As filed with the Securities and Exchange Commission on March 4, 1997
Registration No.____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
PALOMAR MEDICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
04-3128178
(I.R.S. employer identification number)
66 Cherry Hill Drive, Beverly, Massachusetts 01915 (508) 921-9300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Sarah Burgess Reed
General Counsel
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
(508) 921-9300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public:
from time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
______________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ______________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
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 $.01 225,000 $16.50(1) $3,712,500(1) $1,125(1)
per share.
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
Common Stock, par value $.01 1,860,892 $8.03(2) $14,942,963(2) $4,528(2)
per share.
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
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(1) For shares underlying various common stock purchase warrants (the
"Warrants") issued to certain entities which are exercisable at various
prices and terms described in the Selling Stockholders and Plan of
Distribution sections of the Prospectus, calculated pursuant to Rule 457(g)
under the Securities Act of 1933 (the "Act"), as amended, based on the
weighted average price at which the Warrants may be exercised.
(2) Consists of (i) 840,892 shares relating to 9,375 units, each consisting of
SF 1,000 principal amount of 4.5% Convertible Subordinated Debentures; (ii)
1,020,000 shares issuable upon conversion of $6,000,000 principal amount of
5% Convertible Debentures. The fee is estimated pursuant to Rule 457(c)
under the Act on the basis of the average of the high and low sale prices
reported on the Nasdaq SmallCap Market on February 26 , 1997.
Pursuant to Rule 416, there are also registered hereby such additional
indeterminate number of shares of such Common Stock as may become issuable as
dividends or to prevent dilution resulting from stock splits, stock dividends or
similar transactions as set forth in the terms of the Debentures and the
warrants referred to above.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SUBJECT TO COMPLETION DATED March 4, 1997
<PAGE>
PROSPECTUS
PALOMAR MEDICAL TECHNOLOGIES, INC.
2,085,892 shares of Common Stock
consisting of:
225,000 shares underlying stock purchase warrants;
840,892 shares issuable upon conversion of 9,375 units, each consisting of
SF 1,000 principal amount of 4.5% Convertible Subordinated Debentures; and
1,020,000 shares issuable upon conversion of $6,000,000 principal amount
of 5% Convertible Debentures.
This Prospectus relates to shares of Common Stock, $.01 par value,
("Common Stock" or the "Shares") of Palomar Medical Technologies, Inc. (the
"Company", the "Registrant" or "Palomar") consisting of: (i) 225,000 shares
underlying stock purchase warrants; (ii) 840,892 shares issuable upon conversion
of 9,375 units, each consisting of SF 1,000 principal amount of 4.5% Convertible
Subordinated Debentures and (iii) 1,020,000 shares issuable upon conversion of
$6,000,000 principal amount of 5% Convertible Debentures, all of which are
exercisable as described in the Selling Stockholders and Plan of Distribution
sections of the Prospectus. All shares to be registered hereby are to be offered
by the selling stockholders listed herein (the "Selling Stockholders") and the
Company will receive no proceeds from the sale of such shares. The Company has
agreed to indemnify the Selling Stockholders against certain liabilities,
including certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act"), or to contribute to payments which such Selling Stockholders
may be required to make in respect thereof. See "Plan of Distribution".
The Company's Common Stock, par value $.01 per share, is listed on the
National Association of Securities Dealers Automated Quotation System ("Nasdaq")
and traded on the Nasdaq SmallCap Market. The last reported bid price of the
Common Stock on the Nasdaq SmallCap Market on March 3, 1997 was $7.625 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 18.
It is anticipated that usual and customary brokerage fees will be paid
by the Selling Stockholders on the sale of the Common Stock registered hereby.
The Company will pay the other expenses of this offering. See "Plan of
Distribution". The offer of shares of Common Stock by the Selling Stockholders
as described in this Prospectus is referred to as the "Offering".
The date of this Prospectus is ______________.
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No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in connection with the offer
contained in this Prospectus, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Company
or the Selling Stockholders. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, Room 1024 and at the public
reference facilities maintained by the Commission on the 14th Floor, 75 Park
Place, New York, New York 10007; Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661; and Suite 500 East, Securities and
Exchange Commission Building, 5757 Wilshire Boulevard, Los Angeles, California
90036. Copies can be obtained from the Commission at prescribed rates by writing
to the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
reports, proxy statements and similar information can also be inspected and
copied at the National Association of Securities Dealers, 1735 K Street, N.W.,
Washington, DC 20006-1500. In addition, the Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically, including the Company. The
Commission's Web site address is http://www.sec.gov. This prospectus, which
constitutes part of a Registration Statement filed by the Company with the
Commission under the Securities Act omits certain of the information contained
in the Registration Statement in accordance with the rules and regulations of
the Commission. Reference is hereby made to the Registration Statement and to
the Exhibits relating thereto for further information with respect to the
Company and the Securities offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such documents filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-KSB and Form 10-KSB\A-1 for its
fiscal year ended December 31, 1995, the Company's Quarterly Report on Form
10-QSB and Form 10-QSB\A-1 for its quarter ending March 31, 1996, the Company's
Quarterly Report on Form 10-QSB for its quarter ending June 30, 1996, the
Company's Quarterly Report on Form 10-QSB for its quarter ending September 30,
1996, the Company's Form 8-K filed with the commission on May 16, 1996, as
amended by Form 8-K/A filed June 11, 1996, and the description of the Company's
Common Stock contained in its Registration Statement on Form 8-A filed with the
Commission on June 6, 1992, as amended by Form 8 on December 17, 1992, all of
which have been previously filed with the Commission, are incorporated in this
Prospectus by reference. All documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the termination of the offering made hereby are also incorporated by reference
herein and made a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated by reference herein is modified
or superseded for all purposes to the extent that a statement contained in this
Prospectus or in any other subsequently filed
<PAGE>
document which is incorporated by reference modifies or replaces such statement.
The Company will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon the written or oral
request of such person, a copy of all documents incorporated herein by reference
(not including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference herein). Requests for such copies should
be directed to: John J. Ingoldsby, Palomar Medical Technologies, Inc., 66 Cherry
Hill Drive, Beverly, Massachusetts 01915; telephone number (508) 921 - 9300;
e-mail address:[email protected].
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
more detailed information appearing elsewhere in this Prospectus or incorporated
herein by reference and the financial statements which are incorporated herein
by reference.
<TABLE>
<S> <C>
THE COMPANY....................................... Palomar Medical Technologies, Inc. (the "Company") has three
business segments: cosmetic dermatological laser products,
laser services and electronic products. The cosmetic laser
products are under various stages of development and
clinical trials. The Company does derive revenue from the
sale of cosmetic laser products by its subsidiaries Spectrum
Medical Technologies, Inc. and Tissue Technologies, Inc.
The laser services segment is new; the Company derives no
revenue from that segment at present. In addition, the
Company derives revenue from the sale of electronic products
by its subsidiaries Nexar Technologies, Inc. ("Nexar"),
-------
Dynaco Corporation and Comtel Electronics, Inc. The
electronic products segment is the principal source of the
Company's revenues.
RISK FACTORS........................................ The Offering involves substantial risk. See "Risk Factors".
SECURITIES OFFERED.......................... 2,085,892 shares of Company Common Stock, par value $.01 per
share.
OFFERING PRICE.................................... All or part of the Shares offered hereby may be sold from
time to time in amounts and on terms to be determined by the
Selling Stockholders at the time of sale.
USE OF PROCEEDS................................. The Company will receive no part of the proceeds from the
sale of the shares registered pursuant to this Registration
Statement.
SELLING STOCKHOLDERS................... The Shares being offered hereby are being offered for the
account of the Selling Stockholders specified under the
caption "Selling Stockholders".
NASDAQ TRADING SYMBOL.............. PMTI
</TABLE>
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
SHOULD NOT BE MADE BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. IN CONNECTION WITH THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY IS HEREBY IDENTIFYING
IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED IN FORWARD-LOOKING STATEMENTS OF THE COMPANY
MADE BY OR ON BEHALF OF THE COMPANY. THE COMPANY ADVISES READERS NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS IN LIGHT OF THE RISKS AND
UNCERTAINTIES TO WHICH THEY ARE SUBJECT. THE FOLLOWING FACTORS SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS.
HOLDING COMPANY STRUCTURE. The Company has no significant operations
other than those incidental to its ownership of the capital stock of its
subsidiaries. As a holding company, the Company is dependent on dividends or
other intercompany transfers of funds from its subsidiaries to meet the
Company's debt service and other obligations. Claims of creditors of the
Company's subsidiaries, including trade creditors, will generally have priority
as to the assets of such subsidiaries over the claims of the Company and the
holders of the Company's indebtedness.
LIMITED OPERATING HISTORY; RECENT ACQUISITIONS. Many of the Company's
subsidiaries have limited operating histories and are in the development stage,
and the Company is subject to all of the risks inherent in the establishment of
a new business enterprise. Historically, most of the Company's revenues have
been generated by its flexible circuit board component business; however,
Spectrum Medical Technologies, Inc. ("Spectrum"), acquired by the Company in
April 1995, contributed 18% of the Company's revenues in 1995. Nexar contributed
23% of the Company's revenues for the nine months ended September 30, 1996. The
Company acquired Comtel Electronics, Inc. ("Comtel") in March 1996, and Tissue
Technologies, Inc. ("Tissue") in May 1996. Comtel has contributed 27% of the
Company's revenues and Tissues contributed 18% of revenues for the nine months
ended September 30, 1996. Nexar, Comtel and Tissue have had limited operating
histories. The likelihood of success of the Company must be considered in light
of the problems, expenses, difficulties, complications and delays frequently
encountered in connection with the establishment of a new business and
development of new technologies in the cosmetic laser products and electronic
products industries. These include, but are not limited to, government
regulation, competition, the need to expand manufacturing capabilities and
market expertise, and setbacks in production, product development, market
acceptance and sales and marketing. The Company's prospects could be
significantly affected by its ability to subsequently manage and integrate the
operations of several distinct businesses with diverse products, services and
customer bases in order to achieve cost efficiencies. There can be no assurance
that the Company will be able to successfully manage and integrate the
operations of newly acquired businesses into its operations or that the failure
to do so will not increase the costs inherent in the establishment of new
business enterprises.
SUBSTANTIAL AND CONTINUING LOSSES. The Company incurred a net loss of
$12,620,768 for the year ended December 31, 1995 and a net loss of $19,213,214
for the nine month period ended September 30, 1996. These losses are expected to
continue for the near term, and there can be no assurance that the Company will
achieve profitable operations or that profitable operations will be sustained if
achieved. At September 30, 1996, the Company's accumulated deficit was
$45,903,951. Dynaco Corp. ("Dynaco"), Star Medical Technologies, Inc. ("Star"),
CD Titles, Inc. ("CD Titles"), Dynamem, Inc. ("Dynamem"), Comtel, Tissue and
Nexar each have had a history of losses. There can be no assurance that these
companies will achieve profitable operations or that profitable operations will
be sustained if achieved. The Company anticipates incurring substantial research
and development expenses, which will reduce cash available to
<PAGE>
fund current operations. The Company must continue to secure additional
financing to complete its research and development activities, commercialize its
current and proposed cosmetic laser products,expand its current electronics
business, execute its acquisition business plan and fund ongoing operations. The
Company believes that the cash generated to date from its financing activities;
amounts available under its credit agreement and the Company's ability to raise
cash in future financing activities will be sufficient to satisfy its working
capital requirements through the next twelve-month period. However, there can be
no assurance that this assumption will prove to be accurate or that events in
the future will not require the Company to obtain additional financing sooner
than presently anticipated. The Company may also determine, depending upon the
opportunities available to it, to seek additional debt or equity financing to
fund the costs of acquisitions or continuing expansion. To the extent that the
Company finances an acquisition with a combination of cash and equity
securities, any such issuance of equity securities could result in dilution to
the interests of the Company's shareholders. Additionally, to the extent that
the Company incurs indebtedness to fund increased levels of accounts receivable
or to finance the acquisition of capital equipment or issues debt securities in
connection with any acquisition, the Company will be subject to risks associated
with incurring substantial additional indebtedness, including the risks that
interest rates may fluctuate and cash flow may be insufficient to pay principal
and interest on any such indebtedness. The Company continues to investigate
several financing alternatives, including strategic partnerships, additional
bank financing, private, debt and equity financing and other sources. While the
Company regularly reviews potential funding sources in relation to its ongoing
and proposed research projects, there can be no assurance that the current
levels of funding or additional funding will be available, or if available will
be on terms satisfactory to the Company. Failure to obtain additional financing
could have a material adverse effect on the Company, including possibly
requiring it to significantly curtail its operations.
RISKS ASSOCIATED WITH ACQUISITIONS. Since going public, the Company has
acquired seven companies. In the normal course of business, the Company
evaluates potential acquisitions of businesses, products and technologies that
would complement or expand the Company's business. Promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory approvals.
Acquisitions may result in the incurrence of additional debt, the write-off of
in-process research and development or technology acquisition and development
costs and the amortization of expenses related to goodwill and other intangible
assets, any of which could have a material adverse effect on the Company's
business, financial condition, results of operations and cash flow. Acquisitions
involve numerous additional risks, including difficulties in the assimilation of
the operations, services, products and personnel of the acquired company, the
diversion of management's attention from other business concerns, entering
markets in which the Company has little or no direct prior experience and the
potential loss of key employees of the acquired company. In order to finance
acquisitions, it may be necessary for the Company to raise additional funds
through public or private financings. Any equity or debt financing, if available
at all, may be on terms which are not favorable to the Company and, in the case
of equity financing, may result in dilution to the Company's stockholders.
NEW VENTURES. The Company has entered into several agreements with
physician groups to provide cosmetic laser services at laser treatment centers,
and plans to enter into more such agreements in the future. While the Company
believes these new partnerships are strategically important, there are
substantial uncertainties associated with the development of new products,
technologies and services for evolving markets. The success of these ventures
will be determined not only by the Company's efforts, but also by those of its
partners. Initial timetables for the development and introduction of new
technologies, products or services may not be achieved, and price/performance
targets may not prove feasible. External
<PAGE>
factors, such as the development of competitive alternatives or government
regulation, may cause new markets to evolve in unanticipated directions. (See
"Highly Competitive Industries.")
INVESTMENTS IN UNRELATED BUSINESSES. The Company has investments in
marketable and nonmarketable securities and loans to related and unrelated
parties. The amount that the Company may ultimately realize from these
investments could differ materially from the value of these investments recorded
in the Company's financial stements.
MANAGEMENT OF GROWTH. In light of management's views of the potential
for future growth, the Company has adopted an aggressive growth plan that
includes substantial investments in its sales, marketing, production and
distribution organizations, the creation of new research and development
programs and increased funding of existing programs, and investments in
corporate infrastructure that will be required to support significant growth.
This plan carries with it a number of risks, including a higher level of
operating expenses, the difficulty of attracting and assimilating a large number
of new employees, and the complexities associated with managing a larger and
faster growing organization. Depending on the extent of future growth, the
Company may experience a significant strain on its management, operational,
manufacturing and financial resources. The failure of the Company's management
team to effectively manage growth, should it continue to occur, could have a
material adverse effect on the Company's financial condition and results of
operations
HIGHLY COMPETITIVE INDUSTRIES. The cosmetic laser and electronics
industries are characterized by intense competition. The cosmetic laser industry
is highly competitive and is characterized by the frequent introduction of new
products. The Company competes in the development, manufacture, marketing and
servicing of laser technology products with numerous other companies, certain of
which have substantially greater financial, marketing and other resources than
the Company. In addition, the Company's cosmetic laser products face competition
from alternative medical products and procedures, such as dermabrasion, chemical
peels, pharmaceutical treatment, electrolysis, waxing and surgery, among others.
There can be no assurance that the Company will be able to differentiate its
products from the products of its competitors or that the marketplace will
consider the Company's products to be superior to competing products or medical
procedures. There can be no assurance that competitors will not develop products
or that new technologies will not be developed that render the Company's
products obsolete or less competitive. 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
<PAGE>
independent distributors and resellers, or a reduction in their sales efforts,
could have a material adverse effect on the Company's financial condition and
results of operations. In addition, there can be no assurance as to the
viability or financial stability of the Company's independent distributors and
resellers. The computer industry has been characterized from time to time by
financial difficulties of distributors and resellers; any such problems could
lead to reduced sales and could have a material adverse effect on the Company's
financial condition and results of operations. There can be no assurance that
the Company's products will compete favorably with the products of its
competitors or that the Company will have the resources necessary to compete
effectively against such companies.
FLUCTUATIONS IN QUARTERLY PERFORMANCE. The Company's results of
operations have fluctuated substantially and can be expected to continue to vary
significantly. The Company's quarterly operating results depend on a number of
factors, including the timing of the introduction or acceptance of new products
offered by the Company or its competitors, changes in the mix of products sold
by the Company, changes in regulations affecting the cosmetic laser products or
electronics industry, changes in the Company's operating expenses, personnel
changes and general economic conditions.
The Company's stock price, like that of other technology companies, is
subject to significant volatility. If revenues or earnings in any quarter fail
to meet the investment community's expectations, there could be an immediate
impact on the price of the Shares. The price of the Shares may also be affected
by broader market trends unrelated to the Company's performance. (See
"Volatility of Share Price.")
VOLATILITY OF SHARE PRICE. Factors such as announcements of
developments related to the Company's business, announcements by competitors,
quarterly fluctuations in the Company's financial results and other factors have
caused the price of the Company's stock to fluctuate, in some cases
substantially, and could continue to do so in the future. In addition, the stock
market has experienced extreme price and volume fluctuations that have
particularly affected the market price for many technology companies and that
have often been unrelated to the operating performance of these companies. These
broad market fluctuations may adversely affect the market price of the Shares.
The trading prices of many technology companies' stocks are at or near their
historical highs, and reflect price/earnings ratios substantially above
historical norms. There can be no assurance that the trading price of the Shares
will remain at or near its current level.
GOVERNMENT REGULATION. The Company's laser product business segment
and, to a lesser degree, its electronics business segment are subject to
regulation in the United States and abroad. Failure to comply with applicable
regulatory requirements can result in fines, denial or suspension of approvals,
seizures or recall of products, operating restrictions and criminal
prosecutions, any or all of which could have a material adverse effect on the
Company. Furthermore, changes in existing regulations or adoption of new
regulations could prevent the Company from obtaining, or could affect the timing
of, future regulatory approvals.
LASER PRODUCT SEGMENT. All laser product devices, including those sold
by the Company, are subject to regulation by the FDA under the Medical Device
Amendments of the United States Food, Drug and Cosmetics Act (the "FDA Act").
The Company's business, financial condition and operations are critically
dependent upon timely receipt of FDA regulatory clearance.
FDA CLEARANCE STATUS FOR COSMETIC LASER PRODUCTS. Three of the Company's
lasers have received clearance from the FDA for certain dermatological
applications: the Q-pulse Ruby laser, the Tru-Pulse laser and the Epilaser
system.
<PAGE>
The Company is also investigating other applications in dermatology for
its laser systems. It will be required to obtain FDA clearance before
commercially marketing any other application. The Company believes that it will
be able to seek such clearance under the 510(k) application process; however, no
assurance can be given that the FDA will not require the Company to follow the
more extensive and time-consuming Pre-Market Approval ("PMA") process. FDA
review of a 510(k) application currently averages about seven to twelve months
and requires limited clinical data based on "substantial equivalence" to a
product marketed prior to 1976, while a PMA review can last for several years
and require substantially more clinical data.
The FDA also imposes various requirements on manufacturers and sellers
of products under its jurisdiction, such as labeling, good manufacturing
practices, record keeping and reporting requirements. The FDA also may require
post-market testing and surveillance programs to monitor a product's effects.
There can be no assurance that the appropriate clearances from the FDA will be
granted, that the process to obtain such clearances will not be excessively
expensive or lengthy or that the Company will have sufficient funds to pursue
such clearances.
No assurance can be given that FDA approval will be obtained for the
Company's current or proposed laser products on a timely basis, if at all. The
laser products segment of the Company's business, is, and will continue to be,
critically dependent upon FDA approval of its current and proposed cosmetic
laser products. Delays or failure to obtain such approval would have a material
adverse effect on the Company.
OTHER GOVERNMENT APPROVALS FOR LASER PRODUCTS; GOOD
MANUFACTURING PRACTICES. In order to be sold outside the United States, the
Company's products are subject to FDA permit requirements that are conditioned
upon clearance by the importing country's appropriate regulatory authorities.
Many countries also require that imported products comply with their own or
international electrical and safety standards. In November 1992, the Company
obtained approval certifying compliance with certain international electrical
and safety regulations applicable to its pulsed dye laser. Additional approvals
may be required in other countries. The Company has yet to apply for
international approval for its diode laser for use in cosmetic surgery and
dermatology.
The Company is subject to the laser radiation safety regulations of the
FDA Act administered by the National Center for Devices and Radiological Health
("CDRH") of the FDA. These regulations require a laser manufacturer to file new
product and annual reports, to maintain quality control, product testing and
sales records, to distribute appropriate operation manuals, to incorporate
certain design and operating features in lasers sold to end-users and to certify
and label each laser sold to end-users as one of four classes of lasers (based
on the level of radiation from the laser). In addition, various warning labels
must be affixed on the product and certain protective devices must be installed
depending upon the class of product. Under the Act, the Company is also required
to register with the FDA as a medical device manufacturer and is subject to
inspection on a routine basis by the FDA for compliance with Good Manufacturing
Practice ("GMP") regulations. The GMP regulations impose certain procedural and
documentation requirements upon the Company relevant to its manufacturing,
testing and quality control activities. The CDRH is empowered to seek fines and
other remedies for violations of these regulatory requirements. The Company
believes that it is currently in compliance with these regulations.
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
<PAGE>
government. Cutbacks in military spending for certain programs or lack of
military spending in general could have a material adverse effect on the
Company. There can be no assurance that termination of contracts, cessation of
purchase orders, or a failure to appropriate funds will not occur in the future.
Any termination, cessation, or failure to appropriate funds with respect to
contracts or subcontracts having a significant dollar value would have a
material adverse effect on the Company's business, financial condition and
results of operation. The unpredictable nature of the government procurement
process also may contribute to fluctuations in the Company's quarterly
performance. (See "Fluctuations in Quarterly Performance.")
Flexible circuit board component sales to the U.S. military are subject
to certain military certifications. These certifications are based upon
compliance with specification standards set by the U.S. military. The Company is
subject to periodic audit and review from U.S. government agencies to ensure
compliance under criteria set forth by these agencies. Failure to meet or exceed
criteria set forth could result in a suspension or disqualification of certain
certifications. Such suspension or disqualification could have a material
adverse effect on the Company.
One customer of Nexar, Government Technology Services, Inc. (GTSI), a
leading supplier of desktop systems to United States government agencies,
accounted for a majority of Nexar's revenues. The Company expects that GTSI will
continue to be an important customer, but that sales to GTSI as a percentage of
total revenues will decline substantially as Nexar further expands its
distribution network and increases its overall sales. Nexar has entered into an
agreement with GTSI pursuant to which GTSI serves as Nexar's exclusive federal
reseller with respect to Government Services Administration (GSA) scheduled
purchases, provided that GTSI purchases at least $35 million of Nexar's products
in 1997. GTSI is under no obligation, however, to purchase any products of
Nexar's. If GTSI makes fewer purchases in 1997 than Nexar anticipates, that
would have a material adverse effect on the Company.
UNCERTAINTY OF MARKET ACCEPTANCE. The Company continually develops new
products intended for use in the cosmetic laser products segment and the
electronic products segment. As with any new products, there is substantial risk
that the marketplace may not accept or be receptive to the potential benefits of
such products. Market acceptance of the Company's current and proposed products
will depend, in large part, upon the ability of the Company or any marketing
partners to demonstrate to the marketplace the advantages of the Company's
products over other types of products. There can be no assurance that
applications or uses for the Company's current and proposed products will be
accepted by the marketplace or that any of the Company's current or proposed
products will be able to compete effectively.
UNCERTAINTY OF HEALTHCARE REIMBURSEMENT AND REFORM. The healthcare
industry is subject to changing political, economic and regulatory influences
that may affect the procurement practices and operations of healthcare industry
participants. During the past several years, state and federal government
regulation of reimbursement rates and capital expenditures in the United States
healthcare industry has increased. Lawmakers continue to propose programs to
reform the United States healthcare system, which may contain programs to
increase governmental involvement in healthcare, lower Medicare and Medicaid
reimbursement rates or otherwise change the operating environment for the
Company's customers. Healthcare industry participants may react to these
proposals by curtailing or deferring investments, including investments in the
Company's products.
DEPENDENCE ON THIRD PARTY RESEARCHERS. The Company is substantially
dependent upon third party researchers and others, over which the Company will
not have absolute control, to satisfactorily conduct and complete research on
behalf of the Company and to grant to the Company favorable licensing terms for
products which may be developed. The Company has entered into a number of
research
<PAGE>
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.
TECHNOLOGICAL OBSOLESCENCE. The markets for the Company's products are
characterized by rapid and significant technological change, evolving industry
standards and frequent new product introductions and enhancements. Many of the
Company's products and products under development are technologically
innovative, and require significant planning, design, development and testing,
at the technological, product and manufacturing process levels. These activities
require significant capital commitments and investment by the Company. The
Company's failure to develop products in a timely manner in response to changes
in the industry, whether for financial, technological or other reasons, will
have a material adverse effect on the Company's business, financial condition
and results of operations.
The flexible circuit board component, electronics interconnect and
personal computer industries are characterized by large capital investments in
new automated processes and state-of-the-art fabrication techniques. In order to
participate effectively in those industries, the Company must continue to make
large capital investments in new automated processes and state-of-the-art
fabrication techniques. Development by others of new or improved products,
processes or technologies may make the Company's products or proposed products
obsolete or less competitive. The Company will be required to devote continued
efforts and financial resources to enhancement of its existing products and
development of new products. There can be no assurance that the Company will
have the financial resources or the technological capability necessary to carry
out such product enhancement and development. Nor can there be any assurance
that any of the products currently being developed by the Company, or those to
be developed in the future, will be technologically feasible or accepted by the
marketplace, that any such development will be completed in any particular time
frame, or that the Company's products or proprietary technologies will not
become uncompetitive or obsolete.
LACK OF PATENT PROTECTION. The Company currently holds several patents
and intends to pursue various additional avenues that it deems appropriate to
protect its technology. There can be no assurance, however, that the Company
will file any additional patent applications or that any patent applications
that have been, or may be, filed will result in issued patents, or that any
patent, patent application, know-how, license or cross-license will afford any
protection or benefit to the Company.
The cosmetic laser device market has been characterized by substantial
litigation regarding patent and other intellectual property rights. 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
<PAGE>
selling its products, all of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
POSSIBLE PATENT INFRINGEMENTS. In the medical products segment, the
Company is aware of patents relating to laser technologies used in certain
applications that the Company intends to pursue, which, if valid and
enforceable, may be infringed by the Company. The Company has obtained opinions
of counsel that the Company is not infringing currently on patents held by
others; however, such opinions have not been challenged in any court of law. If
the Company's current or proposed products are, in the opinion of patent
counsel, infringing on any of these patents, the Company intends to seek
non-exclusive, royalty-bearing licenses to such patents but there can be no
assurance that any such license would be available on favorable terms, if at
all. In the electronic products segment, the Company has not been notified that
it is currently infringing on any patents nor has it been the subject of any
patent infringement action. No assurance can be given that infringement claims
will not be made or that the Company would prevail in any legal action with
respect thereto. Defense of a claim of infringement would be costly and could
have a material adverse effect on the Company's business, even if the Company
were to prevail.
DEPENDENCE ON PROPRIETARY RIGHTS. The Company relies on trade secrets
and proprietary know-how which it seeks to protect, in part, by confidentiality
agreements with its collaborators, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or be independently developed by competitors.
NEED FOR ADDITIONAL QUALIFIED PERSONNEL/DEPENDENCE ON KEY PERSONNEL.
The Company's ability to develop, manufacture and market all of its products,
and to attain a competitive position within the laser products and electronics
industries, will depend, in large part, on its ability to attract and retain
qualified personnel. Competition for qualified personnel in these industries is
intense and the Company will be required to compete for such personnel with
companies which may have greater financial and other resources; there can be no
assurance that the Company will be successful in attracting, assimilating and
retaining the personnel it requires to grow and operate profitably. The
Company's inability to attract and retain such personnel could have a material
adverse effect upon its business. (See "Management of Growth.")
The Company's future success depends to a significant extent on its
executive officers and certain technical, managerial and marketing personnel.
The loss of the services of any of these individuals or group of individuals
could have a material adverse effect on the Company's business, financial
condition and results of operations.
ISSUANCE OF PREFERRED STOCK AND DEBENTURES COULD AFFECT RIGHTS OF
COMMON SHAREHOLDERS. The Company is authorized to issue up to 5 million shares
of Preferred Stock, US$.01 par value. The Preferred Stock may be issued in one
or more series, the terms of which may be determined at the time of issuance by
the Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. In April 1996, the Company issued 10,000 shares of
Series E Preferred Stock at a price of US$1,000 per share. As of February 26,
1997, 10,000 shares of Series E Convertible Preferred Stock had been converted
into 1,381,435 of common shares. In July 1996, the Company issued 6,000 shares
of Series F Convertible Preferred Stock at a price of US$1,000 per share. In
September 1996, the Company issued 10,000 shares of Series G Preferred Stock at
a price of US$1,000 per share. In July 1996, the Company issued 9,675 units in a
convertible debenture financing. Each unit consisted of a convertible debenture
denominated in 1,000 Swiss Francs and a warrant to purchase 24 shares of the
Company's common stock at $16.50 per share. In October 1996, the Company issued
$5,000,000 in
<PAGE>
4.5% Convertible Subordinated Promissory Notes. In December 1996 and January
1997, the Company issued a total of $6,000,000 in 5% Convertible Debentures. The
issuance of any such additional Preferred Stock or Debentures could affect the
rights of the holders of Shares, and could reduce the market price of the
Shares. In particular, specific rights granted to future holders of Preferred
Stock or Debentures could be used to restrict the Company's ability to merge
with or sell its assets to a third party, thereby preserving control of the
Company by the existing control group.
ISSUANCE OF RESERVED SHARES; REGISTRATION RIGHTS. As of February 26, the
Company had 31,028,049 Shares of Common Stock outstanding. The Company has
reserved an additional 18,888,168 Shares for issuance as follows: (1) 3,897,500
Shares for issuance to key employees, officers, directors,consultants and
advisors pursuant to the Company's Stock Option Plans; (2) 254,115 Shares for
issuance to employees, officers and directors pursuant to the Company's 401(k)
Plan; (3) 999,420 Shares for issuance pursuant to the Company's Employee Stock
Purchase Plan; (4) 8,642,507 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) 1,700,000 Shares for issuance upon
conversion of the 10,000 shares of Series G Preferred Stock (7) 840,892 Shares
for issuance upon conversion of the debentures sold in the Swiss
Franc-Denominated Offering; (8) 750,000 Shares for issuance upon conversion of
5,000,000 principal amount of a 4.5% Convertible Subordinated Promissory Note;
(9) 1,200,000 Shares for issuance upon conversion of 6,000,000 principal amount
of a 5% Convertible Debentures; and (10) 3,734 shares of Common Stock reserved
for issuance to certain persons. All of the foregoing reserved Shares are, or
the Company intends for them shortly to be, registered with the Commission and
therefore freely salable on Nasdaq or elsewhere.
PRODUCT LIABILITY EXPOSURE. Cosmetic laser product companies face an
inherent business risk of financial exposure to product liability claims in the
event that the use of their products results in personal injury. The Company's
products are and will continue to be designed with numerous safety features, but
it is possible that patients could be adversely affected by use of one of the
Company's products or that deaths could occur. Further, in the event that any of
the Company's products prove to be defective, the Company may be required to
recall and redesign such products. Although the Company has not experienced any
material losses due to product liability claims to date, there can be no
assurance that it will not experience such losses in the future. The Company
maintains liability insurance in the amount of US$4,000,000; however, there can
be no assurance that such coverage will continue to be available on terms
acceptable to the Company or that such coverage will be adequate for liabilities
actually incurred. In the event the Company is found liable for damages in
excess of the limits of its insurance coverage, or if any claim or product
recall results in significant adverse publicity against the Company, the
Company's business, financial condition and results of operations could be
materially and adversely affected. In addition, although the Company's products
have been and will continue to be designed to operate in a safe manner, and
although the Company attempts to educate medical personnel with respect to the
proper use of its products, misuse of the Company's products by medical
personnel over whom the Company cannot exert control may result in the filing of
product liability claims or significant adverse publicity against the Company.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. As part of its business
strategy, the Company intends to seek opportunities to expand its product and
service offerings into international markets. In marketing its products and
services internationally, the Company will likely face new competitors. There
can be no assurance that the Company will be successful in marketing or
distributing products and services in these markets or that its international
revenue will be adequate to offset the expense of establishing and maintaining
international operations. The Company's international business may be adversely
affected by
<PAGE>
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 manufacuturing 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.
DEPENDENCE ON SOLE SUPPLIERS. The Company relies on outside suppliers
for substantially all of its manufacturing supplies, parts and components.
Pyralux(R), an integral component of most of the Company's flexible circuit
products, is manufactured exclusively by E.I. du Pont de Nemours and Company
("DuPont"). Although the Company has a written agreement with DuPont under which
DuPont will supply the Company with all of its requirements for Pyralux, there
can be no assurance that the Company will be able to obtain a sufficient supply
of Pyralux to fulfill orders for its products in a timely manner, if at all.
In addition, CO2 laser tubes, an integral component of Tissue's
Tru-Pulse Laser system, are manufactured exclusively by Pulse Systems, Inc.
There can be no assurance that the Company will be able to obtain sufficient
supply of CO2 laser tubes to fulfill orders for its products in a timely manner,
if at all. Furthermore, several other component parts of the Company's cosmetic
laser products and electronic segment products are manufactured exclusively by
one supplier. There can be no assurance that the Company will be able to obtain
a sufficient supply of such components at commercially reasonable prices or at
all. A shortage of necessary parts and components or the inability of the
Company to obtain such parts and components would have a material adverse effect
on the Company's business, financial condition and results of operations.
DEPENDENCE ON SUBSTANTIAL CUSTOMERS. In the nine months ended September
30, 1996, one customer of Nexar, Government Technology Services, Inc. ("GTSI), a
leading supplier of desktop
<PAGE>
systems to United States government agencies,accounted for 17% of the Company's
revenues and 31% of the Company's accounts receivable balance. The Company
expects that GTSI will continue to be an important customer, but that sales to
GTSI as a percentage of total revenue will decline substantially as the Company
further expands its distribution network and increases its overall sales. The
Company has entered into an agreement with GTSI pursuant to which GTSI serves as
the Company's exclusive federal reseller with respect to Government Services
Administration (GSA) scheduled purchases, provided that GTSI purchases at least
$35 million of Nexar's products in 1997. GTSI is under no obligation, however,
to purchase any products of the Company. If GTSI makes fewer purchases in 1997
than the Company anticipates, that would have a material adverse effect on the
Company.
In the nine months ended September 30, 1996, one customer of Comtel, New
Media, Inc. ("New Media"), a related party, accounted for 27% of the Company's
revenues. Comtel has entered into a five (5) year agreement with New Media
whereby New Media, subcontracted to Comtel all of its manufacturing and assembly
business over the contract term. 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.
HAZARDOUS SUBSTANCE AND ENVIRONMENTAL CONCERNS. The manufacture of
substrate interconnect products involves numerous chemical solvents and other
solid, chemical and hazardous wastes and materials. Dynaco is subject to a
variety of environmental laws relating to the generation, storage, handling,
use, emission, discharge and disposal of these substances and potentially
significant risks of statutory and common law liability for environmental damage
and personal injury. The Company, and in certain circumstances, its officers,
directors and employees, may be subject to claims arising from the Company's
manufacturing activities, including the improper release, spillage, misuse or
mishandling of hazardous or non-hazardous substances or material. The Company
may be strictly liable for damages, regardless of whether it exercised due care
and complied with all relevant laws and regulations. The Company does not
currently maintain environmental impairment insurance. There can be no assurance
that the Company will not face claims resulting in substantial liability for
which the Company is uninsured or that hazardous substances are not or will not
be present at the Company's facilities. The Company believes that it operates
its Dynaco facilities in substantial compliance with existing environmental laws
and regulations. In June 1989 and April 1994, Dynaco conducted environmental
studies of its Tempe, Arizona substrate manufacturing facility and did not
discover any contamination requiring remediation. Failure to comply with proper
hazardous substance handling procedures or violation of environmental laws and
regulations would have a material adverse effect on the Company.
SIGNIFICANT OUTSTANDING INDEBTEDNESS; SUBORDINATION OF DEBENTURES. The
Company has incurred substantial indebtedness in relation to its equity capital
and will be subject to all of the risks associated with substantial leverage,
including the risk that available cash may not be adequate to make required
payments to the holders of the Debentures. The Company's ability to satisfy its
obligations under the Debentures from cash flow will be dependent upon the
Company's future performance and will be subject to financial,
<PAGE>
business and other factors affecting the operation of the Company, many of which
may be beyond the Company's control. In the event the Company does not have
sufficient cash resources to satisfy quarterly interest or other repayment
obligations to the holders of the Debentures, the Company will be in default
under the Debentures, which would have a material adverse effect on the Company.
To the extent that the Company is required to use cash resources to satisfy
interest payments to the holders of the Debentures, it will have less resources
available for other purposes. Inability of the Company to repay the Debentures
upon maturity would have a material adverse effect on the Company, which could
result in a reduction of the price of the Company's Shares.
The Debentures will be unsecured and subordinate in right of payment to
all Senior Indebtedness of the Company. The Debentures do not restrict the
Company's ability to incur additional Senior Indebtedness and most other
indebtedness. The terms of Senior Indebtedness now existing or incurred in the
future could affect the Company's ability to make payments of principal and/or
interest to the holders of Debentures.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company is subject to
the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which prohibit the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 could have the effect of delaying or preventing a change of control
of the Company. The Company's stock option grants generally provide for an
exercise of some or all of the optioned stock, including non-vested shares, upon
a change of control or similar event. The Board of Directors has authority to
issue up to 5,000,000 shares of Preferred Stock and to fix the rights,
preference, privileges and restrictions, including voting rights, of these
shares without any further vote or action by the stockholders. The rights of the
holders of the Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, thereby delaying,
deferring or preventing a change in control of the Company. Furthermore, such
Preferred Stock may have other rights, including economic rights senior to the
Common Stock, and, as a result, the issuance of such Preferred Stock could have
a material adverse effect on the market value of the Common Stock. (See
"Issuance of Preferred Stock and Debentures Could Affect Rights of Common
Shareholders.")
RISKS ASSOCIATED WITH PENDING LITIGATION. The Company is involved in
disputes with third parties and certain former employees. Such disputes have
resulted in litigation with such parties and, although the Company is a
plaintiff in several matters, the Company is subject to claims and counterclaims
for damages and has incurred, and likely will continue to incur, legal expenses
in connection with such matters. There can be no assurance that such litigation
will result in favorable outcomes for the Company. The Company is unable to
determine the total expense or possible loss, if any, that may ultimately be
incurred in the resolution of these proceedings. These matters may result in
diversion of management time and effort from the operations of the business.
After consideration of the nature of the claims and the facts relating to these
proceedings, the Company believes that the resolution of these proceedings will
not have a material effect on the Company's business, financial condition and
results of operations; however, the results of these proceedings, including any
potential settlements, are uncertain and there can be no assurance to that
effect.
The Company is a defendant in a lawsuit brought by Commonwealth
Associates, ("Commonwealth"). In January 1997, Commonwealth's motion for summary
judgment on its breach of
<PAGE>
contract claim in that lawsuit was granted. A trial on Commonwealth's damages
has not yet been scheduled. Commonwealth has alleged that it suffered up to
$3,381,250 in damages on its breach of contract claim, exclusive of interest.
The Company's current PC's are shipped with motherboards based on
technology licensed from Technovation Computer Labs, Inc. ("Technovation"), a
Nevada corporation which, to the best of the Company's knowledge is owned by
Barbar I. Hamarani, a former executive officer of the Company whose employment
was terminated by the Company on November 29, 1996. The Company has agreed to
acquire all such technology and a patent application related thereto, and settle
all claims between Mr. Hamarani and the Company, no later than the Closing of
the Offering pursuant to an Asset Purchase and Settlement Agreement by and among
Mr. Hamarani, Technovation, Nexar and the Company. The Company will first
acquire the subject technology from Technovation, together with releases from
Mr. Hamarani, Technovation and their subject affiliates, and then convey such
technology to Nexar.
<PAGE>
THE COMPANY
The Company was organized to design, manufacture and market lasers,
delivery systems and related disposable products for use in medical procedures.
The Company currently operates in three business segments: cosmetic laser
products, cosmetic laser services and electronic products. In the cosmetic laser
products segment, the Company manufactures and markets the Q-pulse Ruby laser,
the Tru-Pulse laser and the EpiLaser system, all of which have been approved by
the FDA for certain dermatological applications. The Company also is developing
ruby, pulse dye and diode cosmetic lasers for use in clinical trials and is
engaged in the research and development of additional cosmetic laser and
surgical products. The Company has expanded its efforts in the cosmetic laser
area through a series of product development activities, acquisitions and
strategic alliances that target patient self-pay procedures performed in
doctors' offices and clinics. The Company has entered into a number of research
agreements with recognized research hospitals and clinical laboratories. The
Company provides research funding, laser technology and optics know-how in
return for licensing agreements to specific cosmetic laser applications and
patents. Management feels that this method of conducting research and
development provides a higher level of technical and clinical expertise than it
could provide on its own and in a more cost efficient manner. Some of the
Company's cosmetic laser products are undergoing clinical trials and have not
received FDA approval, including approval for certain dermatological
applications
In the cosmetic laser service segment, the Company has entered into
agreements with physician groups to provide cosmetic laser services at laser
treatment centers, and plans to enter into more such agreements in the future.
This is a new business segment for the Company. (See "Risk Factors--New
Ventures")
In the electronic products segment, the Company manufactures high
density, flexible electronic circuitry for use in industrial, military and
medical devices and personal computers with a unique circuit board design that
enables end users to upgrade and replace the microprocessor, memory and hard
drive components. Management believes this upgradable personal computer will
decrease the level of technical obsolescence found with most personal computers
in the market. Some of the Company's electronic products are being incorporated
into its laser systems. These new products include a series of proprietary
computer memory modules that double the memory capacity of traditional memory
modules using the same interface.
The Company also makes early stage investments in core technologies and
companies that management feels are strategic to the Company's business or will
yield a higher than average financial return to support the Company's core
business. Some of these investments are with companies that are related to some
of the directors and officers of the Company.
In September 1995, the Company established Palomar Electronics
Corporation, a wholly-owned subsidiary, as part of its ongoing plan to separate
the electronics and computer segments of the business from the cosmetic laser
segments of the business.
In December 1996 and January 1997, the Company sold a total of 600,000
shares of Nexar stock, owned by the Company's wholly-owned subsidiary, Palomar
Electronics Corporation, for $6,000,000.
In December, 1996, the Company's wholly owned subsidiary, Nexar, filed
a Registration Statement on Form S-1 for an Initial Public Offering of its
shares. As of the date hereof, Nexar's Registration has not been declared
effective.
<PAGE>
USE OF PROCEEDS
The Company will receive no part of the proceeds from the sale of any
of the Shares by the Selling Stockholders.
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of shares of Common Stock by the Selling Stockholders as of the date
of this Prospectus and the number of such shares included for sale in this
Prospectus assuming the sale of all Shares being offered by this Prospectus. A
description of the transactions under which the Selling Stockholders received
the Common Stock being registered herein is set forth under the heading "Plan Of
Distribution" which follows this table. To the best of the Company's knowledge,
except as stated in this Prospectus, the Selling Stockholders have not held any
office or maintained any material relationship with the Company or any of its
predecessors or affiliates over the past three years. The Selling Stockholders
reserve the right to reduce the number of shares offered for sale or to
otherwise decline to sell any or all of the Shares registered hereunder.
<TABLE>
<CAPTION>
Shares Shares Shares
owned to be owned
Selling prior to sold in after
Stockholders Offering (1) (2) Offering Offering (2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High Risk Opportunities Hub Fund, Ltd. (3) 680,000 680,000 - -
C/O International Fund Administration, Ltd.
48 Dar Laville Road, Suite 464
Hamilton, Bermuda HM11
Berckeley Investment Group, Ltd. (4) 340,000 340,000 - -
50 Shirley Street
P.O. Box CB13936
Banca Commerciale Lugano (5) 454,780 454,780 - -
Viale C. Cattaneo 9
P.O. Box 2824
Lugano CH 6901
Banque SCS Alliance SA (5) 341,085 341,085 - -
11 route de Florissant
Case postale 3733
1211 Geneve 1
Swedbank (Luxembourg) SA (5) 56,847 56,847 - -
8-10 Avenue de la Gure
L-1610 Luxembourg
Privatinvest Bank AG (5) 56,847 56,847 - -
Griesgasse 11
A-5020 Salzburg
Christiania Bank Luxembourg SA (5) 42,636 42,636 - -
16 Avenue Pasteur
L-2015 Luxembourg
<PAGE>
CUF Finance SA (5) 28,424 28,424 - -
37 rue Agasse
1208 Geneve
Figi Bank (Schweiz) AG (5) 28,424 28,424 - -
Bleicherweg 45
8002 Zurich
JS Gadd & CIE SA (5) 28,424 28,424 - -
route de Pre-Bois 20
Entry C 3rd Floor
Geneva CH-1215
Arbuthnot Fund Managers, Ltd. (5) 11,370 11,370 - -
15th Floor, Royex House
Aldermanbury Square
London Ec2 &HR
Teawood Nominees, Ltd. (5) 17,055 17,055 - -
T & G Suite 633
Salisbury House
London Wall
London Ec2M 5th
</TABLE>
1. Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock which an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the ownership of such individual
or group.
2. The amount and (if one percent or more) the percentage of outstanding
Common Stock.
3. Represents shares of Common Stock underlying $3,000,000 5% Convertible
Debentures issued December 31, 1996, Due December 31, 2001 and $1,000,000
5% Convertible Debentures issued January 13, 1997, Due January 13, 2002.
4. Represents shares of Common Stock underlying $2,000,000 5%
Convertible Debentures issued December 31, 1996, Due December 31, 2001.
5. Represents shares of Common Stock underlying units Due July 3, 2003. Each
unit consists of SF 1,000 principal amount of 4.5% Convertible Subordinated
Debentures and a Warrant to purchase 24 Shares of the Company's Common
Stock at $16.50 per share.
<PAGE>
PLAN OF DISTRIBUTION
The 2,085,892 shares being registered herein for sale by the Selling
Stockholders consist of (i) 225,000 shares underlying stock purchase warrants;
(ii) 840,892 shares issuable upon conversion of 9,375 units, each consisting of
SF 1,000 principal amount of 4.5% Convertible Subordinated Debentures and (iii)
1,020,000 shares issuable upon conversion of $6,000,000 principal amount of 5%
Convertible Debentures.
The Selling Stockholders may sell the Common Stock registered in
connection with this Offering on the Nasdaq market system or otherwise. There
will be no charges or commissions paid to the Company by the Selling
Stockholders in connection with the issuance of the Shares. It is anticipated
that usual and customary brokerage fees will be paid by the Selling Stockholders
upon sale of the Common Stock offered hereby. The Company will pay the other
expenses of this Offering. The Shares may be sold from time to time by the
Selling Stockholders, or by pledges, donees, transferees or other successors in
interest. Such sales may be made on one or more exchanges or in the
over-the-counter market, or otherwise at prices and at terms then prevailing or
at prices related to the then current market price, or in negotiated
transactions. The Shares may be sold by one or more of the following methods:
(a) a block trade in which the broker so engaged will attempt to sell the Shares
as agent but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (c)
an exchange distribution in accordance with the rules of Nasdaq; and (d)
ordinary brokerage transactions. In effecting sales, brokers or dealers engaged
by the Selling Stockholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
Selling Stockholders in amounts to be negotiated prior to the sale. Such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this Prospectus.
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including certain liabilities under the Securities Act, or
to contribute to payments which the Selling Stockholders will be required to
make in respect thereof.
EXPERTS
The audited financial statements incorporated by reference in this
Prospectus 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
<PAGE>
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
Common Stock to be registered are estimated (except for the Securities and
Exchange Commission filing fee) below. All such expenses will be paid by the
Registrant.
Securities and Exchange Commission Filing Fee $5,653
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 $11,753
=============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders to eliminate or limit personal liability of
members of its Board of Directors for violations of a director's fiduciary duty
of care. However, the elimination or limitation shall not apply where there has
been a breach of the duty of loyalty, failure to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which was deemed illegal or obtaining an improper
personal benefit. The Company's Certificate of Incorporation includes the
following language:
"To the maximum extent permitted by Section 102(b)(7) of the General Corporation
Laws of Delaware, a director of this corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit."
Section 145 of the General Corporation Law of the State of Delaware
generally provides that a corporation may indemnify any director, officer,
employee or agent against expenses, judgments, fines and amounts paid in
settlement in connection with any action against him by reason of his being or
having been such a director, officer, employee or agent, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made, however, if he is adjudged liable for negligence or misconduct in the
performance of his duty to the corporation, unless a court determines that he is
nevertheless entitled to indemnification. If he is successful on the merits or
otherwise in defending the action, the corporation must indemnify him against
expenses actually and reasonably incurred by him. Article IX of the Company's
Bylaws provides indemnification as follows:
<PAGE>
INDEMNIFICATION
SECTION 1. Actions, Etc. Other Than by or in the Right of the Corporation. The
Corporation shall, to the full extent legally permissible, indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including a grand jury proceeding, and all
appeals (but excluding any such action, suit or proceeding by or in the right of
the Corporation), by reason of the fact that such person is or was a director,
executive officer (as hereinafter defined) or advisory council member of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct in question was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that such person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that such person had reasonable cause to believe that the conduct in
question was unlawful. As used in this Article IX, an "executive officer" of the
Corporation is the president, treasurer, a vice president given the title of
executive vice president, or any officer designated as such pursuant to vote of
the Board of Directors.
SECTION 2. Actions. Etc. by or in the Right of the Corporation. The Corporation
shall, to the full extent legally permissible, indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit, including appeals, by or in the right of the
Corporation to procure a judgment in its favor, by reason of the fact that such
person is or was a director or executive officer of the Corporation as defined
in Section 1 of this Article, or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. Determination of Right of Indemnification. Any indemnification of a
director or officer (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that such
indemnification is proper in the circumstances because the director or executive
officer has met the applicable standard of conduct as set forth in Sections 1
and 2 hereof. Such a determination shall be reasonably and promptly made (i) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (ii) (if such a
quorum is not obtainable, or, even if obtainable if a quorum of disinterested
directors so directs) by independent legal counsel in a written opinion, or
(iii) by the stockholders.
<PAGE>
SECTION 4. Indemnification Against Expenses of Successful Party. Notwithstanding
any other provision of this Article, to the extent that a director or officer of
the Corporation has been successful in whole or in part on the merits or
otherwise, including the dismissal of an action without prejudice, in defense of
any action, suit or proceeding or in defense of any claim, issue or matter
therein, such person shall be indemnified against all expenses incurred in
connection therewith.
SECTION 5. Advances of Expenses. Expenses incurred by a director or officer in
any action, suit or proceeding shall be paid by the Corporation in advance of
the final disposition of thereof, if such person shall undertake to repay such
amount in the event that it is ultimately determined, as provided herein, that
such person is not entitled to indemnification. Notwithstanding the foregoing,
no advance shall be made by the Corporation if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum of
disinterested directors, or (ii) (if such a quorum is not obtainable or, even if
obtainable, if a quorum of disinterested directors so directs) by independent
legal counsel in a written opinion, that, based upon the facts known to the
Board of Directors or such counsel at the time such determination is made, such
person has not met the relevant standards set forth for indemnification in
Section 1 or 2, as the case may be.
SECTION 6. Right to Indemnification Upon Application: Procedure Upon
Application. Any indemnification or advance under Sections 1, 2, 4 or 5 of this
Article shall be made promptly, and in any event within ninety days, upon the
written request of the person seeking to be indemnified, unless a determination
is reasonably and promptly made by the Board of Directors that such person acted
in a manner set forth in such Sections so as to justify the Corporation's not
indemnifying such person or making such an advance. In the event no quorum of
disinterested directors is obtainable, the Board of Directors shall promptly
appoint independent legal counsel to decide whether the person acted in the
manner set forth in such Sections so as to justify the Corporation's not
indemnifying such person or making such an advance. The right to indemnification
or advances as granted by this Article shall be enforceable by such person in
any court of competent jurisdiction, if the Board of Directors or independent
legal counsel denies the claim therefor, in whole or in part, or if no
disposition of such claim is made within ninety days.
SECTION 7. Other Right and Remedies: Continuation of Rights. The indemnification
and advancement of expenses provided by this Article shall not be deemed
exclusive of any other rights to which any person seeking indemnification or
advancement of expenses may be entitled under any Bylaw, agreement, Vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware or otherwise, both as to action in such person's official
capacity and as to action in another capacity while holding such office. All
rights to indemnification or advancement under this Article shall be deemed to
be in the nature of contractual rights bargained for and enforceable by each
director and executive officer as defined in Section 1 of this Article who
serves in such capacity at any time while this Article and other relevant
provisions of the General Corporation Law of the State of Delaware and other
applicable laws, if any, are in effect. All right to indemnification under this
Article or advancement of expenses shall continue as to a person who has ceased
to be a director or executive officer, and shall inure to the benefit of the
heirs, executors and administrators of such a person. No repeal or modification
of this Article shall adversely affect any such rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. The Corporation shall also indemnify any
person for attorneys' fees, costs, and expenses in connection with the
successful enforcement of such person's rights under this Article.
<PAGE>
SECTION 8. Other Indemnities. The Board of Directors may, by general vote or by
vote pertaining to a specific officer, employee or agent, advisory council
member or class thereof, authorize indemnification of the Corporation's
employees and agents, in addition to those executive officers and to whatever
extent it may determine, which may be in the same manner and to the same extent
provided above.
SECTION 9. Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, advisory council member or agent of the
Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Article.
SECTION 10. Constituent Corporations. For the purposes of this Article,
reference to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors and officers so that any person who is or was a director or officer of
such a constituent corporation or is or was serving at the request of such
constituent corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
SECTION 11. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, executive officer,
advisory council member, and those employees and agents of the Corporation
granted indemnification pursuant to Section 3 hereof as to expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including a grand jury proceeding, and all appeals, and any
action by the Corporation, to the full extent permitted by any applicable
portion of this Article that shall not have been invalidated or by any other
applicable law.
SECTION 12. Other Enterprises. Fines. and Serving at Corporation's Request. For
purposes of this Article, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to any employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of any employee benefit plan
shall be deemed to have acted in a manner not opposed to the best interests of
the Corporation" as referred to in this Article.
<PAGE>
ITEM 16. EXHIBITS
The following documents have been previously filed as Exhibits
and are incorporated herein by reference except those exhibits indicated with an
asterisk which are filed herewith:
Exhibit No. Description
3(a) Restated Certificate of Incorporation, incorporated by reference
to Exhibit No. 10(rr) of the Company's Quarterly Report on Form
10-QSB for its quarter ending June 30, 1996, filed August 14,
1996.
3(b) Certificate of Amendment to the Company's Restated Certificate
of Incorporation, as filed with the Delaware Secretary of State
on December 16, 1996, incorporated by reference to Registration
Statement on Form S-3/A-1 [Reg. No. 333-18003] filed December
17, 1996.
3(c) Bylaws of the Registrant, incorporated by reference to Exhibit
No. 3(b) of the Company's Amendment No. 8 to Registration
Statement on Form S-1 [Reg. No. 33-47479] filed December 17,
1992.
4(a) Form of Common Stock Certificate, incorporated by reference to
Exhibit No. 4(b) of the Company's Amendment No. 8 to
Registration Statement on Form S-1 [Reg. No. 33-47479] filed
December 17, 1992.
4(b)* Form of Offshore Securities Subscription Agreement, dated July
3, 1996.
4(c) Palomar Medical Technologies, Inc. and American Stock Transfer &
Trust Company as trustee, Indenture dated as of June 24, 1996,
SF 25,000,000 4.5% Convertible Subordinated Debentures due 2003,
incorporated by reference to Exhibit No. 10(bbb) of the
Company's Quarterly Report on Form 10-QSB for its quarter ending
September 30, 1996, filed November 14, 1996.
4(d) Warrant Agreement between Palomar Medical Technologies, Inc. and
American Stock Transfer & Trust Company as warrant agent, dated
June 24, 1996, incorporated by reference to Exhibit No. 10(aaa)
of the Company's Quarterly Report on Form 10-QSB for its quarter
ending September 30, 1996, filed November 14, 1996.
4(e)* Form of Registration Rights Agreement, dated July 3, 1996.
4(f)* Form of Debenture, dated July 3, 1996.
4(g)* Form of Warrant, dated July 3, 1996.
4(h)* Berckeley Subscription Agreement, dated December 31, 1996 &
Amendment thereto dated January 10, 1997.
4(i)* Berckeley Debenture, dated December 31, 1996.
4(j)* High Risk Opportunities Hub Fund, Ltd. Subscription Agreement,
dated January 14, 1997.
4(k)* High Risk Opportunities Hub Fund, Ltd. Debenture, dated January
13, 1997.
5* Opinion of General Counsel of Palomar regarding legality of
shares registered hereunder
23(a)* Consent of Arthur Andersen LLP, independent public accountants
23(b)* Consent of General Counsel of Palomar (included in Exhibit 5)
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii)To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the 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.
<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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Beverly, Commonwealth of Massachusetts, on February
28, 1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Steven Georgiev
--------------------------
Steven Georgiev, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Steven Georgiev Chairman of the Board, Chief February 28, 1997
--------------------------------------
Steven Georgiev Executive Officer and Director
(Principal Executive Officer)
/s/ Dr. Michael H. Smotrich President, Chief Operating Officer, February 28, 1997
----------------------------
Dr. Michael H. Smotrich Director
/s/ Joseph P. Caruso Vice President, Chief Financial February 28, 1997
--------------------------------------
Joseph P. Caruso Officer, Treasurer (Principal Financial
and Accounting Officer)
/s/ Buster C. Glosson Director February 28, 1997
--------------------------------------
Buster Glosson
/s/ John M. Deutch Director March 2, 1997
--------------------------------------
John M. Deutch
/s/ Louis P. Valente Director February 28, 1997
-------------------------------------
Louis P. Valente
</TABLE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made part of the registration
statement
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 28, 1997
February 28, 1997
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915
Gentlemen:
I am familiar with the Registration Statement on Form S-3 (the "S-3
Registration Statement") to which this opinion is an exhibit, to be filed by
Palomar Medical Technologies, Inc., a Delaware corporation (the "Company"), with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended. The S-3 Registration Statement relates to a total of 2,085,892 shares
(the "Shares") of the Company's Common Stock, $.01 par value per share ("Common
Stock"), issuable pursuant to certain common stock, warrants and preferred stock
issued to certain persons and entities.
In arriving at the opinion expressed below, I have examined and relied
on the following documents:
(1) the Certificate of Incorporation and By-Laws of the Company,
each as amended as of the date hereof; and
(2) the records of meetings and consents of the Board of Directors
and stockholders of the Company provided to me by the Company.
In addition, I have examined and relied on the originals or copies
certified or otherwise identified to my satisfaction of all such corporate
records of the Company and such other instruments and other certificates of
public officials, officers and representatives of the Company and such other
persons, and have made such investigations of law, as I have deemed appropriate
as a basis for the opinion expressed below.
Based upon the foregoing, it is my opinion that the Company has
corporate power adequate for the issuance of the Shares. The Company has taken
all necessary corporate action required to authorize the issuance and sale of
the Shares, and when certificates for the Shares have been duly executed and
countersigned and delivered, such shares will be legally issued, fully paid and
non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the S-3
Registration Statement.
Sincerely,
Sarah Burgess Reed
General Counsel
Palomar Medical Technologies, Inc.
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THE SECURITIES WHICH ARE THE SUBJECT OF THIS SUBSCRIPTION
AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES*, AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO US
PERSONS* (AS THAT TERM IS DEFINED IN REGULATION S UNDER THE SECURITIES ACT)
UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER
THE SECURITIES ACT AND SUCH STATE SECURITIES LAWS IS AVAILABLE.
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
Ladies and Gentlemen:
1. Subscription. The undersigned Purchaser (the "Purchaser") hereby
irrevocably agrees to purchase and subscribes for, from Palomar Medical
Technologies, Inc. (the "Company"), _________ units (the "Units"), each Unit
consisting of SF 1,000 of 4.5% Convertible Subordinated Debentures Due 2003 (the
"Debentures") and 24 warrants (the "Warrants"), each Warrant entitling the
holder thereof to purchase one share of common stock, par value US$0.01 per
share (the "Common Stock"), of the Company (the "Warrant Shares"). The Warrant
Shares and the shares of Common Stock issuable upon conversion of the Debentures
is sometimes hereafter collectively referred to as the "Shares." This
Subscription Agreement is submitted to you in accordance with and subject to the
terms and conditions set forth herein and described in the Company's Offering
Memorandum dated June __, 1996 (including the Exhibits thereto and the documents
incorporated by reference therein, being hereinafter called the "Offering
Memorandum").
2. Closing. The closing shall be deemed to occur when (a) this
Subscription Agreement has been duly completed and executed by both the
Purchaser and the Company, (b) the accompanying Registration Rights Agreement
has been completed and executed by the Purchaser, and (c) payment for the Units
shall have been made by the Purchaser, by wire transfer of good funds in Swiss
Francs, as directed in writing by the Company, to the designated escrow account;
and the Company shall have delivered a certificate or certificates representing
the securities comprising the Units to the Purchaser.
3. Purchase Price. The purchase price of the Units (the "Purchase
Price") to be paid to the Company shall be SF 1,000 per Unit. The Minimum
Purchase Price to be paid by the Purchaser to the Company shall be SF 250,000
(subject to the Company's right, in its sole discretion, to allot to any
Purchaser less than the number of Units subscribed for, and to accept less than
the minimum subscription from any subscriber).
4. Legends on Certificates. The Company's transfer agent will be
instructed to issue one or more certificates representing the securities
comprising the Units with restrictive legends in the names of purchasers to be
specified prior to closing, stating substantially the following:
"The securities represented by this certificate have been issued
pursuant to Regulation S, an exemption from registration pursuant to
the provisions under the United States Securities Act of 1933, as
amended (the "Securities Act"). These securities may not be
transferred, offered or sold prior to the end of the forty (40)-day
period (the "Restricted Period") commencing on the later of (i)
<PAGE>
the date the Securities are first offered to persons other than
distributors (as defined in Regulation S) or (ii) the date of the final
closing of the offering of the Units by the Company, unless such
transfer, offer or sale (i) is made in an "offshore transaction" and
not to a "U.S. person" (other than a "distributor") (as such terms are
defined in Regulation S) or (ii) is made pursuant to registration or an
applicable exemption under the Securities Act. The securities
represented by this certificate cannot be sold except pursuant to the
terms and conditions of the Offshore Securities Subscription Agreement
between the Company and the initial holder of the shares represented by
this certificate, a copy of which is on file at the offices of the
Company."
"By requesting the transfer of the securities represented by this
certificate after the Restricted Period, the holder of this certificate
represents that if such transfer is made to a U.S. person, that at the
time of such transfer the holder is not an "affiliate" of the Company
(as such term is defined in the Securities Act) or an "underwriter" or
"dealer" (as such terms are defined in the Act), has not engaged in any
short sales or similar hedge transactions with respect to the Company's
shares of Common Stock during the Restricted Period, is not a
"distributor" and such transfer is not being made as part of a plan or
scheme to evade the registration provisions of the Securities Act."
The [Warrants] [Debentures] represented hereby are part of a
nondetachable Unit. Each Unit consisting of one SF 1,000 principal
amount 4.5% Convertible Subordinated Debenture and 24 Warrants to
purchase shares of Common Stock. Said Debenture and Warrants may not be
transferred or traded separately, and any purported transfer of either
of such securities separately from the other shall be void and shall
not be recorded on the books and records of the Company. [Warrants may
only be exercised in lots of 24 Warrants or integral multiples thereof;
and each 24 Warrants to be exercised must be accompanied by SF 1,000
principal amount of Debentures, presented for conversion or redemption
or repurchase in its entirety, as the case may be, pursuant to the
terms of the Debentures.] [Debentures may only be converted in their
entirety; and each Debenture to be converted must be accompanied by the
related 24 Warrants for exercise in accordance with the terms thereof.]
5. Representations, Warranties and Agreements. (I) The Purchaser hereby
acknowledges, represents and warrants to, and agrees with, the Company as
follows:
(a) The Purchaser understands that the Units, Debentures, Warrants and
Shares have not been registered under the Securities Act or any state securities
laws and have been with respect to the Units, Debentures and Warrants, and may
be, with respect to the Shares, issued in reliance upon Regulation S promulgated
under the Securities Act and have not been registered under any foreign
securities laws;
(b) The Purchaser has received and read the Offering Memorandum.
(c) The Purchaser has been supplied with or has had sufficient access to
all other information, including financial statements and other financial
information of the Company, to which a reasonable investor would attach
significance in making investment decisions, and has had the opportunity to ask
questions and receive answers from knowledgeable individuals concerning the
Company, so that, as a reasonable investor, the Purchaser has been able to make
his or its own independent decision to purchase the Units;
(d) The Purchaser has had a reasonable opportunity to ask questions of
and receive answers from a person acting on behalf of the Company concerning the
offering of the Units, and all such questions have been answered to the full
satisfaction of the undersigned;
(e) No oral or written representations have been made, and no oral or
written information has been furnished to the Purchaser in connection with the
offering of the Units which were in any way inconsistent with any other
information with which the Purchaser has been provided pursuant to Section 5(b)
or 5(c) hereof;
<PAGE>
(f) The Purchaser is not a U.S. Person ("U.S. Person" as used herein
shall mean U.S. person as defined in Regulation S under the Securities Act) and
is not purchasing the Units for the account or benefit of a U.S. Person;
(g) The Purchaser is not a citizen of the United States or a resident of
any state or territory of the United States, and the true and correct address of
the Purchaser is set forth on the signature page hereof;
(h) No offer to sell the Units has been made to the Purchaser within the
United States, and the Purchaser is not and will not be within the United States
as of the date of execution and delivery of this Subscription Agreement;
(i) The purchase order for the Units was originated by the Purchaser
outside the United States;
(j) If the Purchaser is a corporation or a partnership, the Purchaser
was not (i) formed principally for the purpose of acquiring the Shares or other
securities not registered under the Securities Act or (ii) organized or
incorporated under the laws of any state or jurisdiction of the United States;
(k) The Purchaser is not subscribing for the Units as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or meeting, or any solicitation
of a subscription by a person previously not known to the Purchaser in
connection with investment securities generally;
(l) As applicable, the Purchaser has adequate means of providing for the
Purchaser's current financial needs and contingencies, is able to bear the
substantial economic risks of an investment in the Shares, has no need for
liquidity in such investments, has made commitments to investments that are not
readily marketable which are reasonable in relation to the Purchaser's net worth
and, at the present time, could afford a complete loss of such investment].
(m) The Purchaser has such knowledge and experience in financial, tax
and business matters so as to enable him or it to utilize the information made
available to him or it in connection with the offering of the Units to evaluate
the merits and risks of an investment in the Units and to make an informed
investment decision with respect thereto;
(n) The Purchaser is not relying on the Company with respect to the tax
and other economic considerations of an investment in the Units, and the
Purchaser has relied on the advice of or consulted with, only his or its own
advisors;
(o) The Purchaser acknowledges that the Units and the component
Debentures, Warrants and Shares may not be transferred, offered or sold in the
United States or to a U.S. Person or citizen of the United States prior to the
end of the forty (40)-day period (the "Restricted Period") commencing on the
later of (i) the date the Units are first offered to persons other than
distributors (as defined in Regulation S) or (ii) the date of the final closing
of the offering of the Units by the Company. The Purchaser acknowledges that the
Company may not allow a transfer of the Units in the United States or to a U.S.
Person or citizen of the United States if Regulation S or any other applicable
state, federal or foreign securities laws have not been complied with;
<PAGE>
(p) The Purchaser is purchasing the Units for its own account and/or for
accounts over which the Purchaser has discretionary authority, and not on behalf
of or for the account of any person or entity who or which is a US Person or
citizen of the United States, for investment and not with a view to resale or
distribution or any present intention to resell or distribute the Units, and the
sale of the Units has not been pre-arranged with a purchaser in the United
States. Anything herein contained to the contrary notwithstanding, for the
purposes of this Subscription Agreement, the term "Purchaser" shall mean the
undersigned, and, if applicable, any person or entity for whom or which the
undersigned is subscribing for Units pursuant to discretionary authority granted
to the undersigned;
(q) The Purchaser is not purchasing the Units with the present intention
of "distributing" the Units on behalf of the Company or a "distributor*" as
defined in Regulation S, or any of their affiliates, in the United States or to
a US Person;
(r) The Purchaser is not a "distributor" as defined in Regulation S;
(s) To the knowledge of the Purchaser, no activity has been undertaken
by the Company or any person acting on its behalf for the purpose of, or that
could reasonably be expected to have the effect of, conditioning the market for
the Units in the United States;
(t) The Purchaser understands that, except as set forth in the
Registration Rights Agreement, the Company is under no obligation to register
the Units, Debentures, Warrants or Shares under the Securities Act, or to assist
it in complying with the Securities Act or under the securities laws of any
state of the United States or under any foreign jurisdiction. The Purchaser
understands that prior to the expiration of the Restricted Period a stop
transfer order may be placed on the Units, Debentures, Warrants and Shares with
the Company's transfer agent;
(u) The Purchaser is not a member of a "group" within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934 and is not an
"affiliate" (as that term is defined in Rule 405 promulgated under the
Securities Act) of any other purchaser of the Units;
(v) The Purchaser acknowledges that all offering documents received by
the Purchaser with respect to the offering of the Units include statements to
the effect that the Units have not been registered under the Securities Act and
may not be offered or sold in the United States or to U.S. Persons unless such
securities are registered under the Securities Act or an exemption from the
registration requirements of the Securities Act is available;
(w) To the best knowledge of the Purchaser, each distributor
participating in the offering of the Units, if any, has agreed in writing that
all offers and sales of the Units prior to the expiration of the Restricted
Period shall only be made in compliance with the safe harbor contained in
Regulation S, pursuant to registration of the Units under the Securities Act or
pursuant to an exemption from registration under the Securities Act;
(x) The Purchaser is not an officer, director or "affiliate" (as that
term is defined in Rule 405 under the Securities Act) of the Company or an
"underwriter" or "dealer" (as such terms are defined in the federal securities
laws of the United States) and the purchase of the Units by Purchaser is not a
transaction (or any element of a series of transactions) that is part of any
plan or scheme to evade the registration provisions of the Securities Act;
(y) The Purchaser does not have a short position in the Shares or
otherwise have a hedge against the risk of purchasing the Units and will not
have a short position in the Shares or otherwise hedge the risk of holding the
Units at any time prior to the expiration of the Restricted Period; and
(z) If at any time after the expiration of the Restricted Period the
Purchaser wishes to transfer or attempts to transfer the Units, Debentures,
Warrants or Shares to a U.S. Person, the Purchaser agrees to notify the Company
if at such time it is either an "underwriter," "dealer," "distributor," or an
"affiliate" of the Company (as such terms are defined in the federal securities
laws of the United States or the regulations promulgated thereunder, including,
but not limited to, Regulation S), or if such transfer is being made as part of
a plan or scheme to evade the registration provisions of the Securities Act.
<PAGE>
(II) The Company hereby acknowledges, represents and warrants to, and
agrees with the Purchaser as follows:
(i) The Company is a reporting issuer as defined by Rule 902(l)
of Regulation S.
(ii) The Common Stock is registered under Section 12(g) of the
Securities Exchange Act of 1934, and is quoted on the Nasdaq Small-Cap Market.
(iii) The Company has not directly or, to its knowledge
indirectly, offered the Units to any person in the United States or to any U.S.
person.
(iv) At the time the buy order for Units was originated, the
Company believed that all of the purchasers in the Offering were outside the
United States and were not U.S. persons.
(v) The Company has no reason to believe that the purchase of the
Units pursuant to the Offering has been pre-arranged with a purchaser in the
United States.
(vi) In connection with the Offering neither the Company nor, to
the Company's knowledge, anyone acting on its behalf engaged in any "directed
selling efforts" (as that term is defined in Regulation S) nor has the Company
nor, to the Company's knowledge, any person acting on its behalf conducted any
general solicitation relating to the Offering to persons residing within the
United States or to U.S. persons.
6. Resales by the Purchaser. In the event that the Purchaser desires to
offer or sell the Units, such offer or sale shall at all times comply with the
Securities Act and rules and regulations promulgated thereunder including
Regulation S, and all other applicable state, federal and foreign securities
laws. Prior to the expiration of the Restricted Period, the Purchaser agrees not
to sell the Units to or for the account or benefit of a US Person, to a citizen
of the United States or in the United States, and thereafter the Purchaser
agrees not to sell the Shares in the United States except in compliance with the
Securities Act and the applicable rules and regulations promulgated thereunder
including Regulation S, and all applicable state, federal and foreign securities
laws. In connection with any sale of the Units prior to the expiration of the
Restricted Period, the Purchaser will obtain from a prospective purchaser
written assurance that:
(a) The prospective purchaser is not a U.S. Person or a citizen of the
United States;
(b) The Units have been offered and sold to the prospective purchaser
outside the United States, and the prospective purchaser has no present
intention to re-offer or resell the Units to a U.S. Person, to a citizen of the
United States or in the United States;
(c) Prior to the expiration of the Restricted Period, the prospective
purchaser will not offer to sell the Units to a U.S. Person, to a citizen of the
United States or to any person or entity purchasing the Units for the account or
benefit of a U.S. Person or in the United States;
(d) The prospective purchaser consents to a stop transfer order being
placed on the Units with the Company's transfer agent pursuant to Regulation S
of the Securities Act, provided such stop transfer order shall be removed from
the Units upon the expiration of the Restricted Period; and
(e) If the prospective purchaser effects any further transfer, offer or
sale of the Units, such transfer, offer or sale shall comply with the terms of
this Section 6. If such transfer, offer or sale occurs prior to the expiration
of the Restricted Period, the undersigned's prospective purchaser will obtain
from any subsequent purchaser similar written assurances set forth in clauses
(a) through (d) of this Section 6.
7. Right to Reject Subscriptions; Counterparts. The Purchaser
understands that the Company may, in its sole discretion, reject this
subscription in whole or in part. The Subscription Agreement may be executed in
two or more
<PAGE>
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
8. Modification. Neither this Subscription Agreement nor any provisions
hereof may be waived, modified, discharged or terminated except by an instrument
in writing signed by the party against which any such waiver, modification,
discharge or termination is sought.
9. Notice. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail return
receipt requested, or delivered personally or by courier against receipt of the
party to whom it is to be given (a) if to the Company, at the address set forth
above, or (b) if to the Purchaser, at the address set forth on the signature
page hereof (or in either case, to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 9). Any
notice or other communication given hereunder shall be deemed given at the time
of receipt thereof.
10. Assignability. This Subscription Agreement and the rights and
obligations of the Purchaser hereunder are not transferable or assignable by the
Purchaser.
11. Governing Law; Jurisdiction. This Subscription Agreement shall be
governed by and construed in accordance with the laws of the State of New York
(without giving effect to principles of conflicts of law). Any claim, action,
proceeding or lawsuit relating to this Subscription Agreement or the transaction
contemplated hereby shall be brought in the United States District Court for the
Southern District of New York or if such court determines that it does not have
jurisdiction shall be brought in the New York State Supreme Court located in New
York City. The Purchaser hereby consents to and agrees to submit to the
jurisdiction in the United States of America of the United States District Court
for the Southern District of New York or the New York State Supreme Court
located in New York City for any such claim, action, proceeding or lawsuit and
to the venue of such claim, action, proceeding or lawsuit in such courts.
12. Entire Agreement. This Subscription Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all previous proposals, negotiations, commitments, writings and other
communications between the parties, whether written or oral, with respect to
such subject matter.
<PAGE>
IN WITNESS WHEREOF, the Purchaser has executed this Subscription Agreement
this ____ day of ________, 1996.
Signature:
- -------------------------------------
Print Name of Subscriber
By:__________________________________
- -------------------------------------
Print Name and Title of
Person Signing
Place of Execution:_________________________________
Address: Address for notices if
different:
- ------------------------------------ ------------------------------------
Number and Street Number and Street
- ------------------------------------ ------------------------------------
City State Zip Code City State Zip Code
<PAGE>
ACCEPTANCE OF SUBSCRIPTION
Accepted and Agreed to this ____ day of ________, 1996 for ________UNITS.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:----------------------------------
<PAGE>
APPENDIX A
Pursuant to Rule 902 (c), (o) and (p) of Regulation S, the terms "distributor,"
"U.S. person" and "United States" are defined as follows:
(c) Distributor. "Distributor" means any underwriter, dealer, or other
person who participates, pursuant to a contractual arrangement, in the
distribution of the securities offered or sold in reliance on this Regulation S.
(o) U.S. Person.
1. "U.S. person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or incorporated
under the laws of the United States;
(iii) Any estate of which any executor or administrator is a U.S.
person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the
United States;
(vi) Any non-discretionary account or similar account (other than
an estate or trust) held by a dealer or other fiduciary
organized, incorporated or (if an individual) resident in the
United States; and
(vii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B)
formed by a U.S. person principally for the purpose of investing
in securities not registered under the Securities Act of 1933,
unless it is organized or incorporated, and owned, by accredited
investors (as defined in Rule 501(a)) who are not natural
persons, estates or trusts.
(2) Notwithstanding paragraph (o)(1) of this rule, any discretionary
account or similar account (other than an estate or trust) held for the benefit
or account of a non-U.S. person by a dealer or other professional fiduciary
organized, incorporated, or (if an individual) resident in the United States
shall not be deemed a "U.S. person".
(3) Notwithstanding paragraph (o)(1), any estate of which any
professional fiduciary acting as executor or administrator is a U.S. person
shall not be deemed a U.S. person if:
(i) An executor or administrator of the estate who is not a U.S.
person has sole or shared investment discretion with respect to
the assets of the estate; and
(ii) The estate is governed by foreign law.
(4) Notwithstanding paragraph (o)(1), any trust of which any
professional fiduciary acting as trustee is a U.S. person shall not be deemed a
U.S. person if a trustee who is not a U.S. person has sole or shared investment
discretion with respect to the trust assets, and no beneficiary of the trust
(and no settlor if the trust is revocable) is a U.S. person.
<PAGE>
(5) Notwithstanding paragraph (o)(1), an employee benefit plan
established and administered in accordance with the law of a country other than
the United States and customary practices and documentation of such country
shall not be deemed a U.S. person.
(6) Notwithstanding paragraph (o)(1), any agency or branch of a U.S.
person located outside the United States shall not be deemed a "U.S. person" if:
(i) The agency or branch operates for valid business reasons; and
(ii) The agency or branch is engaged in the business of insurance
or banking and is subject to substantive insurance or banking
regulation, respectively, in the jurisdiction where located.
(7) The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank, the Asian
Development Bank, the African Development Bank, the United Nations, and their
agencies, affiliates and pension plans, and any other similar international
organizations, their agencies, affiliates and pension plans shall not be deemed
"U.S. persons".
(p) United States. "United States" means the United States of America,
its territories and possessions, any State of the United States, and the
District of Columbia.
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of the 3rd day of July, 1996, by and among Palomar
Medical Technologies, Inc., a Delaware corporation (the "Company"), and the
other entities that are signatories hereto (the "Initial Purchasers").
W I T N E S S E T H :
WHEREAS, pursuant to the terms and conditions set forth in the Company's
Offering Memorandum dated June 24, 1996, including the Exhibits thereto, any and
all supplements thereof and amendments thereto, and all documents incorporated
by reference therein (collectively, the "Memorandum"), the Company is offering
for sale a minimum of 10,000 units and a maximum of 25,000 units, each unit
("Unit") consisting of SF 1,000 principal amount of the Company's 4.5%
Convertible Subordinated Debentures due 2003 (the "Debentures") and 24 Warrants
(the "Warrants"); and
WHEREAS, pursuant to the terms and conditions set forth in the
Memorandum and contained in the Offshore Securities Subscription Agreement (the
"Subscription Agreement") which has been executed and delivered by the Company
and each of the Initial Purchasers, each of the Initial Purchasers is
simultaneously herewith purchasing that number of Units for which it has
subscribed and for which its subscription has been accepted by the Company; and
WHEREAS, the Debentures are convertible into, and the Warrants are
exercisable for, shares of Common Stock of the Company, par value $.01 per
share; and
WHEREAS, the Units are being sold to the Initial Purchasers by the
Company in reliance upon the exemption from the registration provisions of the
Securities Act of 1933, as amended (the "1933 Act"), which is provided by
Regulation S of the 1933 Act; and
WHEREAS, BlueStone Capital Partners, L.P. ("BlueStone") and Banca
Commerciale Lugano ("Banca Commerciale") are acting as the Co-Placement Agents
in connection with the offer and sale of the Units on a "best efforts" basis;
and
WHEREAS, the terms and conditions of the offering and sale of the Units
provide for the execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the covenants herein contained, the
parties hereto hereby agree, and all other Holders (as defined below) of Units,
Debentures and/or Warrants from time to time, by their acceptance thereof, shall
be conclusively deemed to have agreed, as follows:
I. Definitions. As used in this Agreement, the capitalized terms set
forth below shall have the following meanings:
"1933 Act" shall have the meaning set forth in the preamble.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Affiliate" shall mean, as to a specified Person, a Person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Person specified.
"Banca Commerciale" shall have the meaning set forth in the preamble.
"BlueStone" shall have the meaning set forth in the preamble.
<PAGE>
"Closing Date" shall mean the Initial Closing Date (as defined in the
Subscription Agreement) and any subsequent date on which a sale of Units is
consummated.
"Company" shall have the meaning set forth in the preamble, and shall
also include the Company's successors.
"Debentures" shall have the meaning set forth in the preamble.
"Expiration Date" shall mean the date following the last day on which
any Debenture may be converted into Shares (at the option of the Company or the
Holder), or any Warrant may be exercised for Shares, in accordance with the
respective terms thereof.
"Holder" shall mean each of the Initial Purchasers for so long as it
owns any Units, Debentures and/or Warrants; each of the permitted successors and
assigns of any of the Initial Purchasers; and any other Person which shall at
any time own any Units, Debentures and/or Warrants.
"Initial Purchasers" shall have the meaning set forth in the preamble.
"Memorandum" shall have the meaning set forth in the preamble.
"NASD" shall mean the National Association of securities Dealers, Inc.
"Person" shall mean any individual, sole proprietorship, partnership,
corporation, association, joint venture, trust, unincorporated entity or other
entity, or the government of any country or sovereign state, or of any state,
province, municipality or other political subdivision thereof.
"Prospectus" shall mean the Prospectus included in the Shelf
Registration Statement, including any preliminary Prospectus, and any such
Prospectus as amended or supplemented by any Prospectus supplement, including
post-effective amendments, in each case including all material incorporated or
deemed to be incorporated by reference therein.
"Registrable Securities" shall mean the Shares; provided, however, that
any Shares shall cease to be Registrable Securities when they shall have been
issued by the Company under an effective Shelf Registration Statement upon
conversion of Debentures (by the Holder or the Company) or exercise of Warrants.
"Registration Expenses" shall mean any and all expenses incident to the
performance by the Company of its obligations under this Agreement, including,
but not limited to: (i) all SEC and NASD registration and filing fees; (ii) all
fees and expenses incurred in connection with compliance with state securities
or blue sky laws; (iii) all expenses of printing and distributing the Shelf
Registration Statement, any Prospectus, and any amendments or supplements
thereto; and (iv) the fees and disbursements of counsel for the Company and of
the independent public accountants of the Company.
"SEC" shall mean the Securities and Exchange Commission.
"Shares" shall mean the Common Stock of the Company, par value $.01 per
share, (A) into which any of the Debentures may be at any time converted (either
at the option of the Company or at the option of the Holder), and (B) for which
any of the Warrants may be at any time exercised, in accordance with the
respective terms thereof; provided, however, that if at any time the Debentures
become convertible into any other securities of the Company or of any other
entity, or if at any time any of the Warrants become exercisable for any other
securities of the Company or of any other entity, in each case pursuant to the
terms of the Debentures and/or the Warrants, then, in such event, the term
"Shares" shall be deemed to mean such other securities.
<PAGE>
"Shelf Registration Statement" shall mean a registration statement on an
appropriate form under the 1933 Act which covers the offer and sale by the
Company of all of the Registrable Securities pursuant to Rule 415 of the General
Rules and Regulations promulgated under the 1933 Act, or any similar rule that
may be adopted by the SEC, and all amendments and supplements to such Shelf
Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein and all Exhibits thereto and all
material incorporated or deemed to be incorporated by reference therein.
"Subscription Agreement" shall have the meaning set forth in the
preamble.
"Units" shall have the meaning set forth in the preamble.
"Warrants" shall have the meaning set forth in the preamble.
2. Registration Under the 1933 Act. The Company shall (A) prepare and
file with the SEC, within 60 days following the Closing Date, a Shelf
Registration Statement covering the Registrable Securities; (B) use its
reasonable best efforts to cause such Shelf Registration Statement to be
declared effective by the SEC as soon as possible thereafter; and (C) use its
reasonable best efforts to cause such Shelf Registration Statement to remain
continually effective until the Expiration Date. The purpose of the Shelf
Registration Statement shall be to enable each Holder which (i) receives Shares
as the result of the conversion of a Debenture (whether by the Company or the
Holder) or the exercise of a Warrant, and (2) is not an Affiliate of the Company
and is not engaging in a distribution of Registrable Securities (within the
meaning of the 1933 Act), to trade such Shares from and after the date of
issuance thereof without any limitations or restrictions under the 1933 Act.
3. Registration Procedures. In connection with the performance by the
Company of its obligations under paragraph 2 above, the Company shall:
3.1 Amendments. Promptly prepare and file with the SEC such
amendments and post-effective amendments to the Shelf Registration
Statement as may be necessary to keep such Shelf Registration Statement
effective during the entire applicable period and in compliance with the
provisions of subparagraph 3.4 below; and cause each Prospectus to be
supplemented, and as so supplemented to be filed (if required) with the
SEC pursuant to Rule 424 of the General Rules and Regulations
promulgated under the 1933 Act.
3.2 State Securities Laws. Use its reasonable best efforts to
register or qualify the Registrable Securities under all applicable
state securities or "blue sky" laws of such jurisdictions in the United
States as may be from time to time reasonably requested by BlueStone or
Banca Commerciale; provided, however, that the Company shall not be
required to (i) qualify as a foreign corporation in any jurisdiction
where it would not be otherwise required to so qualify, (ii) take any
action that would subject it to general service of process or taxation
in any jurisdiction if it is not then so subject, (iii) provide any
undertakings that cause more than nominal expense or burden to the
Company, or (iv) make any change in its charter or by-laws, which in
each case the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its shareholders.
3.3 Notice of Certain Events. Promptly notify BlueStone and
Banca Commerciale and their counsel, (i) when the Shelf Registration
Statement has been declared effective by the SEC and when any
post-effective amendments thereto have become effective, (ii) of any
request by the SEC or any state securities authority for post-effective
amendments and/or supplements to such Shelf Registration Statement and
(iii) of the issuance by the SEC or any state securities authority of
any stop order suspending the effectiveness of the Shelf Registration
Statement or the initiation of any proceedings for that purpose.
3.4 Accuracy of Shelf Registration Statement. Use its reasonable
best efforts to assure that (i) the Shelf Registration Statement and any
amendment thereto, and any Prospectus forming a part thereof and any
supplement thereto, complies in all material respects with the 1933 Act
and the rules and regulations thereunder, (ii) the Shelf Registration
Statement and any amendment thereto does not at any time during the
applicable period contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or
<PAGE>
necessary to make the statements therein not misleading, and (iii) the
Prospectus forming part of the Shelf Registration Statement and any
supplement to such Prospectus (as amended or supplemented from time to
time) does not at any time during the applicable period include an
untrue statement or a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.5 Withdrawal of Stop Order. Use its reasonable best efforts to
obtain the withdrawal of any order suspending the effectiveness of the
Shelf Registration Statement at the earliest possible time.
3.6 Delivery of Shelf Registration Statement. Furnish to
BlueStone and its counsel, at least one signed copy of the Shelf
Registration Statement.
3.7 Delivery of Prospectus. Cause to be delivered to each
Holder, a copy of the Prospectus.
3.8 Further Assurances. Take all such other actions, as
BlueStone, the Trustee or the Warrant Agent (as defined in the
Memorandum) may reasonably request in order to more fully protect or
perfect the rights intended to be granted to the Holders hereunder.
4. Expenses. The Company shall be responsible for, and shall pay in due
course, all of the Registration Expenses.
5. Specific Enforcement. Without limiting the remedies available to the
Holders, the Company acknowledges that any failure by the Company to comply with
its obligations under paragraphs 2 and 3 hereof may result in material
irreparable injuries to the Holders for which there is not adequate remedy at
law, that it will not be possible to measure damages for such injuries
precisely, and that in the event of any such failure any Holder may, to the
extent permitted by law, obtain such relief as may be required to specifically
enforce the Company's obligations under paragraphs 2 and 3 hereof.
6. Indemnification. The Company hereby agrees to indemnify and hold
harmless each Holder, its partners, officers, directors and representatives, and
each Person, if any, who controls such Holder within the meaning of the 1933 Act
or the 1934 Act, against any and all losses, liabilities, claims, damages, costs
and expenses whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Shelf Registration
Statement or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or arising out of any untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding anything to the contrary contained herein, the
indemnification described above shall not apply to amounts paid in settlement of
any loss, liability, claim, damage, cost or expense if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld.
7. Rule 144. As long as the Company is subject to the reporting
requirements of Section 13 or 15 of the 1934 Act, the Company shall promptly
file the reports required to be filed by it pursuant to Section 13(a) or 15(d)
of the 1934 Act and the rules and regulations adopted by the SEC thereunder. If
the Company is at any time not required to file such reports, it shall promptly
make publicly available such information as is necessary to permit sales of its
Common Stock pursuant to Rule 144 of the General Rules and Regulations
promulgated under the 1933 Act. Upon the request of any Holder, the Company
shall deliver to such Holder a written statement as to whether it has complied
with such requirements.
8. Amendments and Waivers. This Agreement may not be amended, modified
or supplemented, and waivers of or consents to departures from the provisions of
this Agreement may not be given, unless it would not have an adverse effect upon
the rights of the Holders and the Company has obtained the written consent of
<PAGE>
Holders then owning a majority of the Registrable Securities (which may be
Holders as of a record date determined by the Company in accordance with
applicable law).
9. Liability of Co-Placement Agents. Anything in this Agreement
contained to the contrary notwithstanding, neither BlueStone nor Banca
Commerciale shall have any liability of any nature whatsoever to any of the
Initial Purchasers or any of the Holders in connection with any act by BlueStone
or Banca Commerciale or failure to act by BlueStone or Banca Commerciale in
connection with this Agreement, other than for its gross negligence or wilful
misconduct.
10. Successors and Assigns. This Agreement shall inure to the benefit
of, and be binding upon, the parties hereto (and the other persons and entities
described in paragraph 6 hereof) and their respective successors and assigns,
including, without limitation and without the need for an express assignment,
subsequent Holders.
11. Third Party Beneficiary. The Holders from time to time shall each be
a third party beneficiary of the agreements contained herein. BlueStone and
Banca Commerciale shall each have the right, but not the obligation, to enforce
such agreements directly, to the extent it determines (in its sole discretion),
that such enforcement is necessary or desirable in order to protect the rights
of the Holders.
12. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
13. Headings. The headings which are contained in this Agreement are for
the sole purpose of convenience of reference, and shall not limit or otherwise
affect the interpretation of any of the provisions hereof.
14. Governing Law. This Agreement shall be governed by the laws of the
State of New York applicable to contracts made and to be wholly performed
therein.
15. Notices. All notices and other communications hereunder shall be in
writing, and shall be made by hand delivery, registered first-class mail, telex,
telecopier or any courier providing overnight delivery, (i) if to the Company,
at the address set forth in the Subscription Agreement, (ii) if to an Initial
Purchaser, at the address set forth in the Subscription Agreement executed by
such Initial Purchaser, and (ii) if to a Holder, to such address as shall appear
on the records of the Trustee [as defined in the Memorandum] (in the case of the
Debentures) or the Warrant Agent (in the case of the Warrants), or in each case
to such other address or telex or telecopier number, notice of which is given in
accordance with the provisions of this paragraph 15. All such notices and other
communications shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; five business days after being deposited in the
mail, postage prepaid, if mailed; when answered back, if telexed; when receipt
is acknowledged, if telecopied; and on the next business day if timely delivered
to a recognized courier providing overnight service.
IN WITNESS WHEREOF, each of the parties hereto has duly
executed and delivered this Agreement as of the date above written:
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:_______________________________
-------------------------------
Title
<PAGE>
-------------------------------
PRINT NAME OF PURCHASER
By:_______________________________
-------------------------------
Title
[FORM OF FACE OF REGISTERED DEBENTURE]
THE DEBENTURE(S) REPRESENTED HEREBY ARE EACH PART OF A NONDETACHABLE UNIT, EACH
UNIT CONSISTING OF ONE SF 1,000 PRINCIPAL AMOUNT 4.5% CONVERTIBLE SUBORDINATED
DEBENTURE AND 24 COMMON STOCK PURCHASE WARRANTS. SAID DEBENTURE AND WARRANTS MAY
NOT BE TRANSFERRED OR TRADED SEPARATELY, AND ANY PURPORTED TRANSFER OF EITHER OF
SUCH SECURITIES SEPARATELY FROM THE OTHER SHALL BE VOID AND SHALL NOT BE
RECORDED ON THE BOOKS AND RECORDS OF THE COMPANY. DEBENTURES MAY ONLY BE
CONVERTED IN THEIR ENTIRETY; AND EACH DEBENTURE TO BE CONVERTED MUST BE
ACCOMPANIED BY THE RELATED 24 WARRANTS FOR EXERCISE OR CANCELLATION IN
ACCORDANCE WITH THE TERMS THEREOF.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO
REGULATION S, AN EXEMPTION FROM REGISTRATION PURSUANT TO THE PROVISIONS UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
THESE SECURITIES MAY NOT BE TRANSFERRED, OFFERED OR SOLD PRIOR TO THE END OF THE
FORTY (40)-DAY PERIOD (THE "RESTRICTED PERIOD") COMMENCING ON THE LATER OF (I)
THE DATE THE SECURITIES ARE FIRST OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS
DEFINED IN REGULATION S) OR (II) THE DATE OF THE FINAL CLOSING OF THE OFFERING
OF THE UNITS BY THE COMPANY, UNLESS SUCH TRANSFER, OFFER OR SALE (I) IS MADE IN
AN "OFFSHORE TRANSACTION" AND NOT TO A "U.S. PERSON" (OTHER THAN A
"DISTRIBUTOR") (AS SUCH TERMS ARE DEFINED IN REGULATION S) OR (II) IS MADE
PURSUANT TO REGISTRATION OR AN APPLICABLE EXEMPTION UNDER THE SECURITIES ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE CANNOT BE SOLD EXCEPT PURSUANT TO
THE TERMS AND CONDITIONS OF THE OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
BETWEEN THE COMPANY AND THE INITIAL HOLDER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY.
BY REQUESTING THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
AFTER THE RESTRICTED PERIOD, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IF
SUCH TRANSFER IS MADE TO A U.S. PERSON, THAT AT THE TIME OF SUCH TRANSFER THE
HOLDER IS NOT AN "AFFILIATE" OF THE COMPANY (AS SUCH TERM IS DEFINED IN THE
SECURITIES ACT) OR AN "UNDERWRITER" OR "DEALER" (AS SUCH TERMS ARE DEFINED IN
THE ACT), HAS NOT ENGAGED IN ANY SHORT SALES OR SIMILAR HEDGE TRANSACTIONS WITH
RESPECT TO THE COMPANY'S SHARES OF COMMON STOCK DURING THE RESTRICTED PERIOD, IS
NOT A "DISTRIBUTOR" AND SUCH TRANSFER IS NOT BEING MADE AS PART OF A PLAN OR
SCHEME TO EVADE THE REGISTRATION PROVISIONS OF THE SECURITIES ACT.
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
THIS SECURITY CANNOT BE EXCHANGED
FOR A BEARER SECURITY
4.5% SUBORDINATED CONVERTIBLE DEBENTURE DUE 2003
No. SF
------ ------
Unit CUSIP U69636 AA 3
Debenture CUSIP U69636 AB 1
PALOMAR MEDICAL TECHNOLOGIES, INC., a corporation duly
organized and existing under the laws of the State of Delaware (the "Company"),
for value received, hereby promises to pay to
_____________________________________, or registered assigns, the principal sum
of SF ________ , on or prior to June , 2003, at its office in Beverly,
Massachusetts, or at its agency in Luxembourg, in such coin or currency of
Switzerland as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest thereon at the rate per annum
specified in the title of this Debenture, in like coin or currency, at said
office in Beverly, Massachusetts, or agency of the Company in Luxembourg
quarterly in arrears on March 31, June 30, September 30 and December 31 in each
year (each an "Interest Payment Date"), commencing on September 30, 1996, to the
Holders thereof as of the March 15, June 15, September 15 or December 15, as the
case may be, next preceding such Interest Payment Date (each, a "Record Date").
The interest on the Debentures shall be computed on the basis
of a 360-day year of twelve 30-day months and in any case where the date for any
payment on the Debentures is not a Business Day, such payment may be made on the
next succeeding Business Day and have the same force and effect as if made on
such original payment date, and no interest shall accrue for the period from and
after such original payment date. The principal, or premium, if any, and
interest on the Debentures shall be payable in Swiss Francs. At the option of
the Company, payment of interest may be made by check mailed to the address of
the person entitled thereto as such address shall appear in the Register.
The Person in whose name any Debenture is registered at the
close of business on the Record Date with respect to an Interest Payment Date
shall be entitled to receive the interest payable on such interest payment date
notwithstanding the cancellation of such Debenture upon any transfer, exchange
or conversion thereof subsequent to such Record Date and prior to such Interest
Payment Date; provided that if and to the extent the Company shall default in
the payment of the interest due on such Interest Payment Date, such defaulted
interest shall be paid to the persons in whose names the Debentures are
registered on a subsequent record date established by notice given by mail by or
on behalf of the Company to the Holders of Debentures not less than 15 days
preceding such subsequent record date, such Record Date to be not less than five
days preceding the date of payment of such defaulted interest. Notwithstanding
the foregoing, such defaulted interest may be paid at any time in any other
lawful manner not inconsistent with the terms of the Debentures or the
requirements of any securities exchange on which the Debentures may be listed,
and upon such notice as may be required by such exchange.
If any Debenture or portion thereof is called for redemption
on a redemption date after the close of business on the Record Date preceding an
Interest Payment Date and notice of such redemption has been mailed and funds
for such redemption have been duly provided, interest accrued to the redemption
date on such Debenture or portion so called shall be paid only against surrender
of the Debenture for redemption in accordance with said notice.
Subject to the terms of the Indenture, the Company shall pay
to any "United States Alien" certain customary additional amounts in the event
of changes in the United States income tax laws affecting withholding taxes on
payments under the Debentures ("Additional Payments"), in order that every new
payment of principal and interest on such Debenture, after deduction or
withholding for or on account of any present or future tax, assessment or
governmental charge imposed upon or as a result of such payment by the
government of the United States or any state thereof
<PAGE>
or by any authority or agency thereof shall not be less that the amount provided
for in such Debenture to be then due and payable, subject to certain customary
exceptions. The Company shall provide customary indemnification for Holders
affected by the foregoing.
If the Company is required to make additional payments to
Holders thereof by reason of deductions or withholdings for or on account of any
taxes, assessments or other governmental charges (the "withholding taxes"), the
Company shall deliver to the Trustee for delivery to the Holders at the time of
any such payment a statement specifying the amount of taxes so paid by the
Company as additional interest.
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS
DEBENTURE SET FORTH BELOW, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE
THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.
Unless the certificate of authentication hereon has been
executed by the Trustee by the manual signature of one of its authorized
officers, this Debenture shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed in its corporate name.
Dated:
PALOMAR MEDICAL TECHNOLOGIES,
INC.
By:
Attest: Title:
- -----------------------
Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the
within-mentioned Indenture.
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Trustee
By:
Title:
<PAGE>
[FURTHER PROVISIONS]
PALOMAR MEDICAL TECHNOLOGIES, INC.
4.5% SUBORDINATED CONVERTIBLE DEBENTURE DUE 2003
This Debenture is one of a duly authorized issue of Debentures
of the Company designated as its 4.5% Subordinated Convertible Debentures due
2003 (the "Debentures"), limited to the aggregate principal amount of
Twenty-five Million Swiss Francs (SF 25,000,000), all issued or to be issued
under and pursuant to an indenture dated as of June 24, 1996 (the "Indenture"),
duly executed and delivered by the Company and American Stock Transfer & Trust
Company, a corporation duly organized and existing under the laws of New York,
as trustee (the "Trustee"), to which Indenture and all indentures supplemental
thereto reference is hereby made for a description of the rights, obligations,
duties and immunities thereunder of the Trustee, the Company and the Holders of
the Debentures.
The indebtedness evidenced by the Debentures is, to the extent
and in the manner set forth in the Indenture, expressly subordinated and subject
in right of payment to the prior payment in full of all Senior Indebtedness, as
defined in the Indenture, and this Debenture is issued subject to such
provisions, and each Holder of this Debenture, by accepting the same, agrees to
and shall be bound by such provisions, and authorizes the Trustee on his behalf
to take such action as may be necessary or appropriate to acknowledge or
effectuate such subordination as provided in the Indenture and appoints the
Trustee his attorney-in-fact for any and all such purposes.
Transfer of Debentures. Upon surrender at such office or
agency of any Debentures for registration of transfer, the Company shall execute
and register and the Trustee shall authenticate and deliver in the name of the
transferee or transferees a new Debenture or Debentures for the same aggregate
principal amount, and no registration of transfer of any Debentures shall be
valid as against the Company or the Trustee unless made at such office or
agency.
The authorized denominations of Debentures shall be
interchangeable in equal aggregate principal amounts. Debentures to be exchanged
shall be surrendered at the office or agency to be maintained by the Company,
Redemption at Option of Company. The Debentures may be
redeemed by the Company, as a whole or from time to time in part, at any time on
or after the third anniversary of the Initial Closing Date and prior to maturity
or conversion, at a redemption price equal to 100% of the principal amount to be
redeemed plus accrued and unpaid interest to the date fixed for redemption.
The Debentures may also be redeemed, at any time as a whole
but not in part, at a redemption price equal to 100% of the principal amount
plus accrued and unpaid interest to the date fixed for redemption, if, as a
result of any change in or amendment to the laws, regulations or published tax
rulings of the United States, or any political subdivision or taxing authority
thereof or therein, affecting taxation, or any change in the official
administration, application or interpretation of such laws, regulations or
published tax rulings either generally or in relation to the Debentures, which
change or amendment becomes effective on or after the Initial Closing Date or
which change in official administration, application or interpretation shall not
have been available to the public prior to such date and is notified to the
Company on or after such date, it is determined by the Company that the Company
would be required to pay any Additional Payments pursuant to the Indenture or
the terms of any Debenture in respect of interest on the next succeeding
Interest Payment Date. At the option of the Company, such redemption may be paid
in cash or by delivery of shares of Common Stock in the manner described in the
Indenture.
<PAGE>
Discharge of Company's Obligations Upon Deposit of Redemption
Moneys. If proper notice of redemption shall have been given, and if the Company
shall have deposited with the Trustee or with any Paying Agent (other than the
Company), for the benefit of the Holders of any of the Debentures called for
redemption in whole or in part, funds (to be immediately available for payment)
sufficient to redeem the Debentures to be redeemed on the date fixed for
redemption, at the applicable redemption price, together with accrued and unpaid
interest to the date fixed for redemption, then all obligations of the Company
in respect of such Debentures shall cease and be discharged (except the
obligation to issue shares of Common Stock of the Company upon conversion of
Debentures on or prior to the redemption date in accordance with the terms of
this Indenture and the Debentures), and the Holders of such Debentures shall
thereafter be restricted exclusively to such funds for any and all claims of
whatever nature on their part under the Indenture, or in respect of such
Debentures (except with respect to any rights of conversion as above stated).
Sinking Fund. As and for a mandatory sinking fund, the Company
shall pay to the Trustee, not less than one Business Day, on or before the
anniversary of the Initial Closing Date in each of the years 2000 to 2003 2
(each a "Sinking Fund Payment Date") an amount of money equal to 25% of the
aggregate amount of Debentures originally issued at 100% of their principal
amount together with accrued and unpaid interest thereon to the applicable
Sinking Fund Payment Date, subject to reduction as provided in the Indenture.
The Trustee shall apply cash sinking fund payments to the redemption of
Debentures on the applicable Sinking Fund Payment Date.
Right of Debentureholders to Convert Debenture Into Common
Stock. The Debentures may be converted by Holders, in whole or in part, from
time to time, commencing ninety days following the Initial Closing Date and on
or before the close of business prior to the seventh anniversary of the Initial
Closing Date, or the date of redemption (or if that day is not a Business Day,
on the preceding Business Day), at any time on at least five days' written
notice to the Company, at the conversion prices described below (except that, in
respect of any Debenture or Debentures, or portion thereof, called for
redemption before such date pursuant to the Indenture, such right shall
terminate at the close of business on the date fixed for such redemption unless
the Company shall default in payment due upon redemption thereof) to convert,
subject to the terms and provisions of the Indenture, the principal amount of
any such Debenture or Debentures, or portion thereof as hereinafter provided,
into (a) such whole number of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock (the "Debenture Conversion Shares") as
determined by dividing (y) the principal amount of Debentures to be converted by
(z) the Holder Conversion Price, (b) an amount of money payable in Swiss Francs
equal to the accrued and unpaid interest thereon to the date of conversion, and
(c) an amount of money equal to the value of the fractional share remainder, if
any, resulting from the calculation described in clause (a) above, to be paid in
Swiss Francs based on the Holder Conversion Price per share.
"Holder Conversion Price" means the product of (w) the
applicable Stock Price Factor, (x) the applicable Exchange Rate Factor, (y) the
applicable Holder Conversion Percentage Factor and (z) the applicable
Antidilution Factor.
"Stock Price Factor" means a factor, to be calculated by the
Company with respect to each December 15, February 15, April 15, June 15, August
15, and October 15 (each a "Reset Date"), and to be applicable in the two full
calendar months following the Reset Date, and equal to the average daily Nasdaq
closing price per Share (or, if the Company is listed or quoted on an exchange
in the United States other than Nasdaq, the closing price on such exchange), for
the thirty trading days immediately preceding the applicable Reset Date;
provided that in no event shall the Stock Price Factor be less than U.S. $12.00
(subject to adjustment), regardless of the actual Stock Price Factor otherwise
determined.
"Exchange Rate Factor" means a factor, to be calculated by the
Company with respect to each Reset Date, and to be applicable in the two full
calendar months following the Reset Date, and equal to the average Noon Buying
Rate (as defined below) for the thirty trading days immediately preceding the
applicable Reset Date; provided that in no event shall the Exchange Rate Factor
be less than 1.1175. "Noon Buying Rate" means the exchange rate for one U.S.
dollar expressed in Swiss Francs, based upon the noon buying rate in New York
City for cable transfers in Swiss Francs, as certified for customs purposes by
the Federal Reserve Bank of New York.
"Holder Conversion Percentage Factor" means a conversion
percentage, determined on the date notice of conversion is given, which shall be
(i) 100% until the day preceding the third anniversary of the Initial Closing
<PAGE>
Date, (ii) 95% from the third anniversary of the Initial Closing Date until the
day preceding the fourth anniversary of the Initial Closing Date; (iii) 90% from
the fourth anniversary of the Initial Closing Date until the day preceding the
fifth anniversary of the Initial Closing Date; (iv) 85% from the fifth
anniversary of the Initial Closing Date until the day preceding the sixth
anniversary of the Initial Closing Date; and (v) 80% from the sixth anniversary
of the Initial Closing Date until the seventh anniversary of the Initial Closing
Date.
If any Debenture is converted in part, the Company, on
surrender of such Debenture for conversion, shall execute such new Debenture or
Debentures and shall deliver to the Trustee (a) the surrendered Debenture for
cancellation, or if such Debenture has been duly cancelled by the Company, such
duly cancelled Debenture, (b) such new Debenture or Debentures for
authentication, and (c) unless the Trustee is a conversion agent, a statement
signed by any officer of the Company, or by any agent maintained by the Company
for conversion of Debentures, stating the principal amount of the surrendered
Debenture which has been converted and requesting the authentication of such new
Debenture or Debentures; and thereupon the Trustee shall authenticate and the
Company shall deliver or cause to be delivered such new Debenture or Debentures
to such Debentureholder.
Right of Company to Convert Debenture into Common Stock of
Company. The Debentures may be converted by the Company, in whole or from time
to time in part, into (a) that whole number of Debenture Conversion Shares
determined by dividing (y) the sum of the principal amount of Debentures to be
converted, by (z) the Company Conversion Price, (b) an amount of money payable
in Swiss Francs equal to the accrued and unpaid interest thereon to the date of
conversion, and (c) an amount of money equal to the value of the fractional
share remainder, if any, resulting from the calculation described in clause (a)
above, to be paid in Swiss Francs based on the Company Conversion Price per
share.
"Company Conversion Price" means the product of (w) the
applicable Stock Price Factor, (x) the applicable Exchange Rate Factor, (y) the
applicable Company Conversion Percentage Factor and (z) the applicable
Antidilution Factor.
"Company Conversion Percentage Factor" means a conversion
percentage, determined on the date notice of conversion is given, which shall be
(i) 100% until the day preceding the third anniversary of the Initial Closing
Date, (ii) 92.5% from the third anniversary of the Initial Closing Date until
the day preceding the fourth anniversary of the Initial Closing Date; (iii)
87.5% from the fourth anniversary of the Initial Closing Date until the day
preceding the fifth anniversary of the Initial Closing Date; (iv) 82.5% from the
fifth anniversary of the Initial Closing Date until the day preceding the sixth
anniversary of the Initial Closing Date; and (v) 77.5% from the sixth
anniversary of the Initial Closing Date until the seventh anniversary of the
Initial Closing Date.
Exercise of Conversion Privilege. Debentures may be converted
only in units of SF 1,000 and integral multiples thereof. A holder of Debentures
desiring to convert Debentures will not be required to exercise the attached
Warrants. However, if the Warrants are unexercised, they will expire upon such
conversion by the holder of Debentures or upon conversion or redemption at the
option of the Company. In addition, during the period beginning 90 days after
the Initial Closing Date and ending 119 days following the Initial Closing Date,
any conversion of Debentures will necessarily result in the expiration of the
Warrants attached thereto.
A Holder may exercise the conversion privilege by completing
the Conversion Notice below and surrendering to the Company, at the office or
agency to be maintained by the Company for that purpose, the Debenture or
Debentures so to be converted. The Conversion Notice shall also state the name
or names (together with address and tax identification number to the extent
required), if different from the name of the registered Holder, in which the
certificate or certificates for such shares of Common Stock shall be issued.
Debentures surrendered for conversion shall (if so required by the Company or
the Trustee) be duly endorsed by, or accompanied by instruments of transfer in
form satisfactory to the Company duly executed by, the registered Holder or his
duly authorized attorney, and be accompanied by a signature guaranty by a
commercial bank or trust company or other institution which may be required
under applicable laws or regulations, and any Debentures so surrendered during
the period from the close of business on any Record Date for the payment of
interest on the Debentures to the opening of business on the interest payment
date shall (except in the case of Debentures or portions thereof which have been
called for redemption on a redemption date within such period) be accompanied by
payment in funds acceptable to the Company of an amount equal to the interest
<PAGE>
payable on such interest payment date; provided that no such payment need be
made if there shall exist at the time of conversion a default in the payment of
interest on the Debentures. An amount equal to the quarterly interest payment
due in respect of any Debenture converted shall be paid by the Company on the
interest payment date to the Debentureholder of such converted Debenture on such
Record Date, provided that if the Company defaults in payment of interest on
such interest payment date, the amount previously paid by the Debentureholder to
the Company in respect of interest upon conversion of Debentures shall be repaid
to the Debentureholder. Except as expressly set forth in this paragraph, no
payment or adjustment shall be made on conversion of any Debenture for interest
accrued thereon or for dividends on securities issued upon such conversion.
Adjustment of Antidilution Factor. The Antidilution Factor
referred to above in the calculation of the Conversion Prices shall be subject
to adjustment from time to time as follows:
(a) In the event that the Company shall at any time after the
date hereof subdivide or combine the outstanding shares of Common Stock or issue
additional shares of Common Stock as a dividend or other distribution on the
Common Stock, the Antidilution Factor in effect immediately prior to such
subdivision or combination of shares or share dividend or distribution shall be
proportionately adjusted so that, with respect to each such subdivision of
shares or share dividend or distribution, the number of shares of the Common
Stock deliverable upon conversion of each SF 1,000 principal amount of the
Debentures shall be increased in proportion to the increase in the number of
shares of the then outstanding Common Stock resulting from such subdivision of
shares or share dividend or distribution.
(b) Notwithstanding anything in Sections 4.1 and 4.2 to the
contrary, in the case of any capital reorganization or any reclassification of
the Common Stock, or in the case of the consolidation or merger of the Company
with or into any other corporation or in case of any sale or transfer of all or
substantially all of the assets of the Company as may be permitted by the
provisions hereof, the Company and each Holder of the Debentures then
outstanding shall have the right thereafter to convert the principal amount of
each such Debenture into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification,
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock of the Company into which such Debenture might have been converted
immediately prior to such reorganization, reclassification, consolidation,
merger, sale or transfer; and, in any such case, appropriate adjustment (as
determined in good faith by the Board of Directors of the Company) shall be made
in order that the rights and interests of the holders thereafter shall be as
nearly equivalent as may be practicable to the rights and interests provided for
in the Indenture.
(c) Whenever the Company shall fix a record date for the
holders of the Common Stock for the purpose of determining the holders entitled
to subscribe for or purchase shares of Common Stock at a price per share less
than the Closing Price of the Common Stock as of such record date, the
Antidilution Factor shall be adjusted so that the number of shares of the Common
Stock into which each SF 1,000 principal amount of the Debentures shall
thereafter be convertible shall be determined by multiplying the number of
shares of the Common Stock into which such SF 1,000 principal amount of the
Debentures was theretofore convertible by a fraction of which the numerator
shall be the number of shares of the Common Stock outstanding immediately prior
to the taking of such record plus the number of additional shares of Common
Stock offered for subscription or purchase and of which the denominator shall be
the number of shares of the Common Stock outstanding immediately prior to the
taking of such record plus the number of shares of the Common Stock which the
aggregate offering price (without deduction of any expenses, including
commissions or discounts) of the total number of shares of the Common Stock so
offered would purchase at the Closing Price of the Common Stock as of such
record date.
(d) Whenever the Company shall fix a record date for the
holders of the Common Stock for the purpose of determining the holders entitled
to receive any distribution of evidences of its indebtedness, capital stock or
assets (other than a regularly scheduled cash dividend and dividends payable in
stock for which adjustment is made pursuant to the Indenture), or rights to
subscribe for or purchase any evidences of the Company's indebtedness or assets
(other than rights referred to in the preceding paragraph), the Antidilution
Factor shall be appropriately adjusted.
Events of Default. In case an Event of Default, as defined in
the Indenture, shall have occurred and be continuing, the principal of all of
the Debentures may be declared, and upon such declaration shall become, due and
<PAGE>
payable, in the manner, with the effect and subject to the conditions provided
in the Indenture, by either the Trustee or the holders of at least a majority in
aggregate principal amount of the Debentures then outstanding.
Registered Holder as Absolute Owner. The Company, the Trustee,
any paying agent, any conversion agent and any Debenture Registrar may deem and
treat the person in whose name any Debenture shall be registered upon the books
of the Company as the absolute owner of such Debenture (whether or not such
Debenture shall be overdue and notwithstanding any notice of ownership or
writing thereon made by anyone other than the Company or any Debenture
Registrar) for the purpose of receiving payment of or on account of the
principal of (and premium, if any) and interest on (subject to the provisions of
the Indenture) such Debenture and for all other purposes; and neither the
Company nor the Trustee nor any paying agent nor any conversion agent nor any
Debenture Registrar shall be affected by any notice to the contrary.
Modification of Indenture with Consent of Holders of 66-2/3%
in Principal Amount of Debentures. With the consent of the Holders (or persons
entitled to vote, or to give consents respecting the same) of not less than 66
2/3% in aggregate principal amount of the Debentures at the time outstanding,
the Company, when authorized by a resolution of its Board of Directors, and the
Trustee may, from time to time and at any time, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of any supplemental indenture or of modifying in any manner the rights and
obligations of the Holders of the Debentures and of the Company; provided that,
without the consent of the Holders of all Debentures then outstanding, no such
supplemental indenture shall (i) extend the fixed maturity of any Debenture, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, or reduce any premium payable upon the redemption
thereof, or (ii) alter the provisions of Article IV hereof respecting conversion
of the Debentures so as to affect the Debentures adversely, or (iii) modify any
of the provisions of this Indenture with respect to the subordination of the
Debentures in a manner adverse to the Holders thereof, or (iv) reduce the
aforesaid percentage of Debentures, the Holders of which are required to consent
to any such supplemental indenture.
Immunity of Incorporators, Stockholders, Officers and
Directors. Except for liabilities arising under the Securities Act, no recourse
shall be had for the payment of the principal of (and premium, if any) or the
interest on any Debenture, or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture or in any supplemental indenture, or
in any Debenture or because of the creation of any indebtedness represented
hereby shall be had against any incorporator, stockholder, officer, trustee,
director, past, present or future, as such of the Company or of any predecessor
or successor corporation, whether by virtue of any constitution, statute or rule
of law or equity, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that all such liability is hereby
expressly waived and released as a condition of, and as a consideration for, the
execution of the Indenture and the issue of the Debentures.
Right to Require Repurchase. In the event of a Change of
Control, each Holder shall have the right to require the Company to repurchase
all or a portion of such Holder's Debentures at a purchase price equal to the
principal amount plus accrued interest to the date of repurchase. Any such
tender of Debentures for repurchase shall be accompanied by the attached
Warrants, which may either be exercised or, upon failure of such exercise, shall
expire upon such repurchase. At the option of the Company, the repurchase price
may be paid in cash or by delivery of Shares having a Market Value equal to the
repurchase price. "Market Value," on a per Share basis, means the amount
determined by multiplying (x) the applicable Stock Price Factor on the date
notice of repurchase is given by (y) the applicable Exchange Rate Factor on such
date (provided that in no event shall the Exchange Rate Factor be less than
1.1175), and by multiplying the product so achieved by 75%.
A "Change of Control" shall be deemed to have occurred at the
time when persons other than the Existing Control Group shall have become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
more than 50% of the aggregate voting power of the Company, unless such
acquisition shall have been approved by a two-thirds (66 2/3%) majority of the
Continuing Directors of the Company.
In the event the Company does not cause the Debentures to be
listed for trading on the Luxembourg Stock Exchange within ninety (90) days
after the Initial Closing Date, each Holder shall have the right, during the 30
day period following receipt of the notice described in Section 16.2, to require
the Company to repurchase all or a por
<PAGE>
tion of such Holder's Debentures at a purchase price equal to the principal
amount plus accrued interest to the date of repurchase in a manner similar to
that set forth in the second preceding paragraph.
The right to require repurchase at the option of the Holder is
subject to the restriction that the Company may not repurchase any Debenture at
any time when the subordination provisions of the Indenture would not permit the
Company to make a payment of principal, premium or interest on the Debentures.
Indenture and Debentures to be Construed in Accordance with
Laws of State of New York. The Indenture and each Debenture shall be deemed to
be a contract made under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the internal laws of said
State. Under the Judiciary Law of the State of New York, a judgment or decree in
an action based upon an obligation denominated in a currency other than U.S.
dollars shall be rendered in the foreign currency of the underlying obligation
and converted into U.S. dollars at a rate of exchange prevailing on the date of
the entry of the judgment or decree.
No reference herein to the Indenture and no provisions of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Debenture at the time and place and at the
rate and in the manner herein prescribed.
All terms used in this Debenture which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
<PAGE>
CONVERSION NOTICE
The undersigned holder of this Debenture hereby irrevocably
exercises the option to convert this Debenture, or portion hereof (which is SF )
below designated, into Common Shares in accordance with the terms of the
Indenture referred to in this Debenture, delivers herewith the amount of
interest payable on the next Interest Payment Date if this conversion is made
between the Record Date for such Interest Payment Date and such Interest Payment
Date, and directs that such shares, together with a check in payment for any
fractional share and any Debentures representing any unconverted principal
amount hereof, be delivered to and be registered in the name of the undersigned
unless a different name has been indicated below. If the Common Shares are to be
registered in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Dated:
------------------------------------------------------
(Signature must be guaranteed by a bank or stockbroker
who is a member of a national stock exchange)
<TABLE>
<S> <C>
If shares or Debentures are to be If only a portion of the Debentures is to be converted,
registered in the name of a Person please indicate:
other than the Debentureholder, please
print such Person's name and address, 1. Principal Amount to be converted:
and taxpayer identification number, if SF
applicable:
2. Amount and denomination of Registered Debentures
representing unconverted principal amount to be
issued:
Amount: SF
Denominations: SF
(SF 1,000)
</TABLE>
<PAGE>
CERTIFICATE
This is to certify that as of the date hereof with respect to
SF ________ principal amount of the above-captioned debentures presented or
surrendered on the date hereof (the "Surrendered Debentures") for registration
of transfer, or for exchange or conversion where the securities issuable upon
such exchange or conversion are to be registered in a name other than that of
the undersigned Holder (each such transaction being a "transfer"), the
undersigned Holder (as defined in the Indenture) certifies that the transfer of
Surrendered Debentures complies with the restrictive legend set forth on the
face of the Surrendered Debentures for the reason checked below:
----- The transfer of the Surrendered Debentures complies with Rule 144
under the U.S. Securities Act of 1933, as amended (the "Securities
Act"); or
----- The transfer of the Surrendered Debentures complies with Rule 144A
under the Securities Act; or
----- The transfer of the Surrendered Debentures complies with Rule 903 or
904 of Regulation --------- S under the Securities Act.
[Name of Holder]
Dated: __________, ___*
* To be dated the date
of presentation or
surrender
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED HEREBY ARE PART OF A NONDETACHABLE UNIT, EACH UNIT
CONSISTING OF ONE SF 1,000 PRINCIPAL AMOUNT 4.5% CONVERTIBLE SUBORDINATED
DEBENTURE AND 24 COMMON STOCK PURCHASE WARRANTS. SAID DEBENTURE AND WARRANTS MAY
NOT BE TRANSFERRED OR TRADED SEPARATELY, AND ANY PURPORTED TRANSFER OF EITHER OF
SUCH SECURITIES SEPARATELY FROM THE OTHER SHALL BE VOID AND SHALL NOT BE
RECORDED ON THE BOOKS AND RECORDS OF THE COMPANY. WARRANTS MAY ONLY BE EXERCISED
IN LOTS OF 24 WARRANTS OR INTEGRAL MULTIPLES THEREOF; AND EACH 24 WARRANTS TO BE
EXERCISED MUST BE ACCOMPANIED BY SF 1,000 PRINCIPAL AMOUNT OF DEBENTURES,
PRESENTED FOR CONVERSION OR REDEMPTION OR REPURCHASE IN ITS ENTIRETY, AS THE
CASE MAY BE, PURSUANT TO THE TERMS OF THE DEBENTURES.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO
REGULATION S, AN EXEMPTION FROM REGISTRATION PURSUANT TO THE PROVISIONS UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
THESE SECURITIES MAY NOT BE TRANSFERRED, OFFERED OR SOLD PRIOR TO THE END OF THE
FORTY (40)-DAY PERIOD (THE "RESTRICTED PERIOD") COMMENCING ON THE LATER OF (I)
THE DATE THE SECURITIES ARE FIRST OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS
DEFINED IN REGULATION S) OR (II) THE DATE OF THE FINAL CLOSING OF THE OFFERING
OF THE UNITS BY THE COMPANY, UNLESS SUCH TRANSFER, OFFER OR SALE (I) IS MADE IN
AN "OFFSHORE TRANSACTION" AND NOT TO A "U.S. PERSON" (OTHER THAN A
"DISTRIBUTOR") (AS SUCH TERMS ARE DEFINED IN REGULATION S) OR (II) IS MADE
PURSUANT TO REGISTRATION OR AN APPLICABLE EXEMPTION UNDER THE SECURITIES ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE CANNOT BE SOLD EXCEPT PURSUANT TO
THE TERMS AND CONDITIONS OF THE OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
BETWEEN THE COMPANY AND THE INITIAL HOLDER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY.
BY REQUESTING THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
AFTER THE RESTRICTED PERIOD, THE HOLDER OF THIS CERTIFICATE REPRESENTS THAT IF
SUCH TRANSFER IS MADE TO A U.S. PERSON, THAT AT THE TIME OF SUCH TRANSFER THE
HOLDER IS NOT AN "AFFILIATE" OF THE COMPANY (AS SUCH TERM IS DEFINED IN THE
SECURITIES ACT) OR AN "UNDERWRITER" OR "DEALER" (AS SUCH TERMS ARE DEFINED IN
THE ACT), HAS NOT ENGAGED IN ANY SHORT SALES OR SIMILAR HEDGE TRANSACTIONS WITH
RESPECT TO THE COMPANY'S SHARES OF COMMON STOCK DURING THE RESTRICTED PERIOD, IS
NOT A "DISTRIBUTOR" AND SUCH TRANSFER IS NOT BEING MADE AS PART OF A PLAN OR
SCHEME TO EVADE THE REGISTRATION PROVISIONS OF THE SECURITIES ACT.
PALOMAR MEDICAL TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
No. __________ __________Warrants
This certifies that __________________________, or registered
assigns, is the owner of the number of Warrants set forth above, each of which
represents the right, at any time during the period commencing 120 days
following the Initial Closing, to purchase from Palomar Medical Technologies,
Inc., a Delaware corporation (the "Company"), one share of Common Stock, par
value $.01 per share, of the Company ("Common Stock"), such shares of Common
Stock issuable upon exercise of the Warrants being hereinafter called the
"Warrant Shares", each such Warrant entitling the registered owner thereof to
purchase one Warrant Share at the Swiss Franc equiva
<PAGE>
lent on the date of exercise of $16.50 per share, subject to adjustment, upon
surrender hereof at the office of American Stock Transfer & Trust Company, or to
its successor as the warrant agent under the Warrant Agreement hereinafter
referred to (any such warrant agent being herein called the "Warrant Agent"),
with the Exercise Subscription Form on the reverse hereof or attached hereto
duly executed and simultaneous payment in full (in cash or by check payable to
the order of the Company) of the purchase price for the Warrant Shares as to
which the Warrants represented by this Warrant Certificate are exercised, all
subject to the terms and conditions hereof and of the Warrant Agreement.
This Warrant Certificate is issued under and in accordance
with a Warrant Agreement dated as of June 24, 1996 (the "Warrant Agreement"),
between the Company and American Stock Transfer & Trust Company, as Warrant
Agent, and is subject to the terms and provisions contained therein to all of
which terms and provisions the Holder of this Warrant Certificate consents by
acceptance hereof. The Warrant Agreement is hereby incorporated herein by
reference and made a part hereof. Reference is hereby made to the Warrant
Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Company and the Holders of
the Warrants. Capitalized defined terms used herein have the same meanings as in
the Warrant Agreement. Copies of the Warrant Agreement are on file at the office
of the Warrant Agent and may be obtained by writing to the Warrant Agent at the
following address: 6201 15th Avenue, 3rd Floor, Brooklyn, New York 11219.
All outstanding Warrants will terminate and become void (the
"Warrant Expiration Date") on the earlier of (i) 5:00 p.m., New York City time,
seven years from the Initial Closing or (ii) upon conversion, redemption, or
repayment of the Debentures, in which case the Warrants attached to such
Debentures will expire upon such conversion, redemption, or repayment unless
then exercised. In the event the aforesaid expiration dates of the Warrants fall
on a Saturday, Sunday, or on a legal holiday on which the New York Stock
Exchange is closed, then the Warrants shall expire at 5:00 p.m., New York City
time, on the next succeeding business date.
A holder of Debentures desiring to convert Debentures will not
be required to exercise the attached Warrants. However, if the Warrants are
unexercised, they will expire upon such conversion by the holder of Debentures
or upon conversion or redemption at the option of the Company. Holders of
Debentures whose Debentures are redeemed through operation of the sinking fund
pertaining thereto will not be required to exercise the Warrants attached to
such Debentures. However, any unexercised Warrants will expire upon such payment
of the Debentures. Any tender of Debentures for repurchase, pursuant to the
terms of the Debentures, will be accompanied by the attached Warrants, which may
either be exercised or, upon failure of such exercise, will expire upon such
repurchase. In addition, during the period beginning 90 days after the Initial
Closing and ending 119 days following the Initial Closing, any conversion of
Debentures will necessarily result in the expiration of the Warrants attached
thereto.
All shares of Common Stock issuable by the Company upon the
exercise of Warrants shall be validly issued, fully paid and non-assessable, and
the Company shall pay all taxes and other governmental charges that may be
imposed in respect of the issue or delivery thereof or of other securities
deliverable upon exercise of Warrants. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock, and in such
case the Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been established to the
Company's satisfaction that no tax or other charge is due.
The Warrants are not separately transferable from the Debentures. This
Warrant Certificate and all rights hereunder are transferable, only as a Unit
along with transfer of the Debentures, by the registered holder hereof, in whole
or in part, on the Warrant Register maintained by the Warrant Agent for such
purpose at its office in Luxembourg, upon surrender of this Warrant Certificate
duly endorsed, or accompanied by written instrument of transfer in form
satisfactory to the Company and the Warrant Agent duly executed and accompanied
by transfer of the Debentures in the Unit, by the registered holder hereof or
his or her attorney duly authorized in writing. Upon any partial transfer the
Company will issue and deliver to such holder a new Warrant Certificate or
Certificates with respect to any portion not so transferred. Each taker and
holder of this Warrant Certificate, and the accompanying Debentures in the Unit,
by taking or holding the same, consents and agrees that his or her Warrant
Certificate when duly endorsed in blank shall be deemed negotiable and that when
this Warrant Certificate shall have been so en
<PAGE>
dorsed, the holder hereof may be treated by the Company and all other persons
dealing with this Warrant Certificate as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby, or
to the transfer hereof in the Warrant Register maintained by the Warrant Agent,
any notice to the contrary notwithstanding, but until such transfer on such
register, the Company and the Warrant Agent may treat the registered holder
hereof as the owner for all purposes.
The Debentures, Warrants, and Units have not been registered under the
Securities Act, nor qualified for sale under any other securities laws, and
therefore are subject to certain restrictions on transfer. The Company will
enter into a Registration Rights Agreement with the purchasers of the Units (the
"Registration Agreement") pursuant to which the Company will, at the Company's
expense, for the benefit of the holders of the Warrants, and with respect to the
Warrant Shares issuable upon exercise of the Warrants (the "Registrable
Securities"), (i) file with the Commission within 60 days after the Initial
Closing, a Registration Statement covering the issuance of the Registrable
Securities, (ii) use its best efforts to cause the Registration Statement to be
declared effective under the Securities Act as soon as possible thereafter, and
(iii) use its best efforts to keep effective the Registration Statement until
the Expiration Date. The Company will provide to each holder of Registrable
Securities copies of the Prospectus which is a part of the Registration
Statement and notify each Holder when the Registration Statement has become
effective. The purpose of the Registration Statement shall be to enable each
Holder which (i) receives Warrant Shares as the result of the exercise of
Warrants and (ii) is not an Affiliate of the Company and is not engaging in a
distribution of securities (within the meaning of the Securities Act) to trade
such Warrant Shares from and after the date of issuance thereof without any
limitations or restrictions under the Securities Act. The Company will agree in
the Registration Agreement to use its best efforts to cause the Warrant Shares
issuable upon exercise of the Warrants to be listed on Nasdaq upon effectiveness
of the Registration Statement.
This Warrant Certificate shall not be valid for any purpose
until it shall have been countersigned by the Warrant Agent.
Dated: , 19__
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
----------------------------------
Title:
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
Authorized Signature
<PAGE>
EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant for shares
of Common Stock of Palomar Medical Technologies, Inc.)
To: Palomar Medical Technologies, Inc.
The undersigned irrevocably exercises of the Warrants for the
purchase of one share (subject to adjustment) of Common Stock, par value $.01
per share, of Palomar Technologies, Inc., for each Warrant represented by the
Warrant Certificate and herewith makes payment of SF_______ (such payment being
in cash or by check payable to the order of Palomar Medical Technologies, Inc.),
all at the exercise price and on the terms and conditions specified in the
within Warrant Certificate and the Warrant Agreement therein referred to,
surrenders this Warrant Certificate and all right, title and interest therein to
Palomar Medical Technologies, Inc., and directs that the shares of such Common
Stock deliverable upon the exercise of said Warrants be registered or placed in
the name and at the address specified below and delivered thereto.
Date: , 19__
---------------------------(1)
(Signature of Holder)
------------------------------
(Printed Name of Holder)
------------------------------
(Street Address)
------------------------------
(City) (State) (Zip Code)
<PAGE>
TRANSFER FORM
This is to certify that as of the date hereof with respect to
________ Warrants (the "Surrendered Warrants") for registration of transfer, or
for exchange or conversion where the securities issuable upon such exchange or
conversion are to be registered in a name other than that of the undersigned
Holder (each such transaction being a "transfer"), the undersigned Holder (as
defined in the Indenture) certifies that the transfer of Surrendered Warrants
complies with the restrictive legend set forth on the face of the Surrendered
Warrants for the reason checked below:
----- The transfer of the Surrendered Warrants complies with Rule 144 under
the U.S. Securities Act of 1933, as amended (the "Securities Act"); or
----- The transfer of the Surrendered Warrants complies with Rule 144A under
the Securities Act; or
----- The transfer of the Surrendered Warrants complies with Rule 903 or 904
of Regulation S under the Securities Act.
[Name of Holder]
--------------------------------
Dated: __________, ___*
* To be dated the date of presentation or surrender
Securities to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
Any unexercised Warrants evidenced by the within Warrant Certificate to be
issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
SUBSCRIPTION AGREEMENT
PALOMAR MEDICAL TECHNOLOGIES, INC.
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
BECAUSE THEY ARE BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER SECTIONS 4(2) AND
4(6) OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS SUBSCRIPTION
AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER
TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR
TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
IN REACHING THE CONCLUSION THAT SUBSCRIBER DESIRES TO PURCHASE THE
DEBENTURES, SUBSCRIBER HAS CAREFULLY EVALUATED SUBSCRIBER'S FINANCIAL RESOURCES
AND INVESTMENT POSITION, AND THE RISKS ASSOCIATED WITH THIS INVESTMENT, AND
ACKNOWLEDGES THAT THE DEBENTURES INVOLVE A HIGH DEGREE OF RISK AND THAT
SUBSCRIBER COULD LOSE THE ENTIRE INVESTMENT.
This Subscription Agreement (the "Agreement") is executed by the
undersigned (the "Subscriber") in connection with the offer and subscription by
the undersigned to purchase 5% Convertible Debentures Due December __, 2001 (5
years from Closing Date), with all interest due at maturity ("Debentures") of
Palomar Medical Technologies, Inc., a Delaware corporation (the "Company") in an
aggregate principal amount of $_________________. The terms on which the
Debentures may be converted into Common Stock (such Common Stock underlying the
Debentures being referred to herein as "Shares") and the other terms of the
Debentures are set forth therein and in Sections herein. This Subscription and,
if accepted by the Company, the offer and sale of Debentures and the Shares
(collectively, the "Securities"), are being made in reliance upon the provisions
of Sections 4(2) and 4(6) of the United States Securities Act of 1933, as
amended (the "Act"). The undersigned, in order to induce the Company will rely
thereon, represents, warrants and agrees as follows:
1. OFFER TO SUBSCRIBE; PURCHASE PRICE
The Subscriber hereby offers to purchase and subscribes for the number of
Debentures set forth on the signature page hereto, at a price of 100%. The
Closing shall be deemed to occur when this Agreement has been executed by both
Subscriber and Company (the "Closing Date" or "Debenture Date"). The Company
agrees to deliver certificates representing the Debentures subscribed within 10
days of Closing. On or prior to the Closing Date, the Subscriber will deliver to
the Company the full amount of the Purchase Price by wire transfer to the
account set forth below.
Citibank
399 Park Avenue
New York, NY 10048
ABA 021000089
Account Number: 40611172
Account Name: Dean Witter Reynolds, Inc.
For Further Credit to:
Account Number: 593109782
Account Name: Palomar Medical Technologies, Inc.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES BY SUBSCRIBER
Subscriber hereby represents and warrants as follows:
(a) Subscriber is an Accredited Investor as evidenced by the Subscriber
meeting at least one of the following standards:
(A) is an individual and had income in excess of $200,00 in
the two most recent tax years (or $300,000 income jointly with
his spouse) and reasonably expect to have income at the same
level in the current tax year; or
(B) is an individual and his net worth (i.e. excess of total
assets over total liabilities), either individually or together
with my spouse, is at least $1,000,000; or
(C) is a trust, corporation, partnership, or organization
defined in Section 501(c)(3) of the Code, not formed for the
purpose or purchasing the Debentures, with assets in excess of
$5,000,000; or
(D) is a national bank; a state banking institution, the
business of which is substantially confined to banking and is
supervised by state banking officials; a savings and loan
association; a broker or dealer registered pursuant to Section 15
of the Securities Exchange Act of 1934; an insurance company; an
investment company registered under the Investment Company Act of
1940; a business development company as defined in Section
2(a)(48) of that Act or a private business development company as
defined in Section 202(a)(22) of the Investment Advisors Act of
1940; a Small Business Investment Company licensed by the Small
Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; or an employee benefit plan
within the meaning of Title I of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a
plan fiduciary, as defined in Section 3(21) of such Act, which is
either a bank, savings and loan association, insurance company,
or registered investment adviser, or if the employee benefit plan
has total assets in excess of $5,000,000 or, a self-directed plan
where the investment decisions are made by accredited investors;
or
(E) is an entity in which each of the equity owners meet the
standards set forth in any of the immediately preceding
subparagraphs (A), (B), (C), or (D). (IF YOU MEET THE STANDARDS
IN THIS SUBPARAGRAPH, PLEASE ALSO COMPLETE THE FOLLOWING:)
I certify that the following is a complete list of all
owners of equity or trustees, that each such owner or trustee has
initialed the space opposite his name and that each such owner or
trustee understands that by initialing that space he is
representing that he is an accredited investor satisfying either
A, B, C or D above.
Name of Owner of Type of
Equity or Trustee Accredited Investor Initials
----------------- -------------------- ----------
----------------- -------------------- ----------
----------------- -------------------- ----------
(b) The Subscriber and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Debentures and the offer of the
Shares which have been requested by the Subscriber. The Subscriber and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received complete and satisfactory answers to any such
inquiries. Without limiting the generality of the foregoing,
<PAGE>
the Subscriber has had the opportunity to obtain and to review the Company's (1)
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995 (as
amended by Amendment No. 1 thereto on Form 10-KSB/A filed with the Securities
and Exchange Commission (the "SEC" on August 23, 1996), (2) Quarterly Reports on
Form 10-QSB for the fiscal quarters ended March 31, 1996 (as amended by
Amendment No. 1 thereto on Form 10-QSB/A filed with SEC on August 23, 1996),
June 30, 1996 and September 30, 1996, (3) Current Report on Form 8-K, dated May
3, 1996, as amended by Amendment No. 1 thereto on Form 8-K/A dated May 3, 1996,
(4) definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, and
(5) Registration Statement on Form S-3 (the "October Registration Statement")
declared effective on October 17, 1996 (Registration No. 333-10681), in each
case as filed with the SEC.
(c) Subscriber is acquiring the Debentures solely for Subscriber's own
account, for investment, and not with a view to the distribution thereof.
Subscriber's financial condition is such that he is not under any present
necessity or constraint to dispose of the Debentures to satisfy any existing or
contemplated debt or undertaking. If Subscriber is a corporation, trust,
association, partnership, or any other entity other than an individual, the
purchase of the Debentures by Subscriber has been duly authorized as required by
law or agreement to be taken, and the Debentures constitute a legal investment
for such entity.
(d) Subscriber is aware of the fact that the Debentures have not been
registered, nor is registration contemplated, under the Securities Act of 1933
(the "Act"), and, accordingly, no federal agency has recommended or endorsed the
purchase of the Debentures or passed on the adequacy or accuracy of the
information set forth in the Form 10-KSB. Subscriber understands that since the
Debentures have not been registered under the Act, they must be held
indefinitely unless they are subsequently registered under the Act or unless, in
the opinion of counsel for the Company, a sale or transfer may be made without
registration thereunder. Subscriber agrees that the Debentures may bear a legend
restricting the transfer thereof consistent with the foregoing and that a
notation may be made in the records of the Company's transfer agent restricting
the transfer of the Debentures in manner consistent with the foregoing.
(e) Subscriber, in electing to subscribe for the Securities hereunder, has
relied upon an independent investigation made by it and its representative, if
any. Subscriber has been given no oral or written representations or assurances
from the Company or any representation of the Company other than as set forth in
this Agreement or in a document executed by a duly authorized representative of
the Company making reference to this Agreement.
(f) If Subscriber desires to sell and distribute Registered Shares over a
period of time, or from time to time, at then prevailing market prices, then
Subscriber shall execute and deliver to the Company such written undertakings as
the Company and its Counsel may reasonably require in order to assure full
compliance with relevant provisions of the Securities Act and the Exchange Act
including, without limitation, providing the Company with 48 hours' prior
written notice of each such sale and providing the Company with assurances,
reasonably satisfactory to the Company, that Subscriber will meet the prospectus
delivery requirements under the Security Act.
3. REGISTRATION RIGHTS
The Company agrees to file and use reasonable efforts to make effective a
registration statement with the Securities and Exchange Commission (the "SEC")
(on Form S-3, its successor form, or any other form under the Securities Act of
1933 under which the Shares underlying the Debentures are eligible to be
registered), within 90 days of the Closing Date, covering the Shares underlying
the Debentures, at the Company's cost and expense (excluding the costs of legal
counsel to the holders of the Debentures). If the Registration Statement is not
declared effective within 90 days of the Closing Date, the rate of interest on
the Debentures shall increase by .5% per annum and continue to increase by an
additional .5% per annum for every 30 days thereafter, up to a maximum increase
of 5%, until such Registration Statement is declared effective. The subscriber
shall furnish the Company with such
<PAGE>
information as the Company may request in writing and as shall be required in
connection with any registration thereunder.
4. RESALES
Subscriber acknowledges and agrees that the Securities may only be resold (a)
pursuant to a Registration Statement under the Act; or (b) pursuant to an
exemption from registration.
5. SUBSEQUENT TRANSFER OF SECURITIES
Once a registration statement has been filed and declared effective as
contemplated in Section 3 above, the Company agrees, and shall instruct its
transfer agent, that the Securities may be transferred to any person or entity
who is not an affiliate of the Company without (a) any further restriction on
transfer or (b) the entry of a "stop transfer" order against such Securities,
provided that the person(s) or entity(ies) requesting transfer furnish the
appropriate representations to the Company's legal counsel.
6. RELEASE OF PROCEEDS TO THE COMPANY
The proceeds of the offering shall be released to the Company upon the Closing
of this offering, as defined in Section 1 of this Agreement.
7. TERMS OF CONVERSION
The Debentures shall contain the following provisions in Section 3 thereof
regarding the conversion of the Debentures:
The Holder of this Debenture is entitled, at its option, at any time after
90 days after the Debenture Date until maturity hereof, to convert the principal
amount of the Debenture or any portion of the principal amount hereof which is
at least One Hundred Thousand Dollars ($100,000 U.S.) or, if at the time of such
election to convert, the aggregate principal amount of all Debentures registered
to the Holder is less than One Hundred Thousand Dollars ($100,000 U.S.), then
the whole amount thereof, into Shares of Common Stock of the Company at a
conversion price for each share of Common Stock equal to Eight Five Percent
(85%) of the Market Price of the Company's Common Stock; provided that in any 30
day period the Holder of these Debentures (or its transferee) may convert no
more than 33% (or 34% of the Debentures, in the last 30 day period available for
conversion of the Debentures) of the Debentures purchased by the Holder, whether
or not such Holder exercised its right to convert the Debenture after 90 days
after the Debenture Date. If such conversion price on the date of conversion
would be (x) less than or equal to $5.25 per share (the "Conversion Price
Floor"), the Company shall have the right to redeem the Debentures within 30
days of the Notice of Conversion at the face amount of the Debentures plus
accrued but unpaid interest, or (y) greater than $15 per share, the conversion
price shall be equal to $15 per share (the "Conversion Price Ceiling). As used
herein, the Market Price shall be the average closing bid price of the Common
Stock over the ten (10) trading days immediately prior to the conversion date,
as reported by the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), or the closing bid price in the over-the-counter
market or, in the event the Common Stock is listed on a stock exchange, the fair
market value per Share shall be the closing price on the exchange, as reported
in the Wall Street Journal, over such ten (10) day period. Such conversion shall
be effectuated by surrendering the Debentures to be converted to the Company
with the form of conversion notice attached hereto as Exhibit A, executed by the
Holder of this Debenture evidencing such Holder's intention to convert this
Debenture or a specified portion (as above provided) hereof, and accompanied, if
required by the Company, by proper assignment hereof in blank. The Company shall
use its best efforts to have the Shares of Common Stock issued and delivered to
the Holder thereof within ten business days of the receipt of the conversion
form and Debentures(s). If this Debenture is converted into Shares of Common
Stock of the Company pursuant to this Section, the amount of accrued but unpaid
interest shall be subject to conversion. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded down to the nearest whole share. The date on
which notice of conversion is given shall be deemed to be
<PAGE>
the date on which the Holder has delivered this Debenture, with the conversion
notice duly executed, to the Company.
8. TERMS OF REDEMPTION
The Debentures shall contain the following provisions in Section 5 thereof
regarding the redemption of the Debentures:
The Company may, at any time the Debentures are outstanding, upon 20 days
written notice to the Holder, elect to redeem the full amount of the Debentures
then outstanding or a pro rata portion thereof. The Holder shall have 10 days
after receipt of written notice of redemption to submit a Notice of Conversion
to the Company if the Holder desires to convert. The redemption price shall be
calculated at 120% of the amount of the Debenture being redeemed. All accrued
but unpaid interest shall be waived at the time of redemption. Each Holder of
the Debenture shall be entitled to redeem a pro rata portion of the Debentures
being redeemed by the Company.
9. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts except for matter arising under the Act or the
Securities Exchange Act of 1934 which matters shall be construed and interpreted
in accordance with such laws.
10. NOTICES
All communications hereunder shall be in writing, and, if sent to the Subscriber
shall be sufficient in all respects if delivered, sent by registered mail, or by
telecopy and confirmed to the Subscriber at:
Name:
Address:
City:
Country:
Attention:
or, if sent to the Company, shall be delivered, sent by registered mail or by
telecopy and confirmed to the Company at:
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915
Attention: Paul S. Weiner, Director of Finance
Telephone: (508) 921-9300
Telecopy: (508) 921-5801
<PAGE>
The undersigned hereby subscribes for $______________ in principal
amount of Debentures and pays herewith funds in the same amount.
The undersigned acknowledges that this subscription shall not be
effective unless accepted by the Company as indicated below.
Dated this day of ,1996.
(Printed Name)
(Signature)
(Mailing Address)
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE DAY OF
, 1996.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
Printed Name/Title:
<PAGE>
AMENDMENT TO
SUBSCRIPTION AGREEMENT
THIS AMENDMENT TO SUBSCRIPTION AGREEMENT (this "Amendment"), dated as of
JANUARY 10, 1997, is by an between Palomar Medical Technologies, Inc., a
Delaware corporation (the "Company"), and Berckeley Investment Group, Ltd. (the
"Subscriber")
WHEREAS, the Company and the Subscriber entered into that certain
Subscription Agreement, dated December 31, 1996 (the "Agreement"), pursuant to
which the Subscriber acquired $5,000,000 5% Convertible Debentures Due December
31, 2001 (the "Debentures") of the Company; and
WHEREAS the Company and the Subscriber have agreed to amend certain
terms of the Agreement and certain terms of the Debentures;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Amendment and good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
SECTION 1- AMENDMENT OF ITEM 3 OF SUBSCRIPTION AGREEMENT
Replace the following language:
"The Company agrees to file and use reasonable efforts to make effective a
registration statement with the Securities and Exchange Commission (the "SEC")
(on Form S-3, its successor form, or any other form under the Securities Act of
1933 under which the Shares underlying the Debentures are eligible to be
registered), within 90 days of the Closing Date, covering the Shares underlying
the Debentures, at the Company's cost and expense (excluding the costs of legal
counsel to the holders of the Debentures). If the Registration Statement is not
declared effective within 90 days of the Closing Date, the rate of interest on
the Debentures shall increase by .5% per annum and continue to increase by an
additional .5% per annum for every 30 days thereafter, up to a maximum increase
of 5%, until such Registration Statement is declared effective."
With:
"The Company agrees to file and use reasonable efforts to make effective a
registration statement with the Securities and Exchange Commission (the "SEC")
(on Form S-3, its successor form, or any other form under the Securities Act of
1933 under which the Shares underlying the Debentures are eligible to be
registered), within 120 days of the Closing Date, covering the Shares underlying
the Debentures, at the Company's cost and expense (excluding the costs of legal
counsel to the holders of the Debentures). If the Registration Statement is not
declared effective within 120 days of the Closing Date, then the Company will
pay a penalty equal to 0.5% of the amount of the Debenture per month in cash or
common stock up to a maximum of 5%, until such Registration Statement is
declared effective."
SECTION 2 - AMENDMENT OF ITEM 7 OF SUBSCRIPTION AGREEMENT AND
ITEM 3 OF DEBENTURE
Replace the following language:
"If such conversion price on the date of conversion would be (x) less than or
equal to $5.25 per share (the "Conversion Price Floor"), the Company shall have
the right to redeem the Debentures within 30 days of the Notice of Conversion at
the face amount of the Debentures plus accrued but unpaid interest, or (y)
greater than $15 per share, the conversion price shall be equal to $15 per share
(the "Conversion Price Ceiling)."
<PAGE>
With:
"If such conversion price on the date of conversion would be less than or equal
to $5.25 per share (the "Conversion Price Floor"), the Company shall have the
right to redeem the Debentures within (30) thirty days from the Notice of
Conversion. The redemption price shall be calculated at 115% of the amount of
the Debenture being redeemed. All accrued but unpaid interest shall be waived at
the time of redemption. The Holder may fax a Notice to the Company, Attn.: Paul
S. Weiner, requiring the Company to declare, by faxed notice within (5) five
business days of the Notice from the Holder, whether it intends to effect such
redemption. In the event the Company does not reply during said (5) five
business days, the Company may not redeem that Holder's Debenture during the
(30) thirty days following the Notice from the Holder. If such conversion price
on the date of conversion would be greater that $15 per share, the conversion
price shall be equal to $15 per share (the "Conversion Price Ceiling)."
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Subscription Agreement to be executed by their duly authorized representatives
as of the date set forth below.
BERCKELEY INVESTMENT GROUP, LTD.
By:
Name:
Title:
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
Name:
Title:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE BECAUSE THEY ARE
BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER SECTION 4(2) AND 4(6) OF THE ACT.
THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM.
No. $ U.S.
PALOMAR MEDICAL TECHNOLOGIES, INC.
5% CONVERTIBLE DEBENTURE DUE DECEMBER 31, 2001
THIS DEBENTURE is one of a duly authorized issue of Debentures of
PALOMAR MEDICAL TECHNOLOGIES, INC., a corporation duly organized and existing
under the laws of the State of Delaware (the "Company") designated as its 5%
Convertible Debentures Due December 31, 2001, in an aggregate principal amount
not exceeding $ 5,000,000 U.S.
FOR VALUE RECEIVED, the Company promises to pay to , the registered
holder hereof (the "Holder"), the principal sum of Dollars ($ U.S.) on December
31, 2001, (the "Maturity Date") and to pay interest on the principal sum
outstanding from time to time in arrears on the Maturity Date, at the rate of 5%
per annum accruing from the date of initial issuance. Accrual of interest shall
commence on the first such business day to occur after the date hereof until
payment in full of the principal sum has been made or duly provided for. The
interest so payable will be paid on the Maturity Date to the person in whose
name this Debenture (or one or more predecessor Debentures) is registered on the
records of the Company regarding registration and transfers of the Debentures
(the "Debenture Register") on the tenth day prior to the Maturity Date;
provided, however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions of the Subscription Agreement executed
by the original Holder. The principal of, and interest on, this Debenture are
payable in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts, at the
address last appearing on the Debenture Register of the Company as designated in
writing by the Holder from time to time. The Company will pay the principal of
and interest upon this Debenture on the Maturity Date, less any amounts required
by law to be deducted, to the registered holder of the Debenture as of the tenth
day prior to the (CONTINUED ON REVERSE)
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
PALOMAR MEDICAL TECHNOLOGIES, INC.
Dated: By:
<PAGE>
Maturity Date and addressed to such holder at the last address appearing on the
Debenture Register. The forwarding of such check shall constitute a payment of
interest hereunder and shall satisfy and discharge the liability for principal
and interest on this Debenture to the extent of the sum represented by such
check plus any amounts so deducted unless such check is not paid at par.
This Debenture is subject to the following additional provisions:
1. The Company shall be entitled to withhold from all payments of
principal of, and interest on, the Debenture any amounts required to be withheld
under the applicable provisions of the Untied States income tax laws or other
applicable laws at the time of such payments.
2. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"). Prior to due
presentment for transfer of the Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly registered on
the Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the Contrary.
3. The Holder of this Debenture is entitled, at its option, at any time
after 90 days after the Debenture Date until maturity hereof, to convert the
principal amount of the Debenture or any portion of the principal amount hereof
which is at least One Hundred Thousand Dollars ($100,000 U.S.) or, if at the
time of such election to convert, the aggregate principal amount of all
Debentures registered to the Holder is less than One Hundred Thousand Dollars
($100,000 U.S.), then the whole amount thereof, into Shares of Common Stock of
the Company at a conversion price for each share of Common Stock equal to Eight
Five Percent (85%) of the Market Price of the Company's Common Stock; provided
that in any 30 day period the Holder of these Debentures (or its transferee) may
convert no more than 33% (or 34% of the Debentures, in the last 30 day period
available for conversion of the Debentures) of the Debentures purchased by the
Holder, whether or not such Holder exercised its right to convert the Debenture
after 90 days after the Debenture Date. If such conversion price on the date of
conversion would be less than or equal to $5.25 per share (the "Conversion Price
Floor"), the Company shall have the right to redeem the Debentures within (30)
thirty days from the Notice of Conversion. The redemption price shall be
calculated at 115% of the amount of the Debenture being redeemed. All accrued
but unpaid interest shall be waived at the time of redemption. The Holder may
fax a Notice to the Company, Attn.: Paul S. Weiner, requiring the Company to
declare, by faxed notice within (5) five business days of the Notice from the
Holder, whether it intends to effect such redemption. In the event the Company
does not reply during said (5) five business days, the Company may not redeem
that Holder's Debentures during the (30) thirty days following the Notice from
the Holder. If such conversion price on the date of conversion would be greater
than $15 per share, the conversion price shall be equal to $15 per share (the
"Conversion Price Ceiling). As used herein, the Market Price shall be the
average closing bid price of the Common Stock over the ten (10) trading days
immediately prior to the conversion date, as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), or the
closing bid price in the over-the-counter market or, in the event the Common
Stock is listed on a stock exchange, the fair market value per Share shall be
the closing price on the exchange, as reported in the Wall Street Journal, over
such ten (10) day period. Such conversion shall be effectuated by surrendering
the Debentures to be converted to the Company with the form of conversion notice
attached hereto as Exhibit A, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as above provided) hereof, and accompanied, if required by the Company,
by proper assignment hereof in blank. The Company shall use its best efforts to
have the Shares of Common Stock issued and delivered to the Holder thereof
within ten business days of the receipt of the conversion form and
Debentures(s). If this Debenture is converted into Shares of Common Stock of the
Company pursuant to this Section, the amount of accrued but unpaid interest
shall be subject to conversion. No fractions of shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded down to the nearest whole share. The date on which
notice of conversion is given shall be deemed to be the date
<PAGE>
on which the Holder has delivered this Debenture, with the conversion notice
duly executed, to the Company.
4. The Company may, at any time the Debentures are outstanding, upon 20
days written notice to the Holder, elect to redeem the full amount of the
Debentures then outstanding or a pro rata portion thereof. The Holder shall have
10 days after receipt of written notice of redemption to submit a Notice of
Conversion to the Company if the Holder desires to convert. The redemption price
shall be calculated at 120% of the amount of the Debenture being redeemed. All
accrued but unpaid interest shall be waived at the time of redemption. Each
Holder of the Debenture shall be entitled to redeem a pro rata portion of the
Debentures being redeemed by the Company.
5. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
6. The Holder of this Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture of the Shares of Common Stock
issuable upon exercise thereof except under circumstances which will not result
in violation of the Act or any applicable state Blue Sky law or similar laws
relating to the sale of securities.
7. This Debenture shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above
Debenture No(s). into Shares of Common Stock of Palomar Medical Technologies,
Inc. (the "Company") according to the conditions hereof, as of the date written
below.
Date of Conversion*
Applicable Conversion Price
Signature
Printed Name
Address:
Soc. Sec/Fed ID #:
* The date on which notice of conversion is given shall be deemed to be the date
on which the Holder has delivered this Debenture, with the conversion notice
duly executed, to the Company.
SUBSCRIPTION AGREEMENT
PALOMAR MEDICAL TECHNOLOGIES, INC.
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
BECAUSE THEY ARE BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER SECTIONS 4(2) AND
4(6) OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS SUBSCRIPTION
AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER
TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR
TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
IN REACHING THE CONCLUSION THAT SUBSCRIBER DESIRES TO PURCHASE THE
DEBENTURES, SUBSCRIBER HAS CAREFULLY EVALUATED SUBSCRIBER'S FINANCIAL RESOURCES
AND INVESTMENT POSITION, AND THE RISKS ASSOCIATED WITH THIS INVESTMENT, AND
ACKNOWLEDGES THAT THE DEBENTURES INVOLVE A HIGH DEGREE OF RISK AND THAT
SUBSCRIBER COULD LOSE THE ENTIRE INVESTMENT.
This Subscription Agreement (the "Agreement") is executed by the
undersigned (the "Subscriber") in connection with the offer and subscription by
the undersigned to purchase 5% Convertible Debentures Due January 13, 2002 (5
years from Closing Date), with all interest due at maturity ("Debentures") of
Palomar Medical Technologies, Inc., a Delaware corporation (the "Company") in an
aggregate principal amount of $_________________. The terms on which the
Debentures may be converted into Common Stock (such Common Stock underlying the
Debentures being referred to herein as "Shares") and the other terms of the
Debentures are set forth therein and in Sections herein. This Subscription and,
if accepted by the Company, the offer and sale of Debentures and the Shares
(collectively, the "Securities"), are being made in reliance upon the provisions
of Sections 4(2) and 4(6) of the United States Securities Act of 1933, as
amended (the "Act"). The undersigned, in order to induce the Company will rely
thereon, represents, warrants and agrees as follows:
1. OFFER TO SUBSCRIBE; PURCHASE PRICE
The Subscriber hereby offers to purchase and subscribes for the number
of Debentures set forth on the signature page hereto, at a price of
100%. The Closing shall be deemed to occur when this Agreement has been
executed by both Subscriber and Company (the "Closing Date" or
"Debenture Date"). The Company agrees to deliver certificates
representing the Debentures subscribed within 10 days of Closing. On or
prior to the Closing Date, the Subscriber will deliver to the Company
the full amount of the Purchase Price by wire transfer to the account
set forth below.
Citibank
399 Park Avenue
New York, NY 10048
ABA 021000089
Account Number: 40611172
Account Name: Dean Witter Reynolds, Inc.
For Further Credit to:
Account Number: 593109782
Account Name: Palomar Medical Technologies, Inc.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES BY SUBSCRIBER
Subscriber hereby represents and warrants as follows:
(a) Subscriber is an Accredited Investor as evidenced by the
Subscriber meeting at least one of the following standards:
(A) is an individual and had income in excess of $200,00
in the two most recent tax years (or $300,000 income jointly
with his spouse) and reasonably expect to have income at the
same level in the current tax year; or
(B) is an individual and his net worth (i.e. excess of
total assets over total liabilities), either individually or
together with my spouse, is at least $1,000,000; or
(C) is a trust, corporation, partnership, or
organization defined in Section 501(c)(3) of the Code, not
formed for the purpose or purchasing the Debentures, with assets
in excess of $5,000,000; or
(D) is a national bank; a state banking institution, the
business of which is substantially confined to banking and is
supervised by state banking officials; a savings and loan
association; a broker or dealer registered pursuant to Section
15 of the Securities Exchange Act of 1934; an insurance company;
an investment company registered under the Investment Company
Act of 1940; a business development company as defined in
Section 2(a)(48) of that Act or a private business development
company as defined in Section 202(a)(22) of the Investment
Advisors Act of 1940; a Small Business Investment Company
licensed by the Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958; or
an employee benefit plan within the meaning of Title I of the
Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and
loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in
excess of $5,000,000 or, a self-directed plan where the
investment decisions are made by accredited investors; or
(E) is an entity in which each of the equity owners meet
the standards set forth in any of the immediately preceding
subparagraphs (A), (B), (C), or (D). (IF YOU MEET THE STANDARDS
IN THIS SUBPARAGRAPH, PLEASE ALSO COMPLETE THE FOLLOWING:)
I certify that the following is a complete list of all
owners of equity or trustees, that each such owner or trustee
has initialed the space opposite his name and that each such
owner or trustee understands that by initialing that space he is
representing that he is an accredited investor satisfying either
A, B, C or D above.
Name of Owner of Type of
Equity or Trustee Accredited Investor Initials
------------------- --------------------- ---------
------------------- --------------------- ---------
------------------- --------------------- ---------
(b) The Subscriber and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of
the Company and materials relating to the offer and sale of the
Debentures and the offer of the Shares which have been requested by the
Subscriber. The Subscriber and its advisors, if any, have been afforded
the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries. Without
limiting the generality of the foregoing, the Subscriber has had the
opportunity to obtain and to review the Company's (1) Annual Report on
Form
<PAGE>
10-KSB for the fiscal year ended December 31, 1995 (as amended by
Amendment No. 1 thereto on Form 10-KSB/A filed with the Securities and
Exchange Commission (the "SEC" on August 23, 1996), (2) Quarterly
Reports on Form 10-QSB for the fiscal quarters ended March 31, 1996 (as
amended by Amendment No. 1 thereto on Form 10-QSB/A filed with SEC on
August 23, 1996), June 30, 1996 and September 30, 1996, (3) Current
Report on Form 8-K, dated May 3, 1996, as amended by Amendment No. 1
thereto on Form 8-K/A dated May 3, 1996, (4) definitive Proxy Statement
for its 1996 Annual Meeting of Stockholders, and (5) Registration
Statement on Form S-3 (the "October Registration Statement") declared
effective on October 17, 1996 (Registration No. 333-10681), in each case
as filed with the SEC.
(c) Subscriber is acquiring the Debentures solely for
Subscriber's own account, for investment, and not with a view to the
distribution thereof. Subscriber's financial condition is such that he
is not under any present necessity or constraint to dispose of the
Debentures to satisfy any existing or contemplated debt or undertaking.
If Subscriber is a corporation, trust, association, partnership, or any
other entity other than an individual, the purchase of the Debentures
by Subscriber has been duly authorized as required by law or agreement
to be taken, and the Debentures constitute a legal investment for such
entity.
(d) Subscriber is aware of the fact that the Debentures have
not been registered, nor is registration contemplated, under the
Securities Act of 1933 (the "Act"), and, accordingly, no federal agency
has recommended or endorsed the purchase of the Debentures or passed on
the adequacy or accuracy of the information set forth in the Form
10-KSB. Subscriber understands that since the Debentures have not been
registered under the Act, they must be held indefinitely unless they
are subsequently registered under the Act or unless, in the opinion of
counsel for the Company, a sale or transfer may be made without
registration thereunder. Subscriber agrees that the Debentures may bear
a legend restricting the transfer thereof consistent with the foregoing
and that a notation may be made in the records of the Company's
transfer agent restricting the transfer of the Debentures in manner
consistent with the foregoing.
(e) Subscriber, in electing to subscribe for the Securities
hereunder, has relied upon an independent investigation made by it and
its representative, if any. Subscriber has been given no oral or
written representations or assurances from the Company or any
representation of the Company other than as set forth in this Agreement
or in a document executed by a duly authorized representative of the
Company making reference to this Agreement.
(f) If Subscriber desires to sell and distribute Registered
Shares over a period of time, or from time to time, at then prevailing
market prices, then Subscriber shall execute and deliver to the Company
such written undertakings as the Company and its Counsel may reasonably
require in order to assure full compliance with relevant provisions of
the Securities Act and the Exchange Act including, without limitation,
providing the Company with 48 hours' prior written notice of each such
sale and providing the Company with assurances, reasonably satisfactory
to the Company, that Subscriber will meet the prospectus delivery
requirements under the Security Act.
3. REGISTRATION RIGHTS
The Company agrees to file and use reasonable efforts to make effective a
registration statement with the Securities and Exchange Commission (the "SEC")
(on Form S-3, its successor form, or any other form under the Securities Act of
1933 under which the Shares underlying the Debentures are eligible to be
registered), within 120 days of the Closing Date, covering the Shares underlying
the Debentures, at the Company's cost and expense (excluding the costs of legal
counsel to the holders of the Debentures). If the Registration Statement is not
declared effective within 120 days of the Closing Date, then the Company will
pay a penalty equal to 0.5% of the amount of the Debenture per month in cash or
common stock up to a maximum of 5%, until such Registration Statement is
declared effective. The subscriber shall furnish the Company with such
information as the Company may request in writing and as shall be required in
connection with any registration thereunder.
<PAGE>
4. RESALES
Subscriber acknowledges and agrees that the Securities may only be resold (a)
pursuant to a Registration Statement under the Act; or (b) pursuant to an
exemption from registration.
5. SUBSEQUENT TRANSFER OF SECURITIES
Once a registration statement has been filed and declared effective as
contemplated in Section 3 above, the Company agrees, and shall instruct its
transfer agent, that the Securities may be transferred to any person or entity
who is not an affiliate of the Company without (a) any further restriction on
transfer or (b) the entry of a "stop transfer" order against such Securities,
provided that the person(s) or entity(ies) requesting transfer furnish the
appropriate representations to the Company's legal counsel.
6. RELEASE OF PROCEEDS TO THE COMPANY
The proceeds of the offering shall be released to the Company upon the Closing
of this offering, as defined in Section 1 of this Agreement.
7. TERMS OF CONVERSION
The Debentures shall contain the following provisions in Section 3 thereof
regarding the conversion of the Debentures:
The Holder of this Debenture is entitled, at its option, at any time
after 90 days after the Debenture Date until maturity hereof, to convert the
principal amount of the Debenture or any portion of the principal amount hereof
which is at least One Hundred Thousand Dollars ($100,000 U.S.) or, if at the
time of such election to convert, the aggregate principal amount of all
Debentures registered to the Holder is less than One Hundred Thousand Dollars
($100,000 U.S.), then the whole amount thereof, into Shares of Common Stock of
the Company at a conversion price for each share of Common Stock equal to Eight
Five Percent (85%) of the Market Price of the Company's Common Stock; provided
that in any 30 day period the Holder of these Debentures (or its transferee) may
convert no more than 33% (or 34% of the Debentures, in the last 30 day period
available for conversion of the Debentures) of the Debentures purchased by the
Holder, whether or not such Holder exercised its right to convert the Debenture
after 90 days after the Debenture Date. If such conversion price on the date of
conversion would be less than or equal to $5.25 per share (the "Conversion Price
Floor"), the Company shall have the right to redeem the Debentures within (30)
thirty days from the Notice of Conversion. The redemption price shall be
calculated at 115% of the amount of the Debenture being redeemed. All accrued
but unpaid interest shall be waived at the time of redemption. The Holder may
fax a Notice to the Company, Attn.: Paul S. Weiner, requiring the Company to
declare, by faxed notice within (5) five business days of the Notice from the
Holder, whether it intends to effect such redemption. In the event the Company
does not reply during said (5) five business days, the Company may not redeem
that Holder's Debentures during the (30) thirty days following the Notice from
the Holder. If such conversion price on the date of conversion would be greater
than $15 per share, the conversion price shall be equal to $15 per share (the
"Conversion Price Ceiling). As used herein, the Market Price shall be the
average closing bid price of the Common Stock over the ten (10) trading days
immediately prior to the conversion date, as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), or the
closing bid price in the over-the-counter market or, in the event the Common
Stock is listed on a stock exchange, the fair market value per Share shall be
the closing price on the exchange, as reported in the Wall Street Journal, over
such ten (10) day period. Such conversion shall be effectuated by surrendering
the Debentures to be converted to the Company with the form of conversion notice
attached hereto as Exhibit A, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as above provided) hereof, and accompanied, if required by the Company,
by proper assignment hereof in blank. The Company shall use its best efforts to
have the Shares of Common Stock issued and delivered to the Holder thereof
within ten business days of the receipt of the conversion form and
Debentures(s). If this Debenture is converted into Shares of Common Stock of the
Company pursuant to this Section, the amount of accrued but unpaid interest
shall be subject to conversion. No fractions of shares or scrip representing
fractions of shares will be issued on conversion, but the number of
<PAGE>
shares issuable shall be rounded down to the nearest whole share. The date on
which notice of conversion is given shall be deemed to be the date on which the
Holder has delivered this Debenture, with the conversion notice duly executed,
to the Company.
8. TERMS OF REDEMPTION
The Debentures shall contain the following provisions in Section 5 thereof
regarding the redemption of the Debentures:
The Company may, at any time the Debentures are outstanding, upon 20
days written notice to the Holder, elect to redeem the full amount of the
Debentures then outstanding or a pro rata portion thereof. The Holder shall have
10 days after receipt of written notice of redemption to submit a Notice of
Conversion to the Company if the Holder desires to convert. The redemption price
shall be calculated at 120% of the amount of the Debenture being redeemed. All
accrued but unpaid interest shall be waived at the time of redemption. Each
Holder of the Debenture shall be entitled to redeem a pro rata portion of the
Debentures being redeemed by the Company.
9. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts except for matter arising under the Act or the
Securities Exchange Act of 1934 which matters shall be construed and interpreted
in accordance with such laws.
10. NOTICES
All communications hereunder shall be in writing, and, if sent to the
Subscriber shall be sufficient in all respects if delivered, sent by registered
mail, or by telecopy and confirmed to the Subscriber at:
Name:
Address:
City:
Country:
Attention:
or, if sent to the Company, shall be delivered, sent by registered mail or by
telecopy and confirmed to the Company at:
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, MA 01915
Attention: Paul S. Weiner, Director of Finance
Telephone: (508) 921-9300
Telecopy: (508) 921-5801
<PAGE>
The undersigned hereby subscribes for $______________ in principal
amount of Debentures and pays herewith funds in the same amount.
The undersigned acknowledges that this subscription shall not be
effective unless accepted by the Company as indicated below.
Dated this day of ,1997.
(Printed Name)
(Signature)
(Mailing Address)
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE DAY OF
, 1997.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:
Printed Name/Title:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
BECAUSE THEY ARE BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER SECTION 4(2) AND
4(6) OF THE ACT. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR
TRANSFERRED EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
No. 3 $ 1,000,000 U.S.
------- ------------------------
PALOMAR MEDICAL TECHNOLOGIES, INC.
5% CONVERTIBLE DEBENTURE DUE JANUARY 13, 2002
THIS DEBENTURE is one of a duly authorized issue of Debentures of
PALOMAR MEDICAL TECHNOLOGIES, INC., a corporation duly organized and existing
under the laws of the State of Delaware (the "Company") designated as its 5%
Convertible Debentures Due January 13, 2002, in an aggregate principal amount
not exceeding $ 1,000,000 U.S.
FOR VALUE RECEIVED, the Company promises to pay to High Risk
Opportunity Hub Fund Ltd. , the registered holder hereof (the "Holder"), the
principal sum of One Million Dollars ($1,000,000 U.S.) on January 13, 2002 ,
(the "Maturity Date") and to pay interest on the principal sum outstanding from
time to time in arrears on the Maturity Date, at the rate of 5% per annum
accruing from the date of initial issuance. Accrual of interest shall commence
on the first such business day to occur after the date hereof until payment in
full of the principal sum has been made or duly provided for. The interest so
payable will be paid on the Maturity Date to the person in whose name this
Debenture (or one or more predecessor Debentures) is registered on the records
of the Company regarding registration and transfers of the Debentures (the
"Debenture Register") on the tenth day prior to the Maturity Date; provided,
however, that the Company's obligation to a transferee of this Debenture arises
only if such transfer, sale or other disposition is made in accordance with the
terms and conditions of the Subscription Agreement executed by the original
Holder. The principal of, and interest on, this Debenture are payable in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts, at the address last
appearing on the Debenture Register of the Company as designated in writing by
the Holder from time to time. The Company will pay the principal of and interest
upon this Debenture on the Maturity Date, less any amounts required by law to be
deducted, to the registered holder of the Debenture as of the tenth day prior to
the
(CONTINUED ON REVERSE)
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
PALOMAR MEDICAL TECHNOLOGIES, INC.
Dated: By:
<PAGE>
Maturity Date and addressed to such holder at the last address appearing on the
Debenture Register. The forwarding of such check shall constitute a payment of
interest hereunder and shall satisfy and discharge the liability for principal
and interest on this Debenture to the extent of the sum represented by such
check plus any amounts so deducted unless such check is not paid at par.
This Debenture is subject to the following additional provisions:
1. The Company shall be entitled to withhold from all payments of
principal of, and interest on, the Debenture any amounts required to be withheld
under the applicable provisions of the Untied States income tax laws or other
applicable laws at the time of such payments.
2. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"). Prior to due
presentment for transfer of the Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly registered on
the Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the Contrary.
3. The Holder of this Debenture is entitled, at its option, at any time
after 90 days after the Debenture Date until maturity hereof, to convert the
principal amount of the Debenture or any portion of the principal amount hereof
which is at least One Hundred Thousand Dollars ($100,000 U.S.) or, if at the
time of such election to convert, the aggregate principal amount of all
Debentures registered to the Holder is less than One Hundred Thousand Dollars
($100,000 U.S.), then the whole amount thereof, into Shares of Common Stock of
the Company at a conversion price for each share of Common Stock equal to Eight
Five Percent (85%) of the Market Price of the Company's Common Stock; provided
that in any 30 day period the Holder of these Debentures (or its transferee) may
convert no more than 33% (or 34% of the Debentures, in the last 30 day period
available for conversion of the Debentures) of the Debentures purchased by the
Holder, whether or not such Holder exercised its right to convert the Debenture
after 90 days after the Debenture Date. If such conversion price on the date of
conversion would be less than or equal to $5.25 per share (the "Conversion Price
Floor"), the Company shall have the right to redeem the Debentures within (30)
thirty days from the Notice of Conversion. The redemption price shall be
calculated at 115% of the amount of the Debenture being redeemed. All accrued
but unpaid interest shall be waived at the time of redemption. The Holder may
fax a Notice to the Company, Attn.: Paul S. Weiner, requiring the Company to
declare, by faxed notice within (5) five business days of the Notice from the
Holder, whether it intends to effect such redemption. In the event the Company
does not reply during said (5) five business days, the Company may not redeem
that Holder's Debentures during the (30) thirty days following the Notice from
the Holder. If such conversion price on the date of conversion would be greater
than $15 per share, the conversion price shall be equal to $15 per share (the
"Conversion Price Ceiling). As used herein, the Market Price shall be the
average closing bid price of the Common Stock over the ten (10) trading days
immediately prior to the conversion date, as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), or the
closing bid price in the over-the-counter market or, in the event the Common
Stock is listed on a stock exchange, the fair market value per Share shall be
the closing price on the exchange, as reported in the Wall Street Journal, over
such ten (10) day period. Such conversion shall be effectuated by surrendering
the Debentures to be converted to the Company with the form of conversion notice
attached hereto as Exhibit A, executed by the Holder of this Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as above provided) hereof, and accompanied, if required by the Company,
by proper assignment hereof in blank. The Company shall use its best efforts to
have the Shares of Common Stock issued and delivered to the Holder thereof
within ten business days of the receipt of the conversion form and
Debentures(s). If this Debenture is converted into Shares of Common Stock of the
Company pursuant to this Section, the amount of accrued but unpaid interest
shall be subject to conversion. No fractions of shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded down to the nearest whole share. The date on which
notice of conversion is given shall be deemed to be the date
<PAGE>
on which the Holder has delivered this Debenture, with the conversion notice
duly executed, to the Company.
4. The Company may, at any time the Debentures are outstanding, upon 20
days written notice to the Holder, elect to redeem the full amount of the
Debentures then outstanding or a pro rata portion thereof. The Holder shall have
10 days after receipt of written notice of redemption to submit a Notice of
Conversion to the Company if the Holder desires to convert. The redemption price
shall be calculated at 120% of the amount of the Debenture being redeemed. All
accrued but unpaid interest shall be waived at the time of redemption. Each
Holder of the Debenture shall be entitled to redeem a pro rata portion of the
Debentures being redeemed by the Company.
5. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
6. The Holder of this Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture of the Shares of Common Stock
issuable upon exercise thereof except under circumstances which will not result
in violation of the Act or any applicable state Blue Sky law or similar laws
relating to the sale of securities.
7. This Debenture shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above
Debenture No(s). into Shares of Common Stock of Palomar Medical Technologies,
Inc. (the "Company") according to the conditions hereof, as of the date written
below.
Date of Conversion*
Applicable Conversion Price
Signature
Printed Name
Address:
Soc. Sec/Fed ID #:
* The date on which notice of conversion is given shall be deemed to be the date
on which the Holder has delivered this Debenture, with the conversion notice
duly executed, to the Company.
