unpatented Personal Inventions which are not the property of
a previous employer. I represent and covenant that the list is complete and
that, if no items are on the list, I have no such prior Personal Inventions. I
agree to notify the Company in writing before I make any disclosure or perform
any work on behalf of the Company which appears to threaten or conflict with
proprietary rights I claim in any Personal Invention. In the event of my failure
to give such notice, I agree that I will make no claim against the Company with
respect to any such Personal Invention.
8. Other Obligations
I acknowledge that the Company from time to time may have agreements with
other persons, companies, entities, the U.S. Government or agencies thereof,
which impose obligations or restrictions on the Company regarding Inventions
made during the course of work thereunder or regarding the confidential nature
of such work. I agree to be bound by all such obligations and restrictions and
to take all action necessary to discharge the Company's obligations.
9. Injunctive Relief
You recognize and agree that the injury that the Company will suffer in the
event of your breach of any covenant or agreement contained in this Proprietary
Information and Confidentiality Agreement cannot be compensated by monetary
damages alone, and you therefore agree that the Company, in addition to and
without limiting any other remedies or rights that it may have, either under
this Proprietary Information and Confidentiality Agreement
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or otherwise, shall have the right to obtain an injunction against you,
enjoining any such breach, and that you shall reimburse the Company for its
costs and attorneys' fees of such action.
10. Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives and successors. I
expressly consent to be bound by the provisions of this Agreement for the
benefit of the Company or any parent, subsidiary or affiliate thereof to whose
employ I may be transferred without the necessity that this Agreement be
resigned at the time of such transfer.
11. Interpretation
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any provision of this Agreement is or becomes or is deemed
invalid, illegal or unenforceable or in case any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable laws
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
12. Waivers
Failure by the Company to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such
terms, covenants or conditions. No waiver of any right under this Agreement
shall be deemed effective unless contained in a writing signed by the party
charged with such waiver, and no waiver of any right arising from any breach or
failure to perform shall be deemed to be a waiver of any future such right or of
any other right arising under this Agreement.
13. Entire Agreement; Modification
This Agreement constitutes the entire agreement between the parties and
supersedes any prior oral or written communications, representations,
understandings or agreements concerning the subject matter hereof with the
Company or any officer or representative thereof. This Agreement does not
constitute an employment agreement, and no changes in any compensation, title or
duties or any other terms or conditions of my employment, including, without
limitation, the termination of my employment, shall affect the provisions of
this Agreement, except as stated herein. This Agreement may be amended,
modified, or certain provisions waived only by a written instrument signed by
the parties hereto, upon authorization of the Company's Board of Directors.
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324
14. Headings
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
15. Counterparts
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
16. Governing Law
This Agreement shall be deemed to be a sealed instrument and shall be
governed and construed in accordance with the laws of the Commonwealth of
Massachusetts, without regard to its principles of conflict of laws.
17. Notices
Any notice which the Company is required to or may desire to give you shall
be given by registered or certified mail, return receipt requested, addressed to
you at your address of record with the Company, or at such other place as you
may from time to time designate in writing. Any notice which you are required or
may desire to give to the Company hereunder shall be given by registered or
certified mail, return receipt requested, addressed to the Chairman of the Board
of the Company at its principal office, or at such other office as the Company
may from time to time designate in writing, with a copy to the General Counsel
of Palomar Medical Technologies, Inc. at its principal office.
EMPLOYEE
--------------------------
Anthony Fiorillo
Accepted and Agreed:
PALOMAR MEDICAL PRODUCTS INC.
By:-----------/s/------------
Steven Georgiev
Chairman of the Board
Duly Authorized
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325
SCHEDULE A
LIST OF PRIOR INVENTIONS
OF
Anthony Fiorillo
None
<PAGE>
326
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of March 27,
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, shares (the "PREFERRED SHARES") of the Company's Series H
Convertible Preferred Stock, par value $.01 per share ("PREFERRED STOCK")
convertible into its common stock, par value $.01 per share, of the Company (the
"COMMON STOCK"). The rights, preferences and privileges of the Preferred Stock,
including the terms upon which such Preferred Stock is convertible into shares
of Common Stock are set forth in the form of Certificate of Designations,
Preferences and Rights attached hereto as Exhibit A (the "CERTIFICATE OF
DESIGNATIONS"). The shares of Common Stock issuable upon conversion of the
Preferred Shares or otherwise pursuant to the Certificate of Designations are
referred to herein as the "CONVERSION SHARES". The Preferred Shares and
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 PREFERRED SHARES.
a. Purchase of Preferred 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,
such number of Preferred Shares as is set forth on such Purchaser's
signature page
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327
hereto. The purchase price (the "PURCHASE PRICE") per Preferred Share at
such closing shall be equal to One Thousand Dollars ($1,000.00) and the
aggregate purchase price for all of the Preferred Shares to be purchased by
the Purchasers shall be Six Million Dollars ($6,000,000.00). For the
avoidance of doubt, in no event shall any Purchaser be required to purchase
more than the number of Preferred Shares being subscribed for hereunder by
such Purchaser as set forth on such Purchaser's Execution Page. The Company
may sell up to Fourteen Million Dollars ($14,000,000.00) of additional
Preferred Shares, at One Thousand Dollars ($1,000.00) per Preferred Share
at one additional closing within 60 days of the Closing Date (such closing,
if any, is herein referred to as the "ADDITIONAL CLOSING").
b. Form of Payment. On the Closing Date, each Purchaser shall pay the
aggregate Purchase Price for the Preferred 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 duly executed
certificates representing the Preferred Shares being purchased by such
Purchaser hereunder and the Company shall deliver such certificates against
delivery of such aggregate Purchase Price.
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 Preferred Shares pursuant to this
Agreement (the "CLOSING DATE") shall be 12:00 noon eastern time on March
27, 1997, (subject to a two (2) business day grace period at either party's
option), 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.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the Company that:
a. Investment Purpose. Purchaser is purchasing the Preferred 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 that term is
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328
defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Purchaser understands that the Preferred
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 Preferred Shares.
d. Information. Purchaser and its counsel, 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 Preferred
Shares which have been specifically requested by Purchaser or its counsel.
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 or (c) sold pursuant to
Rule 144 promulgated under the Securities Act (or a successor rule) ("RULE
144"), or (d) sold or transferred 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).
<PAGE>
329
g. Legends. Purchaser understands that the Preferred 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 sold pursuant to Rule 144(k) under said Act.
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by state securities
laws, (a) the sale 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. [Intentionally Omitted]
i. Authorization; Enforcement. This Agreement and the Registration
Rights
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330
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 terms.
j. Residency. Purchaser is a resident of the jurisdiction set forth
under such Purchaser's name on the signature page hereto executed by such
Purchaser.
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, financial condition or
prospects of the Company and its subsidiaries, taken as a whole on a
consolidated basis or on the transactions contemplated hereby. 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).
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 Preferred Shares
in accordance with the terms hereof, and to issue the Conversion Shares
upon conversion of the Preferred Shares in accordance with the terms of the
Certificate of Designations; (ii) the execution, delivery and performance
of this Agreement and the Registration Rights Agreement by the Company and
the consummation by it of the transactions contemplated hereby and thereby
(including without limitation the issuance of the Preferred 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 Rule 4460(i) 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, such agreement will constitute, valid and
binding obligations of the Company enforceable against the Company in
accordance with their 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 Preferred Shares) 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
Preferred Shares is set forth on Schedule 3(c). All of such outstanding
shares of capital stock have been, or upon issuance will be, validly
issued,
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331
fully paid and nonassessable. No shares of capital stock of the Company
(including the Preferred 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 Certificate of Designations, in the form attached hereto, has
been duly filed with the Secretary of State of the State of Delaware and,
upon the issuance of the Preferred Shares in accordance with the terms
hereof, each Purchaser shall be entitled to the rights set forth therein.
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 Shares. The Preferred 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 Preferred Shares 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 and the Registration Rights Agreement by the Company, the
performance by the Company of its obligations under the Certificate of
Designations, 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 Preferred
Shares and 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
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332
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,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have 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 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 a Material Adverse Effect.
Except as specifically contemplated by this Agreement and as required under
the Securities Act and any applicable state securities laws and the filing
of an application with NASDAQ (as defined below) to list or approve for
quotation the Conversion 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 or the Registration Rights Agreement or to
perform its obligations under the Certificate of Designations, in each case
in accordance with the terms hereof or thereof. The Company is not in
violation of the listing requirements of the NASDAQ Small Cap Market
("NASDAQ") and does not reasonably anticipate that the Common Stock will be
delisted by NASDAQ in the foreseeable future. The Company does not have any
agreements other than those set forth on Exhibit B to the legal opinion
referred to in Section 7(i) the breach of which would materially adversely
affect the Company's obligations under this Agreement or the Registration
Rights Agreement or the Purchasers' rights under the Certificate of
Designation.
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 delivered 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 as to form in all material
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333
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 Certain Changes. Since December 31, 1995, there has been
no material adverse change and no material adverse development in the
business, properties, operations, financial condition, results of
operations or prospects of the Company, except as disclosed in the SEC
Documents.
h. Absence of Litigation. Except for the declaratory judgment action
filed by the Company against MEHL/Biophile in the United States District
Court for the District of Massachusetts in October, 1996 and the
Declaratory judgment action filed by Selvac Acquisitions Corp. against the
Company and other parties in the United States District Court for the
District of New Jersey in March, 1997, or except as disclosed in the SEC
Documents, 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 have a material adverse effect on the properties, business, condition
(financial or other), results of operations or prospects of the Company and
its subsidiaries taken as a whole or the transactions contemplated by this
Agreement or any of the documents contemplated hereby or which would
adversely affect the validity or enforceability of, or the authority or
ability of the Company to perform its obligations under, this Agreement or
any of such other documents.
i. 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
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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).
j. Acknowledgment Regarding Purchasers' Purchase of the Securities.
The Company acknowledges and agrees that none of the Purchasers are acting
as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement or the transactions contemplated
hereby, and any advice given by any Purchaser, or any of their
representatives or agents, in connection with this Agreement and the
transactions contemplated hereby is merely incidental to each Purchaser's
purchase of Preferred Shares. The Company further represents to each
Purchaser that the Company's decision to enter into this Agreement has been
based solely on an independent evaluation by the Company and its
representatives.
k. 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.
l. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated
hereby (if any) nor any person acting for the Company, or any such
distributor, has conducted any "GENERAL SOLICITATION," as such term is
defined in Regulation D, with respect to any of the Securities being
offered hereby.
m. 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.
n. 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.
o. Acknowledgment of Dilution. The number of Conversion Shares
issuable upon conversion of the Preferred Shares 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 Preferred
Shares in accordance with the Certificate of Designations is absolute and
unconditional, regardless of the dilution that such issuance may have on
the ownership interests of other stockholders.
p. Intellectual Property. Each of the Company and its subsidiaries
owns or possesses
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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-K for the fiscal year ended December 31,
1995. 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 a Material Adverse
Effect.
q. 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.
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, on or before the Closing Date take
such action as the Company 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 on or prior to the Closing Date.
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, and the Company shall not terminate its
status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination.
d. Use of Proceeds. The Company shall use the proceeds from the sale of the
Preferred Shares for internal working capital purposes, mergers and
acquisitions, investments and general corporate purposes.
e. Additional Equity Capital; Right of First Offer. The Company agrees that
during
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336
the period beginning on the date hereof and ending ninety (90) days
following the later of (i) the Closing Date and (ii) the date of the
Additional Closing, if any (the "LOCK-UP PERIOD"), the Company will not,
without the prior written consent of Purchasers (or their designated
agents) holding at least two thirds (2/3rds) of the then outstanding
Preferred Shares, issue or sell or contract with any party to issue or sell
any Below Market Security (as defined below) ("FUTURE OFFERINGS"). In
addition, the Company will not conduct any Future Offering during the
period beginning on the date hereof and ending 180 days following the later
of (i) the Closing Date and (ii) the Additional Closing, if any, unless it
shall have first delivered to each Purchaser at least five (5) business
days prior to the closing of such Future Offering, written notice
describing the proposed Future Offering, including the terms and conditions
thereof, and providing each Purchaser and its affiliates, an option during
the five (5) business day period following delivery of such notice to
purchase up to the Applicable Portion (as defined below) of the Below
Market Securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
and the immediately preceding sentence are collectively referred to as the
"CAPITAL RAISING LIMITATIONS"). The Capital Raising Limitations shall not
apply to the sale of Preferred Shares at the Additional Closing, if any, on
the terms set forth herein or to any transaction involving issuances of
securities in connection with a merger, consolidation, acquisition or sale
of assets, or in connection with any strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or
license by the Company or exercise of options by employees, consultants or
directors. The Capital Raising Limitations also shall not apply to (i) the
issuance of securities pursuant to an underwritten public offering, (ii)
the issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of the
date hereof or (iii) the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or
restricted stock plan for the benefit of the Company's employees, directors
or consultants. The "APPLICABLE PORTION" shall mean the product of (i) a
fraction, the numerator of which is the number of Preferred Shares
purchased by such Purchaser hereunder and the denominator of which is the
total number of Preferred Shares purchased by all of the Purchasers
hereunder (including Preferred Shares issued on the Closing Date and on the
date of the Additional Closing, if any). "BELOW MARKET SECURITIES" shall
mean any Common Stock or any security of the Company which is convertible
into or exercisable or exchangeable for Common Stock and which is sold at a
"gross selling price per share" of Common Stock which is less than the
average of the Closing Bid Prices (as defined in the Certificate of
Designations) for the five (5) trading days immediately preceding the date
of issuance of such security, where the price per share of Common Stock for
any security convertible into or exchangeable or exercisable for Common
Stock shall be determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for issuance or sale
of such security, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise, conversion
or exchange thereof by (ii) the maximum total number of shares of Common
Stock issuable upon the exercise, conversion or exchange of such security.
f. Expenses. On the date of the Closing, the Company shall pay Five
Thousand
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337
Dollars ($5,000.00) to RGC International Investors, LDC ("RGC") as a
non-accountable expense allowance to be applied by RGC against all expenses
incurred by RGC and its affiliates in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the
other agreements to be executed in connection herewith, including, without
limitation, RGC and its affiliates' attorneys' fees and expenses.
g. 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-K, its Quarterly
Reports on Form 10-Q, any proxy statements, any Current Reports on Form 8-K
and any press releases issued by the Company or any of its subsidiaries.
h. 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 Preferred Shares and issuance of the Conversion Shares in
connection therewith and as otherwise required by the Certificate of
Designations. The Company shall not reduce the number of shares reserved
for issuance upon conversion of the Preferred Shares without the consent of
Purchasers holding a majority of the Preferred Shares then held by all
Purchasers.
i. Listing. Promptly (and in no event more than fifteen (15) days)
following the Company's receipt of a Conversion Notice (as defined in the
Certificate of Designations) with respect to any Preferred Share, the
Company shall secure the listing or approval for quotation of all of the
Conversion Shares 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 Conversion Shares from time to time issuable upon conversion of the
Preferred Shares. 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.
j. Corporate Existence. So long as a Purchaser beneficially owns any
Preferred Shares, 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 Preferred Shares
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.
k. [Intentionally Omitted]
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338
l. If no Additional Closing occurs, or if it occurs for fewer than 14,000
Preferred Shares, the Company shall promptly amend the Certificate of
Designations to reduce the authorized number of Preferred Shares from 20,000 to
the number actually issued and sold hereunder.
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 Preferred Shares. 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 and the Registration Rights Agreement.
Nothing in this Section shall affect in any way each Purchaser's obligations and
agreement set forth in Section 2(g) hereof to resell the Securities pursuant to
an effective registration statement and to deliver a prospectus in connection
with such 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 Preferred
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.
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339
(a) The applicable Purchaser shall have executed the signature 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 Preferred Shares purchased in accordance with Section 1(b) above and the
aggregate number of Preferred Shares purchased by all Purchasers hereunder shall
not be less than 6,000.
(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 Preferred 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 Certificate of Designations shall have been accepted for
filing with the Secretary of State of the State of Delaware and a copy
thereof certified by the Secretary of State of Delaware shall have been
delivered to such Purchaser.
(c) The Company shall have delivered duly executed certificates (in
such denominations as such Purchaser shall request) representing the
Preferred Shares being so purchased to such Purchaser in accordance with
Section 1(b) above.
(d) The aggregate number of Preferred Shares purchased by all
Purchasers hereunder shall be 6,000 (plus in the case of the Additional
Closing, if any, up to, but not more than, 14,000).
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340
(e) 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.
(f) 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.
(g) 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.
(h) Such Purchaser shall have received the officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
(i) 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.
(j) 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
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341
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.
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 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
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342
One Post Office Square
Boston, Massachusetts 02109
Telecopy: (617) 832-7000
Attention: David Broadwin
If to RGC International Investors, LDC:
RGC International Investors, LDC
c/o Rose Glen Capital Management, L.P.
440 E. Swedesford Road
Suite 2025
Wayne, PA 19087
Telecopy: (610) 971-2212
Attention: Andrew Daley
If to any other 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. Notwithstanding the foregoing, any Purchaser may assign its rights
hereunder to any of its "AFFILIATES," as that term is defined under the
Exchange Act, without the consent of the Company. This provision shall not
limit a Purchaser's right to transfer the Securities pursuant to the terms
of the Certificate of Designations and this Agreement or to assign such
Purchaser's rights hereunder to any such transferee.
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 closings hereunder 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 or covenants set forth herein,
including advancement of expenses as they are incurred.
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343
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 make any press release or SEC, NASDAQ or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
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 March 31, 1997, unless the parties agree otherwise, this Agreement shall
terminate at the close of business on such date.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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344
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:
RGC International Investors, LDC
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
RESIDENCE: Cayman Islands
ADDRESS:
RGC International Investors, LDC
c/o Rose Glen Capital Management, L.P.
440 E. Swedesford Road
Suite 2025
Wayne, PA 19087
Telecopy: (610) 971-2212
Attention: Andrew Daley
AGGREGATE SUBSCRIPTION AMOUNT
Number of Preferred Shares: 6,000
Purchase Price: $ 6,000,000
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
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345
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of March 27,
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 Preferred 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 shares
of its Series H Convertible Preferred Stock (the "PREFERRED STOCK") that is
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 Certificate of Designations, Rights
and Preferences with respect to such Preferred Stock (the "CERTIFICATE OF
DESIGNATIONS"); 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
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346
Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means the Conversion Shares
(including any Conversion Shares issuable with respect to Conversion
Default Payments under the Certificate of Designations or in
redemption of any Preferred Stock) issued or issuable with respect to
the Preferred Stock 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.
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 consent of the Initial Investors (as determined pursuant to Section
11(j) hereof)) covering the resale of at least 4,500,000 shares of
Registrable Securities (provided that such number may be proportionally
reduced if fewer than 20,000 shares 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 Preferred Stock to prevent dilution
resulting from stock splits, stock dividends or similar transactions. 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 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.
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 all
the Registrable Securities (including any Registrable Securities required
to be registered pursuant to Section 3(b) hereof) cannot be made pursuant
to the registration statement
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(by reason of a stop order or the Company's failure to update the
registration statement or any other reason outside the control of the
Investors) or (ii) the Common Stock is not listed or included for quotation
on the NASDAQ Small Cap 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 Purchase Price of the Preferred Stock held by such
Investor (including, without limitation, Preferred Stock that has been
converted into Conversion Shares then held by such Investor) (the
"AGGREGATE SHARE 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 Share Price multiplied by two hundredths (.02) for
each thirty (30) days thereafter that the Registration Statement has not
been declared effective or that sales cannot be made pursuant to the
Registration Statement after it has been declared effective or that the
Common Stock is not listed or included for quotation on NASDAQ, the NYSE or
AMEX; 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 exceed ten percent (10%) of such Investor's Aggregate Share 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
Share Price and the Company would pay an additional $20,000 for each
$1,000,000 of Aggregate Share 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 Share 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 Certificate of
Designations). 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 IV of the
Certificate of Designations), 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. [Intentionally Omitted]
e. 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
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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 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 to keep the Registration Statement effective
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 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 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"), is 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 Preferred Stock held by such Investor (without giving
effect to any limitations on conversion contained in Article IV.C of the
Certificate of Designations), 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 IV.C of the Certificate of Designations), 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 "REDEMPTION NOTICE"), to
require the Company to purchase for cash, at an amount per share equal to
the Redemption Amount (as defined in Article VIII.C of the Certificate of
Designations), a portion of the Investor's Preferred Stock such that the
total number of shares of Common Stock issuable to such Investor upon
conversion of its Preferred Stock (without giving effect to any limitations
on conversion contained in Article IV.C of the Certificate of Designations)
does not exceed 135% of the Registrable Securities issued or issuable upon
conversion of such Investor's Preferred Stock (without giving effect to any
limitations on conversion contained in Article IV.C of the Certificate of
Designations). If the
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349
Corporation fails to redeem any of such shares within five (5) business
days after its receipt of a Redemption Notice, then such Investor shall be
entitled to the remedies provided in Article VIII.D of the Certificate of
Designations. 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), 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 any 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.
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350
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.
h. The Company shall permit a single firm of counsel designated by the
Initial Investors to review the Registration Statement and all amendments
and supplements thereto 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, 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) in the case of an underwriting, 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
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agreements (in form and substance satisfactory to the Company) with the
Company with respect thereto, substantially in the form of 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.
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.
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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 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
and Preferred 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.
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.
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353
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 Company shall also reimburse the Investors for the reasonable fees
and disbursements of one counsel selected by the Investors pursuant to Section
2(b) hereof. The Investors shall be responsible for any underwriting discounts
and commissions attributable to the Registrable Securities to be sold by them.
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
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354
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,
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 (collectively and together with an Indemnified Person, 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
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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 it 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 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
<PAGE>
356
(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 shares of
Preferred Stock 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 shares of Preferred Stock 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.
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 shares of Preferred
Stock or Registrable Securities) and Investors who hold a majority interest of
the Registrable Securities. Any amendment or waiver effected in accordance with
this Section
<PAGE>
357
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: David Broadwin
If to RGC International Investors, LDC:
RGC International Investors, LDC
c/o Rose Glen Capital Management, L.P.
440 E. Swedesford Road
Suite 2025
Wayne, PA 19087
Telecopy: (610) 971-2212
Attention: Andrew Daley
and if to any other 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
<PAGE>
358
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.
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 shares of Preferred Stock 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
<PAGE>
359
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]
<PAGE>
360
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:
RGC International Investors, LDC
By:
--------------------------
Name:
--------------------------
Its:
--------------------------
<PAGE>
361
EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Date]
VIA FACSILIME
Herbert Lemmer, Esq.
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 Wall Street
New York, NY 10005
Facsimile (718) 331-1852
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
shares of the Company's Series H Convertible Preferred Stock (the "PREFERRED
STOCK") that are convertible into shares of the Company's Common Stock, par
value $.01 per share (the "COMMON STOCK"). The Preferred Stock were purchased by
the Holder pursuant to a Securities Purchase Agreement, dated as of March 27,
1997, by and among the Company and the signatories thereto (the "AGREEMENT").
Pursuant to a Registration Rights Agreement, dated as of March 27, 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]
<PAGE>
362
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-KSB, into the Company's previously filed
Registration Statements, File Numbers 33-47479, 33-879650, 33-96436, 33-97760,
33-99792, 33-99794, 333-000140, 333-001070, 333-3424, 333-5781, 333-7097,
333-10681, 333-18003, 333-21095, 333-22725, 333-87908, 33-97710 and 333-18347.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 7, 1997
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<PAGE>
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<NAME> PALOMAR MEDICAL TECHNOLOGIES, INC.
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,172,731
<SECURITIES> 2,893,792
<RECEIVABLES> 21,421,077
<ALLOWANCES> 3,113,000
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<PP&E> 10,778,865
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<CURRENT-LIABILITIES> 36,315,913
<BONDS> 16,204,692
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<COMMON> 305,968
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