As filed with the Securities and Exchange Commission on January 9, 1998
Registration No.333-42129
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
PALOMAR MEDICAL TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
04-3128178
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(I.R.S. employer identification number)
45 Hartwell Avenue, Lexington, Massachusetts 02173 (781) 676-7300
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Sarah Burgess Reed
General Counsel
Palomar Medical Technologies, Inc.
45 Hartwell Avenue
Lexington, Massachusetts 02173
(781) 676-7300
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: from
time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
______________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
Title of Shares Amount to be Proposed Proposed
to be Registered Registered Maximum Maximum Amount of Registration
Offering Price Aggregate Fee
Per Share Offering Price
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
Common Stock, par value $.01 12,213,109(1) $.859375(2) $10,495,641(2) $3,180(2)
per share.
- -------------------------------- ------------------- --------------------- ------------------- -------------------------------
**-$3,836 Fee paid with original filing
</TABLE>
(1) Consists of (i) 6,500,000 shares issuable upon conversion of $7,000,000
principal amount of Convertible Debentures with interest at varying
rates of 6%, 7% and 8% due September 30, 2002 (the "Debentures"); (ii)
413,109 shares issued in connection with the Debentures; (iii) 5,000,000
shares held by a third-party lender as security for a guaranty by the
Company and (iv) 300,000 shares issued in connections with a Stock
Purchase Agreement dated December 29, 1997, all of which are exercisable
at prices and terms described in the Selling Stockholders and Plan of
Distribution sections of the Prospectus.
(2) Estimated solely for purposes of calculation of the fee. The actual
number of shares of common stock issuable upon conversion of the
Debentures may be more or less than such estimate based on a variety of
factors, including the date of conversion and the price of the common
stock on such date. The fee is estimated pursuant to Rule 457(c) under
the Act on the basis of the average of the high and low sale prices
reported on the Nasdaq SmallCap Market on January 6, 1998.
Pursuant to Rule 416, there are also registered hereby such additional
indeterminate number of shares of common stock as may become issuable as
dividends or to prevent dilution resulting from stock splits, stock dividends or
similar transactions or as the result of floating rate conversion mechanisms as
set forth in the terms of the Debentures referred to above.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
SUBJECT TO COMPLETION DATED January 9, 1998
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PROSPECTUS
PALOMAR MEDICAL TECHNOLOGIES, INC.
12,213,109 shares of Common Stock
consisting of:
6,500,000 shares issuable upon conversion of $7,000,000 principal
amount of Convertible Debentures bearing interest at varying
rates of 6%, 7% and 8% due September 30, 2002;
413,109 shares issued in connection with the Debentures;
5,000,000 shares held by a third-party lender as security for a
guarantee by the Company and
300,000 shares issued in connection with an Securities
Purchase Agreement dated December 29, 1997
This Prospectus relates to 12,2913,109 shares of common stock (the
"Shares") of Palomar Medical Technologies, Inc. (the "Company", the "Registrant"
or "Palomar") consisting of (i) 6,500,000 shares issuable upon conversion of
$7,000,000 principal amount of Convertible Debentures bearing interest at
varying rates of 6%, 7% and 8% due September 30, 2002 (the "Debentures"),which
are exercisable as described in the Selling Stockholders and Plan of
Distribution sections of the Prospectus; (ii) 413,109 shares issued in
connection with the Debentures; (iii) 5,000,000 shares held by a third-party
lender as security for a guaranty by the Company and (iv) 300,000 shares issued
in connection with a Securities Purchase agreement dated December 29, 1997. All
shares to be registered hereby are to be offered by the selling stockholders
listed herein (the "Selling Stockholders") and the Company will receive no
proceeds from the sale of such shares. The Company has agreed to indemnify the
Selling Stockholders against certain liabilities, including certain liabilities
under the Securities Act of 1933, as amended (the "Securities Act"), or to
contribute to payments which such Selling Stockholders may be required to make
in respect thereof. See "Plan of Distribution."
The Company's common stock, par value $.01 per share, is listed on the
National Association of Securities Dealers Automated Quotation System ("Nasdaq")
and traded on the Nasdaq SmallCap Market. The last reported bid price of the
common stock on the Nasdaq SmallCap Market on January 8, 1998 was $.84375 per
share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGES 6 THROUGH 14.
It is anticipated that usual and customary brokerage fees will be paid
by the Selling Stockholders on the sale of the Shares registered hereby. The
Company will pay the other expenses of this offering. See "Plan of
Distribution". The offer of Shares by the Selling Stockholders as described in
this Prospectus is referred to as the "Offering."
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- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Price to Public Underwriting Discounts and Proceeds to Issuer or
Commissions Other Persons
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Per Unit..................... $.84375(1) 0(2) $.84375(1)(3)
Total........................ $10,304,811(1) 0(2) $10,304,811(1)(3)
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
(1) Based on the closing bid price of the Company's common stock as reported
on the Nasdaq SmallCap Market on January 8, 1998.
(2) None, to the Company's knowledge.
(3) Less usual and customary brokerage fees.
The date of this Prospectus is ______________.
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No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus in connection with the offer
contained in this Prospectus, and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Company
or the Selling Stockholders. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, Room 1024 and at the public
reference facilities maintained by the Commission on the 14th Floor, 75 Park
Place, New York, New York 10007; Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661; and Suite 500 East, Securities and
Exchange Commission Building, 5757 Wilshire Boulevard, Los Angeles, California
90036. Copies can be obtained from the Commission at prescribed rates by writing
to the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
reports, proxy statements and similar information can also be inspected and
copied at the National Association of Securities Dealers, 1735 K Street, N.W.,
Washington, DC 20006-1500. In addition, the Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically, including the Company. The
Commission's Web site address is http://www.sec.gov. This prospectus, which
constitutes part of a Registration Statement filed by the Company with the
Commission under the Securities Act omits certain of the information contained
in the Registration Statement in accordance with the rules and regulations of
the Commission. Reference is hereby made to the Registration Statement and to
the Exhibits relating thereto for further information with respect to the
Company and the Securities offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such documents filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-KSB for its fiscal year ended
December 31, 1996 as amended by Form 10-KSB/A-1 filed April 16, 1997, Form
10-KSB/A-2 filed April 30, 1997, Form 10-KSB/A-3 filed May 28, 1997 and Form
10-KSB/A-4 filed July 11, 1997; the Company's Quarterly Report on Form 10-Q for
its quarter ending September 30, 1997 filed November 14, 1997; the Company's
Form 8-K filed with the Commission on December 23, 1997; and the description of
the Company's Common Stock contained in its Registration Statement on Form 8-A
filed with the Commission on June 6, 1992, all of which have been previously
filed with the Commission, are incorporated in this Prospectus by reference. All
documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date hereof and prior to the termination of the
offering made hereby are also incorporated by reference herein and made a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated by reference herein is modified or superseded for all
purposes to the extent that a statement contained in this Prospectus or in any
other subsequently filed document which is incorporated by reference modifies or
replaces such statement. The Company will provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon the written or oral request of such person, a copy of all documents
incorporated herein by reference (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference herein).
Requests for such copies should be directed to: John J. Ingoldsby, Palomar
Medical Technologies, Inc., 45 Hartwell Avenue, Lexington, Massachusetts 02173;
telephone number (781) 402-2411; e-mail address: [email protected].
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
more detailed information appearing elsewhere in this Prospectus or incorporated
herein by reference and the financial statements which are incorporated herein
by reference.
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THE COMPANY........................................ The Company currently has three business segments: cosmetic
dermatological laser products, laser services and electronic
products. The Company intends to divest its non-core
electronics subsidiaries. In addition, the Company
anticipates that it will concentrate its efforts in the
cosmetic dermatological laser segment on hair removal. The
Company has recently signed an agreement with Coherent, Inc.
pursuant to which Coherent will distribute the Company's
laser hair removal products and obtain a right of first
refusal to distribute newly developed laser products. In
the laser services segment, which is in the developmental
stage, the Company intends to focus on a few strategic
partnerships, including its partnership with Columbia/HCA.
SECURITIES OFFERED.......................... 12,213,109 shares of Company common stock, par value $.01 per
share. The actual number of shares of common stock issuable
upon conversion of the Debentures is indeterminate, is
subject to adjustment and could be materially less or more
than such estimated number depending on a number of factors
which cannot be predicted by the Company at this time,
including among other factors, the future market price of
the common stock. The actual number of shares offered
hereby, and included in the Registration Statement of which
this prospectus is a part, includes such additional shares
of common stock as may be issued or issuable upon conversion
of the Debentures by reason of the floating rate conversion
price mechanism or other adjustment mechanisms described
therein, or be reason of any stock split, stock dividend or
similar transaction involving the common stock, in order to
prevent dilution, in accordance with Rule 416 under the
Securities Act of 1933.
OFFERING PRICE.................................... All or part of the Shares offered hereby may be sold from
time to time in amounts and on terms to be determined by the
Selling Stockholders at the time of sale.
USE OF PROCEEDS.................................... The Company will receive no part of the proceeds from the
sale of the Shares registered pursuant to this Registration
Statement.
SELLING STOCKHOLDERS............................... The Shares being offered hereby are being offered for the
account of the Selling Stockholders specified under the
caption "Selling Stockholders."
NASDAQ TRADING SYMBOL.............................. PMTI
</TABLE>
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RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
SHOULD NOT BE MADE BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. IN CONNECTION WITH THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY IS HEREBY IDENTIFYING
IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED IN FORWARD-LOOKING STATEMENTS OF THE COMPANY
MADE BY OR ON BEHALF OF THE COMPANY. THE COMPANY ADVISES READERS NOT TO PLACE
UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE HEREOF, IN LIGHT OF THE RISKS AND UNCERTAINTIES TO WHICH THEY ARE SUBJECT.
THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY THE RESULT OF ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS
OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS. THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS.
SUBSTANTIAL AND CONTINUING LOSSES. The Company incurred a net loss of
$37,863,792 for the year ended December 31, 1996, a net loss of $36,989,569 for
the quarter ended September 30, 1997 and a net loss of $67,167,702 for the nine
months ended September 30, 1997. Losses of this magnitude are expected to
continue for the near term, and there can be no assurance that the Company will
achieve profitable operations or that profitable operations will be sustained if
achieved. The Company's accumulated deficit was $64,971,200 at December 31,
1996, and $133,366,880 at September 30, 1997. Each of the Company's
subsidiaries, Dynaco Corp. ("Dynaco"), Star Medical Technologies, Inc. ("Star"),
Spectrum Medical Technologies, Inc. ("Spectrum"), Palomar Medical Products, Inc.
("PMP") and Cosmetic Technology International, Inc. ("CTI") has had a history of
losses. There can be no assurance that these companies will achieve profitable
operations or that profitable operations will be sustained if achieved. The
Company anticipates incurring substantial research and development expenses,
which will reduce cash available to fund current operations. The Company must
continue to secure additional financing to complete its research and development
activities, commercialize its current and proposed cosmetic laser products and
fund ongoing operations. The Company anticipates that it will require
substantial additional financing during the immediate foreseeable future. The
Company's strategic plan is to liquidate certain assets to fund its core
operations over the next twelve-month period. However, there can be no assurance
that the Company will be able to execute this strategy, due to market and legal
factors outside its control, among other things. Additionally, to the extent
that the Company incurs indebtedness to fund increased levels of accounts
receivable or to finance the acquisition of capital equipment or issues debt
securities in connection with any acquisition, the Company will be subject to
risks associated with incurring substantial additional indebtedness, including
the risks that interest rates may fluctuate and cash flow may be insufficient to
pay principal and interest on any such indebtedness. The Company continues to
investigate several financing alternatives, including strategic partnerships,
additional bank financing, liquidation of assets, and private debt and equity
financing, among other sources. While the Company regularly reviews potential
funding sources, there can be no assurance that the current levels of funding or
additional funding will be available, or, if available, will be on terms
satisfactory to the Company. Failure to obtain additional financing could have a
material adverse effect on the Company, including possibly requiring it to
significantly curtail its operations. (See December 31, 1996 Form 10-KSB/A-4
"Item 1. Description of Business," Note 1 to Financial Statements, and "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations"; and September 30, 1997 Form 10-Q Part I "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations.")
COHERENT AGREEMENT. The Company has entered into a Sales Agency,
Development and License Agreement (the "Coherent Agreement") with Coherent, Inc.
("Coherent") under which Coherent will act as exclusive distributor for the
Company's laser based hair removal systems in the United States, Far East and
most European countries. As a result, the Company no longer has its own sales
force in these countries. If Coherent proves unable to sell Palomar's hair
removal lasers in the volume anticipated, it could have a material adverse
effect on the Company's business, financial condition and results of operations.
NEXAR. As of January 1, 1998, the Company owns 37% of the voting capital
stock of Nexar. In order to successfully execute its business plan, the Company
is to a certain degree dependent on the success of Nexar and Nexar's ability to
fund its operations and achieve profitability in the near term. The Company may
reduce its ownership of Nexar over time as it continues to focus on its core
cosmetic laser business. (See "Substantial and Continuing Losses;" "Highly
Competitive Industries;" "Government Regulation;" "Uncertainty of Market
Acceptance;" "Technological Obsolescence;" "Lack of Patent Protection;"
"Dependence on Sole Suppliers;" and "Dependence on Substantial Customers.")
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RISKS ASSOCIATED WITH PENDING LITIGATION. The Company and its
subsidiaries are involved in disputes with third parties. Such disputes have
resulted in litigation with such parties and, although the Company is a
plaintiff in several matters, the Company is subject to claims and counterclaims
for damages and has incurred, and likely will continue to incur, legal expenses
in connection with such matters. There can be no assurance that such litigation
will result in favorable outcomes for the Company. The Company is unable to
determine the total expense or possible loss, if any, that may ultimately be
incurred in the resolution of these proceedings. These matters may result in
diversion of management time and effort from the operations of the business.
After consideration of the nature of the claims and the facts relating to these
proceedings, the Company believes that the resolution of these proceedings will
not have a material effect on the Company's business, financial condition and
results of operations; however, the results of these proceedings, including any
potential settlements, are uncertain and there can be no assurance to that
effect. (See September 20, 1997 Form 10-Q, Part II "Item 1. Legal Proceedings.")
HOLDING COMPANY STRUCTURE. The Company has no significant operations
other than those incidental to its ownership of the capital stock of its
subsidiaries. As a holding company, the Company is dependent on dividends or
other intercompany transfers of funds from its subsidiaries to meet the
Company's debt service and other obligations. Claims of creditors of the
Company's subsidiaries, including trade creditors, will generally have priority
as to the assets of such subsidiaries over the claims of the Company and the
holders of the Company's indebtedness.
FUTURE OPERATING STRATEGY. The Company's future operating strategy and
results are dependent on its ability to successfully divest its non-core
subsidiaries and successfully execute its business plan in the cosmetic laser
products and services businesses. There can be no assurance that the Company
will be able to successfully execute this plan.
LIMITED OPERATING HISTORY; RECENT ACQUISITIONS. Many of the Company's
subsidiaries have limited operating histories and are in the development stage,
and the Company is subject to all of the risks inherent in the establishment of
a new business enterprise. The likelihood of success of the Company must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the establishment of a new
business and development of new technologies in the cosmetic laser products and
electronic products industries. These include, but are not limited to,
government regulation, competition, the need to expand manufacturing
capabilities and market expertise, and setbacks in production, product
development, market acceptance and sales and marketing. The Company's prospects
could be significantly affected by its ability to subsequently manage and
integrate the operations of several distinct businesses with diverse products,
services and customer bases in order to achieve cost efficiencies. (See December
31, 1996 Form 10-KSB/A-4 "Item 1. Description of Business" and Note 1 to
Financial Statements.)
NEW VENTURES. The Company's CTI subsidiary has entered into several
agreements with healthcare providers, including Columbia/HCA, to provide
cosmetic laser services at laser treatment centers, and plans to enter into more
such agreements in the future. While the Company believes these new partnerships
are strategically important, there are substantial uncertainties associated with
the development of new products, technologies and services for evolving markets.
The success of these ventures will be determined not only by the Company's
efforts, but also by those of its partners. Initial timetables for the
development and introduction of new technologies, products or services may not
be achieved, and price/performance targets may not prove feasible. External
factors, such as the development of competitive alternatives or government
regulation, may cause new markets to evolve in unanticipated directions. (See
"Highly Competitive Industries," and December 31, 1996 Form 10-KSB/A-4 "Item 1.
Description of Business.")
INVESTMENTS IN UNRELATED BUSINESSES. The Company has investments in
marketable and non-marketable securities and loans to related and unrelated
parties, including approximately $3 million invested in equity securities of
high-tech companies, both public and privately held. The amount that the Company
may ultimately realize from these investments could differ materially from the
value of these investments recorded in the Company's financial statements, and
the ultimate disposition of these investments could result in a loss to the
Company. During the third quarter, the Company established reserves for certain
operating assets and liabilities that resulted in a charge to expense of
approximately $9,426,000. Included in the reserves, the Company recognized a
restructuring charge of $2,700,000 based on the decision to discontinue some
business units and consolidate others. The Company also assessed its non-core
long-term assets and investments and determined that some investments' carrying
value will not be realizable due to the Company's change in strategy. The
Company has fully reserved for all such investments resulting in a charge to to
third quarter operations of approximately $13,548,000. (See September 30, 1997
Form 10-Q Note 2 to Financial Statements and Part I "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations.")
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HIGHLY COMPETITIVE INDUSTRIES. The cosmetic laser industry is highly
competitive and is characterized by the frequent introduction of new products.
The Company competes in the development, manufacturing, marketing and servicing
of laser products with numerous other companies, certain of which have
substantially greater financial, marketing and other resources than the Company.
In addition, the Company's cosmetic laser products face competition from
alternative medical products and procedures, such as pharmaceutical treatment,
electrolysis, waxing and surgery, among others. There can be no assurance that
the Company will be able to differentiate its products from the products of its
competitors or that the marketplace will consider the Company's products to be
superior to competing products or medical procedures. There can be no assurance
that competitors will not develop products or that new technologies will not be
developed that render the Company's products obsolete or less competitive. (See
"Technological Obsolescence.") In addition, in entering areas of business in
which it has little or no experience, such as the opening of laser treatment
centers, the Company may not be able to compete successfully with competitors
that are more established in such areas. (See "New Ventures.")
FLUCTUATIONS IN QUARTERLY PERFORMANCE. The Company's results of
operations have fluctuated substantially and can be expected to continue to vary
significantly. The Company's quarterly operating results depend on a number of
factors, including the timing of the introduction or acceptance of new products
offered by the Company or its competitors, changes in the mix of products sold
by the Company, changes in regulations affecting the cosmetic laser products or
electronics industry, changes in the Company's operating expenses, personnel
changes and general economic conditions.
VOLATILITY OF SHARE PRICE. Factors such as announcements of developments
related to the Company's business, announcements by competitors, quarterly
fluctuations in the Company's financial results, changes in analysts' earnings
estimates, market conditions in the high technology sector, as well as general
economic conditions and other factors have caused the price of the Company's
stock to fluctuate, in some cases substantially, and could continue to do so in
the future. In addition, the stock market has experienced extreme price and
volume fluctuations that have particularly affected the market price for many
technology companies and that have often been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Company's common stock.
GOVERNMENT REGULATION. The Company's laser product business segment is
subject to regulation in the United States and abroad. Failure to comply with
applicable regulatory requirements can result in fines, denial or suspension of
approvals, seizures or recall of products, operating restrictions and criminal
prosecutions, any or all of which could have a material adverse effect on the
Company. Furthermore, changes in existing regulations or adoption of new
regulations could prevent the Company from obtaining, or could affect the timing
of, future regulatory approvals. (See December 31, 1996 Form 10-KSB/A-4 "Item 1.
Description of Business - Government Regulation.")
All laser product devices, including those sold by the Company, are
subject to regulation by the FDA under the Medical Device Amendments of the
United States Food, Drug and Cosmetics Act (the "FDA Act"). The Company's future
operating results are dependent on its ability to develop, produce and achieve
FDA approval for certain medical products and market new and innovative products
and services. There are numerous risks inherent in this complex process,
including rapid technological change and the requirement that the Company bring
to market in a timely fashion new products and services which meet customers'
changing needs.
FDA CLEARANCE STATUS FOR COSMETIC LASER PRODUCTS. Four of the Company's
lasers have received clearance from the FDA for certain dermatological
applications: the Q-switched Ruby laser, the TruPulse(R) laser, the EpiLaser(TM)
laser system and the StarLite(TM) diode hair-removal laser.
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The Company is also investigating other applications in dermatology for
its laser systems. It will be required to obtain FDA clearance before
commercially marketing any other application. The Company believes that it will
be able to seek such clearance under the 510(k) application process; however, no
assurance can be given that the FDA will not require the Company to follow the
more extensive and time-consuming Pre-Market Approval ("PMA") process. FDA
review of a 510(k) application currently averages about seven to twelve months
and requires limited clinical data based on "substantial equivalence" to a
product marketed prior to 1976, while a PMA review can last for several years
and require substantially more clinical data.
The FDA also imposes various requirements on manufacturers and sellers
of products under its jurisdiction, such as labeling, good manufacturing
practices, record keeping and reporting requirements. The FDA also may require
post-market testing and surveillance programs to monitor a product's effects.
There can be no assurance that the appropriate clearances from the FDA will be
granted, that the process to obtain such clearances will not be excessively
expensive or lengthy or that the Company will have sufficient funds to pursue
such clearances.
No assurance can be given that FDA approval will be obtained for the
Company's current or proposed laser products on a timely basis, if at all. The
laser products segment of the Company's business is, and will continue to be,
critically dependent upon FDA approval of its current and proposed cosmetic
laser products. Delays or failure to obtain such approval would have a material
adverse effect on the Company.
OTHER GOVERNMENT APPROVALS FOR LASER PRODUCTS; GOOD MANUFACTURING
PRACTICES. In order to be sold outside the United States, the Company's products
are subject to FDA permit requirements that are conditioned upon clearance by
the importing country's appropriate regulatory authorities. Many countries also
require that imported products comply with their own or international electrical
and safety standards. Additional approvals may be required in other countries.
The Company's TruPulse laser and EpiLaser laser system have received the CE Mark
pursuant to the European Medical Device Directive which allows that laser to be
sold in all countries that recognize the CE Mark, including the countries that
comprise the European Community. The Company has yet to apply for international
approval for its diode laser for use in cosmetic surgery and dermatology.
The Company is subject to the laser radiation safety regulations of the
FDA Act administered by the National Center for Devices and Radiological Health
("CDRH") of the FDA. These regulations require a laser manufacturer to file new
product and annual reports, to maintain quality control, product testing and
sales records, to distribute appropriate operation manuals, to incorporate
certain design and operating features in lasers sold to end-users and to certify
and label each laser sold to end-users as one of four classes of lasers (based
on the level of radiation from the laser). In addition, various warning labels
must be affixed on the product and certain protective devices must be installed
depending upon the class of product. Under the Act, the Company is also required
to register with the FDA as a medical device manufacturer and is subject to
inspection on a routine basis by the FDA for compliance with Good Manufacturing
Practice ("GMP") regulations. The GMP regulations impose certain procedural and
documentation requirements upon the Company relevant to its manufacturing,
testing and quality control activities. The CDRH is empowered to seek fines and
other remedies for violations of these regulatory requirements.
UNCERTAINTY OF MARKET ACCEPTANCE. The Company is developing new products
intended for use in the cosmetic laser products segment. As with any new
products, there is substantial risk that the marketplace may not accept or be
receptive to the potential benefits of such products. Market acceptance of the
Company's current and proposed products will depend, in large part, upon the
ability of the Company or any marketing partners to demonstrate to the
marketplace the advantages of the Company's products over other types of
products. There can be no assurance that applications or uses for the Company's
current and proposed products will be accepted by the marketplace or that any of
the Company's current or proposed products will be able to compete effectively.
(See December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of Business.")
DEPENDENCE ON THIRD PARTY RESEARCHERS. The Company is substantially
dependent upon third party researchers and others, over which the Company will
not have absolute control, to satisfactorily conduct and complete research on
behalf of the Company and to grant to the Company favorable licensing terms for
products which may be developed. The Company has entered into a number of
research agreements with recognized research hospitals and clinical
laboratories. These research institutions include the Wellman Labs at
Massachusetts General Hospital. The Company provides research funding, laser
technology and optics know-how in return for licensing agreements with respect
to specific medical applications and patents. Management believes that this
method of conducting research and development provides a higher level of
technical and clinical expertise than it could provide on its own and in a more
cost efficient manner. The Company's success will be highly dependent upon the
results of the research, and there can be no assurance that these research
agreements will provide the Company with marketable products in the future or
that any of the products developed under these agreements will be profitable for
the Company. (See December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of
Business" and Note 6 to Financial Statements.)
10
<PAGE>
TECHNOLOGICAL OBSOLESCENCE. The markets for the Company's products are
characterized by rapid and significant technological change, evolving industry
standards and frequent new product introductions and enhancements. Many of the
Company's products and products under development are technologically
innovative, and require significant planning, design, development and testing at
the technological, product and manufacturing process levels. These activities
require significant capital commitments and investment by the Company. The
Company's failure to develop products in a timely manner in response to changes
in the industry, whether for financial, technological or other reasons, will
have a material adverse effect on the Company's business, financial condition
and results of operations. (See December 31, 1996 Form 10-KSB/A-4 "Item 1.
Description of Business.")
NEED FOR CONTINUED PRODUCT DEVELOPMENT. Although the Company received
FDA clearance in March 1997 to commercially market its EpiLaser laser system for
hair removal, the Company is continuing to study this laser system to optimize
performance and treatment parameters.
LACK OF PATENT PROTECTION. The Company currently holds several patents
and intends to pursue various additional avenues that it deems appropriate to
protect its technology. There can be no assurance, however, that the Company
will file any additional patent applications or that any patent applications
that have been, or may be, filed will result in issued patents, or that any
patent, patent application, know-how, license or cross-license will afford any
protection or benefit to the Company.
The cosmetic laser device market has been characterized by substantial
litigation regarding patent and other intellectual property rights. One of the
Company's competitors in the cosmetic laser business has filed suit against the
Company alleging patent infringement, among other things. In both the cosmetic
laser products and the electronic products segments, litigation, which could
result in substantial cost to and diversion of effort by the Company, may be
necessary to protect trade secrets or know-how owned by or licensed to the
Company or to determine the enforceability, scope and validity of the
proprietary rights of others. Adverse determination in litigation or
interference proceedings could subject the Company to significant liabilities to
third parties, require the Company to seek licenses from third parties and could
prevent the Company from manufacturing and selling its products, all of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. (See September 30, 1997 10-Q, Part II "Item
1. Legal Proceedings.")
POSSIBLE PATENT INFRINGEMENTS. In the medical products segment, the
Company is aware of patents relating to laser technologies used in certain
applications. The Company intends to pursue such laser technologies in the
future; hence, if the patents relating to those technologies are valid and
enforceable, they may be infringed by the Company. After consulting with outside
counsel to the Company, the Company believes that it is not infringing currently
on patents held by others; however, were the issue ever to be litigated, a court
could reach a different conclusion. If the Company's current or proposed
products are, in the opinion of patent counsel, infringing on any of these
patents, the Company intends to seek non-exclusive, royalty-bearing licenses to
such patents but there can be no assurance that any such license would be
available on favorable terms, if at all. One of the Company's competitors in the
cosmetic laser business has filed suit against the Company alleging patent
infringement, among other things. In the electronic products segment, the
Company has not been notified that it is currently infringing on any patents nor
has it been the subject of any patent infringement action. No assurance can be
given that infringement claims will not be made or that the Company would
prevail in any legal action with respect thereto. Defense of a claim of
infringement would be costly and could have a material adverse effect on the
Company's business, even if the Company were to prevail. (See September 30, 1997
10-Q, Part II "Item 1. Legal Proceedings.")
DEPENDENCE ON PROPRIETARY RIGHTS. The Company relies on trade secrets
and proprietary know-how which it seeks to protect, in part, by confidentiality
agreements with its collaborators, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or be independently developed by competitors.
NEED FOR QUALIFIED PERSONNEL/DEPENDENCE ON KEY PERSONNEL. The Company's
ability to develop, manufacture and market all of its products, and to attain a
competitive position within the laser products and electronics industries, will
depend, in large part, on its ability to attract and retain qualified personnel.
Competition for qualified personnel in these industries is intense and the
Company will be required to compete for such personnel with companies which may
have greater financial and other resources; there can be no assurance that the
Company will be successful in attracting, assimilating and retaining the
personnel it requires to grow and operate profitably. The Company's inability to
attract and retain such personnel could have a material adverse effect upon its
business, financial condition and results of operations.
11
<PAGE>
The Company's future success depends to a significant extent on its
executive officers and certain technical, managerial and marketing personnel.
The loss of the services of any of these individuals or group of individuals
could have a material adverse effect on the Company's business, financial
condition and results of operations.
ISSUANCE OF PREFERRED STOCK AND DEBENTURES COULD AFFECT RIGHTS OF COMMON
SHAREHOLDERS. The Company is authorized to issue up to 5 million shares of
Preferred Stock, $.01 par value. The Preferred Stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. In July 1996, the Company issued 6,000 shares of
Series F Convertible Preferred Stock at a price of $1,000 per share. In
September 1996, the Company issued 10,000 shares of Series G Convertible
Preferred Stock at a price of $1,000 per share. As of January 7, 1998, 7,316
shares of Series G Preferred Stock were converted into 602,824 shares of common
stock and 956,388 shares of Nexar common stock and $47,731 in cash dividends. In
March 1997, the Company issued 6,000 shares of Series H Convertible Preferred
Stock at a price of $1,000 per share. In May 1997, the Company issued an
additional 10,000 shares of Series H Convertible Preferred Stock at a price of
$1,000 per share. As of January 7, 1998, 8,690 shares of Series H Preferred
Stock were converted into 5,708,719 shares of common stock. In July 1996, the
Company issued 9,675 units in a convertible debenture financing. Each unit
consisted of a convertible debenture denominated in 1,000 Swiss francs (the
"Swiss franc Debentures") and a warrant to purchase 24 shares of the Company's
common stock at $16.50 per share. In February 1997, 300 units were redeemed by
the Company for an aggregate price of $195,044. As of November 13, 1997, acting
under applicable provisions of the indenture, the Company notified the holders
of the Swiss franc Debentures that it is causing the conversion of all of the
Swiss franc Debentures into an aggregate of 914,024 shares of the Company's
common stock. These shares have not been accounted for in shares outstanding as
the Debentures are still outstanding. The Company is involved in litigation
regarding certain provisions of the indenture. (See September 30, 1997 Form
10-Q, Part II "Item 1. Legal Proceedings.") In October 1996, the Company issued
$5,000,000 in 4.5% Convertible Subordinated Promissory Notes. As of January 7,
1998, $4,900,000 principal amount was converted into 1,381,264 shares of common
stock. In December 1996 and January 1997, the Company issued a total of
$6,000,000 in 5% Convertible Debentures. As of January 7, 1998, $4,076,563 was
converted into 2,074,992 shares of common stock. In March 1997, the Company
issued $5,500,000 in 5% Convertible Debentures. As of January 7, 1998,
$4,340,000 was converted into 2,794,892 shares of common stock. In March 1997,
the Company issued $500,000 in 6% Convertible Debentures. In September 1997, the
Company issued a total of $7,000,000 in 6%, 7% and 8% Convertible Debentures.
The issuance of any such additional Preferred Stock or Debentures could affect
the rights of the holders of Shares, and could reduce the market price of the
Shares. In particular, specific rights granted to future holders of Preferred
Stock or Debentures could be used to restrict the Company's ability to merge
with or sell its assets to a third party, thereby preserving control of the
Company by the existing control group. (See December 31, 1996 Form 10-KSB/A-4
"Item 1. Description of Business," "Item 5. Market for Common Equity and Related
Stockholder Matters," and Notes 4 and 5 to Financial Statements and September
30, 1997 Form 10-Q, Notes 7 and 8 to Financial Statements and Part II, "Item 2.
Changes in Securities.")
ISSUANCE OF RESERVED SHARES; REGISTRATION RIGHTS. As of January 7, 1998,
the Company had 45,081,273 shares of common stock outstanding. The Company has
reserved an additional 31,144,871 shares for issuance as follows: (1) 3,709,504
shares for issuance to key employees, officers, directors, consultants and
advisors pursuant to the Company's Stock Option Plans; (2) 166,674 shares for
issuance to employees, officers and directors pursuant to the Company's 401(k)
Plan; (3) 984,623 shares for issuance pursuant to the Company's Employee Stock
Purchase Plan; (4) 9,223,030 shares for issuance upon exercise of three-, four-
five- and seven-year warrants issued to certain lenders, investors, consultants,
directors and officers (a portion of which are subject to certain antidilutive
adjustments); (5) 600,000 shares for issuance upon conversion of the 6,000
shares of Series F Convertible Preferred Stock; (6) 487,176 shares for issuance
upon conversion of the 2,684 shares of Series G Convertible Preferred Stock; (7)
6,486,049 shares for issuance upon conversion of the 7,310 shares of Series H
Convertible Preferred Stock (8) 1,275,000 shares for issuance upon conversion of
the Swiss franc Debentures; (9) 65,393 shares for issuance upon conversion of
$100,000 principal amount of a 4.5% Convertible Subordinated Promissory Note;
(10) 525,008 shares for issuance upon conversion of $1,923,437 principal amount
of a 5% Convertible Debenture; (11) 1,076,959 shares for issuance upon
conversion of $1,160,000 principal amount of a 5% Convertible Debenture; (12)
45,455 shares for issuance upon conversion of $500,000 principal amount of a 6%
Convertible Debenture and (13) 6,500,000 shares for issuance upon conversion of
the Debentures. All of the foregoing reserved shares are, or the Company intends
for them shortly to be, registered with the Commission and therefore freely
saleable on Nasdaq or elsewhere.
12
<PAGE>
PRODUCT LIABILITY EXPOSURE. Cosmetic laser product companies face an
inherent business risk of financial exposure to product liability claims in the
event that the use of their products results in personal injury. The Company's
products are and will continue to be designed with numerous safety features, but
it is possible that patients could be adversely affected by use of one of the
Company's products. Further, in the event that any of the Company's products
prove to be defective, the Company may be required to recall and redesign such
products. Although the Company has not experienced any material losses due to
product liability claims to date, there can be no assurance that it will not
experience such losses in the future. The Company maintains general liability
insurance in the amount of $1,000,000 per occurrence and $2,000,000 in the
aggregate and maintains umbrella coverage in the aggregate amount of
$25,000,000; however, there can be no assurance that such coverage will continue
to be available on terms acceptable to the Company or that such coverage will be
adequate for liabilities actually incurred. In the event the Company is found
liable for damages in excess of the limits of its insurance coverage, or if any
claim or product recall results in significant adverse publicity against the
Company, the Company's business, financial condition and results of operations
could be materially and adversely affected. In addition, although the Company's
products have been and will continue to be designed to operate in a safe manner,
and although the Company attempts to educate medical personnel with respect to
the proper use of its products, misuse of the Company's products by medical
personnel over whom the Company cannot exert control may result in the filing of
product liability claims or significant adverse publicity against the Company.
DEPENDENCE ON SOLE SUPPLIERS. The Company relies on outside suppliers
for substantially all of its manufacturing supplies, parts and components.
Several component parts of the Company's cosmetic laser products are
manufactured exclusively by one supplier. There can be no assurance that the
Company will be able to obtain a sufficient supply of such components at
commercially reasonable prices or at all. A shortage of necessary parts and
components or the inability of the Company to obtain such parts and components
would have a material adverse effect on the Company's business, financial
condition and results of operations. (See December 31, 1996 Form 10-KSB/A-4
"Item 1. Description of Business.")
UNCERTAINTY OF HEALTHCARE REIMBURSEMENT AND REFORM. The healthcare
industry is subject to changing political, economic and regulatory influences
that may affect the procurement practices and operations of healthcare industry
participants. During the past several years, state and federal government
regulation of reimbursement rates and capital expenditures in the United States
healthcare industry has increased. Lawmakers continue to propose programs to
reform the United States healthcare system, which may contain programs to
increase governmental involvement in healthcare, lower Medicare and Medicaid
reimbursement rates or otherwise change the operating environment for the
Company's customers. Healthcare industry participants may react to these
proposals by curtailing or deferring investments, including investments in the
Company's products.
HAZARDOUS SUBSTANCE AND ENVIRONMENTAL CONCERNS; LACK OF ENVIRONMENTAL
IMPAIRMENT INSURANCE. The manufacture of substrate interconnect products
involves numerous chemical solvents and other solid, chemical and hazardous
wastes and materials. The Company's Dynaco subsidiary is subject to a variety of
environmental laws relating to the generation, storage, handling, use, emission,
discharge and disposal of these substances and potentially significant risks of
statutory and common law liability for environmental damage and personal injury.
The Company, and in certain circumstances, its officers, directors and
employees, may be subject to claims arising from the Company's manufacturing
activities, including the improper release, spillage, misuse or mishandling of
hazardous or non-hazardous substances or material. The Company may be strictly
liable for damages, regardless of whether it exercised due care and complied
with all relevant laws and regulations. The Company does not currently maintain
environmental impairment insurance. There can be no assurance that the Company
will not face claims resulting in substantial liability for which the Company is
uninsured or that hazardous substances are not or will not be present at the
Company's facilities. The Company believes that it operates its Dynaco
facilities in substantial compliance with existing environmental laws and
regulations. In June 1989 and April 1994, Dynaco conducted environmental studies
of its Tempe, Arizona substrate manufacturing facility and did not discover any
contamination requiring remediation. Failure to comply with proper hazardous
substance handling procedures or violation of environmental laws and regulations
would have a material adverse effect on the Company. (See December 31, 1996 Form
10-KSB/A-4 "Item 1. Description of Business.")
13
<PAGE>
SIGNIFICANT OUTSTANDING INDEBTEDNESS; SUBORDINATION OF DEBENTURES. The
Company has incurred substantial indebtedness in relation to its equity capital
and will be subject to all of the risks associated with substantial leverage,
including the risk that available cash may not be adequate to make required
payments to the holders of the Company's debentures. The Company's ability to
satisfy its obligations under the debentures from cash flow will be dependent
upon the Company's future performance and will be subject to financial, business
and other factors affecting the operation of the Company, many of which may be
beyond the Company's control. In the event the Company does not have sufficient
cash resources to satisfy quarterly interest or other repayment obligations to
the holders of the debentures, the Company will be in default under the
debentures, which would have a material adverse effect on the Company. To the
extent that the Company is required to use cash resources to satisfy interest
payments to the holders of the debentures, it will have less resources available
for other purposes. Inability of the Company to repay the debentures upon
maturity would have a material adverse effect on the Company, which could result
in a reduction of the price of the Company's Shares. The debentures will be
unsecured and subordinate in right of payment to all senior indebtedness of the
Company. The debentures do not restrict the Company's ability to incur
additional senior indebtedness and most other indebtedness. The terms of senior
indebtedness now existing or incurred in the future could affect the Company's
ability to make payments of principal and/or interest to the holders of
debentures. (See December 31, 1996 Form 10-KSB/A-4 "Item 5. Market for Common
Equity and Related Shareholder Matters"; September 30, 1997 Form 10-Q, Notes 7
and 8 to Financial Statements and Part II "Item 1. Legal Proceedings;" "Item 2.
Changes in Securities.")
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company is subject to
the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law, which prohibit the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 could have the effect of delaying or preventing a change of control
of the Company. The Company's stock option grants generally provide for an
exercise of some or all of the optioned stock, including non-vested shares, upon
a change of control or similar event. The Board of Directors has authority to
issue up to 5,000,000 shares of Preferred Stock and to fix the rights,
preference, privileges and restrictions, including voting rights, of these
shares without any further vote or action by the stockholders. The rights of the
holders of the common stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, thereby delaying,
deferring or preventing a change in control of the Company. Furthermore, such
Preferred Stock may have other rights, including economic rights senior to the
common stock, and, as a result, the issuance of such Preferred Stock could have
a material adverse effect on the market value of the common stock. (See
"Issuance of Preferred Stock and Debentures Could Affect Rights of Common
Shareholders.")
RISKS ASSOCIATED WITH ACQUISITIONS. Since going public, the Company
acquired seven companies. Although the Company intends to focus primarily on its
laser based hair removal business going forward, the Company nevertheless
evaluates potential acquisitions of businesses, products and technologies that
would complement or expand its core business. Promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory approvals.
Acquisitions may result in the incurrence of additional debt, the write-off of
in-process research and development or technology acquisition and development
costs and the amortization of expenses related to goodwill and other intangible
assets, any of which could have a material adverse effect on the Company's
business, financial condition, results of operations and cash flow. Acquisitions
involve numerous additional risks, including difficulties in the assimilation of
the operations, services, products and personnel of the acquired company, the
diversion of management's attention from other business concerns, entering
markets in which the Company has little or no direct prior experience and the
potential loss of key employees of the acquired company. In order to finance
acquisitions, it may be necessary for the Company to raise additional funds
through public or private financings. Any equity or debt financing, if available
at all, may be on terms which are not favorable to the Company and, in the case
of equity financing, may result in dilution to the Company's stockholders. (See
December 31, 1996 Form 10-KSB/A-4 "Item 1. Description of Business" and Note 1
to Financial Statements.)
14
<PAGE>
THE COMPANY
The Company was organized to design, manufacture and market lasers,
delivery systems and related disposable products for use in medical procedures.
The Company currently operates in three business segments: cosmetic laser
products, cosmetic laser services, and electronic products. The Company is in
the process of divesting its non-core electronics subsidiaries. In the cosmetic
laser products segment, the Company is focusing its efforts on the FDA-cleared
EpiLaser hair removal laser and other hair removal lasers are currently under
development. The Company recently entered into an agreement with the world's
largest laser company, Coherent, pursuant to which Coherent will act as
exclusive distributor for the Company's laser hair removal systems in the U.S.,
Far East and most European countries. Under this agreement, Coherent also will
obtain a right of first refusal to distribute the Company's future laser
products, and Coherent and the Company have agreed to cross-license certain hair
removal technology. The Company anticipates that Coherent, with its direct sales
force numbering over 200, will be able to sell the Company's products in greater
volume than the Company could in the past through its independent sales
representatives. However, the Company does not anticipate that its gross margins
will improve until it introduces its new ruby and diode cosmetic lasers
currently under development. The Company is developing ruby and diode cosmetic
lasers for use in clinical trials and is engaged in the research and development
of additional cosmetic laser and surgical products. (See December 31, 1996 Form
10-KSB/A-4 "Item 1. Description of Business--Medical Products and Lasers in
Medicine; Future Products.") The Company has entered into a number of research
agreements with recognized research hospitals and clinical laboratories. The
Company provides research funding, laser technology and optics know-how in
return for licensing agreements to specific cosmetic laser applications and
patents. Management feels that this method of conducting research and
development provides a higher level of technical and clinical expertise than it
could provide on its own and in a more cost efficient manner.
In late 1996, CTI was formed as a wholly-owned subsidiary of the
Company. CTI is a services company which intends to establish a network of
cosmetic dermatological laser sites with medical services partners in key
geographic locations. Each site will be provided a turnkey package of laser
technology, equipment, training and service, operations personnel, strategic
advertising and marketing programs, patient financial credit programs and
management assistance. In early 1997, CTI entered into an agreement with
Columbia/HCA to establish revenue sharing sites throughout the country in
existing Columbia/HCA facilities. To date, CTI has established fourteen sites.
CTI's revenues from its operations for the year ended December 31, 1997 were
approximately $900,000.
In February 1997, Palomar Medical Products, Inc. was formed as a
wholly-owned subsidiary with the purpose of consolidating the management and
operations of the medical products companies. The Company plans further
consolidation in this business, as well, by focusing principally on its laser
hair removal technology. As part of this consolidation, the Company has entered
into an agreement with a new entity formed by the management of Tissue
Technologies, Inc.("TTI") pursuant to which the Company obtained (i) a note
receivable; (ii) a fifteen percent equity stake and warrants for an additional
ten percent equity stake in the new entity; (iii) royalties on cosmetic laser
products sold by the new entity and (iv) discounted pricing on the TruPulse
laser system. In exchange, the new entity acquired TTI's assets and liabilities.
The Company has also reached an agreement with Dermascan, Inc. to sell that
subsidiary to its management.
In September 1995, the Company established Palomar Electronics
Corporation ("PEC"), a wholly-owned subsidiary, as part of its plan to separate
the electronics segment from the cosmetics segment. On April 9, Nexar completed
an initial public offering of its common stock. Nexar sold 2,500,000 shares of
its common stock for its own account at $9.00 per share and received net
proceeds of approximately $20,300,000. (See December 31, 1996 Form 10-KSB/A-4
"Item 1. Description of Business.) In the second quarter of 1997, the Company
sold all of the issued and outstanding common stock of its former subsidiary CD
Titles. The Company has signed an agreement with the current management of
Dynaco to sell to them Dynaco and its subsidiaries in a two phase transaction;
the first phase begins with the immediate sale of Comtel and Dynamem and, in the
second phase, Dynaco will be sold by June 30, 1998 at the latest. The overall
sale price for both phases is approximately ten million dollars in notes, common
stock and warrants, payable over time. As part of its divestiture strategy, the
Company will also consider winding down unprofitable subsidiaries if doing so
provides greater economic benefits to the Company than a sale.
15
<PAGE>
In the past, the Company made early stage investments in core
technologies and in companies that management felt were strategic to the
Company's business or would yield a higher than average financial return to
support the Company's core business. Some of these investments were with
companies that were related to some of the directors and officers of the
Company. In the third quarter of 1997, the Company determined that the carrying
value of some of its non-core long-term assets and investments would not be
realizable due to the change in the Company's strategy. Accordingly, the Company
fully reserved for all such investments, resulting in a charge to third quarter
operations of approximately $13,548,000. (See December 31, 1996 Form 10-KSB/A-4
"Management Discussion and Analysis-- Liquidity and Capital Resources" and "Item
12. Certain Relationships and Related Transactions.")
The Company will continue to develop, acquire or license technologies
that can be integrated into its current and proposed products in the cosmetic
laser business segment. The Company intends to address very large markets
incorporating its core technology with proprietary products and services and
structure its operations to strive to be the low-cost producer and provider of
these products and services. The Company intends to seek agreements or
arrangements with other medical products and high technology companies in order
to acquire technical and financial assistance in the research and development of
such products and in the extensive experimentation and testing required to
obtain regulatory approvals in the United States and elsewhere.
The Company's strategic plan is to liquidate certain assets to fund its
core operations over the next twelve-month period. (See "Risk
Factors--Substantial and Continuing Losses.")
USE OF PROCEEDS
The Company will receive no part of the proceeds from the sale of any of
the Shares by the Selling Stockholders.
16
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of shares of common stock by the Selling Stockholders as of the date
of this Prospectus and the number of such shares included for sale in this
Prospectus assuming the sale of all Shares being offered by this Prospectus. The
number of shares included in the Registration Statement of which this Prospectus
is a part and available for resale (i) is based, in part, upon an estimate of
the number of shares underlying the Debentures utilizing a hypothetical
conversion price of $1.08, (ii) is subject to adjustment and (iii) could be
materially more or less than such estimated amount depending on factors which
cannot be predicted by the Company at this time, including, among others, the
future market price of the Company's common stock. The use of such hypothetical
prices is not intended, and should in no way be construed, to constitute a
prediction as to the future market price of the Company's common stock. To the
best of the Company's knowledge, except as stated in this Prospectus, the
Selling Stockholders have not held any office or maintained any material
relationship with the Company or any of its predecessors or affiliates over the
past three years. The Selling Stockholders reserve the right to reduce the
number of shares offered for sale or to otherwise decline to sell any or all of
the Shares registered hereunder.
<TABLE>
<CAPTION>
Shares Shares Shares
owned to be owned
Selling prior to sold in after
Stockholders Offering (1) Offering(2) Offering
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JNC Opportunity Fund Ltd. (3) 3,456,555 3,456,555 - -
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11 Bermuda
Southbrook International Investments, Ltd. (4) 2,093,205 1,975,174 118,031 -
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, NY 10111
Diversified Strategies Fund, L.P. (5) 1,481,380 1,481,380 - -
c/o Encore Capital Management L.L.C.
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Coast Business Credit (6) 5,000,000(6) 5,000,000(6) - -
245 Fischer Avenue
Suite A1
Coasta Mesa, CA 92626
Clearwater Fund IV, LLC 540,000 300,000 240,000 -
c/o Clearwater Funds
611 Druid Road East
Suite 200
Clearwater, FL 33756
</TABLE>
1. Pursuant to the rules of the Commission, shares of common stock which an
individual or group has a right to acquire within 60 days pursuant to
the exercise of options, warrants or certain other derivitive
instruments (including the Debentures) are deemed to be outstanding for
the purpose of computing the ownership of such individual or group. In
addition, pursuant to the terms of the Debentures as described below,
the conversion rights of the Debentureholders are limited to the extent
that the number of shares of common stock thereby issuable, together
with the number of shares of common stock then held by such holder and
its affiliates (not including shares which have not been converted),
exceed 4.9% of the then outstanding common stock of the Company, as
determined in accordance with Section 13(d) of the Exchange Act.
2. The actual number of shares set forth represent an estimate of the
number of shares of common stock to be offered by the Selling
Stockholders; the actual number of shares of common stock issuable upon
conversion of the Debentures is indeterminate, is subject to adjustment
and could be materially less or more than such estimated number
depending on a number of factors which cannot be predicted by the
Company at this time, including among other factors, the future market
price of the common stock. The actual number of shares of common stock
offered hereby, and included in the Registration Statement of which this
17
<PAGE>
prospectus is a part, includes such additional shares of common stock as
may be issued or issuable upon conversion of the Debentures by reason of
the floating rate conversion price mechanism or other adjustment
mechanisms described therein, or by reason of any stock split, stock
dividend or similar transaction involving the common stock, in order to
prevent dilution, in accordance with Rule 416 under the Securities Act
of 1933.
3. Represents 3,250,000 shares of common stock issuable upon conversion of
$3,500,000 principal amount of the Debentures and 206,555 shares of
common stock issued in connection with the Debentures. The Debentures
may be converted at 100% of the average closing bid price for the ten
(10) days preceding conversion. The Debentures accrue interest at 6% for
the first 179 days, 7% for the following 90 days and 8% thereafter.
4. Represents 1,857,143 shares of common stock issuable upon conversion of
2,000,000 principal amount of the Debentures and 118,031 shares of
common stock issued in connection with the Debentures. The Debentures
may be converted at 100% of the average closing bid price for the ten
(10) days preceding conversion. The Debentures accrue interest at 6% for
the first 179 days, 7% for the following 90 days and 8% thereafter.
5. Represents 1,392,857 shares of common stock issuable upon conversion of
$1,500,000 principal amount of the Debentures and 88,523 shares of
common stock issued in connection with the Debentures. The Debentures
may be converted at 100% of the average closing bid price for the ten
(10) days preceding conversion. The Debentures accrue interest at 6% for
the first 179 days, 7% for the following 90 days and 8% thereafter.
6. Represents 5,000,000 shares of common stock held by Coast Business
Credit as security for a guaranty by the Company.
7. Represents 300,000 shares of common stock issued in connection with a
Securities Purchase Agreement dated December 29, 1997.
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<PAGE>
PLAN OF DISTRIBUTION
The 12,213,109 shares being registered herein for sale by the Selling
Stockholders consist of (i) 6,500,000 shares issuable upon conversion of the
Debentures (ii) 413,109 shares issued in connection with the Debentures; (iii)
5,000,000 shares held as security by a third-party for a guarantee by the
Company and (iv) 300,000 shares of common stock issued in connection with a
Securities Purchase Agreement dated December 29, 1997.
The Selling Stockholders and their respective pledgees, donees,
transferees and other successors in interest may sell the common stock
registered in connection with this Offering on the Nasdaq market system or
otherwise. There will be no charges or commissions paid to the Company by the
Selling Stockholders in connection with the resale of shares offered hereby. It
is anticipated that usual and customary brokerage fees will be paid by the
Selling Stockholders upon sale of the Shares offered hereby. The Company will
pay the other expenses of this Offering. Such sales may be made on one or more
exchanges or in the over-the-counter market, or otherwise at fixed prices, at
prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The Shares may be sold by one or
more of the following methods: (a) a block trade in which the broker so engaged
will attempt to sell the Shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) an exchange distribution in accordance
with the rules of Nasdaq; (d) ordinary brokerage transactions and (e) used to
cover short sales. In effecting sales, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Brokers or
dealers will receive commissions or discounts from Selling Stockholders in
amounts to be negotiated prior to the sale. The Selling Stockholders and brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this Prospectus.
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including certain liabilities under the Securities Act, or
to contribute to payments which the Selling Stockholders will be required to
make in respect thereof.
EXPERTS
The audited financial statements incorporated by reference in this
Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein upon the authority of said
Firm as experts in giving said reports.
LEGAL OPINIONS
The validity of the shares of common stock offered hereby will be passed
upon for the Company by its General Counsel.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
19
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
common stock to be registered are estimated (except for Commission filing fee)
below. All such expenses will be paid by the Registrant.
Securities and Exchange Commission Filing Fee $3,180
Accounting Fees and Expenses 2,500
Legal Fees and Expenses 2,000
Blue Sky Filing Fees and Expenses 500
Printing and Mailing Costs 100
Transfer Agent Fees 500
Miscellaneous 500
-------------------
Total Expenses $9,280
===================
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders to eliminate or limit personal liability of
members of its Board of Directors for violations of a director's fiduciary duty
of care. However, the elimination or limitation shall not apply where there has
been a breach of the duty of loyalty, failure to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase which was deemed illegal or obtaining an improper
personal benefit. The Company's Certificate of Incorporation includes the
following language:
"To the maximum extent permitted by Section 102(b)(7) of the General Corporation
Laws of Delaware, a director of this corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit."
Section 145 of the General Corporation Law of the State of Delaware
generally provides that a corporation may indemnify any director, officer,
employee or agent against expenses, judgments, fines and amounts paid in
settlement in connection with any action against him by reason of his being or
having been such a director, officer, employee or agent, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made, however, if he is adjudged liable for negligence or misconduct in the
performance of his duty to the corporation, unless a court determines that he is
nevertheless entitled to indemnification. If he is successful on the merits or
otherwise in defending the action, the corporation must indemnify him against
expenses actually and reasonably incurred by him. Article IX of the Company's
Bylaws provides indemnification as follows:
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<PAGE>
INDEMNIFICATION
SECTION 1. Actions, Etc. Other Than by or in the Right of the Corporation. The
Corporation shall, to the full extent legally permissible, indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including a grand jury proceeding, and all
appeals (but excluding any such action, suit or proceeding by or in the right of
the Corporation), by reason of the fact that such person is or was a director,
executive officer (as hereinafter defined) or advisory council member of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct in question was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that such person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that such person had reasonable cause to believe that the conduct in
question was unlawful. As used in this Article IX, an "executive officer" of the
Corporation is the president, treasurer, a vice president given the title of
executive vice president, or any officer designated as such pursuant to vote of
the Board of Directors.
SECTION 2. Actions. Etc. by or in the Right of the Corporation. The Corporation
shall, to the full extent legally permissible, indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit, including appeals, by or in the right of the
Corporation to procure a judgment in its favor, by reason of the fact that such
person is or was a director or executive officer of the Corporation as defined
in Section 1 of this Article, or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 3. Determination of Right of Indemnification. Any indemnification of a
director or officer (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that such
indemnification is proper in the circumstances because the director or executive
officer has met the applicable standard of conduct as set forth in Sections 1
and 2 hereof. Such a determination shall be reasonably and promptly made (i) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (ii) (if such a
quorum is not obtainable, or, even if obtainable if a quorum of disinterested
directors so directs) by independent legal counsel in a written opinion, or
(iii) by the stockholders.
SECTION 4. Indemnification Against Expenses of Successful Party. Notwithstanding
any other provision of this Article, to the extent that a director or officer of
the Corporation has been successful in whole or in part on the merits or
otherwise, including the dismissal of an action without prejudice, in defense of
any action, suit or proceeding or in defense of any claim, issue or matter
therein, such person shall be indemnified against all expenses incurred in
connection therewith.
SECTION 5. Advances of Expenses. Expenses incurred by a director or officer in
any action, suit or proceeding shall be paid by the Corporation in advance of
the final disposition of thereof, if such person shall undertake to repay such
amount in the event that it is ultimately determined, as provided herein, that
such person is not entitled to indemnification. Notwithstanding the foregoing,
no advance shall be made by the Corporation if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum of
disinterested directors, or (ii) (if such a quorum is not obtainable or, even if
obtainable, if a quorum of disinterested directors so directs) by independent
legal counsel in a written opinion, that, based upon the facts known to the
21
<PAGE>
Board of Directors or such counsel at the time such determination is made, such
person has not met the relevant standards set forth for indemnification in
Section 1 or 2, as the case may be.
SECTION 6. Right to Indemnification Upon Application: Procedure Upon
Application. Any indemnification or advance under Sections 1, 2, 4 or 5 of this
Article shall be made promptly, and in any event within ninety days, upon the
written request of the person seeking to be indemnified, unless a determination
is reasonably and promptly made by the Board of Directors that such person acted
in a manner set forth in such Sections so as to justify the Corporation's not
indemnifying such person or making such an advance. In the event no quorum of
disinterested directors is obtainable, the Board of Directors shall promptly
appoint independent legal counsel to decide whether the person acted in the
manner set forth in such Sections so as to justify the Corporation's not
indemnifying such person or making such an advance. The right to indemnification
or advances as granted by this Article shall be enforceable by such person in
any court of competent jurisdiction, if the Board of Directors or independent
legal counsel denies the claim therefor, in whole or in part, or if no
disposition of such claim is made within ninety days.
SECTION 7. Other Right and Remedies: Continuation of Rights. The indemnification
and advancement of expenses provided by this Article shall not be deemed
exclusive of any other rights to which any person seeking indemnification or
advancement of expenses may be entitled under any Bylaw, agreement, Vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware or otherwise, both as to action in such person's official
capacity and as to action in another capacity while holding such office. All
rights to indemnification or advancement under this Article shall be deemed to
be in the nature of contractual rights bargained for and enforceable by each
director and executive officer as defined in Section 1 of this Article who
serves in such capacity at any time while this Article and other relevant
provisions of the General Corporation Law of the State of Delaware and other
applicable laws, if any, are in effect. All right to indemnification under this
Article or advancement of expenses shall continue as to a person who has ceased
to be a director or executive officer, and shall inure to the benefit of the
heirs, executors and administrators of such a person. No repeal or modification
of this Article shall adversely affect any such rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts. The Corporation shall also indemnify any
person for attorneys' fees, costs, and expenses in connection with the
successful enforcement of such person's rights under this Article.
SECTION 8. Other Indemnities. The Board of Directors may, by general vote or by
vote pertaining to a specific officer, employee or agent, advisory council
member or class thereof, authorize indemnification of the Corporation's
employees and agents, in addition to those executive officers and to whatever
extent it may determine, which may be in the same manner and to the same extent
provided above.
SECTION 9. Insurance. Upon resolution passed by the Board of Directors, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, advisory council member or agent of the
Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Article.
SECTION 10. Constituent Corporations. For the purposes of this Article,
reference to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors and officers so that any person who is or was a director or officer of
such a constituent corporation or is or was serving at the request of such
constituent corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
SECTION 11. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, executive officer,
advisory council member, and those employees and agents of the Corporation
granted indemnification pursuant to Section 3 hereof as to expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
22
<PAGE>
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including a grand jury proceeding, and all appeals, and any
action by the Corporation, to the full extent permitted by any applicable
portion of this Article that shall not have been invalidated or by any other
applicable law.
SECTION 12. Other Enterprises. Fines. and Serving at Corporation's Request. For
purposes of this Article, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to any employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of any employee benefit plan
shall be deemed to have acted in a manner not opposed to the best interests of
the Corporation" as referred to in this Article.
23
<PAGE>
ITEM 16. EXHIBITS
The following documents have been previously filed as Exhibits to
Registration statement No. 333-42129 and are incorporated herein by reference
except those exhibits indcated with an asterisk which are filed herewith:
Exhibit No. Description
4(b) Form of 6%, 7% and 8% Convertible Debentures Due September 30,
2002.
4(c) Form of Registration Rights Agreement, dated September 30, 1997.
4(d) Form of Securities Purchase Agreement dated September 30, 1997.
4(e* Securities Purchase Agreement dated December 29, 1997.
5* Opinion of General Counsel of Palomar
23(a)* Consent of Arthur Andersen LLP, independent public accountants
23(b)* Consent of General Counsel of Palomar (included in Exhibit 5)
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high and of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of the Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs 2(a)(i) and 2(a)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference herein.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE
offering thereof. (c) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain at the termination of the offering.
(2) The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of any employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time be deemed to be
the initial BONA FIDE offering thereof.
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<PAGE>
(3) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provision, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Lexington, Commonwealth of Massachusetts, on January
8, 1998.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Louis P. Valente
-----------------------------------------
Louis P. Valente, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
/s/ Louis P. Valente Chief Executive Officer, President and January 8, 1998
-------------------------------------- Director (Principal Executive Officer)
Louis P. Valente
/s/ Joseph P. Caruso Vice President, Chief Financial Officer, January 8, 1998
-------------------------------------- Treasurer (Principal Financial Accounting
Joseph P. Caruso Officer)
/s/ Nicholas Economou Director January 8, 1998
--------------------------------------
Nicholas Economou
/s/ A. Neil Pappalardo Director January 8, 1998
--------------------------------------
A. Neil Pappalardo
/s/ James G. Martin Director January 8, 1998
--------------------------------------
James G. Martin
</TABLE>
26
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made part of the registration
statement
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 8, 1998
27
<PAGE>
January 8, 1998
Palomar Medical Technologies, Inc.
45 Hartwell Avenue
Lexington, MA 02173
Gentlemen:
I am familiar with Amendment No. 2 to Registration Statement on Form S-3
(the "S-3 Registration Statement") to which this opinion is an exhibit, to be
filed by Palomar Medical Technologies, Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission under the Securities Act
of 1933, as amended. The S-3 Registration Statement relates to a total of
12,213,109 shares (the "Shares") of the Company's common stock, $.01 par value
per share, issuable pursuant to certain debentures, stock purchase agreement and
a guarantee, both issued/issuable to certain entities.
In arriving at the opinion expressed below, I have examined and relied
on the following documents:
(1) the Certificate of Incorporation and By-Laws of the Company,
each as amended as of the date hereof; and
(2) the records of meetings and consents of the Board of Directors
and stockholders of the Company provided to me by the Company.
In addition, I have examined and relied on the originals or copies
certified or otherwise identified to my satisfaction of all such corporate
records of the Company and such other instruments and other certificates of
public officials, officers and representatives of the Company and such other
persons, and have made such investigations of law, as I have deemed appropriate
as a basis for the opinion expressed below.
Based upon the foregoing, it is my opinion that the Company has
corporate power adequate for the issuance of the Shares. The Company has taken
all necessary corporate action required to authorize the issuance and sale of
the Shares, and when certificates for the Shares have been duly executed and
countersigned and delivered, such Shares will be legally issued, fully paid and
non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the S-3
Registration Statement.
Sincerely,
/s/ Sarah Burgess Reed
------------------------------
Sarah Burgess Reed
General Counsel
Palomar Medical Technologies, Inc.
28
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as of December 29,
1997 by and among PALOMAR MEDICAL TECHNOLOGIES, INC., a Delaware corporation,
with headquarters located at 45 Hartwell Avenue, Lexington, Massachusetts 02173
(the "COMPANY"), and CLEARWATER FUND IV, LLC, a Delaware limited liability
company with offices at 611 Druid Road East, Suite 200, Clearwater, Florida,
34616 (the "BUYER").
WHEREAS:
A. The Buyer wishes to purchase, in the amounts and upon the terms and
conditions stated in this Agreement, shares of the Company's common stock, par
value $.01 per share ("PMTI COMMON STOCK"), and shares of Nexar Technologies,
Inc. common stock, par value $.01 per share ("NEXAR COMMON STOCK"); and
B. The Company and the Buyer are executing and delivering this Agreement
with respect to the issuance of PMTI Common Stock in reliance upon the exemption
from securities registration afforded by Sections 4(2) and 4(6) under the
Securities Act of 1933, as amended (THE "1933 ACT") and/or Rule 506 promulgated
under Regulation D ("REGULATION D") by the United States Securities and Exchange
Commission (the "COMMISSION"); and
C. As further inducement to the Buyer to enter into this Agreement, the
parties hereto desire that the Company provide certain registration rights to
the Buyer upon the terms and conditions stated in this Agreement.
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PMTI COMMON STOCK AND NEXAR COMMON STOCK.
a. Purchase of PMTI Common Stock. The Company shall issue and sell to
the Buyer and the Buyer shall purchase 300,000 shares of PMTI Common Stock for
an aggregate purchase price of $75,000.
b. Purchase of Nexar Common Stock. The Company shall sell to the Buyer
and the Buyer shall purchase 700,000 shares of Nexar Common Stock for an
aggregate purchase price of $1,675,000.
c. Form of Payment. The Buyer shall pay the purchase price for the
shares of PMTI Common Stock and the shares of Nexar Common Stock (the "PURCHASE
PRICE") by wire transfer of immediately available United States Dollars to the
Company on the Closing Date (as defined below). The Company shall promptly
deliver to the Buyer (a) a stock certificate, duly executed on behalf of the
Company, representing 300,000 shares of PMTI Common Stock (the "PMTI STOCK
CERTIFICATE"), (b) a stock certificate representing 700,000 shares of Nexar
Common Stock, duly endorsed for transfer (the "NEXAR STOCK CERTIFICATE") and (c)
a copy of the currently effective registration statement on Form S-1 filed with
the Commission, as amended and supplemented to date, registering the resale of
all shares of Nexar Common Stock acquired pursuant to this Agreement (the "NEXAR
REGISTRATION DOCUMENTATION").
d. Closing Date. The date and time of the issuance and sale of the
shares of PMTI Common Stock, the sale of the shares of Nexar Common Stock and
the delivery of the Nexar Registration Documentation shall be 5:00 p.m. Eastern
Standard Time on December 30, 1997 or such other date and time as may be
mutually agreed to by the parties hereto (the "CLOSING DATE"). The Company shall
deliver the PMTI Stock Certificate as soon as reasonably practicable after the
Closing Date, provided, however, that in no event shall the delivery of said
PMTI Stock Certificate occur later than 30 days after the Closing Date.
2. REGISTRATION RIGHTS
a. Best Efforts.
(i) PMTI agrees to use its commercially reasonable best efforts
to amend or supplement its Registration Statement on Form S-3 filed with
the Commission on December 12, 1997 so as to cause as quickly as
practicable the registration of the resale by the Buyer of all shares of
PMTI Common Stock issuable pursuant to this Agreement or otherwise
currently owned by the Buyer.
(ii) PMTI hereby represents and warrants that a registration
statement has been filed with the Commission registering the resale of
all shares of Nexar Common Stock transferred pursuant to this Agreement,
and that said registration statement is currently in effect.
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b. Damage Shares. If either (A) the amended or supplemented Registration
Statement which PMTI is required to use its best efforts to file pursuant to
Section 2(a) of this Agreement (the "PMTI REGISTRATION STATEMENT") has not been
filed on or before the expiration of 30 days from the date hereof; or (B) said
PMTI Registration Statement has not been declared effective by the Commission on
or before three months from the date hereof, or if, after the PMTI Registration
Statement has been declared effective by the Commission, the Buyer cannot make
sales pursuant to the PMTI Registration Statement by reason of stop order,
PMTI's failure to update the Registration Statement in accordance with the rules
and regulations of the Commission or otherwise, or if the PMTI Common Stock is
not listed or included for quotation on the National Market of the National
Association of Securities Dealers Automated Quotation System ("NASDAQ-NM"), the
New York Stock Exchange (the "NYSE"), the American Stock Exchange (the "AMEX"),
or the NASDAQ SmallCap Market ("NASDAQ SMALLCAP") then, as partial relief for
the damages to the Buyer by reason of any such delay in or reduction of its
ability to sell its shares of PMTI Common Stock (which remedy shall not be
exclusive of any other remedies available at law or in equity) PMTI shall issue
to the Buyer such additional shares of PMTI Common Stock (the "DAMAGE SHARES")
equal to 10,000 multiplied by the sum of: (A) the number of months (prorated for
partial months) after the expiration of 30 days from the date hereof, prior to
the date the PMTI Registration Statement is so filed by PMTI; (B) the number of
months (prorated for partial months) after three months from the date hereof,
and prior to the date the PMTI Registration Statement is declared effective by
the Commission; (C) the number of months (prorated for partial months) that
sales cannot be made pursuant to the PMTI Registration Statement (by reason of
stop order, PMTI's failure to update the PMTI Registration Statement or
otherwise) after the PMTI Registration Statement has been declared effective;
and (D) the number of months (prorated for partial months) that the PMTI Common
Stock is not listed or included for quotation on the NASDAQ-NM, NYSE, AMEX, or
NASDAQ SmallCap after the PMTI Registration Statement has been declared
effective; provided, however, that in no event shall the number of Damage Shares
issued pursuant to this Section 2 exceed 120,000.
Notwithstanding anything to the contrary set forth in this Section 2,
PMTI shall not be required to keep the PMTI Registration Statement effective for
a period greater than six months; provided sales can be made pursuant thereto
during such six month period.
3. BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer represents and warrants to the Company that:
a. Non-Distribution. The Buyer is purchasing the shares of PMTI Common
Stock for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof except pursuant to
sales registered under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor" as
that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. The Buyer understands that the shares of PMTI
Common Stock are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the shares of PMTI Common Stock.
d. Information. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the aforementioned
shares of PMTI Common Stock which have been requested by the Buyer. The Buyer
and its advisors, if any, have been afforded the opportunity to ask questions of
the Company and have received complete and satisfactory answers to any such
inquiries. The Buyer understands that its investment in the PMTI Common Stock
involves a high degree of risk. The Buyer has sought such accounting, legal and
tax advice as it has considered necessary to an informed investment decision
with respect to its acquisition of such securities.
e. Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the aforementioned shares
of PMTI Common Stock or the fairness or suitability of the investment in the
aforementioned shares of PMTI Common Stock, nor have such authorities passed
upon or endorsed the merits of the offering of the aforementioned shares of PMTI
Common Stock.
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f. Transfer or Resale. The Buyer understands that (i) except as provided
in Section 2 of this Agreement the PMTI Common Stock and the Damage Shares have
not been and are not being registered under the 1933 Act or any state securities
laws, and may not be transferred unless (a) subsequently registered thereunder,
or (b) the Buyer shall have delivered to the Company an opinion of counsel,
reasonably satisfactory in form, scope and substance to the Company, to the
effect that the securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; (ii) any sale of such
securities made in reliance on Rule 144 promulgated under the 1933 Act may be
made only in accordance with the terms of said Rule and further, if said Rule is
not applicable, any resale of such securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
Commission thereunder; and (iii) neither the Company nor any other person is
under any obligation to register such securities (other than pursuant to Section
2 of this Agreement) under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
g. Legends. The Buyer understands that unless, and until such time as
the PMTI Common Stock and the Damage Shares have been registered under the 1933
Act as contemplated by Section 2 of this Agreement, the certificates
representing such securities shall bear a restrictive legend in substantially
the following form (and a stop-transfer order may be placed against transfer of
such certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. ANY SUCH SALE,
ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH OR BE EXEMPT FROM
APPLICABLE STATE SECURITIES LAWS.
The legend set forth above as it appears on the PMTI Stock Certificate and on
any certificate representing the Damage Shares shall be removed and the Company
shall issue a certificate without such legend to the holder of such shares of
PMTI Common Stock or the Damage Shares upon which it is stamped, if, unless
otherwise required by federal or state securities laws, (a) the sale of such
shares of PMTI Common Stock or the Damage Shares is registered under the 1933
Act, or (b) in connection with a sale transaction, such holder provides the
Company with an opinion of counsel, in form, substance and scope reasonably
acceptable to the Company, to the effect that a public sale or transfer of the
shares of PMTI Common Stock or the Damage Shares may be made without
registration under the 1933 Act, or (c) such holder provides the Company with
reasonable assurances that the shares of PMTI Common Stock or Damage Shares can
be sold pursuant to Rule 144 under the 1933 Act (or a successor rule thereto)
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold.
h. Authorization; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable in accordance with its terms, subject
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium, and other similar laws affecting the enforcement of
creditors' rights generally.
i. Residency. The Buyer is a resident of the United States.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer that:
a. Organization and Qualification. The Company and each of its
subsidiaries are corporations duly organized and existing in good standing under
the laws of the jurisdiction in which they are incorporated, except, in the case
of any such subsidiaries, as would not have a Material Adverse Effect (as
defined below), and have the requisite corporate power to own their properties
and to carry on their business as now being conducted. The Company and each of
its subsidiaries are duly qualified as a foreign corporation to do business and
is in good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary and where the failure so to
qualify would have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means
any material adverse effect on the operations, properties or financial condition
of the Company and its subsidiaries taken as a whole.
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b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the aforementioned shares of PMTI Common Stock and the Damage Shares and
to sell the aforementioned shares of Nexar Common Stock in accordance with the
terms hereof and thereof, (ii) the execution and delivery of this Agreement by
the Company and the consummation by it of the transactions contemplated hereby
have been duly authorized by the Company's Board of Directors and no further
consent or authorization of the Company, its Board of Directors, or its
stockholders is required, (iii) this Agreement has been duly executed and
delivered by the Company, and (iv) this Agreement constitutes the valid and
binding obligations of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies or by other equitable principles of general application.
c. Issuance of Securities. The aforementioned shares of PMTI Common
Stock are duly authorized, validly issued and non-assessable, and free from all
taxes, liens and charges with respect to the issue thereof. To the best
knowledge of the Company, the aforementioned shares of Nexar Common Stock are
duly authorized, validly issued, fully paid and non-assessable, and free from
all taxes, liens and charges with respect to the issue thereof. The Damage
Shares, if any, will be duly authorized, validly issued, fully paid and
non-assessable, and free from all taxes, liens and changes with respect to the
issue thereof.
d. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Articles of
Incorporation or Bylaws, as amended, as in effect on the date hereof or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). The business of the Company or its subsidiaries is not being
conducted, and shall not be conducted through the Registration Period (as
defined herein), in violation of any law, ordinance, regulation of any
governmental entity, except for possible violations which either singly or in
the aggregate do not have a Material Adverse Effect. The Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement in accordance
with the terms hereof, except as required under the 1933 Act and any applicable
state securities laws which have been or shall be duly made.
e. Commission Documents, Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Commission pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to herein as the
"SEC DOCUMENTS"). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the Commission promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents (as amended) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
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unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer and referred to
in Section 3(d) of this Agreement contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading.
f. Absence of Certain Changes. Since September 30, 1997 there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company.
g. Absence of Litigation. Except as set forth in the SEC Documents for
the quarter ended September 30, 1997, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body pending
or, to the knowledge of the Company, threatened against or affecting the
Company, wherein an unfavorable decision, ruling or finding would have a
Material Adverse Effect or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein.
5. COVENANTS.
a. Best Efforts. The parties shall use their commercially reasonable
best efforts timely to satisfy each of the conditions described in Sections 7
and 8 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect to the
aforementioned shares of PMTI Common Stock, if required, and, if filed to
provide a copy thereof to the Buyer promptly after such filing.
c. Reporting Status. Until the earlier of (i) the date as of which the
Buyer may sell all of the aforementioned shares of PMTI Common Stock and the
Damage Shares without restriction pursuant to Rule 144(k) promulgated under the
1933 Act (or successor thereto), or (ii) the date on which the Buyer has sold
all the aforementioned shares of PMTI Common Stock and the Damage Shares (the
"REGISTRATION PERIOD"), the Company shall file all reports required to be filed
with the Commission pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination.
d. Use of Proceeds. The Company will use the proceeds from the sale of
the aforementioned shares of PMTI Common Stock for the Company's internal
working capital purposes and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person except as the Company's board of directors deems
necessary in order to develop and commercialize the Company's technology.
e. Reservation of Shares. The Company shall at times have authorized,
and reserved for the purpose of issuance, a sufficient number of shares of PMTI
Common Stock and, when required, to provide for the issuance of the Damage
Shares.
f. Listing. The Company shall promptly secure the listing of the
aforementioned shares of PMTI Common Stock and, if and when issued, the Damage
Shares upon each national securities exchange or automated quotation system, if
any, upon which shares of PMTI Common Stock are then listed (subject to official
notice of issuance) (the "STOCK EXCHANGE") and shall maintain, so long as any
other shares of PMTI Common Stock shall be so listed, such listing of all shares
of PMTI Common Stock from time to time issuable under the terms of this
Agreement.
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6. TRANSFER AGENT INSTRUCTIONS.
The Company shall instruct its transfer agent to issue certificates,
registered in the name of the Buyer or its nominee, for the Damage Shares, if
any, in such amounts as the Company may be required to issue pursuant to this
Agreement. Prior to registration of the aforementioned shares of PMTI Common
Stock and the Damage Shares pursuant to an effective registration statement, all
such certificates shall bear the restrictive legend specified in Section 3(g) of
this Agreement. Within two (2) business days after the date on which the PMTI
Registration Statement is declared effective or in the case of the Damage
Shares, any registration statement or amended registration statement covering
the resale of such shares is declared effective, the Company shall deliver to
its transfer agent instructions, accompanied by any reasonably required opinion
of counsel, that permit sales of securities in a timely fashion that complies
with the securities settlement procedures for regular way market transactions
and any prospectus delivery requirements. The Company warrants that no
instruction other than such instructions referred to in this Section 6, and stop
transfer instructions to give effect to Section 3(f) hereof, in the case of the
shares of PMTI Common Stock and the Damage Shares, prior to registration of the
shares of PMTI Common Stock and the Damage Shares under the 1933 Act, will be
given by the Company to its transfer agent and that the aforementioned shares of
PMTI Common Stock and the Damage Shares shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of the aforementioned shares of PMTI Common Stock or the Damage Shares.
If the Buyer provides the Company with an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, that registration of a
resale by the Buyer of any of the shares of PMTI Common Stock and the Damage
Shares is not required under the 1933 Act, the Company shall permit the
transfer, and promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by the Buyer.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND ASSIGN.
The obligation of the Company hereunder to sell and assign PMTI Common
Stock and Nexar Common Stock is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. The parties shall have executed this Agreement and delivered the same
to each other.
b. The Buyer shall have delivered the Purchase Price to the Company by
wire transfer of immediately available funds pursuant to the wiring instructions
provided by the Company.
c. The representations and warranties of each Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations. and warranties
that speak as of a specific date), and the Buyer shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Buyer at or prior to the Closing Date.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer to purchase the aforementioned shares of
PMTI Common Stock and Nexar Common Stock is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Buyer's sole benefit and may be waived by the Buyer
at any time in its sole discretion:
a. The parties shall have executed this Agreement and delivered the same
to each other.
b. Until the Closing Date, the PMTI Common Stock shall be authorized for
quotation on the NASDAQ-NM, the NYSE, the AMEX or the NASDAQ SmallCap and
trading in the Common Stock on such quotation system or exchange, as the case
may be, shall not have been suspended by the Commission or otherwise.
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c. The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by the Buyer.
d. The Company shall have filed the appropriate documents necessary to
secure the prompt listing of the aforementioned shares of PMTI Common Stock upon
the Stock Exchange and shall have delivered to the Buyer appropriate
documentation evidencing the fact that such filing has occurred.
e. The Company shall have executed and delivered the Nexar Stock
Certificate.
f. The Company shall have delivered the Nexar Registration
Documentation.
9. GOVERNING LAW: MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York without regard to the
principles of conflict of laws.
b. Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause four
(4) additional original executed signature pages to be physically delivered to
the other party within five (5) days of the execution and delivery hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement: Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by mail or delivered personally or by
courier and shall be effective five days after being placed in the mail, if
mailed, certified or registered, return receipt requested, or upon receipt, if
delivered personally or by courier or by telefacsimile, in each case addressed
to a party. The addresses for such communications shall be:
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If to the
Company:
Palomar Medical Technologies, Inc.
45 Hartwell Avenue
Lexington, Massachusetts 02173
Telephone: (781) 676-7300
Telecopy: (781) 676-7330
Attention: Chief Executive Officer
With copy to: General Counsel and Director of
Finance
Palomar Medical Technologies, Inc.
45 Hartwell Avenue
Lexington, Massachusetts 02173
Telephone: (781) 676-7300
Telecopy: (781) 676-7330
If to the Buyer, at the address on the signature page.
With copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
Telephone: (212) 940-8873
Telecopy: (212) 940-8776
Attention: Todd J. Emmerman, Esq.
Each party shall provide notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor the Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other (which
consent may be withheld for any reason in the sole discretion of the party from
whom consent is sought). Notwithstanding the foregoing, a Buyer may assign its
rights hereunder to any of its "affiliates," as that term is defined under the
1934 Act, without the consent of the Company, provided, however, that any such
assignment shall not release such Buyer of its obligations hereunder unless such
obligations are assumed by such affiliate and the Company has consented to such
assignment and assumption.
h. Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
i. Survival. The representations and warranties of the Company and the
Buyer contained in Sections 3, 4(d), 4(e) and 4(f) and the agreements and
covenants set forth in Sections 5, 6, 9(g), 9(h), 9(k) and 9(l), and this
subsection shall survive the closing.
k. Publicity. The Company and the Buyer shall have the right to approve
before issuance any press releases or any other public statements with respect
to the transactions contemplated hereby; provided, however, that the Company
shall be entitled, without the prior approval of the Buyer, to make any press
release with respect to such transactions as is required by applicable law and
regulations (although the Buyer shall be consulted by the Company in connection
with any such press release prior to its release and shall be provided with a
copy thereof).
l. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
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m. Termination. In the event that the transactions contemplated hereby
shall not have occurred within five (5) days after the date hereof, Buyer shall
have the right to terminate this Agreement at any time thereafter. (Signature
page follows)
IN WITNESS WHEREOF, the Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
PALOMAR MEDICAL TECHNOLOGIES, INC.
By:______________________
Name:____________________
Its:_____________________
CLEARWATER FUND IV LLC
By:______________________
Name:____________________
Its:_____________________
Address: c/o Clearwater Funds
611 Druid Road East
Suite 200
Clearwater, FL 33756
Attn: Gerard P. Melia
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