As filed with the Securities and Exchange Commission on July 14, 1997
Registration No. 333-28251
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1 TO
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]
1
<PAGE>
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 11,345,615(1) $2.8125(2) $31,909,542(2) $9,670**(2)
per share.
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
</TABLE>
**$4,430 paid with initial filing on May 30, 1997
(1) Consists of (i) 8,000,000 shares underlying 16,000 shares of Series H
Convertible Preferred Stock; (ii) 2,750,000 shares issuable upon
conversion of $5,500,000 principal amount of 5% Convertible Debentures
due March 10, 2002; (iii) 550,160 additional shares issuable upon
conversion of $1,500,000 principal amount of 4.5% Convertible Debentures
due on October 17, 1999, October 17, 2000, October 17, 2001 and (iv)
45,455 shares issuable upon conversion of $500,000 principal amount of
6% Convertible Debentures due March 13, 2002, all of which are
exercisable at prices and terms described in the Selling Stockholders
and Plan of Distribution sections of the Prospectus.
(2) Estimated solely for purposes of calculation of the fee. The actual
number of shares of common stock issuable upon conversion of the
foregoing may be more or less than such estimate based on a variety of
factors, including the date of conversion and the price of the common
stock on such date. The fee is estimated pursuant to Rule 457(c) under
the Act on the basis of the average of the high and low sale prices
reported on the Nasdaq SmallCap Market on July 9, 1997.
Pursuant to Rule 416, there are also registered hereby such additional
indeterminate number of shares of such Common Stock as may become issuable as
dividends or to prevent dilution resulting from stock splits, stock dividends or
similar transactions or as the result of floating rate conversion mechanisms as
set forth in the terms of the debentures and preferred stock referred to above.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SUBJECT TO COMPLETION DATED July 14, 1997
2
<PAGE>
PROSPECTUS
PALOMAR MEDICAL TECHNOLOGIES, INC.
11,345,615 shares of Common Stock
consisting of:
8,000,000 shares underlying 16,000 shares of Series H
Convertible Preferred Stock;
2,750,000 shares issuable upon conversion of $5,500,000 principal amount
of 5% Convertible Debentures;
550,160 shares issuable upon conversion of $1,500,000 of 4.5%
Convertible Debentures; and
45,455 shares issuable upon conversion of $500,000 principal amount of 6%
Convertible Debentures.
This Prospectus relates to 11,345,615 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) 8,000,000
shares underlying 16,000 shares of Series H Convertible Preferred Stock; (ii)
2,750,000 shares issuable upon conversion of $5,500,000 principal amount of 5%
Convertible Debentures; (iii) 550,160 additional shares issuable upon conversion
of $1,500,000 of 4.5% Convertible Debentures; and (iv) 45,455 shares issuable
upon conversion of $500,000 principal amount of 6% Convertible Debentures, all
of which are exercisable as described in the Selling Stockholders and Plan of
Distribution sections of the Prospectus. All shares to be registered hereby are
to be offered by the selling stockholders listed herein (the "Selling
Stockholders") and the Company will receive no proceeds from the sale of such
shares. The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including certain liabilities under the Securities Act of
1933, as amended (the "Securities Act"), or to contribute to payments which such
Selling Stockholders may be required to make in respect thereof. See "Plan of
Distribution".
The Company's Common Stock, par value $.01 per share, is listed on the
National Association of Securities Dealers Automated Quotation System ("Nasdaq")
and traded on the Nasdaq SmallCap Market. The last reported bid price of the
Common Stock on the Nasdaq SmallCap Market on July 11, 1997 was $2.8125 per
share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGES 6 THROUGH 17.
It is anticipated that usual and customary brokerage fees will be paid
by the Selling Stockholders on the sale of the Common Stock registered hereby.
The Company will pay the other expenses of this offering. See "Plan of
Distribution". The offer of shares of Common Stock by the Selling Stockholders
as described in this Prospectus is referred to as the "Offering".
<TABLE>
<CAPTION>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Price to Public Underwriting Discounts and Proceeds to Issuer or
Commissions Other Persons
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Per Unit..................... $2.8125(1) 0(2) $2.8125(1)(3)
Total......................... $31,909,542(1) 0(2) $31,909,542(1)(3)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
(1) Based on the closing bid price of the Company's common stock as reported
on the Nasdaq SmallCap Market on July 11, 1997.
(2) None, to the Company's knowledge.
(3) Less usual and customary brokerage fees.
The date of this Prospectus is ______________.
3
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in connection with the offer
contained in this Prospectus, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Company
or the Selling Stockholders. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, Room 1024 and at the public
reference facilities maintained by the Commission on the 14th Floor, 75 Park
Place, New York, New York 10007; Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661; and Suite 500 East, Securities and
Exchange Commission Building, 5757 Wilshire Boulevard, Los Angeles, California
90036. Copies can be obtained from the Commission at prescribed rates by writing
to the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
reports, proxy statements and similar information can also be inspected and
copied at the National Association of Securities Dealers, 1735 K Street, N.W.,
Washington, DC 20006-1500. In addition, the Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically, including the Company. The
Commission's Web site address is http://www.sec.gov. This prospectus, which
constitutes part of a Registration Statement filed by the Company with the
Commission under the Securities Act omits certain of the information contained
in the Registration Statement in accordance with the rules and regulations of
the Commission. Reference is hereby made to the Registration Statement and to
the Exhibits relating thereto for further information with respect to the
Company and the Securities offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such documents filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-KSB for its fiscal year ended
December 31, 1996 as amended by Form 10-KSB/A-1 filed April 16, 1997, Form
10-KSB/A-2 filed April 30, 1997, Form 10-KSB/A-3 filed May 28, 1997 and Form
10-KSB/A-4 filed July 11, 1997, the Company's Quarterly Report on Form 10-Q for
its quarter ending March 31, 1997 filed May 15, 1997; the Company's Form 8-K
filed with the Commission on May 16, 1996, as amended by Form 8-K/A filed June
11, 1996; and the description of the Company's Common Stock contained in its
Registration Statement on Form 8-A filed with the Commission on June 6, 1992,
all of which have been previously filed with the Commission, are incorporated in
this Prospectus by reference. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the termination of the offering made hereby are also incorporated by
reference herein and made a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated by reference
herein is modified or superseded for all purposes to the extent that a statement
contained in this Prospectus or in any other subsequently filed document which
is incorporated by reference modifies or replaces such statement. The Company
will provide without charge to each person, including any beneficial owner, to
whom a copy of this Prospectus is delivered, upon the written or oral request of
such person, a copy of all documents incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference herein). Requests for such copies should be directed
to: John J. Ingoldsby, Palomar Medical Technologies, Inc., 66 Cherry Hill Drive,
Beverly, Massachusetts 01915; telephone number (508) 921-9300; e-mail address:
[email protected].
4
<PAGE>
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. (See 10-KSB/A-4 "Item 1. Description of
Business.") The Company derives revenue from the sale of
cosmetic laser products by its subsidiaries Spectrum Medical
Technologies, Inc. and Tissue Technologies, Inc. The laser
services segment is new; the Company derives no revenue from
that segment at present. In addition, the Company derives
revenue from the sale of electronic products by its
subsidiaries Nexar Technologies, Inc. ("Nexar"), Dynaco
-------
Corporation and Comtel Electronics, Inc. The electronic
products segment is the principal source of the Company's
revenues.
RISK FACTORS........................................ The Offering involves substantial risk. See "Risk Factors".
SECURITIES OFFERED.................................. 11,345,615 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>
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
SHOULD NOT BE MADE BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. IN CONNECTION WITH THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY IS HEREBY IDENTIFYING
IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED IN FORWARD-LOOKING STATEMENTS OF THE COMPANY
MADE BY OR ON BEHALF OF THE COMPANY. THE COMPANY ADVISES READERS NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS IN LIGHT OF THE RISKS AND
UNCERTAINTIES TO WHICH THEY ARE SUBJECT. THE FOLLOWING FACTORS SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS.
SUBSTANTIAL AND CONTINUING LOSSES. The Company incurred a net loss of
$37,863,792 for the year ended December 31, 1996 and a net loss of $15,365,145
for the quarter ended March 31, 1997. Losses of this magnitude are expected to
continue for the near term, and there can be no assurance that the Company will
achieve profitable operations or that profitable operations will be sustained if
achieved. At December 31, 1996, the Company's accumulated deficit was
$64,971,200 and at March 31, 1997, the Company's accumulated deficit was
$80,631,341. Dynaco Corp. ("Dynaco"), Star Medical Technologies, Inc. ("Star"),
CD Titles, Inc. ("CD Titles"), Dynamem, Inc. ("Dynamem"), Comtel Electronics,
Inc. ("Comtel"). Tissue Technologies, Inc. ("Tissue"), Spectrum Technologies,
Inc. ("Spectrum") and Nexar Technologies, Inc. ("Nexar") each have had a history
of losses. There can be no assurance that these companies will achieve
profitable operations or that profitable operations will be sustained if
achieved. The Company anticipates incurring substantial research and development
expenses, which will reduce cash available to fund current operations. The
Company must continue to secure additional financing to complete its research
and development activities, commercialize its current and proposed cosmetic
laser products, expand its current electronics business, execute its acquisition
business plan and fund ongoing operations. The Company anticipates that it will
require substantial additional financing during the next twelve-month period.
The Company believes that the cash generated to date from its financing
activities; amounts available under its credit agreement and the Company's
ability to raise cash in future financing activities will be sufficient to
satisfy its working capital requirements through the next twelve-month period.
The Company bases its belief that it has the ability to raise cash in future
financings on its demonstrated historical ability to raise money and its current
and ongoing discussions with financing sources. However, there can be no
assurance that this assumption will prove to be accurate or that events in the
future will not require the Company to obtain additional financing sooner than
presently anticipated. The Company may also determine, depending upon the
opportunities available to it, to seek additional debt or equity financing to
fund the costs of acquisitions or continuing expansion. To the extent that the
Company finances an acquisition with a combination of cash and equity
securities, any such issuance of equity securities could result in dilution to
the interests of the Company's shareholders. Additionally, to the extent that
the Company incurs indebtedness to fund increased levels of accounts receivable
or to finance the acquisition of capital equipment or issues debt securities in
connection with any acquisition, the Company will be subject to risks associated
with incurring substantial additional indebtedness, including the risks that
interest rates may fluctuate and cash flow may be insufficient to pay principal
and interest on any such indebtedness. The Company continues to investigate
several financing alternatives, including strategic partnerships, additional
bank financing, private, debt and equity financing and other sources. While the
Company regularly reviews potential funding sources in relation to its ongoing
and proposed research projects, there can be no assurance that the current
levels of funding or additional funding will be available, or if available will
be on terms satisfactory to the Company. Failure to obtain additional financing
could have a material adverse effect on the Company, including possibly
requiring it to significantly curtail its operations. (See December 31, 1996
Form 10-KSB/A-4 "Item 1. Description of Business," Note 1 to Financial
Statements, and "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations"; March 31, 1997 Form 10-Q Part I "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.")
HOLDING COMPANY STRUCTURE. The Company has no significant operations
other than those incidental to its ownership of the capital stock of its
subsidiaries. As a holding company, the Company is dependent on dividends or
other intercompany transfers of funds from its subsidiaries to meet the
Company's debt service and other obligations. Claims of creditors of the
Company's subsidiaries, including trade creditors, will generally have priority
as to the assets of such subsidiaries over the claims of the Company and the
holders of the Company's indebtedness.
6
<PAGE>
LIMITED OPERATING HISTORY; RECENT ACQUISITIONS. Many of the Company's
subsidiaries have limited operating histories and are in the development stage,
and the Company is subject to all of the risks inherent in the establishment of
a new business enterprise. The likelihood of success of the Company must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the establishment of a new
business and development of new technologies in the cosmetic laser products and
electronic products industries. These include, but are not limited to,
government regulation, competition, the need to expand manufacturing
capabilities and market expertise, and setbacks in production, product
development, market acceptance and sales and marketing. The Company's prospects
could be significantly affected by its ability to subsequently manage and
integrate the operations of several distinct businesses with diverse products,
services and customer bases in order to achieve cost efficiencies. There can be
no assurance that the Company will be able to successfully manage and integrate
the operations of newly acquired businesses into its operations or that the
failure to do so will not increase the costs inherent in the establishment of
new business enterprises. (See December 31, 1996 Form 10-KSB/A-4 "Item 1.
Description of Business" and Note 1 to Financial Statements.)
RISKS ASSOCIATED WITH ACQUISITIONS. Since going public, the Company has
acquired seven companies. In the normal course of business, the Company
evaluates potential acquisitions of businesses, products and technologies that
would complement or expand the Company's business. Promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory approvals.
Acquisitions may result in the incurrence of additional debt, the write-off of
in-process research and development or technology acquisition and development
costs and the amortization of expenses related to goodwill and other intangible
assets, any of which could have a material adverse effect on the Company's
business, financial condition, results of operations and cash flow. Acquisitions
involve numerous additional risks, including difficulties in the assimilation of
the operations, services, products and personnel of the acquired company, the
diversion of management's attention from other business concerns, entering
markets in which the Company has little or no direct prior experience and the
potential loss of key employees of the acquired company. In order to finance
acquisitions, it may be necessary for the Company to raise additional funds
through public or private financings. Any equity or debt financing, if available
at all, may be on terms which are not favorable to the Company and, in the case
of equity financing, may result in dilution to the Company's stockholders. (See
December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of Business" and Note 1
to Financial Statements.)
NEW VENTURES. The Company's Cosmetic Technology International, Inc.
("CTI") subsidiary has entered into several agreements with physician groups to
provide cosmetic laser services at laser treatment centers, and plans to enter
into more such agreements in the future. While the Company believes these new
partnerships are strategically important, there are substantial uncertainties
associated with the development of new products, technologies and services for
evolving markets. The success of these ventures will be determined not only by
the Company's efforts, but also by those of its partners. Initial timetables for
the development and introduction of new technologies, products or services may
not be achieved, and price/performance targets may not prove feasible. External
factors, such as the development of competitive alternatives or government
regulation, may cause new markets to evolve in unanticipated directions. (See
"Highly Competitive Industries," and December 31, 1996 Form 10-KSB/A-4 "Item 1.
Description of Business.")
INVESTMENTS IN UNRELATED BUSINESSES. The Company has investments in
marketable and non-marketable securities and loans to related and unrelated
parties, including approximately $8 million invested in equity securities of
high-tech companies, both public and privately held. The amount that the Company
may ultimately realize from these investments could differ materially from the
value of these investments recorded in the Company's financial statements, and
the ultimate disposition of these investments could result in a loss to the
Company. (See December 31, 1996 Form 10-KSB/A-4 "Item 6. Management's Discussion
and Analysis of Financial Condition and Results of Operations," Notes 2 and 11
to Financial Statements, and "Item 12. Certain Relationships and Related
Transactions;" March 31, 1997 Form 10-Q Notes 3 and 10 to Financial Statements
and Part I "Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.")
MANAGEMENT OF GROWTH. In light of management's views of the potential
for future growth, the Company has adopted an aggressive growth plan that
includes substantial investments in its sales, marketing, production and
distribution organizations, the creation of new research and development
7
<PAGE>
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. (See December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of
Business.")
HIGHLY COMPETITIVE INDUSTRIES. The cosmetic laser and electronics
industries are characterized by intense competition. The cosmetic laser industry
is highly competitive and is characterized by the frequent introduction of new
products. The Company competes in the development, manufacture, marketing and
servicing of laser technology products with numerous other companies, certain of
which have substantially greater financial, marketing and other resources than
the Company. In addition, the Company's cosmetic laser products face competition
from alternative medical products and procedures, such as dermabrasion, chemical
peels, pharmaceutical treatment, electrolysis, waxing and surgery, among others.
There can be no assurance that the Company will be able to differentiate its
products from the products of its competitors or that the marketplace will
consider the Company's products to be superior to competing products or medical
procedures. There can be no assurance that competitors will not develop products
or that new technologies will not be developed that render the Company's
products obsolete or less competitive. (See "Technological Obsolescence.") In
addition, in entering areas of business in which it has little or no experience,
such as the opening of laser treatment centers, the Company may not be able to
compete successfully with competitors that are more established in such areas.
(See "New Ventures.")
In the electronics industry, the Company competes with Packard-Hughes
Interconnect Co., Parlex Corporation, Teledyne Inc., IBM, Apple Computer, Compaq
and Dell Computer, among others. Many, if not most, of the Company's current and
prospective competitors are substantial in size and have substantial financial,
managerial, technical, manufacturing, marketing and other resources, and may
introduce additional products that compete with those of the Company. There can
be no assurance that the Company's products will compete favorably with the
products of its competitors or that the Company will have the resources
necessary to compete effectively against such companies. As a result of the
intense competition in the personal computer market, the Company expects that
gross margins on sales of its upgradeable personal computers will be extremely
narrow and will require the Company to manage carefully its cost of goods sold.
There can be no assurance that the Company will be able to manage its cost of
goods sold to the degree necessary for sales of upgradeable computer products to
generate significant gross margins. The Company currently has limited marketing
capabilities and expects to place significant reliance on independent
distributors and resellers for the distribution and marketing of its products.
The Company will be dependent upon the efforts of such third parties. The
inability to establish and maintain a network of independent distributors and
resellers, or a reduction in their sales efforts, could have a material adverse
effect on the Company's financial condition and results of operations. In
addition, there can be no assurance as to the viability or financial stability
of the Company's independent distributors and resellers. The computer industry
has been characterized from time to time by financial difficulties of
distributors and resellers; any such problems could lead to reduced sales and
could have a material adverse effect on the Company's financial condition and
results of operations. There can be no assurance that the Company's products
will compete favorably with the products of its competitors or that the Company
will have the resources necessary to compete effectively against such companies.
(See December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of Business.")
FLUCTUATIONS IN QUARTERLY PERFORMANCE. The Company's results of
operations have fluctuated substantially and can be expected to continue to vary
significantly. The Company's quarterly operating results depend on a number of
factors, including the timing of the introduction or acceptance of new products
offered by the Company or its competitors, changes in the mix of products sold
by the Company, changes in regulations affecting the cosmetic laser products or
electronics industry, changes in the Company's operating expenses, personnel
changes and general economic conditions.
8
<PAGE>
The Company's stock price, like that of other technology companies, is
subject to significant volatility. If revenues or earnings in any quarter fail
to meet the investment community's expectations, there could be an immediate
impact on the price of the Company's common stock. The price of the Company's
common stock may also be affected by broader market trends unrelated to the
Company's performance. (See "Volatility of Share Price;" December 31, 1996 Form
10-KSB/A-4 "Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations; March 31, 1997 Form 10-Q "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations.")
VOLATILITY OF SHARE PRICE. Factors such as announcements of developments
related to the Company's business, announcements by competitors, quarterly
fluctuations in the Company's financial results and other factors have caused
the price of the Company's stock to fluctuate, in some cases substantially, and
could continue to do so in the future. In addition, the stock market has
experienced extreme price and volume fluctuations that have particularly
affected the market price for many technology companies and that have often been
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Company's common
stock. The trading prices of many technology companies' stocks are at or near
their historical highs, and reflect price/earnings ratios substantially above
historical norms. There can be no assurance that the trading price of the
Company's common stock will remain at or near its current level.
GOVERNMENT REGULATION. The Company's laser product business segment and,
to a lesser degree, its electronics business segment are subject to regulation
in the United States and abroad. Failure to comply with applicable regulatory
requirements can result in fines, denial or suspension of approvals, seizures or
recall of products, operating restrictions and criminal prosecutions, any or all
of which could have a material adverse effect on the Company. Furthermore,
changes in existing regulations or adoption of new regulations could prevent the
Company from obtaining, or could affect the timing of, future regulatory
approvals. (See December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of
Business - Government Regulation.")
LASER PRODUCT SEGMENT. All laser product devices, including those sold
by the Company, are subject to regulation by the FDA under the Medical Device
Amendments of the United States Food, Drug and Cosmetics Act (the "FDA Act").
The Company's business, financial condition and operations are critically
dependent upon timely receipt of FDA regulatory clearance.
FDA CLEARANCE STATUS FOR COSMETIC LASER PRODUCTS. Three of the Company's
lasers have received clearance from the FDA for certain dermatological
applications: the Q-switched Ruby laser, the Tru-Pulse laser and the Epilaser
system. The Company's diode laser has not yet received FDA clearance, and is
currently under an Investigative Device Exemption.
The Company is also investigating other applications in dermatology for
its laser systems. It will be required to obtain FDA clearance before
commercially marketing any other application. The Company believes that it will
be able to seek such clearance under the 510(k) application process; however, no
assurance can be given that the FDA will not require the Company to follow the
more extensive and time-consuming Pre-Market Approval ("PMA") process. FDA
review of a 510(k) application currently averages about seven to twelve months
and requires limited clinical data based on "substantial equivalence" to a
product marketed prior to 1976, while a PMA review can last for several years
and require substantially more clinical data.
The FDA also imposes various requirements on manufacturers and sellers
of products under its jurisdiction, such as labeling, good manufacturing
practices, record keeping and reporting requirements. The FDA also may require
post-market testing and surveillance programs to monitor a product's effects.
There can be no assurance that the appropriate clearances from the FDA will be
granted, that the process to obtain such clearances will not be excessively
expensive or lengthy or that the Company will have sufficient funds to pursue
such clearances.
No assurance can be given that FDA approval will be obtained for the
Company's current or proposed laser products on a timely basis, if at all. The
laser products segment of the Company's business, is, and will continue to be,
critically dependent upon FDA approval of its current and proposed cosmetic
laser products. Delays or failure to obtain such approval would have a material
adverse effect on the Company.
9
<PAGE>
OTHER GOVERNMENT APPROVALS FOR LASER PRODUCTS; GOOD MANUFACTURING
PRACTICES. In order to be sold outside the United States, the Company's products
are subject to FDA permit requirements that are conditioned upon clearance by
the importing country's appropriate regulatory authorities. Many countries also
require that imported products comply with their own or international electrical
and safety standards. Additional approvals may be required in other countries.
The Company's Tru-pulse laser has received the CE Mark pursuant to the European
Medical Device Directive which allows that laser to be sold in all countries
that recognize the CE Mark, including the countries that comprise the European
Community. The Company is currently seeking to obtain the CE Mark registration
for its Epilaser. The Company has yet to apply for international approval for
its diode laser for use in cosmetic surgery and dermatology.
The Company is subject to the laser radiation safety regulations of the
FDA Act administered by the National Center for Devices and Radiological Health
("CDRH") of the FDA. These regulations require a laser manufacturer to file new
product and annual reports, to maintain quality control, product testing and
sales records, to distribute appropriate operation manuals, to incorporate
certain design and operating features in lasers sold to end-users and to certify
and label each laser sold to end-users as one of four classes of lasers (based
on the level of radiation from the laser). In addition, various warning labels
must be affixed on the product and certain protective devices must be installed
depending upon the class of product. Under the Act, the Company is also required
to register with the FDA as a medical device manufacturer and is subject to
inspection on a routine basis by the FDA for compliance with Good Manufacturing
Practice ("GMP") regulations. The GMP regulations impose certain procedural and
documentation requirements upon the Company relevant to its manufacturing,
testing and quality control activities. The CDRH is empowered to seek fines and
other remedies for violations of these regulatory requirements. The Company
believes that it is currently in compliance with these regulations.
ELECTRONIC SEGMENT. A significant percentage of the total sales of the
flexible circuit board component business of the Company, which presently
accounts for a significant amount of the sales of the Company, are the result of
either a subcontract or a direct contract for government programs funded by the
U.S. military. Generally, government contracts and subcontracts are terminable
at the convenience of the government. Cutbacks in military spending for certain
programs or lack of military spending in general could have a material adverse
effect on the Company. There can be no assurance that termination of contracts,
cessation of purchase orders, or a failure to appropriate funds will not occur
in the future. Any termination, cessation, or failure to appropriate funds with
respect to contracts or subcontracts having a significant dollar value would
have a material adverse effect on the Company's business, financial condition
and results of operation. The unpredictable nature of the government procurement
process also may contribute to fluctuations in the Company's quarterly
performance. (See "Fluctuations in Quarterly Performance.")
Flexible circuit board component sales to the U.S. military are subject
to certain military certifications. These certifications are based upon
compliance with specification standards set by the U.S. military. The
certification for the Company's Mil-T-55110 product expires in the fourth
quarter of 1998, and, for the Company's Mil-Q-50884C product, in the first
quarter of 1999. The Company is subject to periodic audit and review from U.S.
government agencies to ensure compliance under criteria set forth by these
agencies. The Company has passed all government audits. Failure to meet or
exceed criteria set forth could result in a suspension or disqualification of
certain certifications. Such suspension or disqualification could have a
material adverse effect on the Company.
One customer of Nexar, Government Technology Services, Inc. (GTSI), a
leading supplier of desktop systems to United States government agencies,
accounted for a majority of Nexar's revenues. The Company expects that GTSI will
continue to be an important customer, and that while Nexar's revenues from GTSI
will increase, such sales as a percentage of total revenues will decline
substantially as Nexar further expands its distribution network and increases
its overall sales. Nexar has entered into an agreement with GTSI pursuant to
which GTSI serves as Nexar's exclusive federal reseller with respect to
Government Services Administration (GSA) scheduled purchases, provided that GTSI
purchases at least $35 million of Nexar's products in 1997. GTSI is under no
obligation, however, to purchase any products of Nexar's. If GTSI makes fewer
purchases in 1997 than Nexar anticipates, that would have a material adverse
effect on the Company.
10
<PAGE>
UNCERTAINTY OF MARKET ACCEPTANCE. The Company continually develops new
products intended for use in the cosmetic laser products segment and the
electronic products segment. As with any new products, there is substantial risk
that the marketplace may not accept or be receptive to the potential benefits of
such products. Market acceptance of the Company's current and proposed products
will depend, in large part, upon the ability of the Company or any marketing
partners to demonstrate to the marketplace the advantages of the Company's
products over other types of products. There can be no assurance that
applications or uses for the Company's current and proposed products will be
accepted by the marketplace or that any of the Company's current or proposed
products will be able to compete effectively. (See December 31, 1996 Form
10-KSB/A-4 "Item 1. Description of Business.")
UNCERTAINTY OF HEALTHCARE REIMBURSEMENT AND REFORM. The healthcare
industry is subject to changing political, economic and regulatory influences
that may affect the procurement practices and operations of healthcare industry
participants. During the past several years, state and federal government
regulation of reimbursement rates and capital expenditures in the United States
healthcare industry has increased. Lawmakers continue to propose programs to
reform the United States healthcare system, which may contain programs to
increase governmental involvement in healthcare, lower Medicare and Medicaid
reimbursement rates or otherwise change the operating environment for the
Company's customers. Healthcare industry participants may react to these
proposals by curtailing or deferring investments, including investments in the
Company's products.
DEPENDENCE ON THIRD PARTY RESEARCHERS. The Company is substantially
dependent upon third party researchers and others, over which the Company will
not have absolute control, to satisfactorily conduct and complete research on
behalf of the Company and to grant to the Company favorable licensing terms for
products which may be developed. The Company has entered into a number of
research agreements with recognized research hospitals and clinical
laboratories. These research institutions include the Oregon Medical Laser
Center at the Heart Institute of St. Vincent Hospital and Medical Center in
Portland, Oregon, the Wellman Labs at Massachusetts General Hospital and the
Otolaryngology Research Center for Advanced Endoscopic Applications at New
England Medical Center, Boston, Massachusetts. The Company provides research
funding, laser technology and optics know-how in return for licensing agreements
with respect to specific medical applications and patents. Management believes
that this method of conducting research and development provides a higher level
of technical and clinical expertise than it could provide on its own and in a
more cost efficient manner. The Company's success will be highly dependent upon
the results of the research, and there can be no assurance that these research
agreements will provide the Company with marketable products in the future or
that any of the products developed under these agreements will be profitable for
the Company. (See December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of
Business," and Note 6 to Financial Statements.)
TECHNOLOGICAL OBSOLESCENCE. The markets for the Company's products are
characterized by rapid and significant technological change, evolving industry
standards and frequent new product introductions and enhancements. Many of the
Company's products and products under development are technologically
innovative, and require significant planning, design, development and testing,
at the technological, product and manufacturing process levels. These activities
require significant capital commitments and investment by the Company. The
Company's failure to develop products in a timely manner in response to changes
in the industry, whether for financial, technological or other reasons, will
have a material adverse effect on the Company's business, financial condition
and results of operations.
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
11
<PAGE>
frame, or that the Company's products or proprietary technologies will not
become uncompetitive or obsolete. (See December 31, 1996 Form 10-KSB/A-4 "Item
1. Description of Business.")
LACK OF PATENT PROTECTION. The Company currently holds several patents
and intends to pursue various additional avenues that it deems appropriate to
protect its technology. There can be no assurance, however, that the Company
will file any additional patent applications or that any patent applications
that have been, or may be, filed will result in issued patents, or that any
patent, patent application, know-how, license or cross-license will afford any
protection or benefit to the Company.
The cosmetic laser device market has been characterized by substantial
litigation regarding patent and other intellectual property rights. One of the
Company's competitors in the cosmetic laser business has filed suit against the
Company alleging patent infringement, among other things. In both the cosmetic
laser products and the electronic products segments, litigation, which could
result in substantial cost to and diversion of effort by the Company, may be
necessary to protect trade secrets or know-how owned by or licensed to the
Company or to determine the enforceability, scope and validity of the
proprietary rights of others. Adverse determination in litigation or
interference proceedings could subject the Company to significant liabilities to
third parties, require the Company to seek licenses from third parties and could
prevent the Company from manufacturing and selling its products, all of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. (See "Risk Associated with Pending
Litigation"; December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of
Business," and "Item 3. Legal Proceedings;" March 31, 1997 10-Q, Part II "Item
1. Legal Proceedings.")
POSSIBLE PATENT INFRINGEMENTS. In the medical products segment, the
Company is aware of patents relating to laser technologies used in certain
applications. The Company intends to pursue such laser technologies in the
future; hence, if the patents relating to those technologies are valid and
enforceable, they may be infringed by the Company. After consulting with outside
counsel to the Company, the Company believes that it is not infringing currently
on patents held by others; however, were the issue ever to be litigated, a court
could reach a different opinion. If the Company's current or proposed products
are, in the opinion of patent counsel, infringing on any of these patents, the
Company intends to seek non-exclusive, royalty-bearing licenses to such patents
but there can be no assurance that any such license would be available on
favorable terms, if at all. One of the Company's competitors in the cosmetic
laser business has filed suit against the Company alleging patent infringement,
among other things. In the electronic products segment, the Company has not been
notified that it is currently infringing on any patents nor has it been the
subject of any patent infringement action. No assurance can be given that
infringement claims will not be made or that the Company would prevail in any
legal action with respect thereto. Defense of a claim of infringement would be
costly and could have a material adverse effect on the Company's business, even
if the Company were to prevail.
DEPENDENCE ON PROPRIETARY RIGHTS. The Company relies on trade secrets
and proprietary know-how which it seeks to protect, in part, by confidentiality
agreements with its collaborators, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or be independently developed by competitors.
NEED FOR ADDITIONAL QUALIFIED PERSONNEL/DEPENDENCE ON KEY PERSONNEL. The
Company's ability to develop, manufacture and market all of its products, and to
attain a competitive position within the laser products and electronics
industries, will depend, in large part, on its ability to attract and retain
qualified personnel. Competition for qualified personnel in these industries is
intense and the Company will be required to compete for such personnel with
companies which may have greater financial and other resources; there can be no
assurance that the Company will be successful in attracting, assimilating and
retaining the personnel it requires to grow and operate profitably. The
Company's inability to attract and retain such personnel could have a material
adverse effect upon its business. (See "Management of Growth.")
The Company's future success depends to a significant extent on its
executive officers and certain technical, managerial and marketing personnel.
The loss of the services of any of these individuals or group of individuals
could have a material adverse effect on the Company's business, financial
condition and results of operations.
12
<PAGE>
The Company is dependent on various sales representatives and
distributors to market and sell its medical products. The Company is in the
process of expanding its direct sales force to ensure that it satisfactorily
masters and controls the expected growth of its medical product sales. (See
December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of Business.")
ISSUANCE OF PREFERRED STOCK AND DEBENTURES COULD AFFECT RIGHTS OF COMMON
SHAREHOLDERS. The Company is authorized to issue up to 5 million shares of
Preferred Stock, $.01 par value. The Preferred Stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. In July 1996, the Company issued 6,000 shares of
Series F Convertible Preferred Stock at a price of $1,000 per share. In
September 1996, the Company issued 10,000 shares of Series G Preferred Stock at
a price of $1,000 per share. As of July 11, 1997, 2,316 shares were converted
into 362,824 shares of common stock. In March 1997, the Company issued 6,000
shares of Series H Convertible Preferred Stock at a price of $1,000 per share.
In May 1997, the Company issued 10,000 shares of Series H Convertible Preferred
Stock at a price of $1,000 per share. In July 1996, the Company issued 9,675
units in a convertible debenture financing. Each unit consisted of a convertible
debenture denominated in 1,000 Swiss Francs and a warrant to purchase 24 shares
of the Company's common stock at $16.50 per share. In February 1997, 300 units
were redeemed by the Company for an aggregate price of $195,044. In October
1996, the Company issued $5,000,000 in 4.5% Convertible Subordinated Promissory
Notes. As of July 11, 1997, $3,900,000 principal amount was converted into
896,657 shares of common stock. In December 1996 and January 1997, the Company
issued a total of $6,000,000 in 5% Convertible Debentures. Also, In March 1997,
the Company issued $5,500,000 in 5% Convertible Debentures. In March 1997, the
Company issued $500,000 in 6% Convertible Debentures. The issuance of any such
additional Preferred Stock or Debentures could affect the rights of the holders
of Shares, and could reduce the market price of the Shares. In particular,
specific rights granted to future holders of Preferred Stock or Debentures could
be used to restrict the Company's ability to merge with or sell its assets to a
third party, thereby preserving control of the Company by the existing control
group. (See December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of Business,"
"Item 5. Market for Common Equity and Related Stockholder Matters," and Notes 4
and 5 to Financial Statements; March 31, 1997 Form 10-Q, Part II, "Item 2.
Changes in Securities" and Note 9 to Financial Statements.)
ISSUANCE OF RESERVED SHARES; REGISTRATION RIGHTS. As of July 11, 1997,
the Company had 33,123,190 Shares of Common Stock outstanding. The Company has
reserved an additional 31,671,850 Shares for issuance as follows: (1) 3,872,500
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) 9,577,940 Shares for issuance upon exercise of three-, four-
five- and seven-year Warrants issued to certain lenders, investors, consultants,
directors and officers (a portion of which are subject to certain antidilutive
adjustments); (5) 600,000 Shares for issuance upon conversion of the 6,000
shares of Series F Preferred Stock; (6) 1,337,176 Shares for issuance upon
conversion of the 7,684 shares of Series G Preferred Stock (7) 1,275,000 Shares
for issuance upon conversion of the debentures sold in the Swiss
Franc-Denominated Offering; (8) 403,503 Shares for issuance upon conversion of
$1,500,000 principal amount of a 4.5% Convertible Subordinated Promissory Note;
(9) 2,600,000 Shares for issuance upon conversion of $6,000,000 principal amount
of a 5% Convertible Debentures; (10) 2,750,000 Shares for issuance upon
conversion of $5,500,000 principal amount of a 5% Convertible Debenture; (11)
45,455 Shares for issuance upon conversion of $500,000 6% Convertible Debentures
and (12) 8,000,000 Shares for issuance upon conversion of the 16,000 shares of
Series H Preferred. All of the foregoing reserved Shares are, or the Company
intends for them shortly to be, registered with the Commission and therefore
freely salable on Nasdaq or elsewhere.
PRODUCT LIABILITY EXPOSURE. Cosmetic laser product companies face an
inherent business risk of financial exposure to product liability claims in the
event that the use of their products results in personal injury. The Company's
13
<PAGE>
products are and will continue to be designed with numerous safety features, but
it is possible that patients could be adversely affected by use of one of the
Company's products or that deaths could occur. Further, in the event that any of
the Company's products prove to be defective, the Company may be required to
recall and redesign such products. Although the Company has not experienced any
material losses due to product liability claims to date, there can be no
assurance that it will not experience such losses in the future. The Company
maintains general liability insurance in the amount of $1,000,000 per occurrence
and $2,000,000 in the aggregate and maintains umbrella coverage in the aggregate
amount of $25,000,000; however, there can be no assurance that such coverage
will continue to be available on terms acceptable to the Company or that such
coverage will be adequate for liabilities actually incurred. In the event the
Company is found liable for damages in excess of the limits of its insurance
coverage, or if any claim or product recall results in significant adverse
publicity against the Company, the Company's business, financial condition and
results of operations could be materially and adversely affected. In addition,
although the Company's products have been and will continue to be designed to
operate in a safe manner, and although the Company attempts to educate medical
personnel with respect to the proper use of its products, misuse of the
Company's products by medical personnel over whom the Company cannot exert
control may result in the filing of product liability claims or significant
adverse publicity against the Company.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. As part of its business
strategy, the Company intends to seek opportunities to expand its product and
service offerings into international markets. In marketing its products and
services internationally, the Company will likely face new competitors. There
can be no assurance that the Company will be successful in marketing or
distributing products and services in these markets or that its international
revenue will be adequate to offset the expense of establishing and maintaining
international operations. The Company's international business may be adversely
affected by changing economic conditions in foreign countries. The majority of
the Company's sales are currently denominated in U.S. dollars, but there can be
no assurance that a significantly higher level of future sales will not be
denominated in foreign currencies. To the extent the Company makes sales
denominated in currencies other than U.S. dollars, gains and losses on the
conversion of those sales to U.S. dollars may contribute to fluctuations in the
Company's business, financial condition and results of operations. In addition,
fluctuations in exchange rates could affect demand for the Company's products
and services. Conducting an international business inherently involves a number
of other difficulties and risks, such as export restrictions, export controls
relating to technology, compliance with existing and changing regulatory
requirements, tariffs and other trade barriers, difficulties in staffing and
managing international operations, longer payment cycles, problems in collecting
accounts receivable, political instability, seasonal reductions in business
activity in Europe and certain other parts of the world during the summer
months, and potentially adverse tax consequences. There can be no assurance that
one or more of these factors will not have a material adverse effect on any
international operations established by the Company and, consequently, on the
Company's business, financial condition and results of operations.
The Company plans to expand its business into international markets and
has set up a manufacturing and distribution center in Hull, England. To date,
the Company has minimal experience in marketing and distributing its products
internationally and plans to establish alliances with sales representative
organizations and resellers with particular experience in international markets.
Accordingly, the Company's success in international markets will be
substantially dependent upon the skill and expertise of such international
participants in marketing the Company's products. There can be no assurance that
the Company will be able to successfully market, sell and deliver its products
in these markets. In addition, there are certain risks inherent in doing
business in international markets, such as unexpected changes in regulatory
requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, management's lack of
international expertise, political instability and fluctuations in currency
exchange rates and potentially adverse tax consequences, which could adversely
impact the success of the Company's international operations. There can be no
assurance that one or more of such factors will not have a material adverse
effect on the Company's future international operations and, consequently, on
the company's business, financial condition or operating results. (See December
31, 1996 Form 10-KSB/A-4 "Item 1. Description of Business.")
NEED FOR CONTINUED PRODUCT DEVELOPMENT. Although the Company received
FDA clearance in February 1997 to commercially market its Tru-Pulse(R) laser for
wrinkle treatment, and in March 1997 to commercially market its Epilaser(TM) for
hair removal, the Company is continuing its development of both products. The
Company is continuing to study both laser systems to optimize performance and
treatment parameters.
14
<PAGE>
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. (See
December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of Business.")
DEPENDENCE ON SUBSTANTIAL CUSTOMERS. In the year ended December 31,
1996, one customer of Nexar, Government Technology Services, Inc. ("GTSI), a
leading supplier of desktop systems to United States government agencies,
accounted for 17.5% of the Company's revenues and 23.2% of the Company's
accounts receivable balance. In the quarter ended March 31, 1997, GTSI accounted
for 9.0% of the Company's revenues and 9.4% of the Company's accounts receivable
balance. The Company expects that GTSI will continue to be an important
customer, and that, while Nexar's revenues from GTSI will increase, such sales
as a percentage of total revenue will decline substantially as the Company
further expands its distribution network and increases its overall sales. Nexar
has entered into an agreement with GTSI pursuant to which GTSI serves as the
Company's exclusive federal reseller with respect to Government Services
Administration (GSA) scheduled purchases, provided that GTSI purchases at least
$35 million of Nexar's products in 1997. GTSI is under no obligation, however,
to purchase any products of Nexar. If GTSI makes fewer purchases in 1997 than
the Company anticipates, that would have a material adverse effect on the
Company.
In the year ended December 31, 1996, one customer of Comtel, New Media,
Inc. ("New Media"), a related party, accounted for 22.3% of the Company's
revenues and 26.7% of the Company's accounts receivable balance. In the quarter
ended March 31, 1997, New Media accounted for 11.6% of the Company's revenues
and 18.3% of the Company's accounts receivable balance. Comtel has entered into
a five (5) year agreement with New Media whereby New Media, subcontracted to
Comtel all of its manufacturing and assembly business over the contract term. On
April 5, 1996, Palomar invested $2,345,000 in New Media preferred and common
stock and loaned New Media an additional $1,000,000. Palomar also received a
warrant to purchase 200,000 shares of common stock in New Media at $1.20 per
share. In February 1997, the note receivable was converted into equity and the
Company invested an additional $1,200,000 in New Media. The Company expects that
New Media will continue to be an important customer, but that sales to New
Media, Inc. as a percentage of total revenue will decline substantially as the
Company further expands its distribution network and increases its overall
sales. New Media has had a history of losses. There can be no assurance that New
Media will achieve profitable operations or that profitable operations will be
sustained if achieved.
A loss from either customer could have a material, adverse effect on the
Company's business in the short term. (See December 31, 1996 Form 10-KSB/A-4
"Item 1. Description of Business," and Note 2 to Financial Statements.)
HAZARDOUS SUBSTANCE AND ENVIRONMENTAL CONCERNS; LACK OF ENVIRONMENTAL
IMPAIRMENT INSURANCE. The manufacture of substrate interconnect products
involves numerous chemical solvents and other solid, chemical and hazardous
wastes and materials. Dynaco is subject to a variety of environmental laws
relating to the generation, storage, handling, use, emission, discharge and
disposal of these substances and potentially significant risks of statutory and
common law liability for environmental damage and personal injury. The Company,
and in certain circumstances, its officers, directors and employees, may be
subject to claims arising from the Company's manufacturing activities, including
the improper release, spillage, misuse or mishandling of hazardous or
non-hazardous substances or material. The Company may be strictly liable for
15
<PAGE>
damages, regardless of whether it exercised due care and complied with all
relevant laws and regulations. The Company does not currently maintain
environmental impairment insurance. There can be no assurance that the Company
will not face claims resulting in substantial liability for which the Company is
uninsured or that hazardous substances are not or will not be present at the
Company's facilities. The Company believes that it operates its Dynaco
facilities in substantial compliance with existing environmental laws and
regulations. In June 1989 and April 1994, Dynaco conducted environmental studies
of its Tempe, Arizona substrate manufacturing facility and did not discover any
contamination requiring remediation. Failure to comply with proper hazardous
substance handling procedures or violation of environmental laws and regulations
would have a material adverse effect on the Company. (See December 31, 1996 Form
10-KSB/A-4 "Item 1. Description of Business.")
SIGNIFICANT OUTSTANDING INDEBTEDNESS; SUBORDINATION OF DEBENTURES. The
Company has incurred substantial indebtedness in relation to its equity capital
and will be subject to all of the risks associated with substantial leverage,
including the risk that available cash may not be adequate to make required
payments to the holders of the Company's debentures. The Company's ability to
satisfy its obligations under the debentures from cash flow will be dependent
upon the Company's future performance and will be subject to financial, business
and other factors affecting the operation of the Company, many of which may be
beyond the Company's control. In the event the Company does not have sufficient
cash resources to satisfy quarterly interest or other repayment obligations to
the holders of the debentures, the Company will be in default under the
debentures, which would have a material adverse effect on the Company. To the
extent that the Company is required to use cash resources to satisfy interest
payments to the holders of the debentures, it will have less resources available
for other purposes. Inability of the Company to repay the debentures upon
maturity would have a material adverse effect on the Company, which could result
in a reduction of the price of the Company's Shares. The debentures will be
unsecured and subordinate in right of payment to all senior indebtedness of the
Company. The debentures do not restrict the Company's ability to incur
additional senior indebtedness and most other indebtedness. The terms of senior
indebtedness now existing or incurred in the future could affect the Company's
ability to make payments of principal and/or interest to the holders of
debentures. (See December 31, 1996 Form 10-KSB/A-4 "Item 5. Market for Common
Equity and Related Shareholder Matters"; March 31, 1997 Form 10-Q, Part II "Item
2. Changes in Securities" and Note 8 to Financial Statements.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company is subject to
the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which prohibit the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 could have the effect of delaying or preventing a change of control
of the Company. The Company's stock option grants generally provide for an
exercise of some or all of the optioned stock, including non-vested shares, upon
a change of control or similar event. The Board of Directors has authority to
issue up to 5,000,000 shares of Preferred Stock and to fix the rights,
preference, privileges and restrictions, including voting rights, of these
shares without any further vote or action by the stockholders. The rights of the
holders of the Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, thereby delaying,
deferring or preventing a change in control of the Company. Furthermore, such
Preferred Stock may have other rights, including economic rights senior to the
Common Stock, and, as a result, the issuance of such Preferred Stock could have
a material adverse effect on the market value of the Common Stock. (See
"Issuance of Preferred Stock and Debentures Could Affect Rights of Common
Shareholders.")
RISKS ASSOCIATED WITH PENDING LITIGATION. The Company and its
subsidiaries are involved in disputes with third parties. Such disputes have
resulted in litigation with such parties and, although the Company is a
plaintiff in several matters, the Company is subject to claims and counterclaims
for damages and has incurred, and likely will continue to incur, legal expenses
in connection with such matters. There can be no assurance that such litigation
will result in favorable outcomes for the Company. The Company is unable to
determine the total expense or possible loss, if any, that may ultimately be
incurred in the resolution of these proceedings. These matters may result in
diversion of management time and effort from the operations of the business.
After consideration of the nature of the claims and the facts relating to these
proceedings, the Company believes that the resolution of these proceedings will
16
<PAGE>
not have a material effect on the Company's business, financial condition and
results of operations; however, the results of these proceedings, including any
potential settlements, are uncertain and there can be no assurance to that
effect.
On October 7, 1996 the Company filed a declaratory judgment action
against MEHL/Biophile ("MEHL") in the United States District Court of the
District of Massachusetts seeking (i) a declaration that MEHL is without right
or authority to threaten or maintain suit against the Company or its customers
for alleged infringement of the patent held by MEHL's subsidiary Selvac
Acquisitions Corp. ("Selvac" and the "Selvac Patent"), that the Selvac Patent is
invalid, void and unenforceable, and that the Company does not infringe the
Selvac patent; (ii) a preliminary and permanent injunction enjoining MEHL from
threatening the Company or its customers with infringement litigation or
infringement; and (iii) an award to the Company of damages suffered in
connection with MEHL's conduct. On March 7, 1997, Selvac filed a complaint for
injunctive relief and damages for patent infringement and for unfair competition
against the Company, its Spectrum Medical Technologies and Spectrum Financial
Services subsidiaries, and a New Jersey dermatologist, in the United States
District Court for the District of New Jersey. Selvac's complaint alleges that
the Company's EpiLaser infringes the Selvac Patent and that the Company unfairly
competed by promoting the EpiLaser or hair removal before it had received FDA
approval for that specific application. The Company and Selvac have agreed to
dismiss the Massachusetts litigation without prejudice. Palomar has brought in
the New Jersey action its claims that the Selvac patent is invalid, that the
Company has not infringed the Selvac patent, that MEHL should be enjoined from
making further assertions concerning infringement and unfair competition, and
that the Company should be awarded attorney fees and other appropriate relief.
Thus, both the Company's and MEHL's claims will be tried on the merits in New
Jersey. Automatic discovery will commence shortly. The extent of exposure of the
Company cannot be determined at this time.
The Company is a defendant in a lawsuit filed by Commonwealth Associates
("Commonwealth") on March 14, 1996 in the United States District Court for the
Southern District of New York. In its suit, Commonwealth alleges that the
Company breached a contract with Commonwealth in which Commonwealth was to
provide certain investment banking services in return for certain compensation.
In January 1997, Commonwealth's motion for summary judgment on its breach of
contract claim was granted, and, after a damages trial before a magistrate judge
in April 1997, the court awarded Commonwealth $2,917,500 (and interest of
$256,570.56). The Company has accrued approximately $3.2 million as of March 31,
1997. The Company has appealed the matter and the United States District Court
for the Southern District of New York is scheduled to hear the appeal in
September 1997. The Company believes its grounds for appeal are meritorious.
(See March 31, 1997 Form 10-Q "Part II, Item 1. Legal Proceedings.")
17
<PAGE>
THE COMPANY
The Company was organized to design, manufacture and market lasers,
delivery systems and related disposable products for use in medical procedures.
The Company currently operates in three business segments: cosmetic laser
products, cosmetic laser services and electronic products. In the cosmetic laser
products segment, the Company manufactures and markets the Q-switched Ruby
laser, the Tru-Pulse laser and the EpiLaser system, all of which have been
approved by the FDA for certain dermatological applications. The Company also is
developing ruby, pulse dye and diode cosmetic lasers for use in clinical trials
and is engaged in the research and development of additional cosmetic laser and
surgical products. (See December 31, 1996 Form 10-KSB/A-4 "Item 1. Description
of Business--Medical Products and Lasers in Medicine; Future Products.") The
Company has expanded its efforts in the cosmetic laser area through a series of
product development activities, acquisitions and strategic alliances that target
patient self-pay procedures performed in doctors' offices and clinics. The
Company has entered into a number of research agreements with recognized
research hospitals and clinical laboratories. The Company provides research
funding, laser technology and optics know-how in return for licensing agreements
to specific cosmetic laser applications and patents. Management feels that this
method of conducting research and development provides a higher level of
technical and clinical expertise than it could provide on its own and in a more
cost efficient manner.
In late 1996, Cosmetic Technology International, Inc. ("CTI") was formed
as a wholly-owned subsidiary of the Company. CTI is a services company which
intends to establish a worldwide network of cosmetic dermatological laser and
medical device sites with medical services partners (both fixed and mobile) in
key geographic locations. Each site will be provided a turnkey package of laser
and medical device technology, equipment, training and service, operations
personnel, strategic advertising and marketing programs, patient financial
credit programs and management assistance. In early 1997, a binding letter of
intent was completed with Columbia/HCA, a $20 billion company and one of the
world's largest owners and operators of medical facilities, to establish revenue
sharing sites throughout the country in existing Columbia/HCA facilities. During
1996 the operations of CTI were not significant.
In February 1997, Palomar Medical Products, Inc. ("Palomar Medical
Products") was formed as a wholly-owned subsidiary with the purpose of
consolidating the management and operations of the medical products companies.
In January 1997, the Company named an outside party as the President and CEO of
Palomar Medical Products to oversee and manage the operations. Included in the
medical products group are the following companies, all of which remain as
wholly-owned subsidiaries of the Company: Spectrum Medical Technologies, Inc.,
Tissue Technologies, Inc., Star Medical Technologies, Inc., Dermascan, Inc.
In the electronic products segment, the Company's Nexar Technologies,
Inc. subsidiary manufactures, markets and sells personal computers with a unique
circuit board design that enables end users to easily upgrade and replace the
microprocessor, memory and hard drive components, which management believes will
decrease the level of technical obsolescence associated with most desktop
personal computers in the market. Dynaco Corp. manufactures high density,
flexible electronic circuitry for use in industrial, military and medical
devices and is also introducing a number of proprietary products targeted to
service the personal computer industry, including high density memory modules.
These new proprietary computer memory modules double the memory capacity of
traditional memory modules using the same interface. Comtel Electronics is a
contract manufacturer which provides turnkey manufacturing and test services of
electronic assemblies.
The Company also makes early stage investments in core technologies and
companies that management feels are strategic to the Company's business or will
yield a higher than average financial return to support the Company's core
business. Some of these investments are with companies that are related to some
of the directors and officers of the Company. (See December 31, 1996 Form
10-KSB/A-4 "Management Discussion and Analysis-- Liquidity and Capital
Resources" and "Item 12. Certain Relationships and Related Transactions.")
The Company's near-term strategy is to increase its focus on the medical
segment portion of the business. The Company intends to spin out companies in
the non-core electronics segment in the form of publicly traded companies. In
September 1995, the Company established Palomar Electronics Corporation, a
wholly-owned subsidiary, as part of its ongoing plan to separate the electronics
18
<PAGE>
segment from the cosmetics segment. On April 9, the Company's subsidiary, Nexar,
completed an initial public offering of its common stock. Nexar sold 2,500,000
shares of its common stock for its own account at $9.00 per share and received
net proceeds of approximately $20,300,000. (See December 31, 1996 Form
10-KSB/A-4 "Item 1. Description of Business.) On April 30, 1997, the Company
entered into an agreement with a former Director and the President of CD Titles
whereby the Company would sell all of the issued and outstanding common stock of
CD Titles to these two individuals for a promissory note of $600,000 due April
30, 1999. In addition, the Company also received a warrant to purchase 750,000
shares of CD Titles common stock at various exercise prices ranging from
$6.00-$10.00.
The Company will continue to develop, acquire or license technologies
that can be integrated into its current and proposed products in the medical
business segment. Through its CTI subsidiary, the Company will also focus on the
services segment of the business. The Company intends to address very large
markets incorporating its core technology with proprietary products and services
and structure its operations to strive to be the low-cost producer and provider
of these products and services. The Company intends to seek agreements or
arrangements with other medical products and high technology companies in order
to acquire technical and financial assistance in the research and development of
such products and in the extensive experimentation and testing required to
obtain regulatory approvals in the United States and elsewhere. The Company will
continue to seek marketing and distribution agreements with established
companies to enable it to market some of its products quickly and more
efficiently and will also utilize and enhance a direct sales force.
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.
The Company bases its belief that it has the ability to raise cash in future
financings on its demonstrated historical ability to raise money and its current
and ongoing discussions with financing sources.
USE OF PROCEEDS
The Company will receive no part of the proceeds from the sale of any of
the Shares by the Selling Stockholders.
19
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of shares of Common Stock by the Selling Stockholders as of the date
of this Prospectus and the number of such shares included for sale in this
Prospectus assuming the sale of all Shares being offered by this Prospectus. The
number of shares included in the Registration Statement of which this Prospectus
is a part and available for resale (i) is based, in part, upon an estimate of
the number of shares underlying the debentures and preferred stock utilizing a
hypothetical conversion price of $2.00 for the 5% debenture and for the Series H
Preferred Stock, $2.72 for the 4.5% debenture, and $11.00 for the 6% debenture
(ii) is subject to adjustment and (iii) could be materially more or less than
such estimated amount depending on factors which cannot be predicted by the
Company at this time, including, among others, the future market price of the
Company's common stock. The use of such hypothetical prices is not intended, and
should in no way be construed, to constitute a prediction as to the future
market price of the Company's common stock. To the best of the Company's
knowledge, except as stated in this Prospectus, the Selling Stockholders have
not held any office or maintained any material relationship with the Company or
any of its predecessors or affiliates over the past three years. The Selling
Stockholders reserve the right to reduce the number of shares offered for sale
or to otherwise decline to sell any or all of the Shares registered hereunder.
<TABLE>
<CAPTION>
Shares Shares Shares
owned to be owned
Selling prior to sold in after
Stockholders Offering (1) (2) Offering Offering (2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Halifax Fund, L.P. (3) 1,000,000 1,000,000 0 -
c/o Citco Fund Services, Ltd.
Corporate Center, West Bay Road
P.O. Box 31106 SMB
Cayman Islands, BWI
Heracles Fund (3) 250,000 250,000 0 -
c/o Bank of Bermuda (Cayman) Limited
P.O. Box 513
Third Floor, British American Tower
Dr. Roy's Drive
Georgetown, Grand Cayman
Cayman Islands, BWI
Themis Partners, L.P.(3) 250,000 250,000 0 -
c/o Promethean Investment Group
40 West 57th Street, Suite 1520
New York, NY 10019
Angelo, Gordon & Co., L.P. (3) 100,000 100,000 0 -
245 Park Avenue, 26th Floor
New York, NY 10167
Raphael, L.P. (3) 150,000 150,000 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
MichaelAngelo, L.P. (3) 125,000 125,000 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
20
<PAGE>
Nutmeg Partners, L.P. (3) 100,000 100,000 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
AG Superfund, L.P. (3) 150,000 150,000 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
GAM Arbitrage Investments, Inc. (3) 125,000 125,000 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
AG Superfund International Partners, L.P. (3) 100,000 100,000 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
The Northern Trust Co. as Trustee of the 50,000 50,000 0 -
Teachers' Retirement System of the State
of Illinois (3)
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
AG Long Term Super Fund, L.P. (3) 100,000 100,000 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
PHS Patriot Fund, L.P. (3) 50,000 50,000 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
PHS Bay Colony Fund, L.P. (3) 50,000 50,000 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
AGD, LLC (3) 50,000 50,000 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
AG ARB Partners, L.P. (3) 100,000 100,000 0 -
c/o Angelo, Gordon & Co., L.P.
245 Park Avenue, 26th Floor
New York, NY 10167
21
<PAGE>
RGC International Investors, LDC (4) 3,000,000 3,000,000 0 -
c/o Olympic Capital (Cayman) Ltd.
Williams House,20 Reid Street
Hamilton Bermuda
Proprietary Convertible
Investment Group, Inc. (5) 2,000,000 2,000,000 0 -
11 Madison Avenue
New York, NY 10010
CC Investments, LDC ( 6) 1,500,000 1,500,000 0 -
c/o CITCO Fund Services (Cayman Islands) Ltd.
Corporate Center, West Bay Road
P.O. Box 31106
SMB Grand Cayman, Cayman Islands
Southbrook International Investments, Ltd. (7) 1,500,000 1,500,000 0 -
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, NY 10111
Cameron Capital, Ltd. (8) 141,443 141,443 0 -
10 Cavendish Road
Hamilton HM19
Bermuda
Wood Gundy London Limited (8) 408,717 408,717 0 -
Cottons Centre
Cottons Lane
London, England SE12QA
Soginvest (9) 45,455 45,455 0 -
V. Stazione 9
C.P. 663
CH - 6602 Locarno-Muralto
</TABLE>
1. Pursuant to the rules of the Securities and Exchange Commission, shares
of Common Stock which an individual or group has a right to acquire
within 60 days pursuant to the exercise of options or warrants are
deemed to be outstanding for the purpose of computing the ownership of
such individual or group. In addition, pursuant to the terms of the
debentures and the preferred stock as described below, the debentures
and preferred stock are convertible by the holders only to the extent
that the number of shares of Common Stock thereby issuable, together
with the number of shares of Common Stock then held by such holder and
its affiliates (not including shares which have not been converted),
would not exceed 4.9% of the then outstanding Common Stock for the 5%
debentures and the preferred stock and 5% for the 4.5% debentures, as
determined in accordance with Section 13(d) of the Exchange Act.
Accordingly, the number of shares of Common Stock set forth for the
Selling Stockholders may exceed the actual number of shares of Common
Stock that the Selling Stockholders could own beneficially at any given
time through their ownership of the debentures and preferred stock. In
that regard, beneficial ownership of the Selling Stockholders set forth
in the table is not determined in accordance with Rule 13d-3 under the
Exchange Act.
2. The amount and (if one percent or more) the percentage of outstanding
Common Stock.
22
<PAGE>
3. Represents shares of Common Stock issuable upon conversion of $5,500,000
principal amount of 5% Convertible Debentures dated March 10, 1997, due
March 10, 2002. The Debentures may be converted for the first 89 days
following the close at 100% of the average stock price and, thereafter,
at 90% of the average stock price. The average stock price is the lesser
of (i) the average closing bid for the five days preceding the
conversion date or (ii) the average closing bid for the ten days
preceding the conversion date.
4. Represents shares of Common Stock issuable upon conversion of 6,000
shares of Series H Convertible Preferred Stock dated March 31, 1997. The
closing date is effective as of March 31, 1997. The Preferred Stock may
be converted for the first 179 days at 100% of the average stock price,
90% of the average stock price for the following 90 days and,
thereafter, at 85% of the average stock price. The average stock price
is the average closing bid for the ten days preceding the conversion
date. The conversion price is adjusted for a premium at the rate of 6%
per annum for the first 179 days following the closing date, 7% per
annum for the following 80 days and, thereafter, at 8% per annum.
5. This company is an affiliate of Credit Suisse First Boston. Represents
shares of Common Stock issuable upon conversion of 4,000 shares of
Series H Convertible Preferred Stock dated May 5, 1997. The closing date
is effective as of March 31, 1997. The Preferred Stock may be converted
for the first 179 days after the closing date at 100% of the average
stock price, 90% of the average stock price for the following 90 days
and, thereafter, at 85% of the average stock price. The average stock
price is the average closing bid for the ten days preceding the
conversion date. The conversion price is adjusted for a premium at the
rate of 6% per annum for the first 179 days following May 5, 1997, 7%
per annum for the following 80 days and, thereafter, at 8% per annum.
6. Represents shares of Common Stock issuable upon conversion of 3,000
shares of Series H Convertible Preferred Stock dated May 5, 1997. The
closing date is effective as of March 31, 1997. The Preferred Stock may
be converted for the first 179 days after the closing date at 100% of
the average stock price, 90% of the average stock price for the
following 90 days and, thereafter, at 85% of the average stock price.
The average stock price is the average closing bid for the ten days
preceding the conversion date. The conversion price is adjusted for a
premium at the rate of 6% per annum for the first 179 days following May
5, 1997, 7% per annum for the following 80 days and, thereafter, at 8%
per annum.
7. Represents shares of Common Stock issuable upon conversion of 3,000
shares of Series H Convertible Preferred Stock dated May 23, 1997. The
closing date is effective as of March 31, 1997. The Preferred Stock may
be converted for the first 179 days after the closing date at 100% of
the average stock price, 90% of the average stock price for the
following 90 days and, thereafter, at 85% of the average stock price.
The average stock price is the average closing bid for the ten days
preceding the conversion date. The conversion price is adjusted for a
premium at the rate of 6% per annum for the first 179 days following May
23, 1997, 7% per annum for the following 80 days and, thereafter, at 8%
per annum.
8. Represents additional shares of common stock issuable upon conversion of
$1,500,000 principal amount of 4.5% Convertible Subordinated Promissory
Note dated October 1996, due October 17, 1999-October 17, 2001. The Note
may be converted after seventy five (75) days from issuance at a
conversion price equal to 85% of the average trailing five (5) day
closing bid price. The conversion ceiling price is $9.66.
9. Represents shares of Common Stock issuable upon conversion of $500,000
principal amount of 5% Convertible Debentures dated March 13, 1997. The
Debentures may be converted after 180 days from the date of issuance at
$11.00 per share with no more than 33% (34% in the last 30 day period)
convertible in any 30 day period.
23
<PAGE>
PLAN OF DISTRIBUTION
The 11,345,615 shares being registered herein for sale by the Selling
Stockholders consists of (i) 8,000,000 shares underlying 16,000 shares of Series
H Convertible Preferred Stock; (ii) 2,750,000 shares issuable upon conversion of
$5,500,000 principal amount of 5% Convertible Debentures; (iii) 550,160
additional shares issuable upon conversion of $1,500,000 of 4.5% Convertible
Debentures; and (iv) 45,455 shares issuable upon conversion of $500,000
principal amount of 6% Convertible Debentures.
The Selling Stockholders and their respective pledgees, donees,
transferees and other successors in interest may sell the Common Stock
registered in connection with this Offering on the Nasdaq market system or
otherwise. There will be no charges or commissions paid to the Company by the
Selling Stockholders in connection with the resale of shares offered hereby. It
is anticipated that usual and customary brokerage fees will be paid by the
Selling Stockholders upon sale of the Common Stock offered hereby. The Company
will pay the other expenses of this Offering. Such sales may be made on one or
more exchanges or in the over-the-counter market, or otherwise at fixed prices,
at prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The Shares may be sold by one or
more of the following methods: (a) a block trade in which the broker so engaged
will attempt to sell the Shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) an exchange distribution in accordance
with the rules of Nasdaq; (d) ordinary brokerage transactions and (e) used to
cover short sales. In effecting sales, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Brokers or
dealers will receive commissions or discounts from Selling Stockholders in
amounts to be negotiated prior to the sale. The Selling Stockholders and brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this Prospectus.
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including certain liabilities under the Securities Act, or
to contribute to payments which the Selling Stockholders will be required to
make in respect thereof.
EXPERTS
The audited financial statements incorporated by reference in this
Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein upon the authority of said
Firm as experts in giving said reports.
LEGAL OPINIONS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by its General Counsel.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
24
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
Common Stock to be registered are estimated (except for the Securities and
Exchange Commission filing fee) below. All such expenses will be paid by the
Registrant.
Securities and Exchange Commission Filing Fee $9,670
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 $15,770
==================
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:
25
<PAGE>
INDEMNIFICATION
SECTION 1. Actions, Etc. Other Than by or in the Right of the Corporation. The
Corporation shall, to the full extent legally permissible, indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including a grand jury proceeding, and all
appeals (but excluding any such action, suit or proceeding by or in the right of
the Corporation), by reason of the fact that such person is or was a director,
executive officer (as hereinafter defined) or advisory council member of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct in question was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that such person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that such person had reasonable cause to believe that the conduct in
question was unlawful. As used in this Article IX, an "executive officer" of the
Corporation is the president, treasurer, a vice president given the title of
executive vice president, or any officer designated as such pursuant to vote of
the Board of Directors.
SECTION 2. Actions. Etc. by or in the Right of the Corporation. The Corporation
shall, to the full extent legally permissible, indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit, including appeals, by or in the right of the
Corporation to procure a judgment in its favor, by reason of the fact that such
person is or was a director or executive officer of the Corporation as defined
in Section 1 of this Article, or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. Determination of Right of Indemnification. Any indemnification of a
director or officer (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that such
indemnification is proper in the circumstances because the director or executive
officer has met the applicable standard of conduct as set forth in Sections 1
and 2 hereof. Such a determination shall be reasonably and promptly made (i) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (ii) (if such a
quorum is not obtainable, or, even if obtainable if a quorum of disinterested
directors so directs) by independent legal counsel in a written opinion, or
(iii) by the stockholders.
26
<PAGE>
SECTION 4. Indemnification Against Expenses of Successful Party. Notwithstanding
any other provision of this Article, to the extent that a director or officer of
the Corporation has been successful in whole or in part on the merits or
otherwise, including the dismissal of an action without prejudice, in defense of
any action, suit or proceeding or in defense of any claim, issue or matter
therein, such person shall be indemnified against all expenses incurred in
connection therewith.
SECTION 5. Advances of Expenses. Expenses incurred by a director or officer in
any action, suit or proceeding shall be paid by the Corporation in advance of
the final disposition of thereof, if such person shall undertake to repay such
amount in the event that it is ultimately determined, as provided herein, that
such person is not entitled to indemnification. Notwithstanding the foregoing,
no advance shall be made by the Corporation if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum of
disinterested directors, or (ii) (if such a quorum is not obtainable or, even if
obtainable, if a quorum of disinterested directors so directs) by independent
legal counsel in a written opinion, that, based upon the facts known to the
Board of Directors or such counsel at the time such determination is made, such
person has not met the relevant standards set forth for indemnification in
Section 1 or 2, as the case may be.
SECTION 6. Right to Indemnification Upon Application: Procedure Upon
Application. Any indemnification or advance under Sections 1, 2, 4 or 5 of this
Article shall be made promptly, and in any event within ninety days, upon the
written request of the person seeking to be indemnified, unless a determination
is reasonably and promptly made by the Board of Directors that such person acted
in a manner set forth in such Sections so as to justify the Corporation's not
indemnifying such person or making such an advance. In the event no quorum of
disinterested directors is obtainable, the Board of Directors shall promptly
appoint independent legal counsel to decide whether the person acted in the
manner set forth in such Sections so as to justify the Corporation's not
indemnifying such person or making such an advance. The right to indemnification
or advances as granted by this Article shall be enforceable by such person in
any court of competent jurisdiction, if the Board of Directors or independent
legal counsel denies the claim therefor, in whole or in part, or if no
disposition of such claim is made within ninety days.
SECTION 7. Other Right and Remedies: Continuation of Rights. The indemnification
and advancement of expenses provided by this Article shall not be deemed
exclusive of any other rights to which any person seeking indemnification or
advancement of expenses may be entitled under any Bylaw, agreement, Vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware or otherwise, both as to action in such person's official
capacity and as to action in another capacity while holding such office. All
rights to indemnification or advancement under this Article shall be deemed to
be in the nature of contractual rights bargained for and enforceable by each
director and executive officer as defined in Section 1 of this Article who
serves in such capacity at any time while this Article and other relevant
provisions of the General Corporation Law of the State of Delaware and other
applicable laws, if any, are in effect. All right to indemnification under this
Article or advancement of expenses shall continue as to a person who has ceased
to be a director or executive officer, and shall inure to the benefit of the
heirs, executors and administrators of such a person. No repeal or modification
of this Article shall adversely affect any such rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. The Corporation shall also indemnify any
person for attorneys' fees, costs, and expenses in connection with the
successful enforcement of such person's rights under this Article.
27
<PAGE>
SECTION 8. Other Indemnities. The Board of Directors may, by general vote or by
vote pertaining to a specific officer, employee or agent, advisory council
member or class thereof, authorize indemnification of the Corporation's
employees and agents, in addition to those executive officers and to whatever
extent it may determine, which may be in the same manner and to the same extent
provided above.
SECTION 9. Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, advisory council member or agent of the
Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Article.
SECTION 10. Constituent Corporations. For the purposes of this Article,
reference to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors and officers so that any person who is or was a director or officer of
such a constituent corporation or is or was serving at the request of such
constituent corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
SECTION 11. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, executive officer,
advisory council member, and those employees and agents of the Corporation
granted indemnification pursuant to Section 3 hereof as to expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including a grand jury proceeding, and all appeals, and any
action by the Corporation, to the full extent permitted by any applicable
portion of this Article that shall not have been invalidated or by any other
applicable law.
SECTION 12. Other Enterprises. Fines. and Serving at Corporation's Request. For
purposes of this Article, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to any employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of any employee benefit plan
shall be deemed to have acted in a manner not opposed to the best interests of
the Corporation" as referred to in this Article.
28
<PAGE>
ITEM 16. EXHIBITS
The following documents have been previously filed as Exhibits and are
incorporated herein by reference except those exhibits indicated with an
asterisk which are filed herewith:
Exhibit No. Description
3(a) Restated Certificate of Incorporation, incorporated by reference
to Exhibit No. 10(rr) of the Company's Quarterly Report on Form
10-QSB for its quarter ending June 30, 1996, filed August 14,
1996.
3(b) Certificate of Amendment to the Company's Restated Certificate
of Incorporation, as filed with the Delaware Secretary of State
on December 16, 1996, incorporated by reference to Registration
Statement on Form S-3/A-1 [Reg. No. 333-18003] filed December
17, 1996.
3(c) Bylaws of the Registrant, as amended, incorporated by reference
to Exhibit No. 3.5 of the Company's Annual report on Form
10KSB/A-4 for its year ending December 31, 1996, filed July 11,
1997.
3(d) Certification of Designation of Series H Preferred Stock
incorporated by reference to Exhibit 3.4 of the Company's Annual
Report on Form 10KSB/A-1 for its year ending December 31, 1996,
filed April 16, 1997.
4(a) Form of Common Stock Certificate, incorporated by reference to
Exhibit 4.1 of the Company Company's Annual Report on Form
10KSB/A-4 for its year ending December 31, 1996, filed July 11,
1997.
4(b) Form of Subscription Agreement, dated March 10, 1997,
incorporated by reference to Exhibit 10.41 of the Company's
Annual Report on Form 10-KSB for its year ending December 31,
1996, filed April 15, 1997.
4(c) Form of Registration Rights Agreement, dated March 10, 1997,
incorporated by reference to Exhibit 10.42 of the Company's
Annual Report on Form 10-KSB for its year ending December 31,
1996, filed April 15, 1997.
4(d) Form of 5% Convertible Debenture, due March 10, 2002,
incorporated by reference to Exhibit 10.43 of the Company's
Annual Report on Form 10-KSB for its year ending December 31,
1996, filed April 15, 1997.
4(e) Securities Purchase Agreement between the Company and RGC
International Investors, LDC, dated March 27, 1997, incorporated
by reference to Exhibit 10.52 of the Company's Annual Report on
Form 10-KSB for its year ending December 31, 1996, filed April
15, 1997.
4(f) Registration Rights Agreement between the Company and RGC
International Investors, LDC, dated March 27, 1997, incorporated
by reference to Exhibit 10.53 of the Company's Annual Report on
Form 10-KSB for its year ending December 31, 1996, filed April
15, 1997.
4(g) Form of Promissory Note dated October 17, 1996, incorporated by
reference to Exhibit 4(g) of the Registration Statement on Form
S-3 [Reg. No. 333-28251] filed May 30, 1997.
4(h) Form of Subscription Agreement dated October 16, 1997,
incorporated by reference to Exhibit 4(g) of the Registration
Statement on Form S-3 [Reg. No. 333-28251] filed May 30, 1997.
29
<PAGE>
4(i) Form of Promissory Note dated October 17, 1996, incorporated by
reference to Exhibit 4(g) of the Registration Statement on Form
S-3 [Reg. No. 333-28251] filed May 30, 1997.
4(j) Form of Subscription Agreement dated October 16, 1996,
incorporated by reference to Exhibit 4(g) of the Registration
Statement on Form S-3 [Reg. No. 333-28251] filed May 30, 1997.
4(k) Supplement to Securities Purchase Agreement dated May 5, 1997,
incorporated by reference to Exhibit 10.56 of the Company
Company's Annual Report on Form 10KSB/A-4 for its year ending
December 31, 1996, filed July 11, 1997.
4(l) Supplement to Registration Rights Agreement dated May 5, 1997,
incorporated by reference to Exhibit 10.57 of the Company
Company's Annual Report on Form 10KSB/A-4 for its year ending
December 31, 1996, filed July 11, 1997.
4(m) Supplement to Securities Purchase Agreement dated May 23, 1997,
incorporated by reference to Exhibit 10.58 of the Company
Company's Annual Report on Form 10KSB/A-4 for its year ending
December 31, 1996, filed July 11, 1997.
4(n) Supplement to Registration Rights Agreement dated May 23, 1997,
incorporated by reference to Exhibit 10.59 of the Company
Company's Annual Report on Form 10KSB/A-4 for its year ending
December 31, 1996, filed July 11, 1997.
4(o) Subscription Agreement between the Company and Soginvest Bank
dated as of March 13, 1997, incorporated by reference to Exhibit
10.44 of the Company Company's Annual Report on Form 10KSB for
its year ending December 31, 1996.
4(p) 6% Convertible Debenture due March 13, 2002, incorporated by
reference to Exhibit 10.44 of the Company Company's Annual
Report on Form 10KSB for its year ending December 31, 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)
30
<PAGE>
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.
31
<PAGE>
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain at
the termination of the offering.
(2) The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of any employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time be deemed to be
the initial BONA FIDE offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provision, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Beverly, Commonwealth of Massachusetts, on June 10,
1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Louis P. Valente
Louis P. Valente, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Louis P. Valente Chief Executive Officer, President and July 10, 1997
-------------------------------------- Director (Principal Executive Officer)
Louis P. Valente
/s/ Joseph P. Caruso Vice President, Chief Financial Officer, July 10, 1997
-------------------------------------- Treasurer (Principal Financial Accounting
Joseph P. Caruso Officer)
/s/ Michael H. Smotrich Chief Technical Officer and Director July 10, 1997
--------------------------------------
Michael H. Smotrich
/s/ Steven Georgiev Chairman of the Board July 10, 1997
--------------------------------------
Steven Georgiev
/s/ Buster C. Glosson Director July 10, 1997
--------------------------------------
Buster Glosson
/s/ John M. Deutch Director July 10, 1997
--------------------------------------
John M. Deutch
/s/ A. Neil Pappalardo Director July 10, 1997
--------------------------------------
A. Neil Pappalardo
/s/ James G. Martin Director July 10, 1997
--------------------------------------
James G. Martin
</TABLE>
33
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made part of the registration
statement
/s/ Arthur Andersen LLP
Boston, Massachusetts
July 7, 1997
34
<PAGE>
July 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/A-1 (the
"S-3/A-1 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/A-1 Registration Statement relates to a total of
11,345,615 shares (the "Shares") of the Company's common stock, $.01 par value
per share ("Common Stock"), issuable pursuant to certain debentures and
preferred stock issued to certain persons and entities.
In arriving at the opinion expressed below, I have examined and relied
on the following documents:
(1) the Certificate of Incorporation and By-Laws of the Company,
each as amended as of the date hereof; and
(2) the records of meetings and consents of the Board of Directors
and stockholders of the Company provided to me by the Company.
In addition, I have examined and relied on the originals or copies
certified or otherwise identified to my satisfaction of all such corporate
records of the Company and such other instruments and other certificates of
public officials, officers and representatives of the Company and such other
persons, and have made such investigations of law, as I have deemed appropriate
as a basis for the opinion expressed below.
Based upon the foregoing, it is my opinion that the Company has
corporate power adequate for the issuance of the Shares. The Company has taken
all necessary corporate action required to authorize the issuance and sale of
the Shares, and when certificates for the Shares have been duly executed and
countersigned and delivered, such shares will be legally issued, fully paid and
non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the
S-3/A-1 Registration Statement.
Sincerely,
/s/Sarah Burgess Reed
General Counsel
Palomar Medical Technologies, Inc.
35
<PAGE>
