As filed with the Securities and Exchange Commission on February 4, 1997
Registration No._____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
PALOMAR MEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
04-3128178
(I.R.S. employer identification number)
66 Cherry Hill Drive, Beverly, Massachusetts 01915 (508) 921-9300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Sarah Burgess Reed
General Counsel
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
(508) 921-9300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public:
from time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
______________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ______________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the followingbox. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
Title of Shares Amount to be Proposed Proposed
to be Registered Registered Maximum Maximum Amount of Registration
Offering Price Aggregate Fee
Per Share Offering Price
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 372,279 $3.96(1) $1,466,779(1) $444(1)
per share.
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
Common Stock, par value $.01 2,396,628 $8.16(2) $19,556,484(2) $5,926(2)
per share.
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
</TABLE>
(1) For shares underlying various common stock purchase warrants (the
"Warrants") issued to certain persons and entities which are exercisable at
various prices and terms described in the Selling Stockholders and Plan of
Distribution sections of the Prospectus, calculated pursuant to Rule 457(g)
under the Securities Act of 1933 (the "Act"), as amended, based on the
weighted average price at which the Warrants may be exercised.
(2) Consists of (i) 928,572 shares underlying Series G Convertible Preferred
Stock; (ii) 750,000 shares issuable upon conversion of $5,000,000 principal
amount of 4.5% Series Convertible Debentures due on October 17, 1999,
October 17, 2000 and October 17, 2001; (iii) 717,954 shares of Common Stock
issued to certain persons and entities; and (iv) 102 shares of Common Stock
issuable to a certain person. The fee is estimated pursuant to Rule 457(c)
under the Act on the basis of the average of the high and low sale prices
reported on the Nasdaq SmallCap Market on February 3, 1997.
Pursuant to Rule 416, there are also registered hereby such additional
indeterminate number of shares of such Common Stock as may become issuable as
dividends or to prevent dilution resulting from stock splits, stock dividends or
similar transactions as set forth in the terms of the Preferred Stock and the
warrants referred to above.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SUBJECT TO COMPLETION DATED February 4, 1997
<PAGE>
PROSPECTUS
PALOMAR MEDICAL TECHNOLOGIES, INC.
2,768,907 shares of Common Stock
consisting of:
372,279 shares underlying stock purchase warrants;
928,572 shares underlying Series G Convertible Preferred Stock;
750,000 shares issuable upon the conversion of $5,000,000 principal amount of
4.5% Series Convertible Debentures due in equal installments o
October 17, 1999, October 17, 2000 and October 17, 2001;
717,954 shares of Common Stock issued to certain persons and entities; and
102 shares of Common Stock issuable to a certain person.
This Prospectus relates to shares of Common Stock, $.01 par value,
("Common Stock" or the "Shares") of Palomar Medical Technologies, Inc. (the
"Company", the "Registrant" or "Palomar") consisting of: (i) 372,279 shares
underlying stock purchase warrants issued to certain persons and entities; (ii)
464,286 shares underlying Series G Convertible Preferred Stock issued to GFL
Performance Fund Limited; (iii) 464,286 shares underlying Series G Convertible
Preferred Stock issued to GFL Advantage Fund Limited; (iv) 750,000 shares
issuable upon the conversion of $5,000,000 principal amount of 4.5% Series
Convertible Debentures due in equal installments on October 17, 1999, October
17, 2000 and October 17, 2001; (v) 717,954 shares of Common Stock issued to
certain persons and entities, and (vi) 102 shares of Common Stock issuable to a
certain person, all of which are exercisable as described in the Selling
Stockholders and Plan of Distribution sections of the Prospectus. All shares to
be registered hereby are to be offered by the selling stockholders listed herein
(the "Selling Stockholders") and the Company will receive no proceeds from the
sale of such shares. The Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including certain liabilities under
the Securities Act of 1933, as amended (the "Securities Act"), or to contribute
to payments which such Selling Stockholders may be required to make in respect
thereof. See "Plan of Distribution".
The Company's Common Stock, par value $.01 per share, is listed on the
National Association of Securities Dealers Automated Quotation System ("Nasdaq")
and traded on the Nasdaq SmallCap Market. The last reported bid price of the
Common Stock on the Nasdaq SmallCap Market on February 3, 1997 was $ 8.25 per
share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGES 6 THROUGH 17.
It is anticipated that usual and customary brokerage fees will be paid
by the Selling Stockholders on the sale of the Common Stock registered hereby.
The Company will pay the other expenses of this offering. See "Plan of
Distribution". The offer of shares of Common Stock by the Selling Stockholders
as described in this Prospectus is referred to as the "Offering".
The date of this Prospectus is ______________.
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in connection with the offer
contained in this Prospectus, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Company
or the Selling Stockholders. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, Room 1024 and at the public
reference facilities maintained by the Commission on the 14th Floor, 75 Park
Place, New York, New York 10007; Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661; and Suite 500 East, Securities and
Exchange Commission Building, 5757 Wilshire Boulevard, Los Angeles, California
90036. Copies can be obtained from the Commission at prescribed rates by writing
to the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
reports, proxy statements and similar information can also be inspected and
copied at the National Association of Securities Dealers, 1735 K Street, N.W.,
Washington, DC 20006-1500. In addition, the Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically, including the Company. The
Commission's Web site address is http://www.sec.gov. This prospectus, which
constitutes part of a Registration Statement filed by the Company with the
Commission under the Securities Act omits certain of the information contained
in the Registration Statement in accordance with the rules and regulations of
the Commission. Reference is hereby made to the Registration Statement and to
the Exhibits relating thereto for further information with respect to the
Company and the Securities offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such documents filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-KSB and Form 10-KSB\A-1 for its
fiscal year ended December 31, 1995, the Company's Quarterly Report on Form
10-QSB and Form 10-QSB\A-1 for its quarter ending March 31, 1996, the Company's
Quarterly Report on Form 10-QSB for its quarter ending June 30, 1996, the
Company's Quarterly Report on Form 10-QSB for its quarter ending September 30,
1996, the Company's Form 8-K filed with the commission on May 16, 1996, as
amended by Form 8-K/A filed June 11, 1996, and the description of the Company's
Common Stock contained in its Registration Statement on Form 8-A filed with the
Commission on June 6, 1992, as amended by Form 8 on December 17, 1992, all of
which have been previously filed with the Commission, are incorporated in this
Prospectus by reference. All documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the termination of the offering made hereby are also incorporated by reference
herein and made a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated by reference herein is modified
or superseded for all purposes to the extent that a statement contained in this
Prospectus or in any other subsequently filed
<PAGE>
document which is incorporated by reference modifies or replaces such statement.
The Company will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon the written or oral
request of such person, a copy of all documents incorporated herein by reference
(not including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference herein). Requests for such copies should
be directed to: John J. Ingoldsby, Palomar Medical Technologies, Inc., 66 Cherry
Hill Drive, Beverly, Massachusetts 01915; telephone number (508) 921 - 9300;
e-mail address:
[email protected].
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
more detailed information appearing elsewhere in this Prospectus or incorporated
herein by reference and the financial statements which are incorporated herein
by reference.
<TABLE>
<S> <C>
THE COMPANY........................................ Palomar Medical Technologies, Inc. (the "Company") has three
business segments: cosmetic dermatological laser products,
laser services and electronic products. The cosmetic laser
products are under various stages of development and
clinical trials. The Company does derive revenue from the
sale of cosmetic laser products by its subsidiaries Spectrum
Medical Technologies, Inc. and Tissue Technologies, Inc.
The laser services segment is new; the Company derives no
revenue from that segment at present. In addition, the
Company derives revenue from the sale of electronic products
by its subsidiaries Nexar Technologies, Inc. ("Nexar"),
Dynaco Corporation and Comtel Electronics, Inc. The
electronic products segment is the principal source of the
Company's revenues.
RISK FACTORS........................................ The Offering involves substantial risk. See "Risk Factors".
SECURITIES OFFERED.......................... 2,768,907 shares of Company Common Stock, par value $.01 per
share.
OFFERING PRICE.................................... All or part of the Shares offered hereby may be sold from
time to time in amounts and on terms to be determined by the
Selling Stockholders at the time of sale.
USE OF PROCEEDS................................. The Company will receive no part of the proceeds from the
sale of the shares registered pursuant to this Registration
Statement.
SELLING STOCKHOLDERS................... The Shares being offered hereby are being offered for the
account of the Selling Stockholders specified under the
caption "Selling Stockholders".
NASDAQ TRADING SYMBOL.............. PMTI
</TABLE>
<PAGE>
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of risk and
should not be made by persons who cannot afford the loss of their entire
investment. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby identifying
important factors that could cause the Company's actual results to differ
materially from those projected in forward-looking statements of the Company
made by or on behalf of the Company. The Company advises readers not to place
undue reliance on such forward-looking statements in light of the risks and
uncertainties to which they are subject. The following factors should be
considered carefully in evaluating the Company and its business.
Holding Company Structure. The Company has no significant operations
other than those incidental to its ownership of the capital stock of its
subsidiaries. As a holding company, the Company is dependent on dividends or
other intercompany transfers of funds from its subsidiaries to meet the
Company's debt service and other obligations. Claims of creditors of the
Company's subsidiaries, including trade creditors, will generally have priority
as to the assets of such subsidiaries over the claims of the Company and the
holders of the Company's indebtedness.
Limited Operating History; Recent Acquisitions. Many of the Company's
subsidiaries have limited operating histories and are in the development stage,
and the Company is subject to all of the risks inherent in the establishment of
a new business enterprise. Historically, most of the Company's revenues have
been generated by its flexible circuit board component business; however,
Spectrum Medical Technologies, Inc. ("Spectrum"), acquired by the Company in
April 1995, contributed 18% of the Company's revenues in 1995. The Company
acquired Comtel Electronics, Inc. ("Comtel") in March 1996, and Tissue
Technologies, Inc. ("Tissue") in May 1996. Both Comtel and Tissue have had
limited operating histories. The likelihood of success of the Company must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the establishment of a new
business and development of new technologies in the 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.
Substantial and Continuing Losses. The Company incurred a net loss of
$12,620,768 for the year ended December 31, 1995 and a net loss of $19,213,214
for the nine month period ended September 30, 1996. These losses are expected to
continue for the near term, and there can be no assurance that the Company will
achieve profitable operations or that profitable operations will be sustained if
achieved. At September 30, 1996, the Company's accumulated deficit was
$45,903,951. Dynaco Corp. ("Dynaco"), Star Medical Technologies, Inc. ("Star"),
CD Titles, Inc. ("CD Titles"), Dynamem, Inc. ("Dynamem"), Comtel, Tissue and
Nexar each have had a history of losses. There can be no assurance that these
companies will achieve profitable operations or that profitable operations will
be sustained if achieved. The Company anticipates incurring substantial research
and development expenses, which will reduce cash available to fund current
operations. The Company must continue to secure additional financing to complete
its research and development activities, commercialize its current and proposed
cosmetic laser products,
<PAGE>
expand its current electronics business, execute its acquisition business plan
and fund ongoing operations. The Company believes that the cash generated to
date from its financing activities; amounts available under its credit agreement
and the Company's ability to raise cash in future financing activities will be
sufficient to satisfy its working capital requirements through the next
twelve-month period. However, there can be no assurance that this assumption
will prove to be accurate or that events in the future will not require the
Company to obtain additional financing sooner than presently anticipated. The
Company may also determine, depending upon the opportunities available to it, to
seek additional debt or equity financing to fund the costs of acquisitions or
continuing expansion. To the extent that the Company finances an acquisition
with a combination of cash and equity securities, any such issuance of equity
securities could result in dilution to the interests of the Company's
shareholders. Additionally, to the extent that the Company incurs indebtedness
to fund increased levels of accounts receivable or to finance the acquisition of
capital equipment or issues debt securities in connection with any acquisition,
the Company will be subject to risks associated with incurring substantial
additional indebtedness, including the risks that interest rates may fluctuate
and cash flow may be insufficient to pay principal and interest on any such
indebtedness. The Company continues to investigate several financing
alternatives, including additional government research grants, strategic
partnerships, additional bank financing, private, debt and equity financing and
other sources. While the Company regularly reviews potential funding sources in
relation to its ongoing and proposed research projects, there can be no
assurance that the current levels of funding or additional funding will be
available, or if available will be on terms satisfactory to the Company. Failure
to obtain additional financing could have a material adverse effect on the
Company, including possibly requiring it to significantly curtail its
operations.
Risks Associated with Acquisitions. Since going public, the Company has
acquired seven companies. In the normal course of business, the Company
evaluates potential acquisitions of businesses, products and technologies that
would complement or expand the Company's business. Acquisitions may result in
the incurrence of additional debt, the write-off of in-process research and
development or technology acquisition and development costs and the amortization
of expenses related to goodwill and other intangible assets, any of which could
have a material adverse effect on the Company's business, financial condition,
results of operations and cash flow. Acquisitions involve numerous additional
risks, including difficulties in the assimilation of the operations, services,
products and personnel of the acquired company, the diversion of management's
attention from other business concerns, entering markets in which the Company
has little or no direct prior experience and the potential loss of key employees
of the acquired company.
New Ventures. The Company has entered into several agreements with
physician groups to provide cosmetic laser services at laser treatment centers,
and plans to enter into more such agreements in the future. While the Company
believes these new partnerships are strategically important, there are
substantial uncertainties associated with the development of new products,
technologies and services for evolving markets. The success of these ventures
will be determined not only by the Company's efforts, but also by those of its
partners. Initial timetables for the development and introduction of new
technologies, products or services may not be achieved, and price/performance
targets may not prove feasible. External factors, such as the development of
competitive alternatives or government regulation, may cause new markets to
evolve in unanticipated directions. (See "Highly Competitive Industries.")
Management of Growth. In light of management's views of the potential
for future growth, the Company has adopted an aggressive growth plan that
includes substantial investments in its sales, marketing, production and
distribution organizations, the creation of new research and development
programs and increased funding of existing programs, and investments in
corporate infrastructure that will be required to support significant growth.
This plan carries with it a number of risks, including a higher
<PAGE>
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. In addition, in entering areas of
business in which it has little or no experience, such as the opening of laser
treatment centers, the Company may not be able to compete successfully with
competitors that are more established in such areas. (See "New Ventures.")
In the electronics industry, the Company competes with Packard-Hughes
Interconnect Co., Parlex Corporation, Teledyne Inc., IBM, Apple Computer, Compaq
and Dell Computer, among others. Many, if not most, of the Company's current and
prospective competitors are substantial in size and have substantial financial,
managerial, technical, manufacturing, marketing and other resources, and may
introduce additional products that compete with those of the Company. There can
be no assurance that the Company's products will compete favorably with the
products of its competitors or that the Company will have the resources
necessary to compete effectively against such companies. As a result of the
intense competition in the personal computer market, the Company expects that
gross margins on sales of its upgradeable personal computers will be extremely
narrow and will require the Company to manage carefully its cost of goods sold.
There can be no assurance that the Company will be able to manage its cost of
goods sold to the degree necessary for sales of upgradeable computer products to
generate significant gross margins. The Company currently has limited marketing
capabilities and expects to place significant reliance on independent
distributors and resellers for the distribution and marketing of its products.
The Company will be dependent upon the efforts of such third parties. The
inability to establish and maintain a network of independent distributors and
resellers, or a reduction in their sales efforts, could have a material adverse
effect on the Company's financial condition and results of operations. In
addition, there can be no assurance as to the viability or financial stability
of the Company's independent distributors and resellers. The computer industry
has been characterized from time to time by financial difficulties of
distributors and resellers; any such problems could lead to reduced sales and
could have a material adverse effect on the Company's financial condition and
results of operations. There can be no assurance that the Company's products
will compete favorably with the products of its competitors or that the Company
will have the resources necessary to compete effectively against such companies.
Fluctuations in Quarterly Performance. The Company's results of
operations have fluctuated substantially and can be expected to continue to vary
significantly. The Company's quarterly operating results depend on a number of
factors, including the timing of the introduction or acceptance of new products
offered by the Company or its competitors, changes in the mix of products sold
by the Company,
<PAGE>
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
<PAGE>
obtain such clearances will not be excessively expensive or lengthy or that the
Company will have sufficient funds to pursue such clearances.
No assurance can be given that FDA approval will be obtained for the
Company's current or proposed laser products on a timely basis, if at all. The
laser products segment of the Company's business, is, and will continue to be,
critically dependent upon FDA approval of its current and proposed cosmetic
laser products. Delays or failure to obtain such approval would have a material
adverse effect on the Company.
Other Government Approvals for Laser Products; Good
Manufacturing Practices. In order to be sold outside the United States, the
Company's products are subject to FDA permit requirements that are conditioned
upon clearance by the importing country's appropriate regulatory authorities.
Many countries also require that imported products comply with their own or
international electrical and safety standards. In November 1992, the Company
obtained approval certifying compliance with certain international electrical
and safety regulations applicable to its pulsed dye laser. Additional approvals
may be required in other countries. The Company has yet to apply for
international approval for its diode laser for use in cosmetic surgery and
dermatology.
The Company is subject to the laser radiation safety regulations of the
FDA Act administered by the National Center for Devices and Radiological Health
("CDRH") of the FDA. These regulations require a laser manufacturer to file new
product and annual reports, to maintain quality control, product testing and
sales records, to distribute appropriate operation manuals, to incorporate
certain design and operating features in lasers sold to end-users and to certify
and label each laser sold to end-users as one of four classes of lasers (based
on the level of radiation from the laser). In addition, various warning labels
must be affixed on the product and certain protective devices must be installed
depending upon the class of product. Under the Act, the Company is also required
to register with the FDA as a medical device manufacturer and is subject to
inspection on a routine basis by the FDA for compliance with Good Manufacturing
Practice ("GMP") regulations. The GMP regulations impose certain procedural and
documentation requirements upon the Company relevant to its manufacturing,
testing and quality control activities. The CDRH is empowered to seek fines and
other remedies for violations of these regulatory requirements. The Company
believes that it is currently in compliance with these regulations.
Electronic Segment. A significant percentage of the total sales of the
flexible circuit board component business of the Company, which presently
accounts for a significant amount of the sales of the Company, are the result of
either a subcontract or a direct contract for government programs funded by the
U.S. military. Generally, government contracts and subcontracts are terminable
at the convenience of the government. Cutbacks in military spending for certain
programs or lack of military spending in general could have a material adverse
effect on the Company. There can be no assurance that termination of contracts,
cessation of purchase orders, or a failure to appropriate funds will not occur
in the future. Any termination, cessation, or failure to appropriate funds with
respect to contracts or subcontracts having a significant dollar value would
have a material adverse effect on the Company's business, financial condition
and results of operation. The unpredictable nature of the government procurement
process also may contribute to fluctuations in the Company's quarterly
performance. (See "Fluctuations in Quarterly Performance.")
Flexible circuit board component sales to the U.S. military are subject
to certain military certifications. These certifications are based upon
compliance with specification standards set by the U.S. military. The Company is
subject to periodic audit and review from U.S. government agencies to ensure
compliance under criteria set forth by these agencies. Failure to meet or exceed
criteria set forth could
<PAGE>
result in a suspension or disqualification of certain certifications. Such
suspension or disqualification could have a material adverse effect on the
Company.
One customer of Nexar, Government Technology Services, Inc. (GTSI), a
leading supplier of desktop systems to the United States government agencies,
accounted for a majority of Nexar's revenues. The Company expects that GTSI will
continue to be an important customer, but that sales to GTSI as a percentage of
total revenues will decline substantially as Nexar further expands its
distribution network and increases its overall sales. Nexar has entered into an
agreement with GTSI pursuant to which GTSI serves as Nexar's exclusive federal
reseller with respect to Government Services Administration (GSA) scheduled
purchases, provided that GTSI purchases at least $35 million of Nexar's products
in 1997. GTSI is under no obligation, however, to purchase any products of
Nexar's. If GTSI makes fewer purchases in 1997 than Nexar anticipates, that
would have a material adverse effect on the Company.
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 Massachusetts General Hospital and the
Otolaryngology Research Center for Advanced Endoscopic Applications at New
England Medical Center, Boston, Massachusetts. The Company provides research
funding, laser technology and optics know-how in return for licensing agreements
with respect to specific medical applications and patents. Management believes
that this method of conducting research and development provides a higher level
of technical and clinical expertise than it could provide on its own and in a
more cost efficient manner. The Company's success will be highly dependent upon
the results of the research, and there can be no assurance that these research
agreements will provide the Company with marketable products in the future or
that any of the products developed under these agreements will be profitable for
the Company.
<PAGE>
Technological Obsolescence. Both the cosmetic laser products segment
and the electronics segment are characterized by extensive technological
developments, and the rapid pace experienced over the past few decades is
expected to continue. The Company's failure to develop products in a timely
manner in response to changes in the industry, whether for financial,
technological or other reasons, will have a material adverse effect on the
Company's business, financial condition and results of operations.
The laser device and personal computer industries are characterized by
extensive research and development and rapid technological change. The flexible
circuit board component, electronics interconnect and personal computer
industries are characterized by large capital investments in new automated
processes and state-of-the-art fabrication techniques. In order to participate
effectively in those industries, the Company must continue to make large capital
investments in new automated processes and state-of-the-art fabrication
techniques. Development by others of new or improved products, processes or
technologies may make the Company's products or proposed products obsolete or
less competitive. The Company will be required to devote continued efforts and
financial resources to enhancement of its existing products and development of
new products. There can be no assurance that the Company will have the financial
resources or the technological capability necessary to carry out such product
enhancement and development.
Lack of Patent Protection. The Company currently holds several patents
and intends to pursue various additional avenues that it deems appropriate to
protect its technology. There can be no assurance, however, that the Company
will file any additional patent applications or that any patent applications
that have been, or may be, filed will result in issued patents, or that any
patent, patent application, know-how, license or cross-license will afford any
protection or benefit to the Company.
The cosmetic laser device market has been characterized by substantial
litigation regarding patent and other intellectual property rights. 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, such opinions have not been challenged in any court of law. If
the Company's current or proposed products are, in the opinion of patent
counsel, infringing on any of these patents, the Company intends to seek
non-exclusive, royalty-bearing licenses to such patents but there can be no
assurance that any such license would be available on favorable terms, if at
all. In the electronic products segment, the Company has not been notified that
it is currently infringing on any patents nor has it been the subject of any
patent infringement action. No assurance can be given that infringement claims
will not be made or that the Company would prevail in any legal action with
respect thereto. Defense of a claim of infringement would be costly and could
have a material adverse effect on the Company's business, even if the Company
were to prevail.
Need for Additional Qualified Personnel/Dependence on Key Personnel.
The Company's ability to develop, manufacture and market all of its products,
and to attain a competitive position within the laser
<PAGE>
products and electronics industries, will depend, in large part, on its ability
to attract and retain qualified personnel. Competition for qualified personnel
in these industries is intense and the Company will be required to compete for
such personnel with companies which may have greater financial and other
resources; there can be no assurance that the Company will be successful in
attracting, assimilating and retaining the personnel it requires to grow and
operate profitably. The Company's inability to attract and retain such personnel
could have a material adverse effect upon its business. (See "Management of
Growth.")
The Company's future success depends to a significant extent on its
executive officers and certain technical, managerial and marketing personnel.
The loss of the services of any of these individuals or group of individuals
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Issuance of Preferred Stock and Debentures Could Affect Rights of
Common Shareholders. The Company is authorized to issue up to 5 million shares
of Preferred Stock, US$.01 par value. The Preferred Stock may be issued in one
or more series, the terms of which may be determined at the time of issuance by
the Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. In April 1996, the Company issued 10,000 shares of
Series E Preferred Stock at a price of US$1,000 per share. As of January 27,
1997, 7,872 shares of Series E Convertible Preferred Stock had been converted
into 1,048,576 of common shares. In July 1996, the Company issued 6,000 shares
of Series F Convertible Preferred Stock at a price of US$1,000 per share. In
September 1996, the Company issued 10,000 shares of Series G Preferred Stock at
a price of US$1,000 per share. In July 1996, the Company issued 9,675 units in a
convertible debenture financing. Each unit consisted of a convertible debenture
denominated in 1,000 Swiss Francs and a warrant to purchase 24 shares of the
Company's common stock at $16.50 per share. In October 1996, the Company issued
$5,000,000 in 4.5% Convertible Subordinated Promissory Notes. In December 1996
and January 1997, the Company issued a total of $6,000,000 in 5% Convertible
Debentures. In December 1996, the Company issued 60 units for $3,150,000. Each
unit consisted of 10,000 shares of Common Stock and three Net Warrants, A, B and
C to Purchase Common Stock. The issuance of any such additional Preferred Stock
or Debentures could affect the rights of the holders of Shares, and could reduce
the market price of the Shares. In particular, specific rights granted to future
holders of Preferred Stock or Debentures could be used to restrict the Company's
ability to merge with or sell its assets to a third party, thereby preserving
control of the Company by the existing control group.
Issuance of Reserved Shares; Registration Rights. As of January 27,
1997, the Company had 30,632,190 Shares of Common Stock outstanding. The Company
has reserved an additional 19,285,566 Shares for issuance as follows: (1)
3,922,500 Shares for issuance to key employees, officers, directors, consultants
and advisors pursuant to the Company's Stock Option Plans; (2) 254,115 Shares
for issuance to employees, officers and directors pursuant to the Company's
401(k) Plan; (3) 999,420 Shares for issuance pursuant to the Company's Employee
Stock Purchase Plan; (4) 8,590,832 Shares for issuance upon exercise of three-,
four- five- and seven-year Warrants issued to certain lenders, investors,
consultants, directors and officers (a portion of which are subject to certain
antidilutive adjustments); (5) 397,165 Shares for issuance upon conversion of
the 2,128 shares of Series E Preferred Stock; (6) 600,000 Shares for issuance
upon conversion of the 6,000 shares of Series F Preferred Stock; (7) 1,700,000
Shares for issuance upon conversion of the 10,000 shares of Series G Preferred
Stock (8) 867,800 Shares for issuance upon conversion of the debentures sold in
the Swiss Franc-Denominated Offering; (9) 750,000 Shares for issuance upon
conversion of 5,000,000 principal amount of a 4.5% Convertible Subordinated
Promissory Note; (10) 1,200,000 Shares for issuance upon conversion of 6,000,000
principal amount of a 5% Convertible Debentures; and (11) 3,734 shares of Common
Stock reserved for issuance to certain persons.
<PAGE>
All of the foregoing reserved Shares are, or the Company intends for them
shortly to be, registered with the Commission and therefore freely salable on
Nasdaq or elsewhere.
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 liability insurance in the amount of US$4,000,000; however, there can
be no assurance that such coverage will continue to be available on terms
acceptable to the Company or that such coverage will be adequate for liabilities
actually incurred. In the event the Company is found liable for damages in
excess of the limits of its insurance coverage, or if any claim or product
recall results in significant adverse publicity against the Company, the
Company's business, financial condition and results of operations could be
materially and adversely affected. In addition, although the Company's products
have been and will continue to be designed to operate in a safe manner, and
although the Company attempts to educate medical personnel with respect to the
proper use of its products, misuse of the Company's products by medical
personnel over whom the Company cannot exert control may result in the filing of
product liability claims or significant adverse publicity against the Company.
Risks Associated with International Operations. As part of its business
strategy, the Company intends to seek opportunities to expand its product and
service offerings into international markets. In marketing its products and
services internationally, the Company will likely face new competitors. There
can be no assurance that the Company will be successful in marketing or
distributing products and services in these markets or that its international
revenue will be adequate to offset the expense of establishing and maintaining
international operations. The Company's international business may be adversely
affected by changing economic conditions in foreign countries. The majority of
the Company's sales are currently denominated in U.S. dollars, but there can be
no assurance that a significantly higher level of future sales will not be
denominated in foreign currencies. To the extent the Company makes sales
denominated in currencies other than U.S. dollars, gains and losses on the
conversion of those sales to U.S. dollars may contribute to fluctuations in the
Company's business, financial condition and results of operations. In addition,
fluctuations in exchange rates could affect demand for the Company's products
and services. Conducting an international business inherently involves a number
of other difficulties and risks, such as export restrictions, export controls
relating to technology, compliance with existing and changing regulatory
requirements, tariffs and other trade barriers, difficulties in staffing and
managing international operations, longer payment cycles, problems in collecting
accounts receivable, political instability, seasonal reductions in business
activity in Europe and certain other parts of the world during the summer
months, and potentially adverse tax consequences. There can be no assurance that
one or more of these factors will not have a material adverse effect on any
international operations established by the Company and, consequently, on the
Company's business, financial condition and results of operations.
Dependence on Sole Suppliers. The Company relies on outside suppliers
for substantially all of its manufacturing supplies, parts and components.
Pyralux(R), an integral component of most of the Company's flexible circuit
products, is manufactured exclusively by E.I. du Pont de Nemours and Company
("DuPont"). Although the Company has a written agreement with DuPont under which
DuPont will supply the Company with all of its requirements for Pyralux, there
can be no assurance that the Company will be able to obtain a sufficient supply
of Pyralux to fulfill orders for its products in a timely manner, if at all.
<PAGE>
In addition, CO2 laser tubes, an integral component of Tissue's
Tru-Pulse Laser system, are manufactured exclusively by Pulse Systems, Inc.
There can be no assurance that the Company will be able to obtain sufficient
supply of CO2 laser tubes to fulfill orders for its products in a timely manner,
if at all. Furthermore, several other component parts of the Company's cosmetic
laser products and electronic segment products are manufactured exclusively by
one supplier. There can be no assurance that the Company will be able to obtain
a sufficient supply of such components at commercially reasonable prices or at
all. A shortage of necessary parts and components or the inability of the
Company to obtain such parts and components would have a material adverse effect
on the Company's business, financial condition and results of operations.
Dependence on Substantial Customers. In the nine months ended September
30, 1996, one customer of Nexar, Government Technology Services, Inc. ("GTSI),
accounted for 17% of the Company's revenues. The Company expects that GTSI will
continue to be an important customer, but that sales to GTSI as a percentage of
total revenue will decline substantially as the Company further expands its
distribution network and increases its overall sales. The Company is currently
negotiating an agreement with GTSI, a leading supplier of desktop systems to
United States government agencies, which would strengthen an informal agreement
with the Company under which GTSI currently serves as the Company's exclusive
federal reseller with respect to Government Services Administration scheduled
purchases.
In the nine months ended September 30, 1996, one customer of Comtel,
New Media, Inc. ("New Media"), a related party, accounted for 27% of the
Company's revenues. Comtel has entered into a five (5) year agreement with New
Media whereby New Media, subcontracted to Comtel all of its manufacturing and
assembly business over the contract term. Comtel is compensated by New Media to
achieve a guaranteed 15% gross margin to Comtel. Management estimates this
contract will generate $80 million in revenues for Comtel over the life of the
agreement. On April 5, 1996, Palomar invested $2,345,000 in New Media preferred
and common stock and loaned New Media an additional $1,000,000. The note
receivable is subordinated and nonrecourse, bears interest at 9% and is due
April 1999 or earlier under certain conditions. Palomar also received a warrant
to purchase 200,000 shares of common stock in New Media at $1.20 per share. The
Company expects that New Media will continue to be an important customer, but
that sales to New Media, Inc. as a percentage of total revenue will decline
substantially as the Company further expands its distribution network and
increases its overall sales.
A loss from either customer could have a material, adverse effect on
the Company's business in the short term.
Hazardous Substance and Environmental Concerns. The manufacture of
substrate interconnect products involves numerous chemical solvents and other
solid, chemical and hazardous wastes and materials. Dynaco is subject to a
variety of environmental laws relating to the generation, storage, handling,
use, emission, discharge and disposal of these substances and potentially
significant risks of statutory and common law liability for environmental damage
and personal injury. The Company, and in certain circumstances, its officers,
directors and employees, may be subject to claims arising from the Company's
manufacturing activities, including the improper release, spillage, misuse or
mishandling of hazardous or non-hazardous substances or material. The Company
may be strictly liable for damages, regardless of whether it exercised due care
and complied with all relevant laws and regulations. The Company does not
currently maintain environmental impairment insurance. There can be no assurance
that the Company will not face claims resulting in substantial liability for
which the Company is uninsured or that hazardous substances are not or will not
be present at the Company's facilities. The Company believes that it operates
its Dynaco facilities in substantial compliance with existing environmental laws
and regulations. In June
<PAGE>
1989 and April 1994, Dynaco conducted environmental studies of its Tempe,
Arizona substrate manufacturing facility and did not discover any contamination
requiring remediation. Failure to comply with proper hazardous substance
handling procedures or violation of environmental laws and regulations would
have a material adverse effect on the Company.
Significant Outstanding Indebtedness; Subordination of Debentures. The
Company has incurred substantial indebtedness in relation to its equity capital
and will be subject to all of the risks associated with substantial leverage,
including the risk that available cash may not be adequate to make required
payments to the holders of the Debentures. The Company's ability to satisfy its
obligations under the Debentures from cash flow will be dependent upon the
Company's future performance and will be subject to financial, business and
other factors affecting the operation of the Company, many of which may be
beyond the Company's control. In the event the Company does not have sufficient
cash resources to satisfy quarterly interest or other repayment obligations to
the holders of the Debentures, the Company will be in default under the
Debentures, which would have a material adverse effect on the Company. To the
extent that the Company is required to use cash resources to satisfy interest
payments to the holders of the Debentures, it will have less resources available
for other purposes. Inability of the Company to repay the Debentures upon
maturity would have a material adverse effect on the Company, which could result
in a reduction of the price of the Company's Shares.
The Debentures will be unsecured and subordinate in right of payment to
all Senior Indebtedness of the Company. The Debentures do not restrict the
Company's ability to incur additional Senior Indebtedness and most other
indebtedness. The terms of Senior Indebtedness now existing or incurred in the
future could affect the Company's ability to make payments of principal and/or
interest to the holders of Debentures.
Potential Effect of Anti-Takeover Provisions. The Company is subject to
the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which prohibit the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 could have the effect of delaying or preventing a change of control
of the Company. The Company's stock option grants generally provide for an
exercise of some or all of the optioned stock, including non-vested shares, upon
a change of control or similar event. The Board of Directors has authority to
issue up to 5,000,000 shares of Preferred Stock and to fix the rights,
preference, privileges and restrictions, including voting rights, of these
shares without any further vote or action by the stockholders. The rights of the
holders of the Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, thereby delaying,
deferring or preventing a change in control of the Company. Furthermore, such
Preferred Stock may have other rights, including economic rights senior to the
Common Stock, and, as a result, the issuance of such Preferred Stock could have
a material adverse effect on the market value of the Common Stock. (See
"Issuance of Preferred Stock and Debentures Could Affect Rights of Common
Shareholders.")
Risks Associated with Pending Litigation. The Company is involved in
disputes with third parties, including Commonwealth Associates (see "The
Company") and certain former employees. Such disputes have resulted in
litigation with such parties and, although the Company is a plaintiff in two of
such matters, the Company is subject to claims and counterclaims for damages and
has incurred, and likely will continue to incur, legal expenses in connection
with such matters. There can be no assurance
<PAGE>
that such litigation will result in favorable outcomes for the Company. The
Company is unable to determine the total expense or possible loss, if any, that
may ultimately be incurred in the resolution of these proceedings. These matters
may result in diversion of management time and effort from the operations of the
business. After consideration of the nature of the claims and the facts relating
to these proceedings, the Company believes that the resolution of these
proceedings will not have a material effect on the Company's business, financial
condition and results of operations; however, the results of these proceedings,
including any potential settlements, are uncertain and there can be no assurance
to that effect.
<PAGE>
THE COMPANY
The Company was organized to design, manufacture and market lasers,
delivery systems and related disposable products for use in medical procedures.
The Company currently operates in three business segments: cosmetic laser
products, cosmetic laser services and electronic products. In the cosmetic laser
products segment, the Company manufactures and markets the Q-pulse Ruby laser,
the Tru-Pulse laser and the EpiLaser system, all of which have been approved by
the FDA for certain dermatological applications. The Company also is developing
ruby, pulse dye and diode cosmetic lasers for use in clinical trials and is
engaged in the research and development of additional cosmetic laser and
surgical products. The Company has expanded its efforts in the cosmetic laser
area through a series of product development activities, acquisitions and
strategic alliances that target patient self-pay procedures performed in
doctors' offices and clinics. The Company has entered into a number of research
agreements with recognized research hospitals and clinical laboratories. The
Company provides research funding, laser technology and optics know-how in
return for licensing agreements to specific cosmetic laser applications and
patents. Management feels that this method of conducting research and
development provides a higher level of technical and clinical expertise than it
could provide on its own and in a more cost efficient manner. Some of the
Company's cosmetic laser products are undergoing clinical trials and have not
received FDA approval, including approval for certain dermatological
applications
In the cosmetic laser service segment, the Company has entered into
agreements with physician groups to provide cosmetic laser services at laser
treatment centers, and plans to enter into more such agreements in the future.
This is a new business segment for the Company. (See "Risk Factors--New
Ventures")
In the electronic products segment, the Company manufactures high
density, flexible electronic circuitry for use in industrial, military and
medical devices and personal computers with a unique circuit board design that
enables end users to upgrade and replace the microprocessor, memory and hard
drive components. Management believes this upgradable personal computer will
decrease the level of technical obsolescence found with most personal computers
in the market. Some of the Company's electronic products are being incorporated
into its laser systems. These new products include a series of proprietary
computer memory modules that double the memory capacity of traditional memory
modules using the same interface.
The Company also makes early stage investments in core technologies and
companies that management feels are strategic to the Company's business or will
yield a higher than average financial return to support the Company's core
business. Some of these investments are with companies that are related to some
of the directors and officers of the Company.
In September 1995, the Company established Palomar Electronics
Corporation, a wholly-owned subsidiary, as part of its ongoing plan to separate
the electronics and computer segments of the business from the cosmetic laser
segments of the business.
In December 1996, the Company sold 600,000 shares of Nexar stock, owned
by the Company's wholly-owned subsidiary, Palomar Electronics Corporation, in
exchange for $6,000,000.
In December, 1996, the Company's wholly owned subsidiary, Nexar, filed
a Registration Statement on Form S-1 for an Initial Public Offering of its
shares. As of the date hereof, Nexar's Registration has not been declared
effective.
<PAGE>
The Company is a defendant in a lawsuit brought by Commonwealth
Associates, "Commonwealth"). In January 1997, Commonwealth's motion for summary
judgment on its breach of contract claim in that lawsuit was granted. A trial on
Commonwealth's damages has not yet been scheduled. On the face of its complaint,
Commonwealth alleges that it suffered approximately $2,700,000 in damages on its
breech of contract claim.
USE OF PROCEEDS
The Company will receive no part of the proceeds from the sale of any
of the Shares by the Selling Stockholders.
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of shares of Common Stock by the Selling Stockholders as of the date
of this Prospectus and the number of such shares included for sale in this
Prospectus assuming the sale of all Shares being offered by this Prospectus. A
description of the transactions under which the Selling Stockholders received
the Common Stock being registered herein is set forth under the heading "Plan Of
Distribution" which follows this table. To the best of the Company's knowledge,
except as stated in this Prospectus, the Selling Stockholders have not held any
office or maintained any material relationship with the Company or any of its
predecessors or affiliates over the past three years. The Selling Stockholders
reserve the right to reduce the number of shares offered for sale or to
otherwise decline to sell any or all of the Shares registered hereunder.
<TABLE>
<CAPTION>
Shares Shares Shares
owned to be owned
Selling prior to sold in after
Stockholders Offering (1)(2) Offering Offering (2)
<S> <C> <C> <C> <C>
GFL Advantage Fund Limited (3) 1,100,404 611,426 488,978 1.6%
c/o CITCO
Kaya Flamboyan 9
Curaco, Netherlands Antilles
Rush & Company(4) 600,000 600,000 - -
Via Zurigo 5
6900 Lugano
Switzerland
GFL Performance Fund Limited (5) 561,426 561,425 64,760 -
c/o CITCO
Kaya Flamboyan 9
Curaco, Netherlands Antilles
Cameron Capital Ltd. (6) 375,000 375,000 - -
10 Cavendish Road
Hamilton HM19
Bermuda
Wood Gundy London Limited (7) 375,000 375,000 - -
Cottons Center, Cottons Lane
London, Endgland SE1 2QA
Computer Associates International, Inc. (8) 56,945 56,945 - -
One Computer Associates Plaza
Islandia, New York 11788-7000
Eleanor Weissman (9) 35,000 35,000 - -
2002 Granada Drive
Apartment M3
Coconut Creek, Florida 33066
<PAGE>
RG Asset Management Corp (10) 20,000 20,000 - -
159-12 84th Avenue
Jamaica, New York 11432
BlueStone Capital Partners LP (11) 79,000 20,000 59,000 -
575 Fifth Avenue-37th Floor
New York, New York 10017
Paul Wolfson (12) 20,000 20,000 - -
Arnold Curnyn (12) 20,000 20,000 - -
Neil Friedman (12) 20,000 20,000 - -
Richard Merel (12) 20,000 20,000 - -
Jeff Nianick (12) 10,000 10,000 - -
Alan Rosenbaum (12) 6,000 6,000 - -
John Trulson (12) 6,000 6,000 - -
Alan Garfield (12) 6,000 6,000 - -
James Holtz (13) 77,721 2,801 74,920 -
2405 Sheffield Drive
Livermore, CA 94550
Robert Grove (13) 56,773 2,037 54,736 -
28 Grey Eagle Court
Pleasanton, CA 94566
David Mundinger (13) 33,342 1,018 32,324 -
1544 Frederick Michael Way
Livermore, CA 94550
David Holtz (13) 153 153 - -
18203 Sheffield Avenue
Northbridge, California 91326
Adrianna Scheibner (13) 3.734 102 - -
436 North Bedford Drive
Suite 205
Beverly Hills, California 90210
</TABLE>
<PAGE>
1. Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the ownership of such individual
or group.
2. The amount and (if one percent or more) the percentage of outstanding
Common Stock.
3. Represents 464,286 shares of Common Stock issuable upon conversion of 3,000
shares of Series G Convertible Preferred Stock (the "Preferred Stock");
97,140 shares of Common Stock issuable pursuant to a Warrant at $12.00 per
share through 9/27/01 and 50,000 shares of Common Stock issuable pursuant
to a Warrant at $6.5625 per share through 12/31/01. The warrants are
exercisable on the date of initial issuance (9/27/96 and 12/31/96
respectively). The Preferred Stock was issued at $1,000 per share. Under
the terms of the Certificate of Designation for the Preferred Stock, the
Preferred Stock, together with any accrued but unpaid dividends, can be
converted into a number of shares of Common Stock equal to 85% of the
average closing bid price of the Common Stock on the three consecutive
trading days immediately preceding the conversion date, but in no event
less than $6.00 or more than $11.50. Dividends accrue at the rate of 7% per
annum. The Preferred Stock may only be converted and the Warrant may only
be exercised to the extent that neither GFL Advantage Fund Limited nor any
affiliate thereof would be deemed to hold more than 4.9% of the Company's
outstanding Common Stock as a result of such conversion or exercise.
4. Represents shares of Common Stock issued with 60 units. Each unit consists
of 10,000 shares of Common Stock and three Net Warrants. The units were
issued in exchange for $3,150,000.
5. Represents 464,286 shares of Common Stock issued upon conversion of 3,000
shares of Series G Convertible Preferred Stock (the "Preferred Stock") and
97,139 shares of Common Stock issuable pursuant to a Warrant at $12.00 per
share through 9/27/01. The warrant is exercisable on the date of initial
issuance (9/27/96). The Preferred Stock was issued at $1,000 per share.
Under the terms of the Certificate of Designation for the Preferred Stock,
the Preferred Stock, together with any accrued but unpaid dividends, can be
converted into a number of shares of Common Stock equal to 85% of the
average closing bid price of the Common Stock on the three consecutive
trading days immediately preceding the conversion date, but in no event
less than $6.00 or more than $8.00. Dividends accrue at the rate of 7% per
annum. The Preferred Stock may only be converted and the Warrant may only
be exercised to the extent that neither GFL Performance Fund Limited nor
any affiliate thereof would be deemed to hold more than 4.9% of the
Company's outstanding Common Stock as a result of such conversion or
exercise.
6. Represents shares of Common issuable upon conversion of $2,500,000
principal amount of 4.5% Convertible Subordinated Promissory Note dated
October 1996. The Note may be converted after seventy five (75) days from
issuance at a conversion price equal to 85% of the average trailing five
(5) day bid price. The conversion floor price is 80% of the average five
(5) day trailing bid price and the conversion ceiling price is 120% of the
average trailing five (5) day bid price. The conversion floor price shall
be eliminated if at any time after one hundred and twenty (120) days from
closing, any consecutive sixty (60) day bid price of the Company's common
stock is equal to or less than the Conversion Floor Price.
7. Represents shares of Common issuable upon conversion of $2,500,000
principal amount of 4.5% Convertible Subordinated Promissory Note dated
October 1996. The Note may be converted after seventy five (75) days from
issuance at a conversion price equal to 85% of the average trailing five
<PAGE>
(5) day bid price. The conversion floor price is 80% of the average five
(5) day trailing bid price and the conversion ceiling price is 120% of the
average trailing five (5) day bid price. The conversion floor price shall
be eliminated if at any time after one hundred and twenty (120) days from
closing, any consecutive sixty (60) day bid price of the Company's common
stock is equal to or less than the Conversion Floor Price.
8. Represents shares of Common Stock issued in exchange for CD Titles'
acquisition of rights to various compact disk titles.
9. Represents shares of Common Stock issued in exchange for the acquisition of
Dermascan.
10. Represents warrants underlying shares of Common Stock exercisable at $.60
per share through 7/9/97.
11. Represents shares of Common Stock issued in exchange for investment banking
services.
12. Represents warrants underlying shares of Common Stock exercisable at $5.00
per share through 1/17/99.
13. Represents shares of Common Stock issued or issuable due to a penalty for
late registration.
PLAN OF DISTRIBUTION
The 2,768,907 shares being registered herein for sale by the Selling
Stockholders consist of (i) 372,279 shares underlying stock purchase warrants
issued to certain persons and entities; (ii) 464,286 shares underlying Series G
Convertible Preferred Stock issued to GFL Performance Fund Limited; ; (iii)
464,286 shares underlying Series G Convertible Preferred Stock issued to GFL
Advantage Fund Limited; (iv) 750,000 shares issuable upon the conversion of
$5,000,000 principal amount of 4.5% Series Convertible Debentures due in equal
installments on October 17, 1999, October 17, 2000 and October 17, 2001; (v)
717,954 shares of Common Stock issued to certain persons and entities, and (vi)
102 shares of Common Stock issuable to a certain person.
The Selling Stockholders may sell the Common Stock registered in
connection with this Offering on the Nasdaq market system or otherwise. There
will be no charges or commissions paid to the Company by the Selling
Stockholders in connection with the issuance of the Shares. It is anticipated
that usual and customary brokerage fees will be paid by the Selling Stockholders
upon sale of the Common Stock offered hereby. The Company will pay the other
expenses of this Offering. The Shares may be sold from time to time by the
Selling Stockholders, or by pledges, donees, transferees or other successors in
interest. Such sales may be made on one or more exchanges or in the
over-the-counter market, or otherwise at prices and at terms then prevailing or
at prices related to the then current market price, or in negotiated
transactions. The Shares may be sold by one or more of the following methods:
(a) a block trade in which the broker so engaged will attempt to sell the Shares
as agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (c)
an exchange distribution in accordance with the rules of Nasdaq; and (d)
ordinary brokerage transactions. In effecting sales, brokers or dealers engaged
by the Selling Stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
Selling Stockholders in amounts to be negotiated prior to the sale. Such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters"
<PAGE>
within the meaning of the Securities Act in connection with such sales. In
addition, any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
Prospectus.
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including certain liabilities under the Securities Act, or
to contribute to payments which the Selling Stockholders will be required to
make in respect thereof.
EXPERTS
The audited financial statements incorporated by reference in this
Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein upon the authority of said
Firm as experts in giving said reports.
<PAGE>
LEGAL OPINIONS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by its General Counsel.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
Common Stock to be registered are estimated (except for the Securities and
Exchange Commission filing fee) below. All such expenses will be paid by the
Registrant.
Securities and Exchange Commission Filing Fee $6,370
Accounting Fees and Expenses 2,500
Legal Fees and Expenses 2,000
Blue Sky Filing Fees and Expenses 500
Printing and Mailing Costs 100
Transfer Agent Fees 500
Miscellaneous 500
-------
Total Expenses $12,470
=======
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders to eliminate or limit personal liability of
members of its Board of Directors for violations of a director's fiduciary duty
of care. However, the elimination or limitation shall not apply where there has
been a breach of the duty of loyalty, failure to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which was deemed illegal or obtaining an improper
personal benefit. The Company's Certificate of Incorporation includes the
following language:
"To the maximum extent permitted by Section 102(b)(7) of the General Corporation
Laws of Delaware, a director of this corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit."
Section 145 of the General Corporation Law of the State of Delaware
generally provides that a corporation may indemnify any director, officer,
employee or agent against expenses, judgments, fines and amounts paid in
settlement in connection with any action against him by reason of his being or
having been such a director, officer, employee or agent, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made, however, if he is adjudged liable for negligence or misconduct in the
performance of his duty to the corporation, unless a court determines that he is
nevertheless entitled to indemnification. If he is successful on the merits or
otherwise in defending the action, the corporation must indemnify him against
expenses actually and reasonably incurred by him. Article IX of the Company's
Bylaws provides indemnification as follows:
<PAGE>
Indemnification
SECTION 1. Actions, Etc. Other Than by or in the Right of the Corporation. The
Corporation shall, to the full extent legally permissible, indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including a grand jury proceeding, and all
appeals (but excluding any such action, suit or proceeding by or in the right of
the Corporation), by reason of the fact that such person is or was a director,
executive officer (as hereinafter defined) or advisory council member of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct in question was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that such person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that such person had reasonable cause to believe that the conduct in
question was unlawful. As used in this Article IX, an "executive officer" of the
Corporation is the president, treasurer, a vice president given the title of
executive vice president, or any officer designated as such pursuant to vote of
the Board of Directors.
SECTION 2. Actions. Etc. by or in the Right of the Corporation. The Corporation
shall, to the full extent legally permissible, indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit, including appeals, by or in the right of the
Corporation to procure a judgment in its favor, by reason of the fact that such
person is or was a director or executive officer of the Corporation as defined
in Section 1 of this Article, or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. Determination of Right of Indemnification. Any indemnification of a
director or officer (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that such
indemnification is proper in the circumstances because the director or executive
officer has met the applicable standard of conduct as set forth in Sections 1
and 2 hereof. Such a determination shall be reasonably and promptly made (i) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (ii) (if such a
quorum is not obtainable, or, even if obtainable if a quorum of disinterested
directors so directs) by independent legal counsel in a written opinion, or
(iii) by the stockholders.
<PAGE>
SECTION 4. Indemnification Against Expenses of Successful Party. Notwithstanding
any other provision of this Article, to the extent that a director or officer of
the Corporation has been successful in whole or in part on the merits or
otherwise, including the dismissal of an action without prejudice, in defense of
any action, suit or proceeding or in defense of any claim, issue or matter
therein, such person shall be indemnified against all expenses incurred in
connection therewith.
SECTION 5. Advances of Expenses. Expenses incurred by a director or officer in
any action, suit or proceeding shall be paid by the Corporation in advance of
the final disposition of thereof, if such person shall undertake to repay such
amount in the event that it is ultimately determined, as provided herein, that
such person is not entitled to indemnification. Notwithstanding the foregoing,
no advance shall be made by the Corporation if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum of
disinterested directors, or (ii) (if such a quorum is not obtainable or, even if
obtainable, if a quorum of disinterested directors so directs) by independent
legal counsel in a written opinion, that, based upon the facts known to the
Board of Directors or such counsel at the time such determination is made, such
person has not met the relevant standards set forth for indemnification in
Section 1 or 2, as the case may be.
SECTION 6. Right to Indemnification Upon Application: Procedure Upon
Application. Any indemnification or advance under Sections 1, 2, 4 or 5 of this
Article shall be made promptly, and in any event within ninety days, upon the
written request of the person seeking to be indemnified, unless a determination
is reasonably and promptly made by the Board of Directors that such person acted
in a manner set forth in such Sections so as to justify the Corporation's not
indemnifying such person or making such an advance. In the event no quorum of
disinterested directors is obtainable, the Board of Directors shall promptly
appoint independent legal counsel to decide whether the person acted in the
manner set forth in such Sections so as to justify the Corporation's not
indemnifying such person or making such an advance. The right to indemnification
or advances as granted by this Article shall be enforceable by such person in
any court of competent jurisdiction, if the Board of Directors or independent
legal counsel denies the claim therefor, in whole or in part, or if no
disposition of such claim is made within ninety days.
SECTION 7. Other Right and Remedies: Continuation of Rights. The indemnification
and advancement of expenses provided by this Article shall not be deemed
exclusive of any other rights to which any person seeking indemnification or
advancement of expenses may be entitled under any Bylaw, agreement, Vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware or otherwise, both as to action in such person's official
capacity and as to action in another capacity while holding such office. All
rights to indemnification or advancement under this Article shall be deemed to
be in the nature of contractual rights bargained for and enforceable by each
director and executive officer as defined in Section 1 of this Article who
serves in such capacity at any time while this Article and other relevant
provisions of the General Corporation Law of the State of Delaware and other
applicable laws, if any, are in effect. All right to indemnification under this
Article or advancement of expenses shall continue as to a person who has ceased
to be a director or executive officer, and shall inure to the benefit of the
heirs, executors and administrators of such a person. No repeal or modification
of this Article shall adversely affect any such rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. The Corporation shall also indemnify any
person for attorneys' fees, costs, and expenses in connection with the
successful enforcement of such person's rights under this Article.
<PAGE>
SECTION 8. Other Indemnities. The Board of Directors may, by general vote or by
vote pertaining to a specific officer, employee or agent, advisory council
member or class thereof, authorize indemnification of the Corporation's
employees and agents, in addition to those executive officers and to whatever
extent it may determine, which may be in the same manner and to the same extent
provided above.
SECTION 9. Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, advisory council member or agent of the
Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Article.
SECTION 10. Constituent Corporations. For the purposes of this Article,
reference to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors and officers so that any person who is or was a director or officer of
such a constituent corporation or is or was serving at the request of such
constituent corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
SECTION 11. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, executive officer,
advisory council member, and those employees and agents of the Corporation
granted indemnification pursuant to Section 3 hereof as to expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including a grand jury proceeding, and all appeals, and any
action by the Corporation, to the full extent permitted by any applicable
portion of this Article that shall not have been invalidated or by any other
applicable law.
SECTION 12. Other Enterprises. Fines. and Serving at Corporation's Request. For
purposes of this Article, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to any employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of any employee benefit plan
shall be deemed to have acted in a manner not opposed to the best interests of
the Corporation" as referred to in this Article.
<PAGE>
Item 16. EXHIBITS
The following documents have been previously filed as Exhibits
and are incorporated herein by reference except those exhibits indicated with an
asterisk which are filed herewith:
Exhibit No. Description
4(a) Restated Certificate of Incorporation, incorporated by
reference to Exhibit No. 10(rr) of the Company's Quarterly
Report on Form 10-QSB for its quarter ending June 30, 1996,
filed August 14, 1996.
4(b) Bylaws of the Registrant incorporated by reference to
Exhibit No. 3(b) of the Company's Amendment No. 8 to
Registration Statement on Form S-1 [Reg. No. 33-47479] filed
December 17, 1992.
4(c) Form of Common Stock Certificate incorporated by reference
to Exhibit No. 4(b) of the Company's Amendment No. 8 to
Registration Statement on Form S-1 [Reg. No. 33-47479] filed
December 17, 1992.
4(d) Certificate of Amendment to the Company's Restated
Certificate of Incorporation, as filed with the Delaware
Secretary of State on December 16, 1996 incorporated by
reference to Registration Statement on Form S-3/A-1 [Reg.
No. 333-18003] filed December 17, 1996.
5 * Opinion of General Counsel of Palomar regarding legality
of shares registered hereunder
23(a) * Consent of Arthur Andersen LLP, independent public
accountants
23(b) * Consent of General Counsel of Palomar (included in Exhibit
5)
Item 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the
<PAGE>
changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of the Registration Fee" table in
the effective registration statement.
(iii)To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs 2(a)(i) and 2(a)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference herein.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain at the
termination of the offering.
(2) The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of any employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of
such securities at that time be deemed to be the initial bona fide offering
thereof.
(3) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provision, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Beverly, Commonwealth of Massachusetts, on February
3, 1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Steven Georgiev
Steven Georgiev, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Steven Georgiev Chairman of the Board, Chief February 3, 1997
-------------------------------------- Executive Officer and Director
Steven Georgiev (Principal Executive Officer)
/s/ Dr. Michael H. Smotrich President, Chief Operating Officer, February 3, 1997
Dr. Michael H. Smotrich Director
/s/ Joseph P. Caruso Vice President, Chief Financial February 3, 1997
-------------------------------------- Officer, Treasurer (Principal
Joseph P. Caruso Financial and Accounting Officer)
/s/ Buster C. Glosson Director February 3, 1997
--------------------------------------
Buster Glosson
/s/ John M. Deutch Director February 3, 1997
--------------------------------------
John M. Deutch
/s/ John M. Deutch Director February 3, 1997
--------------------------------------
John M. Deutch
/s/ Louis P. Valenti Director February 3, 1997
--------------------------------------
Louis P. Valenti
</TABLE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made part of the registration
statement
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 29, 1997
February 3, 1997
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915
Gentlemen:
I am familiar with the Registration Statement on Form S-3 (the "S-3
Registration Statement") to which this opinion is an exhibit, to be filed by
Palomar Medical Technologies, Inc., a Delaware corporation (the "Company"), with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended. The S-3 Registration Statement relates to a total of 2,768,907 shares
(the "Shares") of the Company's Common Stock, $.01 par value per share ("Common
Stock"), issuable pursuant to certain common stock, warrants and preferred stock
issued to certain persons and entities.
In arriving at the opinion expressed below, I have examined and relied
on the following documents:
(1) the Certificate of Incorporation and By-Laws of the Company, each
as amended as of the date hereof; and
(2) the records of meetings and consents of the Board of Directors
and stockholders of the Company provided to me by the Company.
In addition, I have examined and relied on the originals or copies
certified or otherwise identified to my satisfaction of all such corporate
records of the Company and such other instruments and other certificates of
public officials, officers and representatives of the Company and such other
persons, and have made such investigations of law, as I have deemed appropriate
as a basis for the opinion expressed below.
Based upon the foregoing, it is my opinion that the Company has
corporate power adequate for the issuance of the Shares. The Company has taken
all necessary corporate action required to authorize the issuance and sale of
the Shares, and when certificates for the Shares have been duly executed and
countersigned and delivered, such shares will be legally issued, fully paid and
non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the S-3
Registration Statement.
Sincerely,
/s/ Sarah Burgess Reed
-------------------------------
Sarah Burgess Reed
General Counsel
Palomar Medical Technologies, Inc.
