SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) December 9, 1997
Palomar Medical Technologies, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 04-3128178
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
45 Hartwell Avenue, Lexington, Massachusetts 02173
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 781-676-7300
-----------------------------
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 9, 1997 Palomar Medical Technologies, Inc. (the "Company")
entered into a Stock Purchase Agreement (the "Agreement") with Biometric
Technologies Corporation ("BTC") and Dynaco Corp. ("Dynaco"). The Company is the
owner of 100% of the issued and outstanding stock of Dynaco. Comtel Electronics,
Inc. ("Comtel"), Dynamem, Inc. ("Dynamem") and Electronic Packaging Interconnect
Corp. ("EPIC") are, in turn, subsidiaries of Dynaco. Prior to this transaction,
all of the assets and related liabilities of Dynaco's Indra Technologies
division were transferred to EPIC. BTC was formed jointly by Dynaco's President
and the Chairman of its Board with the Company's consent, to purchase the
Dynaco, Comtel, Dynamem and EPIC subsidiaries. These gentlemen also serve on the
boards of Comtel and Dynamem. The Agreement contemplates a two-phase
transaction: in the recently completed Phase I, BTC acquired all of the issued
and outstanding stock of Comtel, Dynamem and EPIC. Concurrently, Comtel
transferred upstream to the Company certain liabilities relating to bank loans
made to Comtel, and Comtel's business relating to New Media, Inc., including
certain related assets and liabilities. In Phase II, which shall occur upon the
earlier to occur of BTC's initial public offering of stock or June 30, 1998, BTC
will purchase all of the issued and outstanding stock of Dynaco. The Phase I
purchase price was $3,654,000: $850,000 evidenced by a promissory note due
February 15, 1998 bearing interest at the rate of prime plus two percent and
secured by a Pledge and Security Agreement, and $2,804,000 evidenced by a
promissory note due December 31, 2002 bearing interest at the prime rate. The
Phase II purchase price is $5,346,000, subject to certain adjustments as defined
in the Agreement: $2,673,000 to be paid in cash, and the balance to be paid in
shares of BTC common stock having a fair market value equal to $2,673,000.
Alternatively, the Company may elect to have the entire Phase II purchase price
paid in cash, in which case the price shall be $3,500,000. Upon the Phase II
closing, BTC shall additionally issue the Company a warrant to purchase for $.01
per share a number of shares of BTC's voting common stock with a fair market
value of $850,000, exercisable only upon certain triggering events, as defined
in the Agreement. The Company has committed to fund the operations of Dynaco
through the Phase II closing in accordance with pre-determined funding
requirements, provided that the need for such funding is both justified by
Dynaco and necessary to maintain Dynaco as a viable business or going concern.
The consideration was based on the net book value, liquidation value and
anticipated cash required to fund future operations and/or liquidate the
businesses of Dynaco, Dynamem, Comtel and EPIC.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
PALOMAR MEDICAL TECHNOLOGIES, INC.
INDEX TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Pro Forma Consolidated Condensed Balance Sheet as of September 30, 1997 F-1
Note to Pro Forma Consolidated Condensed Balance Sheet as of September 30, 1997 F-2
Pro Forma Consolidated Condensed Statements of Operations for the year ended
December 31, 1996 and for the nine months ended September 30, 1997 F-3
Notes to Pro Forma Consolidated Condensed Statements of Operations for the year ended
December 31, 1996 and for the nine months ended September 30, 1997 F-5
</TABLE>
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEETS
As of September 30, 1997
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Historical Pro Forma
September 30, Pro Forma Pro Forma September 30,
1997 Dynaco (a) Other Adjustments 1997
------------- ------------- ------------------------------ -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 12,658,099 $ (505,817) $ - $ - $ 12,152,282
Marketable securities 2,432,375 - - - 2,432,375
Accounts receivable, net 17,403,792 (5,642,450) - - 11,761,342
Inventories, net 22,393,482 (6,570,791) - - 15,822,691
Loans to officers 1,549,388 - - - 1,549,388
Notes receivable related parties - - (d) 9,850,000 (e) 6,327,000 3,523,000
Other current assets 3,354,142 (306,689) - - 3,047,453
--------------- ------------- ----------- ------------ --------------
Total current assets 59,791,278 (13,025,747) 9,850,000 6,327,000 50,288,531
--------------- ------------- ----------- ------------ --------------
Property and Equipment, at Cost, Net 11,396,181 (5,039,112) - - 6,357,069
--------------- ------------- ----------- ------------ --------------
Other Assets:
Cost in excess of net assets
acquired, net 3,451,106 (997,139) - - 2,453,967
Intangible assets, net 778,321 (41,191) - - 737,130
Deferred costs 1,571,603 - - - 1,571,603
Long-term investments 500,000 - - - 500,000
Other assets 1,548,162 (428,709) - - 1,119,453
--------------- ------------- ----------- ------------ --------------
Total other assets 7,849,192 (1,467,039) - - 6,382,153
--------------- ------------- ----------- ------------ --------------
$ 79,036,651 $ (19,531,898) $ 9,850,000 $ 6,327,000 $ 63,027,753
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving lines of credit $ 4,315,397 $ (4,315,397) $ - $ - $ -
Current portion of long-term debt 4,104,793 (462,851) - - 3,641,942
Accounts payable 14,311,407 (4,374,239) - - 9,937,168
Accrued expenses 23,651,346 (1,268,512) - - 22,382,834
--------------- ------------- ----------- ------------ --------------
Total current liabilities 46,382,943 (10,420,999) - - 35,961,944
--------------- ------------- ----------- ------------ --------------
Long-Term Debt,
Net of Current Portion 18,974,067 (541,039) - - 18,433,028
--------------- ------------- ----------- ------------ --------------
Intercompany Payable (18,935,178) - (b) 18,935,178 -
-------------- ------------- ----------- ------------ --------------
Minority Interest 5,148,929 - - - 5,148,929
-------------- ------------- ----------- ------------ --------------
Stockholders' Equity:
Preferred stock, $.01 par value- 244 - - - 244
Common stock, $.01 par value- 397,506 - - - 397,506
Additional paid-in capital 143,643,354 (1,300,000) - (b) 1,300,000 143,643,354
Accumulated deficit (133,366,880) 11,665,318 (b) 11,665,318 - (138,413,740)
(c) 5,046,860
Subscriptions receivable
from related party (504,653) (504,653)
Less: Treasury stock-
(345,000 shares at cost) (1,638,859) - - - (1,638,859)
------------- ------------- ------------ ------------ --------------
Total stockholders' equity 8,530,712 10,365,318 16,712,178 1,300,000 3,483,852
------------- ------------- ------------ ------------ --------------
$ 79,036,651 $ (19,531,898) $ 16,712,178 $ 20,235,178 $ 63,027,753
============= ============= ============ ============ ==============
$ 26,562,178 $ 26,562,178
</TABLE>
F-1
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 31, 1997
(Continued)
(Unaudited)
Note (1)
The accompanying pro forma consolidated condensed balance sheet as of
September 30, 1997 assumes that the disposition of Dynaco and its wholly owned
subsidiaries, Comtel, Dynamem and EPIC, took place on the on last reported
balance sheet date, September 30, 1997. The accompanying pro forma information
is presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations which would have actually been
reported had the disposition been in effect during the periods presented, or
which may be presented in the future. The accompanying pro forma financial
statements should be read in conjunction with the Company's historical financial
statements and notes thereto.
Note (2)
The following pro forma adjustments are required to calculate the Company's
loss on the disposition of Dynaco and its wholly owned subsidiaries Comtel,
Dynamem and EPIC, based on its net asset values on September 30, 1997 (the
balance sheet date). Such allocations may be revised to reflect the actual costs
of this transaction as of December 9, 1997 (the disposition date).
(a) To eliminate Dynaco's pro forma assets, liabilities and equity.
Other Pro Forma Adjustments Net Amount
--------------------------- ----------
(b) To account for Palomar's net investment basis in Dynaco. (8,569,860)
(c) To record the loss on the disposition. 5,046,860
(d) To record promissory notes received with regard
to the disposition. 9,850,000
(e) To reflect reserves to be recorded on promissory
notes received. (6,327,000)
F-2
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For The Year Ended December 31, 1996
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Pro Forma Pro Forma
Palomar Dynaco (a) Other Adjustments Pro Forma
------------- ------------- ----------------- ----------------
Revenues $ 70,098,443 $ (32,838,633) $ - $ 37,259,810
Cost of Revenues 63,177,555 (31,922,819) - 31,254,736
------------- ------------- ----------------- ----------------
Gross profit 6,920,888 (915,814) - 6,005,074
------------- ------------- ----------------- ----------------
Operating Expenses
Research and development 7,977,085 (344,502) - 7,632,583
Sales and marketing 11,420,943 (1,483,640) - 9,937,303
General and administrative 21,569,054 (4,883,533) - 16,685,521
Business development
and other financing costs 2,879,603 - - 2,879,603
Settlement and litigation costs 2,255,000 - - 2,255,000
Merger expenses 443,780 - - 443,780
------------- ------------- ----------------- ----------------
Total operating expenses 46,545,465 (6,711,675) - 39,833,790
------------- ------------- ----------------- ----------------
Loss from operations (39,624,577) 5,795,861 - (33,828,716)
------------- ------------- ----------------- ----------------
Interest Expense (1,443,564) 585,946 189,168 (b) (668,450)
Interest Income 1,586,620 (195,028) - 1,391,592
Net Gain on Trading Securities 2,033,371 - - 2,033,371
Loss on Dynaco Disposition - - (5,046,860) (d) (5,046,860)
Gain On Sale of Stock of a Subsidiary 3,830,000 - - 3,830,000
Other Income (Expense) (4,245,642) (174,505) 3,690,000 (c) (730,147)
------------- ------------- ----------------- ----------------
Net loss $ (37,863,792) $ 6,012,274 $ (1,167,692) $ (33,019,210)
============= ============= ================= ================
Net Loss Per Common Share $(1.49) $(1.31)
============= ================
Weighted Average Number of
Common Shares Outstanding 26,166,538 26,166,538
============ ================
</TABLE>
F-3
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For The Nine Months Ended September 30, 1997
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Pro Forma Pro Forma
Palomar Dynaco (a) Other Adjustments Pro Forma
------------- ---------------- ----------------- ----------------
Revenues $ 63,206,446 $ (24,480,140) $ - $ 38,726,306
Cost of Revenues 62,311,152 (25,739,141) - 36,572,011
------------- ---------------- ----------------- --------------
Gross profit (loss) 895,294 1,259,001 2,154,295
------------- ---------------- ----------------- --------------
Operating Expenses
Research and development 9,508,833 (390,326) - 9,118,507
Sales and marketing 11,913,675 (1,853,537) - 10,060,138
General and administrative 16,681,599 (2,469,021) - 14,212,578
Business development and
other financing costs 2,061,339 - - 2,061,339
Pooling-of-interest expenses - - - -
Settlement and litigation costs 3,550,000 (351,000) - 3,199,000
Restructuring and asset write-off
costs 9,426,491 (2,900,000) - 6,526,491
------------- ---------------- ----------------- --------------
Total operating expenses 53,141,937 (7,963,884) - 45,178,053
------------- ---------------- ----------------- --------------
Loss from operations (52,246,643) 9,222,885 - (43,023,758)
------------- ---------------- ----------------- --------------
Interest Expense (4,640,276) 764,114 576,459 (b) (3,299,703)
Interest Income 664,276 (111,567) - 552,709
Net Gain on Trading Securities 995,624 - - 995,624
Asset Write-off (13,547,759) 1,200,000 2,400,000 (c) (9,947,759)
Other Expense (1,298,720) 561,508 - (737,212)
Minority Interest in Loss of Subsidiary 2,905,796 - - 2,905,796
------------- ---------------- ----------------- --------------
Net loss $ (67,167,702) $ 11,636,940 $ 2,976,459 $ (52,554,303)
============= ================ ================= ==============
Net Loss Per Common Share (Note 6) $(2.15) $(1.70)
============= ==============
Weighted Average Number of
Common Shares Outstanding 32,758,019 32,758,019
============= ==============
</TABLE>
F-4
<PAGE>
PALOMAR MEDICAL TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED SEPTEMBER 30, 1997
(Continued)
(Unaudited)
Note (1)
The accompanying pro forma consolidated condensed statements of operations
for the year ended December 31, 1996 and the nine months ended September 30,
1997 assumes that the disposition of Dynaco and its wholly owned subsidiaries,
Comtel, Dynamem and EPIC, took place on January 1, 1996, the beginning of the
Company's most recent fiscal year ended December 31, 1996. The accompanying pro
forma information is presented for illustrative purposes only and is not
necessarily indicative of the financial position or results of operations which
would have actually been reported had the disposition been in effect during the
periods presented, or which may be presented in the future. The accompanying pro
forma financial statements should be read in conjunction with the Company's
historical financial statements and notes thereto.
Note (2)
The following pro forma adjustments are required to calculate the pro forma
consolidated condensed statements of operations described above.
(a) Represents the pro forma effects of Dynaco's operations on the consolidated
statement of operations for the year ended December 31, 1996 and the nine
months ended September 31, 1997.
OTHER PRO FORMA ADJUSTMENTS
(b) Pro forma interest expense has been calculated based on Dynaco's percentage
funding by the Company for the year ended December 31, 1996 and nine months
ended September 30, 1997.
(c) Represents loss incurred relating to the Company's investment in New Media,
a significant customer of Comtel, a Dynaco subsidiary, as disclosed in the
Company's Form 10-KSB, as amended, as of and for the year ended December
31, 1996.
(d) To reflect the loss on disposition as calculated based on the net book
value of Dynaco and its subsidiaries as of September 30, 1997.
F-5
<PAGE>
EXHIBIT NO. TITLE
2 Stock Purchase Agreement dated December 9, 1997 by and among the
Company, BTC and Dynaco, and related exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PALOMAR MEDICAL TECHNOLOGIES, INC.
Date: December 23, 1997 By: /s/
-------------------------------
Name: Louis P. Valente
Title: President and Chief
Executive Officer
STOCK PURCHASE AGREEMENT
Between and Among
BIOMETRIC TECHNOLOGIES CORP.,
PALOMAR MEDICAL TECHNOLOGIES, INC.
AND
DYNACO CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
Page
ARTICLE I - PHASE I TRANSACTION 3
1.1 Sale and Purchase of Dynaco Assets 3
1.2 Phase I Purchase Price 4
1.3 Phase I Transaction Special Covenants 4
ARTICLE II - PHASE II TRANSACTION 8
2.1 Sale and Purchase of Dynaco Shares 8
2.2 Phase II Purchase Price 8
2.3 Phase II Price Adjustments 10
2.4 Warrant 11
2.5 Phase II Transaction Special Covenants 12
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PALOMAR 15
3.1 Organization in Good Standing 15
3.2 Authorization 15
3.3 Title to the Dynaco Assets (Other Than Intellectual Property Rights) 15
3.4 Absence of Default; No Violations 15
3.5 No Adverse Material Agreements 16
3.6 Litigation 16
3.7 Modification of Representations and Warranties 16
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BTC 16
4.1 Organization and Good Standing 16
4.2 Authorization 17
4.3 Litigation 17
4.4 Absence of Defaults 17
ARTICLE V - GENERAL COVENANTS OF PALOMAR AND DYNACO 18
5.1 Good Faith Efforts 18
5.2 Non-Competition 18
5.3 Legal Representation 19
5.4 Confidentiality 19
ARTICLE VI - GENERAL COVENANTS OF BTC 20
6.1 Good Faith Efforts 20
6.2 BTC Non-Compete 20
6.3 Confidentiality 20
ARTICLE VII - CLOSING 21
7.1 Closing Dates 21
7.2 Closing Conditions 21
ARTICLE VIII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION 24
8.1 Survival of Representations 24
8.2 Indemnification 24
ARTICLE IX - NOTICE AND CURE; REMEDIES 25
9.1 Cure Period 25
9.2 General Remedies 25
9.3 Violation of Non-Solicitation Provisions 25
9.4 Injunctive Relief 25
9.5 Remedies Cumulative 26
ARTICLE X - TERMINATION 26
10.1 Termination by Either Party 26
10.2 Reserved 26
ARTICLE XI - MISCELLANEOUS 27
11.1 Governing Law 27
11.2 Fees and Expenses 27
11.3 Arbitration of Disputes 27
11.4 Cooperation; Further Action 29
11.5 Intellectual Property Rights 29
11.6 Notices 29
11.7 Execution in Counterparts 31
11.8 Integration 31
11.9 Waiver 31
11.10 Assignment 31
11.11 Further Assurances 32
11.12 Headings 32
11.13 Attorneys' Fees and Costs 32
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into this
9th day of December, 1997 by and among Biometric Technologies Corporation, a
Delaware corporation ("BTC"), Palomar Medical Technologies, Inc., a Delaware
corporation ("Palomar"), and Dynaco Corp., a Delaware corporation ("Dynaco").
BTC, Palomar and Dynaco will be referred to collectively in this Agreement as
the "Parties." The term "Sellers" refers to Palomar and Dynaco, collectively.
R E C I T A L S
A. Palomar is the owner of 100% of the issued and outstanding shares of the
common stock of Dynaco (the "Dynaco Shares"). Dynaco is the owner of certain
issued and outstanding shares of the common stock of Dynamem, Inc. ("Dynamem"),
Comtel Electronics, Inc. ("Comtel"), and 100% of the issued and outstanding
common stock of Electronic Packaging Interconnect Corp. ("EPIC"). EPIC is a
wholly owned subsidiary of Dynaco to which Dynaco has contributed all of the
assets of its Indra Technologies Division (the "IT Assets").
B. BTC has been formed by key members of Dynaco's management, with
Palomar's consent, to purchase certain Palomar subsidiaries and certain Dynaco
assets. The Sellers desire to sell, and BTC to buy, the issued and outstanding
shares of the common stock of Dynamem (the "Dynamem Stock"), Comtel (the "Comtel
Stock") and EPIC (the "EPIC Stock") (collectively, the "Phase I Transaction,").
Collectively the Dynamem Stock, Comtel Stock and the EPIC Stock are referred to
as the "Dynaco Assets." Concurrently with the close of the Phase I Transaction,
Palomar will cause Comtel to transfer upstream to Palomar that business of
Comtel relating to New
<PAGE>
Media, Inc. (including certain related assets and liabilities) existing as of
the close of the Phase I Transaction (the "New Media Transaction"), and to
assume certain liabilities related to the New Media Transaction.
C. Following the Phase I Transaction, BTC intends and will use good faith
efforts to acquire Ultra Scan, Inc. ("Ultra Scan"). BTC subsequently will use
all commercially reasonable efforts to file a registration statement with the
United States Securities and Exchange Commission ("SEC") on Form S-1 and to
effect and close an initial public offering for not less than $10,000,000 of its
common voting stock (the "IPO").
D. Following the close of the IPO, or June 30, 1998, whichever occurs
first, BTC intends to purchase from Palomar, and Palomar intends to sell to BTC
the Dynaco Shares, (hereinafter the "Phase II Transaction").
E. The Boards of Directors of BTC and the Sellers have determined that it
is in the best interests of their respective shareholders to enter into the
Phase I and Phase II Transactions (collectively, the "Transactions"), and the
Parties desire to enter into this Agreement to set forth the terms and
conditions of the Transactions and their representations, warranties and
covenants made to induce the execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the Parties agree as follows:
1
<PAGE>
ARTICLE I
PHASE I TRANSACTION
1.1 SALE AND PURCHASE OF DYNACO ASSETS. The Sellers hereby sell to BTC, and
BTC purchases from Sellers, the Dynaco Assets for the purchase price and on the
terms and conditions described below.
1.1.1 SALE OF DYNAMEM AND COMTEL STOCK. In reliance upon the
representations, warranties and covenants of the Parties, and on the terms and
subject to the conditions set forth in this Agreement, Sellers hereby sell,
convey, transfer, assign and deliver to BTC, and BTC hereby purchases, acquires
and accepts from Sellers, all of the Dynamem Stock and the Comtel Stock held by
Palomar, constituting, respectively, eight thousand (8,000) shares of Dynamem's
voting common stock, par value $1.00 per share and four million five hundred
eleven thousand one hundred (4,511,100) shares of Comtel's voting common stock,
no par value.
1.1.2 ACQUISITION OF EPIC STOCK. In reliance upon the representations,
warranties and covenants of the Parties, and on the terms and subject to the
conditions set forth in this Agreement, Sellers hereby sell, convey, transfer,
assign and deliver to BTC, and BTC purchases, acquires and accepts from Sellers,
at the Phase I Closing Date (as defined in Section 7.1.1, below), all of the
EPIC Stock, constituting one thousand (1,000) shares of EPIC's common voting
stock, par value $0.01 per share. The Parties agree EPIC is a newly incorporated
entity. The parties intend that in addition to the IT Assets contributed to
EPIC, EPIC will also assume those liabilities described in Exhibit 1. It is the
intent of the Parties that the assets and liabilities of EPIC shall be those
described in Exhibit 1 and include all assets (including the Intellectual
Property Rights, as defined in this Agreement) formerly used in connection with
the operation and maintenance of the Dynaco Indra Technologies Division, prior
to its incorporation as EPIC. The IT Assets are conveyed to EPIC "As Is" and
where presently located. Sellers shall have the right, at their sole expense, to
make copies of all of the records and documents in the IT Assets, at the time of
the Phase I Closing Date or thereafter, for commercially reasonable business
purposes not inconsistent with this Agreement (e.g., filing of tax returns and
compliance with governmental requirements or inquiries).
1.2 PHASE I PURCHASE PRICE. The purchase price for the Dynaco Assets shall
be $3,654,000 (the "Phase I Purchase Price"), which shall be payable to Palomar
on the closing date for the Phase I Transaction (the "Phase I Closing Date", as
defined in Section 7.1.1 below) as follows:
1.2.1 $850,000, which shall be evidenced by a promissory note in the
form attached hereto as Exhibit 2.A (the "Down Payment Note") and which will be
secured by a Pledge and Security Agreement in the form attached hereto as
Exhibit 2.B. The collateral to be pledged by BTC to secure the Down Payment Note
shall be publicly tradeable securities; such collateral shall at all times be
maintained as more particularly provided in the Pledge and Security Agreement
set forth at Exhibit 2.B.
1.2.2 The balance shall be evidenced by a promissory note in the
amount of $2,804,000 (the "Palomar Note"), attached hereto as Exhibit 2.C and
incorporated by this reference.
1.3 PHASE I TRANSACTION SPECIAL COVENANTS.
1.3.1 NEW MEDIA TRANSACTION. Concurrently with the Phase I Closing
Date (as defined in Section 7.1.1 below), Palomar shall cause Comtel to transfer
upstream to Palomar that business of Comtel with New Media, Inc., described in
Exhibit 3.A (the "Transferred Assets and Liabilities"). Any liability of Comtel
(including, without limitation, the obligation to perform any contracts) arising
from Comtel's business with New Media which is part of the Transferred Assets
and Liabilities described in Exhibit 3.A is hereby assumed by Palomar as of the
Phase I Closing Date. Palomar shall have all rights to, and obligations arising
from, the Transferred Assets and Liabilities. Palomar shall indemnify and hold
BTC harmless for, from and against any such liabilities (including attorneys'
fees and costs and expert fees and costs incurred in defending any claims
arising from such liabilities) related to Transferred Assets and Liabilities. As
of the Phase I Closing Date, Comtel's balance sheet shall appear substantially
in the form set forth in Exhibit 3.B. As a result of the New Media Transaction,
Palomar shall, as of the Phase I Closing Date (as defined in Section 7.1.1
below), assume all liabilities and shall acquire all assets of Comtel related to
any business now or previously conducted between Comtel and New Media. The
assets described in Exhibit 3.C as the retained assets (the "Retained Assets")
shall be retained by Comtel and, upon the Phase I Closing Date, Comtel shall
have all rights to the Retained Assets (and, except as described in Exhibit 3.B,
shall perform all obligations related to such assets), which shall inure to the
benefit of Comtel and BTC.
1.3.2 PHASE I INTELLECTUAL PROPERTY RIGHTS. At the Phase I Closing,
Sellers, as part of the sale of the Dynaco Assets, hereby sell, transfer, convey
and assign to BTC, and BTC purchases from Sellers, the goodwill of the business,
including all the Intellectual Property Rights (as defined in Section 11.5)
associated with or used in connection with the Dynaco Assets or the business
conducted by Comtel, Dynamem, the Indra Technologies Division of Dynaco and
EPIC. Sellers each agree to execute and deliver to BTC such assignments and
other documents as may be necessary to reflect such sale and assignment on the
records of any governmental agencies, including the U.S. Patent and Trademark
Office. BTC acknowledges that the sale, conversion, transfer and assignment of
the Intellectual Property Rights is As Is, without any warranty whatsoever from
Sellers. Sellers reserve the right, at their sole expense, to make copies of the
records or documents evidencing the Intellectual Property Rights at the time of
the Phase II Closing and, thereafter, for commercially reasonable business
purposes not inconsistent with this Agreement (e.g., complying with governmental
regulations, defending patent infringement claims, etc.).
1.3.3 PALOMAR FUNDING; CASH FLOW PROJECTIONS. Dynaco and Lyle Jensen
will promptly provide Palomar and BTC with Dynaco's cash flow projections
(sources and uses of cash) from October 1, 1997, through June 30, 1998. Palomar
and BTC have approved such projections as set forth in Exhibit 4. Palomar agrees
that through the Phase I Closing Date Palomar will continue to fund the
operations of Dynaco and its subsidiaries (Dynamem, Comtel and the operations
associated with EPIC and the Indra Technologies Division of Dynaco), in
accordance with the funding commitment set forth in Exhibit 4, attached hereto
and, which, by this reference, is incorporated herein; provided that the need
for such amount is both justified by Dynaco and is necessary to maintain Dynaco
as a viable business or going concern. If the monthly or aggregate amount
required by Dynaco exceeds the monthly or aggregate amount scheduled to be
funded by Palomar as provided in Exhibit 4 (the "Excess Funding"), BTC agrees to
provide such Excess Funding to Dynaco; provided that the need for such amount is
both justified by Dynaco and is necessary to maintain Dynaco as a viable
business or going concern.
<PAGE>
1.3.4 USE OF NAME. Upon the Phase I Closing Date, Sellers, as part of
the sale of the Dynaco Assets, shall sell, assign and grant to BTC the goodwill
and all Sellers rights to use and to transact business under the names
"Dynamem," "Comtel Electronics," "IT," "ITI" and "Indra Technologies," "EPIC"
and "Electronic Interconnect Packaging Corp." and BTC shall acquire all patents,
trademarks and trade names associated with the IT Assets or used by the Indra
Technologies Division, Dynamem and by Comtel, and all goodwill associated
therewith.
1.3.5 NEXAR TRANSACTION. Concurrently with the Phase I Closing Date
(as defined in Section 7.1.1. below), Palomar will cause Comtel to transfer
upstream to Palomar the "CBC Liabilities," as defined below, relating to loans
made to Comtel by Coast Business Credit, a division of Southern Pacific Thrift
and Loan Association ("CBC"), and Palomar will assume the CBC Liabilities and
Palomar shall hold Comtel harmless from any and all claims or demands relating
to the CBC Liabilities. The CBC Liabilities are set forth in Exhibit 3.D and
shall equal that portion of the CBC loan to Comtel that was secured by the Nexar
Receivables that have become ineligible as collateral as of November 1, 1997,
for the CBC loan under the applicable CBC loan documents. Comtel shall retain,
as an asset, all receivables due it from Nexar, Inc. (the "Nexar Receivable")
and after the Phase I Closing Date transfer it to BTC for collection. From and
after the Phase I Closing Date, BTC shall use all reasonable good faith efforts
to collect the Nexar Receivable. BTC agrees that it will cause the first
$621,000 of the Nexar Receivable collected by BTC to be paid promptly to
Palomar, in consideration of Palomar assuming the CBC Liabilities.
<PAGE>
ARTICLE II
PHASE II TRANSACTION
2.1 SALE AND PURCHASE OF DYNACO SHARES. Following the Phase I Closing Date,
BTC will exercise good faith efforts and due diligence to (i) consummate the
acquisition of Ultra Scan; (ii) cause BTC to file with the SEC a registration
statement on the appropriate form to register a sufficient number of BTC's
shares ("IPO Shares") to raise the funds described in clause (iii) below; and
(iii) cause BTC to enter into an underwriting agreement with an underwriter
selected by BTC to effect an initial public offering of its shares resulting in
proceeds to BTC of not less than $10,000,000 (the "IPO"). On the Phase II
Closing Date, BTC will purchase from Palomar all the Dynaco Shares on the terms
and conditions as described in this Agreement.
2.2 PHASE II PURCHASE PRICE. The purchase price for the Dynaco Shares to be
purchased by BTC from Palomar is $5,346,000 (the "Phase II Purchase Price"),
subject to the adjustments set forth in Section 2.3, and shall be paid by BTC to
Palomar as follows:
2.2.1 BTC will pay cash in the amount of $2,673,000 to Palomar upon
the Phase II Closing Date.
2.2.2 Upon the Phase II Closing Date, BTC shall issue to Palomar that
number of shares of BTC common voting stock having a fair market value, as
determined by the price of the IPO shares, as offered to the public by the
underwriter on the IPO closing date (disregarding restrictions on transfer,
block discounts, or any other limitations on marketability), equal to $2,673,000
(the "BTC Shares").
<PAGE>
2.2.3 Subject to satisfying underwriting requirements, Palomar shall
have the right to include the BTC Shares in any registration statement filed by
BTC with the SEC subsequent to the IPO, as more fully described in Exhibit 5
attached hereto. (In the event of any inconsistencies between this Section 2.2.3
and the Registration Agreement in Exhibit 5, the Registration Agreement in
Exhibit 5 shall govern.) Any "lock-up" period required by the underwriter,
applicable to the BTC Shares shall be no longer than the lock-up period
applicable to Lyle Jensen ("Jensen") and Maurice Needham ("Needham"). Following
the IPO and the expiration of any lock-up and no-sale period required by the IPO
underwriter, Palomar shall have demand registration rights with respect to any
remaining BTC Shares for a period of not less than three years, as provided in
Exhibit 5 below. If any BTC Shares issued, or to be issued to Jensen or Needham,
are included in the IPO, all the BTC Shares issued to Palomar shall also be
included in the registration statement filed with the SEC in connection with the
IPO.
2.2.4 The preceding sections to the contrary notwithstanding, Palomar
may, by notifying BTC at least 20 days prior to the Phase II Closing Date, elect
to have the Phase II Purchase Price paid entirely in cash. In that event, the
total Phase II Purchase Price shall be $3,500,000 ("Cash Option Price"), and
upon payment of such amount, the Dynaco Shares shall be sold, conveyed and
transferred to BTC, free and clear of all liens, encumbrances and any adverse
claims, and BTC shall be released of any requirement to register the BTC Shares
described in Section 2.2.2 above.
2.2.5 If for any reason the IPO fails to occur or BTC fails to acquire
Ultra Scan, BTC may, in its own right, acquire the Dynaco Shares prior to June
<PAGE>
30, 1998, for $3,500,000 cash (the "Cash Price"). Subject to the preceding
sentence, from October 17, 1997 through the date a registration statement is
filed with the SEC with respect to the IPO Shares, BTC and Palomar will
cooperate and may attempt to sell the Dynaco Shares to a third party. If BTC and
Palomar are able to sell the Dynaco Shares to a third party for more than
$3,500,000, BTC shall be entitled to receive for its efforts an amount equal to
the consideration received in excess of $3,500,000 (the "Excess Consideration")
multiplied by 50% (the "Share Payment"); the balance of the consideration shall
be paid to Palomar. Upon BTC's receipt of the Share Payment, BTC agrees to pay
an amount equal to 25% of the Excess Consideration to Palomar, which amount
shall be credited against the principal balance of the Palomar Note. Upon the
sale of the Dynaco Shares to a third party, BTC shall be released from any
obligation it may have either to deliver to Palomar the BTC Shares or cause such
shares to be registered with the SEC, as contemplated by Section 2.2.1 and
Exhibit 5.
2.3 PHASE II PRICE ADJUSTMENTS. The following price adjustments shall be
applicable to the Phase II Transaction:
2.3.1 If a material adverse change occurs in Dynaco's book value, as
determined under generally accepted accounting principles consistently applied
(exclusive of any change resulting from the New Media Transaction), between the
Phase I Closing Date and the Phase II Closing Date, the Phase II Purchase Price
will be adjusted downward to reflect such change, or other action relating to
the terms of purchase and agreeable to both parties will be taken prior to the
Phase II Closing Date to adjust for such material adverse change. A "material
adverse change" in Dynaco's book value shall mean a decline in book value of
Dynaco, as determined under generally accepted accounting principles, in excess
of 15% of the Phase II Purchase Price (e.g., if book value decreases by 20%, the
Purchase Price would be reduced by 25% of such decrease or the amount over 15%),
for reasons other than the New Media Transaction.
2.3.2 If a material increase occurs in the book value of Dynaco
between the Phase I Closing Date and the Phase II Closing Date, as determined
under generally accepted accounting principles consistently applied, the Phase
II Purchase Price shall be increased by an amount equal to the excess of
Dynaco's increased book value, as determined under generally accepted accounting
principles consistently applied, over the Phase II Purchase Price, set forth
above, as determined ten (10) business days prior to the Phase II Closing Date,
multiplied by 50%.
2.4 WARRANT. Upon the occurrence of the Phase II Closing Date, BTC shall
issue to Palomar a warrant in the form set forth in Exhibit 6 (the "Warrant")
for the purchase of that number of shares of BTC's voting common stock equal to
$850,000, the value of such shares to be determined at the Closing Price (as
defined below). The Warrant shall expire three (3) years following the date of
its issuance and shall be exercisable only if a Triggering Event occurs. A
Triggering Event shall occur if: (i) BTC achieves $50,000,000 in gross revenue
by December 31, 1998; (ii) BTC achieves $4,000,000 in net, pre-tax earnings in
any fiscal year ending on or before December 31, 1999, or (iii) the common stock
of BTC trades on any national securities exchange on which it is listed or, if
not so listed, on the National Association of Security Dealers, Inc. Automated
Quotation System (NASDAQ), at $12.00 per share or more for ten (10) consecutive
trading days within three years after the date of the issuance of the Warrant.
The Warrant shall provide that the per share exercise price is $0.01 per share.
The Closing Price shall be the closing price of BTC's common voting stock, as
reported on any national securities exchange on which BTC stock is listed, or,
if BTC's stock is traded on NASDAQ, the average of the lowest bid and highest
asked price for such day, on the date of a Triggering Event occurs, or if that
date is not a trading date, on the trading day immediately preceding the date a
Triggering Event occurs. BTC warrants that the conditions for the exercise of
the Warrant by Palomar shall be no less favorable to Palomar that are the terms
and conditions imposed by the Phase II Transaction underwriter upon the escrow
and forfeiture of BTC common stock issued to Needham and Jensen.
2.5 PHASE II TRANSACTION SPECIAL COVENANTS.
2.5.1 BTC MANAGEMENT. Until the earlier of the Phase II Closing Date
or the disposition of the Dynaco Shares to a third party has occurred, BTC will
cause Jensen, without payment of compensation from Dynaco, to maintain his
present office, at Dynaco's Tempe, Arizona, facility and, in addition to
performing any duties for BTC, BTC will use all reasonable good faith efforts to
cause Lyle Jensen to assist Dynaco in conducting and carrying out its business,
as presently conducted, and in maintaining its assets and business. Neither BTC
nor Jensen shall be charged rent for Jensen's office.
2.5.2 OWNERSHIP OF DYNACO SHARES. Palomar represents and warrants that
two million (2,000,000) $0.01 par value Dynaco Shares are duly authorized,
validly issued and outstanding, and fully paid and non-assessable, that it owns
the Dynaco Shares, and that there are no outstanding warrants, options,
convertible securities, scrip, contracts, calls, preemptive rights or other
rights or obligations existing that will impair or adversely affect BTC's rights
to full ownership of the Dynaco Shares.
<PAGE>
2.5.3 PALOMAR FUNDING. Palomar will fund the operations of Dynaco in
accordance with funding requirements set forth in Exhibit 4 from October 1,
1997, through the Phase II Closing Date; provided that the need for such amount
is both justified by Dynaco and is necessary to maintain Dynaco as a viable
business or going concern. Amounts funded by Palomar pursuant to this Section
2.5.3 will not be added to the principal balance of the Palomar Note. If the
monthly or aggregate amount required by Dynaco exceeds the monthly or aggregate
amount to be advanced by Palomar to Dynaco, as scheduled in Exhibit 4 (the
"Excess Funding"), BTC agrees to provide such Excess Funding to Dynaco; provided
that the need for such amount is both justified by Dynaco and is necessary to
maintain Dynaco as a viable business or going concern.
2.5.4 NON-SOLICITATION OF DYNACO EMPLOYEES. Prior to the Phase II
Closing, BTC agrees not to solicit or hire any Dynaco employees without
obtaining Palomar's prior written consent. The Parties agree that Dynaco has a
legitimate protectable interest in preventing the solicitation of its employees,
and BTC agrees that this prohibition of solicitation is reasonable.
2.5.5 USE OF NAME. Upon the Phase II Closing Date, as part of the sale
of the Dynaco Shares, Palomar shall sell, assign and grant to BTC the goodwill
of the business together with all of Seller's rights to use, and to transact
business under, the names "Dynaco," "Dynaco Corp.," and any variant thereof, and
BTC shall acquire all patents, trademarks and trade names associated with or
used by Dynaco, and any related goodwill.
2.5.6 IPO. Sellers agree to cooperate with BTC to the extent
reasonably necessary in order for BTC to effect and close the IPO.
<PAGE>
2.5.7 SALE OF INTELLECTUAL PROPERTY RIGHTS. At the Phase II Closing,
Sellers hereby sell, convey, assign and transfer to BTC all Intellectual
Property Rights (as defined in Section 11.5) owned or possessed by Seller and
used by Dynaco or owned by Dynaco, together with all goodwill related thereto,
except those transferred pursuant to Section 1.3.2, to BTC, and agree to execute
such assignments and other documents as necessary to effect such assignment. BTC
acknowledges that the sale, conveyance, transfer and assignment of the
Intellectual Property Rights is made As Is, without any warranty whatsoever.
2.5.8 NO TRANSFER TO THIRD PARTY. Sellers will not sell, transfer,
pledge or hypothecate the Dynaco Shares to any third party prior to June 30,
1998, except as otherwise contemplated by this Agreement.
2.5.9 COVENANT OF FURTHER ASSURANCE. Without further consideration,
Sellers will at any time, and from time to time, after the Phase I and Phase II
Closing Dates, execute and deliver such further instruments of conveyance,
transfer and assignment, make such government filings, and take such other
action as BTC reasonably may request to convey, transfer and assign more
effectively to BTC any of the Dynaco Assets and all Sellers' rights under the
Dynaco Assets, and will assist BTC in the collection and reduction to possession
of the Dynaco Assets, and will take other action that is reasonably necessary
for these purposes, all at BTC's cost.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PALOMAR
Palomar represents and warrants to BTC as follows:
3.1 ORGANIZATION IN GOOD STANDING. Palomar is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with all corporate power and authority necessary to enter into this
Agreement and to consummate the Transactions contemplated under this Agreement.
3.2 Authorization. The execution and delivery of this Agreement and the
consummation of the Transactions contemplated hereby have been duly authorized
by the Board of Directors of Palomar and Dynaco, and all other corporate action
of Palomar and Dynaco, including all authorizations and ratifications necessary
to authorize the execution and delivery of this Agreement and the carrying out
of the transactions contemplated hereby have been taken and are in full force
and effect. The obligations of Palomar and Dynaco under this Agreement are
binding and enforceable according to their terms.
3.3 TITLE TO THE DYNACO ASSETS (OTHER THAN INTELLECTUAL PROPERTY RIGHTS).
Sellers own good and marketable title to the Dynaco Assets and Dynaco Shares
free and clear of any liens, encumbrances or adverse claims, other than any
liens and encumbrances incurred in the ordinary course of business and disclosed
to BTC.
3.4 ABSENCE OF DEFAULT; NO VIOLATIONS. Palomar is not, and to the best of
Palomar's knowledge, Dynaco is not and at the Phase I and Phase II Closing Date,
will not be, in default under or in any violation or breach of any contract,
agreement, lease, instrument, commitment or document by which Palomar or any of
<PAGE>
the Dynaco Assets or the Dynaco Shares is bound, and the sale of the Dynaco
Assets and Dynaco Shares to BTC does not conflict with Palomar's or Dynaco's
charter documents or violate any order, law or regulation by which Palomar,
Dynaco, or the Dynaco Assets is bound, or to which either the Dynaco Assets or
the Dynaco Shares are subject.
3.5 NO ADVERSE MATERIAL AGREEMENTS. The sale of the Dynaco Assets and
Dynaco Shares does not conflict with any material agreements to which Palomar,
or its subsidiaries, or the Dynaco Assets or the Dynaco Shares is subject to or
by which any of them are bound, other than any liens or encumbrances incurred in
the ordinary course of business and disclosed or known to BTC.
3.6 LITIGATION. Except as described in Exhibit 7, Palomar knows of no
litigation, pending or threatened, that, if adversely resolved, would materially
affect Palomar's or Dynaco's ability to consummate the Transactions contemplated
by this Agreement.
3.7 MODIFICATION OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Palomar set forth herein shall be deemed to be modified to, except
any matter listed in the exhibits to this Agreement and any matters actually
known to Mr. Lyle Jensen or Mr. Maurice Needham with respect to the Dynaco
Assets as of the Phase I Closing Date and, with respect to Dynaco or the Dynaco
Shares, as of the Phase II Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BTC
BTC hereby represents and warrants to Palomar as follows:
4.1 ORGANIZATION AND GOOD STANDING. BTC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with the corporate power and authority necessary to enter into this Agreement
<PAGE>
and to consummate the Transactions contemplated by this Agreement, and are
qualified to do business in each jurisdiction, where such qualification is
required.
4.2 AUTHORIZATION. The execution and delivery of this Agreement and the
consummation of the Transactions contemplated hereby have been duly authorized
by BTC's Board of Directors, and all other corporate action of Buyer, including
all authorizations and ratifications necessary to authorize the execution and
delivery of this Agreement and the consummation of the Transactions contemplated
hereby have been taken. The obligations of BTC under this Agreement are binding
and enforceable according to their respective terms.
4.3 LITIGATION. BTC knows of no litigation, pending or threatened that, if
adversely resolved, would materially affect BTC's ability to consummate the
Transactions contemplated by this Agreement.
4.4 ABSENCE OF DEFAULTS. BTC is not, and will not be at either the Phase I
Closing Date and the Phase II Closing Date, in default under or in violation or
breach of any contract, agreement, lease, instrument, commitment or document by
which BTC is or any of its properties or assets is bound, and the purchase of
the Dynaco Assets and Dynaco Shares does not conflict with BTC's charter
documents or violate any order, law or regulation by which BTC or its properties
or assets is bound.
<PAGE>
ARTICLE V
GENERAL COVENANTS OF PALOMAR AND DYNACO
5.1 GOOD FAITH EFFORTS. Palomar understands and agrees that its cooperation
and assistance is required to consummate the transactions contemplated by this
Agreement. Palomar agrees to act in good faith and to not act or fail to act to
harm, impede, frustrate the other party in performing its obligations hereunder,
or to harm, frustrate or obstruct the objectives of the Letter of Intent, this
Agreement or the business of Dynaco. Palomar will use all commercially
reasonable good faith efforts to cause Dynaco to maintain its business and
assets in all material respects, in substantially the same manner and condition
as it presently exists and is conducted, and to maintain its material contracts
and use its best efforts to maintain, preserve in full force and effect Dynaco's
business organization, rights, franchises, employees, materials and its current
capital and debt, as they now exist, subject to the consummation of the
transactions contemplated by this Agreement. Palomar agrees to use all
reasonable commercial efforts through the Phase II Closing Date to maintain the
business and assets of Dynaco and its subsidiaries and not harm or injure the
interests of BTC in consummating the transactions contemplated by this
Agreement.
5.2 NON-COMPETITION. Palomar agrees that neither Palomar nor any of its
present or future subsidiaries will compete with BTC, in any material respect,
anywhere in the world, for a five-year period in connection with flexible
circuit fabrication, memory modules, electronic contract manufacturing, or
biometric products; provided that neither Palomar nor Dynaco shall be prohibited
from manufacturing or selling flexible fabricated circuit presently maintained
<PAGE>
by Dynaco prior to the occurrence of the Phase II Closing. The Parties
acknowledge and agree that this Section 5.2 is a material inducement to BTC to
pay the Sellers the purchase prices as set forth in this Agreement.
5.3 LEGAL REPRESENTATION. Sellers acknowledge that the law firm of Ryley,
Carlock & Applewhite has, in the past, represented Dynaco and certain of its
subsidiaries. Sellers after full disclosure by Ryley, Carlock & Applewhite and
consultation with independent legal counsel, agree that Ryley, Carlock &
Applewhite may represent BTC in connection with the Transactions. Ryley, Carlock
& Applewhite will not represent, and has not previously represented, Palomar.
Sellers waive any conflict of interest which may exist by reason of the
representation by Ryley, Carlock & Applewhite of BTC in connection with BTC's
purchase of the Dynaco Assets or the Dynaco Shares; provided that Ryley, Carlock
& Applewhite furnishes to Sellers and BTC, in writing, its agreement not to
represent either party in the event litigation between the parties arises out of
the transactions contemplated hereby, or any matter involving Ryley, Carlock &
Applewhite's prior representation of BTC or Palomar. Sellers further acknowledge
that Ryley, Carlock & Applewhite has provided the written assurances required by
the preceding sentence.
5.4 CONFIDENTIALITY. Sellers agree to keep confidential the terms,
conditions and nature of the Transactions, and shall not make any public
statement or release regarding the negotiation of this Agreement; provided,
however, that nothing in this Agreement or any other agreement shall prohibit
Palomar or its Board of Directors from disclosing any information that may be
required by law to be disclosed. All information exchanged between the parties
relating to the Transactions shall remain confidential; provided that such
covenant shall not apply to information regarding Palomar acquired by BTC as a
result of the purchase of the Dynaco Shares.
<PAGE>
ARTICLE VI
GENERAL COVENANTS OF BTC
6.1 GOOD FAITH EFFORTS. BTC understands and agrees that its cooperation and
assistance is required to consummate the transactions contemplated by this
Agreement. BTC agrees to act in good faith and to not act or fail to act to
harm, impede, frustrate the other party in performing its obligations hereunder
or to harm, frustrate or obstruct the objectives of the Letter of Intent, this
Agreement or the business of Dynaco. BTC will use all commercially reasonable
good faith efforts to cause Dynaco to maintain its business and assets, in all
material respects, in substantially the same manner and condition as it
presently exists and is conducted, to maintain its material contracts and to use
its best efforts to maintain and preserve in full force and effect Dynaco's
business organization, material and franchise rights, employment force and its
current capital and debt structure substantially as it now exists. BTC agrees to
use all reasonable commercial efforts through the Phase II Closing Date, to
maintain the business and assets of Dynaco and its subsidiaries and not to harm
or injure the interests of Palomar in consummating the transactions contemplated
by this Agreement.
6.2 BTC NON-COMPETE. BTC will not compete anywhere in the world with Dynaco
in the flexible circuit fabrication business, from the date hereof until the
first to occur of (i) the Phase II Closing Date, or (ii) five years from the
date hereof.
6.3 CONFIDENTIALITY. BTC agrees to keep confidential the terms, conditions
and nature of the proposed transactions, and shall not make any public statement
or release regarding the negotiation of this Agreement; provided, however, that
nothing in this Agreement or any other agreement shall prohibit BTC or its Board
<PAGE>
of Directors from disclosing any information that may be required by law to be
disclosed. All information exchanged between the parties relating to such
transactions shall remain confidential; provided that such covenant shall not
apply to information regarding BTC acquired by Palomar as a result of the
purchase of the Dynaco Shares.
ARTICLE VII
CLOSING
7.1 CLOSING DATES. The consummation of the Phase I and Phase II
Transactions shall be as follows:
7.1.1 PHASE I CLOSING DATE. The Phase I Closing Date shall occur upon
(i) November 18, 1997; (ii) or any later date mutually agreed to by the Parties.
7.1.2 PHASE II CLOSING DATE. The Phase II Closing Date shall occur
upon the earlier of (i) 30 days following BTC's closing of the IPO, or (ii) June
30, 1998.
7.1.3 CLOSING DATE FOR ALL TRANSACTIONS. In all events, all
transactions contemplated by the Letter of Intent and this Agreement shall be
closed not later than June 30, 1998.
7.2 CLOSING CONDITIONS. The obligations of the Parties to close the
transactions described in this Agreement shall include the following conditions,
unless waived in writing or modified:
7.2.1 BTC closing of the bridge loan is necessary to fund its
operations and the cash down payment for the Phase I Transaction;
7.2.2 Delivery to BTC by Palomar of all stock certificates
representing the Dynamem Stock, the Comtel Stock and the EPIC Stock;
<PAGE>
7.2.3 The consent of any creditors, private third parties,
governmental agencies or contractors of Palomar, Dynaco or its subsidiaries to
BTC's acquisition of all of the Dynaco Assets and the Dynaco Shares; provided
that each Party shall provide the other with reasonable notice prior to closing
of any such consents known to it that may be required.
7.2.4 The absence of any litigation seeking to enjoin any aspect of
the contemplated transactions or which may adversely affect the Dynaco Assets or
the Dynaco Shares, excluding only litigation of which BTC is presently aware and
is listed in Exhibit 7, attached to this Agreement and which is incorporated by
this reference;
7.2.5 No order of any court or any governmental, regulatory or
administrative agency and no agreement in effect, or pending or threatened,
prohibiting or adversely affecting the Transactions and the Transactions
contemplated hereby not constituting a default under, or a violation of, any
such regulation, order, or agreement;
7.2.6 The financial condition, business or property of any of Dynaco,
its subsidiaries, or the IT Assets shall not have materially and adversely
changed from the condition existing as of the date of the Letter of Intent,
except for the New Media Transaction;
7.2.7 All representations, covenants and warranties made by the
Parties pursuant to this Agreement being true and correct or met, as the case
may be, in all material respects as of the Phase I and Phase II Closing Dates;
7.2.8 The Board of Directors and, if necessary, the shareholders of
Palomar and its subsidiaries and BTC, approving this Agreement and the
Transactions contemplated thereby;
7.2.9 Any regulatory approvals that may be necessary shall have been
obtained;
7.2.10 Receipt of an opinion from an investment banker or other
independent person acceptable to Palomar that the purchase price of the Dynaco
Assets and the Dynaco Shares is fair to the shareholders of Palomar from a
financial point of view, and satisfaction of any other requirements deemed
necessary by Palomar, in its sole discretion, to assure the fairness of the
transaction to Palomar's shareholders;
7.2.11 All corporate action by the Parties required to be taken in
connection with the Transactions contemplated by this Agreement shall have been
validly taken and shall be in force and effect and shall not have been
rescinded; and
7.2.12 The absence of any other condition or event that has a material
adverse effect on the Dynaco Assets or the Dynaco Shares, except as otherwise
contemplated by this Agreement.
7.2.13 Execution of that certain Memorandum of Understanding between
and among Palomar, CBC, Comtel, and BTC, dated concurrently herewith.
7.2.14 Execution and delivery to Palomar of that certain Limited
Guaranty of BTC, dated concurrently herewith, together with a Deed of Trust of
even date, pursuant to which Jensen and Needham grant Palomar a deed of trust
lien on that certain real property described in the Deed of Trust, located at
1000 South Priest Drive, Tempe, Arizona, constituting the place at which Dynaco
conducts its Tempe, Arizona operations.
<PAGE>
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS. Subject to the limitations contained in
this Article VIII, the representations, warranties, and covenants of the Parties
contained herein shall be deemed to be continuing and shall survive consummation
of the Transactions.
8.2 INDEMNIFICATION. Palomar shall indemnify and hold BTC harmless for,
from and against: (a) any losses, deficiencies or adjustments resulting from any
material misrepresentation, breach of warranty or non-fulfillment of any
covenant on the part of Palomar under this Agreement, or from any material
misrepresentation in or omission from any exhibit, certificate or other
instrument furnished or to be furnished to BTC hereunder, and (b) all claims,
actions, suits, proceedings, demands, assessments, judgments, costs and expenses
(including reasonable attorneys' fees and court costs, and expert witness fees
and costs) arising from or in connection with any of the matters described in
clause (a). Palomar shall be liable to and shall reimburse BTC on demand, for
any such damages, loss, deficiency or book adjustment or for any payment made by
BTC at any time after the Phase I and Phase II Closing in respect of any
liability or claim or costs of defense to which the foregoing indemnity relates.
With regard to the representations, warranties, covenants, or agreements of
Palomar contained in this Agreement, Palomar shall not be obligated under the
foregoing indemnity: (i) unless BTC gives Palomar written notice of such
liability, obligation or claim or of facts which may give rise to such
liability, obligation or claim within three (3) years following each of the
Phase I and Phase II Closing Dates; (ii) unless BTC affords Palomar reasonable
opportunity to defend the same; (iii) unless and only to the extent that the
aggregate amount of any claims for indemnity exceeds $50,000.
<PAGE>
ARTICLE IX
NOTICE AND CURE; REMEDIES
9.1 CURE PERIOD. In the event of any breach of this Agreement, the
non-breaching party shall give written notice of such breach to the breaching
party. In the event of a monetary default, the breaching party(ies) shall have
thirty (30) days within which to cure such default; in the event of a
non-monetary breach, the breaching party shall have sixty (60) days after
written notice of such breach to cure, provided that, in either case,
performance during the cure period must be able to remedy completely the
default.
9.2 GENERAL REMEDIES. All Parties to this Agreement shall have all the
rights and remedies available at law, or in equity, and shall, in addition, have
the right to set off the dollar amount of any losses, damages, liabilities,
costs and expenses against any amount otherwise due hereunder.
9.2 VIOLATION OF NON-SOLICITATION PROVISIONS. In addition to the remedies
described above, if BTC violates the non-solicitation provisions of Section 2.4
of this Agreement, Palomar may seek, apply for and obtain a restraining order
without notice or enjoin BTC or any of its employers, employees, servants,
agents or representatives from any continued violation thereof.
9.3 INJUNCTIVE RELIEF. In addition to the remedies described above, if
Palomar or BTC violates the non-competition provisions of Section 5.2 or Section
6.2, respectively, the non-breaching party shall, notwithstanding any other term
or provision of this Agreement, have the unconditional right to seek, apply for
<PAGE>
and receive a temporary restraining order without notice or enjoin the breaching
party or any of the breaching party's employers, employees, servants, agents or
representatives , from continued violation thereof. Each Party waives notice of
any petition or application for a temporary restraining order. Either Party may
also seek and recover monetary damages for the other Party's violation of
Section 5.2 or Section 6.2, as the case may be, and avail itself of all of the
above remedies and all other legal and equitable remedies, which remedies shall
be cumulative and not mutually exclusive.
9.5 REMEDIES CUMULATIVE. The remedies stated in this Article IX shall be
cumulative and not mutually exclusive.
ARTICLE X
TERMINATION
10.1 TERMINATION BY EITHER PARTY. This Agreement may be terminated and
canceled at any time prior to the Phase I Closing by the non-breaching party if
(a) any representations or warranties of the other party contained herein shall
prove to be inaccurate or untrue in any material respect; or (b) any obligation,
term or condition to be performed, kept or observed by such other party has not
been performed, kept or observed in any material respect at or prior to the time
specified in this Agreement. Termination or cancellation of this Agreement shall
not constitute an election of remedies, and the party terminating shall have, in
addition to the right to terminate, any other remedies available at law or in
equity.
10.2 RESERVED.
ARTICLE XI
MISCELLANEOUS
11.1 GOVERNING LAW. This Agreement and all performances shall be governed
by, and construed in accordance with, the laws of the State of Arizona.
11.2 Fees and Expenses. Palomar will bear its own costs, fees and expenses
in connection with this Agreement. Dynaco will pay all reasonable fees and costs
incurred by BTC in connection with the Transactions; provided that the total
fees paid by Dynaco shall not exceed $50,000, including any fees associated with
the Transaction incurred by Comtel, Dynamem and EPIC. Payment of such fees and
costs will not reduce the purchase price. No person is entitled to any brokerage
fee, commission, finder's fee or similar payment in connection with the
transactions described in this Agreement.
11.3 ARBITRATION OF DISPUTES.
11.3.1 The Parties agree that the Federal Arbitration Act shall apply
to and govern the arbitration provisions of this Agreement to the extent
provided herein. Except as provided below, any disputes between the parties with
respect to the terms of this Agreement or the purchase of the Dynaco Assets and
the Dynaco Shares, shall be subject to arbitration pursuant to the rules of the
American Arbitration Association governing commercial disputes. If a claim is
asserted by Palomar, arbitration shall occur in Phoenix, Arizona. If a claim is
asserted by BTC, arbitration shall occur in Boston, Massachusetts. Judgment on
any arbitration award may be entered in any court having jurisdiction. A single
arbitrator shall have the power to render a maximum award of $100,000. If any
person asserts a claim in excess of $100,000, the arbitration shall be heard by
<PAGE>
a panel of three arbitrators and the arbitration decision shall be made by a
majority of the three arbitrators. EACH OF THE PARTIES EXPRESSLY AGREES TO
ARBITRATION AND WAIVES ANY RIGHT TO TRIAL BY JURY EITHER PARTY MAY HAVE. In the
event arbitration proceedings are initiated under this Agreement, each of the
Parties shall have, for a period not to exceed 90 days, all rights of discovery
that are afforded parties to a lawsuit under Rules 26 through 37 of the Arizona
Rules of Civil Procedure and the arbitrator (or arbitrators) shall have the same
rights and powers to order and conduct discovery and to impose sanctions for
failure to make discovery as may be exercised by a judge of the Superior Court
of the State of Arizona. An arbitrator shall have the power to grant any remedy
or relief that a judge of the Arizona Superior Court could grant. Any arbitrator
selected shall be either an attorney or a certified public accountant and shall
have not less than ten (10) years experience in commercial practice. In
addition, each of the Parties shall have the same right to subpoena documents
from third parties as such parties would have if an arbitration under this
Section had been initiated as a civil suit in the Superior Court of the State of
Arizona. The party prevailing in any arbitration shall be entitled to payment of
all legal fees and costs and all costs of arbitration, regardless of whether
such costs are recoverable under applicable law. The order of any arbitrator may
be enforced as a judgment of the Superior Court of the State of Arizona.
11.3.2 Arbitration shall not be required of any party who seeks a
temporary restraining order, preliminary injunction or other equitable relief in
order to preserve the status quo or prevent irreparable harm from occurring.
<PAGE>
11.4 COOPERATION; FURTHER ACTION. BTC and Palomar shall, without further
consideration, execute and deliver any further or additional instruments and
perform any acts which may become reasonably necessary to effectuate and carry
out the purposes of this Agreement.
11.5 INTELLECTUAL PROPERTY RIGHTS. The transactions contemplated by this
Agreement are intended to include any Intellectual Property rights (as defined
below) relative to Dynaco, Comtel, Dynamem, EPIC and the former Indra
Technologies Division of Dynaco. As used in this Agreement, the term
"Intellectual Property Rights" means all industrial and intellectual property
rights used in the business of Dynaco, Dynamem, Comtel, and the Indra
Technologies Division of Dynaco (recently incorporated as EPIC), including,
without limitation, patents, patent applications, licenses, license rights,
copyrights, trademarks, trademark applications, trade names, service marks,
service mark applications, all registrations of any of the foregoing, computer
programs, masks, products and services and other computer software in any form,
know-how, trade secrets, proprietary processes, formulae and rights and all
goodwill or other rights associated therewith.
11.6 NOTICES. All notices and other communications hereunder shall be given
in writing and shall be deemed to be given if delivered personally by mail (or
through any reputable courier or courier service to the parties at the following
addresses (or at such other address as the parties may specify by written notice
to the other):
If to BTC, at:
Biometric Technologies Corp.
Attn: Lyle Jensen, Chief Executive Officer
1000 South Priest
Tempe, Arizona 85281
Telephone No.: (602) 968-2000
Facsimile No.: (602) 921-9830
<PAGE>
With copy to:
James E. Brophy, III
Ryley, Carlock & Applewhite
101 North First Avenue, Suite 2700
Phoenix, Arizona 85003-1973
Telephone No.: (602) 258-7701
Facsimile No.: (602) 257-9582
If to Palomar, at:
Palomar Medical Technologies, Inc.
Attn: Paul Weiner, Director of Finance
45 Hartwell Avenue
Lexington, Massachusetts 02173
Telephone No: (781) 676-7300
Facsimile No.: (781) 676-7330
With a copy to:
Palomar Medical Technologies, Inc.
Attn: General Counsel
45 Hartwell Avenue
Lexington, Massachusetts 02173
Telephone No: (781) 676-7300
Facsimile No.: (781) 676-7330
If to Dynaco, at:
Dynaco Corp.
Attn: Mr. Raj Kapur, Controller
1000 South Priest
Tempe, Arizona 85281
Telephone No.: (602) 968-2000
Facsimile No.: (602) 921-9830
Written notice given by any other method shall be deemed to be effective only
when actually received by the party to whom given.
<PAGE>
11.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and, when so executed, each of such counterparts shall
constitute a single, binding Agreement between and among the signatories
thereto.
11.8 INTEGRATION. The recitals shall constitute part of this Agreement.
This Agreement and all Exhibits shall constitute the complete and definitive
agreement of the Parties with respect to all matters addressed herein and shall
supersede all prior or contemporaneous written or oral agreements or
understandings between or among the parties, including, without limitation, the
Letter of Intent.
11.9 WAIVER. No party to this Agreement shall be deemed to have waived any
right, condition or obligation unless such waiver is in writing and executed by
the party granting such waiver. Acceptance of any payment or performance
required by a party hereunder after the date it is due shall not constitute a
waiver of any other payment or performance due hereunder and acceptance of
partial or delinquent payments shall not constitute a waiver by a party of the
right to timely performance hereunder. Time is and shall be of the essence
hereof.
11.10 ASSIGNMENT. The rights under this Agreement may be assigned without
the prior written consent of the other party, which will not be unreasonably
withheld; provided that any assignee shall be obligated to assume the assignor's
obligations hereunder and, until such time as these obligations are fully
performed, the assignor shall continue to be bound by the terms and conditions
of this Agreement. This Agreement shall be binding on and inure to the benefit
of Palomar, BTC, Dynaco and their respective heirs, personal representatives,
successors and assigns, and is not intended to confer upon any other person any
of the rights specified hereunder.
11.11 FURTHER ASSURANCES. After the Phase I and Phase II Closing Dates, all
parties shall perform, execute, acknowledge and deliver all additional acts,
deeds, conveyances, transfers, documents, assurances or other matters necessary
to properly vest good title to the Dynaco Assets and Dynaco Shares.
11.12 HEADINGS. The headings used in this Agreement are intended solely for
convenience of reference and will not be given any effect in the construction or
interpretation of this Agreement.
11.13 ATTORNEYS' FEES AND COSTS. Except as stated in Section 11.2, if any
party brings an action to enforce any of the terms of this Agreement or to
compel performance of this Agreement, the successful party in such an action is
entitled to an award of their reasonable attorneys' fees, court costs (including
expert witness fees and costs) incurred in bringing or defending such action.
"BTC"
BIOMETRIC TECHNOLOGIES
CORPORATION, a Delaware corporation
By: /s/
--------------------------------
Lyle E. Jensen
Its: President and CEO
"PALOMAR"
"SELLERS"
PALOMAR MEDICAL TECHNOLOGIES,
INC., a Delaware corporation
By: /s/
--------------------------------
Louis P. Valente
Its: Chairman and CEO
"DYNACO"
DYNACO CORP., a Delaware
corporation
By: /s/
--------------------------------
Maurice E. Needham
Its: Chairman
<PAGE>
EXHIBIT 1
EPIC Balance Sheet
<PAGE>
EXHIBIT 1
EPIC
BALANCE SHEET
MONTH ENDED OCTOBER 31, 1997
(IT Assets and Assumed Liabilities)
<TABLE>
<S> <C> <C>
Current Assets
Cash($ 29,206.82)
Accounts Receivable (net) 537,480.08
Inventories (net) 196,286.91
Other Current Assets 18,097.30
-------------
Total Current Assets $ 722,657.47
Property Plant & Equipment
Research & Production Equipment $ 749,473.38
Office Equipment 137,822.59
Leasehold Improvements 49,718.00
Other - Autos 5,684.00
Less Accumulated Depreciation (98,487.74)
--------------
Net Fixed Assets 844,210.23
Other Assets
Organizational Costs (net) $ 125,157.38
Other Assets 13,300.00
-------------
Total Other Assets 138,457.38
-------------
Total Assets $1,705,325.08
=============
Current Liabilities
Demand Line of Credit $ 244,992.51
Accounts Payable 303,849.55
Accrued Payable 41,842.12
Accrued Expenses 71,592.11
Other Current Liabilities 33,152.54
----------------
Total Current Liabilities $ 695,428.83
LTD/Capital Leases 0.00
----------------
Stockholders Equity
Paid In Capital $1,472,510.45
Beginning of Year Retained Earnings 0.00
Current Year Earnings (462,614.20)
------------------
Total Stockholders Equity $1,009,896.25
-------------
Total Liabilities & Equity $1,705,325.08
=============
</TABLE>
<PAGE>
EXHIBIT 1 (CONTINUED)
EXCLUDED ASSETS
The foregoing notwithstanding, the IT Assets do not include any Dynaco
corporate records, stock books, stock records, minutes of any directors or
shareholders meeting, files maintained with respect to directors or
shareholders, or investment banking files, other than those relating to Dynamem
and Comtel.
<PAGE>
EXHIBIT 2
PROMISSORY NOTES AND
PLEDGE AND SECURITY AGREEMENT
<PAGE>
EXHIBIT 2.A
PROMISSORY NOTE
$850,000 Phoenix, Arizona
December , 1997
--
For value received, the undersigned, Biometric Technologies Corp., a
Delaware corporation ("Maker"), promises to pay to PALOMAR MEDICAL TECHNOLOGIES,
INC., a Delaware corporation, or order ("Holder"), at 1000 South Priest Drive,
Tempe, Arizona 85281, or at such other place as the holder of this Promissory
Note ("Note") may from time to time designate, the principal sum of EIGHT
HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($850,000.00) in lawful money of the
United States of America. Interest shall accrue on this Note at the prime rate,
as announced by Bank of America NT & SA from time to time (without regard to
whether such rate is actually available to any customer) (the "Prime Rate"),
plus two percent (2%) per annum, from the date hereof until paid. The principal
balance of this Note, plus accrued and unpaid interest, shall be due and payable
February 15, 1998.
Maker shall have the right at any time to prepay, without penalty, the
unpaid principal balance of the Note or any portion thereof. Acceptance of
payments after their due date shall not waive or postpone any right of the
holder hereof, and time is and shall remain of the essence.
If any default in payment hereunder occurs that is not cured within five
days of the date payment is due, interest shall accrue at a rate of interest
equal to the Prime Rate plus five percent (5%) (the "Default Rate").
If Holder hereof incurs any attorneys' fees or other legal expense with
respect to enforcement of any rights provided for hereunder, Maker promises to
pay such attorneys' fees and legal expense. In any suit, the attorneys' fees
shall be determined by the court having jurisdiction thereof, in its sole
discretion.
Maker severally waives demand, notice, presentment for payment and protest,
and notice of any default and waives any release or discharge by reason of any
extension of time for payment or other change in the terms of payment of this
Note or from any other cause.
<PAGE>
This Note shall be governed under the substantive laws of the State of
Arizona, without regard to conflicts of laws principles. Any suit on this Note
may be brought in Superior Court of Arizona in and for Maricopa County, and
Maker consents to jurisdiction and venue in such court.
IN WITNESS WHEREOF, this Note is executed as of the date set forth above.
"MAKER" BIOMETRIC TECHNOLOGIES CORP.,
a Delaware corporation
By:
-------------------------
Its:
---------------------
<PAGE>
EXHIBIT 2.B
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (the "Agreement") is made as of the
___ day of December, 1997, by Biometric Technologies Corp., a Delaware
corporation (herein called "Pledgor"), in favor of Palomar Medical Technologies,
Inc., a Delaware corporation (herein called "Secured Party").
1. RECITALS.
1.1 Pursuant to a Stock Purchase Agreement dated December ___, 1997,
between and among Pledgor, Secured Party and Dynaco Corp. ("Dynaco"), Secured
Party has sold certain assets to Pledgor and, in consideration thereof, accepted
Pledgor's Promissory Note, dated December ___, 1997 (the "Note"), in partial
payment of purchase price.
1.2 To induce Secured Party to accept the Note, Pledgor has agreed to
pledge negotiable securities in order to secure Pledgor's Obligations (as
defined below) to Secured Party.
1.3 Pledgor is willing to pledge the Collateral (as defined below) to
Secured Party subject to the terms and conditions of this Agreement
2. SECURITY INTEREST.
2.1 To secure the Obligations, as defined in Section 2.2, Pledgor hereby
pledges to Secured Party, and grants Secured Party s security interest in
Collateral described in Exhibit 1 of this Agreement (the "Collateral"), all
proceeds thereof, and any securities in the future substituted therefor.
2.2 Pledgor agrees that this Agreement and the rights hereby granted shall
secure the following obligations of Pledgor to Secured Party (hereinafter the
"Obligations"):
(a) The principal of, the interest one, and any other sums payable
under the Note, and any renewals, extensions or modifications thereof; and
(b) Pledgor's performances and obligations to Secured Party pursuant
to this Agreement.
<PAGE>
3. WARRANTIES.
3.1 Pledgor warrants that the securities constituting the Collateral shall
at all times be comprised of securities that are publicly traded on either a
national securities exchange or on the NASDAQ Stock market and that are not
subject to any restriction or limitation upon trading, other than the provisions
of Securities and Exchange Commission Rule 144 (hereinafter, "Qualified
Securities").
3.2 For purposes of this Agreement, the term "Market Value to Outstanding
Obligation Ratio" shall mean, at any given time, the ratio of the Collateral,
determined as of the Valuation Date, as defined below, to the outstanding
principal and accrued interest under the Note determined as of the same
Valuation Date. For purposes of this Agreement, the "Valuation Date" shall be
the last trading day of each calendar month. In determining the value of any
security constituting the Collateral as of any Valuation Date, such value shall
be the average of the daily closing price for such security during the 20
trading days ending on the Valuation Date, as quoted by the national exchange on
which such security is traded, but if the security is traded on the NASDAQ Stock
Market, rather than a national exchange, the daily average of the lowest asked
price and the highest bid price on the NASDAQ Stock market for the 20 trading
days ending on the Valuation Date. Pledgor agrees that the Market Value to
Outstanding Obligation Ratio of the Collateral delivered to Secured Party upon
the execution of this Agreement shall be not less than 2:1. If at any time,
while this Agreement is in effect, the market Value to Outstanding Obligation
Ratio, as defined above, falls below a ratio of 1.5:1, Pledgor shall deposit
with the Secured Party, as additional Collateral, Qualified Securities
sufficient to cause the Market Value to Outstanding Obligation Ratio of all
Collateral held by Secured Party to be not less than 2:1. The Pledgor agrees
that any additional Collateral deposited with Secured Party is subject to the
security interest of the Secured Party created hereby.
3.3 Secured party agrees that if the market Value to Outstanding Obligation
Ratio equals or exceeds 2.5:1, Pledgor shall ha e the right to withdraw
Qualified Securities from the Collateral held by Secured Party until the Market
Value to Outstanding Obligation Ratio is not less than 2:1. Secured Party agrees
that such reduction shall not be a violation of any provision of this Agreement
and that any Collateral withdrawn under this Section 3.3 shall no longer be
subject to this Agreement.
3.4 Pledgor shall have the right to substitute any Qualified Security
included in the Pledged Collateral for any other Qualified Security it then
owns; provided that any substituted Qualified Security shall be subject to
Secured Party's approval, which shall not be unreasonably withheld.
3.5 Secured Party shall exercise ordinary care in taking possession of or
disposing of the Collateral. Pledgor owns and has title to or will own and have
title to, the Collateral, and no other person has any right, title or interest
therein, exempt such rights as are provided by this Agreement. Neither Pledgor
nor Pledgor's agents have previously granted any person a security interest
lien, or similar encumbrance in the Collateral.
<PAGE>
3.6 Pledgor will pay all taxes assessed against the Collateral.
3.7 Pledgor will promptly notify Secured Party upon Pledgor's having notice
of any lien, levy, distraint or other seizure by legal process or otherwise
affecting the Collateral, and of any threatened or pending claims or proceedings
that might in any way affect or impair any of Secured Party's rights under this
Agreement.
3.8 Secured Party shall at all times have a perfected Security Interest in
the Collateral that shall be prior to any other interests therein. Pledgor will
do all reasonable acts and things, and will execute and file all instruments
(including security agreements, financing statements, and continuation
statements) reasonably required to establish, maintain and continue the
perfected Security Interest of the Secured Party in the Collateral.
3.9 Pledgor agrees that Secured Party may file or record a carbon,
photocopy or other reproduction of any financing statement when permitted by
law. Pledgor agrees that this Agreement shall constitute and may be filed as a
financing statement.
4. EVENT OF DEFAULT.
4.1 An "Event of Default" or "default" (whether or not such term is
capitalized) shall mean:
(a) Any failure of Pledgor to pay the principal or interest, or any
other sum payable under the Note or the Obligations; or
(b) Any failure or neglect by Pledgor to observe or perform any of the
terms, provisions, promises, agreements or covenants of this Agreement; or
(c) The attachment of any lien, encumbrance, writ or process to the
Collateral which would adversely affect the security of Secured Party; or
(d) Pledgor becomes insolvent, is unable to pay its debts as they
become due, or files a petition in bankruptcy under the United States Bankruptcy
Code; or
(e) A receiver or conservator is appointed for the Pledgor or with
respect to a material portion of the Pledgor's assets, if such proceedings is
not dismissed within 120 days after initiation.
<PAGE>
4.2 A breach or an Event of Default under the Note or this Agreement,
unless otherwise provided therein, exists and shall constitute an Event of
Default under this Agreement from the date of the act or omission, regardless of
whether any grace or cure period is applicable; provided that Secured Party
shall not exercise any remedies hereunder until the expiration of any applicable
grace or cure period. Pledgor shall have five (5) business days to cure any
default that involves the failure to pay money. Pledgor shall have 30 days to
cure any Event of Default that does not involve the failure to pay money.
Pledgor shall have no cure period if an Event of Default is not able to be cured
fully or substantially cured within the applicable cure period.
5. REMEDIES.
5.1 In any Event of Default hereunder, Secured Party shall have the
following rights and remedies specified herein, upon the expiration of any
applicable cure or grace period; provided, however, that Secured Party shall not
exercise any such rights prior to the expiration of any grace or cure period
granted hereby.
5.2 Secured Party may pursue any legal or equitable remedy available to
collect all sums secured hereby and to enforce any and all other rights or
remedies available to it, and no such action shall operate as a waiver of any
other right or remedy of Secured Party under the terms hereof, or under the laws
of the State of Arizona.
5.3 Secured Party or its agents may, in Secured Party's discretion, sell,
assign or deliver all or any part of Collateral at any broker's board or by any
public or private sale an insofar as it is lawful to do so, may bid and become
purchasers at any public sale or at any broker's board. Secured Party may apply
the proceeds of the disposition of Collateral available for satisfaction of the
Obligations in any order of preference which Secured Party chooses. The excess,
if any, shall be returned to Secured Party.
5.4 Secured Party shall give Pledgor not less than ten (10) business days
notice of any sale or other disposition of the Collateral. Pledgor agrees that
notice and demand shall be conclusively deemed to be commercially reasonable and
effective if such notice is mailed by regular or certified mail, postage
prepaid, to Pledgor at Pledgor's last known address, at least ten (10) business
days prior to such sale or other disposition or if notice of such sale or
disposition is personally delivered to Pledgor.
5.5 Secured Party shall have, in addition to any other rights and remedies,
all the rights and remedies afforded a secured party under the Arizona Uniform
Commercial Code and all other legal or equitable remedies provided by the laws
of the United States and the State of Arizona.
5.6 Secured Party's remedies hereunder shall be cumulative and may be
exercised in any order or simultaneously.
<PAGE>
6. MISCELLANEOUS PROVISIONS.
6.1 No Event of Default by Pledgor which is waived by the Secured Party
shall operate as a waiver of any other default on a future occasion, or as a
waiver of that default after written notice thereof and demand by Secured Party
for strict performance of this Agreement. Acceptance of partial or delinquent
payments shall not constitute the waiver of any right of Secured Party. Time is
and shall be of the essence of this Agreement. All rights, remedies and
privileges of Secured Party hereunder shall be cumulative and not alternative,
and shall, if specifically so expressed, inure to the benefit of the Secured
Party, its successors and assigns, and all obligations of the Pledgor shall bind
its successors and personal representatives.
6.2 The terms herein shall have the meanings in and be construed under the
Arizona Uniform Commercial Code and all matters arising hereunder shall be
governed by the laws of the State of Arizona. Whenever possible each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, and such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
6.3 No modification, rescission, waiver, release or amendment of any
provision of this Agreement shall be made except by a written agreement signed
by Pledgor and Secured Party.
6.4 This Agreement shall remain in full force and effect until all
indebtedness secured hereby is paid in full.
6.5 Secured Party shall exercise ordinary care in taking possession of or
disposing of the Pledged Collateral.
6.6 Secured Party and Pledgor ass used herein shall include their heirs,
devises, personal representatives, successors or assigns. The provisions hereof
shall apply to the parties according to the context hereof and without regard to
the number or gender of words and expressions used herein.
6.7 All notices and other communications hereunder shall be given in
writing and shall be deemed to be given if delivered personally (or through any
reputable courier or messenger service) or mailed three business days after such
notice is deposited in the United States mail, postage prepaid, by certified
mail (return receipt requested), to the parties at the following addresses (or
at such other address as the parties may specify by written notice to the
other):
<PAGE>
If to Pledgor, at:
Biometric Technologies Corp.
Attn: Lyle Jensen, President
1000 South Priest
Tempe, Arizona 85281
Facsimile No.: (602) 921-9830
Telephone: (602) 968-2000
With copy to:
James E. Brophy, III
Ryley, Carlock & Applewhite
101 North First Avenue, Suite 2700
Phoenix, Arizona 85003-1973
Facsimile No.: (602)257-9582
Telephone: (602) 258-7701
If to Secured Party:
Palomar Medical Technologies, Inc.
Attn: General Counsel
45 Hartwell Avenue
Lexington, Massachusetts 02173
Facsimile No.: (781)676-7330
Telephone: (781)676-7300
Written notice given by any other method shall be deemed to be effective only
when actually received by the party to whom given.
6.8 This Agreement shall be governed by the substantive laws of the State
of Arizona without regard to conflicts of law principles.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date set
forth above.
"Pledgor":
Biometric Technologies Corp.,
a Delaware corporation
By:
---------------------------
Its:
-----------------------
"Secured Party":
Palomar Medical Technologies, Inc.,
a Delaware Corporation
By:
---------------------------
Its:
-----------------------
<PAGE>
EXHIBIT 2.C
PROMISSORY NOTE
rincipal Amount Phoenix, Arizona
$2,804,000 December , 1997
--
FOR VALUE RECEIVED, Biometric Technologies Corp. ("Maker"), promises to pay
to Palomar Medical Technologies, Inc. ("Holder"), a Delaware corporation, or
order, the principal balance of Two Million Eight Hundred Four Thousand
($2,804,000) in lawful money of the United States of America, together with
interest on the unpaid balance of principal, from the date hereof, to accrue at
the prime rate of interest as announced by Bank of America NT&SA from time to
time, without regard to whether such rate of interest is actually charged to its
customers.
Payments of interest only shall be made by Maker beginning on December 31,
1997, and continuing on the same day of each month thereafter until December 31,
1998. Beginning January 1, 1999, the balance of principal and accrued interest
on the Note shall be paid in forty-eight (48) monthly installments, with the
first payment due on February 1, 1999, and continuing on the first day of each
month thereafter until paid in full. If not sooner paid, the principal and all
accrued interest under this Note shall be due and payable on December 31, 2002.
The entire principal balance, or any portion thereof, may be prepaid at any
time, without penalty, at the election of Maker. Any prepayment shall apply
first to accrued interest and then to principal.
At Holder's option, payments made hereunder may be applied first to costs
of collection, if any, next to interest, and then to principal.
If Maker fails to make any payment when due hereunder, Holder, at its
option, may declare all or any part of the principal and interest payable under
this Note immediately due and payable. In addition, upon the occurrence of any
default under the Stock Purchase Agreement of even date (the "Purchase
Agreement"), if such default is not cured within any applicable cure or grace
period expressly allowed under the Purchase Agreement, as the case may be,
Holder may declare all or any part of the principal and interest payable
hereunder immediately due and payable. This Note may, at Holder's option, also
become immediately due and payable if (i) there is a sale or disposition of
fifty percent (50%) or more of Maker's assets (taking into account all the
assets of Maker, plus the assets of all of Maker's subsidiaries, taken as a
whole), (ii) the sale of fifty percent (50%) or more of Maker's issued and
outstanding stock, in a single transaction or a series of related transactions,
other than through an initial public offering and the acquisition of Ultra Scan,
Inc.; or (iii) Maker is merged with or consolidated into another corporation and
<PAGE>
the assets of Maker, immediately prior to such merger or consolidation, are less
than 50% of the assets of the resulting corporation immediately following the
consummation of such merger or consolidation.
Holder's acceptance of payments after the due date shall not waive or
postpone any right of the Holder hereof, and time is and shall remain of the
essence hereof.
Should any interest or principal amount remain unpaid after it is due
hereunder, such amount, at the option of the Holder, shall bear interest at the
rate of twelve percent (12%) per annum ("Default Interest"), from the date such
amount is due and payable until paid.
If, as a result of any default under this Note, the Holder incurs any
attorneys' fees or other legal costs or expenses with respect to enforcement of
any rights provided for hereunder, whether or not any legal proceeding is
instituted, Maker promises to pay such attorneys' fees and expenses, including,
without limitation, any costs of court, witness fees or experts fees, and
reasonable travel costs, regardless of whether such amounts are reasonable under
applicable law.
Maker agrees that the effective rate of interest under this Note is the
note rate specified herein, plus the rate of interest resulting from any
additional charges, fees, points, Default Interest, and any other charges made
to Maker. If for any reason the interest or other charges deemed to be interest
should exceed the maximum interest rate permitted by law, then (i) the interest
or other charges that exceed the maximum rate permitted by law shall be reduced
to the maximum rate permitted by law, and (ii) any amounts paid as interest
which are in excess of the maximum legal rate shall be credited against the
outstanding principal balance of the indebtedness.
Maker and all persons now or hereafter liable on this Note severally waive
notice, presentment for payment and protest.
Maker represents and warrants to Holder that this loan is made for
commercial purposes and that no portion of the amounts describe herein are or
will be used for any purpose other than a commercial purpose.
Maker authorizes Holder to advance amounts in excess of the principal
amount of this Note directly to a third party for Maker's benefit to facilitate
the transactions under this Purchase Agreement. Maker agrees that any such
advances are made for Maker's benefit, have been authorized by Maker, constitute
part of the principal indebtedness evidenced by this Note and shall be added to
the principal amount due under this Note. Interest shall accrue on all advanced
amounts in excess of the principal amount added to the principal amount of this
Note.
Maker agrees to make payment without the prior resort of the Holder to any
security or against any endorser or any guarantor.
<PAGE>
This Note shall be governed by the substantive laws of the State of
Arizona, without regard to conflicts of law principles.
"MAKER"
BIOMETRIC TECHNOLOGIES CORP.,
a Delaware corporation
By:
----------------------------
Its:
------------------------
<PAGE>
EXHIBIT 3
Comtel Electronics, Inc.
Transferred Assets and Liabilities
<PAGE>
EXHIBIT 3.A
COMTEL ELECTRONICS, INC.
ASSETS AND LIABILITIES
TRANSFERRED TO PALOMAR
(THE TRANSFERRED ASSETS AND LIABILITIES)
ASSETS
ACCOUNTS RECEIVABLE $3,766,747.34
INVENTORY 675,743.72
-------------
TOTAL $4,442,491.06
=============
LIABILITIES
CBC BANK LINE OF CREDIT INELIGIBLE $2,612,860.21
ACCOUNTS PAYABLE 129,207.70
EQUITY
PAID IN CAPITAL - PARENT $1,700,423.15
-------------
TOTAL $4,442,491.06
=============
<PAGE>
PALOMAR/NEW MEDIA ONGOING LIABILITIES POST CLOSING
Palomar will assume the close of the sublet building, expense of $16,158.68 per
month, until New Media vacates subject facility and a new tenant is located. It
is estimated that this period will be 90 to 120 days.
<PAGE>
EXHIBIT 3.B
Comtel Electronics, Inc.
Assets and Liabilities
Transferred to Palomar
(the Transferred Assets and Liabilities)
($000)
<TABLE>
<S> <C> <C> <C>
New Media
Assets October 31, 1997 Related Nexar Related
- ------ ---------------- ----------- -------------
Cash $ 20 $ 0 $ 0
A/R 4900 (3766) (791)
Inventory 2455 (676) 0
Other 168 0 0
------- --------- ---------
Current Assets $754 $(4442) $(791)
Equipment 2674 0 0
Goodwill 340 0 0
Other 62 0 0
-------- --------- ---------
Total Assets $10169 $(4442) $(791)
Liabilities
- -----------
Bank Line $ 4152 $(2613) $(621)
A/P 1761 (129) 0
Accrued Expenses 180 0 0
CP-Ltd. 450 0 0
------- --------- ---------
Current Liabilities $ 6543 $(2742) $(621)
LTD 629 0 0
------- --------- ---------
Total Liabilities $ 7172 $(2742) $(621)
Equity
- ------
Paid in Capital/Parent $10379 $(1700) $(170)
Retained Earnings (6932) 0 0
-------- ---------- ----------
Net Equity $ 3447 $(1700) $(170)
Liability & Equity $ 10619 $(4442) $(791)
</TABLE>
<PAGE>
EXHIBIT 3.C
COMTEL RETAINED ASSETS/LIABILITIES
Comtel will retain the current active and incoming inventory to meet the open
order backlog that will exist at closing. Comtel will only finish the open
orders and do business on a COD basis. The estimated value of the inventory that
BTC will pay Palomar for in the book value is $700,000. BTC/Comtel will assume
any liability related to warranty of subject shipments and any potential
obsolescence related to the inventory referenced in this section. As of the
Phase I Closing Date, BTC will either cause to be terminated or will assume and
be solely responsible for any guarantees made by Dynaco or Palomar to DSI, Inc.
<PAGE>
EXHIBIT 3.D
COMTEL ELECTRONICS, INC.
NEXAR TRANSACTION
"CBC LIABILITIES"
NEXAR INELIGIBLE
ACCOUNTS RECEIVABLE $791,309.91 X 75% = $593,482.43
INVENTORY 69,663.14 X 40% = 27,865.25
-----------
TOTAL "CBC LIABILITIES" $621,347.68
===========
<PAGE>
EXHIBIT 4
PALOMAR FUNDING SCHEDULE
<PAGE>
EXHIBIT 4
PALOMAR FUNDING SCHEDULE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-Close
10/1-10/30
Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Total
Dynaco $150 $150 $150 $150 $125 $125 $75 $50 $50 $875 2/
-
ITI - - - - - - - - - -
Dynamem - - - - - - - - - -
Comtel Electronics $700 -
---- ---- ---- ---- ---- ---- ---- ---- -----
<FN>
1/
- - This amount is not added to the principal of the Palomar Note.
</FN>
Total $850 $150 $150 $150 $125 $125 $75 $50 $50 $875 1/
-
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative $150 $300 $450 $575 $700 $775 $825 $875
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<PAGE>
EXHIBIT 5
REGISTRATION AGREEMENT
<PAGE>
EXHIBIT 5
REGISTRATION AGREEMENT
PARTIES:
This Agreement is made and entered by and between BIOMETRIC TECHNOLOGIES
CORP., a Delaware corporation (the "Company"), and PALOMAR MEDICAL TECHNOLOGIES,
INC., a Delaware corporation ("Palomar" or the "Shareholder").
EFFECTIVE DATE:
This Agreement is entered into and is effective as of ,
1997 (the "Effective Date"). -------------
RECITALS:
Palomar has agreed to sell to the Company 100 percent of the issued and
outstanding stock (the "Dynaco Shares") of Dynaco Corp., a Delaware corporation
("Dynaco"). In consideration of purchasing the Dynaco Shares, the Company has
agreed to issue to Palomar shares of its common stock, par value .001 per share
(the "Shares"), having a value of $2,673,000, based on the offering price of the
Shares at the initial public offering ("IPO") and to include the Shares issued
to Palomar in any registration statement filed by the Company with respect to
its Shares, following the closing of the IPO, and to grant Palomar certain
demand registration rights following the conclusion of the IPO. The Company has
also issued Palomar a Warrant to purchase from the Company that number of shares
of the Company's fully paid and non-assessable common stock for an exercise
price of $0.01 per share (the "Warrant Shares"). The Warrant Shares and the
Shares are collectively referred to as the Shares.
The Company and Palomar wish to set forth certain registration rights under
the Securities Act of 1933 (the "Act") with regard to the Shares, which the
Company hereby grants to Palomar.
NOW, THEREFORE, the parties agree, as follows:
Section 1. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(a) PIGGYBACK RIGHTS. If the Company files a registration statement
under the Act, which relates to a current offering of equity securities of the
Company (except in connection with (i) the IPO with respect to the Company's
Shares, or (ii) an offering of the Company's equity securities to its employees
pursuant to any employee benefit or any stock option plan, or any dividend
<PAGE>
reinvestment plan maintained by the Company), such registration statement and
the prospectus included therein shall, at the written request of any
Shareholder, include, subject to any underwriter requirements or cutbacks, all
or part of the Shares owned by such Shareholder under the registration statement
so as to permit the public sale of the Shares by the Shareholder in compliance
with the Act. The Company shall give written notice to the Shareholder of its
intention to file a registration statement under the Act relating to an offering
of its equity securities not less than sixty (60) days prior to the filing of
such registration statement with the United States Securities and Exchange
Commission or any successor in interest ("SEC"). A Shareholder's written request
to the Company that all or a portion of his Shares be included in the
registration statement, if made not later than thirty (30) days prior to the
date specified in the notice as the date on which the Company intends to file
its registration statement, shall allow the Shareholder to register all or part
of his Shares under such registration statement. Neither the Company's delivery
of notice nor of a request by any Shareholder for registration shall in any way
obligate the Company to file such registration statement and, notwithstanding
the filing of such registration statement, the Company may, at any time prior to
the effective date thereof, determine not to offer the securities to which such
registration statement relates, without liability to the Company or the
Shareholder, except in that event the Company shall pay all expenses of the
registration statement incurred through the date the registration statement is
withdrawn. The Company shall pay the entire cost of any registration of Shares
to which this Section 1(a) applies, including without limitation, attorneys'
fees, accounting fees, filing fees and printing costs (other than any
underwriter's discount). The Shareholder shall be solely responsible for any
underwriter discounts on any Shares sold by the Shareholder pursuant to any
registration statement filed by the Company and for the Shareholder's pro rata
share of any underwriter expenses. The Warrant Shares shall be subject to
registration under this Paragraph 1(a) only to the extent the Warrant has been
exercised.
(b) DEMAND RIGHTS. Upon written notice to the Company (the
"Registration Demand"), at any time within the three (3) year(s) period
following the Effective Date hereof, but not earlier than 90 days after the date
the IPO closes, given (i) by Palomar or (ii) by at least two persons to whom the
Shares have been transferred from Palomar (the "Shareholders") that such persons
contemplate the sale or transfer of all or part of the Shares under
circumstances that may require registration of such shares under the Act, the
Company shall, at its own expense, as promptly as possible after receipt of such
Registration Demand, file with the SEC a registration statement pursuant to
Section 5 of the Act on the appropriate registration form, with respect to the
offer and sale (or other disposition) of the Shares for which the Company shall
have received such Registration Demand. Within ten (10) days after receiving the
Registration Demand, the Company shall notify all the Shareholders and advise
them that the Company is proceeding with the filing of a registration statement
(or notification) and the Company shall offer to include for registration under
such registration statement (or notification) the Shares of those other
Shareholders. The Company shall not be obligated to register the Shares of any
such Shareholder unless such other Shareholder accepts the Company's offer of
registration in writing within fifteen (15) days after such offer is made.
<PAGE>
The Company shall take all action necessary to file such registration statement
and cause it to become effective within ninety (90) days of receipt of said
Registration Demand. In the event the registration statement is not effective
within said ninety (90) days for any reason whatsoever except for any action of
or any failure to act of Palomar, its officers, directors or agents, then the
Company shall make cash payments to Palomar and said Shareholders participating
in such registration statement, if any, for the number of shares for which
Palomar and the Shareholders have requested registration, in an amount equal to
two percent (2%) per month multiplied by the original initial public offering
such price of the stock to be included in the original registration statement,
payable monthly in advance. The first such payment shall be due and payable on
the ninety-first (91st) day after receipt by the Company of the Registration
Demand and monthly thereafter until the registration statement is effective. The
Warrant Shares shall not be subject to the payments described in the preceding
sentence. The 2% payment shall not be required to be paid during any period on
or after the 90th day following the Registration Demand, if the failure of the
registration to become effective is due to a Force Majeure Event. For purposes
of this Agreement, a "Force Majeure Event" shall include strikes, lockouts, fire
or other casualty, natural disaster, civil disturbance, war, act of terrorism,
government shutdown, or any similar event. Except as provided below, the cost of
such registration statement (including any attorneys' fees, accounting fees and
underwriters' fees) shall be borne solely by the Shareholders whose Shares are
registered, on a pro rata basis in proportion to the Shares owned by each
Shareholder, if the Company elects not to offer any Shares pursuant to the
registration statement or notification; provided that if the Company includes
any of its Shares in such registration statement or notification, the Company
shall pay all costs of such registration other than the underwriter's discount.
If only the Shares of the Shareholders are included in such notification or
registration statement, no Shares of the Company shall be registered for a
period of 90 days following the date offering of the Shares is completed. The
Warrant Shares shall be subject to registration under this Paragraph 1(b) only
to the extent the Warrant has been exercised.
(c) In each instance in which, pursuant to Section 1(a) or 1(b) of
this Section 1, the Company shall take any action to permit a public offering or
sale, or other distribution of the Shares, the Company shall:
(i) Keep effective until the earlier of (A) the
date all registered Shares are sold or (B) two hundred and
seventy (270) days after the initial effective date of such
registration statement (or notification), and take such other
action as may be necessary to keep effective (and pay all
expenses related to) such other registrations and qualifications
(including those required by the securities laws of any state in
which the Shares are offered or sold), and do any and all other
acts and things necessary to permit the public sale or other
disposition of the Shares by such Shareholders (or the Bank).
<PAGE>
(ii) Indemnify and hold harmless each underwriter,
within the meaning of the Act, to the extent required by any
underwriting agreement or, if greater, to the extent required by
this Agreement.
(iii) Indemnify and hold harmless each Shareholder
to the extent required in any underwriting agreement or, if
greater, to the extent provided in this Agreement.
(d) For purposes of this Section 1, the term "equity security" means
any class or series of common or preferred stock of the Company and any bond,
note, warrant, option or right which is payable, in full or in part, or is
convertible into any class or series of common or preferred stock of the
Company.
(e) If any Shares registered under this Agreement are offered through
an underwriter, each selling Shareholder agrees (i) to execute any underwriting
agreement requested by the underwriter, (ii) furnish any indemnity in the
customary form required by the underwriter, (iii) furnish any information
required by the underwriter, and (iv) take any other action reasonably necessary
to satisfy the underwriting conditions or to cause the registration statement to
become effective. The rights of any Shareholder under this Agreement shall be
subject to and limited by the terms and conditions of any indemnity agreement
and any other conditions the underwriter may impose. The failure of Shareholder
to comply with the provision of this paragraph shall relieve the Company of the
obligation to register the Shares as provided by this Agreement.
Section 2. COMPLIANCE WITH LAW.
Any registration statement filed by the Company pursuant to the Act shall
comply in all respects with the Act and all rules and regulations of the SEC
applicable to such registration statement. At such time as any registration
statement (or notice) becomes effective, the Company shall supply to the
Shareholders and to any person or underwriter acting on their behalf, sufficient
copies of the prospectus used in connection with the registration statement for
the Shareholder to sell publicly the registered Shares. With respect to any
registration of Shares subject to this Agreement, the Company, at its expense,
agrees to qualify or register the Shares in any state in which the Shareholder
requests that the Shares be qualified or registered, to the extent that the
Company is reasonably able to do so, and the Company shall maintain such
qualification or registration in effect for so long as the registration
statement is in effect.
<PAGE>
Section 3. SHAREHOLDERS' CONSENT AND OBLIGATION TO FURNISH INFORMATION.
The Shareholders shall promptly provide to the Company such consents and
information as may be reasonably required by the Company in order to perform its
obligations under Section 1 hereof. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 1(a) or 1(b)
or 6(a) or 6(b) that the Shareholder shall furnish to the Company such
information regarding the Shareholder and the Shares held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of the Shares.
Section 4. "MARKET STAND-OFF" AGREEMENT.
The Shareholder agrees that it will not, to the extent requested by the
Company and an underwriter, sell or otherwise transfer or dispose of any Shares
(other than Shares being registered in such offering) for up to that period of
time following the effective date of a registration statement of the Company
filed under the Act as is requested by the managing underwriter(s) of such
offering. The Company agrees that any lock-up agreement obtained by the
underwriter with respect to the Shareholder will be no longer than any similar
agreement applicable to the Company or to Mr. Maurice Needham or Mr. Lyle Jensen
in connection with any Shares of the Company registered by any of them pursuant
to such registration statement.
Section 5. REPORTS.
The Company at all times will comply with the Act and will file such
reports and disclosures as may be required by the Act or any rules or
regulations promulgated thereunder. If the Company becomes subject to the
Securities Exchange Act of 1934 (the "Exchange Act"), the Company agrees to file
timely all reports required by the Exchange Act. If the Company becomes a listed
company on NASDAQ or any national securities exchange, the Company shall file
all reports necessary to maintain such listing.
Section 6. INDEMNIFICATION.
(a) COMPANY. The Company agrees to indemnify and hold harmless any
selling Shareholder and any underwriter, to the extent applicable, and any
person who, within the meaning of the Act (or the Exchange Act), controls any of
such persons (hereafter collectively called the "Selling Group") for, from, and
against any losses, claims, damages, or liabilities, joint and several, to which
the Selling Group, or any of them, may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in a
registration statement, or the prospectus which is a part thereof, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact necessary to be stated
<PAGE>
therein to make the statements therein not misleading; and will reimburse the
Selling Group and each of them, for any legal or other expenses and costs
reasonably incurred by them in connection with the investigation or defense of
any such loss, claim, damage, liability, or action; provided, however, that the
Company will not be liable under this Section 6(a) if any such loss, claim, or
liability arises solely out of or is based solely on an untrue statement or
alleged untrue statement or omission or alleged omission made in the
registration statement or the prospectus or any amendment or supplement thereto
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Selling Group or any of them. A member of the
Selling Group, who is treated as a control person under the Act or the Exchange
Act, shall be covered by and included within the indemnity provided by this
Section 6(a) for all losses, claims, damages, liabilities, and expenses asserted
in connection with the registration statement, notice or the sale of the Shares,
whether or not based on Section 15 of the Act or Section 20 of the Exchange Act.
The indemnity obligation provided herein is in addition to any liability or
obligation which the Company may otherwise have to the Selling Group or any of
them or which may exist at common law or under any statute.
(b) SELLING GROUP. The Selling Group and each of them will indemnify
and hold harmless the Company, each of its directors, each of its officers who
signs the registration statement, and any person who controls the Company within
the meaning of the Act (or the Exchange Act) for, from and against any losses,
claims, damages, or liabilities to which the Company or any such director or
officer or controlling person may become subject, under the Act, the Exchange
Act, or otherwise, if such losses, claims, damages, or liabilities (or actions
in respect hereof) arise solely out of or are based solely on any untrue or
alleged untrue statement of a material fact contained in the registration
statement and the prospectus or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact necessary to be stated therein to make the statements therein not
misleading, in each case if, and only if, such untrue statement or alleged
untrue statement or omission or alleged omission was made in the registration
statement or the prospectus or such amendment or supplement in reliance upon and
in conformity with written information concerning the Selling Group furnished to
the Company by or on behalf of the Selling Group for use in the registration
statement and the prospectus or any amendment or supplement thereto, and will
reimburse any legal or other expense reasonably incurred by the Company or such
director or officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, or action. This indemnity
obligation provided hereunder is in addition to any other liability or
obligation which the Selling Group may otherwise have to the Company or which
may exist at common law or under any statute.
(c) CLAIMS. Promptly after receipt by an indemnified party under this
Section 6(c) of notice of the commencement of any action or the initiation of
any proceeding (including, without limitation, arbitration), the indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 6(c), notify the indemnifying party in writing of the
<PAGE>
commencement thereof; but the failure to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 6(c). In case any such action is brought
against any indemnified party and such indemnified party notifies any
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, assume the defense thereof
with counsel who shall be reasonably satisfactory to such indemnified party and,
after notice from the indemnifying party to such indemnified party of its
election to so assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 6(c) for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. In any such
action, any indemnified party shall have the right to retain his own counsel,
but the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and the indemnified party
shall have mutually agreed to the retention of such counsel, or (ii) the named
parties to any such proceeding (including any impleaded parties) include both
the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable for
any settlement of any proceeding or claim effected without its written consent,
but if settled with such consent or if there is a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party for,
from and against any loss or liability by reason of such settlement or judgment.
(d) ENFORCEABILITY. If the indemnification provided in Sections 6(a),
6(b) and 6(c) is for any reason, other than as specified in such subparagraphs,
held by a court to be unavailable and the Company or the Selling Group has been
required to pay damages as a result of a determination by a court that the
preliminary prospectus, registration statement, the prospectus, or any amendment
or supplement thereto contains an untrue statement of a material fact or omits
to state a material fact necessary to be stated therein to make the statements
therein not misleading, then the Company shall contribute to the damages paid by
the Selling Group and the Selling Group shall contribute to the damages paid by
the Company, but in each case only to the extent that such damages arise out of
or are based upon such untrue statement or omission, in such proportion as is
appropriate to reflect the relative fault of the Company and the Selling Group
in connection with the statements or omissions which resulted in such damages,
as well as any other relevant equitable considerations. The relative fault shall
be determined by reference to, among other things, whether the untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company or the Selling Group and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such untrue statement or omission. For purposes of this Section 6(d),
the term "damages" shall include any legal or other expenses reasonably incurred
by the Company or the Selling Group in connection with investigating or
defending any action or claim which is the subject of the contribution
provisions of this Section 6(d). No person adjudged guilty of fraudulent
misrepresentation within the meaning of Section 11 of the Act shall be entitled
to contribution from any person who was not adjudged guilty of such fraudulent
misrepresentation. (e) Term. The agreements contained in Sections 6(a) through
(d) shall remain operative and in full force and effect regardless of (i) any
investigation made by or on behalf of the Selling Group or any of them, or by or
on behalf of the Company, any of its directors or officers, or any person
controlling the Company, and (ii) any termination of this Agreement. A successor
of the Selling Group, or any of them, or of the Company, or any director or
officer thereof, or any person controlling the Selling Group or the Company
shall be entitled to the benefits of the agreements contained in Sections 6(a)
through (e).
<PAGE>
Section 7. NOTICE.
Any notices required or permitted to be given hereunder shall be in
writing and may be served personally or by mail; and if served shall be
addressed as follows:
If to the Company:
Biometric Technologies Corp.
Attn: Lyle Jensen, Chief Executive Officer
1000 South Priest
Tempe, Arizona 85281
Telephone 602-968-2000
Facsimile 602-921-9830
With a copy to:
James E. Brophy III
Ryley, Carlock & Applewhite
Suite 2700
101 North First Avenue
Phoenix, Arizona 85003-1973
If to the Shareholder:
Palomar Technologies, Inc.
Attn: Paul Weiner, Director of Finance
45 Hartwell Avenue
Lexington, Massachusetts 02173
Telephone: (781) 676-7300
Facsimile: (781) 676-7330
<PAGE>
With a copy to:
Palomar Technologies, Inc.
Attn: General Counsel
45 Hartwell Avenue
Lexington, Massachusetts 02173
Telephone: (781) 676-7300
Facsimile: (781) 676-7330
Any notice (or response to notice) given by mail shall be deemed given
and received if personally delivered by commercial courier or mail at the
address as specified above. Notice given personally shall be deemed given and
received upon delivery to the party to whom such notice is addressed. Any party
may by written notice to the other specify a different address for notice
purposes.
Section 8. BINDING AGREEMENT, ASSIGNABILITY.
This Agreement shall be binding upon each of the parties hereto and
the heirs, successors and assigns of each. The registration rights hereunder are
assignable, but only in connection with the sale or transfer of the Shares; the
foregoing notwithstanding, any pledgee (and any assignee or successor of such
pledgee) of all or part of the Shares shall have the same rights to require or
obtain registration of the Shares as the Shareholder who is the record owner of
such pledged Shares, and the pledgee of such Shares shall be deemed to be a
third party beneficiary of the Agreement who is entitled to enforce the terms
and conditions hereof to the same extent as if such pledgee were a Shareholder
of the Shares so pledged.
Section 9. ATTORNEYS' FEES.
In the event any legal action or proceeding of any nature (including
arbitration) is brought by any party hereto to enforce its rights hereunder, the
prevailing party shall be entitled to attorneys' fees and all costs and
expenses, whether or not such costs and expenses are taxable. The parties agree
that failure to register the Shares as required hereunder may cause irreparable
harm to the party seeking registration; accordingly, the parties agree that the
remedy of specific performance is available to any nonbreaching party hereunder.
Section 10. RECITALS.
The recitals shall constitute part of this Agreement.
<PAGE>
Section 11. DURATION.
Palomar's registration rights under this Agreement shall terminate on
the earlier of (i) the date all Shares subject to registration have been
registered with the SEC, or (ii) the fifth anniversary of the Effective Date of
this Agreement.
Section 12. GOVERNING LAW.
This Agreement shall be governed by and construed under the laws of
the State of Arizona.
EXECUTED as of the Effective Date first above written.
BIOMETRIC TECHNOLOGIES CORP., a
Delaware corporation
By:
----------------------------
Its:
------------------------
PALOMAR MEDICAL TECHNOLOGIES,
INC., a Delaware corporation
By:
-----------------------------
Its:
-------------------------
<PAGE>
EXHIBIT 6
PALOMAR WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAW. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. ADDITIONALLY, THE TRANSFER
OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN
THE SHAREHOLDERS' AGREEMENT DATED [ ], 1997, AMONG BIOMETRIC
TECHNOLOGIES CORP. AND PALOMAR MEDICAL TECHNOLOGIES, INC. AND
CERTAIN OTHER SIGNATORIES THERETO (AS THE SAME MAY BE AMENDED
AND RESTATED FROM TIME TO TIME), AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS
HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF BIOMETRIC TECHNOLOGIES
CORP.
COMMON STOCK PURCHASE WARRANT
No. W- Issuance Date:
---------- , 1997
-------------
1. GRANT OF WARRANT. Biometric Technologies Corp., a Delaware corporation,
together with any corporation which shall succeed to or assume the obligations
of Biometric Technologies Corp. (hereunder, collectively, the "Company"), hereby
certifies that, for value received, Palomar Medical Technologies, Inc., a
Delaware corporation ("Palomar"), or its assigns or transferees, is entitled,
subject to the terms set forth below, to purchase from the Company at any time
or from time to time during the Exercise Period (as defined in Section 9), that
number of the Company's fully paid and non-assessable shares of Common Stock
that is equal to $850,000 at a purchase price of $0.01 per share (such price per
share as adjusted from time to time as provided herein is referred to herein as
the "Exercise Price"); the value of
<PAGE>
such Common Stock shall be determined at the Closing Price on the Trigger Event
Date (as such terms are defined in Section 9). The number and character of such
shares of Common Stock are subject to adjustment as provided herein.
2. Exercise of Warrant.
2.1 EXERCISE. This Warrant may be exercised, prior to its expiration
pursuant to Section 2.5, by the holder hereof at any time or from time to time
during the Exercise Period (as defined in Section 9), by surrender of this
Warrant, with the form of subscription at the end hereof duly executed by such
holder, to the Company at its principal office, accompanied by payment, by
certified or official bank check payable to the order of the Company or by wire
transfer to its account, in the amount obtained by multiplying the number of
shares of Common Stock for which this Warrant is then being exercised by the
Exercise Price then in effect. In the event the Warrant is not exercised in
full, the Company, at its expense, will forthwith issue and deliver to or upon
the order of the holder hereof a new Warrant or Warrants of like tenor, in the
name of the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may request, having in the aggregate on the face or
faces thereof the number of shares of Common Stock equal (without giving effect
to any adjustment therein) to the number of such shares called for on the face
of this Warrant minus the number of such shares (without giving effect to any
adjustment therein) for which this Warrant shall have been exercised. Upon
exercise of this Warrant in accordance with this Section 2.1, the holder (or
such other holder as the holder of this Warrant may request as provided in this
Section 2.1) shall be, and shall be deemed to be, for all purposes a holder of
record of the number of shares of Common Stock for which this Warrant has been
exercised, notwithstanding any delay or failure of the Company to issue stock
certificates as provided in Section 4 hereof. Accordingly, immediately upon
exercise the holder (or its designee, as aforesaid) shall have the right to vote
on all matters in which holders of Common Stock have a right to vote, shall be
deemed a record holder for the purposes of voting, dividends or any other
distributions and shall have all other rights of a stockholder of record under
the laws of the State of Delaware. Upon any exercise of this Warrant, in whole
or in part, the holder hereof may pay the aggregate Exercise Price with respect
to the shares of Common Stock for which this Warrant is then being exercised
(collectively, the "Exercise Shares") by (a) surrendering its rights to a number
of Exercise Shares having a fair market value equal to or greater than the
required aggregate Exercise Price, in which case the holder hereof would receive
the number of Exercise Shares to which it would otherwise be entitled upon such
exercise, less the surrendered shares or (b) payment of cash in the form
referred to in the first sentence of this Section 2.1. The Warrant may not be
exercised prior to the occurrence of a Triggering Event.
2.2 CLASS OF STOCK RECEIVABLE UPON EXERCISE. If at the time of
exercise the Company has more than one class of Common Stock outstanding, the
shares of Common Stock receivable upon exercise of this Warrant shall be shares
of Common Stock of the class designated upon such exercise by the holder of this
Warrant on the form of subscription at the end hereof duly executed by such
holder. If at any time the Common Stock to which this Warrant is applicable is
converted into any other class of stock ("Other Securities"), this Warrant shall
continue in force and effect and shall be applicable with respect to such Other
Securities.
<PAGE>
2.3 CONFLICT WITH OTHER LAWS. Any other provisions hereof to the
contrary notwithstanding, no Person which is a bank holding company or a
subsidiary of a bank holding company, as defined in the Bank Holding Company Act
of 1956, as amended, or other applicable banking laws of the United States of
America and the rules and regulations thereunder (a "Bank Affiliate") shall be
entitled to exercise the right under this Warrant to purchase any share or
shares of Common Stock if, under any law or under any regulation, rule or other
requirement of any governmental authority at any time applicable to such Bank
Affiliate, (a) as a result of such purchase, such Bank Affiliate would own,
control or have power to vote a greater quantity of securities of any kind than
the Bank Affiliate shall be permitted to own, control or have power to vote, or
(b) such purchase would not be permitted. For purposes of this Section 2.3, a
written statement of the Bank Affiliate exercising this Warrant, delivered upon
surrender of the Warrant to the effect that the Bank Affiliate is legally
entitled to exercise its right under this Warrant to purchase securities and
that such purchase will not violate the prohibitions set forth in the preceding
sentence, shall be conclusive and binding upon the Company in all respects and
shall obligate the Company to deliver certificates representing the shares of
Common Stock so purchased in accordance with the other provisions hereof and
shall relieve the Company of any liability under this Section 2.3.
2.4 TRUSTEE. In the event that a bank or trust company shall have been
appointed as trustee for theholder of the Warrant, such bank or trust company
shall have all the powers and duties of a warrant agent appointed pursuant to
Section 10 hereof and shall accept, in its own name for the account of the
Company or such successor entity as may be entitled thereto, all amounts
otherwise payable to the Company or such successor, as the case may be, on
exercise of this Warrant pursuant to this Section 2.
2.5 TERMINATION. This Warrant shall terminate upon the earlier to
occur of (a) the exercise in full,(b) the third anniversary following the date
of issuance stated on page one of this Warrant.
3. REGISTRATION RIGHTS. The holder of this Warrant has the right to cause
the Company to register shares of Warrant Stock, and any shares issued upon
exercise hereof, under the Securities Act and any blue sky or securities laws of
any jurisdictions within the United States at the time and in the manner
specified in the Registration Agreement dated ____, 1997, between the Company
and Palomar; provided that registration rights shall apply only to Warrant Stock
(as defined in Section 9) and not to shares of Common Stock reserved by the
Company for issuance upon the exercise of this Warrant.
4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
4.1 DELIVERY. As soon as practicable after the exercise of this
Warrant in full or in part, and inany event within five business days
thereafter, the Company, at its expense (including the payment by it of any
applicable issue taxes), will cause to be issued in the name of and delivered to
the holder hereof, or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and non-assessable shares of Common Stock (or Other
Securities (as defined in Section 2.2)) to which such holder shall be entitled
on such exercise, together with any other stock or other securities and property
(including cash, where applicable) to which such holder is entitled upon such
exercise.
4.2 FRACTIONAL SHARES. In the event that the exercise of this Warrant,
in full or in part, results inthe issuance of any fractional share of Common
Stock, then in such event the holder of this Warrant shall be entitled to cash
equal to the fair market value of such fractional share as determined in good
faith by the Company's Board of Directors.
5. CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) of the Company, this
Warrant shall continue in full force and effect and the terms hereof shall be
applicable to the shares of stock and other securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger, or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any stock
or other securities, including, in the case of any such transfer, the person
acquiring all or substantially all of the properties or assets of the Company,
whether or not such person shall have expressly assumed the terms of this
Warrant.
6. NO IMPAIRMENT. The Company will not, by amendment of its Articles of
Incorporation (or similar documents) or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of the Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the holder of the
Warrant.
7. NOTICES. In the event of:
(a) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all or
substantially all the assets of the Company to or any consolidation or merger of
the Company with or into any other Person; or
<PAGE>
(b) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, and in each such event, the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up is anticipated to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice shall be mailed at
least 20 days prior to the date specified in such notice on which any such
record or other action is to be taken.
8. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company will
at all times reserve and keep available, solely for issuance and delivery on the
exercise of this Warrant, a number of shares of Common Stock equal to the total
number of shares of Common Stock from time to time issuable upon exercise of
this Warrant, and, from time to time, will take all steps necessary to amend its
Articles of Incorporation to provide sufficient reserves of shares of Common
Stock issuable upon exercise of this Warrant.
9. DEFINITIONS. As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
(a) The term "Common Stock" includes (i) the Company's Common Stock,
par value $.001 per share (the "Common Stock"), (ii) any other capital stock of
any class or classes (however designated) of the Company, the holders of which
shall have the right, without limitation as to amount, either to all or to a
share of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference, and
(iii) any other securities into which or for which any of the securities
described in clauses (i) or (ii) above have been converted or exchanged pursuant
to a plan of recapitalization, reorganization, merger, sale of assets or
otherwise.
(b) The term "Closing Price" means the closing price of the Common
Stock on the trading day that is concurrent with the Trigger Event Date or, if
the Trigger Event Date is not a trading day, the trading day that immediately
precedes the Trigger Event Date, as reported by any national securities exchange
on which the Common Stock is listed or, if the Common Stock is not so listed,
the average of the lowest bid and highest asked price for the Common Stock as of
4:00 p.m. New York time, as reported on the NASDAQ Stock Market.
(c) The term "Exercise Period" shall mean the period beginning on the
date of issuance and ending on the third anniversary after the date of issuance.
<PAGE>
(d) The term "Triggering Event" means the occurrence of any of the
following events: (i) the Company has gross revenues of $50,000,000 or more,
determined in accordance with generally accepted accounting practices
consistently applied, for the fiscal year ending December 31, 1998; the Company
has net pretax earnings of $4,000,000, determined in accordance with generally
accepted accounting practices consistently applied, for any fiscal year ending
on or before December 31, 1999; or (ii) the Common Stock, prior to the
expiration of this Warrant, trades for $12 or more per share on any national
securities exchange on which it is listed or, if not so listed, on the NASDAQ
Stock Market for ten (10) consecutive trading days.
(e) The term "Trigger Event Date" means any date on which a Triggering
Event occurs, as defined 9(d).
(f) The term "Warrant Stock" means shares of Common Stock issued to
the holder upon the exercise of this Warrant.
10. WARRANT AGENT. The Company may, by written notice to the holder of this
Warrant, appoint an agent having an office in _______________________ for the
purpose of issuing Common Stock on the exercise of this Warrant pursuant to
Section 2 hereof, and exchanging or replacing this Warrant pursuant to the
Warrant Agreement, or any of the foregoing, and thereafter any such issuance,
exchange or replacement, as the case may be, shall be made at such office by
such agent.
11. REMEDIES. The Company stipulates that the remedies at law of the holder
of this Warrant in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.
12. BENEFIT. This Warrant shall be binding upon, and inure solely to the
benefit of the Company and Palomar and no other person shall acquire or have any
right under or by virtue of this Warrant, it being understood that any person
who acquires the Warrant (or a portion of the Warrant if the Warrant is
sub-divided) directly or indirectly from Palomar shall have the benefits of
Palomar hereunder mutatis mutandis.
13. NOTICES. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, or sent by overnight courier (or sent in the form of a
telecopy) at such address as may have been furnished to the Company in writing
by such holder or, until any such holder furnishes to the Company an address,
then to, and at the address of, the last holder of this Warrant who has so
furnished an address to the Company.
<PAGE>
14. MISCELLANEOUS. In case any provision of this Warrant shall be invalid,
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be enforced to the extent, if any, that it may legally be
enforced and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant shall be
governed by and construed in accordance with the domestic substantive laws (and
not the conflict of law rules) of the State of Delaware. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof.
**********
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary.
Dated as of December , 1997 BIOMETRIC TECHNOLOGIES CORP.,
---- a Delaware corporation
By:
--------------------------
Name:
Title:
(Corporate Seal)
Attest:
Name:
--------------------
Title: Secretary
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise
of Common Stock Purchase Warrant)
TO: Biometric Technologies Corp., a Delaware corporation
The undersigned, the Holder of the within Common Stock Purchase Warrant,
hereby irrevocably elects to exercise this Common Stock Purchase Warrant for,
and to purchase thereunder ___________ shares of Common Stock of Biometric
Technologies Corp. and herewith makes payment of $___________ therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to _______________, whose address is _______________.
Dated:
(Signature must conform in all respects to name
of Holder as specified on the face of the
Warrant)
[HOLDER]
By:
-------------------------------------------
Name:
Title:
Address:
---------------------------------------
---------------------------------------
---------------------------------------
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto __________ the right represented by the within Warrant to purchase _____
shares of Common Stock of Biometric Technologies Corp., a Delaware corporation,
to which the within Warrant relates, and appoints ______________ attorney to
transfer such right on the books of Biometric Technologies Corp. with full power
of substitution in the premises.
[HOLDER]
Dated: By:
---------------------------
Name:
Title:
Signed in the presence of:
- --------------------------
<PAGE>
EXHIBIT 7
PENDING LITIGATION INVOLVING DYNACO CORP.
AND SUBSIDIARIES
<PAGE>
EXHIBIT 7
PENDING LITIGATION INVOLVING DYNACO CORP.
AND SUBSIDIARIES
Dynaco - None Known
ITI - None Known
Dynamem - Ed Johnston employment contract dispute and
lawsuit
Comtel - Envirotech/Multi Tech environmental clean-up
dispute and lawsuit
