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1
As filed with the Securities and Exchange Commission on April 15, 1997
Registration No._____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
PALOMAR MEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
04-3128178
(I.R.S. employer identification number)
66 Cherry Hill Drive, Beverly, Massachusetts 01915 (508) 921-9300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Sarah Burgess Reed
General Counsel
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
(508) 921-9300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public:
from time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
______________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ______________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<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 88,187 $8.15(1) $718,724(1) $218(1)
per share.
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
Common Stock, par value $.01 260,320 $4.15(2) $1,148,011(2) $348(2)
per share.
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
</TABLE>
(1) Consists of (i) 5,687 shares underlying 91,000 net warrants issued in
connection with the private placement of shares of common stock; and (ii)
82,500 shares underlying stock purchase warrants which are exercisable at
prices and terms described in the Selling Stockholders and Plan of
Distribution sections of the Prospectus, calculated pursuant to Rule 457(g)
under the Securities Act of 1933 (the "Act"), as amended based on the
weighted average price at which the Warrants may be exercised.
(2) Consists of (i) 5,000 shares issued as compensation for investor services;
and (ii) 255,320 shares issued in connection with an Asset Purchase and
Settlement Agreement dated February 28, 1996. 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 April 10, 1997.
Pursuant to Rule 416, there are also registered hereby such additional
indeterminate number of shares of such Common Stock as may become issuable as
dividends or to prevent dilution resulting from stock splits, stock dividends or
similar transactions as set forth in the terms of the Debentures and the
warrants referred to above.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION DATED APRIL 15, 1997
PROSPECTUS
PALOMAR MEDICAL TECHNOLOGIES, INC.
348,507 shares of Common Stock
consisting of:
5,687 issued upon exercise of 91,000 net warrants issued in connection with the
private placement of common stock;
82,500 shares underlying stock purchase warrants;
5,000 shares issued as compensation for investor services; and
255,320 shares issued in connection with an Asset Purchase and
Settlement Agreement.
This Prospectus relates to 348,507 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) 5,687 shares
issued upon exercise of 91,000 net warrants issued in connection with the
private placement of shares of common stock; (ii) 82,500 shares underlying stock
purchase warrants issued to an individual; (iii) 5,000 shares issued as
compensation for investor services; and (iv) 255,320 shares issued in connection
with an Asset Purchase and Settlement Agreement dated February 28, 1997, 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 April 14, 1997 was $4.50 per
share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGES 6 THROUGH 16.
It is anticipated that usual and customary brokerage fees will be paid
by the Selling Stockholders on the sale of the Common Stock registered hereby.
The Company will pay the other expenses of this offering. See "Plan of
Distribution". The offer of shares of Common Stock by the Selling Stockholders
as described in this Prospectus is referred to as the "Offering".
The date of this Prospectus is ______________.
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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, the Company's Form 8-K filed with the commission on May 16,
1996, as amended by Form 8-K/A filed June 11, 1996, and the description of the
Company's Common Stock contained in its Registration Statement on Form 8-A filed
with the Commission on June 6, 1992, as amended by Form 8 on December 17, 1992,
all of which have been previously filed with the Commission, are incorporated in
this Prospectus by reference. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the termination of the offering made hereby are also incorporated by
reference herein and made a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated by reference
herein is modified or superseded for all purposes to the extent that a statement
contained in this Prospectus or in any other subsequently filed document which
is incorporated by reference modifies or replaces such statement. The Company
will 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.
<TABLE>
<S> <C>
THE COMPANY........................................ Palomar Medical Technologies, Inc. (the "Company") has three
business segments: cosmetic dermatological laser products,
laser services and electronic products. The cosmetic laser
products are under various stages of development and
clinical trials. The Company 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
material 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. The Company plans to spin off the
electronic products segment in 1997 to focus on the laser
business segment.
RISK FACTORS........................................ The Offering involves substantial risk. See "Risk Factors".
SECURITIES OFFERED.......................... 348,507 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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6
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
$12,620,768 for the year ended December 31, 1995 and a net loss of $37,863,792
for the year ended December 31, 1996. These losses are expected to continue for
the near term, and there can be no assurance that the Company will achieve
profitable operations or that profitable operations will be sustained if
achieved. At December 31, 1996, the Company's accumulated deficit was
$64,971,200. Dynaco Corp. ("Dynaco"), Star Medical Technologies, Inc. ("Star"),
CD Titles, Inc. ("CD Titles"), Dynamem, Inc. ("Dynamem"), Comtel, Tissue and
Nexar each have had a history of losses. There can be no assurance that these
companies will achieve profitable operations or that profitable operations will
be sustained if achieved. The Company anticipates incurring substantial research
and development expenses, which will reduce cash available to fund current
operations. The Company must continue to secure additional financing to complete
its research and development activities, commercialize its current and proposed
cosmetic laser products, expand its current electronics business, execute its
acquisition business plan and fund ongoing operations. The Company believes that
the cash generated to date from its financing activities; amounts available
under its credit agreement and the Company's ability to raise cash in future
financing activities will be sufficient to satisfy its working capital
requirements through the next twelve-month period. However, there can be no
assurance that this assumption will prove to be accurate or that events in the
future will not require the Company to obtain additional financing sooner than
presently anticipated. The Company may also determine, depending upon the
opportunities available to it, to seek additional debt or equity financing to
fund the costs of acquisitions or continuing expansion. To the extent that the
Company finances an acquisition with a combination of cash and equity
securities, any such issuance of equity securities could result in dilution to
the interests of the Company's shareholders. Additionally, to the extent that
the Company incurs indebtedness to fund increased levels of accounts receivable
or to finance the acquisition of capital equipment or issues debt securities in
connection with any acquisition, the Company will be subject to risks associated
with incurring substantial additional indebtedness, including the risks that
interest rates may fluctuate and cash flow may be insufficient to pay principal
and interest on any such indebtedness. The Company continues to investigate
several financing alternatives, including 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.
HOLDING COMPANY STRUCTURE. The Company has no significant operations
other than those incidental to its ownership of the capital stock of its
subsidiaries. As a holding company, the Company is dependent on dividends or
other intercompany transfers of funds from its subsidiaries to meet the
Company's debt service and other obligations. Claims of creditors of the
Company's subsidiaries, including trade creditors, will generally have priority
as to the assets of such subsidiaries over the claims of the Company and the
holders of the Company's indebtedness.
LIMITED OPERATING HISTORY; RECENT ACQUISITIONS. Many of the Company's
subsidiaries have limited operating histories and are in the development stage,
and the Company is subject to all of the risks inherent in the establishment of
a new business enterprise. Historically, most of the Company's revenues have
been generated by its flexible circuit board component business; however,
Spectrum Medical Technologies, Inc. ("Spectrum"), acquired by the Company in
April 1995, contributed 8.7% of the Company's revenues in 1996. Nexar
contributed 26.4% of the Company's revenues for the year ended December 31,
1996. The Company acquired Comtel Electronics, Inc. ("Comtel") in March 1996,
and Tissue Technologies, Inc. ("Tissue") in May 1996. Comtel has contributed
23.8% of the Company's revenues and Tissue contributed 14.4% of revenues for the
year ended December 31, 1996. Nexar, Comtel and Tissue
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7
have had limited operating histories. The likelihood of success of the Company
must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with the
establishment of a new business and development of new technologies in the
cosmetic laser products and electronic products industries. These include, but
are not limited to, government regulation, competition, the need to expand
manufacturing capabilities and market expertise, and setbacks in production,
product development, market acceptance and sales and marketing. The Company's
prospects could be significantly affected by its ability to subsequently manage
and integrate the operations of several distinct businesses with diverse
products, services and customer bases in order to achieve cost efficiencies.
There can be no assurance that the Company will be able to successfully manage
and integrate the operations of newly acquired businesses into its operations or
that the failure to do so will not increase the costs inherent in the
establishment of new business enterprises.
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.
NEW VENTURES. The Company has entered into several agreements with
physician groups to provide cosmetic laser services at laser treatment centers,
and plans to enter into more such agreements in the future. While the Company
believes these new partnerships are strategically important, there are
substantial uncertainties associated with the development of new products,
technologies and services for evolving markets. The success of these ventures
will be determined not only by the Company's efforts, but also by those of its
partners. Initial timetables for the development and introduction of new
technologies, products or services may not be achieved, and price/performance
targets may not prove feasible. External factors, such as the development of
competitive alternatives or government regulation, may cause new markets to
evolve in unanticipated directions. (See "Highly Competitive Industries.")
INVESTMENTS IN UNRELATED BUSINESSES. The Company has investments in
marketable and non-marketable securities and loans to related and unrelated
parties. The amount that the Company may ultimately realize from these
investments could differ materially from the value of these investments recorded
in the Company's financial statements.
MANAGEMENT OF GROWTH. In light of management's views of the potential
for future growth, the Company has adopted an aggressive growth plan that
includes substantial investments in its sales, marketing, production and
distribution organizations, the creation of new research and development
programs and increased funding of existing programs, and investments in
corporate infrastructure that will be required to support significant growth.
This plan carries with it a number of risks, including a higher level of
operating expenses, the difficulty of attracting and assimilating a large number
of new employees, and the complexities associated with managing a larger and
faster growing organization. Depending on the extent of future growth, the
Company may experience a significant strain on its management, operational,
manufacturing and financial resources. The failure of the Company's management
team to effectively manage growth, should it continue to occur, could have a
material adverse effect on the Company's financial condition and results of
operations
HIGHLY COMPETITIVE INDUSTRIES. The cosmetic laser and electronics
industries are characterized by intense competition. The cosmetic laser industry
is highly competitive and is characterized by the frequent introduction of new
products. The Company competes in the development, manufacture, marketing and
servicing of laser technology products with numerous other companies, certain of
which have substantially greater financial, marketing and other
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8
resources than the Company. In addition, the Company's cosmetic laser products
face competition from alternative medical products and procedures, such as
dermabrasion, chemical peels, pharmaceutical treatment, electrolysis, waxing and
surgery, among others. There can be no assurance that the Company will be able
to differentiate its products from the products of its competitors or that the
marketplace will consider the Company's products to be superior to competing
products or medical procedures. There can be no assurance that competitors will
not develop products or that new technologies will not be developed that render
the Company's products obsolete or less competitive. In addition, in entering
areas of business in which it has little or no experience, such as the opening
of laser treatment centers, the Company may not be able to compete successfully
with competitors that are more established in such areas. (See "New Ventures.")
In the electronics industry, the Company competes with Packard-Hughes
Interconnect Co., Parlex Corporation, Teledyne Inc., IBM, Apple Computer, Compaq
and Dell Computer, among others. Many, if not most, of the Company's current and
prospective competitors are substantial in size and have substantial financial,
managerial, technical, manufacturing, marketing and other resources, and may
introduce additional products that compete with those of the Company. There can
be no assurance that the Company's products will compete favorably with the
products of its competitors or that the Company will have the resources
necessary to compete effectively against such companies. As a result of the
intense competition in the personal computer market, the Company expects that
gross margins on sales of its upgradeable personal computers will be extremely
narrow and will require the Company to manage carefully its cost of goods sold.
There can be no assurance that the Company will be able to manage its cost of
goods sold to the degree necessary for sales of upgradeable computer products to
generate significant gross margins. The Company currently has limited marketing
capabilities and expects to place significant reliance on independent
distributors and resellers for the distribution and marketing of its products.
The Company will be dependent upon the efforts of such third parties. The
inability to establish and maintain a network of independent distributors and
resellers, or a reduction in their sales efforts, could have a material adverse
effect on the Company's financial condition and results of operations. In
addition, there can be no assurance as to the viability or financial stability
of the Company's independent distributors and resellers. The computer industry
has been characterized from time to time by financial difficulties of
distributors and resellers; any such problems could lead to reduced sales and
could have a material adverse effect on the Company's financial condition and
results of operations. There can be no assurance that the Company's products
will compete favorably with the products of its competitors or that the Company
will have the resources necessary to compete effectively against such companies.
FLUCTUATIONS IN QUARTERLY PERFORMANCE. The Company's results of
operations have fluctuated substantially and can be expected to continue to vary
significantly. The Company's quarterly operating results depend on a number of
factors, including the timing of the introduction or acceptance of new products
offered by the Company or its competitors, changes in the mix of products sold
by the Company, changes in regulations affecting the cosmetic laser products or
electronics industry, changes in the Company's operating expenses, personnel
changes and general economic conditions.
The Company's stock price, like that of other technology companies, is
subject to significant volatility. If revenues or earnings in any quarter fail
to meet the investment community's expectations, there could be an immediate
impact on the price of the Shares. The price of the Shares may also be affected
by broader market trends unrelated to the Company's performance. (See
"Volatility of Share Price.")
VOLATILITY OF SHARE PRICE. Factors such as announcements of
developments related to the Company's business, announcements by competitors,
quarterly fluctuations in the Company's financial results and other factors have
caused the price of the Company's stock to fluctuate, in some cases
substantially, and could continue to do so in the future. In addition, the stock
market has experienced extreme price and volume fluctuations that have
particularly affected the market price for many technology companies and that
have often been unrelated to the operating performance of these companies. These
broad market fluctuations may adversely affect the market price of the Shares.
The trading prices of many technology companies' stocks are at or near their
historical highs, and reflect price/earnings ratios substantially above
historical norms. There can be no assurance that the trading price of the Shares
will remain at or near its current level.
GOVERNMENT REGULATION. The Company's laser product business segment
and, to a lesser degree, its electronics business segment are subject to
regulation in the United States and abroad. Failure to comply with
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9
applicable regulatory requirements can result in fines, denial or suspension of
approvals, seizures or recall of products, operating restrictions and criminal
prosecutions, any or all of which could have a material adverse effect on the
Company. Furthermore, changes in existing regulations or adoption of new
regulations could prevent the Company from obtaining, or could affect the timing
of, future regulatory approvals.
LASER PRODUCT SEGMENT. All laser product devices, including those sold
by the Company, are subject to regulation by the FDA under the Medical Device
Amendments of the United States Food, Drug and Cosmetics Act (the "FDA Act").
The Company's business, financial condition and operations are critically
dependent upon timely receipt of FDA regulatory clearance.
FDA CLEARANCE STATUS FOR COSMETIC LASER PRODUCTS. Three of the
Company's lasers have received clearance from the FDA for certain dermatological
applications: the Q-pulse Ruby laser, the Tru-Pulse laser and the Epilaser
system.
The Company is also investigating other applications in dermatology for
its laser systems. It will be required to obtain FDA clearance before
commercially marketing any other application. The Company believes that it will
be able to seek such clearance under the 510(k) application process; however, no
assurance can be given that the FDA will not require the Company to follow the
more extensive and time-consuming Pre-Market Approval ("PMA") process. FDA
review of a 510(k) application currently averages about seven to twelve months
and requires limited clinical data based on "substantial equivalence" to a
product marketed prior to 1976, while a PMA review can last for several years
and require substantially more clinical data.
The FDA also imposes various requirements on manufacturers and sellers
of products under its jurisdiction, such as labeling, good manufacturing
practices, record keeping and reporting requirements. The FDA also may require
post-market testing and surveillance programs to monitor a product's effects.
There can be no assurance that the appropriate clearances from the FDA will be
granted, that the process to obtain such clearances will not be excessively
expensive or lengthy or that the Company will have sufficient funds to pursue
such clearances.
No assurance can be given that FDA approval will be obtained for the
Company's current or proposed laser products on a timely basis, if at all. The
laser products segment of the Company's business, is, and will continue to be,
critically dependent upon FDA approval of its current and proposed cosmetic
laser products. Delays or failure to obtain such approval would have a material
adverse effect on the Company.
OTHER GOVERNMENT APPROVALS FOR LASER PRODUCTS; GOOD MANUFACTURING
PRACTICES. In order to be sold outside the United States, the Company's products
are subject to FDA permit requirements that are conditioned upon clearance by
the importing country's appropriate regulatory authorities. Many countries also
require that imported products comply with their own or international electrical
and safety standards. In November 1992, the Company obtained approval certifying
compliance with certain international electrical and safety regulations
applicable to its pulsed dye laser. Additional approvals may be required in
other countries. The Company has yet to apply for international approval for its
diode laser for use in cosmetic surgery and dermatology.
The Company is subject to the laser radiation safety regulations of the
FDA Act administered by the National Center for Devices and Radiological Health
("CDRH") of the FDA. These regulations require a laser manufacturer to file new
product and annual reports, to maintain quality control, product testing and
sales records, to distribute appropriate operation manuals, to incorporate
certain design and operating features in lasers sold to end-users and to certify
and label each laser sold to end-users as one of four classes of lasers (based
on the level of radiation from the laser). In addition, various warning labels
must be affixed on the product and certain protective devices must be installed
depending upon the class of product. Under the Act, the Company is also required
to register with the FDA as a medical device manufacturer and is subject to
inspection on a routine basis by the FDA for compliance with Good Manufacturing
Practice ("GMP") regulations. The GMP regulations impose certain procedural and
documentation requirements upon the Company relevant to its manufacturing,
testing and quality control activities. The CDRH is empowered to seek fines and
other remedies for violations of these regulatory requirements. The Company
believes that it is currently in compliance with these regulations.
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10
ELECTRONIC SEGMENT. A significant percentage of the total sales of the
flexible circuit board component business of the Company, which presently
accounts for a significant amount of the sales of the Company, are the result of
either a subcontract or a direct contract for government programs funded by the
U.S. military. Generally, government contracts and subcontracts are terminable
at the convenience of the government. Cutbacks in military spending for certain
programs or lack of military spending in general could have a material adverse
effect on the Company. There can be no assurance that termination of contracts,
cessation of purchase orders, or a failure to appropriate funds will not occur
in the future. Any termination, cessation, or failure to appropriate funds with
respect to contracts or subcontracts having a significant dollar value would
have a material adverse effect on the Company's business, financial condition
and results of operation. The unpredictable nature of the government procurement
process also may contribute to fluctuations in the Company's quarterly
performance. (See "Fluctuations in Quarterly Performance.")
Flexible circuit board component sales to the U.S. military are subject
to certain military certifications. These certifications are based upon
compliance with specification standards set by the U.S. military. The Company is
subject to periodic audit and review from U.S. government agencies to ensure
compliance under criteria set forth by these agencies. Failure to meet or exceed
criteria set forth could result in a suspension or disqualification of certain
certifications. Such suspension or disqualification could have a material
adverse effect on the Company.
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, but that sales to GTSI as a percentage of
total revenues will decline substantially as Nexar further expands its
distribution network and increases its overall sales. Nexar has entered into an
agreement with GTSI pursuant to which GTSI serves as Nexar's exclusive federal
reseller with respect to Government Services Administration (GSA) scheduled
purchases, provided that GTSI purchases at least $35 million of Nexar's products
in 1997. GTSI is under no obligation, however, to purchase any products of
Nexar's. If GTSI makes fewer purchases in 1997 than Nexar anticipates, that
would have a material adverse effect on the Company.
UNCERTAINTY OF MARKET ACCEPTANCE. The Company continually develops new
products intended for use in the cosmetic laser products segment and the
electronic products segment. As with any new products, there is substantial risk
that the marketplace may not accept or be receptive to the potential benefits of
such products. Market acceptance of the Company's current and proposed products
will depend, in large part, upon the ability of the Company or any marketing
partners to demonstrate to the marketplace the advantages of the Company's
products over other types of products. There can be no assurance that
applications or uses for the Company's current and proposed products will be
accepted by the marketplace or that any of the Company's current or proposed
products will be able to compete effectively.
UNCERTAINTY OF HEALTHCARE REIMBURSEMENT AND REFORM. The healthcare
industry is subject to changing political, economic and regulatory influences
that may affect the procurement practices and operations of healthcare industry
participants. During the past several years, state and federal government
regulation of reimbursement rates and capital expenditures in the United States
healthcare industry has increased. Lawmakers continue to propose programs to
reform the United States healthcare system, which may contain programs to
increase governmental involvement in healthcare, lower Medicare and Medicaid
reimbursement rates or otherwise change the operating environment for the
Company's customers. Healthcare industry participants may react to these
proposals by curtailing or deferring investments, including investments in the
Company's products.
DEPENDENCE ON THIRD PARTY RESEARCHERS. The Company is substantially
dependent upon third party researchers and others, over which the Company will
not have absolute control, to satisfactorily conduct and complete research on
behalf of the Company and to grant to the Company favorable licensing terms for
products which may be developed. The Company has entered into a number of
research agreements with recognized research hospitals and clinical
laboratories. These research institutions include the Oregon Medical Laser
Center at the Heart Institute of St. Vincent Hospital and Medical Center in
Portland, Oregon, the Wellman Labs at Massachusetts General Hospital and the
Otolaryngology Research Center for Advanced Endoscopic Applications at New
England Medical Center, Boston, Massachusetts. The Company provides research
funding, laser technology and optics know-how in return for licensing agreements
with respect to specific medical applications and patents. Management believes
that this method of
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11
conducting research and development provides a higher level of technical and
clinical expertise than it could provide on its own and in a more cost efficient
manner. The Company's success will be highly dependent upon the results of the
research, and there can be no assurance that these research agreements will
provide the Company with marketable products in the future or that any of the
products developed under these agreements will be profitable for the Company.
TECHNOLOGICAL OBSOLESCENCE. 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 particular time
frame, or that the Company's products or proprietary technologies will not
become uncompetitive or obsolete.
LACK OF PATENT PROTECTION. The Company currently holds several patents
and intends to pursue various additional avenues that it deems appropriate to
protect its technology. There can be no assurance, however, that the Company
will file any additional patent applications or that any patent applications
that have been, or may be, filed will result in issued patents, or that any
patent, patent application, know-how, license or cross-license will afford any
protection or benefit to the Company.
The cosmetic laser device market has been characterized by substantial
litigation regarding patent and other intellectual property rights. One of the
Company's competitors has filed suit against the Company alleging, with respect
to the Company's Epilaser, patent infringement and unfair competition. (See
"Risks Associated with Pending Litigation.") In both the cosmetic laser products
and the electronic products segments, litigation, which could result in
substantial cost to and diversion of effort by the Company, may be necessary to
protect trade secrets or know-how owned by or licensed to the Company or to
determine the enforceability, scope and validity of the proprietary rights of
others. Adverse determination in litigation or interference proceedings could
subject the Company to significant liabilities to third parties, require the
Company to seek licenses from third parties and could prevent the Company from
manufacturing and selling its products, all of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
POSSIBLE PATENT INFRINGEMENTS. In the medical products segment, the
Company is aware of patents relating to laser technologies used in certain
applications that the Company intends to pursue, which, if valid and
enforceable, may be infringed by the Company. The Company has obtained opinions
of counsel that the Company is not infringing currently on patents held by
others; however, such opinions have not been challenged in any court of law. If
the Company's current or proposed products are, in the opinion of patent
counsel, infringing on any of these patents, the Company intends to seek
non-exclusive, royalty-bearing licenses to such patents but there can be no
assurance that any such license would be available on favorable terms, if at
all. One of the Company's competitors has filed suit against the Company
alleging, with respect to the Company's Epilaser, patent infringement and unfair
competition. (See "Risks Associated with Pending Litigation.") 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
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12
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.
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 April 14, 1997, 2,316 shares of Series G
Preferred Stock 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 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 April 14, 1997, $2,300,000 principal amount was converted into 353,191 shares
of common stock. In December 1996 and January 1997, the Company issued a total
of $6,000,000 in 5% Convertible Debentures. 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.
ISSUANCE OF RESERVED SHARES; REGISTRATION RIGHTS. As of April 14, 1997,
the Company had 32,269,724 Shares of Common Stock outstanding. The Company has
reserved an additional 21,966,142 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) 9,768,034 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) 396,809 Shares for issuance upon conversion of
$2,700,000 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) 1,320,000 Shares
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13
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) $1,350,000 Shares for issuance upon conversion
of the 6,000 shares of Series H Preferred Stock. All of the foregoing reserved
Shares are, or the Company intends for them shortly to be, registered with the
Commission and therefore freely salable on Nasdaq or elsewhere.
PRODUCT LIABILITY EXPOSURE. Cosmetic laser product companies face an
inherent business risk of financial exposure to product liability claims in the
event that the use of their products results in personal injury. The Company's
products are and will continue to be designed with numerous safety features, but
it is possible that patients could be adversely affected by use of one of the
Company's products or that deaths could occur. Further, in the event that any of
the Company's products prove to be defective, the Company may be required to
recall and redesign such products. Although the Company has not experienced any
material losses due to product liability claims to date, there can be no
assurance that it will not experience such losses in the future. The Company
maintains liability insurance in the amount of $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
<PAGE>
14
have a material adverse effect on the Company's future international operations
and, consequently, on the company's business, financial condition or operating
results.
DEPENDENCE ON SOLE SUPPLIERS. The Company relies on outside suppliers
for substantially all of its manufacturing supplies, parts and components.
Pyralux(R), an integral component of most of the Company's flexible circuit
products, is manufactured exclusively by E.I. du Pont de Nemours and Company
("DuPont"). Although the Company has a written agreement with DuPont under which
DuPont will supply the Company with all of its requirements for Pyralux, there
can be no assurance that the Company will be able to obtain a sufficient supply
of Pyralux to fulfill orders for its products in a timely manner, if at all.
In addition, CO2 laser tubes, an integral component of Tissue's
Tru-Pulse Laser system, are manufactured exclusively by Pulse Systems, Inc.
There can be no assurance that the Company will be able to obtain sufficient
supply of CO2 laser tubes to fulfill orders for its products in a timely manner,
if at all. Furthermore, several other component parts of the Company's cosmetic
laser products and electronic segment products are manufactured exclusively by
one supplier. There can be no assurance that the Company will be able to obtain
a sufficient supply of such components at commercially reasonable prices or at
all. A shortage of necessary parts and components or the inability of the
Company to obtain such parts and components would have a material adverse effect
on the Company's business, financial condition and results of operations.
DEPENDENCE ON SUBSTANTIAL CUSTOMERS. In the 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. The Company expects that GTSI will continue to be
an important customer, but that sales to GTSI as a percentage of total revenue
will decline substantially as the Company further expands its distribution
network and increases its overall sales. The Company 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 the Company. 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. 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.
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.
HAZARDOUS SUBSTANCE AND ENVIRONMENTAL CONCERNS. The manufacture of
substrate interconnect products involves numerous chemical solvents and other
solid, chemical and hazardous wastes and materials. Dynaco is subject to a
variety of environmental laws relating to the generation, storage, handling,
use, emission, discharge and disposal of these substances and potentially
significant risks of statutory and common law liability for environmental damage
and personal injury. The Company, and in certain circumstances, its officers,
directors and employees, may be subject to claims arising from the Company's
manufacturing activities, including the improper release, spillage, misuse or
mishandling of hazardous or non-hazardous substances or material. The Company
may be strictly liable for damages, regardless of whether it exercised due care
and complied with all relevant laws and regulations. The Company does not
currently maintain environmental impairment insurance. There can be no assurance
that the Company will not face claims resulting in substantial liability for
which the Company is uninsured or that hazardous substances are not or will not
be present at the Company's facilities. The Company believes that it operates
its Dynaco facilities in substantial compliance with existing environmental laws
and regulations. In June 1989 and April 1994, Dynaco conducted
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15
environmental studies of its Tempe, Arizona substrate manufacturing facility and
did not discover any contamination requiring remediation. Failure to comply with
proper hazardous substance handling procedures or violation of environmental
laws and regulations would have a material adverse effect on the Company.
SIGNIFICANT OUTSTANDING INDEBTEDNESS; SUBORDINATION OF DEBENTURES. The
Company has incurred substantial indebtedness in relation to its equity capital
and will be subject to all of the risks associated with substantial leverage,
including the risk that available cash may not be adequate to make required
payments to the holders of the Debentures. The Company's ability to satisfy its
obligations under the Debentures from cash flow will be dependent upon the
Company's future performance and will be subject to financial, business and
other factors affecting the operation of the Company, many of which may be
beyond the Company's control. In the event the Company does not have sufficient
cash resources to satisfy quarterly interest or other repayment obligations to
the holders of the Debentures, the Company will be in default under the
Debentures, which would have a material adverse effect on the Company. To the
extent that the Company is required to use cash resources to satisfy interest
payments to the holders of the Debentures, it will have less resources available
for other purposes. Inability of the Company to repay the Debentures upon
maturity would have a material adverse effect on the Company, which could result
in a reduction of the price of the Company's Shares.
The Debentures will be unsecured and subordinate in right of payment to
all Senior Indebtedness of the Company. The Debentures do not restrict the
Company's ability to incur additional Senior Indebtedness and most other
indebtedness. The terms of Senior Indebtedness now existing or incurred in the
future could affect the Company's ability to make payments of principal and/or
interest to the holders of Debentures.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company is subject to
the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which prohibit the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 could have the effect of delaying or preventing a change of control
of the Company. The Company's stock option grants generally provide for an
exercise of some or all of the optioned stock, including non-vested shares, upon
a change of control or similar event. The Board of Directors has authority to
issue up to 5,000,000 shares of Preferred Stock and to fix the rights,
preference, privileges and restrictions, including voting rights, of these
shares without any further vote or action by the stockholders. The rights of the
holders of the Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, thereby delaying,
deferring or preventing a change in control of the Company. Furthermore, such
Preferred Stock may have other rights, including economic rights senior to the
Common Stock, and, as a result, the issuance of such Preferred Stock could have
a material adverse effect on the market value of the Common Stock. (See
"Issuance of Preferred Stock and Debentures Could Affect Rights of Common
Shareholders.")
RISKS ASSOCIATED WITH PENDING LITIGATION. On October 7, 1996 the
Company filed a declaratory judgment action against its competitor MEHL/Biophile
("MEHL") seeking (i) a declaration that MEHL is without right or authority to
threaten or maintain suit against the Company or its customers for alleged
infringement of the patent held by MEHL's subsidiary Selvac Acquisitions Corp.
("Selvac" and the "Selvac Patent"), that the Selvac Patent is invalid, void and
unenforceable, and that the Company does not infringe the Selvac patent; (ii) a
preliminary and permanent injunction enjoining MEHL from threatening the Company
or its customers with infringement litigation or infringement; and (iii) an
award to the Company of damages suffered in connection with MEHL's conduct. On
March 7, 1997, Selvac filed a complaint for injunctive relief and damages for
patent infringement and for unfair competition against the Company, its Spectrum
Medical Technologies and Spectrum Financial Services subsidiaries, and a New
Jersey dermatologist, in the United States District Court for the District of
New Jersey. Selvac's complaint alleges that the Company's EpiLaser infringes the
Selvac Patent and that the Company unfairly competed by promoting the EpiLaser
for hair removal before it had received FDA approval for that specific
application. The Company intends to assert defenses vigorously which it believes
to be meritorious. Both suits are
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16
in their infancy, and, as of March 17, 1997, discovery has not yet commenced in
either action. The extent of exposure of the Company cannot be determined at
this time.
The Company is a defendant in a lawsuit filed by Commonwealth
Associates ("Commonwealth") on March 14, 1996. In its suit, Commonwealth alleges
that the Company breached a contract with Commonwealth in which Commonwealth was
to provide certain investment banking services in return for certain
compensation. In January 1997, Commonwealth's motion for summary judgment on its
breach of contract claim was granted. A trial on Commonwealth's damages is
scheduled for April 14, 1997. Commonwealth has alleged that it suffered up to
$3,381,250 in damages on its breach of contract claim, exclusive of interest.
The Company has not accrued for the full cost of the alleged damages and intends
to vigorously defend this action and appeal this matter after damages have been
determined. The Company believes its grounds for appeal are meritorious.
The Company is also involved in disputes with third parties and certain
former employees. 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.
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17
THE COMPANY
The Company was organized to design, manufacture and market lasers,
delivery systems and related disposable products for use in cosmetic and medical
procedures. The Company currently operates in two business segments: medical
products and services and electronic products. In the medical products segment,
the Company manufactures and markets U.S. Food and Drug Administration ("FDA")
approved ruby and CO2 lasers for hair removal, skin resurfacing and wrinkle
treatment, among other things. The Company has and continues to develop ruby,
pulse dye and diode medical lasers for use in clinical trials and is engaged in
the research and development of additional laser products. The Company has
expanded its efforts in the cosmetic laser area through a series of product
development activities, acquisitions and strategic alliances that target patient
self-pay procedures performed in doctors' offices and clinics. Principal among
these are the development of the EpiLaserTM, a ruby laser system for removing
unwanted hair. The laser hair removal, skin resurfacing and wrinkle treatment
products are significant to the Company's strategic plan and are discussed in
further detail below. The Company has entered into a number of research
agreements with recognized research hospitals and clinical laboratories. The
Company provides research funding, laser technology and optics expertise in
return for licensing agreements to specific medical applications and patents.
Management believes that this method of conducting research and development
provides a higher level of technical and clinical expertise than it could
provide on its own, and in a more cost-efficient manner.
In February 1997, Palomar Medical Products, Inc. ("Palomar Medical
Products") was formed with the purpose of consolidating the management and
operations of the medical products companies. Included in the Medical Products
Group are the following companies; Spectrum Medical Technologies, Inc., Tissue
Technologies, Inc., Star Medical Technologies, Inc., Dermascan, Inc. and Palomar
Technologies, Ltd. Included as part of the medical business segment but excluded
from the Medical Products Group is a newly formed, wholly owned subsidiary of
the Company, Cosmetic Technology International, Inc., which intends to establish
a worldwide network of cosmetic and dermatological laser sites with medical
service partners.
In September 1995, the Company established Palomar Electronics
Corporation as a wholly-owned subsidiary of Palomar Medical Technologies, Inc.
as part of a plan to separate the electronics and computer segments of the
business from the medical laser segments of the business.
In the electronic products segment, the Company's Nexar Technologies,
Inc. subsidiary manufactures, markets and sells personal computers with a unique
circuit board design that enables end users to easily upgrade and replace the
microprocessor, memory and hard drive components, which management believes will
decrease the level of technical obsolescence associated with most desktop
personal computers in the market. Dynaco Corp. manufactures high density,
flexible electronic circuitry for use in industrial, military and medical
devices and is also introducing a number of proprietary products targeted to
service the personal computer industry, including high density memory modules.
These new proprietary computer memory modules double the memory capacity of
traditional memory modules using the same interface. Comtel Electronics is a
contract manufacturer which provides turnkey manufacturing and test services of
electronic assemblies.
The Company 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.
On April 9, 1997, Nexar's Registration Statement filed with the
Securities and Exchange Commission relating to its initial public offering was
declared effective. Nexar sold 2,500,000 shares of its common stock for its own
account at $9.00 per share. Following the offering, Palomar will beneficially
own approximately 67% of Nexar's common stock subject to a contingent repurchase
right of the Company at a nominal price per share in the event that Nexar does
not achieve certain performance milestones set forth in an agreement between
Nexar and Palomar, and shares of Nexar common stock which Palomar may acquire
upon conversion of shares of Nexar Convertible Preferred Stock.
<PAGE>
18
USE OF PROCEEDS
The Company will receive no part of the proceeds from the sale of any
of the Shares by the Selling Stockholders.
<PAGE>
19
SELLING STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of shares of Common Stock by the Selling Stockholders as of the date
of this Prospectus and the number of such shares included for sale in this
Prospectus assuming the sale of all Shares being offered by this Prospectus. A
description of the transactions under which the Selling Stockholders received
the Common Stock being registered herein is set forth under the heading "Plan Of
Distribution" which follows this table. To the best of the Company's knowledge,
except as stated in this Prospectus, the Selling Stockholders have not held any
office or maintained any material relationship with the Company or any of its
predecessors or affiliates over the past three years. The Selling Stockholders
reserve the right to reduce the number of shares offered for sale or to
otherwise decline to sell any or all of the Shares registered hereunder.
<TABLE>
<CAPTION>
Shares Shares Shares
owned to be owned
Selling prior to sold in after
Stockholders Offering (1) (2) Offering Offering (2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Babar Hamirani (3) 255,320 255,320 0 -
30551 Huntwood Avenue
Hayward, CA 94544
Steve Osman (4) 142,500 82,500 59,750 -
Rush & Company (5) 5,687 5,687 0 -
Finmanagement Inc.
Via Zurigo 5
6900 Lugano
Switzerland
Egger & Co. (6) 5,000 5,000 0 -
c/o Chase Manhattan
P.O. Box 1508
Church Street Station
New York, NY 10008
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1. Pursuant to the rules of the Securities and Exchange Commission, shares
of Common Stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise of options or warrants are
deemed to be outstanding for the purpose of computing the ownership of
such individual or group.
2. The amount and (if one percent or more) the percentage of outstanding
Common Stock.
3. Represents shares of Common Stock issued in connection with an Asset
Purchase and Settlement Agreement dated February 28, 1997.
4. Represents shares of Common Stock underlying warrants exercisable at
$8.875 per share through September 6, 2001.
5. Represents shares of Common Stock issued upon redemption of 91,000 net
warrants at a price of $7.50 per share. The net warrants were issued in
connection with the Private Placement of 600,000 shares of Common Stock
for an aggregate price of $3,150,000 issued in December 1996.
6. Represents shares of Common Stock issued as compensation for investor
relations.
<PAGE>
20
PLAN OF DISTRIBUTION
The 348,507 shares being registered herein for sale by the Selling
Stockholders consists of (i) 5,867 shares of common stock underlying the
redemption of net warrants issued in connection with the private placement of
common stock; (ii) 82,500 shares of common stock underlying stock purchase
warrants issued to a certain individual; (iii) 5,000 shares issued as
compensation for investor relations; and (iv) 255,320 shares issued to an
individual as settlement.
The Selling Stockholders may sell the Common Stock registered in
connection with this Offering on the Nasdaq market system or otherwise. There
will be no charges or commissions paid to the Company by the Selling
Stockholders in connection with the issuance of the Shares. It is anticipated
that usual and customary brokerage fees will be paid by the Selling Stockholders
upon sale of the Common Stock offered hereby. The Company will pay the other
expenses of this Offering. The Shares may be sold from time to time by the
Selling Stockholders, or by pledges, donees, transferees or other successors in
interest. Such sales may be made on one or more exchanges or in the
over-the-counter market, or otherwise at prices and at terms then prevailing or
at prices related to the then current market price, or in negotiated
transactions. The Shares may be sold by one or more of the following methods:
(a) a block trade in which the broker so engaged will attempt to sell the Shares
as agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (c)
an exchange distribution in accordance with the rules of Nasdaq; and (d)
ordinary brokerage transactions. In effecting sales, brokers or dealers engaged
by the Selling Stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
Selling Stockholders in amounts to be negotiated prior to the sale. Such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" 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 or 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.
<PAGE>
21
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 $620
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 $6,666
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders to eliminate or limit personal liability of
members of its Board of Directors for violations of a director's fiduciary duty
of care. However, the elimination or limitation shall not apply where there has
been a breach of the duty of loyalty, failure to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which was deemed illegal or obtaining an improper
personal benefit. The Company's Certificate of Incorporation includes the
following language:
"To the maximum extent permitted by Section 102(b)(7) of the General Corporation
Laws of Delaware, a director of this corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit."
Section 145 of the General Corporation Law of the State of Delaware
generally provides that a corporation may indemnify any director, officer,
employee or agent against expenses, judgments, fines and amounts paid in
settlement in connection with any action against him by reason of his being or
having been such a director, officer, employee or agent, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made, however, if he is adjudged liable for negligence or misconduct in the
performance of his duty to the corporation, unless a court determines that he is
nevertheless entitled to indemnification. If he is successful on the merits or
otherwise in defending the action, the corporation must indemnify him against
expenses actually and reasonably incurred by him. Article IX of the Company's
Bylaws provides indemnification as follows:
<PAGE>
22
INDEMNIFICATION
SECTION 1. Actions, Etc. Other Than by or in the Right of the Corporation. The
Corporation shall, to the full extent legally permissible, indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including a grand jury proceeding, and all
appeals (but excluding any such action, suit or proceeding by or in the right of
the Corporation), by reason of the fact that such person is or was a director,
executive officer (as hereinafter defined) or advisory council member of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct in question was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that such person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that such person had reasonable cause to believe that the conduct in
question was unlawful. As used in this Article IX, an "executive officer" of the
Corporation is the president, treasurer, a vice president given the title of
executive vice president, or any officer designated as such pursuant to vote of
the Board of Directors.
SECTION 2. Actions. Etc. by or in the Right of the Corporation. The Corporation
shall, to the full extent legally permissible, indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit, including appeals, by or in the right of the
Corporation to procure a judgment in its favor, by reason of the fact that such
person is or was a director or executive officer of the Corporation as defined
in Section 1 of this Article, or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. Determination of Right of Indemnification. Any indemnification of a
director or officer (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that such
indemnification is proper in the circumstances because the director or executive
officer has met the applicable standard of conduct as set forth in Sections 1
and 2 hereof. Such a determination shall be reasonably and promptly made (i) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (ii) (if such a
quorum is not obtainable, or, even if obtainable if a quorum of disinterested
directors so directs) by independent legal counsel in a written opinion, or
(iii) by the stockholders.
<PAGE>
23
SECTION 4. Indemnification Against Expenses of Successful Party. Notwithstanding
any other provision of this Article, to the extent that a director or officer of
the Corporation has been successful in whole or in part on the merits or
otherwise, including the dismissal of an action without prejudice, in defense of
any action, suit or proceeding or in defense of any claim, issue or matter
therein, such person shall be indemnified against all expenses incurred in
connection therewith.
SECTION 5. Advances of Expenses. Expenses incurred by a director or officer in
any action, suit or proceeding shall be paid by the Corporation in advance of
the final disposition of thereof, if such person shall undertake to repay such
amount in the event that it is ultimately determined, as provided herein, that
such person is not entitled to indemnification. Notwithstanding the foregoing,
no advance shall be made by the Corporation if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum of
disinterested directors, or (ii) (if such a quorum is not obtainable or, even if
obtainable, if a quorum of disinterested directors so directs) by independent
legal counsel in a written opinion, that, based upon the facts known to the
Board of Directors or such counsel at the time such determination is made, such
person has not met the relevant standards set forth for indemnification in
Section 1 or 2, as the case may be.
SECTION 6. Right to Indemnification Upon Application: Procedure Upon
Application. Any indemnification or advance under Sections 1, 2, 4 or 5 of this
Article shall be made promptly, and in any event within ninety days, upon the
written request of the person seeking to be indemnified, unless a determination
is reasonably and promptly made by the Board of Directors that such person acted
in a manner set forth in such Sections so as to justify the Corporation's not
indemnifying such person or making such an advance. In the event no quorum of
disinterested directors is obtainable, the Board of Directors shall promptly
appoint independent legal counsel to decide whether the person acted in the
manner set forth in such Sections so as to justify the Corporation's not
indemnifying such person or making such an advance. The right to indemnification
or advances as granted by this Article shall be enforceable by such person in
any court of competent jurisdiction, if the Board of Directors or independent
legal counsel denies the claim therefor, in whole or in part, or if no
disposition of such claim is made within ninety days.
SECTION 7. Other Right and Remedies: Continuation of Rights. The indemnification
and advancement of expenses provided by this Article shall not be deemed
exclusive of any other rights to which any person seeking indemnification or
advancement of expenses may be entitled under any Bylaw, agreement, Vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware or otherwise, both as to action in such person's official
capacity and as to action in another capacity while holding such office. All
rights to indemnification or advancement under this Article shall be deemed to
be in the nature of contractual rights bargained for and enforceable by each
director and executive officer as defined in Section 1 of this Article who
serves in such capacity at any time while this Article and other relevant
provisions of the General Corporation Law of the State of Delaware and other
applicable laws, if any, are in effect. All right to indemnification under this
Article or advancement of expenses shall continue as to a person who has ceased
to be a director or executive officer, and shall inure to the benefit of the
heirs, executors and administrators of such a person. No repeal or modification
of this Article shall adversely affect any such rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. The Corporation shall also indemnify any
person for attorneys' fees, costs, and expenses in connection with the
successful enforcement of such person's rights under this Article.
<PAGE>
24
SECTION 8. Other Indemnities. The Board of Directors may, by general vote or by
vote pertaining to a specific officer, employee or agent, advisory council
member or class thereof, authorize indemnification of the Corporation's
employees and agents, in addition to those executive officers and to whatever
extent it may determine, which may be in the same manner and to the same extent
provided above.
SECTION 9. Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, advisory council member or agent of the
Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Article.
SECTION 10. Constituent Corporations. For the purposes of this Article,
reference to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors and officers so that any person who is or was a director or officer of
such a constituent corporation or is or was serving at the request of such
constituent corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
SECTION 11. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, executive officer,
advisory council member, and those employees and agents of the Corporation
granted indemnification pursuant to Section 3 hereof as to expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including a grand jury proceeding, and all appeals, and any
action by the Corporation, to the full extent permitted by any applicable
portion of this Article that shall not have been invalidated or by any other
applicable law.
SECTION 12. Other Enterprises. Fines. and Serving at Corporation's Request. For
purposes of this Article, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to any employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of any employee benefit plan
shall be deemed to have acted in a manner not opposed to the best interests of
the Corporation" as referred to in this Article.
<PAGE>
25
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.
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(a) Form of Net Warrant to Purchase Common Stock incorporate by reference to
Exhibit 10.34 of the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996.
4(b) Subscription Agreement between the Company and Finmanagement, Inc. dated
December 27, 1996 incorporated by reference to Exhibit 10.35 of the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1996.
4(c) Asset Purchase and Settlement Agreement by and among the Company. Nexar
Technologies, Inc., Technovation Computer Labs, Inc. and Babar I.
Hamirani , dated February 28, 1997 incorporated by reference to Exhibit
10.46 of the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996.
4(d) List of Exhibits omitted from the Asset Purchase and Settlement
Agreement incorporated by reference to Exhibit 10.47 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996.
4(e)* Warrant to purchase Common Stock of the Company, dated September 6,
1996.
5* Opinion of General Counsel of Palomar regarding legality of shares
registered hereunder
23(a)* Consent of Arthur Andersen LLP, independent public accountants
23(b)* Consent of General Counsel of Palomar (included in Exhibit 5)
<PAGE>
26
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high and of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of the Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs 2(a)(i) and 2(a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference herein.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE
offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain at
the termination of the offering.
(2) The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of any employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of
such securities at that time be deemed to be the initial BONA FIDE offering
thereof.
(3) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provision, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
27
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 April 14,
1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Steven Georgiev
Steven Georgiev, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Steven Georgiev Chairman of the Board, Chief April 14, 1997
-------------------------------------- Executive Officer and Director
Steven Georgiev (Principal Executive Officer)
/s/ Dr. Michael H. Smotrich President, Chief Operating Officer, April 14, 1997
---------------------------- Director
Dr. Michael H. Smotrich
/s/ Joseph P. Caruso Vice President, Chief Financial April 14, 1997
-------------------------------------- Officer, Treasurer (Principal Financial
Joseph P. Caruso and Accounting Officer)
/s/ Buster C. Glosson Director April 14, 1997
--------------------------------------
Buster Glosson
/s/ John M. Deutch Director April 14, 1997
--------------------------------------
John M. Deutch
/s/ Louis P. Valente Director April 14, 1997
--------------------------------------
Louis P. Valente
</TABLE>
28
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
April 7, 1997
29
April 14, 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 348,507 shares
(the "Shares") of the Company's Common Stock, $.01 par value per share ("Common
Stock"), issuable pursuant to certain common stock, warrants and preferred stock
issued to certain persons and entities.
In arriving at the opinion expressed below, I have examined and relied
on the following documents:
(1) the Certificate of Incorporation and By-Laws of the Company,
each as amended as of the date hereof; and
(2) the records of meetings and consents of the Board of Directors
and stockholders of the Company provided to me by the Company.
In addition, I have examined and relied on the originals or copies
certified or otherwise identified to my satisfaction of all such corporate
records of the Company and such other instruments and other certificates of
public officials, officers and representatives of the Company and such other
persons, and have made such investigations of law, as I have deemed appropriate
as a basis for the opinion expressed below.
Based upon the foregoing, it is my opinion that the Company has
corporate power adequate for the issuance of the Shares. The Company has taken
all necessary corporate action required to authorize the issuance and sale of
the Shares, and when certificates for the Shares have been duly executed and
countersigned and delivered, such shares will be legally issued, fully paid and
non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the S-3
Registration Statement.
Sincerely,
/s/Sarah Burgess Reed
General Counsel
Palomar Medical Technologies, Inc.
31
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. EASTERN STANDARD TIME, ON SEPTEMBER 6, 2001
WARRANT TO PURCHASE COMMON STOCK
OF
PALOMAR MEDICAL TECHNOLOGIES, INC.
FOR VALUE RECEIVED, PALOMAR TECHNOLOGIES, INC. (the "Company"), a
Delaware corporation, hereby certifies that Steven Osman, or his permitted
assigns, is entitled to purchase from the Company, at any time or from time to
time commencing upon execution and prior to 5:00 P.M., Eastern Standard Time, on
September 6, 2001, a total of Eighty Two Thousand Five Hundred (82,500) fully
paid and nonassessable shares of the Common Stock, par value $.01 per share, of
the Company for an aggregate purchase price of Seven Hundred Thirty Two Thousand
One Hundred Eighty Seven and 50/100 Dollars ($732,187.50) (computed on the basis
of $8 7/8 per share). (Hereinafter, (i) said Common Stock, together with any
other equity securities which may be issued by the Company with respect thereto
or in substitution therefor, is referred to as the "Common Stock", (ii) the
shares of the Common Stock purchasable hereunder are referred to as the "Warrant
Shares", (iii) the aggregate purchase price payable hereunder for the Warrant
Shares is referred to as the "Aggregate Warrant Price", (iv) the price payable
hereunder for each of the Warrant Shares is referred to as the "Per Share
Warrant Price", (v) this Warrant, and all warrants hereafter issued in exchange
or substitution for this Warrant are referred to as the "Warrant" and (vi) the
holder of this Warrant is referred to as the "Holder"). The number of Warrant
Shares and the Per Share Warrant Price are subject to adjustment as provided in
this Warrant.
1. Exercise of Warrant. This Warrant may be exercised, in whole at any
time or in part from time to time, commencing upon execution, and prior to 5:00
P.M., Eastern Standard Time then current, on September 6, 2001, by the Holder of
this Warrant by the surrender of this Warrant (with the subscription form at the
end hereof duly executed) at the address set forth in Subsection 17(a) hereof,
together with proper payment of the Aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised in part. Payment for
Warrant Shares shall be made by certified or official bank check payable to the
order of the Company or wire transfer of funds to the account of the Company,
except as provided in Section 2 hereof. If this Warrant is exercised in part,
this Warrant must be exercised for a minimum of 1,000 shares of the Common Stock
(or such lesser number of shares of Common Stock as shall remain available for
purchase under the terms of the Warrant), subject to adjustment as provided in
this Warrant, and the Holder is entitled to receive a new Warrant covering the
number of Warrant Shares in respect of which this Warrant has not been exercised
and setting forth the proportionate part of the Aggregate Warrant Price
applicable to such Warrant Shares. Upon such surrender of this Warrant, the
Company will at its expense within three business days after receipt of such
Warrant (a) issue in the name of and deliver to the Holder, or as the Holder may
direct, a certificate or certificates in such denominations as may be requested
by such Holder, for the largest number of whole shares of the Common Stock to
which the Holder shall be entitled, and (b) deliver to the Holder a new Warrant
containing the same terms and provisions and covering the number of Warrant
Shares in respect of which this Warrant has not been exercised, if this Warrant
has not been exercised in full. In lieu of any fractional share of the Common
Stock which would otherwise be issuable in respect to the exercise of the
Warrant, the Company at its option (i) may pay to the Holder in cash an amount
equal to the fair market value of the fractional share based upon the fair
market value of a share of Common Stock as determined under Section 2 hereof or
(ii) may issue to the Holder an additional share of Common Stock.
<PAGE>
32
The person in whose name any certificate for shares of Common Stock is
to be issued upon exercise of this Warrant shall for all purposes be deemed to
have become a shareholder of record of the Company in respect of such shares on
the date this Warrant (with the subscription form at the end hereof duly
executed) was surrendered and payment of the applicable Per Share Warrant Price
was made as provided herein.
No warrant granted herein shall be exercisable after 5:00 p.m. Eastern
Standard Time on September 6, 2001.
2. Net Issuance.
a. In lieu of payment of the Per Share Warrant Price as
provided in Section 1 hereof, the Holder may pay the Per Share Warrant Price by
giving the Company written notice of the Holder's delivery of irrevocable
instructions to a broker-dealer to sell or margin a sufficient portion of the
Warrant Shares to pay the Per Share Warrant Price and any withholding taxes and
to deliver such sale or margin loan proceeds directly to the Company (the
"Cashless Exercise Procedure"). The Company agrees that upon receipt of such
notice, (i) the Company will immediately deliver to the broker-dealer written
confirmation that the Company will deliver certificates representing such
Warrant Shares to the broker-dealer promptly in exchange for such proceeds, (ii)
the Company will promptly deliver such certificates to the broker-dealer in
exchange for such proceeds upon request of the broker-dealer and (iii) the
Company will cooperate in a prompt and expeditious manner with all procedures of
such broker-dealer to permit participation by the Holder in such broker-dealer's
exercise or financing program and to permit the broker-dealer to sell such
Warrant Shares simultaneously with the exercise of the Warrant. The Holder will
direct the broker-dealer to deliver such proceeds to the Company within five
business days of delivery of the exercise notice to the Company. The Company
agrees to treat the gross proceeds received by the broker-dealer upon the
exercise of the Warrant Shares as the gross amount received by the Holder for
purposes of determining the taxable amount paid to the Holder under applicable
federal, state and local tax laws. Only in the event that (x) use by the Holder
of the Cashless Exercise Procedure in the manner described above would be
prohibited by, result in a violation of, or result in liability of the Holder or
broker-dealer under any statute or law or any regulation, rule, ordinance, or
interpretive ruling, determination or opinion of any governmental agency or
authority or (y) the Company fails to comply with this Section 2(a); then the
Holder may pay the Per Share Warrant Price in the manner provided in Section
2(b) hereof.
b. To the extent permitted under subsection (a) hereof, in
lieu of payment of the Per Share Warrant Price as provided in Section 1 hereof,
the Holder may elect in the subscription form attached hereto to pay the Per
Share Warrant Price in whole or in part by receiving shares of Common Stock
equal to the net issuance value (as determined below) of this Warrant or any
part hereof, upon exercise of this Warrant or any part hereof, in which event
the Company shall issue to the Holder a number of shares of Common Stock
computed using the following formula:
X = Y x (A-B)
A
Where: X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock as to which this Warrant is
exercised
A = the current fair market value of one share of Common Stock
calculated as of the last trading day immediately preceding the
exercise of this Warrant
B = the Per Share Warrant Price
As used herein, current fair market value of Common Stock as of a specified date
shall mean with respect to each share of Common Stock the average of the closing
prices of the Common Stock on the principal securities market on which the
Common Stock may at the time be traded over a period of five Business Days
consisting of the day as of which the current fair market value of a share of
Common Stock is being determined (or if such day is not a
<PAGE>
33
Business Day, the Business Day next preceding such day) and the four consecutive
Business Days prior to such day. If on the date for which current fair market
value is to be determined the Common Stock is not eligible for trading on any
securities market, the current fair market value of Common Stock shall be the
highest price per share which the Company could then obtain from a willing buyer
(not a current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good faith by the
Board of Directors of the Company, unless within 30 days prior to such date the
Company has become subject to a merger, acquisition or other consolidation
pursuant to which the Company is not the surviving party, in which case the
current fair market value of the Common Stock shall be deemed to be the value
received by the holders of the Company's Common Stock for each share thereof
pursuant to the transaction. "Business Day" as used herein shall mean a day on
which the New York Stock Exchange is open for business.
c. In the event that the Holder pays the Per Share Warrant
Price in the manner provided in Sections 1 or 2(b) hereof, the Holder may
satisfy any federal, state or local tax withholding requirements in whole or in
part by electing in the exercise form to have the Company withhold Warrant
Shares having a value equal to the amount required to be withheld. The value of
each Warrant Share to be withheld shall be the fair market value of such Warrant
Share as determined under subsection (b) hereof.
3. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc.. In case at any time or from time to time, all the
holders of the Common Stock shall have received, or (on or after the record date
fixed for the determination of stockholders eligible to receive) shall have
become entitled to receive, without payment therefor,
a. other or additional stock or other securities or
property (other than cash) by way of dividend, or
b. any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
c. other or additional stock or other securities or
property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination or
exchange of shares or similar corporate rearrangement,
other than additional shares or distributions
adjustments in respect of which are provided for in
Section 5, then and in each such case the Holder of this
Warrant on the exercise hereof shall also be entitled to
receive the amount of stock and other securities and
property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 3) which such
Holder would hold on the date of such exercise if on the
date hereof the Holder had been the holder of record of
the number of shares of Common Stock called for on the
face of this Warrant, or such portion thereof with
respect to which the Warrant is being exercised, and had
thereafter, during the period from the date hereof to
and including the date of such exercise, retained such
shares and all such other or additional stock and other
securities and property (including cash in the case
referred to in subdivisions (b) and (c) of this Section
3) receivable by the Holder as aforesaid during such
period. The Company shall make appropriate provision
with respect to the rights and interests of the Holder
to the end that the provisions of this Warrant shall
thereafter be applicable, as nearly as may be, in
relation to such stock, securities or property
thereafter deliverable upon the exercise of such
exercise rights.
4. Consolidations and Mergers. In case of any consolidation or
merger of the Company with any other corporation, or in case of
any sale or transfer of all or substantially all of the assets
of the Company, or in the case of any share exchange pursuant to
which all of the outstanding shares of Common Stock are
converted into or exchanged for other securities or property
(including cash), the Company shall make appropriate provision
or cause appropriate provision to be made so that each Holder
shall have the right thereafter to obtain upon exercise of the
Warrant the kind and amount of shares of stock and other
securities and property receivable upon such consolidation,
merger, sale, transfer or share exchange by a holder of the
number of shares of Common Stock for which the Warrant may be
exercised prior to the effective date of such consolidation,
merger, sale, transfer or share exchange. If, in connection with
any such consolidation, merger, sale, transfer, or share
exchange, each holder of shares of Common Stock is entitled to
elect to receive either securities, cash, or other assets upon
completion of such transaction, the Company shall provide or
cause to be provided to each Holder the right to elect the
securities,
<PAGE>
34
cash, or other assets for which the Warrant may be exercised by
such Holder subject to the same conditions applicable to holders
of the Common Stock (including, without limitation, notice of
the right to elect, limitations on the period in which such
election shall be made, and the effect of failing to exercise
the election). The Company shall not effect any such transaction
unless the provisions of this paragraph have been complied with
and the Company shall have made appropriate provision with
respect to the rights and interests of the Holder to the end
that the provisions of this Warrant shall thereafter be
applicable, as nearly as may be, in relation to such securities,
assets, cash or property receivable upon such consolidation,
merger, sale, transfer, or share exchange. The Company will not
effect any such consolidation, merger, sale, transfer or share
exchange unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such
assets shall assume, by written instrument executed and mailed
or delivered to the Holder of this Warrant at the last address
of such Holder appearing on the books of the Company, the
obligation to deliver to such holder such securities assets,
cash or property as, in accordance with the foregoing
provisions, such Holder may be entitled to receive.
5. Adjustment for Extraordinary Events. In the event that the
Company shall (i) issue additional shares of the Common Stock as
a dividend or other distribution on outstanding Common Stock,
(ii) subdivide or reclassify its outstanding shares of Common
Stock, or (iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, then, in each
such event, the Per Share Warrant Price shall, simultaneously
with the happening of such event, be adjusted by multiplying the
then Per Share Warrant Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which
shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall
thereafter be the Per Share Warrant Price then in effect. In
addition, the number of Warrant Shares subject to the Warrant
shall, simultaneously with the happening of such event, be
adjusted by multiplying the number of Warrant Shares by a
fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such event, and the
product so obtained shall thereafter be the number of Warrant
Shares then subject to the Warrant. The Per Share Warrant Price
and the number of Warrant Shares, as so adjusted, shall be
readjusted in the same manner upon the happening of any
successive event or events described herein in this Section 5.
6. Notices of Record Date, etc. In the event of
a. any taking by the Company of a record of the holders of
any class of securities for the purpose of determining
the holders thereof who are entitled to receive any
dividend on, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any
other right, or
b. any capital reorganization of the Company, any
reclassification or recapitalization of the capital
stock of the Company or any transfer of all or
substantially all of the assets of the Company to or
consolidation or merger of the Company with or into any
other person, or
c. any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each event the Company will give or cause to be
given to the Holder, at least ten days prior to such record
date, a written notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of
such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be
fixed, as of which the holders of record of Common Stock shall
be entitled to exchange their shares of Common Stock for
securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, and (iii) the
amount and character of any stock or other securities, or rights
or options with respect thereto, proposed to be issued or
granted, the date of such proposed issue or grant and the
persons or class of persons to whom such proposed issue or grant
is to be offered or made. Such notice shall also state that the
action in question or the record date is subject to the
effectiveness of a registration statement under the Securities
<PAGE>
35
Act of 1933, as amended (the "Securities Act"), or a favorable
vote of stockholders if either is required. Such notice shall be
given at least ten days prior to the date specified in such
notice on which any such action is to be taken or the record
date, whichever is earlier.
7. Jurisdiction. The Company irrevocably and unconditionally (i)
agrees that any action, suit or legal proceeding arising out of
or relating to this Warrant shall be brought in the United
States District Court for the District of Kansas or the District
Court of Johnson County, Kansas, unless the court will not
accept such jurisdiction, and except for cross-claims in the
event of suit by a third party, (ii) consents to the
jurisdiction of such courts (and of appropriate appellate
courts) in any such action, suit or proceeding, (iii) waives any
objection which the Company may have to the laying of venue of
any such action, suit or proceeding in any such court and (iv)
waives any claim that any such court is not a convenient forum
for any such action, suit or proceeding. If the action is
brought in the District Court of Johnson County, Kansas, nothing
herein shall prevent either party from attempting to remove the
action to the United States District Court for the District of
Kansas in accordance with applicable law.
8. Notice of Adjustment. Upon any adjustment of the Per Share
Warrant Price or the number or type of Warrant Shares, then and
in each such case the Company shall give written notice thereof
to the Holder as provided in Section 17 hereof, which notice
shall state the Per Share Warrant Price and number and type of
Warrant Shares resulting from such adjustment, setting forth in
reasonable detail the method of calculation and the facts upon
which such calculation is based.
9. Reservation of Warrant Shares. The Company agrees that, prior to
the expiration of this Warrant, the Company will at all times
have authorized and in reserve, and will keep available, solely
for issuance or delivery upon the exercise of this Warrant, the
shares of the Common Stock as from time to time shall be
receivable upon the exercise of this Warrant.
10. Fully Paid Stock; Taxes. The Company agrees that the shares of
the Common Stock represented by each and every certificate for
Warrant Shares delivered on the exercise of this Warrant shall,
at the time of such delivery, be validly issued and outstanding,
fully paid and non-assessable, and not subject to preemptive
rights, and the Company will take all such actions as may be
necessary to assure that the par value or stated value, if any,
per share of the Common Stock is at all times equal to or less
than the then Per Share Warrant Price. The Company further
covenants and agrees that it will pay, when due and payable, any
and all Federal and State stamp, original issue or similar taxes
that may be payable in respect of the issue of any Warrant Share
or certificate therefor.
11. Transfer.
a. Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been
registered under the Securities Act or under any state
securities laws and unless so registered may not be
transferred, sold, pledged, hypothecated or otherwise
disposed of unless an exemption from such registration
is available. In the event Holder desires to transfer
this Warrant or any of the Warrant Shares issued, the
Holder must give the Company prior written notice of
such proposed transfer including the name and address of
the proposed transferee. Such transfer may be made only
either (i) upon publication by the Securities and
Exchange Commission (the "Commission") of a ruling,
interpretation, opinion or "no action letter" based upon
facts presented to said Commission, or (ii) upon receipt
by the Company of an opinion of Counsel to the Company
or counsel reasonably acceptable to the Company in
either case to the effect that the proposed transfer
will not violate the provisions of the Securities Act,
the Securities Exchange Act of 1934, as amended
("Exchange Act"), or the rules and regulations
promulgated under either such act, or to the effect that
the Warrant or Warrant Shares to be sold or transferred
has been registered under the Securities Act, and that
there is in effect a current prospectus meeting the
requirements of Subsection 10(a) of the Securities Act,
which is being or will be delivered to the purchaser or
transferee at or prior to the time of delivery of the
certificates evidencing the Warrant or Warrant Shares to
be sold or transferred.
b. Conditions to Transfer. Prior to any such proposed
transfer, and as condition thereto, if such transfer is
not made pursuant to an effective registration statement
under the Securities Act, the Holder will, if
<PAGE>
36
requested by the Company, deliver to the Company, to the
extent required to qualify for the exemption from
registration relied upon by the Holder, (i) an
investment covenant signed by the proposed transferee,
(ii) an agreement by such transferee to the impression
of the restrictive investment legend set forth herein on
the certificate or certificates representing the
securities acquired by such transferee, (iii) an
agreement by such transferee that the Company may place
a "stop transfer order" with its transfer agent or
registrar, and (iv) an agreement by the transferee to
indemnify the Company to the same extent as set forth in
the next succeeding paragraph.
c. Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this
Section 11, and the Holder hereby agrees to indemnify
and hold harmless the Company, its representatives and
each officer and director thereof from and against any
and all loss, damage or liability (including all
attorneys' fees and costs incurred in enforcing this
indemnity provision) due to or arising out of (a) the
inaccuracy of any representation or the breach of any
warranty of the Holder contained in, or any other breach
of this Section 11, (b) any transfer of the Warrant or
any of the Warrant Shares in violation of the Securities
Act, the Exchange Act, or the rules and regulations
promulgated under either of such acts, (c) any transfer
of the Warrant or any of the Warrant Shares not in
accordance with this Warrant or (d) any untrue statement
or omission to state any material fact in connection
with the investment representations or with respect to
the facts and representations supplied by the Holder to
counsel to the Company upon which its opinion as to a
proposed transfer shall have been based.
d. Transfer. Except as restricted hereby, this Warrant and
the Warrant Shares issued may be transferred by the
Holder in whole or in part at any time or from time to
time. Upon surrender of this Warrant to the Company or
at the office of its stock transfer agent, if any, with
assignment documentation duly executed and funds
sufficient to pay any transfer tax, and upon compliance
with the foregoing provisions, the Company shall,
without charge, execute and deliver a new Warrant in the
name of the assignee named in such instrument of
assignment, and this Warrant shall promptly be canceled.
Any assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the
provisions of this Warrant, or any levy of execution,
attachment or other process attempted upon the Warrant,
shall be null and void and without effect.
e. Legend and Stop Transfer Orders. Unless the Warrant
Shares have been registered under the Securities Act,
upon exercise of any part of the Warrant and the
issuance of any of Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer
orders with respect to such shares, and all certificates
representing Warrant Shares shall bear on the face
thereof substantially the following legend, insofar as
is consistent with Delaware law:
"The shares of common stock represented by this
certificate have not been registered under the
Securities Act of 1933, as amended, and may not be sold,
offered for sale, assigned, transferred or otherwise
disposed of unless registered pursuant to the provisions
of that Act or an opinion of counsel reasonably
acceptable to the Company is obtained stating that such
disposition is in compliance with an available exemption
from such registration."
12. Registrations.
a. On the earlier to occur of (i) the next filing by the
Company of a registration statement on Form S-3
providing for the resale of its securities by security
holders of the Company or (ii) August , 1997 and, in any
event, subject to the receipt of necessary information
from the Holder, the Company shall file with the
Securities and Exchange Commission (the "Commission") a
registration statement on Form S-3 or other appropriate
form (the "Registration Statement"), which may include
other selling stockholders, providing for the resale of
the Warrant Shares (the "Registrable Shares") by the
Holder from time to time in accordance with Rule 415
promulgated under the Securities Act, or any similar
rule that may be adopted by the Commission. The Company
shall use its best efforts to cause the Registration
Statement to become effective by October , 1997 and the
Company shall use its best efforts to keep the
Registration Statement effective until the earlier of
(a) the time all the Registrable Shares have been sold
pursuant to the Registration Statement or (b) 60 days
after the expiration date of the Warrant. The Company
shall promptly furnish to the Holder such number of
copies of the Registration
<PAGE>
37
Statement and any amendment thereto and of the
prospectus included therein and any supplement thereto
as the Holder shall reasonably require to facilitate the
public sale of the Registrable Shares.
b. The Company shall promptly prepare and file with the
Commission such amendments and post-effective amendments
to the Registration Statement as may be necessary to
keep such Registration Statement effective during the
entire applicable period and in compliance with the
provisions of subsection (e) below; and cause each
prospectus to be supplemented, and as so supplemented to
be filed (if required) with the Commission pursuant to
Rule 424 of the General Rules and Regulations
promulgated under the Securities Act.
c. The Company shall use its best efforts to register or
qualify the Registrable Securities under all applicable
state securities or "blue sky" laws of such
jurisdictions in the United States as may be from time
to time reasonably requested by any holder of the
Warrant or Warrant Shares; provided, however, that the
Company shall not be required to (i) qualify as a
foreign corporation in any jurisdiction where it would
not be otherwise required to so qualify, (ii) take any
action that would subject it to general service of
process or taxation in any jurisdiction if it is not
then so subject, (iii) provide any undertakings that
cause more than nominal expense or burden to the
Company, or (iv) make any change in its charter or
by-laws, which in each case the Board of Directors of
the Company determines to be contrary to the best
interests of the Company and its shareholders.
d. The Company shall promptly notify each holder of the
Warrant or Warrant Shares (i) when the Registration
Statement has been declared effective and when any
post-effective amendments thereto have been declared
effective by the Commission, (ii) of any request by the
Commission or any state securities authority for
post-effective amendments and/or supplements to the
Registration Statement, (iii) of the issuance by the
Commission or any state securities authority of any stop
order suspending the effectiveness of the Registration
Statement and (iv) the happening of any event as a
result of which the prospectus contained in the
Registration Statement or any supplement to such
prospectus is not in compliance with subsection (e)(iii)
hereof.
e. The Company shall use its best efforts to assure that
(i) the Registration Statement and any amendment
thereto, and any prospectus forming a part thereof and
any supplement thereto, complies in all material
respects with the Securities Act and the rules and
regulations thereunder, (ii) the Registration Statement
and any amendment thereto does not at any time during
the applicable period contain an untrue statement of a
material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading, and (iii) the prospectus forming
part of the Registration Statement and any supplement to
such prospectus (as amended or supplemented from time to
time) does not at any time during the applicable period
include an untrue statement or a material fact or omit
to state a material fact necessary to make the
statements therein, in light of the circumstances under
which they were made, not misleading.
f. The Company shall be responsible for, and shall pay in
due course, any and all expenses incident to the
performance by the Company of its obligations under this
Warrant, including, but not limited to: (i) all
Commission and NASD registration and filing fees; (ii)
all fees and expenses incurred in connection with
compliance with state securities or blue sky laws; (iii)
all expenses of printing and distributing the
Registration Statement, any prospectus, and any
amendments or supplements thereto; and (iv) the fees and
disbursements of counsel for the Company and of the
independent pubic accountants of the Company.
g. The Company hereby agrees to indemnify and hold harmless
each Holder, its partners, officers, directors and
representatives, and each Person, if any, who controls
such Holder within the meaning of the Securities Act or
the Exchange Act, against any and all losses,
liabilities, claims, damages, costs and expenses
whatsoever, as incurred (including all attorneys' fees
and costs incurred in enforcing this indemnity
provision), arising out of any breach by the Company of
any representation, warranty or covenant in this
Warrant, any untrue statement or alleged untrue
statement of a material fact contained in the
Registration Statement or the omission or alleged
omission therefrom of a material fact required to be
stated therein or necessary to make the statements
therein not misleading, or arising out of any untrue
statement or alleged untrue statement of a material fact
contained in any prospectus or the omission or alleged
omission therefrom of a material fact necessary in order
to make the statements therein, in light of the
circumstances under which they were made, not
misleading. Notwithstanding anything to the contrary
contained herein, the indemnification described above
shall not apply to
<PAGE>
38
amounts paid in settlement of any loss, liability,
claim, damage, cost or expense if such settlement is
effected without the prior written consent of the
Company, which consent shall not be unreasonably
withheld. Notwithstanding anything to the contrary
contained herein, the indemnification agreement
contained in this subsection (g): (i) shall not apply to
a claim arising out of or based upon a violation which
occurs in reliance upon and in conformity with
information furnished in writing to the Company by such
Holder or underwriter for such Holder expressly for use
in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by
the Company to the Holder for review and approval and
(ii) with respect to any preliminary prospectus shall
not inure to the benefit of any such person from whom
the person asserting any such claim purchased the
Registrable Securities that are the subject thereof (or
to the benefit of any person controlling such person) if
the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected in
the prospectus, as then amended or supplemented, if such
prospectus was timely made available by the Company
pursuant to Section 12(a) hereof.
h. As long as the Company is subject to the reporting
requirements of Section 13 or Section 15 of the Exchange
Act, the Company shall promptly file the reports
required to be filed by it pursuant to Section 13(a) or
15(d) of the Exchange Act and the rules and regulations
adopted by the Commission thereunder. If the Company is
at any time not required to file such reports, it shall
promptly make publicly available such information as is
necessary to permit sales of its Common Stock pursuant
to Rule 144 of the General Rules and Regulations
promulgated under the Securities Act.
i. If at any time the Company shall determine to register
any of its securities under the Securities Act, other
than on Form S-8 or Form S-4 or their then equivalents
or as provided in subsection (a) hereof, it shall send
to each Holder of the Registrable Shares, including each
Holder who has the right to acquire Registrable Shares,
written notice of such determination and, if within 10
days after receipt of such notice, such Holder shall so
request in writing, the Company shall use its best
efforts to include in such registration statement all or
any part of the Registrable Shares such Holder requests
to be registered therein, except that if, in connection
with any offering involving an underwriting of Common
Stock to be issued by the Company, the managing
underwriter shall impose a limitation on the number of
shares of such Common Stock which may be included in any
such registration statement because, in its judgment,
such limitation is necessary to effect an orderly public
distribution, and such limitation is imposed pro rata
with respect to all securities whose holders have a
contractual, incidental ("piggy-back") right to include
such securities in the registration statement and as to
which inclusion has been requested pursuant to such
right, then the Company shall be obligated to include in
such registration statement only such limited portion
(which may be none) of the Registrable Shares with
respect to which such Holder has requested inclusion
hereunder.
13. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to the
Company, if lost, stolen or destroyed, and upon surrender and
cancellation of the Warrant, if mutilated, the Company shall
execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.
14. Warrant Holder Not Shareholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right
to vote or to consent to or receive notice as a shareholder of
the Company, as such, in respect of any matters whatsoever, or
any other rights or any liabilities for the Aggregate Warrant
Price or as a shareholder, prior to the exercise hereof, whether
such liabilities are asserted by the Company or a creditor of
the Company.
15. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened
default by the Company in the performance of or compliance with
any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by
decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the
terms hereof or otherwise. Nothing in this Section shall be
construed as prohibiting any Holder from pursuing any other
rights or remedies available for any such default.
<PAGE>
39
16. No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all provisions
of this Warrant and in the taking of all such action as may be
necessary or appropriate in order to protect the exercise rights
of the Holders of the Warrant against impairment.
17. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and (i)
delivered personally, (ii) sent by express mail service that
provides for confirmation of delivery or (iii) is mailed by
first-class mail, postage prepaid, to:
a. the Company at 66 Cherry Hill Drive, Beverly,
Massachusetts 01915, or such other address as the
Company has designated in writing to the Holder, or
b. the Holder at 4948 West 88th Street, Prairie Village, KS
66207 or such other address as the Holder has designated
in writing to the Company and a copy to Lawrence W.
Bigus, Hillix, Brewer, Hoffhaus, Whittaker & Wright,
L.L.C., 2420 Pershing Road, Ste. 400, Kansas City, MO
64108.
18. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction
hereof.
19. Applicable Law. This Warrant shall be governed by and construed
in accordance with the law of the State of Delaware without
giving effect to the principles of conflicts of law thereof.
20. Miscellaneous. This Warrant shall inure to the benefit of and be
binding upon the heirs, successors and assigns of the Holder.
This Warrant and any terms hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed
by the party against whom enforcement of such change, waiver,
discharge or termination is sought. The invalidity or
unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
IN WITNESS WHEREOF, PALOMAR MEDICAL TECHNOLOGIES, INC. has
caused this Warrant to be signed by its Chairman and its corporate seal
to be hereunto affixed and attested by its Secretary this _____ day of
____________________, 1996.
PALOMAR TECHNOLOGIES, INC.
By:______________________________
Steven Georgiev, Chairman
(Corporate Seal)
<PAGE>
40
SUBSCRIPTION
1. The undersigned, _________________________________, pursuant to
the provisions of the foregoing Warrant, hereby agrees to
subscribe for the purchase of _______ shares of the Common Stock
of PALOMAR MEDICAL TECHNOLOGIES, INC. covered by said Warrant,
and makes payment therefor in full at the price per share
provided by said Warrant.
2. The undersigned Holder (check one):
___ a. elects to pay the aggregate purchase price for such
shares of Common Stock (i) by lawful money of the United
States or the enclosed certified or official bank check
payable in United States dollars to the order of the
Company in the amount of $______________, or (ii) by
wire transfer of United States funds to the account of
the Company in the amount of $___________, which
transfer has been made before or simultaneously with the
delivery of this Form of Subscription pursuant to the
instructions of the Company; or
___ b. elects to pay the aggregate purchase price by
implementing the Cashless Exercise Procedure pursuant to
Section 2(a) of the Warrant.
___ c. elects to receive shares of Common Stock having a
value equal to the value of the portion of the Warrant
exercised, calculated in accordance with Section 2(b) of
the Warrant (available only to the extent provided in
Section 2(b) of the Warrant).
3. ___ (Check if applicable) The undersigned Holder elects to have
the Company withhold Warrant Shares having a value equal to the
amount required to be withheld to satisfy any federal, state or
local tax withholding requirements (available only to the extent
provided in Section 2(c) of the Warrant).
4. Please issue a stock certificate or certificates representing
the appropriate number of shares of Common Stock in the name of
the undersigned or in such other name(s) as is specified below:
Name:
Address:
Dated:_______________________ Signature:___________________________
Address:___________________________
Soc. Sec. # or Fed. ID#:___________________________
<PAGE>
41
ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby sells, assigns
and transfer unto ______________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
________________________, attorney, to transfer said Warrant on the books of
PALOMAR MEDICAL TECHNOLOGIES, INC.
Signature:____________________ Assignee
Dated:________________________
Address:______________________ Address:______________________
SS/Fed ID#:___________________ SS/Fed ID#:___________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby sells, assigns
and transfer unto ______________________ the right to purchase _____ shares of
the Common Stock of PALOMAR MEDICAL TECHNOLOGIES, INC. by the foregoing Warrant,
and a proportionate part of said Warrant and the rights evidenced thereby, and
does irrevocably constitute and appoint ________________________, attorney, to
transfer that part of said Warrant on the books of PALOMAR MEDICAL TECHNOLOGIES,
INC.
Signature:____________________ Assignee
Dated:________________________
Address:______________________ Address:______________________
SS/Fed ID#:___________________ SS/Fed ID#:___________________
