As filed with the Securities and Exchange Commission on May 30, 1997
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
PALOMAR MEDICAL TECHNOLOGIES, INC.
(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 following box. [ ]
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 4,331,818(1) $3.375(2) $14,619,886(2) $4,430(2)
per share.
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
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(1) Consists of (i) 2,000,000 shares issuable upon conversion of
$5,500,000 principal amount of 5% Convertible Debentures due March 10,
2002; (ii) 2,181,818 shares underlying 6,000 shares of Series H
Convertible Preferred Stock; and (iii) 150,000 shares issuable upon
conversion of $400,000 principal amount of 4.5% Convertible Debentures
due on October 17, 1999, October 17, 2000, October 17, 2001, all of
which are exercisable at prices and terms described in the Selling
Stockholders and Plan of Distribution sections of the Prospectus.
(2) Estimated solely for purposes of calculation of the fee. The actual
number of shares of common stock issuable upon conversion of the
foregoing may be more or less than such estimate based on a variety of
factors, including the date of conversion and the price of the common
stock on such date. The fee is estimated pursuant to Rule 457(c) under
the Act on the basis of the average of the high and low sale prices
reported on the Nasdaq SmallCap Market on May 28, 1997.
Pursuant to Rule 416, there are also registered hereby such additional
indeterminate number of shares of such Common Stock as may become issuable as
dividends or to prevent dilution resulting from stock splits, stock dividends or
similar transactions or as the result of floating rate conversion mechanisms as
set forth in the terms of the debentures and preferred stock 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 May 30, 1997
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PROSPECTUS
PALOMAR MEDICAL TECHNOLOGIES, INC.
4,331,818 shares of Common Stock
consisting of:
2,000,000shares issuable upon conversion of $5,500,000 principal amount
of 5% Convertible Debentures; 2,181,818 shares underlying 6,000
shares of Series H Convertible Preferred Stock; and
150,000 shares issuable upon conversion of $400,000
of 4.5% Convertible Debentures
This Prospectus relates to 4,331,818 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) 2,000,000
shares issuable upon conversion of $5,500,000 principal amount of 5% Convertible
Debentures; (ii) 2,181,818 shares underlying 6,000 shares of Series H
Convertible Preferred Stock and 150,000 shares issuable upon conversion of
$400,000 of 4.5% Convertible Debentures, 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 May 29, 1997 was $3.375 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".
<TABLE>
<CAPTION>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Price to Public Underwriting Discounts and Proceeds to Issuer or
Commissions Other Persons
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Per Unit..................... $3.375(1) 0 0
Total......................... 14,619,886(1) 0 0
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
(1) Based on the closing bid price of the Company's common stock as
reported on the Nasdaq SmallCap Market on May 29, 1997.
(2) None, to the Company's knowledge.
(3) Less usual and customary brokerage fees.
The date of this Prospectus is ______________.
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No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in connection with the offer
contained in this Prospectus, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Company
or the Selling Stockholders. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, Room 1024 and at the public
reference facilities maintained by the Commission on the 14th Floor, 75 Park
Place, New York, New York 10007; Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661; and Suite 500 East, Securities and
Exchange Commission Building, 5757 Wilshire Boulevard, Los Angeles, California
90036. Copies can be obtained from the Commission at prescribed rates by writing
to the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
reports, proxy statements and similar information can also be inspected and
copied at the National Association of Securities Dealers, 1735 K Street, N.W.,
Washington, DC 20006-1500. In addition, the Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically, including the Company. The
Commission's Web site address is http://www.sec.gov. This prospectus, which
constitutes part of a Registration Statement filed by the Company with the
Commission under the Securities Act omits certain of the information contained
in the Registration Statement in accordance with the rules and regulations of
the Commission. Reference is hereby made to the Registration Statement and to
the Exhibits relating thereto for further information with respect to the
Company and the Securities offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such documents filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-KSB for its fiscal year ended
December 31, 1996 as amended by Form 10-KSB\A-1 filed April 16, 1997, Form
10-KSB/A-2 filed April 30, 1997, Form 10-KSB/A-3 filed May 28, 1997, the
Company's Quarterly Report on Form 10-Q for its quarter ending March 31, 1997
filed May 15, 1997, the Company's Form 8K filed with the Commission on May 16,
1996, as amended by Form 8K/A filed June 11, 1996, and the description of the
Company's Common Stock contained in its Registration Statement on Form 8 filed
with the Commission on June 6, 1992, as amended on Form 8A on December 17, 1992,
all of which have been previously filed with the Commission, are incorporated in
this Prospectus by reference. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the termination of the offering made hereby are also incorporated by
reference herein and made a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated by reference
herein is modified or superseded for all purposes to the extent that a statement
contained in this Prospectus or in any other subsequently filed document which
is incorporated by reference modifies or replaces such statement. The Company
will 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].
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus or incorporated
herein by reference and the financial statements which are incorporated herein
by reference.
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<S> <C>
THE COMPANY........................................ Palomar Medical Technologies, Inc. (the "Company") has three
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business segments: cosmetic dermatological laser products,
laser services and electronic products. The cosmetic laser
products are under various stages of development and
clinical trials. (See 10-KSB/A-3 "Item 1. Description of
Business.") The Company derives 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................................. 4,331,818 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>
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RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
SHOULD NOT BE MADE BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. IN CONNECTION WITH THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY IS HEREBY IDENTIFYING
IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED IN FORWARD-LOOKING STATEMENTS OF THE COMPANY
MADE BY OR ON BEHALF OF THE COMPANY. THE COMPANY ADVISES READERS NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS IN LIGHT OF THE RISKS AND
UNCERTAINTIES TO WHICH THEY ARE SUBJECT. THE FOLLOWING FACTORS SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS.
SUBSTANTIAL AND CONTINUING LOSSES. The Company incurred a net loss of
$37,863,792 for the year ended December 31, 1996 and a net loss of $15,365,145
for the quarter ended March 31, 1997. Losses of this magnitude are expected to
continue for the near term, and there can be no assurance that the Company will
achieve profitable operations or that profitable operations will be sustained if
achieved. At December 31, 1996, the Company's accumulated deficit was
$64,971,200 and at March 31, 1997, the Company's accumulated deficit was
$80,631,341. Dynaco Corp. ("Dynaco"), Star Medical Technologies, Inc. ("Star"),
CD Titles, Inc. ("CD Titles"), Dynamem, Inc. ("Dynamem"), Comtel Electronics,
Inc. ("Comtel"). Tissue Technologies, Inc. ("Tissue"), Spectrum Technologies,
Inc. ("Spectrum") and Nexar Technologies, Inc. ("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, expand its current electronics business, execute its acquisition
business plan and fund ongoing operations. The Company anticipates that it will
require substantial additional financing during the next twelve-month period.
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 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. (See December 31, 1996 Form 10-KSB/A-3
"Item 1. Description of Business" and Note 1 to Financial Statements, December
31, 1996 Form 10-KSB "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations"; March 31, 1997 Form 10-Q Part I "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.")
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
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a new business enterprise. The likelihood of success of the Company must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the establishment of a new
business and development of new technologies in the cosmetic laser products and
electronic products industries. These include, but are not limited to,
government regulation, competition, the need to expand manufacturing
capabilities and market expertise, and setbacks in production, product
development, market acceptance and sales and marketing. The Company's prospects
could be significantly affected by its ability to subsequently manage and
integrate the operations of several distinct businesses with diverse products,
services and customer bases in order to achieve cost efficiencies. There can be
no assurance that the Company will be able to successfully manage and integrate
the operations of newly acquired businesses into its operations or that the
failure to do so will not increase the costs inherent in the establishment of
new business enterprises. (See December 31, 1996 Form 10-KSB/A-3 "Item 1.
Description of Business" and Note 1 to Financial Statements.)
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. Promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory approvals.
Acquisitions may result in the incurrence of additional debt, the write-off of
in-process research and development or technology acquisition and development
costs and the amortization of expenses related to goodwill and other intangible
assets, any of which could have a material adverse effect on the Company's
business, financial condition, results of operations and cash flow. Acquisitions
involve numerous additional risks, including difficulties in the assimilation of
the operations, services, products and personnel of the acquired company, the
diversion of management's attention from other business concerns, entering
markets in which the Company has little or no direct prior experience and the
potential loss of key employees of the acquired company. In order to finance
acquisitions, it may be necessary for the Company to raise additional funds
through public or private financings. Any equity or debt financing, if available
at all, may be on terms which are not favorable to the Company and, in the case
of equity financing, may result in dilution to the Company's stockholders. (See
December 31, 1996 Form 10-KSB/A-3 "Item 1. Description of Business" and Note 1
to Financial Statements.)
NEW VENTURES. The Company's Cosmetic Technology International, Inc. ("CTI")
subsidiary 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," and December 31, 1996 Form 10-KSB/A-3 "Item 1.
Description of Business.")
INVESTMENTS IN UNRELATED BUSINESSES. The Company has investments in
marketable and non-marketable securities and loans to related and unrelated
parties, including approximately $8 million invested in equity securities of
high-tech companies, both public and privately held. The amount that the Company
may ultimately realize from these investments could differ materially from the
value of these investments recorded in the Company's financial statements, and
the ultimate disposition of these investments could result in a loss to the
Company. (See December 31, 1996 Form 10-KSB "Item 6. Management's Discussion and
Analysis of Financial Condition and Results of Operations," and Notes 2 and 11
to Financial Statements; December 31, 1996 Form 10-KSB/A-2 "Item 12. Certain
Relationships and Related Transactions"; March 31, 1997 Form 10-Q Notes 3 and 10
to Financial Statements and Part I "Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.")
MANAGEMENT OF GROWTH. In light of management's views of the potential for
future growth, the Company has adopted an aggressive growth plan that includes
substantial investments in its sales, marketing, production and distribution
organizations, the creation of new research and development programs and
increased funding of existing programs, and investments in corporate
infrastructure that will be required to support significant growth. This plan
carries with it a number of risks, including a higher level of operating
expenses, the difficulty of attracting and
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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. (See December 31, 1996 Form 10-KSB/A-3
"Item 1. Description of Business.")
HIGHLY COMPETITIVE INDUSTRIES. The cosmetic laser and electronics
industries are characterized by intense competition. The cosmetic laser industry
is highly competitive and is characterized by the frequent introduction of new
products. The Company competes in the development, manufacture, marketing and
servicing of laser technology products with numerous other companies, certain of
which have substantially greater financial, marketing and other resources than
the Company. In addition, the Company's cosmetic laser products face competition
from alternative medical products and procedures, such as dermabrasion, chemical
peels, pharmaceutical treatment, electrolysis, waxing and surgery, among others.
There can be no assurance that the Company will be able to differentiate its
products from the products of its competitors or that the marketplace will
consider the Company's products to be superior to competing products or medical
procedures. There can be no assurance that competitors will not develop products
or that new technologies will not be developed that render the Company's
products obsolete or less competitive. (See "Technological Obsolescence.") In
addition, in entering areas of business in which it has little or no experience,
such as the opening of laser treatment centers, the Company may not be able to
compete successfully with competitors that are more established in such areas.
(See "New Ventures.")
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.
(See December 31, 1996 Form 10-KSB/A-3 "Item 1. Description of Business.")
FLUCTUATIONS IN QUARTERLY PERFORMANCE. The Company's results of operations
have fluctuated substantially and can be expected to continue to vary
significantly. The Company's quarterly operating results depend on a number of
factors, including the timing of the introduction or acceptance of new products
offered by the Company or its competitors, changes in the mix of products sold
by the Company, changes in regulations affecting the cosmetic laser products or
electronics industry, changes in the Company's operating expenses, personnel
changes and general economic conditions.
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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 Company's common stock. The price of the Company's
common stock may also be affected by broader market trends unrelated to the
Company's performance. (See "Volatility of Share Price;" December 31, 1996 Form
10-KSB "Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations; March 31, 1997 Form 10-Q "Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations.")
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 Company's common
stock. 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
Company's common stock 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. (See December 31, 1996 Form 10-KSB/A-3 "Item 1. Description of
Business - Government Regulation.")
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-switched Ruby laser, the Tru-Pulse laser and the Epilaser
system. The Company's diode laser has not yet received FDA clearance, and is
currently under an Investigative Device Exemption.
The Company is also investigating other applications in dermatology for its
laser systems. It will be required to obtain FDA clearance before commercially
marketing any other application. The Company believes that it will be able to
seek such clearance under the 510(k) application process; however, no assurance
can be given that the FDA will not require the Company to follow the more
extensive and time-consuming Pre-Market Approval ("PMA") process. FDA review of
a 510(k) application currently averages about seven to twelve months and
requires limited clinical data based on "substantial equivalence" to a product
marketed prior to 1976, while a PMA review can last for several years and
require substantially more clinical data.
The FDA also imposes various requirements on manufacturers and sellers of
products under its jurisdiction, such as labeling, good manufacturing practices,
record keeping and reporting requirements. The FDA also may require post-market
testing and surveillance programs to monitor a product's effects. There can be
no assurance that the appropriate clearances from the FDA will be granted, that
the process to obtain such clearances will not be excessively expensive or
lengthy or that the Company will have sufficient funds to pursue such
clearances.
No assurance can be given that FDA approval will be obtained for the
Company's current or proposed laser products on a timely basis, if at all. The
laser products segment of the Company's business, is, and will continue to be,
critically dependent upon FDA approval of its current and proposed cosmetic
laser products. Delays or failure to obtain such approval would have a material
adverse effect on the Company.
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OTHER GOVERNMENT APPROVALS FOR LASER PRODUCTS; GOOD MANUFACTURING
PRACTICES. In order to be sold outside the United States, the Company's products
are subject to FDA permit requirements that are conditioned upon clearance by
the importing country's appropriate regulatory authorities. Many countries also
require that imported products comply with their own or international electrical
and safety standards. Additional approvals may be required in other countries.
The Company's Tru-pulse laser has received the CE Mark pursuant to the European
Medical Device Directive which allows that laser to be sold in all countries
that recognize the CE Mark, including the countries that comprise the European
Community. The Company is currently seeking to obtain the CE Mark registration
for its Epilaser. 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 certification for one
of the Company's products expires in late 1998, and, for the other certified
product, in early 1999. The Company is subject to periodic audit and review from
U.S. government agencies to ensure compliance under criteria set forth by these
agencies. The Company has passed all government audits. Failure to meet or
exceed criteria set forth could result in a suspension or disqualification of
certain certifications. Such suspension or disqualification could have a
material adverse effect on the Company.
One customer of Nexar, Government Technology Services, Inc. (GTSI), a
leading supplier of desktop systems to United States government agencies,
accounted for a majority of Nexar's revenues. The Company expects that GTSI will
continue to be an important customer, and that while sales to GTSI will
increase, such sales 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.
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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. (See December 31, 1996 Form
10-KSB/A-3 "Item 1. Description of Business.")
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. (See December 31, 1996 Form 10-KSB/A-3 "Item 1. Description of
Business" and December 31, 1996 Form 10-KSB Note 6 to Financial Statements.)
TECHNOLOGICAL OBSOLESCENCE. The markets for the Company's products are
characterized by rapid and significant technological change, evolving industry
standards and frequent new product introductions and enhancements. Many of the
Company's products and products under development are technologically
innovative, and require significant planning, design, development and testing,
at the technological, product and manufacturing process levels. These activities
require significant capital commitments and investment by the Company. The
Company's failure to develop products in a timely manner in response to changes
in the industry, whether for financial, technological or other reasons, will
have a material adverse effect on the Company's business, financial condition
and results of operations.
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. Nor can there be any assurance
that any of the products currently being developed by the Company, or those to
be developed in the future, will be technologically feasible or accepted by the
marketplace, that any such development will be completed in any
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particular time frame, or that the Company's products or proprietary
technologies will not become uncompetitive or obsolete. (See December 31, 1996
Form 10-KSB/A-3 "Item 1. Description of Business.")
LACK OF PATENT PROTECTION. The Company currently holds several patents and
intends to pursue various additional avenues that it deems appropriate to
protect its technology. There can be no assurance, however, that the Company
will file any additional patent applications or that any patent applications
that have been, or may be, filed will result in issued patents, or that any
patent, patent application, know-how, license or cross-license will afford any
protection or benefit to the Company.
The cosmetic laser device market has been characterized by substantial
litigation regarding patent and other intellectual property rights. One of the
Company's competitors in the cosmetic laser business has filed suit against the
Company alleging patent infringement, among other things. In both the cosmetic
laser products and the electronic products segments, litigation, which could
result in substantial cost to and diversion of effort by the Company, may be
necessary to protect trade secrets or know-how owned by or licensed to the
Company or to determine the enforceability, scope and validity of the
proprietary rights of others. Adverse determination in litigation or
interference proceedings could subject the Company to significant liabilities to
third parties, require the Company to seek licenses from third parties and could
prevent the Company from manufacturing and selling its products, all of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. (See "Risk Associated with Pending
Litigation"; December 31, 1996 Form 10-KSB/A-3 "Item 1. Description of
Business"; December 31, 1996 Form 10-KSB "Item 3. Legal Proceedings;" March 31,
1997 10-Q, Part II "Item 1. Legal Proceedings.")
POSSIBLE PATENT INFRINGEMENTS. In the medical products segment, the Company
is aware of patents relating to laser technologies used in certain applications.
The Company intends to pursue such laser technologies in the future; hence, if
the patents relating to those technologies are valid and enforceable, they may
be infringed by the Company. 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. One of the Company's
competitors in the cosmetic laser business has filed suit against the Company
alleging patent infringement, among other things. In the electronic products
segment, the Company has not been notified that it is currently infringing on
any patents nor has it been the subject of any patent infringement action. No
assurance can be given that infringement claims will not be made or that the
Company would prevail in any legal action with respect thereto. Defense of a
claim of infringement would be costly and could have a material adverse effect
on the Company's business, even if the Company were to prevail.
DEPENDENCE ON PROPRIETARY RIGHTS. The Company relies on trade secrets and
proprietary know-how which it seeks to protect, in part, by confidentiality
agreements with its collaborators, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or be independently developed by competitors.
NEED FOR ADDITIONAL QUALIFIED PERSONNEL/DEPENDENCE ON KEY PERSONNEL. The
Company's ability to develop, manufacture and market all of its products, and to
attain a competitive position within the laser products and electronics
industries, will depend, in large part, on its ability to attract and retain
qualified personnel. Competition for qualified personnel in these industries is
intense and the Company will be required to compete for such personnel with
companies which may have greater financial and other resources; there can be no
assurance that the Company will be successful in attracting, assimilating and
retaining the personnel it requires to grow and operate profitably. The
Company's inability to attract and retain such personnel could have a material
adverse effect upon its business. (See "Management of Growth.")
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.
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The Company is dependent on various sales representatives and distributors
to market and sell its medical products. The Company is in the process of
expanding its direct sales force to ensure that it satisfactorily masters and
controls the expected growth of its medical product sales. (See December 31,
1996 Form 10-KSB/A-3 "Item 1. Description of Business.")
ISSUANCE OF PREFERRED STOCK AND DEBENTURES COULD AFFECT RIGHTS OF COMMON
SHAREHOLDERS. The Company is authorized to issue up to 5 million shares of
Preferred Stock, $.01 par value. The Preferred Stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. In July 1996, the Company issued 6,000 shares of
Series F Convertible Preferred Stock at a price of $1,000 per share. In
September 1996, the Company issued 10,000 shares of Series G Preferred Stock at
a price of $1,000 per share. As of May 29, 1997, 2,316 shares were converted
into 362,824 shares of common stock. In March 1997, the Company issued 6,000
shares of Series H Convertible Preferred Stock at a price of $1,000 per share.
In May 1997, the Company issued 10,000 shares of Series H Convertible Preferred
Stock at a price of $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 February 1997, 300 units
were redeemed by the Company for an aggregate price of $195,044. In October
1996, the Company issued $5,000,000 in 4.5% Convertible Subordinated Promissory
Notes. As of May 29, 1997, $3,300,000 principal amount was converted into
686,604 shares of common stock. In December 1996 and January 1997, the Company
issued a total of $6,000,000 in 5% Convertible Debentures. Also, In March 1997,
the Company issued $5,500,000 in 5% Convertible Debentures. In March 1997, the
Company issued $500,000 in 6% Convertible Debentures. The issuance of any such
additional Preferred Stock or Debentures could affect the rights of the holders
of Shares, and could reduce the market price of the Shares. In particular,
specific rights granted to future holders of Preferred Stock or Debentures could
be used to restrict the Company's ability to merge with or sell its assets to a
third party, thereby preserving control of the Company by the existing control
group. (See December 31, 1996 Form 10-KSB/A-3 "Item 1. Description of Business,"
and "Item 5. Market for Common Equity and Related Stockholder Matters," December
31, 1996 Form 10-KSB Notes 4 and 5 to Financial Statements; March 31, 1997 Form
10-Q, Part II, "Item 2. Changes in Securities" and Note 9 to Financial
Statements.)
ISSUANCE OF RESERVED SHARES; REGISTRATION RIGHTS. As of May 29, 1997, the
Company had 32,873,137 Shares of Common Stock outstanding. The Company has
reserved an additional 26,540,817 Shares for issuance as follows: (1) 3,897,500
Shares for issuance to key employees, officers, directors, consultants and
advisors pursuant to the Company's Stock Option Plans; (2) 212,690 Shares for
issuance to employees, officers and directors pursuant to the Company's 401(k)
Plan; (3) 997,586 Shares for issuance pursuant to the Company's Employee Stock
Purchase Plan; (4) 9,377,940 Shares for issuance upon exercise of three-, four-
five- and seven-year Warrants issued to certain lenders, investors, consultants,
directors and officers (a portion of which are subject to certain antidilutive
adjustments); (5) 600,000 Shares for issuance upon conversion of the 6,000
shares of Series F Preferred Stock; (6) 1,337,176 Shares for issuance upon
conversion of the 7,684 shares of Series G Preferred Stock (7) 840,892 Shares
for issuance upon conversion of the debentures sold in the Swiss
Franc-Denominated Offering; (8) 213,396 Shares for issuance upon conversion of
$1,700,000 principal amount of a 4.5% Convertible Subordinated Promissory Note;
(9) 1,200,000 Shares for issuance upon conversion of $6,000,000 principal amount
of a 5% Convertible Debentures; (10) 2,000,000 Shares for issuance upon
conversion of $5,500,000 principal amount of a 5% Convertible Debenture; (11)
45,455 Shares for issuance upon conversion of $500,000 6% Convertible Debentures
and (12) 5,818,182 Shares for issuance upon conversion of the 16,000 shares of
Series H Preferred. 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,
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there can be no assurance that it will not experience such losses in the future.
The Company maintains general liability insurance in the amount of $1,000,000
per occurrence and $2,000,000 in the aggregate and maintains umbrella coverage
in the aggregate amount of $25,000,000; however, there can be no assurance that
such coverage will continue to be available on terms acceptable to the Company
or that such coverage will be adequate for liabilities actually incurred. In the
event the Company is found liable for damages in excess of the limits of its
insurance coverage, or if any claim or product recall results in significant
adverse publicity against the Company, the Company's business, financial
condition and results of operations could be materially and adversely affected.
In addition, although the Company's products have been and will continue to be
designed to operate in a safe manner, and although the Company attempts to
educate medical personnel with respect to the proper use of its products, misuse
of the Company's products by medical personnel over whom the Company cannot
exert control may result in the filing of product liability claims or
significant adverse publicity against the Company.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. As part of its business
strategy, the Company intends to seek opportunities to expand its product and
service offerings into international markets. In marketing its products and
services internationally, the Company will likely face new competitors. There
can be no assurance that the Company will be successful in marketing or
distributing products and services in these markets or that its international
revenue will be adequate to offset the expense of establishing and maintaining
international operations. The Company's international business may be adversely
affected by changing economic conditions in foreign countries. The majority of
the Company's sales are currently denominated in U.S. dollars, but there can be
no assurance that a significantly higher level of future sales will not be
denominated in foreign currencies. To the extent the Company makes sales
denominated in currencies other than U.S. dollars, gains and losses on the
conversion of those sales to U.S. dollars may contribute to fluctuations in the
Company's business, financial condition and results of operations. In addition,
fluctuations in exchange rates could affect demand for the Company's products
and services. Conducting an international business inherently involves a number
of other difficulties and risks, such as export restrictions, export controls
relating to technology, compliance with existing and changing regulatory
requirements, tariffs and other trade barriers, difficulties in staffing and
managing international operations, longer payment cycles, problems in collecting
accounts receivable, political instability, seasonal reductions in business
activity in Europe and certain other parts of the world during the summer
months, and potentially adverse tax consequences. There can be no assurance that
one or more of these factors will not have a material adverse effect on any
international operations established by the Company and, consequently, on the
Company's business, financial condition and results of operations.
The Company plans to expand its business into international markets and has
set up a manufacturing and distribution center in Hull, England. To date, the
Company has minimal experience in marketing and distributing its products
internationally and plans to establish alliances with sales representative
organizations and resellers with particular experience in international markets.
Accordingly, the Company's success in international markets will be
substantially dependent upon the skill and expertise of such international
participants in marketing the Company's products. There can be no assurance that
the Company will be able to successfully market, sell and deliver its products
in these markets. In addition, there are certain risks inherent in doing
business in international markets, such as unexpected changes in regulatory
requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, management's lack of
international expertise, political instability and fluctuations in currency
exchange rates and potentially adverse tax consequences, which could adversely
impact the success of the Company's international operations. There can be no
assurance that one or more of such factors will not have a material adverse
effect on the Company's future international operations and, consequently, on
the company's business, financial condition or operating results. (See December
31, 1996 Form 10-KSB/A-3 "Item 1. Description of Business.")
NEED FOR CONTINUED PRODUCT DEVELOPMENT. Although the Company received FDA
clearance in February 1997 to commercially market its Tru-Pulse(R) laser for
wrinkle treatment, and in March 1997 to commercially market its Epilaser(TM) for
hair removal, the Company is continuing its development of both products. The
Company is continuing to study both laser systems to optimize performance and
treatment parameters.
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
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Company has a written agreement with DuPont under which DuPont will supply the
Company with all of its requirements for Pyralux, there can be no assurance that
the Company will be able to obtain a sufficient supply of Pyralux to fulfill
orders for its products in a timely manner, if at all.
In addition, CO2 laser tubes, an integral component of Tissue's Tru-Pulse
Laser system, are manufactured exclusively by Pulse Systems, Inc. There can be
no assurance that the Company will be able to obtain sufficient supply of CO2
laser tubes to fulfill orders for its products in a timely manner, if at all.
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. (See
December 31, 1996 Form 10-KSB/A-3 "Item 1. Description of Business.")
DEPENDENCE ON SUBSTANTIAL CUSTOMERS. In the year ended December 31, 1996,
one customer of Nexar, Government Technology Services, Inc. ("GTSI), a leading
supplier of desktop systems to United States government agencies, accounted for
17.5% of the Company's revenues and 23.2% of the Company's accounts receivable
balance. In the quarter ended March 31, 1997, GTSI accounted for 9.0% of the
Company's revenues and 9.4% of the Company's accounts receivable balance. 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. Nexar has entered into an agreement with GTSI pursuant to which GTSI
serves as the Company's exclusive federal reseller with respect to Government
Services Administration (GSA) scheduled purchases, provided that GTSI purchases
at least $35 million of Nexar's products in 1997. GTSI is under no obligation,
however, to purchase any products of Nexar. If GTSI makes fewer purchases in
1997 than the Company anticipates, that would have a material adverse effect on
the Company.
In the year ended December 31, 1996, one customer of Comtel, New Media,
Inc. ("New Media"), a related party, accounted for 22.3% of the Company's
revenues and 26.7% of the Company's accounts receivable balance. In the quarter
ended March 31, 1997, New Media accounted for 11.6% of the Company's revenues
and 18.3% of the Company's accounts receivable balance. 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. 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. Palomar also received a
warrant to purchase 200,000 shares of common stock in New Media at $1.20 per
share. In February 1997, the note receivable was converted into equity and the
Company invested an additional $1,200,000 in New Media. 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. New Media has had a history of losses. There can be no assurance that New
Media will achieve profitable operations or that profitable operations will be
sustained if achieved.
A loss from either customer could have a material, adverse effect on the
Company's business in the short term. (See December 31, 1996 Form 10-KSB/A-3
"Item 1. Description of Business" and December 31, 1996 Form 10-KSB Note 2 to
Financial Statements.)
HAZARDOUS SUBSTANCE AND ENVIRONMENTAL CONCERNS; LACK OF ENVIRONMENTAL
IMPAIRMENT INSURANCE. The manufacture of substrate interconnect products
involves numerous chemical solvents and other solid, chemical and hazardous
wastes and materials. 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
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believes that it operates its Dynaco facilities in substantial compliance with
existing environmental laws and regulations. In June 1989 and April 1994, Dynaco
conducted environmental studies of its Tempe, Arizona substrate manufacturing
facility and did not discover any contamination requiring remediation. Failure
to comply with proper hazardous substance handling procedures or violation of
environmental laws and regulations would have a material adverse effect on the
Company. (See December 31, 1996 Form 10-KSB/A-3 "Item 1. Description of
Business.")
SIGNIFICANT OUTSTANDING INDEBTEDNESS; SUBORDINATION OF DEBENTURES. The
Company has incurred substantial indebtedness in relation to its equity capital
and will be subject to all of the risks associated with substantial leverage,
including the risk that available cash may not be adequate to make required
payments to the holders of the Company's debentures. The Company's ability to
satisfy its obligations under the debentures from cash flow will be dependent
upon the Company's future performance and will be subject to financial, business
and other factors affecting the operation of the Company, many of which may be
beyond the Company's control. In the event the Company does not have sufficient
cash resources to satisfy quarterly interest or other repayment obligations to
the holders of the debentures, the Company will be in default under the
debentures, which would have a material adverse effect on the Company. To the
extent that the Company is required to use cash resources to satisfy interest
payments to the holders of the debentures, it will have less resources available
for other purposes. Inability of the Company to repay the debentures upon
maturity would have a material adverse effect on the Company, which could result
in a reduction of the price of the Company's Shares. The debentures will be
unsecured and subordinate in right of payment to all senior indebtedness of the
Company. The debentures do not restrict the Company's ability to incur
additional senior indebtedness and most other indebtedness. The terms of senior
indebtedness now existing or incurred in the future could affect the Company's
ability to make payments of principal and/or interest to the holders of
debentures. (See December 31, 1996 Form 10-KSB/A-3 "Item 5. Market for Common
Equity and Related Shareholder Matters" ; March 31, 1997 Form 10-Q, Part II
"Item 2. Changes in Securities" and Note 8 to Financial Statements.
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 and its subsidiaries
are involved in disputes with third parties. Such disputes have resulted in
litigation with such parties and, although the Company is a plaintiff in several
matters, the Company is subject to claims and counterclaims for damages and has
incurred, and likely will continue to incur, legal expenses in connection with
such matters. There can be no assurance that such litigation will result in
favorable outcomes for the Company. The Company is unable to determine the total
expense or possible loss, if any, that may ultimately be incurred in the
resolution of these proceedings. These matters may result in diversion of
management time and effort from the operations of the business. After
consideration of the nature of the claims and the facts relating to these
proceedings, the Company believes that the resolution of these proceedings will
not have a material effect on the Company's business, financial condition and
results of operations; however, the results of these proceedings, including any
potential settlements, are uncertain and there can be no assurance to that
effect.
16
<PAGE>
On October 7, 1996 the Company filed a declaratory judgment action against
MEHL/Biophile ("MEHL") in the United States District Court of the District of
Massachusetts seeking (i) a declaration that MEHL is without right or authority
to threaten or maintain suit against the Company or its customers for alleged
infringement of the patent held by MEHL's subsidiary Selvac Acquisitions Corp.
("Selvac" and the "Selvac Patent"), that the Selvac Patent is invalid, void and
unenforceable, and that the Company does not infringe the Selvac patent; (ii) a
preliminary and permanent injunction enjoining MEHL from threatening the Company
or its customers with infringement litigation or infringement; and (iii) an
award to the Company of damages suffered in connection with MEHL's conduct. On
March 7, 1997, Selvac filed a complaint for injunctive relief and damages for
patent infringement and for unfair competition against the Company, its Spectrum
Medical Technologies and Spectrum Financial Services subsidiaries, and a New
Jersey dermatologist, in the United States District Court for the District of
New Jersey. Selvac's complaint alleges that the Company's EpiLaser infringes the
Selvac Patent and that the Company unfairly competed by promoting the EpiLaser
or hair removal before it had received FDA approval for that specific
application. The Company and Selvac have agreed to dismiss the Massachusetts
litigation without prejudice. Palomar has brought in the New Jersey action its
claims that the Selvac patent is invalid, that the Company has not infringed the
Selvac patent, that MEHL should be enjoined from making further assertions
concerning infringement and unfair competition, and that the Company should be
awarded attorney fees and other appropriate relief. Thus, both the Company's and
MEHL's claims will be tried on the merits in New Jersey. As of May 23, 1997,
discovery had not yet commenced. The extent of exposure of the Company cannot be
determined at this time.
The Company is a defendant in a lawsuit filed by Commonwealth Associates
("Commonwealth") on March 14, 1996 in the United States District Court for the
Southern District of New York. In its suit, Commonwealth alleges that the
Company breached a contract with Commonwealth in which Commonwealth was to
provide certain investment banking services in return for certain compensation.
In January 1997, Commonwealth's motion for summary judgment on its breach of
contract claim was granted. Commonwealth has alleged that it suffered up to
$3,381,250 in damages on its breach of contract claim, exclusive of interest. A
ruling on Commonwealth's damages claim is pending. The Company intends to appeal
the matter after damages have been determined, and believes its grounds for
appeal are meritorious. (See March 31, 1997 Form 10-Q "Part II, Item 1. Legal
Proceedings.")
17
<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-switched 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. (See December 31, 1996 Form 10-KSB/A-3 "Item 1. Description
of Business--Medical Products and Lasers in Medicine; Future 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.
In late 1996, Cosmetic Technology International, Inc. ("CTI") was formed as
a wholly-owned subsidiary of the Company. CTI is a services company which
intends to establish a worldwide network of cosmetic dermatological laser and
medical device sites with medical services partners (both fixed and mobile) in
key geographic locations. Each site will be provided a turnkey package of laser
and medical device technology, equipment, training and service, operations
personnel, strategic advertising and marketing programs, patient financial
credit programs and management assistance. In early 1997, a binding letter of
intent was completed with Columbia/HCA, a $20 billion company and one of the
world's largest owners and operators of medical facilities, to establish revenue
sharing sites throughout the country in existing Columbia/HCA facilities. During
1996 the operations of CTI were not significant.
In February 1997, Palomar Medical Products, Inc. ("Palomar Medical
Products") was formed as a wholly-owned subsidiary with the purpose of
consolidating the management and operations of the medical products companies.
In January 1997, the Company named an outside party as the President and CEO of
Palomar Medical Products to oversee and manage the operations. Included in the
medical products group are the following companies, all of which remain as
wholly-owned subsidiaries of the Company: Spectrum Medical Technologies, Inc.,
Tissue Technologies, Inc., Star Medical Technologies, Inc., Dermascan, Inc.
In the electronic products segment, the Company's Nexar Technologies, Inc.
subsidiary manufactures, markets and sells personal computers with a unique
circuit board design that enables end users to easily upgrade and replace the
microprocessor, memory and hard drive components, which management believes will
decrease the level of technical obsolescence associated with most desktop
personal computers in the market. Dynaco Corp. manufactures high density,
flexible electronic circuitry for use in industrial, military and medical
devices and is also introducing a number of proprietary products targeted to
service the personal computer industry, including high density memory modules.
These new proprietary computer memory modules double the memory capacity of
traditional memory modules using the same interface. Comtel Electronics is a
contract manufacturer which provides turnkey manufacturing and test services of
electronic assemblies.
The Company 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.
The Company's near-term strategy is to increase its focus on the medical
segment portion of the business. The Company intends to spin out companies in
the non-core electronics segment in the form of publicly traded companies. In
September 1995, the Company established Palomar Electronics Corporation, a
wholly-owned subsidiary, as part of its ongoing plan to separate the electronics
segment from the cosmetics segment. On April 9,
18
<PAGE>
the Company's subsidiary, Nexar, completed an initial public offering of its
common stock. Nexar sold 2,500,000 shares of its common stock for its own
account at $9.00 per share and received new proceeds of approximately
$20,300,000. (See December 31, 1996 Form 10-KSB/A-3 "Item 1. Description of
Business.) On April 30, 1997, the Company entered into an agreement with a
former Director and the President of CD Titles whereby the Company would sell
all of the issued and outstanding common stock of CD Titles to these two
individuals for a promissory note of $600,000 due April 30, 1999. In addition,
the Company also received a warrant to purchase 750,000 shares of CD Titles
common stock at various exercise prices ranging from $6.00-$10.00.
The Company will continue to develop, acquire or license technologies that
can be integrated into its current and proposed products in the medical business
segment. Through its CTI subsidiary, the Company will also focus on the services
segment of the business. The Company intends to address very large markets
incorporating its core technology with proprietary products and services and
structure its operations to strive to be the low-cost producer and provider of
these products and services. The Company intends to seek agreements or
arrangements with other medical products and high technology companies in order
to acquire technical and financial assistance in the research and development of
such products and in the extensive experimentation and testing required to
obtain regulatory approvals in the United States and elsewhere. The Company will
continue to seek marketing and distribution agreements with established
companies to enable it to market some of its products quickly and more
efficiently and will also utilize and enhance a direct sales force.
USE OF PROCEEDS
The Company will receive no part of the proceeds from the sale of any of
the Shares by the Selling Stockholders.
19
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of shares of Common Stock by the Selling Stockholders as of the date
of this Prospectus and the number of such shares included for sale in this
Prospectus assuming the sale of all Shares being offered by this Prospectus. The
number of shares included in the Registration Statement of which this Prospectus
is a part and available for resale (i) is based, in part, upon an estimate of
the number of shares underlying the debentures and preferred stock utilizing a
hypothetical conversion price of $2.750 for the 5% debenture and for the Series
H Preferred Stock and $2.67 for the 4.5% debenture, (ii) is subject to
adjustment and (iii) could be materially more or less than such estimated amount
depending on factors which cannot be predicted by the Company at this time,
including, among others, the future market price of the Company's Common Stock.
The use of such hypothetical prices is not intended, and should in no way be
construed, to constitute a prediction as to the future market price of the
Company's Common Stock. To the best of the Company's knowledge, except as stated
in this Prospectus, the Selling Stockholders have not held any office or
maintained any material relationship with the Company or any of its predecessors
or affiliates over the past three years. The Selling Stockholders reserve the
right to reduce the number of shares offered for sale or to otherwise decline to
sell any or all of the Shares registered hereunder.
<TABLE>
<CAPTION>
Shares Shares Shares
owned to be owned
Selling prior to sold in after
Stockholders Offering (1) (2) Offering Offering (2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Halifax Fund, L.P. (3) 727,273 727,273 0 -
c/o Citco Fund Services, Ltd.
Corporate Center, West Bay Road
P.O. Box 31106 SMB
Cayman Islands, BWI
Heracles Fund (3) 181,818 181,818 0 -
c/o Bank of Bermuda (Cayman) Limited
P.O. Box 513
Third Floor, British American Tower
Dr. Roy Drive
Georgetown, Grand Cayman
Cayman Islands, BWI
Themis Partners, L.P.(3) 181,818 181,818 0 -
c/o Promethean Investment Group
40 West 57th Street, Suite 1520
New York, NY 10019
Angelo, Gordon & Co., L.P. (3) 72,727 72,727 0 -
245 Park Avenue, 26th Floor
New York, NY 10167
Raphael, L.P. (3) 109,091 109,091 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
MichaelAngelo, L.P. (3) 90,909 90,909 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
20
<PAGE>
Nutmeg Partners, L.P. (3) 72,727 72,727 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
AG Superfund, L.P. (3) 109,091 109,091 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
GAM Arbitrage Investments, Inc. (3) 90,909 90,909 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
AG Superfund International Partners, L.P. (3) 72,727 72,727 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
The Northern Trust Co. as Trustee of the 36,364 36,364 0 -
Teachers' Retirement System of the State
of Illinois (3)
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
AG Long Term Super Fund, L.P. (3) 72,727 72,727 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
PHS Patriot Fund, L.P. (3) 36,364 36,364 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
PHS Bay Colony Fund, L.P. (3) 36,364 36,364 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
AGD, LLC (3) 36,364 36,364 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
AG ARB Partners, L.P. (3) 72,727 72,727 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
RGC International Investors, LDC (4) 2,181,818 2,181,818 0 -
21
<PAGE>
c/o Olympic Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton Bermuda
Cameron Capital, Ltd.(5) 150,000 150,000 0 -
10 Cavendish Road
Hamilton HM19
Bermuda
</TABLE>
1. Pursuant to the rules of the Securities and Exchange Commission,
shares of Common Stock which an individual or group has a right to
acquire within 60 days pursuant to the exercise of options or warrants
are deemed to be outstanding for the purpose of computing the
ownership of such individual or group. In addition, pursuant to the
terms of the debentures and the preferred stock as described below,
the debentures and preferred stock are convertible by the holders only
to the extent that the number of shares of Common Stock thereby
issuable, together with the number of shares of Common Stock then held
by such holder and its affiliates (not including shares which have not
been converted), would not exceed 4.9% of the then outstanding Common
Stock for the 5% debentures and the preferred stock and 5% for the
4.5% debentures, as determined in accordance with Section 13(d) of the
Exchange Act. Accordingly, the number of shares of Common Stock set
forth for the Selling Stockholders may exceed the actual number of
shares of Common Stock that the Selling Stockholders could own
beneficially at any given time through their ownership of the
debentures and preferred stock. In that regard, beneficial ownership
of the Selling Stockholders set forth in the table is not determined
in accordance with Rule 13d-3 under the Exchange Act.
2. The amount and (if one percent or more) the percentage of outstanding
Common Stock.
3. Represents shares of Common Stock issuable upon conversion of
$5,500,000 principal amount of 5% Convertible Debentures dated March
10, 1997. The Debentures may be converted for the first 89 days
following the close at 100% of the average stock price and,
thereafter, at 90% of the average stock price. The average stock price
is the lesser of (i) the average closing bid for the five days
preceding the conversion date or (ii) the average closing bid for the
ten days preceding the conversion date.
4. Represents shares of Common Stock issuable upon conversion of 6,000
shares of Series H Convertible Preferred Stock dated March 31, 1997.
The Preferred Stock may be converted for the first 179 days at 100% of
the average stock price, 90% of the average stock price for the
following 90 days and, thereafter, at 85% of the average stock price.
The average stock price is the average closing bid for the ten days
preceding the conversion date. The conversion price is adjusted for a
premium at the rate of 6% per annum for the first 179 days following
the close, 7% per annum for the following 80 days and, thereafter, at
8% per annum.
5. Represents shares of common stock issuable upon conversion of $400,000
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 closing bid price. The conversion ceiling price
is 120% of the average trailing five (5) day closing bid price.
22
<PAGE>
PLAN OF DISTRIBUTION
The 4,331,818 shares being registered herein for sale by the Selling
Stockholders consists of (i) 2,000,000 shares issuable upon conversion of
$5,500,000 principal amount of 5% Convertible Debentures; (ii) 2,181,818 shares
underlying 6,000 shares of Series H Convertible Preferred Stock and (iii)
150,000 shares issuable upon conversion of $400,000 of 4.5% Convertible
Debentures.
The Selling Stockholders and their respective pledgees, donees, transferees
and other successors in interest may sell the Common Stock registered in
connection with this Offering on the Nasdaq market system or otherwise. There
will be no charges or commissions paid to the Company by the Selling
Stockholders in connection with the 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.. Such sales may be made on one or more exchanges or
in the over-the-counter market, or otherwise at fixed prices, at prices and at
terms then prevailing or at prices related to the then current market price, or
in negotiated transactions. The Shares may be sold by one or more of the
following methods: (a) a block trade in which the broker so engaged will attempt
to sell the Shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction; (b) purchases by a broker or dealer
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus; (c) an exchange distribution in accordance with the rules of
Nasdaq; (d) ordinary brokerage transactions and (e) used to cover short sales.
In effecting sales, brokers or dealers engaged by the Selling Stockholders may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from Selling Stockholders in amounts to be
negotiated prior to the sale. The Selling Stockholders and such brokers or
dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this Prospectus.
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including certain liabilities under the Securities Act, or
to contribute to payments which the Selling Stockholders will be required to
make in respect thereof.
EXPERTS
The audited financial statements incorporated by reference in this
Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein upon the authority of said
Firm as experts in giving said reports.
LEGAL OPINIONS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by its General Counsel.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
23
<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 $4,430
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 $10,530
=========
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:
24
<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.
25
<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.
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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.
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<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
3(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.
3(b) 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.
3(c) 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.
3(d) Certification of Designation of Series H Preferred Stock
incorporated by reference to Exhibit 3.4 of the Company's Annual
Report on Form 10KSB/A-1 for its year ending December 31, 1996,
filed April 16, 1997.
4(a) 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(b) Form of Subscription Agreement, dated March 10, 1997,
incorporated by reference to Exhibit 10.41 of the Company's
Annual Report on Form 10-KSB for its year ending December 31,
1996, filed April 15, 1997.
4(c) Form of Registration Rights Agreement, dated March 10, 1997,
incorporated by reference to Exhibit 10.42 of the Company's
Annual Report on Form 10-KSB for its year ending December 31,
1996, filed April 15, 1997.
4(d) Form of 5% Convertible Debenture, due March 10, 2002,
incorporated by reference to Exhibit 10.43 of the Company's
Annual Report on Form 10-KSB for its year ending December 31,
1996, filed April 15, 1997.
4(e) Securities Purchase Agreement between the Company and RGC
International Investors, LDC, dated March 27, 1997, incorporated
by reference to Exhibit 10.52 of the Company's Annual Report on
Form 10-KSB for its year ending December 31, 1996, filed April
15, 1997.
4(f) Registration Rights Agreement between the Company and RGC
International Investors, LDC, dated March 27, 1997, incorporated
by reference to Exhibit 10.53 of the Company's Annual Report on
Form 10-KSB for its year ending December 31, 1996, filed April
15, 1997.
4(g)* Form of Promissory Note dated October 17, 1996.
4(h)* Form of Subscription Agreement dated October 16, 1997.
5* Opinion of General Counsel of Palomar regarding legality of
shares registered hereunder
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<PAGE>
23(a)* Consent of Arthur Andersen LLP, independent public accountants
23(b)* Consent of General Counsel of Palomar (included in Exhibit 5)
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high and of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of the Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs 2(a)(i) and 2(a)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference herein.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE
offering thereof.
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<PAGE>
(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.
30
<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 May 27,
1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Louis P. Valente
Louis P. Valente, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Louis P. Valente Chief Executive Officer, President and May 27, 1997
-------------------------------------- Director (Principal Executive Officer)
Louis P. Valante
/s/ Joseph P. Caruso Vice President, Chief Financial Officer, May 27, 1997
------------------------------------- Treasurer (Principal Financial Accounting
Joseph P. Caruso Officer)
/s/ Michael H. Smotrich Chief Technical Officer and Director May 27, 1997
--------------------------------------
Michael H. Smotrich
/s/ Buster C. Glosson Director May 27, 1997
--------------------------------------
Buster Glosson
/s/ John M. Deutch Director May 27, 1997
--------------------------------------
John M. Deutch
/s/ Steven Georgiev Chairman of the Board May 27, 1997
--------------------------------------
Steven Georgiev
</TABLE>
31
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made part of the registration
statement
/s/ Arthur Andersen LLP
Boston, Massachusetts
May 23, 1997
32
<PAGE>
May 30, 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 4,331,818 shares
(the "Shares") of the Company's common stock, $.01 par value per share ("Common
Stock"), issuable pursuant to certain debentures 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.
33
<PAGE>
FORM OF PROMISSORY NOTE
THIS PROMISSORY NOTE AND THE SHARES ISSUABLE UPON CONVERSION HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS AND NEITHER THIS NOTE NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT THIS NOTE MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
Palomar Medical Technologies, Inc.
4.5% Convertible Subordinated Promissory Note
$2,500,000 October 17, 1996
New York, New York
Palomar Medical Technologies, Inc., a Delaware corporation (the "Company"),
for value received, hereby promises to pay to -------------------------, or
registered assigns (the "Holder"), the principal amount of $2,500,000 according
to Paragraph 1 and to pay interest on the unpaid principal balance hereof at the
rate (calculated based on a 360-day year consisting of twelve 30-day months) of
4.5% per annum, from the date hereof until the Maturity Date (hereinafter
defined). From and after an Event of Default, interest shall accrue at the rate
of 12% per annum. In no event shall any interest to be paid hereunder exceed the
maximum rate permitted by law, and this Note shall automatically be deemed
amended to permit interest charges at a rate equal to, but no greater than, the
maximum rate permitted by law. Capitalized terms used and not otherwise defined
have the meanings ascribed thereto in Section 9.
1. Payments
(a) Interest on the unpaid principal balance shall be paid quarterly
in arrears on the last day of each calendar quarter commencing on December 31,
1996.
(b) Principal of this Note shall be due and payable in three
consecutive, equal annual installments commencing on the third anniversary of
the date hereof and ending on the fifth anniversary of the date hereof (the
"Maturity Date").
35
<PAGE>
(c) Payments of principal of, and interest on, this Note shall be
made by check or by wire transfer, at the Holder's option, to the Holder's
address set forth above if by check, or to such bank account as the Holder shall
designate by written notice if by wire transfer.
(d) The obligations to make the payments provided for in this Note
are absolute and unconditional and not subject to any defense, set-off,
counterclaim, recision, recoupment or adjustment whatsoever. The Company hereby
expressly waives demand and presentment for payment, notice of nonpayment,
notice of dishonor, protest, notice of protest, bringing of suit and diligence
in taking any action to collect any amount called for hereunder, and shall be
directly and primarily liable for the payment of all sums owing and to be owing
hereon, regardless of and without any notice, diligence, act or omission with
respect to the collection of any amount called for hereunder.
2. Company Call Option. If, at any time after 120 days from the date
hereof, the Average Bid Price (as hereinafter defined) for 60 consecutive days
thereafter (a "Redemption Period") is equal to or less than the Conversion Price
Floor (as hereinafter defined), the Company shall have the right, by written
notice to the Holder (the "Redemption Notice") to redeem the entire principal
amount of the Note (or any amount greater than 25% of the then outstanding
principal balance of the Note) by paying to the Holder that amount (the
"Redemption Amount") which, when added to the interest payment previously
received hereunder, would yield to the Holder a 30% per annum return, on the
redeemed amount. The Redemption Amount shall be paid within 30 days (the
"Redemption Amount Due Date") of the Redemption Notice. If the Redemption Amount
is not paid on or prior to the Redemption Amount Due Date, the Company's
Redemption Notice, and the redemption rights granted under this Section 2, shall
terminate and the outstanding principal amount and all accrued but unpaid
interest on this Note shall bear interest at the rate of 24% per annum from the
Redemption Amount Due Date.
3. Ranking of Note
(a) The Holder covenants and agrees that the payment of the principal
of, and interest on, the Note is subordinate in right of payment to the payment
of all existing and future Senior Debt and on parity in such right of the
Debentures.
(b) The Holder hereby agrees to execute, upon 10 days request by the
Company, such subordination agreements, instruments or waivers as may be
reasonably necessary in the opinion of any holder of Senior Debt to reflect the
terms set forth herein.
(c) No payment on account of principal or interest on this Note shall
be made if, at the time of such payment or immediately after giving effect
thereto, there shall exist with respect to any Senior Debt any default or any
condition, event or act that, with notice or lapse of time, or both, would
constitute a default, unless waived, and if any such payments are received by
Holder, Holder shall forthwith deliver such payment to the holders of the Senior
Debt, for application on account of the Senior Debt, and until so delivered,
such payment shall be held in trust by Holder as the property of the holders of
the Senior Debt.
36
<PAGE>
(d) In the event of any insolvency proceedings, and any receivership,
liquidation or other similar proceedings in connection therewith, relative to
the Company or its property, and in the event of any proceedings for voluntary
or involuntary liquidation, dissolution or other winding-up of the Company,
whether or not involving insolvency, then the holders of Senior Debt shall be
entitled to receive payment in full of all principal, interest fees and charges,
including without limitation post-petition interest, on all Senior Debt before
Holder is entitled to receive any payment on account of principal or interest
upon this Note and no claim or proof of claim shall be filed with the Company by
or on behalf of Holder that shall assert any right to receive any payments in
respect of this Note, except subject to the payment in full of the principal and
interest on all the Senior Debt then outstanding.
(e) If funds or assets which would otherwise be available to make
payments in respect of this Note are instead paid or distributed to the holders
of Senior Debt on account of the subordination provisions of this Section 3,
Holder shall, subject to the payment in full of all Senior Debt, be subrogated
to the rights of the holders of Senior Debt to receive payments or distributions
of assets of the Company applicable to the Senior Debt until all amounts owing
on this Note shall be paid in full.
4. Representations and Warranties. The Company represents and
warrants to the Holder that:
(a) Due Incorporation. The Company: (i) is a corporation duly
incorporated and validly existing under the laws of the jurisdiction of its
incorporation; (ii) has all requisite corporate power to own its assets and
carry on its business as now being, or as proposed to be, conducted; and (iii)
is qualified to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and where failure so
to qualify would have a material adverse effect on the financial condition,
operations, business or prospects of the Company taken as a whole.
(b) SEC Reports. The Company files periodic reports with the
Securities Exchange Commission (the "SEC Reports"). As of their respective
dates, the SEC reports (i) complied as to form in all material respects with the
requirements of the Exchange Act, and (ii) did not contain any untrue statement
of a material fact or fail to state a material fact required to be stated
therein or necessary to order to make the statements therein, in light of the
circumstances under which they were made, not misleading. There have been no
material adverse changes in the Company's financial condition or business since
the filing of its latest SEC Report.
37
<PAGE>
(c) Legal Proceedings. Except for an action commenced by Commonwealth
Associates seeking certain warrants from the Company, there are no legal or
arbitral proceedings or any proceedings by or before any governmental or
regulatory authority or agency, now pending or (to the knowledge of the Company)
threatened against the Company which, if adversely determined, could have a
material adverse effect on the consolidated financial condition, operations,
business or prospects of the Company taken as a whole.
(d) No Conflicts. None of the execution and delivery of this Note,
the consummation of the transactions herein contemplated or the compliance with
the terms and provisions hereof will conflict with, or result in a breach of, or
require any consent under, the charter or bylaws of the Company, or any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which the Company is a party or by which it is bound or to which it is subject,
or constitute a default under any such agreement or instrument, or result in the
creation or imposition of any lien upon any of the revenues or assets of the
Company pursuant to the terms of any such agreement or instrument.
(e) Authority. The Company has all necessary corporate power and
authority to execute, deliver and perform its obligations under this Note; the
execution, delivery and performance by the Company of this Note have been duly
authorized by all necessary corporate action on its part; and this Note has been
duly and validly executed and delivered by the Company and constitutes its
legal, valid and binding obligation, enforceable according to its terms.
(f) Consents. No authorizations, approvals or consents of, and no
filings (except for securities laws filings) or registrations with, any
governmental or regulatory authority or agency are necessary for the execution,
delivery or performance by the Company of this Note or for the validity or
enforceability hereof.
(g) Credit Agreements. Except as described in the SEC Reports, the
Company is not party to any credit agreement, loan agreement, indenture,
purchase agreement, guarantee or other arrangement providing for, or otherwise
relating to, any indebtedness or any extension of credit (or commitment for any
extension of credit) to, or guarantee by, the Company.
(h) Permits. The Company has obtained all permits, licenses and other
authorizations which are required under all Environmental Laws, except to the
extent failure to have any such permit, license or authorization would not have
a material adverse effect on the financial condition, operations, business or
prospects of the Company. The Company is in compliance in all material respects
with the terms and conditions of all such permits, licenses and authorizations,
and are also in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply would not have a material adverse effect on the financial
condition, operations, business or prospects of the Company.
38
<PAGE>
(i) Title to Properties; Leases. The Company owns all the assets
reflected in the balance sheet of the Company included in the financial
statement most recently filed in an SEC Report or acquired since the date of
such balance sheet (except property and assets sold or otherwise disposed of in
the ordinary course of business since that date), subject to no rights of
others, including any mortgages, leases, conditional sales agreements, title
retention agreements, liens or other encumbrances disclosed in such financial
statements.
(j) No Material Adverse Contracts, etc. The Company is not subject to
any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation that has or is expected by the Company in the future
to have a materially adverse effect on the Company or its prospects. The Company
is not a party to any contract or agreement that has or is expected, in the
judgment of the Company to have any materially adverse effect on the Company or
its prospects.
(k) Tax Status. The Company (i) has made or filed all Federal and
state income and all other tax returns, reports and declarations required by any
jurisdiction to which the Company believes in good faith it is subject, (ii) has
paid all taxes and other governmental assessments and charges shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and by appropriate proceedings, and (iii) has set
aside on their books provisions reasonably adequate in accordance with GAAP for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes claimed to be
due by the taxing authority of any jurisdiction which, if not paid, would have a
materially adverse effect on the Company or its prospects, and the Company knows
of no basis for any such claim.
(l) No Event of Default. No Default or Event of Default has occurred
and is continuing, either hereunder, under any Senior Debt or any other
Indebtedness of the Company.
(m) Authorized Capital. The authorized capital of the Company
consists of 100,000,000 shares of Common Stock, $.01 par value (the "Common
Stock"), and five million shares of Preferred Stock. As of October 10, 1996, the
only shares of capital stock issued and outstanding are 28,695,597 shares of
Common Stock, 4,265 shares of Class D Preferred Stock, 3,928 shares of Class E
Preferred Stock, 6,000 shares of Class F Preferred Stock, and 10,000 shares of
Class G Preferred Stock.
5. Conversion.
(a) Holder's Conversion Privilege and Conversion Price. On the terms
and conditions contained herein, the Holder, at its option, may convert the
entire principal amount of this Note into shares (the "Shares") of Common Stock
at the Conversion Price, anytime after the 75th day after the date hereof. The
price at which shares of Common Stock shall be delivered upon conversion (the
"Conversion Price") shall be an amount equal to 85% of the Average Bid Price, as
defined below, for the five trading days immediately preceding the date notice
of conversion is given; provided, however, that if such Conversion Price on the
date of conversion would be (x) less than 80% of the Issuance Date Bid Price,
the Conversion Price shall equal 80% of the Issuance Date Bid Price (the
"Conversion Price Floor"), or (y) greater than 120% of the Issuance Date Bid
Price,
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<PAGE>
the Conversion Price shall equal 120% of the Issuance Date Bid Price (the
"Conversion Price Ceiling"). Notwithstanding the foregoing, the Conversion Price
Floor shall be eliminated if, at any time after 120 days from the date hereof,
the Average Bid Price for any 60 consecutive days thereafter is equal to or less
than the Conversion Price Floor. As used herein, the term "Bid Price" means,
with respect to any date, the last reported bid price of the Common Stock on
such date (with respect to any such date, the "Closing Bid Price"), as reported
on The Nasdaq Small-Cap Market or such other market or exchange on which the
Common Stock is primarily traded on such day; "Average Bid Price" means the sum
of the Closing Bid Price on each of the days for which the average is being
calculated, divided by such number of days; and "Issuance Date Bid Price" means
the Average Bid Price for the five trading days immediately preceding the date
of this Note. If the Company shall pay a dividend on, subdivide, combine into a
smaller number of shares or issue by reclassification of its shares, any Shares,
the Conversion Price Floor and the Conversion Price Ceiling shall be
correspondingly adjusted.
(b) Holder's Exercise of Conversion Privilege. (i) The Holder shall
exercise its election to convert this Note by delivering to the Company and its
counsel in accordance with Section 10(a) hereof a written notice (a "Conversion
Notice") of its election, together with the surrender of this Note. This Note
shall be deemed to have been converted immediately prior to the close of
business on the day of surrender for conversion in accordance with the foregoing
provisions, and at such time the rights of the Holder, as Holder, shall cease,
and the person entitled to receive the Common Stock issuable upon conversion
shall be treated for all purposes as the record holder of such Common Stock at
such time. Notwithstanding the foregoing, if the conversion occurs during a
Redemption Period, the Company may redeem (rather than convert) the Note by
giving the Holder a Redemption Notice within 48 hours of receipt of a Conversion
Notice. In such event, the Company shall pay the Holder, within 30 days of the
Conversion Notice, the Redemption Amount. If the Redemption Amount is not paid
within such 30 day period, the Company's Redemption Notice, and its redemption
rights under Section 2, shall terminate and all outstanding amounts under this
Note shall bear interest at the rate of 24% per annum from the Redemption Amount
Due Date. If no Redemption Notice is given, the Company shall, as promptly as
practicable on or after the conversion date, issue and deliver to the Holder a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, with payment in lieu of any fraction of a share in an
amount equal to the same fraction of the Closing Sales Price at the close of
business on the business day immediately preceding the conversion date. Such
certificate shall bear the following legend until the Company receives an
opinion in form and substance reasonably satisfactory, and from counsel
reasonably satisfactory, to it that the legend may be removed:
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THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES LAWS OF THE UNITED STATED SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY, OR DELIVERED, UNLESS
REGISTERED OR QUALIFIED UNDER THE ACT AND OTHER APPLICABLE LAWS OF ANY SUCH
STATE UNLESS THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY
TO IT OR OTHER EVIDENCE SATISFACTORY TO IT THAT AN EXEMPTION FROM SUCH
REGISTRATION OR QUALIFICATION IS AVAILABLE.
The Company shall pay the amount of any and all taxes which may be imposed in
respect of any issue or delivery of stock certificates under this Section 5,
unless such stock certificates shall be issued in a name or names other than
that of the Holder, in which case the transferee shall pay all stock transfer
taxes.
(ii) In no event shall the Holder be entitled to convert
the outstanding principal of this Note to the extent such conversion
would result in such Holder's beneficially owning more than five
percent (5%) of the outstanding shares of the Company's Common Stock.
For these purposes, beneficial ownership shall be defined and
calculated in accordance with Rule 13d-3, promulgated under the
Securities Exchange Act of 1934, as amended.
(c) Company's Conversion Privilege. Anytime after the 90th day from
the date hereof, if the Average Bid Price for the Company's Common Stock equals
or exceeds, for thirty (30) consecutive trading days thereafter, 130% of the
Conversion Price Ceiling, the Company shall have the right, by written notice to
the Holder, to convert this Note in principal traunches of no more than
$1,000,000 into shares of Common Stock at the Conversion Ceiling Price,
provided, however, such shares shall have been registered for resale with the
Securities and Exchange Commission and shall be subject to an effective
registration statement, and the provisions of Section (f) shall apply; and
further provided that no more than one traunch may be converted during any seven
day period.
(d) Company to Reserve Common Stock. The Company shall always reserve
and keep available, free from preemptive rights, out of its authorized but
unissued Common Stock, for effecting the conversion of the Note, the full number
of shares of Common Stock then issuable upon conversion of this Note.
(e) Covenant as to Common Stock. The Company covenants that all
shares of Common Stock which may be issued upon conversion of the Note will upon
issue be duly and validly issued and fully paid and nonassessable and, except as
provided in clause (b), the Company will pay all taxes, liens and charges with
respect to the issue thereof.
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<PAGE>
(f) Registration Rights. (i) The Company shall prepare and file, on
one occasion, with the Securities and Exchange Commission (the "Commission"), on
Form S-3 or such other form as may be appropriate to permit a delayed or
continuous offering by the Holder at the sole expense of the Company, a
Registration Statement and such other documents, including a prospectus, as may
be necessary (in the opinion of both counsel for the Company and counsel for the
Holder), in order to comply with the provisions of the Act, so as to permit a
public offering and sale of the Registrable Securities by the Holder, for 12
consecutive months. For the purposes hereof, "Registrable Securities" shall mean
all Shares issuable upon conversion of this Note.
(ii) The Company and the Holder agree as follows:
(A) The Company shall file the Registration
Statement as expeditiously as possible, use its best
efforts to cause the Registration Statement to become
effective on or before January 31, 1997 and shall cause
the Registration Statement to be declared effective no
later than February 28, 1997, shall keep such Registration
Statement effective for a period of twelve continuous
months and shall furnish the Holder with such number of
prospectuses as shall reasonably be requested. If the
Registration Statement is not declared effective by
February 28, 1997, the outstanding principal balance shall
bear interest at the rate of 24% per annum from February
28, 1997 until such Registration Statement is declared
effective.
(B) The Company shall pay all costs, fees and
expenses in connection with such Registration Statement
including, without limitation, the Company's legal and
accounting fees, printing expenses, and blue sky fees and
expenses, except for underwriting commissions and
discounts, if any, payable by the Holder.
(C) The Company will take all necessary action
which may be required in qualifying or registering the
Registrable Securities included in the Registration
Statement for offering and sale under the securities or
blue sky laws of such states as are requested by the
Holder, except that the Company shall not, for any such
purpose, be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not
so qualified or to file therein any general consent to
service of process.
(D) The Company will indemnify and hold
harmless the Holder and any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls
the Holder or underwriter within the meaning of the Act
against any losses, claims, damages or liabilities (or
actions in respect thereof), joint or several, to which
the Holder or underwriter or such controlling person may
become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in
respect thereof) are caused by any untrue statement or
alleged untrue statement of any material fact contained in
any Registration Statement under which the securities were
registered under the Act, any prospectus contained
therein, or any amendment
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<PAGE>
or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the
Holder, underwriter and each such controlling person for any
legal or other expenses reasonably incurred by the Holder,
underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any
such loss, damage, expense or liability arises out of or is
based upon an untrue statement, alleged untrue statement,
omission or alleged omission so made in conformity with
written information furnished by the Holder or underwriter
specifically for inclusion in the Registration Statement.
(E) The Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers
who have signed the Registration Statement, and each
person, if any, who controls the Company, within the
meaning of the Act, against any losses, claims, damages or
liabilities to which the Company, or any such director,
officer or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) are caused
by any untrue or alleged untrue statement of any material
fact contained in said Registration Statement, said
prospectus, or amendment or amendments or supplement
thereto, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading and from the violation
of Subparagraph (I) hereof; and will reimburse any legal
or other expenses, reasonably incurred by the Company or
any such director, officer or controlling person in
connection with investigating or defending any such loss,
claim, damage, liability or action; in each case to the
extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged
omission was so made in reliance upon and in conformity
with written information furnished by the Holder
specifically for inclusion in the Registration Statement.
(F) Promptly after receipt by an indemnified
party pursuant hereto of notice of any claim to which
indemnity would apply or the commencement of any action,
such indemnified party will, if a claim thereof is made
against the indemnifying party pursuant hereto, notify the
indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any
indemnified party otherwise than hereunder except to the
extent that the indemnifying party is harmed thereby. In
case such action is brought against any indemnified party,
and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party. The Holder or any
underwriter or any such controlling person shall have the
right to employ separate counsel in any such action and to
participate in the defense thereof but the fees and
expenses of such counsel shall not be at the expense of
the Company unless: (i) the employment of such counsel has
been specifically authorized by the Company, (ii) the
Company has failed to assume the defense and employ
counsel, or (iii) the named parties of any such action,
suit or proceeding (including any impleaded parties)
include both the person or persons seeking indemnification
(the "indemnified person") and the Company and such
indemnified person shall have been advised by its counsel
that representation of the indemnified person and the
Company by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or
not such representation by the same counsel has been
proposed) due to actual or potential differing interests
between them (in which case the Company shall not have the
right to assume the defense of such action, suit or
proceeding on behalf of such indemnified person). The
Indemnifying Party shall not be liable to indemnify any
person for any settlement by such person of any such
action effected without the Indemnifying Party's consent.
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<PAGE>
(G) In connection with any registration by the
Company on behalf of the Holder, the Holder agrees to: (i)
execute a selling stockholder questionnaire and consent to
include the Holder's shares in such registration
statement, each in form and substance reasonably
acceptable to the Company and its counsel; (ii) comply
with any prospectus delivery requirement of the Act; (iii)
inform the Company at least 48 hours prior to any proposed
use of a prospectus, (iv) not use a prospectus if the
Company informs the Holder that there is currently
material undisclosed information about the Company, and
(v) inform the Company when all shares subject to the
registration have been sold so that the Company may
terminate the registration in accordance with its
obligations under item 512 of Regulation SK.
6. Covenants.
The Company covenants and agrees with the Holder that, so long as any
amount remains unpaid on the Note, unless the consent of the Holder is obtained,
the Company:
(a) Shall not declare or pay any dividend on its capital stock (other
than stock dividends) or make any payment to purchase, redeem, retire or acquire
any of its capital stock or the subordinated debt of the Company or any option,
warrant or other right to acquire such capital stock unless, on the date
immediately following any such payment, the Company's total stockholders'
equity, as would be reflected on a consolidated balance sheet of the Company
prepared in accordance with GAAP equals or exceeds the principal amount of the
Note then outstanding.
(b) Shall, and shall cause each Subsidiary to, remain in
substantially the same businesses in which the Company and its Subsidiaries are
engaged as of the date of this Note or in such other types of businesses that
are reasonably related or incidental thereto.
(c) Unless approved by a majority of the Independent Directors of the
Board of Directors of the Company, shall not, and shall not permit any
Subsidiary to, merge, consolidate or exchange shares with any other corporation,
or sell, lease or transfer or otherwise dispose of any of its assets to any
Person, other than sales, leases, transfers or other dispositions of inventory
in the ordinary course of business or particular items of obsolete or
unnecessary equipment in the ordinary course of business, except: (i) any
Subsidiary may merge or consolidate with the Company (provided that Company
shall be the surviving corporation in any such transaction) or with any one or
more other Subsidiaries; (ii) any Subsidiary may sell, lease, transfer or
otherwise dispose of all or any substantial part of its assets to the Company or
another Subsidiary; and (iii) as otherwise expressly permitted by this Note.
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<PAGE>
(d) Shall not, and shall not permit any Subsidiary to, directly or
indirectly purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or otherwise deal with, in the ordinary course of
business or otherwise, any Affiliate, except upon terms not less favorable to
the Company and the Subsidiary than if the Affiliate relationship did not exist
and provided the transaction is approved by a majority of the Independent
Directors of the Board of Directors of the Company.
(e) Shall deliver to Holder
(i) within five days after filing with the SEC, its Form
10-Q, Form 10-K and any Forms 8-K filed with the SEC. In the event
Holder does not receive such filings within the time period set forth
above, it shall give written notice thereof to the Company.
Thereafter, the Company shall have ten business days to deliver such
filings to Holder;
(ii) promptly after the Company shall obtain knowledge of
such, written notice of all material legal or arbitral proceedings,
and of all material proceedings by or before any governmental
regulatory authority or agency, and each material development in
respect of such legal or other proceedings, affecting the Company,
except proceedings which, if adversely determined, would not have a
material adverse effect on the Company. For the purposes hereof,
proceedings seeking $3,000,000 or more shall be deemed material; and
(iii) promptly after the Company shall obtain knowledge of
the occurrence of any Event of Default (as hereinafter defined) or any
event which with notice or lapse of time or both would become an Event
of Default (an Event of Default or such other thing being a
"Default"), a notice specifying that such notice, is a "Notice of
Default" and describing such Default in reasonable detail, and, in
such Notice of Default or as soon thereafter as practicable, a
description of the action of the Company has taken or proposes to take
with respect thereto.
(f) Shall do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, rights and franchises. It
(i) will cause all of its properties used or useful in the conduct of its
business to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment, and (ii) will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times.
(g) Shall maintain with financially sound and reputable insurers
insurance with respect to its properties and business against such casualties
and contingencies as shall be in accordance with the general practices of
businesses engaged in similar activities in similar geographic areas and in
amounts, containing such terms, in such forms and for such periods as may be
reasonable and prudent.
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<PAGE>
(h) Shall duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges imposed on it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of its property unless same is in good faith
being contested by the Company.
(i) Shall permit the Holder or its representatives to visit and
inspect any of the properties of the Company to examine the books of account of
the Company (and to make copies thereof and extracts therefrom), and to discuss
the affairs, finances and accounts of the Company with, and to be advised as to
the same by, its and their officers, at all such reasonable times and intervals
as Holder may reasonably request.
(j) Shall comply in all material respects with (i) the applicable laws
and regulations wherever its business is conducted, (ii) the provisions of its
charter documents and by-laws, (iii) all agreements and instruments by which it
or any of its properties may be bound and (iv) all applicable decrees, orders
and judgments, the non-compliance with which would have a material adverse
effect on the financial condition, business or prospects of the Company.
(k) Shall use the proceeds of the Note for acquisitions, expansion of
sales and marketing efforts, support increased levels of inventory and
receivables, and general corporate purposes.
(l) Shall cooperate with the Holder and execute such further
instruments and documents as the Holder shall reasonably request to carry out to
their reasonable satisfaction the transactions contemplated by this Note.
(m) Shall not permit:
(i) the ratio of its total debt (including subordinated
indebtedness) to tangible net worth to exceed 3:1.
(ii) its tangible net worth to be less than $15 million.
(iii) its cash balance at the beginning of each quarter to
be less than 200% of the anticipated interest payments on all
outstanding Indebtedness of the Company for such quarter.
All of the foregoing financial covenants shall be determined in
accordance with GAAP.
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<PAGE>
7. Events of Default.
The occurrence of any of the following events shall constitute an
event of default (an "Event of Default"):
(a) A default in the payment of the principal on any Note, when and as
the same shall become due and payable, which default shall continue for thirty
days after the date fixed for the making of such principal payment.
(b) A default in the payment of any interest on any Note, when as the
same shall become due and payable, which default shall continue for thirty days
after the date fixed for the making of such interest payment.
(c) A material default in the performance, or a breach, of any other
material covenant or agreement of the Company in this Note and continuance of
such default or breach for a period of 14 days after receipt of notice from the
Holder as to such breach.
(d) A default or event of default which remains uncured following any
applicable cure period shall have occurred with respect to any Indebtedness of
the Company now or hereafter existing, unless the Company is in good faith
contesting the default or event of default in accordance with the terms of such
Indebtedness.
(e) Any representation, warranty or certification made by the Company
pursuant to this Note shall prove to have been false or misleading as of the
date made or thereafter in any material respect.
(f) A final judgment or judgments for the payment of money in excess
of $3,000,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals or other bodies having jurisdiction against
the Company or any subsidiary thereof and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution thereof
shall not be procured, within 45 days from the date of entry thereof and the
Company shall not, within such 45-day period, or such longer period during which
execution of the same shall have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal.
(g) The entry of a decree or order by a court having jurisdiction
adjudging the Company a bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of, or in respect of, the
Company, under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under federal bankruptcy law or any other applicable federal or state law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Company in furtherance of any such action.
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<PAGE>
(h) Any change in the composition of the Company's Board of Directors
so that a majority of the Board does not consist of the current directors or
those nominated or appointed by a majority of such current directors.
(i) Omitted.
(j) Any sale, transfer or other disposition of any material amount of
the assets of the Company or any of its subsidiaries for consideration below the
fair market value thereof.
(k) Delisting or suspension for 5 consecutive trading days from
trading on NASDAQ or any national securities exchange of the Company's common
stock.
8. Remedies Upon Default.
(a) Upon the occurrence of an Event of Default referred to in Section
7(a), (b) or (g), the principal amount then outstanding of, and the accrued
interest on, this Note shall automatically become immediately due and payable
without presentment, demand, protest or other formalities of any kind, all of
which are hereby expressly waived by the Company. Upon the occurrence of an
Event of Default other than one referred to in Sections 7(a), (b) or (g), the
Holder may declare the principal amount then outstanding of, and the accrued
interest on, the Note to be due and payable immediately, and upon such
declaration the same shall become due and payable immediately, without
presentation, demand, protest or other formalities of any kind, all of which are
expressly waived by the Company.
(b) The Holder may institute such actions or proceedings in law or
equity as it shall deem expedient for the protection of its rights and may
prosecute and enforce its claims against all assets of the Company, and in
connection with any such action or proceeding shall be entitled to receive from
the Company payment of the principal amount of this Note plus accrued interest
to the date of payment plus reasonable expenses of collection, including,
without limitation, reasonable attorneys' fees and expenses.
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<PAGE>
(c) Upon the occurrence of an Event of Default and the lapse of the
applicable cure period, if any, the outstanding principal amount and accrued but
unpaid interest on the Note shall bear interest at the rate of 12% per annum
from the date of the Event of Default.
9. Definitions. (a) As used herein, the following terms shall have the
following meanings.
"Accounting Terms". Any accounting terms used in this Agreement,
unless otherwise specifically provided, shall have the meanings customarily
given them in accordance with GAAP, and all financial computations, statements
and reports hereunder, unless otherwise specifically provided, shall be in
accordance with GAAP. An "audited" financial statement means one with an
independent auditor's report of audit thereon containing no qualification or
exception other than as to the ability of the Company to continue as a going
concern.
"Business Day" means any day which is not a Saturday or Sunday, or a
day on which banking institutions are authorized or obliged to close in Boston,
MA.
"Debentures" means the Company's 4.5% Convertible Subordinated
Debentures due 2003.
"Environmental Laws" shall mean any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"GAAP" means generally accepted accounting principles applied on a
basis consistent with past practice.
"Guarantee" means a guarantee, an endorsement, a contingent agreement
to purchase or to furnish funds for the payment or maintenance of, or otherwise
to be or become contingently liable under, or with respect to, the Indebtedness,
other obligations, net worth, working capital or earnings of any other Person,
or a guarantee of the payment of dividends or other distributions upon the stock
of any corporation, or an agreement to purchase, sell or lease (as lessee or
lessor) property, products, materials, supplies or services primarily for the
purpose of enabling another Person to make payment of his, her or its
obligations or an agreement to assure a creditor against loss, and including
without limitation, causing a bank to open a letter of credit for the benefit of
any other Person, but excluding endorsements for collection or deposit in the
ordinary course of business. The terms "Guarantee" and "Guaranteed" used as a
verb shall have a correlative meaning.
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"Indebtedness" means(a) indebtedness created, issued or incurred for
borrowed money (whether by loan or the issuance and sale of debt securities);
and (b) obligations of the Company in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for the
account of the Company.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For purposes of this Agreement, the Company shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
"Senior Debt" means all existing and future Indebtedness of the
Company to any bank, insurance company or other institutional lender unless the
instrument creating or evidencing such Indebtedness expressly provides that such
Indebtedness is not senior in right of payment to the Note.
10. Miscellaneous.
(a) Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or by Federal Express, Express Mail or similar
overnight delivery or courier service or delivered ( in person or by telecopy,
telex or similar telecommunications equipment) against receipt to the party to
whom it is to be given (i) if to the Company, at its address at 66 Cherry Hill
Drive, Beverly, MA 01915, Attention: President with a copy to David Broadwin,
Esq., Foley Hoag & Eliot, LLP, One Post Office Square, Boston, MA 02109-2170,
(ii) if to the Holder at its address set forth on the first page hereof with a
copy to Ken Witt, Esq., Freeborn & Peters, Suite 2600, 950 Seventeenth Street,
Denver, CO 80202-2286, or (iii) in either case, to such other address as the
party shall have furnished in writing in accordance with the provisions of this
Section 10(a). Notice to the estate of any party shall be sufficient if
addressed to the party as provided in this Section 10(a). Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by other
means permitted by this Section 10(a) shall be deemed given at the time of
receipt thereof.
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(b) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power or
remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise and all such remedies may be exercised singly
or concurrently.
(c) This Note may be amended only by a written instrument executed by
the Company and the Holder hereof. Any amendment shall be endorsed upon this
Note, and all future Holders shall be bound thereby.
(d) This Note shall be governed by and construed in accordance with he
laws of the Commonwealth of Massachusetts, without giving effect to principles
governing conflicts of law.
(e) The Company irrevocably consents to the jurisdiction of the courts
of the Commonwealth of Massachusetts and of any Federal court located in such
State in connection with any action or proceeding arising out of or relating to
this Note, any document or instrument delivered pursuant to, in connection with
or simultaneously with this Note, or a breach of this Note or any such document
or instrument. In any such action or proceeding, the Company waives personal
service of any summons, complaint or other process and agrees that service
thereof may be made in accordance with Section 10(a).
IN WITNESS WHEREOF, the Company has caused this Note to be executed
and dated the day and year first above written.
Palomar Medical Technologies, Inc.
By:_______________________
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FORM OF SUBSCRIPTION AGREEMENT
This agreement (the "Agreement"), dated October 16, 1996, is between
- ---------------------------- (the "Subscriber") and Palomar Medical
Technologies, Inc., a Delaware corporation (the "Company"). Capitalized terms
used and not otherwise defined herein have the meanings ascribed to them it the
Notes, as defined in Section 1.
In consideration of the mutual premises contained herein, the parties
hereto agree as follows:
1. Subscription. (a) The Subscriber hereby subscribes to purchase from the
Company a $2,500,000 4.5% Convertible Subordinated Promissory Note in the form
attached hereto (the "Note") for a price of $2,500,000. In addition, if mutually
agreed by the parties, within 40 days from the date hereof, the Subscriber may
purchase an additional $2,500,000 4.5% Convertible Subordinated Promissory Note
(the "Additional Note") in the same form as the Note for a price of $2,500,000.
(b) The Subscriber shall make payments by wire transfer to BlueStone
Capital Partners, L.P., ("BlueStone") as agent for Palomar Medical
Technologies, Inc., at The Chase Manhattan Bank, 405 Lexington Avenue, New
York, N.Y. ABA Number 021000021, Account Number 127078377865, reference:
Palomar Medical Technologies, Inc. BlueStone shall promptly remit such
funds, minus its fees and expenses, to the Company following its delivery
of a countersigned subscription agreement and executed Note to Subscriber.
2. Subscriber's Representations and Warranties. The Subscriber hereby
represents and warrants to, and covenants with, the Company as follows:
(a) The Subscriber is an "Accredited Investor" as that term is defined
in Section 2(15) of the Securities Act of 1933 (the "Act"), and Rule 501 of
Regulation D promulgated thereunder. Specifically, the Subscriber is (CHECK
APPROPRIATE ITEMS):
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(i) A bank defined in Section 3(a)(2) of the Act, or a savings
and loan association or other institution as defined in Section
3(a)(5)(A) of the Act, whether acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; an insurance company as defined in
Section 2(13) of the Act; an investment company registered under the
Investment Company Act of 1940 (the "Investment Company Act") or a
business development company as defined in Section 2(a)(48) of the
Investment Company Act; a Small Business Investment Company licensed
by the U.S. Small Business Administration under Section 301(3) or (d)
of the Small Business Investment Act of 1958; a plan established and
maintained by a state, its political subdivisions or any agency or
instrumentality of a state or its political subdivisions for the
benefit of its employees, if such plan has total assets greater than
$5,000,000; an employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974 ("ERISA"), if the
investment decision is made by a plan fiduciary, as defined in Section
3(21) of ERISA, which is either a bank, savings and loan association,
insurance company, or a registered investment advisor, or if the
employee benefit plan has total assets greater than $5,000,000 or, if
a self-directed plan, with investment decisions made solely by persons
that are accredited investors.
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(ii) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
(iii) An organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets greater than
5,000,000.
(iv) A natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his or her purchase
exceeds $1,000,000.
(v) A natural person who had an individual income greater than
$200,000 in each of the two most recent years or joint income with
that person's spouse greater than $300,0000 in each of those years and
has a reasonable expectation of reaching the same income level in the
current year.
(vi) A trust, with total assets greater than $5,000,000 not
formed for the specific purpose of acquiring the securities offered,
whose purchase is directed by a sophisticated person as described in
Rule 506(b)(2)(ii) (i.e., a person who has such knowledge and
experience in financial and business matters that he is capable of
evaluating the merits and risks of the prospective investment.)
(vii) An entity in which all of the equity owners are accredited
investors. (If this alternative is checked, the Subscriber must
identify each equity owner and provide statements signed by each
demonstrating how each is qualified as an accredited investor.)
(b) The Subscriber has received all materials which have been
requested by the Subscriber, has had a reasonable opportunity to ask
questions of the Company and its representatives and the Company has
answered all inquiries that the Subscriber has put to it with respect to
the Company, its business, plans and financial condition.
(c) The Subscriber has such knowledge and experience in finance,
securities, investments and other business matters so as to be able to
protect the interests of the Subscriber concerning this transaction, and
the Subscriber's investment in the Company hereunder is not material when
compared to the Subscriber's total financial capacity.
(d) The Subscriber understands the various risks of an investment in
the Company as proposed herein and can afford to bear such risks,
including, without limitation, the risks of losing its entire investment.
(e) The Subscriber is acquiring the Notes for the Subscriber's own
account for investment and not with a view to the sale or distribution
thereof or the granting of any participation therein, and has no present
intention of distributing or selling to others any of such interest or
granting participations therein.
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(f) The Subscriber understands that the Notes and the Shares issuable
upon conversion thereof have not been registered under the Act or any state
securities laws, and have been, and may be, with respect to the Shares,
issued in reliance upon Section 4(2) of the Act;
(g) The Subscriber was not formed principally for the purpose of
acquiring the Notes or other securities not registered under the Act;
(h) The Subscriber is not subscribing for the Notes as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented any seminar or meeting, or any
solicitation of a subscription by a person other than BlueStone;
(i) The Subscriber is not relying on the Company with respect to the
tax and other economic consideration of an investment in the Notes, and the
Subscriber has relied on the advice of or consulted with, only its own
advisers;
(j) The Subscriber understands that, except as set forth in the Note,
the Company is under no obligations to register the Shares under the Act;
(k) The Subscriber acknowledges that the representations, warranties
and agreements made by the Subscriber herein shall survive the execution
and delivery of this Subscription Agreement and the purchase of the Note,
and that the Company is relying upon such representations, warranties and
agreements in determining whether an exemption from the registration
requirements of the Act is available for this transaction.
3. Representations and Warranties of the Company. (a) The representations
and warranties made by the Company and contained in the Note are hereby
incorporated herein by reference. No statement made in this Subscription
Agreement contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
made therein not misleading in light of the circumstances under which they were
made.
(b) The proceeds from the Notes shall be used by the Company to fund
potential acquisitions, expand the Company's sales and marketing efforts,
support increases in the Company's levels or inventory and receivables, and
for general corporate purposes.
(c) The Company has registered its Common Stock pursuant to Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
the Common Stock is listed and trades on The Nasdaq Small-Cap Stock Market.
The Company has timely filed all material required to be filed pursuant to
all reporting obligations under either Section 13(a) or 15(d) of the
Exchange Act for a period of at least twelve (12) months immediately
preceding the offer or sale of the Note.
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(d) This Agreement has been duly authorized, validly executed and
delivered on behalf of the Company and is a valid and binding agreement
enforceable against the Company in accordance with its terms, subject to
general principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally.
(e) There is no fact known to the Company (other than general economic
conditions known to the public generally) that has not been disclosed in
writing to the Subscriber that (x) could reasonably be expected to have a
material adverse effect on the condition (financial or otherwise) or in the
earnings, business affairs, business prospects, properties or assets of the
Company or (y) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to
this Agreement.
4. Closing. The closing with respect to the Note shall be held as promptly
as possible after delivery of this Subscription Agreement and payment for the
Note as provided in Section 1(b). The closing, if any, with respect to the
Additional Note shall be held as promptly as possible following agreement of the
parties pursuant to Section 1(a) hereof, delivery of a certificate of Subscriber
confirming its representations and warranties made herein and payment for the
Additional Note as provided in Section 1(b). At any closing with respect to the
Notes, the Company shall (a) issue to the Subscriber the Note or the Additional
Notes, as the case may be, dated the closing date, (b) deliver to the Subscriber
a fully executed copy of this Subscription Agreement, (c) deliver to the
Subscriber a certificate, signed by two officers of the Company, as to the
accuracy of the Company's representations in Section 3(b); and (d) deliver to
the Subscriber an opinion of Company counsel substantially in the form attached
hereto.
5. Covenants of the Company. For so long as the Note held by the Subscriber
remains outstanding, the Company covenants and agrees with the Subscriber that:
(a) The Company will take all necessary action to cause the Common
Stock issuable upon conversion of the Note to be duly approved for listing
on The Nasdaq Stock Market on or before the 75th day from the date hereof;
and
(b) It will use its best efforts to maintain the listing of its Common
Stock, including Common Stock issuable upon conversion of the Note on The
Nasdaq Stock Market, for a seventy two (72) month period commencing on or
before the 75th day from the date hereof.
6. Transferability. Neither this Subscription Agreement, nor any interest
of the Subscriber herein, shall be assignable or transferable by the Subscriber
in whole or in part, except by operation of law.
7. Miscellaneous. (a) Except as otherwise specifically provided herein, any
notice or other communication required or permitted to be given hereunder shall
be in writing and shall be mailed by certified mail, return receipt requested,
or by Federal Express, Express Mail or similar overnight delivery or courier
service or delivered (in person or by telecopy, telex or similar
telecommunications equipment) against receipt to the party to whom it is to be
given (i) if to the Company, at the address set forth on the first page hereof,
(ii) if to the Subscriber, at the address set forth on the signature page
hereof, or (iii) in either case, to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 6(a). Any
notice or other communication given by certified mail shall be deemed given at
the time of certification thereof, except for a notice changing a party address
which shall be deemed given at the time of receipt thereof. Any notice given by
other means permitted by this Section 6(a) shall be deemed given at the time of
receipt thereof. Copies of all notices shall be sent simultaneously as follows:
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if to the Company, to:
David Broadwin, Esq.
Foley Hoag & Eliot, LLP
One Post Office Square
Boston, MA 02109-2170
if to the Holder, to:
----------------------
----------------------
----------------------
(b) This Subscription Agreement shall be binding upon and inure to the
benefit of the parties hereto, the successors and assigns of the Company,
and the permitted successors, assigns, heirs and personal representatives
of the Subscriber (including permitted transferees of the Securities).
(c) The headings in this Subscription Agreement are solely for
convenience of reference and shall be given no effect in the construction
or interpretation of this Subscription Agreement.
(d) This Subscription Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without
regard to its principles of conflicts of law.
(e) The parties hereto irrevocably consent to the jurisdiction of the
courts of the Commonwealth of Massachusetts and of any Federal court
located in such state in connection with any action or proceeding arising
out of or relating to this Subscription Agreement, any document or
instrument delivered pursuant to, in connection with or simultaneously with
this Subscription Agreement, or a breach of this Subscription Agreement or
any such document or instrument. In any such action or proceeding, each
party hereto waives personal service of any summons, complaint or other
process and agrees that service thereof may be made in accordance with
Section 6(a). Within 30 days after such service, or such other time as may
be mutually agreed upon in writing by the attorneys for the parties to such
action or proceeding, the party so served shall appear or answer such
summons, complaint or other process. Should the party so served fail to
appear or answer within such 30-day period or such extended period, as the
case may be, such party shall be deemed in default and judgment may be
entered against such party for the amount as demanded in any summons,
complaint or other process so served.
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(f) This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year this subscription has been accepted by the Company as set
forth below.
By:
Accepted by:
PALOMAR MEDICAL TECHNOLOGIES, INC.
BY:
Name: Steven Georgiev
Title: Chairman of the Board
Date: October __, 1996
Agreed as to Section 1(b) only:
BLUESTONE CAPITAL PARTNERS, LP
By: BlueStone Management Company, Inc.
By:
Name: Kerry J. Dukes
Title: President
Date: October __, 1996
57
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